<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                  FORM 10-KSB

(Mark One)

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [FEE REQUIRED]
     For the fiscal year ended December 31, 1997

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
     For the transition period from              to


                        Commission file number  0-18533

                 LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
                 ---------------------------------------------
              (Name of Small Business Registrant in Its Charter)

           New York                                        16-1168175
           ---------                                       ----------

(State or Other Jurisdiction                            (I.R.S. Employer
 of Incorporation or Organization)                       Identification Number)

            50 North Main Street, Castile, New York           14427
            -------------------------------------------------------
            (Address of Principal Executive Offices)      (Zip Code)

                                (716) 493-2577
                                --------------
             (Registrant's Telephone Number, Including Area Code)

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

Securities registered under Section 12(g) of the Act:

                         Common Stock, $1.00 par value
                               (Title of Class)


     Check whether the Registrant:  (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.

Yes   X             No

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

                                       1
<PAGE>

     State Registrant's revenues for its most recent fiscal year:  $19,452,558.

     The aggregate market value of the shares of Registrant's voting stock held
by non-affiliates of Registrant as of March 23, 1998 was $48,155,739, based upon
the average "Bid" and "Ask" price of Registrant's common stock on said date.

     The number of shares outstanding of Registrant's common stock as of March
17, 1998 was 1,125,852 shares.

                      Documents Incorporated by Reference

     None
                                    PART I

ITEM 1 -  DESCRIPTION OF BUSINESS

GENERAL

          Letchworth Independent Bancshares Corporation is a bank holding
company incorporated under the laws of the State of New York in 1981 (the
"Company").  The Company has only one banking subsidiary, The Bank of Castile, a
commercial bank formed in 1869 and incorporated under the laws of the State of
New York in 1917 (the "Bank").  The Bank is a full service, community-oriented,
commercial bank which offers a full range of commercial banking and consumer
banking services to businesses and individuals. During 1997, the Bank was
approved by its regulators to amend its charter to allow it to offer trust and
investment services.

MARKET AREA

          The Bank conducts its operations through its main office located in
Castile, New York, and at its eleven (11) branch offices in towns situated in
and around the areas commonly known as the Letchworth State Park area and the
Genesee Valley region of New York State.  Specifically, the Bank has branch
offices in the Towns of Arcade, Avon, Batavia, Caledonia, Gainesville, Geneseo,
LeRoy, Perry, York(Retsof), and Warsaw in addition to its main office in
Castile. In July, 1997, the Bank purchased a 9,600 square foot, one-story
building in Geneseo, New York. The exterior of the building was renovated as was
one-half of the interior for use as the Bank's eleventh branch office, which
opened on January 5, 1998. On December 2, 1994, the Bank purchased the Caledonia
and Avon offices of The Chase Manhattan Bank (National Association) ("Chase
Manhattan").  Chase Manhattan's Avon office was combined with the Bank's
existing Avon office and the Caledonia office became the 9th branch of the Bank.
The Bank's primary market includes the counties of Livingston, Wyoming, and
Genesee.  In addition, adjoining sections of the surrounding counties of
Cattaraugus, Allegany, Monroe, and Erie are also serviced.  The Bank continues
to place emphasis on the Route 5 Corridor just south of Monroe County and the
City of Rochester.

BANKING SERVICES

                                       2
<PAGE>

          The Bank is engaged in the general commercial banking business and
provides a full scope of loan and deposit services related thereto.  All of the
deposit accounts offered by the Bank are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to $100,000 per depositor.  The Bank also
offers a wide range of retail services including checking, savings, and money
market accounts, as well as various types of time deposit instruments. Mortgage
lending activities include a variety of commercial, industrial and residential
loans secured by real estate and the Bank's installment loan department makes
direct auto, home improvement, and personal loans to individuals.  The Bank also
offers safety deposit box services at all of its branches.  The Bank has been
approved by the appropriate regulatory authorities to alter its charter to allow
the Bank to offer trust and investment services. These services are provided to
the Bank's customers pursuant to a relationship with Tompkins County Trust
Company. In the fourth quarter of 1997, a trust officer was hired and customer
relationships are presently being developed with assistance from Tompkins County
Trust Company of Ithaca, New York. Tompkins County Trust Company has over 100
years of experience in providing trust services to its customers and is highly
regarded.

          In addition, beginning in 1992, the Bank, through an arrangement with
Circuit Agency, Inc., an affiliate of the New York State Bankers Association,
enabled annuity products to be offered to its customers.

          All of the Bank's lending is in its market area and approximately
twenty percent (20%) of its loans are concentrated in the farming and
agricultural or related industries.  The Bank has no foreign loans.  No other
single industry or group of related industries are responsible for a significant
portion of the Bank's loans.  The Bank has no material concentrations of
deposits from any single customer or group of customers, nor does it rely on
foreign sources of funds or brokered deposits.  The Bank does not utilize off-
balance sheet derivative instruments.

COMPETITION

          Management believes that the Company is a prominent financial
institution in its market area.  Although the Bank faces competition for
deposits from other bank and non-bank financial institutions, the Bank has been
able to compete effectively for deposits because of its image in the community
as a community-oriented bank and the loyalty of its local customers.  The Bank
has emphasized personalized banking services and the advantage of local
decision-making in its banking business, and this emphasis appears to have been
well received by the public in the Bank's market area.

          The Bank competes for deposits principally by offering depositors a
wide variety of deposit programs, convenient branch locations and hours, tax-
deferred retirement programs, and other services, as well as providing the
personalized services and local decision-making noted above.  The Bank also
utilizes local advertising to attract deposits.

          In addition, the Bank is a major provider of mortgage loans in its
market area.  Although the Bank faces competition for real estate loans from
mortgage banking companies, savings banks, savings and loans associations, other
commercial banks, insurance companies and other

                                       3
<PAGE>

institutional lenders, management believes that the Bank's image in the
community as a local bank gives the Bank a substantial competitive advantage.
Factors which affect competition include the general availability of lendable
funds and credit, general and local economic conditions, current interest rate
levels and mobility in the mortgage markets.

REGULATION

          The Company is a bank holding company subject to the provisions of the
Bank Holding Company Act of 1956, as amended (the "Act").  As a bank holding
company, the Company is required to file annual reports and such additional
information as may be required by the Federal Reserve Board pursuant to the Act.
The Federal Reserve Board has the authority to examine the Company and its
subsidiaries.

          The Bank is a stock form commercial bank chartered under the laws of
the State of New York, and its deposits are insured by the FDIC. As such, the
Bank is subject to the regulation, examination and supervision of the Banking
Department of the State of New York and the FDIC.  Such supervision and
regulation, intended primarily for the protection of depositors, restricts or
prohibits certain activities and neither the Company nor the Bank may enter into
certain transactions without meeting applicable regulatory tests, or without
notification to or prior approval of certain regulatory agencies.  Although the
Bank is not a member of the Federal Reserve System, it is also subject to
Federal Reserve Board regulations that require it to maintain certain reserves
against its transaction accounts (primarily checking and NOW accounts).

PERSONNEL

          As of December 31, 1997, the Company and its subsidiaries had 103
full-time employees and 48 part-time employees.  The employees are not
represented by any collective bargaining unit, and the Company's management and
the Bank's management considers its relationship with its employees to be good.

STATISTICAL DISCLOSURE

     Distribution of Assets, Liabilities and Shareholders' Equity; Interest
     ----------------------------------------------------------------------
Rates and Interest Differential
-------------------------------

     The following table reflects the components of the Company's average
assets, liabilities and shareholders' equity, interest income earned and
interest expense paid, average rates earned and paid, and the net interest
margin for the years ended December 31, 1997, 1996, and 1995, respectively.


                                                 December 31, 1997
                                                 -----------------

ASSETS
                               Average                               Average
Interest-earning assets        Balance             Interest           Yield
                               ------------------------------------------------

Loans
      Loans (1)                $150,225,000        $14,610,342        9.73%
      Less allowance for
      possible loan losses      ( 1,913,000)
                               ------------


                                       4
<PAGE>

<TABLE>

<S>                                   <C>                 <C>                <C>
      Net Loans                        148,312,000

Investment securities
      Taxable                           43,768,918          3,254,623          7.44
      Tax-exempt                        33,861,814          1,302,147          3.85
                                      ------------        -----------
      Total investment
      securities                        77,630,732          4,556,770          5.87

Other interest-earning assets                -                  -

Federal funds sold                       5,230,000            285,446          5.46
                                      ------------        -----------
      Total interest-
      earning assets (2)               231,172,732         19,452,558          8.41

Cash and due from banks                  7,655,000
Premises and equipment, net              5,882,000
Accrued interest receivable              1,708,000
Other assets                             2,373,056
                                      ------------
      Total assets                    $248,790,788
                                      ------------

Liabilities and
  SHAREHOLDERS' EQUITY

Interest-bearing liabilities
Interest-bearing demand deposits      $ 30,109,000        $   355,277          1.18%
Savings deposits                        34,760,000            858,113          2.47
Money market deposits                  106,996,000          5,850,673          5.47
Certificates of deposit                 11,909,000            387,591          3.25
                                      ------------        -----------
Total interest-bearing deposits        183,774,000          7,451,654          4.05

Federal funds purchased                    123,000              7,213          5.86

Securities sold under agreement
to repurchase                            1,837,000             99,485          5.42

Advances from Federal Home Loan
 Bank and Other                          7,863,000            494,253          6.29
                                      ------------        -----------

Total interest-bearing liabilities     193,597,000          8,052,605          4.15

Demand deposits                         25,242,302
Bank loan on ESOP                          388,814
Other liabilities                        1,611,475
Shareholders' equity                    27,951,197
                                      ------------

Total liabilities and
  shareholders' equity                $248,790,788
                                      ------------

Net interest income                                        11,399,953
Net interest spread                                                            4.26%
                                                                             ------
Net interest margin (3)                                                        4.93%



                                                        December 31, 1996
                                                        -----------------

ASSETS
                                      Average                                Average
Interest-earning assets               Balance             Interest            Yield
                                      -----------------------------------------------------
Loans
      Loans (1)                       $135,755,218        $13,203,737          9.73%
      Less allowance for
      possible loan losses            (  1,753,720)
                                      ------------
      Net Loans                        134,001,498

Investment securities
      Taxable                           55,895,608          3,530,028          6.32

</TABLE>

                                       5
<PAGE>

<TABLE>
<S>                                   <C>                 <C>                <C>
      Tax-exempt                        22,296,911          1,116,078          5.01
                                      ------------        -----------
      Total investment
      securities                        78,192,519          4,646,106          5.94

Other interest-earning assets              792,892              50,552         6.38

Federal funds sold                       4,467,158             239,712         5.37
                                      ------------         -----------
      Total interest-
      earning assets (2)               217,454,067          18,140,107         8.34

Cash and due from banks                  7,814,223
Premises and equipment, net              5,168,999
Accrued interest receivable              1,793,965
Other assets                             2,445,885
                                      ------------
      Total assets                    $234,677,139
                                      ------------

Liabilities and
  SHAREHOLDERS' EQUITY

Interest-bearing liabilities
Interest-bearing demand deposits      $ 29,025,668         $   378,156         1.30%
Savings deposits                        36,536,619             931,735         2.55
Money market deposits                   11,545,345             289,357         2.51
Certificates of deposit                102,699,682           5,507,889         5.36
                                      ------------         -----------
Total interest-bearing deposits        179,807,314           7,107,137         3.95

Federal funds purchased                    107,514               6,131

Securities sold under agreement
to repurchase                            1,942,414             101,920         5.25

Advances from Federal Home Loan
 Bank and Other                           3,306,449            228,209         6.90
                                       ------------        -----------
Total interest-bearing liabilities      185,163,691          7,443,397         4.02

Demand deposits                          23,213,560
Other liabilities                         2,090,407
Shareholders' equity                     24,209,481
                                       ------------

Total liabilities and
  shareholders' equity                 $234,677,139
                                       ------------

Net interest income                                         10,696,710
                                                           -----------
Net interest spread                                                            4.32%
                                                                          ---------
Net interest margin (3)                                                        4.92%
                                                                          ---------


                                                          December 31, 1995
                                                          -----------------

ASSETS
                                      Average                                           Average
Interest-earning assets               Balance             Interest                      Yield
                                      -----------------------------------------------------------
Loans
      Loans (1)                        $125,819,403        $12,788,697        10.16%
      Less allowance for
      possible loan losses             (  1,586,241)
                                       ------------
      Net Loans                         124,233,162

Investment securities
      Taxable                            55,320,716          3,555,755         6.43
      Tax-exempt                         21,352,540          1,088,331         5.10
                                       ------------          -----------
      Total investment
      securities                         76,673,256          4,644,086         6.06

Other interest-earning assets               627,367             47,685         7.60

Federal funds sold                        6,639,348            397,103         5.98
                                       ------------        -----------
</TABLE>

                                       6
<PAGE>

<TABLE>
<S>                                   <C>                 <C>                <C>
      Total interest-
      earning assets (2)                208,173,133         17,877,571         8.59

Cash and due from banks                   6,921,269
Premises and equipment, net               4,459,641
Accrued interest receivable               1,828,432
Other assets                              2,645,883
                                       ------------
      Total assets                     $224,028,358
                                       ------------

Liabilities and
  SHAREHOLDERS' EQUITY

Interest-bearing liabilities
Interest-bearing demand deposits       $ 26,285,775        $   479,590         1.82%
Savings deposits                         36,658,584          1,090,028         2.97
Money market deposits                    11,990,156            332,510         2.77
Certificates of deposit                 100,009,723          5,410,000         5.41
                                       ------------        -----------
Total interest-bearing deposits         174,944,238          7,312,128         4.18

Federal funds purchased                       0                  0               0

Securities sold under agreement
to repurchase                             1,164,094             66,160         5.68

Advances from Federal Home Loan
 Bank and Other                           3,210,917            232,073         7.23
                                       ------------        -----------
Total interest-bearing liabilities      179,319,249          7,610,361         4.25

Demand deposits                          21,568,931
Other liabilities                         1,647,857
Shareholders' equity                     21,492,321
                                       ------------

Total liabilities and
  shareholders' equity                 $224,028,358
                                       ------------

Net interest income                                         10,267,210
                                                           -----------
Net interest spread                                                            4.34%
                                                                          ---------
Net interest margin (3)                                                        4.93%
                                                                          ---------
</TABLE>


(1)  Average loans include non-accrual loans.  Interest on loans includes loan
fees of $224,688, $231,243, and $259,918 in fiscal 1997, 1996, and 1995,
respectively.

(2)  Interest income on a portion of the Company's loans and investment
securities is exempt from income tax. If income from these assets had been
adjusted to a level comparable to fully taxable income before application of
income taxes, the interest income and average rate would have been as follows:

<TABLE>
<CAPTION>

                                              Year Ended December 31,
                             1997                     1996                    1995
                                  Average                  Average                 Average
                      Interest      Rate        Interest    Rate      Interest      Rate

<S>                  <C>            <C>      <C>            <C>      <C>            <C>
Loans............... $14,615,067    9.73%     $13,213,553   9.73%    $12,796,041    10.17%
Investment securities -
  Tax exempt........   1,972,949    5.83%       1,691,027   7.48%      1,648,986     7.72%

</TABLE>

                                       7
<PAGE>

     The tax rate used to develop this taxable equivalent adjustment is the
federal statutory rate of 34%. The tax-equivalent adjustments do not give effect
to the disallowance for federal income tax purposes of interest expense related
to certain tax exempt assets, nor do they reflect any benefit of interest being
exempt from state income taxes, the effect of which would be insignificant.

(3)  Net interest margin represents net interest income divided by total average
interest-earning assets.


     Rate/Volume Variance Analysis
     -----------------------------

          The following table sets forth a summary of the changes in interest
earned and interest paid resulting from changes in volumes and changes in
interest rates for the Company for the years ended December 31, 1997 and 1996,
respectively.

<TABLE>
<CAPTION>
                                                               Change
                                    Change       Change        Due to
                                    Due to       Due to        Rate/      Net
1997 Compared  to 1996              Volume       Rate          Volume    Change
                                     (1)          (2)          (3)
<S>                              <C>           <C>         <C>         <C>
Revenue Earned On:
   Loans........................ $ 1,407,910   $    0      $  (1,035)  $1,046,605
                                 ------------------------------------------------
   Investment securities
    Taxable.....................    (816,518)    634,911    (144,351)    (325,958)
    Tax-exempt..................     579,402    (258,644)   (134,688)     186,070
                                 ------------------------------------------------
      Total investment
        securities..............    (237,116)    376,267    (279,039)    (139,888)
   Other interest-earning
        assets..................        -           -           -            -
   Federal funds sold...........      40,965       4,020         749       45,734
                                 ------------------------------------------------
     Total interest-earning
        assets..................   1,211,759     380,287    (279,595)   1,312,451
                                 ------------------------------------------------
   Interest Paid On:
   Interest-bearing demand
    deposits....................      14,083     (34,831)     (2,132)     (22,880)
   Savings deposits.............     (45,304)    (29,229)        911      (73,622)
   Money market deposits........       9,128      85,436       3,671       98,235
   Certificates of
    deposit.....................     230,283     112,970        (469)     342,784

   Federal funds purchased......                               6,131        6,131
   Securities sold under
   agreement to repurchase......      (5,534)      3,302        (203)      (2,435)
   Advances from Federal
    Home Loan Bank..............      314,402   ( 20,169)    (28,189)     266,044
                                 ------------------------------------------------
      Total interest-bearing
       liabilities..............      517,058    123,779     (31,629)     609,208
                                 ------------------------------------------------
   Net Interest Income.......... $    694,701  $ 256,508   $(247,966)   $ 703,243
                                 ------------------------------------------------
</TABLE>
-------------------------
(1) The volume variance reflects the change in the average balance outstanding
multiplied by the average rate during the prior period.

(2) The rate variance reflects the change in the average rate multiplied by the
average balance outstanding during the prior period.

(3) The rate/volume variance reflects the change in average rate multiplied by
the change in the average balance outstanding

                                       8
<PAGE>

          The following table sets forth a summary of the changes in interest
earned and interest paid resulting from changes in volumes and changes in
interest rates for the Company for the years ended December 31, 1996 and 1995,
respectively.

<TABLE>
<CAPTION>
                                                               Change
                                    Change       Change        Due to
                                    Due to       Due to        Rate/      Net
1996 Compared  to 1995              Volume       Rate          Volume    Change
                                     (1)          (2)          (3)
<S>                              <C>           <C>         <C>         <C>
Revenue Earned On:
Loans........................... $ 1,009,479   $(541,023)    $(53,416)  $415,040
                                 ------------------------------------------------
Investment securities
 Taxable........................      36,966     (60,853)      (1,840)   (25,727)
Tax-exempt......................      48,163     (19,217)      (1,199)    27,747
                                 ------------------------------------------------
  Total investment
    securities..................      85,129     (80,070)      (3,039)     2,020
Other interest-earning
     assets.....................      12,580      (7,654)      (2,059)     2,867
Federal funds sold..............    (129,897)    (40,500)      13,006   (157,391)
                                 ------------------------------------------------
  Total interest-earning
     assets.....................     977,291    (669,247)     (45,508)   262,536
                                 ------------------------------------------------
Interest Paid On:
Interest-bearing demand
 deposits.......................      49,866     (136,686)    (14,614)  (101,434)
Savings deposits................      (3,622)    (153,966)    (   705)  (158,293)
Money market deposits...........     (12,321)    ( 31,174)        342    (43,153)
Certificates of
 deposit........................     145,527     ( 50,005)      2,367     97,889
Federal funds purchased.........                                6,131      6,131
Securities sold under
agreement to repurchase.........      44,209     (  5,006)     (3,443)    35,760
Advances from Federal
Home Loan Bank..................      31,037     ( 30,915)     (3,986)     (3,864)
                                 ------------------------------------------------
  Total interest-bearing
   liabilities..................     254,696     (407,752)    (13,908)    (166,964)
                                 ------------------------------------------------
Net Interest Income............. $   722,595  $  (261,495)  $ (31,600)   $ 429,500
                                 ------------------------------------------------
</TABLE>
---------------------------------
(1) The volume variance reflects the change in the average balance outstanding
multiplied by the average rate during the prior period.

(2) The rate variance reflects the change in the average rate multiplied by the
average balance outstanding during the prior period.

(3) The rate/volume variance reflects the change in average rate multiplied by
the change in the average balance outstanding.


         The following table sets forth a summary of the changes in interest
earned and interest paid resulting from changes in volumes and changes in
interest rates for the Company for the years ended December 31, 1995 and 1994,
respectively.

<TABLE>
<CAPTION>
                                                               Change
                                    Change       Change        Due to
                                    Due to       Due to        Rate/      Net
1995 Compared  to 1994              Volume       Rate          Volume    Change
<S>                                 <C>
</TABLE>

                                       9
<PAGE>

<TABLE>
                                     (1)          (2)          (3)
<S>                              <C>           <C>           <C>         <C>
Revenue Earned On:
      Loans..................  $  998,499      $1,023,928    $100,852    $2,123,279
                               ----------------------------------------------------
      Investment securities
       Taxable...............     795,801         333,400     113,179     1,242,380
       Tax-exempt............     236,689          18,270       5,324       260,283
                               ----------------------------------------------------
         Total investment
           securities........   1,032,490         351,670     118,503     1,502,663
      Other interest-earning
           assets............     (14,646)          9,469      (2,505)       (7,682)
  Federal funds sold.........      89,731          88,020      45,708       223,459
                               ----------------------------------------------------
    Total interest-earning
       assets................   2,106,074       1,473,087     262,558     3,841,719
                               ----------------------------------------------------
 Interest Paid On:
  Interest-bearing demand
   deposits..................      92,218      (   70,325)   ( 12,645)        9,248
  Savings deposits...........      98,511          69,488      10,230       178,229
  Money market deposits......      19,686          15,738       1,748        37,172
  Certificates of
   deposit...................     968,611         795,046     220,834     1,984,491
  Federal funds purchased....                                  (5,291)       (5,291)
  Securities sold under
  agreement to repurchase....       2,520         25,784        1,808        30,112
  Advances from Federal
   Home Loan Bank............         -0-         90,206       54,208       144,414
                               ----------------------------------------------------
     Total interest-bearing
      liabilities............   1,181,546        925,937      270,892     2,378,375
                               ----------------------------------------------------
 Net Interest Income.........  $  924,528     $  547,150    $  (8,334)   $1,463,344
                               ----------------------------------------------------
</TABLE>
-------------------------
(1) The volume variance reflects the change in the average balance outstanding
multiplied by the average rate during the prior period.

(2) The rate variance reflects the change in the average rate multiplied by the
average balance outstanding during the prior period.

(3) The rate/volume variance reflects the change in average rate multiplied by
the change in the average balance outstanding.

INVESTMENT PORTFOLIO

          The following table summarizes the carrying values of the Company's
investment securities portfolio at the dates indicated. Investment securities
held to maturity are stated at cost, adjusted on a straight-line basis for
amortization of premiums and accretion of discounts. Investment securities
available for sale are carried at estimated market value.


<TABLE>
<CAPTION>
                                                    December 31,
                                 1997                  1996                      1995
                                 ----                 -----                      -----

                          Held to     Available   Held to     Available    Held to     Available
                          Maturity    for Sale    Maturity    for Sale     Maturity    for Sale
                          -------------------------------------------------------------------------
<S>                     <C>           <C>         <C>         <C>          <C>         <C>
U.S. Treasury securities
 and U.S. Government
 corporation and
 agencies.............. $12,168,400  15,186,700  $12,465,800  $26,923,000  $15,992,787  $32,380,800
State and political
 subdivision
</TABLE>

                                       10
<PAGE>

<TABLE>
<S>                     <C>           <C>         <C>         <C>          <C>         <C>
 obligations...........  25,853,700   4,923,200   25,039,300      505,200   21,674,732    1,070,000
Mortgage-backed
 securities............   6,220,200  14,246,600    5,463,600    8,677,000    6,738,922    4,113,800
                        ---------------------------------------------------------------------------
Total securities....... $44,242,300 $34,356,500  $42,968,700  $36,105,200  $44,406,441  $37,564,600
</TABLE>

         The following table presents the book value of all investment
securities of a single issuer, excluding securities of the United States
Government and its agencies, whose aggregate carrying value at December 31, 1997
exceeded ten percent (10%) of consolidated shareholders' equity:

                                                    Estimated
                                        Carrying      Market
                                          Value       Value

Federal Home Loan Mortgage Corp. CMO  $9,876,307  $9,920,223
Federal National Mortgage Association 11,340,791  11,385,607


         At December 31, 1997, the estimated market value of the investment
portfolio was more than the amortized cost by $1,132,978 for the held to
maturity category, and by $460,951 for the available for sale category.

    The accounts and maturities of debt securities held to maturity and
available for sale at December 31, 1997, and the weighted average yields of such
securities, are shown below:

Held to Maturity:
<TABLE>
<CAPTION>
                       Under        1-5          5-10            Over
December 31, 1997      1 year       years        years          10 years          Total

<S>                    <C>          <C>          <C>            <C>               <C>
U.S. Treasury
 securities and
 obligations of
U.S. Government
corporations and
agencies
 Carrying value....  $6,266,406   $ 4,742,596   $   949,262               0      $11,958,264
 Average tax
   equivalent
   yield(1)........        6.93%         7.02%         6.80%           0.00%            6.96%
State and
 political
 subdivisions
Carrying value.....   5,234,050     7,304,970    11,894,991         527,429       24,961,440
 Average tax
   equivalent
   yield(1)........        6.79%         7.59%         7.73%           8.38%            7.51%
                  --------------------------------------------------------------------------

Total carrying
 value excluding
 mortgage-backed
 securities........ $11,500,456     $12,047,566   $12,844,253           $    527,429 $36,919,704
 Average tax
 equivalent
 yield excluding
</TABLE>

                                       11
<PAGE>

<TABLE>

<S>                    <C>          <C>          <C>            <C>               <C>
 mortgage-backed
 securities.........       6.87%         7.37%         7.66%           8.38%              7.33%

Mortgage-backed
securities.......... $  115,152   $ 4,516,643   $   457,098     $ 1,100,725         $6,189,618
Carrying Value
 Average tax
 equivalent
 yield..............       4.74%         6.48%         8.05%           6.35%              6.55%
                           -------------------------------------------------------------------

Total carrying
 value..............$11,615,608   $16,564,209   $13,301,351      $1,628,154        $43,109,322

Average
 tax equivalent
 yield..............       6.85%         7.13%         7.68%           7.01%              7.24%

</TABLE>

(1) Rates of tax-exempt securities are shown assuming a 34% federal statutory
tax rate.  The actual average yield on tax-exempt securities was 4.86%.

<TABLE>
<CAPTION>

<S>                    <C>          <C>          <C>            <C>               <C>
Available for Sale:
                       Under           1-5            5-10           Over
December 31, 1997      1 year         years           years        10 years          Total

U.S. Treasury
 securities and
obligations of
U.S. Government
corporations and
agencies
 Carrying value.....$ 4,821,800    10,216,900  $        0          $148,000        $15,186,700
 Average tax
  equivalent
  yield(1)..........       6.29%         6.28%       0.00%             0.00%              6.29%
State and
 political
 subdivisions
Carrying value......          0             0   1,168,500         3,754,700          4,923,200
Average tax
  equivalent
  yield(1)..........       0.00%         0.00%       7.17%             7.31%              7.28%
                           -------------------------------------------------------------------
Total carrying
 value excluding
 mortgage-backed
 securities and
 FHLB stock.........$ 1,213,300     $       0   $       0        $        0        $ 1,213,300
 Average tax
 equivalent
 yield excluding
 mortgage-backed
 securities and
 FHLB stock.........       6.65%         0.00%       0.00%                0%              6.65%

Mortgage-backed
securities..........$   130,300    $  956,500  $6,681,420       $ 6,478,380        $14,246,600
Carrying Value
 Average tax
 equivalent
 yield..............       6.12%         6.37%       6.53%             6.42%              6.47%
                           -------------------------------------------------------------------
Total carrying
 value..............$ 4,952,100   $11,173,400  $7,849,920       $10,381,080        $34,356,500
</TABLE>

                                       12
<PAGE>

<TABLE>

<S>                    <C>          <C>          <C>            <C>               <C>
Average
tax equivalent
yield...............       6.29%         6.29%       6.63%             6.75%              6.52%

</TABLE>

(1) Rates of tax-exempt securities are shown assuming a 34% federal statutory
tax rate.  The actual average yield on tax-exempt securities was 5.00%


LOAN PORTFOLIO

          The following table sets forth the composition of the Company's loan
portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                          December 31,
                        1997            1996          1995          1994          1993
<S>                                  <C>           <C>           <C>           <C>

Agricultural loans...$ 31,563,146    $ 29,025,726  $ 25,168,552  $ 22,091,563  $ 17,141,043
Commercial and
  industrial loans...  33,616,025      28,118,416    23,317,057    19,670,283    16,303,801
Residential Real Estate
  loans..............  49,158,726      45,656,220    41,120,730    40,353,744    41,299,434
Commercial Real Estate
  loans..............  35,046,889      33,852,371    33,917,880    27,971,189    24,631,305
Consumer loans.......  10,587,246       9,643,508     9,954,869    11,280,962    13,393,064
                     ------------    ------------  ------------  ------------  ------------
  Total loans........$159,972,032    $146,296,241  $133,479,088  $121,367,741  $112,768,647

</TABLE>
     Potential Problem Loans
     -----------------------

          Potential problem loans consist of loans which are generally secured
and not currently considered nonperforming, but where information about possible
credit problems has caused management to have doubts as to the ability of such
borrowers to comply with present repayment terms.  As of December 31, 1997, the
Company considers $2,615,600 to be potentially problem loans. Historically,
however, only a very small portion of those loans have resulted in actual losses
for the Company.


     Non-performing Loans
     --------------------

          The following table summarizes the Company's non-performing loans at
the dates indicated.


                                           December 31,
                             1997     1996     1995     1994     1993

Non-accruing loans.......  $556,900 $492,000 $450,500 $254,800 $125,700
Accruing loans past due
   90 days or more.......    97,500  371,800  291,200  215,600  480,800
Renegotiated loans.......       -0-      -0-      -0-      -0-      -0-


         For each period shown the gross interest income that would have been
recorded in such period if the loans had been current in accordance with their
original terms, and the amount of interest income on those loans that was
included in such period's net income, was negligible.

                                       13
<PAGE>

         Interest on loans is accrued from the date an advance is made.  The
performance of loans other than real estate and installment loans is evaluated
primarily on the basis of a review of each customer's financial position and
relationship over a period of time and the judgment of senior lending officers
as to the ability of borrowers to conduct a financially healthy business and to
meet the repayment terms of the loan.  If there is reasonable doubt as to the
repayment of a loan in accordance with the agreed upon terms, even though the
financial condition of the borrower or the collateral may be sufficient
ultimately to reduce or satisfy the obligation, the loan may be placed on a non-
accrual basis pending the sale of any of the collateral or the determination
that other sources of repayment exist.  When a loan is placed on a non-accrual
basis all previously accrued but unpaid interest is reversed and charged against
current income.  Interest income is thereafter recognized only when payments are
received.

         Loans, including impaired loans, are placed on non-accrual status in
accordance with policies established by management.  Loans, other than consumer
loans, are generally transferred to non-accrual status when principal or
interest payments become ninety days past due.  Any accrued but uncollected
interest previously recorded on such loans is reversed in the current period and
interest income is subsequently recognized only when actually collected.  Past
due consumer loans are generally fully reserved or charged-off when they reach a
90-day delinquency status.  Loans are returned to accrual status when management
determines that the circumstances have improved to the extent that both
principal and interest are deemed collectible and there has been a sustained
period of repayment performance.  The Company may continue to accrue interest on
loans past due ninety days or more which are well secured and in the process of
collection.

         Loans, principally residential real estate loans, are periodically sold
without recourse and servicing is generally retained.  Gains and losses on sales
of loans are recognized at the time of settlement and are determined by the
difference between net sales proceeds and the carrying value of the loans sold.
Fees related to the servicing of loans for benefit of others are determined on
the basis of loans serviced and are recorded as income when payments are
received.

     The average balance of impaired loans during 1997 was approximately
$436,800.  At December 31, 1997, the balance of impaired loans and related
reserve against that balance was $576,000 and $73,700, respectively.  Interest
income recognized on impaired loans and interest income recognized on a cash
basis was not significant.

         Residential mortgage loans are placed on non-accrual status when they
become 90 days past due, and the collection efforts of the Bank continue in
accordance with the Bank's collection policies and procedures.

         Lending officers are responsible for the ongoing review and
administration of each particular loan.  As such, they make the initial
identification of loans which may present some difficulty in collection, or
where circumstances indicate that the probability of loss exists.  The
responsibilities of the lending officers include the initial collection effort
on a delinquent loan.  Unless other arrangements are made with the

                                       14
<PAGE>

lending officer and approved by the Board of Directors of the Bank, any loan
deficiencies more than 90 days past due are generally charged-off. Senior
management is informed of the status of delinquent and problem loans weekly. The
Board of Directors and senior management reviews the current allowance for
possible loan losses monthly, and senior management makes the final
determination as to loan charge-offs.


     Summary of Loan Loss Experience
     -------------------------------

     The provision for possible loan losses represents management's
determination as to the amount necessary to be transferred to the allowance for
possible loan losses to bring it to a level which is considered adequate in
relationship to the risk of future losses inherent in the loan portfolio.  While
it is the Company's policy to charge-off in the current period those loans in
which a loss is considered probable, there also exists the risk of future losses
which cannot be quantified precisely or attributed to particular loans or
classes of loans.  Because this risk is continually changing in response to
factors beyond the control of the Company, such as the state of the economy,
management's judgment as to the adequacy of the provision is necessarily
approximate and imprecise.

         In assessing adequacy, management relies on its ongoing review of the
loan portfolio, which is undertaken both to ascertain whether there are probable
losses which must be charged-off and to assess the risk characteristics of the
portfolio in the aggregate. This review takes into consideration management's
evaluation of individual loans, past loan loss experience, the assessment of
prevailing and anticipated economic conditions, the estimated value of
collateral and other relevant factors.  It is management's ongoing policy to
maintain a conservative approach as to the establishment of an adequate
allowance for possible loan losses.

         In evaluating the allowance, management also considers the Bank's loan
loss experience, the amount of past due, non-performing and impaired loans
current and anticipated economic conditions, lender requirements and other
appropriate information.

         The allowance for possible loan losses is maintained as a general
reserve without any internal allocation to the specific loan classes of the loan
portfolio.  Based on a historical four-year average of gross charge-offs,
however, the allowance for possible loan losses would be allocated by management
to specific loan classes as follows:


                                       DECEMBER 31, 1997

                                        Percent of       Percent of
                                       Allowance in       Loans in
                                        Category to     Category to
                           Amount      Total Allowance   Total Loans
                           ---------------------------------------------

Domestic Loans (1)
Agricultural loans.....    $ 44,726          2.21%          19.73%
Commercial and
 industrial loans......     669,521         33.00           21.01

                                       15
<PAGE>

Residential & Commercial
  Real Estate loans....     148,088          7.30           52.64
Consumer loans.........   1,166,265         57.49            6.62

Totals                   $2,028,600        100.00%         100.00%


                                       DECEMBER 31, 1996


                                       Percent of        Percent of
                                       Allowance in      Loans in
                                       Category to       Category to
                           Amount      Total Allowance   Total Loans
                           ---------------------------------------------

Domestic Loans (1)
Agricultural loans.....$   10,127           .55%            19.84%
Commercial and
 industrial loans......   549,782         29.86             19.22
Residential & Commercial
  Real Estate loans....    66,836          3.63             54.35
Consumer loans......... 1,214,455         65.96              6.59
                        -----------------------------------------
Totals                 $1,841,200        100.00%           100.00%


                                       DECEMBER 31, 1995

                                       Percent of        Percent of
                                       Allowance in      Loans in
                                       Category to       Category to
                           Amount      Total Allowance   Total Loans
                           -----------------------------------------

Domestic Loans (1)
Agricultural loans.....$   37,930          2.21%             18.9%
Commercial and
 industrial loans......   357,334         20.82              17.5
Residential & Commercial
  Real Estate loans....    44,408          2.59              56.2
Consumer loans......... 1,276,628         74.38               7.4
                        -----------------------------------------
Totals                 $1,716,300             100.0%        100.0%


                                       DECEMBER 31, 1994

                                       Percent of        Percent of
                                       Allowance in      Loans in
                                       Category to       Category to
                           Amount      Total Allowance   Total Loans
                           -----------------------------------------

Domestic Loans (1)
Agricultural loans.....$   44,738          2.90%             18.2%
Commercial and
 industrial loans......   301,104         19.70              16.2
Residential & Commercial
  Real Estate loans....    38,023          2.50              56.3
Consumer loans......... 1,143,035         74.90               9.3

Totals                 $1,526,900         100.0%            100.0%


                                       16
<PAGE>

                                       DECEMBER 31, 1993

                                       Percent of        Percent of
                                       Allowance in      Loans in
                                       Category to       Category to
                           Amount      Total Allowance   Total Loans
                           -----------------------------------------

Domestic Loans (1)
Agricultural loans.....$   56,762          3.90%             15.2%
Commercial and
 industrial loans......   310,596         21.40              14.5
Residential & Commercial
  Real Estate loans....    34,276          2.40              58.4
Consumer loans......... 1,046,366         72.30              11.9
                        -----------------------------------------
Totals                 $1,448,000         100.0%            100.0%

---------------------------------

    (1)  The Company had no foreign loans.

         The following table sets forth certain information with respect to the
Company's loans and the allowance for possible loan losses.

<TABLE>
<CAPTION>
                                                  For the Year Ended December 31,
                                         1997        1996         1995        1994          1993
                                         ----        ----         ----        ----          ----

<S>                                  <C>         <C>          <C>          <C>           <C>
Balance at beginning of period       $1,841,200   $1,716,300   $1,526,900   $1,448,000   $1,265,945
Charge-offs:
  Agricultural loans                    0          0           (    1,573)  (    2,534)   (  13,789)
  Commercial and industrial loans.    ( 92,470)   (  77,378)   (   69,607)  (   47,816)   (  39,657)
  Real estate mortgages...........    ( 24,606)   (  25,621)         0            0            0
  Consumer loans..................    ( 99,204)   (  82,600)   (  145,435)  (  238,642)   ( 190,850)
                                     --------------------------------------------------------------
                                      (216,280)  (  185,599)   (  216,615)  (  288,992)   ( 244,296)
Recoveries:
  Agricultural loans..............        0             654         1,404        3,815        8,140
  Commercial and industrial loans.      17,091        3,435         8,035        6,069        6,189
  Real estate mortgages...........        0            0             0            0            0
  Consumer loans..................      18,424       23,900        72,213       45,283       50,573
                                     --------------------------------------------------------------
                                        35,515       27,989        81,652       55,167       64,902
                                     --------------------------------------------------------------
Net charge-offs...................    (180,765)    (157,610)     (134,963)  (  233,825)   ( 179,394)
Additions charged to operations...     368,165      282,510       324,363      312,725)     361,449
                                     --------------------------------------------------------------
Balance at end of period..........  $2,028,600   $1,841,200    $1,716,300   $1,526,900   $1,448,000
                                    ---------------------------------------------------------------
Ratio of net charge-offs during
  the period to average loans
  outstanding during the period...        0.12%        0.12%         0.11%        0.20%        0.17%

</TABLE>

         Net loans charged-off in 1997 totaled $180,765, or 0.12% of average
loans.  The reserve for possible loan losses equalled 1.27% of the total loan
portfolio at December 31, 1997, compared to 1.26% at December 31, 1996.
Management believes that the allowance for possible loan losses of $2,028,600 at
December 31, 1997 was adequate to absorb anticipated risk in the portfolio based
upon the Company's historical experience.

         All segments of the Company's loan portfolio are subject to continuous
quality evaluation.  In the opinion of the management of the Company, there are
no credit risks relating to the loan portfolio, other than what is already
disclosed in this document, and the allowance for possible loan losses is
adequate to absorb anticipated loan losses in the

                                       17
<PAGE>

present loan portfolio of the Company. It must be emphasized, however, that the
determination of allowance for possible loan losses using the Company's
procedures and methods rests upon various judgments and assumptions about future
economic conditions and other factors affecting loans. In addition, management
reviews overall portfolio quality through an analysis of current levels and
trends and charge-offs, delinquency and non-accruing loan data and reviews the
overall banking environment. These reviews are of necessity dependent upon
estimates, appraisals and judgments, which may change quickly because of
changing economic conditions and the Company's perception as to how these
factors may affect the financial condition of debtors.

    Rate Sensitivity of Loans
    -------------------------

         Presented below is a table which sets forth the maturity of the
Company's loans as of December 31, 1997.

                               Maturities at December 31, 1997

                                       One Year
                         One Year      Through       After
                         or Less       5 Years      5 Years       Total

Agricultural loans.... $17,689,700  $ 2,591,877  $11,281,569  $ 31,563,146
Commercial and
   industrial loans...  16,936,016    6,193,935   10,486,074    33,616,025
Residential Real Estate
   loans..............   1,538,817    6,914,888   40,705,021    49,158,726
Commercial Real Estate
   loans..............   7,775,127      921,439   26,350,323    35,046,889
Consumer loans........     820,381    8,895,812      871,053    10,587,246

   Total loans........ $44,760,041  $25,517,951  $89,694,040  $159,972,032


         The following table sets forth the various maturity dates of the above-
mentioned loans with pre-determined interest rates and floating or adjustable
interest rates.

                                Maturities at December 31, 1997
                                    One Year
                                    Through           After
                                    5 Years          5 Years

Loans with pre-determined
  interest rates.............      $19,997,050     $44,440,871

Loans with floating or
  adjustable interest rates          5,520,901      49,253,169
                                   ---------------------------

Totals.......................      $25,517,951     $89,694,040


         The Company ensures safety of depositor funds and relative balances
between interest rate sensitive assets and liabilities through its
Asset/Liability Committee, which actively monitors the maturity and repricing
characteristics of interest rate sensitive assets and liabilities on an ongoing
basis.

DEPOSITS

                                       18
<PAGE>

    The following table sets forth the average amount of, and the average rates
paid on, major deposit categories for the years ended December 31, 1997, 1996,
and 1995, respectively.

<TABLE>
<CAPTION>

                                                  Year Ended December 31,
                                   1997                       1996                       1995
                                   ----                       ----                       ----
                         Average       Average         Average      Average      Average     Average
                         Balance        Rate           Balance       Rate        Balance      Rate
<S>                      <C>           <C>             <C>          <C>           <C>         <C>
Noninterest bearing
 demand deposits...    25,242,302      ---          $ 23,213,560     ---       $21,568,931     ---
Interest bearing
 demand deposits...    30,109,000     1.18%           29,025,668    1.30%       26,285,775     1.82%
Savings deposits...    34,760,000     2.47            36,536,619    2.55        36,658,584     2.97
Money market
  deposits.........    11,909,000     3.25            11,545,345    2.51        11,990,156     2.77
Certificates of
 deposit...........   106,996,000     5.47           102,699,682    5.36       100,009,723     5.41
                      -----------                    ----------------------------------------------

  Total Deposits...  $209,016,302                   $210,020,874              $196,513,169

</TABLE>

    The following table sets forth the amount of time certificates of deposit of
$100,000 or more of the Bank as of December 31, 1997 for various dates of
maturity.

  December 31, 1997 - Time Certificates of Deposit $100,000 or More

Three months or less......................    $10,436,394
Three months through six months...........      1,762,664
Six months through twelve months..........      4,120,891
Over twelve months........................      4,669,850
                                               ----------
     Totals...............................    $20,989,799


RETURN ON EQUITY AND ASSETS

    The following table sets forth selected financial ratios
of the Company on a consolidated basis for the periods indicated.


                                        For the Year Ended December 31,
                                         1997        1996        1995

Return on average assets..........       1.26%       1.22%       1.19%
Return on average equity..........      11.22       11.86       12.36
Dividends declared to net income        24.61       20.98       18.23
Loans to deposits.................      73.65       70.51       65.41
Loans to deposits and securities
  sold under agreement to
  repurchase......................      73.09       69.93       64.84
Non-performing loans to total
  loans...........................        .41         .59         .56
Net charge-offs to average
  total loans.....................        .12         .12         .11
Allowance for possible loan
  losses to loans at year-end.           1.27        1.26        1.29
Average shareholders' equity
  to average total assets.........      11.23       10.32%       9.59%


                                       19
<PAGE>

SHORT-TERM BORROWINGS

     The following table sets forth the average amount of, and the average rates
paid on securities sold under agreement to repurchase for the years ended
December 31, 1997, 1996, and 1995, respectively.

                                 Year Ended December 31,
                        1997                1996                 1995
                  Average   Average   Average   Average   Average    Average

Securities sold under
agreement to
repurchase....  $1,837,000  5.42   $  1,942,414    5.25 $  1,164,094  5.68%


ITEM 2 -     PROPERTIES

    The following table sets forth the location of the Bank's offices, as well
as certain information related to those offices, as of December 31, 1997:

  Location of Office             Owned or Leased
  ------------------             ---------------

   50 North Main Street
   Castile, New York.........              Owned

   263 East Main Street
   Avon, New York............              Owned

   1 Main Street
   Gainesville, New York.....              Owned

   102 North Center Street
   Perry, New York...........              Owned

   2727 Genesee Street
   Retsof, New York..........              Leased

   445 North Main Street
   Warsaw, New York..........              Owned *

   129 North Center Street
   Perry, New York...........              Owned *

   29 Main Street
   LeRoy, New York...........              Owned

   604 West Main Street
   Arcade, New York..........              Owned

   408 East Main Street

                                       20
<PAGE>

   Batavia, New York.........              Owned

   3155 State Street
   Caledonia, New York.......              Owned

   11 South Street
   Geneseo,  New York........              Owned

    * These branch offices branch offices are located on land which is being
leased through 1999 and 2090, respectively. These lease agreements contain
various renewal and purchase options at maturity.

     Each of the foregoing properties is in generally good
condition and is appropriate for its intended uses.


    Future minimum rentals under these leases are: 1998-2002, $9,600 per year.
Total rental expense was approximately $16,400 in 1997 and $23,000 in 1996 and
1995.

   All owned offices are in the name of the Bank. Prior to March 10, 1995, two
(2) offices were owned by Southern Wyoming Realty Corp., a wholly-owned
subsidiary of the Bank. Effective March 10, 1995, Southern Wyoming Realty Corp.
was dissolved and all of its assets were transferred and conveyed to the Bank.

    For information relating to the Company's investment
policies, see "Item 1- Description of Business -- Statistical Disclosure" of
this Annual Report on Form 10-KSB.

ITEM 3 -     LEGAL PROCEEDINGS

    The Company is not presently involved in any legal proceedings which
management or counsel to the Company believe to be material to its financial
condition or results of operations. As the nature of the Bank's business
involves the collection of loans and the enforcement and validity of security
interests, mortgages and liens, the Bank is plaintiff or defendant in various
legal proceedings which may be considered as arising in the ordinary course of
its business. In the opinion of management of the Bank, after consultation with
its counsel handling all such litigation, there are no legal proceedings now
pending by or against the Bank the outcome of which might have a material effect
on the Bank's business, business prospects or financial position.

ITEM 4 -     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    Not applicable.

                              PART II

ITEM 5 -     MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

                                       21
<PAGE>

    On January 3, 1994, the Company listed its common stock and warrants on the
National Association of Securities Dealers Quotation System (NASDAQ) Small Cap
Market.  Although the market for the Company's common stock has become more
active since the initial listing, as with many stocks of companies such as the
Company, trading remains limited. All the Company's warrants expired on December
31, 1997, and as such, are no longer listed on the NASDAQ Small Cap Market.

    As of March 23, 1998, the "Bid" and "Ask" price of the
Company's common stock was $51.50 and $54.00 per share, respectively, as
reported on the NASDAQ Small Cap Market. The market price for the Company's
common stock is reflected daily on the NASDAQ Small Cap Market under the symbol
LEBC. These quotations, as well as quotations set forth in the following table,
represent inter-dealer quotations without adjustment for retail mark-ups, mark-
downs, or commissions, and may not necessarily represent actual quotations.
First Albany Corporation, Ryan, Beck & Company, McConnell, Budd and Downes, and
Tucker Anthony, Inc. all make a market in the Company's common stock. All
shareholders who own their stock in their individual names are eligible to
participate in the Company's Dividend Reinvestment Plan which was introduced in
November 1991 and 37% of those eligible participate. The following table sets
forth the quarterly high and low "Bid" quotations for the years ended December
31, 1997 and 1996, respectively:
<TABLE>
<CAPTION>

Quarterly Data               1997                          1996
Bid Price          4th    3rd    2nd     1st    4th     3rd    2nd    1st
                  -----  -----  ------  -----  ------  -----  -----  -----
<S>               <C>    <C>    <C>     <C>    <C>     <C>    <C>    <C>
     High          51.00 $47.25 $37.25 $36.75  $31.25 $30.50 $31.25 $31.75
     Low          $40.00 $36.75 $34.50 $30.75  $29.25 $29.00 $29.75 $30.00
</TABLE>

    The Company declared dividends of $.80 per share to its
shareholders during the year ended December 31, 1997.  In 1996, the Company
declared annual dividends of $.66 per share.  Although the Board of Directors of
the Company has declared its intention to continue the payment of cash dividends
on the Company's common stock, no assurance can be given that any dividends will
be declared or, if declared, what the amount of the dividends will be or whether
such dividends, once declared, will continue.  As a bank holding company, the
Company's ability to pay dividends is primarily a function of the dividend
payments it receives from the Bank, which are subject to certain limitations.
See Note 17 of "Notes to Consolidated Financial Statements" included in this
Annual Report on Form 10-KSB on pages 56 and 57 . In determining the amount of
such dividends to be paid by the Company, if any, the Board of Directors will
consider such factors as the earnings and financial condition of the Company, as
well as regulatory requirements and the Bank's need to retain capital to support
its growth.

ITEM 6 -     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

     The purpose of this section is to focus on relevant business events and
information provided in this Annual Report. For a full understanding of this
discussion, reference should be made to the Consolidated Financial Statements,
and Notes thereto, and the Consolidated Financial Highlights herein. The
preceding Financial Statements have neither been audited nor approved by the
FDIC.

                                       22
<PAGE>

     The Company is a bank holding company with one subsidiary, The Bank. The
Bank is a full-service, community oriented, commercial bank that offers a full
range of commercial and consumer banking services to municipalities, businesses
and individuals.  During 1997,  the Bank was approved by its regulators to amend
its charter to allow it to offer  trust and investment services.

     The Bank conducts its operations through its main office located in
Castile, New York, and at its eleven (11) branch offices in towns situated in
and around the areas commonly known as the Letchworth State Park and the Genesee
Valley regions of New York State.  Specifically, the Bank has branch offices in
the towns of Arcade, Avon, Batavia, Caledonia, Castile, Gainesville, Geneseo,
LeRoy, Perry, York (Retsof), and Warsaw.

     The Company's strategic plan calls for the continued growth of its banking
franchise within the current market area and adjoining areas through the
acquisition and/or expansion of additional offices, if and when opportunities
occur. The Company will also be alert to related business opportunities that
would allow for diversification of its existing franchise.

     The Company's market area has remained reasonably healthy.  As evidenced by
the following chart, the average annual unemployment rate has remained
relatively constant in each of the three counties where the Bank does the
majority of its business.
<TABLE>
<CAPTION>

          GENESEE   LIVINGSTON   WYOMING
         ---------  -----------  --------
<S>      <C>        <C>          <C>
1997          5.4%         4.6%      6.6%
1996       5.1%            5.3%      6.4%
1995       5.1%            5.2%      6.6%
</TABLE>

          Several new companies have relocated or expanded in the three county
area during the past year. However, recent announcements by major local
employers regarding curtailment of some local operations is cause for concern.

FINANCIAL CONDITION

1997 Compared With 1996

     The total assets of the Company as of December 31, 1997, increased by $14.9
million to $259.9 million, representing a 6.07% increase from the $245.1 million
figure as December 31, 1996.  This growth in total assets occurred in several
areas, including the Bank's loan portfolio, which increased by 9.36% or $13.7
million. The Bank's premises and equipment increased by $0.8 million or 13.64%,
primarily as a result of the purchase and renovation of the property located in
Geneseo, New York, half of which is currently occupied by the Bank's Geneseo
branch office.

     The Company's commercial real estate loans increased to $35.0 million at
year end 1997, up from $33.9 million at year end 1996.  Commercial and
industrial loan volume increased by $5.5 million to $33.6 million at year end
1997, representing an increase of 19.55% from the year ended December

                                       23
<PAGE>

31, 1996. In the view of management, the growth in commercial and industrial
loans is at least partially due to the business development efforts of the
Company's calling officers and a continuing change in strategic focus of larger
competing institutions away from this type of lending. This is also the primary
reason for the $2.5 million, or 8.74%, increase in our agricultural loan
portfolio, which consists primarily of loans to larger dairy farms and selected
cash-crop farms. Although, deregulation in the dairy industry has and will
continue to produce volatile milk prices, the agricultural customers included in
the Bank's portfolio have generally shown continued solid profitability in spite
of this volatility.

     The consumer loan portfolio increased by $0.9 million, or 9.79%, to $10.6
million at December 31, 1997.  The increase in volumes in the consumer loan area
are due to an increased focus on this type of loan in the branch offices and the
start of an indirect lending area which will offer high quality service to
selected local auto dealers.

     The Company's residential real estate loans, including home equity lines of
credit, increased by $3.5 million, or 7.67%, to $49.2 million at December 31,
1997.  This increase resulted, in part, from the retention in our portfolio of
many of the fifteen-year, fixed rate mortgage originations.  The volume of home
equity lines of credit increased slightly to $10.0 million at year end 1997, an
increase of 5.21% from the prior year.  These loans are priced in an adjustable
manner tied to the New York Prime rate and reprice quarterly, and have been
subject to fierce marketplace competition.

     Total deposit growth in 1997 was $8.9 million, or 4.28%, to $217.2 million
at December 31, 1997.  Changes during the year, by category, were as follows:
an increase of $4.0 million in noninterest-bearing deposits; an increase of $0.3
million in savings deposits; a $1.3 million decrease in NOW accounts; an
increase of $9.0 million in certificates of deposit under $100,000; and a
decrease of $3.2 million in certificates of deposit greater than $100,000.  At
year end 1997, the Bank also had $1.7 million in securities sold under
agreements to repurchase.

     Noninterest-bearing deposits increased to $32.1 million at year end 1997, a
14.05% increase when compared to year end 1996.  There were no branch
acquisitions during 1997, which means that all the growth detailed above was
internally generated.  Average noninterest-bearing deposits increased from $23.2
million for the year ended 1996 to $25.2 million for the year ended 1997.
Average noninterest bearing deposits as a percentage of total average deposits
increased from 11.43% at year end 1996 to 12.08% at year end 1997.

     The Company's shareholders' equity increased to $31.8 million at year end
1997, up 23.07% from the $25.8 million figure at year end 1996. This increase
was largely due to the retention of 75.97% of 1997 earnings, the exercise of a
majority of the outstanding warrants and some options previously issued under
the employee option plan.

                                       24
<PAGE>

1996 Compared With 1995

    The total assets of the Company as of December 31, 1996, increased by $11.6
million to $245.1 million, representing a 4.95% increase from the $233.5 million
figure as December 31, 1995.  This growth in total assets occurred in several
areas, including the Bank's loan portfolio, which increased by 9.60% or $12.8
million and the Bank's premises and equipment, which increased by $0.7 million
or 13.02%, primarily as a result of the purchase of a state of the art image
processing system which is located in the Bank's Operations Center in Perry, New
York.

     The Company's commercial real estate loans remained virtually unchanged at
$33.9 million.  Commercial and industrial loan volume increased by $4.8 million
to $28.1 million at year end 1996, representing an increase of 20.59% from the
year ended December 31, 1995. The agricultural loan portfolio increased by $3.9
million, or 15.33%,  which consists primarily of loans to the larger dairy farms
and selected cash crop farms. The portfolio showed no appreciable declines in
producer success due to volatile milk prices and, in fact, during 1996, the
returns on our large scale dairy operations showed that prices were favorable
overall.

     Although the consumer loan portfolio decreased modestly by $0.3 million, or
3.13%, to $9.6 million at December 31, 1996,  the continued decline in the
consumer loan area was reversed in 1996 by an upward trend in the second half of
the year due to an increased focus on this type of loans by the Bank.

     The Company's residential real estate loans, including home equity lines of
credit, increased by $4.5 million, or 11.03%, to $45.7 million at December 31,
1996.  This increase resulted, in part, from the retention in our portfolio of
many of the fifteen year, fixed rate mortgage originations.  During 1995, the
majority of those originations were sold into the secondary market.  The volume
of home equity lines of credit rose to $9.5 million at year end 1996, an
increase of 3.06% from the prior year.

    Total deposit growth in 1996 was $3.4 million, or 1.68%, to $207.5 million
at December 31, 1996.  Changes during the year, by category, were as follows:
an increase of $0.6 million in noninterest-bearing deposits; a decrease of $1.3
million in savings deposits; a $6.0 million increase in NOW accounts; a decrease
of $2.2 million in certificates of deposit under $100,000; and an increase of
$0.7 million in certificates of deposit greater than $100,000.  At year end
1996, the Bank also had $1.7 million in securities sold under agreements to
repurchase..

     Noninterest-bearing deposits increased to $27.3 million at year end 1996, a
2.40% increase when compared to year end 1995.  There were no branch
acquisitions during 1996, which means that all the growth detailed above was
internally generated.  Average noninterest-bearing deposits increased from $21.6
million for the year ended December 31, 1995, to $23.2 million for the year
ended December 31,1996.  Average noninterest bearing deposits as a percentage of
total average deposits increased from 10.98% at year end 1995 to 11.43% at year
end 1996.

                                       25
<PAGE>

     The Company's shareholders' equity increased to $25.8 million at year end
1996, up 13.05% from the $22.8 million figure at year end 1996.  This increase
was primarily the result of the retention of  79.02% of 1996 earnings.
Additionally, the exercise of warrants and employee options during 1996 boosted
the equity total.


RESULTS FROM OPERATIONS

     The yield on the Company's interest-earning assets was 8.41% for the year
ended December 31, 1997, an increase of 7 basis points from the yield of 8.34 %
for the year ended December 31, 1996.  During this same period, the rate for
total interest-bearing liabilities increased 14 basis points to 4.16% from
4.02%.  As a result, the net interest spread decreased slightly to 4.26% for the
year ended December 31, 1997, from 4.32% for the prior year.  The net interest
margin of 4.93% remained virtually unchanged in 1997 compared to 4.92% in 1996.

     Income before taxes increased by 9.51% to $4.62 million in 1997 from $4.22
million in 1996.  Net income for the year ended December 31, 1997, was a record
$3.14 million, surpassing the previous record of $2.87 million for the prior
year, and representing a 9.25% increase.  The Company's other operating income
for the year ended December 31, 1997, increased by $126,085 or 10.78% from the
prior year.  This increase resulted primarily from increased service charges and
an increase in the number of transaction accounts.

     The Company's other operating expenses increased to $7.7 million in 1997,
up 4.65% from $7.4 million for the prior year.  This reflects a modest increase
in salaries and benefits expense of  $109,203, due to normal salary increases,
increased benefit costs and several additional employees.  The FDIC assessment
for the year 1997 decreased by $155,706 due to a decrease in FDIC premiums on
the Bank Insurance Fund ("BIF").  The total assessment to the Bank for both the
BIF and Savings Association Insurance Fund ("SAIF") for 1997 was $34,371.  The
deposits purchased in 1992 from Anchor Savings Bank remain insured by SAIF.  The
increase in total other operating expenses reflects substantially increased
equipment expense offset by modestly decreased occupancy expense. The increase
in equipment expense resulted from the depreciation of the core processing
system and the image processing system purchased in 1996, as well as many new
personal computers and new and updated software used throughout the Bank.

     The Company's net income was $3,135,724 for 1997, representing an increase
of 9.25% over the prior year. Diluted and basic earnings per share were $3.00
and $3.31, respectively, representing increases of  2.74% and 3.76%,
respectively, over the prior year.  Charges to expense for the provision for
income taxes amounted to $1,487,000 for 1997, up from $1,351,000 in 1996.  The
increase resulted from higher pre-tax income, as the Company's effective income
tax rate remained  constant at 32.2% in 1997 and 32.0% in 1996.


IMPACT OF THE YEAR 2000

                                       26
<PAGE>

     The financial services industry relies entensively on computer programs
with dates. Many existing computer programs were written using only the last two
digits to identify the applicable year. These programs were designed and
developed without considering the impact of the upcoming century. Computer
programs that have date-sensitive software may, therefore, recognize a date
using "00" as the year 1900 rather than the year 2000. The potential exists that
such a mistake could result in system failures or miscalculations causing
disruptions of operations not only for the Company but for its commercial
customers who rely on computer software in managing their businesses. The Board
of Directors has assigned the responsibility for the Year 2000 remediation
process to the Data Processing Manager, who will report to the Risk Committee.
An inventory of all affected systems has been completed and prioritized. The
company that supports the Bank's core processing system has completed all
remediation of programs and plans to release its updated software before
December 31, 1998, to allow time for testing during 1999. The company that
supports the item processing system has given the Bank a plan to be "Year 2000"
ready by December 31, 1998. The Bank has contacted all other critical vendors to
discuss their "Year 2000" remediation plans, and management is in the process of
reviewing their responses.

    Current plans call for some systems to be replaced, but these are not
connected directly to the "Year 2000" project and are contained in the 1998
budget. The total cost of the "Year 2000" compliance project will not be
material to the Company's business.

     The Company presently believes that the "Year 2000" problem will not pose
significant operational problems or have significant impact on its financial
condition, results of operations or cash flows. However, if the third party
modification plans are not completed and tested on a timely basis, the year 2000
may have a material impact on the operations of the Company.

RATE SENSITIVITY AND FUNDS LIQUIDITY MANAGEMENT

     Market Risk Management
     ----------------------

     Management recognizes that taking measured risks is necessary to
effectively manage the daily operations of the Company and to maximize
shareholder value.  In response to this fact, management has developed various
tools to measure and monitor these risks.

     The Asset/Liability Committee, made up of the Chairman of the Board of
Directors, the President, the Chief Financial Officer, and certain other senior
level managers, has overall responsibility for measuring, monitoring, and
controlling interest rate risk, the Company's primary market risk. This
Committee is further responsible for reporting results to the Board of Directors
of the Bank and the Company.

     Historically, the Committee has used a GAP analysis as a primary tool in
its measurement of interest rate risk. This method measures the maturity or
repricing periods of all categories of assets and liabilities.  The results of
this model give management an awareness of the volumes of

                                       27
<PAGE>

interest sensitive assets and liabilities that may be expected to reprice within
certain timeframes. This then helps management to assess the effect of potential
changes in market interest rates on the earnings of the Company. The GAP
position in each time interval is calculated by subtracting the liabilities that
are repricing in that interval from the assets that are repricing in the same
interval. If the GAP position is positive in an interval, that indicates that
more assets will reprice than would liabilities. This type of GAP position would
benefit the Bank in a time of rising interest rates.

     Certain assumptions are necessary in establishing a meaningful GAP
analysis.  Floating rate securities and loans are categorized according to their
repricing opportunities.  Fixed rate loans are categorized according to their
contractual payment schedules.  Fixed rate securities reflect recent payment
speed assumptions, which are derived from independent pricing services.  Cash
and due from bank accounts are reflected entirely in the zero to three month
category.  Other non-interest rate sensitive assets are shown in the over five
years category.  Deposits with no fixed maturity date are categorized according
to the way they have behaved historically, as well as how often rate changes
have been made.  Money market deposit accounts are slotted in the 90 day time
band. NOW accounts and savings accounts are categorized with 10% repricing
within one year, and the remainder in the 1 - 5 years and over 5 years
categories.  Fixed rate certificates of deposit, having specific maturity dates,
are categorized according to their contractual maturities.

     The GAP chart shown below indicates that the Company is in an asset
sensitive position in the one year time frame, which is the period most actively
monitored by management.  This means that, with changes in market interest
rates, more assets will be repriced than will corresponding liabilities.
According to the chart, the amount of assets repricing within one year exceeds
the amount of liabilities repricing within the same time frame by $27.7 million.
This chart indicates that the Company is slightly susceptible to decreasing
interest rates.  It is important to note that the assumptions used to categorize
deposits without specified maturities play a very important role in the outcome
of the GAP analysis.  It is necessary for management to periodically review the
reasonableness of these assumptions.

     The asset sensitive position of the Company is caused in large part by the
significant volume of commercial loans with interest rates that are variable and
tied to the New York Prime Lending rate.  During the past year, the Company has
actively purchased fixed rate municipal bonds with maturities ranging from seven
to twelve years in an attempt to complement the shorter repricing nature of the
variable rate commercial loans.  Additionally, the Company has undertaken some
fixed rate borrowings with the Federal Home Loan Bank of New York to further
moderate its overall asset sensitive position.

     Management recognizes the limitations of the traditional GAP analysis.
Although its use provides management with information that enables it to
determine how earnings are likely to be affected by an increase or decrease in
market interest rates, it does not provide the ability to actually quantify
those changes, as they would affect the Company's future earnings performance
and the impact on the capital of the Company.  Because of this

                                       28
<PAGE>

limitation, management has recently purchased, and is in the process of
developing, a new model which will enable the Company to measure earnings at
risk and the change in the market value of equity, given various interest rate
scenarios. When fully operational, this model will more accurately measure such
factors as embedded options and the timing differences for changing of interest
rates between different categories of assets and liabilities.

     The Company has not utilized off-balance sheet derivative instruments as a
means of managing certain market risks.  Further, the Company does not engage in
trading activities.


<TABLE>
<S>                                                  <C>           <C>                <C>            <C>            <C>
                                                            0 - 3            3 - 12          1 - 5           Over
                                                             MONTHS          Months           Years         5 Years        Total
ASSETS: (In thousands)
Investment securities                                       2,321            15,173         22,703         37,758         77,955
Federal funds sold                                          1,550                                                          1,550
Loans                                                      90,739            10,099         43,225         15,909        159,972
Allowance for possible loan losses                                                                         (2,029)        (2,029)
                                      NET LOANS            90,739            10,099         43,225         13,880        157,943
                  TOTAL INTEREST-EARNING ASSETS            94,610            25,272         65,928         51,638        237,448
Other assets                                               10,863                                          11,628         22,491
                                   TOTAL ASSETS           105,473            25,272         65,928         63,266        259,939


LIABILITIES AND SHAREHOLDERS EQUITY:
NOW accounts                                                  762             2,290         12,216         15,270         30,538
Money market deposit accounts                                                11,505                                       11,505
Savings accounts                                              864             2,592         13,824         17,280         34,560
Certificates of deposit                                    27,244            48,736         31,939            600        108,519
                TOTAL INTEREST-BEARING DEPOSITS            28,870            65,123         57,979         33,150        185,122
Repurchase agreements                                       1,438                              236                         1,674
Long-term debt                                              3,914               238          1,428          2,232          7,812
             TOTAL INTEREST-BEARING LIABILITIES            34,222            65,361         59,643         35,382        194,608
Noninterest-bearing deposits                                  873             2,616         13,953         14,642         32,084
Other liabilities                                                                                           1,487          1,487
                              TOTAL LIABILITIES            35,095            67,977         73,596         51,511        228,179
Shareholders' equity                                                                                       31,760         31,760
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY            35,095            67,977         73,596         83,271        259,939


GAP                                                        70,378           (42,705)        (7,668)       (20,005)             -
Cumulative GAP                                             70,378            27,673         20,005              -              -
</TABLE>

     Liquidity
     ---------

     The Asset/Liability Committee also is responsible for insuring that the
Company maintains adequate liquidity and safety of depositor funds.

     Liquidity is provided by the Company's investment portfolio, including the
federal funds position, which averaged 33.31% and 35.56% of average total assets
in 1997 and 1996, respectively.  The investment portfolio had a weighted average
maturity of 41 months in 1997 versus a 30 month average

                                       29
<PAGE>

maturity in 1996, with $16.6 million of the investment portfolio maturing in one
year or less. The size of the investment portfolio decreased modestly during
1997, as more of the Company's funding was allocated to the loan portfolio.

     Daily liquidity is provided by the purchase or sale of federal funds with
various institutions.  During 1997, the Bank was a seller of federal funds with
average daily sales of $5.2 million.  Although employed for only 23 days during
1997, the Bank also has the ability to borrow from the Federal Reserve Bank of
New York, a correspondent bank, or the Federal Home Loan Bank ( the "FHLB").
Membership in the FHLB system allows the Bank to borrow periodically on a short-
term or long-term basis at preferred rates.  At December 31, 1997, the Bank had
borrowings of $7,812,302 on a long-term basis from the FHLB to fund the Employee
Stock Ownership Plan (ESOP) and for other purposes. See Note 7 of "Notes to
Consolidated Financial Statements" included in this Annual Report on Form 10-KSB
on pages 46 and 47.  Included in the total borrowing is $5 million borrowed in
December 1997 with a fixed rate and a one year term.  The proceeds from these
advances have been invested in longer term, tax-exempt municipal bonds and
collateralized mortgage obligations to help lower the Bank's asset sensitivity
position.  The overall liquidity of the Company is supplemented by its core
deposits which, as previously noted, have grown both in volume and in percentage
of total deposits.

     The Bank also had secondary market loan sales and loan participations with
other institutions totaling $1.2 million in various commercial, agricultural and
residential mortgage loans during 1997.  Management expects to continue such
sales from time to time.

     Capital
     -------

     The Company's overall capital level as of December 31, 1997, was at a
record level, well in excess of regulatory guidelines.  The Company's Tier 1 and
Total Capital ratios were 20.04% and 21.29%, respectively.  The significant
increase in capital during 1997 is due in large part to the exercise of the
warrants.  This activity raised a total of $3.8 million during 1997. In December
1997, the Company announced a plan to repurchase up to $2 million in warrants
and common stock.  Through December 31, 1997, a total of $429,500 was spent to
repurchase unexercised warrants.


MEASURES OF PERFORMANCE

     Various measures of performance are available to analyze any bank's safety,
soundness, and financial health.  The Consolidated Financial Highlights section
of this Annual Report  details common measures such as return on assets, return
on equity, and earnings per share.  Other indicators are as follows:

1.   Banks measure how they have covered other operating expenses with
     noninterest or fee income. In 1997, 1996, and 1995, the Bank covered
     16.81%, 15.88%, and 15.60%, respectively, of such operating expenses with
     noninterest income or fees.

                                       30
<PAGE>

2.   The capital ratio measures the ending capital of a bank as a percentage of
     its ending assets. The ratio reflects a bank's ability to support deposit
     growth and provide a reserve for any potential future deterioration in
     asset quality. At year end 1997, the capital ratio of the Company was
     12.22%, up from 10.53% at year end 1996. This substantial change is a
     result of the retention of 75.97% of 1997 net earnings , the exercise of a
     majority of the Company's remaining outstanding warrants and the exercise
     of some employee options.

3.   The loan-to-deposit ratio is a secondary measure of liquidity. The Bank's
     loan-to-deposit ratio increased to 73.65% at year end 1997 from 70.51% in
     1996. This ratio is under the 80% ceiling set forth in the Company's
     strategic plan and indicates that the Bank maintains adequate liquidity and
     is actively serving the credit needs of its community. The ratio was
     clearly affected by the larger increase in the loan volume, compared to the
     increase in deposits during 1997.


BANK FACILITIES AND SERVICES

      In July, 1997, the Bank purchased a 9,600-square-foot, one-story, building
in downtown Geneseo New York. The exterior of the building was renovated as was
one-half of the interior for use as the Bank's 11th branch office, which opened
on January 5, 1998.  The interior was designed to function as a financial center
and includes the Bank's new trust and investment department. The other half of
the building is leased to the U.S. Postal Service.

      The Company joined with five other area community banks by investing in
Cephas Capital Partners, LLC, a small business investment corporation. Cephas
will make loans commonly known as "mezzanine" financing to present bank
customers and others.  The venture is expected to broaden the Bank's service
offerings.

      The Bank applied for and was granted trust powers during 1997. Presently
the Bank has a full-time trust officer and an assistant working closely with
Tompkins County Trust Company of Ithaca, New York, to provide a full range of
trust and investment services to existing and new customers.

PERFORMANCE SUMMARY

     The Company's return on average shareholders' equity was 11.22%, which is
reasonable when compared with industry averages.  Although this figure
represents a decrease from the 11.86% and 12.36% figures during 1996 and 1995,
respectively, much of this decrease is attributable to the substantial increase
in capital during the year that time. The Company's return on average assets was
1.26% in 1997 compared to 1.22% in 1996 and 1.19% in 1995.



ITEM 7 -     FINANCIAL STATEMENTS

                                       31
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION



                             REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Shareholders of
Letchworth Independent Bancshares Corporation



In our opinion, the accompanying consolidated statement 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
Letchworth Independent Bancshares Corporation and its subsidiary at December 31,
1997 and 1996, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.  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.  We conducted our
audits of these statements in accordance with generally accepted auditing
standards 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.



PRICE WATERHOUSE LLP
Buffalo, New York
January  16, 1998



CONSOLIDATED STATEMENT OF CONDITION



                                                        DECEMBER 31,
                                                      1997      1996
                                                      --------------
ASSETS:

                                       32
<PAGE>

<TABLE>
<S>                                                               <C>            <C>
Cash and due from banks                                            $ 10,863,023   $ 11,115,746
Federal funds sold                                                    1,550,000        450,000
Investment securities:
   Available for sale                                                34,356,500     36,105,200
   Held to maturity
     (market value: $44,242,300 in 1997; $ 42,968,700 in 1996)       43,109,322     42,071,869
   Other
     (market value: $1,702,331 in 1997; $1,151,300 in 1996)           1,702,331      1,151,300
Loans, net of allowance for loan losses of
     $2,028,600 and $1,841,200, respectively                        157,943,432    144,455,041
Accrued interest receivable                                           1,740,101      1,716,241
Premises and equipment, net                                           6,419,871      5,649,294
Other assets                                                          2,254,116      2,338,019
                                                                   ---------------------------

                                                                   $259,938,696   $245,052,710
                                                                   ---------------------------
LIABILITIES AND SHAREHOLDERS EQUITY:
Deposits:

 Noninterest-bearing                                               $ 32,083,730   $ 28,132,327
 Interest-bearing                                                   185,121,594    180,149,695
                                                                   ---------------------------

                                  TOTAL DEPOSITS                    217,205,324    208,282,022

Securities sold under agreements to repurchase                        1,673,911      1,702,729
Accrued interest payable                                                810,382        708,380
Accrued taxes and other liabilities                                     677,005        409,188

Advances from Federal Home Loan Bank                                  7,812,302      8,144,797
                                                                   ---------------------------

                                TOTAL LIABILITIES                   228,178,924    219,247,116
                                                                   ---------------------------
Commitments and contingent liabilities

Shareholders' equity:
 Common stock, $1.00 par value, 1,500,000 shares
  authorized, 1,124,852 and 939,386 shares issued, respectively       1,124,852        939,386
 Capital surplus                                                     14,436,634     10,910,120
 Retained earnings                                                   16,428,534     14,046,314
Unearned employee stock ownership plan shares                          (539,320)      (253,095)
Unrealized gain on investments, net                                     309,072        162,869
                                                                   ---------------------------

                           TOTAL SHAREHOLDERS' EQUITY                31,759,772     25,805,594
                                                                   ---------------------------

                                                                   $259,938,696   $245,052,710
                                                                   ---------------------------
</TABLE>


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


CONSOLIDATED STATEMENT OF INCOME


<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                        -------------------------------------
                                                          1997         1996         1995
<S>                                                     <C>          <C>          <C>
INTEREST INCOME:
  Interest and fees on loans                            $14,610,342  $13,203,737  $12,788,697
  Interest and dividends on investment securities -
   Taxable                                                3,254,623    3,580,580    3,603,440
   Exempt from federal income taxes                       1,302,147    1,116,078    1,088,331
Interest on federal funds sold                              285,446      239,712      397,103
                                                        -------------------------------------
                      TOTAL INTEREST INCOME              19,452,558   18,140,107   17,877,571
Interest expense on deposits and advances                 8,052,605    7,443,397    7,610,361
                                                        -------------------------------------
 Net interest income                                     11,399,953   10,696,710   10,267,210
 Provision for possible loan losses                         368,165      282,510      324,363
                                                        -------------------------------------
    NET INTEREST INCOME AFTER PROVISION FOR
                       POSSIBLE LOAN LOSSES              11,031,788   10,414,200    9,942,847

 OTHER OPERATING INCOME:
  Service charges on deposit accounts                       974,291      913,667      888,363
  Other charges and fees                                     89,961       90,925       83,228
  Other operating income                                    191,016      137,730      116,681
Net gain on sales of loans and investment securities         39,906       26,767       20,325
                                                        -------------------------------------
               TOTAL OTHER OPERATING INCOME               1,295,174    1,169,089    1,108,597

OTHER OPERATING EXPENSE:
  Salaries and employee benefits                          4,170,037    4,060,834    3,752,036
  Occupancy expenses                                        491,843      505,532      449,478
</TABLE>

                                       33
<PAGE>

<TABLE>
<S>                                                     <C>            <C>          <C>
Printing and supplies                                       274,459      252,491      323,182
Equipment expenses                                          776,031      621,224      550,829
FDIC assessment                                              34,371      190,077      239,097
Other operating expenses                                  1,957,497    1,731,790    1,791,221
                                                        -------------------------------------
     TOTAL OTHER OPERATING EXPENSE                        7,704,238    7,361,948    7,105,843
                                                        -------------------------------------
Income before income taxes                                4,622,724    4,221,341    3,945,601
                                                        -------------------------------------
Provision for income taxes                                1,487,000    1,351,000    1,288,150
                                                        -------------------------------------
  Net income                                            $ 3,135,724  $ 2,870,341  $ 2,657,451

                                                        -------------------------------------

Basic earnings per share                                      $3.31        $3.19        $3.02
Diluted earnings per share                                    $3.00        $2.92        $2.86
</TABLE>

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


CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                                  UNEARNED
                                                                                  EMPLOYEE                      MINIMUM
                                                                                   STOCK         UNREALIZED     PENSION
                                             COMMON   CAPITAL        RETAINED     OWNERSHIP      GAIN(LOSS)    LIABILITY
                                              STOCK   SURPLUS        EARNINGS    PLAN SHARES    INVESTMENTS    ADJUSTMENT
<S>                                       <C>         <C>           <C>           <C>           <C>            <C>
BALANCE AT DECEMBER 31, 1994              $896,720    $10,087,067   $9,605,255    $ (337,750)   $(389,976)     $(58,646)
Net income                                                           2,657,451
Exercise of stock warrants                   3,250         71,500
ESOP shares committed to be released                       47,457                    112,583
Additional shares purchased by ESOP                                                 (140,511)
Unrealized appreciation of
 securities available for sale, net of tax                                                        697,376
Minimum pension liability adjustment                                                                             58,646
Cash dividends declared                                               (484,542)
   ($.54 per share)
                                         --------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995                899,970     10,206,024   11,778,164      (365,678)     307,400         - 0 -
Net income                                                           2,870,341
Exercise of stock options and warrants       39,416        667,024
ESOP shares committed to be released                        37,072                    112,583
Unrealized depreciation of
 securities available for sale, net of tax                                                       (144,531)
Cash dividends declared
       ($.66 per share)                                               (602,191)

BALANCE AT DECEMBER 31, 1996                939,386     10,910,120  14,046,314       (253,095)    162,869           -0-
Net income                                                                          3,135,724
Exercise of stock options and warrants      185,466      3,914,124
Repurchase of  warrants                                   (429,500)
ESOP shares committed to be released                        41,890                     59,925
Additional shares purchased by ESOP                                                  (346,150)
Unrealized appreciation of securities
  available for sale, net of tax                                                                  146,203
Cash dividends declared
 ($.80 per share)                                                     (753,504)
                                         --------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 1997             $1,124,852    $14,436,634 $16,428,534      $(539,320)   $309,072         $ -0-
</TABLE>

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



Consolidated Statement of Cash Flows

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                            1997            1996          1995
<S>                                                     <C>            <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                            $  3,135,724   $  2,870,341  $  2,657,451
  Adjustments to reconcile net income to net cash
   provided by operating activities -
  Depreciation and amortization                              936,294        890,391       871,691
  Provision for possible loan losses                         368,165        282,510       324,363
  ESOP compensation expense                                  101,815        149,655       168,720
  Gain on sales of investments                               (36,850)       (12,924)
  Gain on sales of loans                                      (3,056)       (13,843)      (20,325)
  (Increase) decrease in interest receivable                 (23,860)       233,025      (237,695)
  Increase in other assets                                  (100,733)       (40,940)     (162,116)
</TABLE>

                                       34
<PAGE>

<TABLE>
<S>                                                           <C>            <C>           <C>
Increase (decrease) in interest payable                       102,002        (38,971)      327,398
Increase in accrued taxes and other liabilities               267,817        626,465       372,746
                                                          -----------------------------------------
              NET CASH PROVIDED BY OPERATING ACTIVITIES     4,747,318      4,945,709     4,302,233
                                                          -----------------------------------------
 CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sales of securities available for sale      4,028,594      4,519,219
  Proceeds from calls and maturities of securities
    Held to maturity                                        7,574,377     10,038,268     8,804,540
    Available for sale                                     10,632,975      3,491,312     2,708,815
  Proceeds from sales of loans                              1,006,133      1,281,775     2,806,959
  Purchases of securities -
    Held to maturity                                       (7,224,304)   (10,440,504)  (21,062,965)
    Available for sale                                    (14,321,819)    (4,258,207)     (986,250)
     Other                                                   (442,731)      (468,700)      (57,200)
    Net increase in loans                                 (14,859,633)   (14,242,695)  (15,032,944)
  Expenditures for capital assets                         ( 1,426,058)    (1,198,118)   (1,193,167)
                                                          -----------------------------------------
              NET CASH USED IN INVESTING ACTIVITIES       (15,032,466)   (11,277,650)  (24,012,212)
                                                          -----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net increase in savings, NOW, money
          market and noninterest-bearing deposits           3,122,614      4,928,493       975,217
  Net increase (decrease) in time deposits                  5,800,688     (1,509,657)   15,642,303
  Net (decrease) increase in securities sold
          under agreements to repurchase                      (28,818)       (65,255)      867,984
  Proceeds from borrowings                                  5,000,000      5,000,000       892,511
  Repayment of borrowings                                  (5,332,495)      (362,223)     (320,514)
  Exercise of options and warrants                          3,753,440        706,440        74,750
  Repurchase of warrants                                     (429,500)
  Cash dividends paid                                        (753,504)      (602,191)     (484,542)
                                                          -----------------------------------------
              NET CASH PROVIDED BY FINANCING ACTIVITIES    11,132,425      8,095,607    17,647,709
                                                          -----------------------------------------
Net increase (decrease) in cash and cash equivalents          847,277      1,763,666    (2,062,270)
Cash and cash equivalents, beginning of year               11,565,746      9,802,080    11,864,350
                                                          -----------------------------------------

Cash and cash equivalents, end of year                    $12,413,023   $ 11,565,746  $  9,802,080
                                                          -----------------------------------------
Interest paid                                             $ 7,950,603   $  7,482,368  $  7,282,963
                                                          -----------------------------------------
Income taxes paid                                         $ 1,113,003   $  1,617,000  $  1,375,000
                                                          -----------------------------------------
</TABLE>

   The accompanying notes are an integral part of these financial statements


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

DESCRIPTION OF OPERATIONS


Letchworth Independent Bancshares Corporation (the "Company") is a bank holding
company headquartered in Castile, New York.  Through its subsidiary, the Company
primarily engages in the business of commercial and retail banking in the
Genesee Valley region of western New York.

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Letchworth
Independent Bancshares Corporation and its subsidiary, The Bank of Castile (the
"Bank"). All significant intercompany accounts and transactions have been
eliminated.

The accounting policies of the Company conform with generally accepted
accounting principles and prevailing practices within the banking industry.  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 at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period.  Actual results could differ from those estimates.

                                       35
<PAGE>

Certain prior year balances have been reclassified to conform with the current
year presentation.

INVESTMENT SECURITIES

Debt securities for which the Company has the positive intent and ability to
hold to maturity are reported at amortized cost. Amortization of premiums and
accretion of discounts are recognized in interest income using the interest
method over the period to maturity.

Securities available for sale consist of debt and marketable equity securities
not classified as securities held to maturity and are stated at estimated fair
value.  Unrealized gains and losses on securities available for sale are
reported as a separate component of shareholders' equity, net of tax, until
realized. Amortization of premiums and accretion of discounts are recognized in
interest income using the interest method over the period to maturity.  Gains
and losses on the sale of securities available for sale are determined using the
specific-identification method.

Other securities consist of capital stock of Federal Home Loan Bank of New York
and other non-marketable equity securities and are reported at cost.

LOANS

Loans generally are reported at their outstanding principal balance adjusted for
any charge-offs, the allowance for loan losses, and any deferred fees or costs
on originated loans.  Loan origination fees and certain direct origination costs
are capitalized and recognized as an adjustment to the yield over the life of
the related loan. Loans held for sale are reported at the lower of cost or fair
market value.

Loans, other than consumer loans, are generally transferred to nonaccrual status
when principal or interest payments become 90 days past due.  Any accrued but
uncollected interest previously recorded on such loans is reversed in the
current period.  Past due consumer loans are generally fully reserved or
charged-off when they reach a 90-day delinquency status.  Loans are returned to
accrual status when management determines that the circumstances have improved
to the extent that both principal and interest are collectible and there has
been a sustained period of repayment performance in accordance with the
contractual terms of the loan.

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 the future
collectibility of the recorded loan balance is expected, interest income may be
recognized on a cash basis.  In the case where a nonaccrual loan had been
partially charged-off, recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded loan balance at the
contractual interest rate.  Cash interest receipts in excess of that amount are
recorded as recoveries to the allowance for loan losses until prior charge-offs
have been fully recovered.

For all loans except large groups of smaller-balance homogenous loans, which are
collectively evaluated, a loan is considered impaired when, based

                                       36
<PAGE>

on current information and events, it is probable that a creditor will be unable
to collect all amounts due according to the contractual terms of the loan. When
a loan is identified as impaired, accrual of interest ceases and any amounts
that are recorded as receivable are reversed out of interest income.


The Company measures its impaired loans by using the fair value of the
collateral if the loan is collateral-dependent and the present value of the
expected future cash flows, discounted at the loan's effective interest rate, if
the loan is not collateral-dependent.  The difference between the recorded value
of the impaired loan and the fair value of the loan is defined as the impairment
allowance.  Impairment allowances are considered by the Company in determining
the overall adequacy of the allowance for credit losses.

The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries).  Management's periodic evaluation of the
adequacy of the allowance is based on the Company's past loan experience, known
and inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying collateral,
and current economic conditions.


PREMISES AND EQUIPMENT

Land is carried at cost.  Premises and equipment are stated at cost less
accumulated depreciation and amortization.  Depreciation is computed on the
straight-line basis over the estimated useful lives of the related assets,
generally ranging from three to 40 years.  Amortization of leasehold
improvements is computed on a straight-line basis over the term of the lease.
Maintenance, repairs and minor improvements are charged to operating expense as
incurred. Major improvements are capitalized.

STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation using the provisions of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," which require compensation cost to be recognized based on the
difference, if any, between the quoted market price of the stock on the grant
date and the amount an employee must pay to acquire the stock. The Company
presents the pro forma compensation expense calculated in accordance with
Statement of Financial Standards (SFAS) No.123, "Accounting for Stock-Based
Compensation" in Note 8. For purposes of this calculation, pro forma
compensation expense is recognized over the vesting period of the option,
generally nine years.

INCOME TAXES

The Company accounts for income taxes using the asset and liability approach
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax basis of such assets and liabilities.  This method utilizes
enacted statutory tax rates in effect for the year in

                                       37
<PAGE>

which the temporary differences are expected to reverse and gives immediate
effect to changes in income tax rates upon enactment. Deferred tax assets are
recognized, net of any valuation allowances, for deductible temporary
differences and tax credit carryforwards.

EARNINGS PER SHARE

The Company has adopted SFAS 128, "Earnings per share," which establishes
standards for computing and presenting basic and diluted earnings per share, in
the fourth quarter of 1997. All prior period earnings per share amounts have
been restated to conform to the new statement. 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 for the period. 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.

STATEMENT OF CASH FLOWS

For purposes of preparing the statement of cash flows, the Company defines cash
and cash equivalents as cash and due from banks and federal funds sold.


NEW ACCOUNTING PRONOUNCEMENTS

SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125," was issued in December 1996 and defers until January 1,
1998, the effective date for certain provisions of SFAS No. 125 relating to
repurchase agreements, dollar roll, securities lending and similar transactions
and pledged collateral. SFAS No. 127 will be adopted by the company in the first
quarter of 1998, as required, and is not expected to have a material impact on
the Company's results of operations.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and displaying comprehensive
income and its components, and requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997, and reclassification of financial statements for
earlier periods provided for comparative purposes is required. The Company will
adopt the provisions of SFAS No. 130 in the first quarter of 1998. When adopted,
SFAS No. 130 is not expected to have a material impact on the Company.



NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS:

The Federal Reserve Board requires banks to maintain certain minimum cash
balances consisting of vault cash and deposits in the Federal Reserve Bank.

                                       38
<PAGE>

The amount of such reserves is based on percentages of certain deposit types and
totaled $ 2,515,000 and $2,356,000 at December 31, 1997 and 1996, respectively.


NOTE 3 - INVESTMENT SECURITIES:

The amortized cost and estimated market value of securities available for sale
are as follows:

<TABLE>
<CAPTION>
                                                         GROSS       GROSS         ESTIMATED
                                         AMORTIZED     UNREALIZED  UNREALIZED       MARKET
DECEMBER 31, 1997                           COST         GAINS      LOSSES           VALUE
                                      -----------------------------------------------------------
<S>                                    <C>            <C>         <C>              <C>
U.S. Treasury securities and
 obligations of U.S. government        $ 14,920,070     $270,302  $  (3,672)         $15,186,700
     corporations and agencies
State and political subdivision           4,812,298      112,351     (1,449)           4,923,200
     obligations
Mortgage-backed securities               14,163,181       98,359    (14,940)          14,246,600
                                      -----------------------------------------------------------
                 TOTALS                $ 33,895,549   $  481,012  $ (20,061)       $  34,356,500
                                      -----------------------------------------------------------

DECEMBER 31, 1996
U.S. Treasury securities and
     obligations of U.S. government
     corporations and agencies        $  26,662,060     $289,841  $ (28,901)       $  26,923,000
State and political subdivision             501,030        4,170          -              505,200
     obligations
Mortgage-backed securities                8,670,308       20,605    (13,913)           8,677,000
                                      -----------------------------------------------------------
                 TOTALS               $  35,833,398     $314,616   $(42,814)       $  36,105,200
                                      -----------------------------------------------------------
</TABLE>

The amortized cost and estimated market value of securities held to maturity are
as follows:

<TABLE>
<CAPTION>
                                                         GROSS       GROSS         ESTIMATED
                                         AMORTIZED     UNREALIZED  UNREALIZED       MARKET
DECEMBER 31, 1997                           COST         GAINS      LOSSES           VALUE
                                      -----------------------------------------------------------
<S>                                    <C>            <C>         <C>              <C>
U.S. Treasury securities
     obligations of U.S government
     corporations and agencies         $11,958,264    $  210,724  $  (588)         $  12,168,400
State and political subdivision
     obligations                        24,961,440       895,029   (2,769)            25,853,700
                                         6,189,618        35,303   (4,721)             6,220,200
                                      -----------------------------------------------------------
                       TOTALS          $43,109,322    $1,141,056  $(8,078)          $ 44,242,300
                                      -----------------------------------------------------------

DECEMBER 31,1996
U.S. Treasury securities and
     obligations of U.S. government
     corporations and agencies         $12,203,294    $  277,063  $(14,557)         $ 12,465,800
State and political subdivision
     obligations                        24,413,840       659,466   (34,006)           25,039,300
Mortgage-backed securities               5,454,735        28,603   (19,738)            5,463,600
                                      -----------------------------------------------------------
                       TOTALS          $42,071,869    $  965,132  $(68,301)         $ 42,968,700
                                      -----------------------------------------------------------
</TABLE>

The market values of securities are estimated utilizing independent pricing
services and are based on available market data.  The market values of state and
political subdivision obligations that are not actively traded

                                       39
<PAGE>

are determined by independent pricing services based on market transactions in
comparable securities and various relationships between securities.

The amortized cost and estimated market value of debt securities at December 31,
1997, by contractual maturity, are shown below.  Actual maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations.

<TABLE>
<CAPTION>

                                  AVAILABLE FOR SALE               HELD TO MATURITY
                            -----------------------------          ----------------
                                                ESTIMATED                 ESTIMATED
                             AMORTIZED           MARKET      AMORTIZED    MARKET
                              COST               VALUE         COST        VALUE
                            -------------------------------------------------------


<S>                               <C>          <C>          <C>          <C>
Due within one year              $ 4,931,995  $ 4,952,100  $11,615,608  $11,681,900


Due after one year through
  five years                      11,006,411   11,173,400   16,564,209   16,906,900
Due after five years through
  ten years                        7,775,330    7,849,920   13,301,351   13,979,600
Due after ten years               10,181,813   10,381,080     1,628,15    1,673,900
                                 --------------------------------------------------
                                 $33,895,549  $34,356,500  $43,109,322  $44,242,300
                                 ==================================================
</TABLE>

No investments originating from a single source exceed 10% of shareholders
equity.The total amortized cost and market value of securities pledged to secure
public deposits, as required by law, was $  30,730,516 and $ 31,081,286,
respectively, at December 31, 1997.

NOTE 4 - LOANS:

Loans consisted of the following:

<TABLE>
<CAPTION>
                                                   DECEMBER 31,
                                            1997                   1996
                                        -----------------------------------
<S>                                     <C>                    <C>
Residential real estate                 $ 49,158,726           $ 45,656,220
Commercial real estate                    35,046,889             33,852,371
Commercial and industrial loans           33,616,025             28,118,416
Agricultural loans                        31,563,146             29,025,726
Consumer loans                            10,587,246              9,643,508
                                        -----------------------------------
                                        $159,972,032           $146,296,241
      Less - Allowance for loan losses    (2,028,600)            (1,841,200)
                                        -----------------------------------
                                        $157,943,432           $144,455,041
                                        ===================================

</TABLE>

Included in residential real estate loans are $ 8,843,953 and  $8,220,913 of
loans held for sale at December 31, 1997 and 1996, respectively. Loans serviced
for others, principally residential real estate loans, amounting to $ 11,161,100
and $11,476,300 at December 31, 1997 and 1996, respectively, are not included in
the consolidated financial statements.

Impaired loans totaled $ 576,000 and $406,000 at December 31, 1997 and 1996,
respectively.  The average recorded investment in impaired loans during 1997 and
1996 was $ 436,800 and $409,900, respectively.  The total allowance for loan
losses related to these loans was $ 73,700 and $120,700 at December 31 of 1997
and 1996, respectively.  Nonaccrual loans totaled  $556,900 and $492,000 at
December 31, 1997

                                       40
<PAGE>

and 1996, respectively. Accruing loans past due 90 days or
more totaled $97,500 and $371,800 at December 31, 1997 and 1996, respectively.
Interest income that would have been earned on nonaccrual loans as of December
31, 1997 and 1996, would have been $26,355 and $42,477, respectively. Interest
income that was recognized on these nonaccrual loans for 1997 and 1996 was
$4,326 and $0, respectively.

An analysis of changes in the allowance for possible loan losses is as follows:

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31,
                                                                                        1997        1996         1995
                                                                                    ------------------------------------
<S>                                                                                 <C>          <C>          <C>
Balance, beginning of year                                                          $1,841,200   $1,716,300   $1,526,900
  Provision expense                                                                    368,165      282,510      324,363
  Charge-offs                                                                         (216,280)    (185,599)    (216,615)
  Recoveries                                                                            35,515       27,989       81,652
                                                                                    ------------------------------------
Balance, end of year                                                                $2,028,600   $1,841,200   $1,716,300
                                                                                    ====================================
</TABLE>

NOTE 5 - PREMISES AND EQUIPMENT:

Premises and equipment, net of accumulated depreciation and amortization,
consisted of the following:


<TABLE>
<CAPTION>                                                              December 31,
                                                                   1997             1996
                                                                --------------------------
<S>                                                             <C>             <C>
 Land and improvements                                          $  320,976       $  320,976
 Premises                                                        5,005,423        4,128,631
 Furniture, fixtures and equipment                               4,193,163        3,714,634
 Leasehold improvements                                            176,070          176,070
                                                                ---------------------------
                                                                 9,695,632        8,340,311
       Accumulated depreciation and amortization                (3,275,761)      (2,691,017)
                                                                ---------------------------
                                                                $6,419,871       $5,649,294
                                                                ===========================
</TABLE>

Depreciation and amortization expense relating to premises and equipment was
approximately  $649,200 in 1997, $547,500 in 1996 and $453,500 in 1995.

NOTE 6 - DEPOSITS:

Deposits consisted of the following:



<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                             1997                   1996
                                                        -----------------------------------
<S>                                                     <C>                     <C>
 Noninterest-bearing demand deposits                    $32,083,730            $ 28,132,327
 Negotiable order of withdrawal deposits                 30,538,409              31,826,528
 Savings deposits                                        34,559,819              34,282,225
 Money market deposits                                   11,504,838              11,323,102
 Certificates of deposit less than $100,000              87,528,729              78,481,603
 Certificates of deposit $100,000 or greater             20,989,799              24,236,237
                                                        -----------------------------------
                                                       $217,205,324            $208,282,022
                                                       ====================================

</TABLE>

At December 31,1997, the scheduled maturities of certificates of deposit in
1998, 1999, 2000, 2001, 2002 and thereafter are as follows $75,979,582,
$28,731,227, $2,347,185, $641,187, $219,347 and $600,000, respectively.

                                       41
<PAGE>

NOTE 7 - BORROWINGS:

At December 31, 1997, the Company had advances, secured by residential mortgage
loans, from the Federal Home Loan Bank of New York of $7,812,302. Advances from
the Federal Home Loan Bank of New York averaged approximately $ 7,863,000 during
1997, and the maximum amount outstanding at any month-end during 1997 was $
8,021,994. The borrowings have fixed rates of interest ranging from 6.04% to
7.97%, with a weighted average interest rate of 6.48%, and mature at various
dates through 2005. Principal repayments required in 1998, 1999, 2000, 2001, and
2002 are as follows: $5,273,500, $294,200, $316,500, $340,400 and $366,200,
respectively. At December 31, 1997, the Company has an available line of credit
with the Federal Home Loan Bank of New York of $23,829,100. There is no amount
outstanding on this line at December 31,1997. There are no significant
commitment fees associated with this line. Securities sold under agreements to
repurchase averaged approximately $1,837,000 during 1997, and the maximum amount
outstanding at any month-end during 1997 was $2,111,920.

NOTE 8 - SHAREHOLDERS' EQUITY:

The Company has 100,000 shares reserved for issuance under its fixed stock
option plan.  The options may be granted at prices not less than the fair market
value at the date of grant, vest over periods up to nine years, and expire no
later than ten years after the date of grant. There were no options granted in
1997 and 1995 and 17,000 options granted in 1996. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option pricing
model. The options granted during 1996 were valued using the following
assumptions:  a risk-free interest rate of 6.49 %; an expected life of seven
years; expected volatility of 14.98 %; and an expected dividend yield of 2.62 %.
The Company has not recognized any compensation cost associated with the
granting of options. Had the Company recognized compensation cost associated
with these options, net income and earnings per share would have been as
follows:

<TABLE> <CAPTION>
                                           YEAR ENDED DECEMBER 31,
                                    1997              1996           1995
                                 --------------------------------------------
<S>                               <C>               <C>            <C>
Proforma
  Net income                     $3,122,141        $2,864,681      $2,657,451
  Basic earnings per share            $3.30             $3.19          $ 3.02
  Diluted earnings per share          $2.99             $2.91          $ 2.86

</TABLE>

A summary of the status of the Company's stock option plan as of December 31,
1997, 1996 and 1995, and changes during the years ending on those dates is as
follows.


<TABLE>
<CAPTION>

                                        1997                   1996                      1995
                            ---------------------------------------------------------------------------
                                         WEIGHTED                  WEIGHTED                 WEIGHTED
                                         AVERAGE                    AVERAGE                 AVERAGE
                             SHARES   EXERCISE PRICE   SHARES    EXERCISE PRICE  SHARES  EXERCISE PRICE
<S>                         <C>            <C>         <C>             <C>      <C>         <C>
Outstanding at beginning
     of year                 71,492         $18         81,258          $15      81,258         $15

</TABLE>

                                       42
<PAGE>

<TABLE>
<CAPTION>
<S>                         <C>              <C>       <C>                <C>      <C>        <C>
Granted                           -           -         17,000            29       -           -
Exercised                   (20,766)         15        (25,016)           15       -           -
Forfeited                         -           -         (1,750)           15       -           -
                            --------------------------------------------------------------------------
Outstanding at year end      50,726          20         71,492           $18     81,258       $15
                            ==========================================================================
Options exercisable at
  year end                   16,924         $16         27,864           $15     46,505       $15
                            ==========================================================================
Fair value of options granted
  during the year                                        $7.99
                                                    ==============

</TABLE>

At December 31, 1997, there are 33,726 options outstanding with an exercise
price of $ 15 and a remaining contractual life of two years, and 17,000 options
outstanding with an exercise price of $ 29  and a remaining contractual life of
nine years.

During 1993, the Company sold 200,000 shares of its common stock with attached
warrants to purchase an additional 200,000 shares.  The warrants were
exercisable at $ 23.00 per share and expired on December 31, 1997.  Warrants for
164,700 shares and 14,400 shares were exercised during 1997 and 1996,
respectively. The total number of warrants exercised was 182,350.

NOTE 9 - INCOME TAXES:

The components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
                                YEAR ENDED DECEMBER 31,
                            1997          1996            1995
                        ------------------------------------------
    <S>                <C>             <C>             <C>
     Current:

       Federal          $1,055,800      $1,021,500      $1,210,150
       State               337,800         322,300         371,000
                        ------------------------------------------
                         1,393,600       1,343,800       1,581,150
                        ------------------------------------------
     Deferred:
       Federal              71,700           6,000        (223,000)
       State                21,700           1,200         (70,000)
                        ------------------------------------------
                            93,400           7,200        (293,000)
                        ------------------------------------------
                        $1,487,000      $1,351,000      $1,288,150
                        ==========================================

</TABLE>

The components of deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>

                                                                 DECEMBER 31,
                                                           1997                1996
                                                        ------------------------------
<S>                                                     <C>                  <C>
Deferred tax assets:
  Allowance for loan losses                              $643,100             $568,000
  Deferred compensation                                    90,000               85,700
  Unrealized gains recognized for tax purposes             59,200                   -
  Deferred loan origination fees and costs                 38,100               47,200
  Pension                                                  22,800                   -
  Other                                                     9,800               10,400
                                                         -----------------------------
                                                          863,000              711,300
                                                         -----------------------------
Deferred tax liabilities:
  Depreciation                                            443,000              172,200
  Pension                                                      -                 3,700
  Unrealized investment gains                             151,900              109,000
  Unrealized losses recognized for tax purpose                 -                20,900
                                                         -----------------------------
                                                          594,900              305,800
                                                         -----------------------------
NET DEFERRED TAX ASSET                                   $268,100             $405,500

</TABLE>

                                       43
<PAGE>

The Company believes that it is more likely than not that the net deferred tax
asset will be realized through future taxable earnings.

The provision for income taxes is different from that which would be obtained by
applying the statutory federal income tax rate to income before taxes.  The
items causing this difference are as follows:

<TABLE>
<CAPTION>


                                                     YEAR ENDED DECEMBER 31,
                                        1997                 1996                  1995
                             ------------------------------------------------------------------
                                             % OF                  % OF                  % OF
                                            PRETAX                PRETAX                PRETAX
                                 AMOUNT     INCOME     AMOUNT     INCOME     AMOUNT     INCOME
                             ------------------------------------------------------------------
<S>                            <C>          <C>      <C>          <C>      <C>          <C>


Expected tax at federal
 statutory rates               $1,571,700     34.0%    $1,435,000     34.0%  $1,342,000     34.0%

Increases (decreases)
 resulting from:
 Tax exempt interest             (384,300)    (8.3)      (331,000)    (7.8)    (320,000)    (8.1)
 State income taxes, net of
    federal benefit               237,300      5.1        214,000      5.0      199,000      5.0
 Other, net                        62,300      1.4         33,000       .8       67,150      1.7
                              ------------------------------------------------------------------
Provision for income taxes     $1,487,000     32.2%   $ 1,351,000     32.0%  $1,288,150     32.6%
                              ==================================================================

</TABLE>

NOTE 10 - EARNINGS PER SHARE :

The calculations of basic and diluted earnings per share are as follows:

<TABLE>
<CAPTION>
                                                           Year ended December 31, 1997
                                                           1997          1996       1995
                                                        ----------------------------------
<S>                                                     <C>           <C>        <C>
Income available to common shareholders                 $3,135,724    $2,870,341     $2,65

     BASIC EARNINGS PER SHARE
Weighted average shares outstanding                        946,220       899,117   880,959
        Basic earnings per share                        $     3.31    $     3.19     $3.02

     DILUTED EARNINGS PER SHARE
        Weighted average shares outstanding                946,220       899,117   880,959
           Dilutive effect of:
               Warrants                                     62,404        45,161    17,534
               Stock options                                35,276        39,108    31,123
                                                        ----------      --------   -------
    Adjusted weighted average shares outstanding         1,043,900       983,386   929,616
    Diluted earnings per share                          $     3.00      $   2.92  $   2.86
</TABLE>

NOTE 11 - EMPLOYEE BENEFIT PLANS:

The Company has a noncontributory defined benefit pension plan covering
substantially all employees.  Benefits are based on 1% of career average annual
compensation multiplied by the number of years of service, up to 40 years.  The
Company's funding policy is to contribute annually an amount, based on actuarial
computations, which

                                       44
<PAGE>

would satisfy the Internal Revenue Service's funding
standards.

Net pension expense includes the following components:

<TABLE>
<CAPTION>

                                                               YEAR ENDED DECEMBER 31,
                                                           1997           1996         1995
                                                         ------------------------------------
<S>                                                      <C>          <C>           <C>
 Service cost - benefits earned during the period        $  87,056     $  83,041    $  62,704
 Interest cost on projected benefit obligation              95,691        86,718       76,282
 Actual return on plan assets                             (228,741)     (194,835)    (168,603)
 Net amortization and deferral                             110,106        87,739       71,494
                                                         ------------------------------------
       NET PENSION EXPENSE                               $  64,112     $  62,663    $  41,877
                                                         ====================================

</TABLE>

The funded status of the plan was as follows:
<TABLE>
<CAPTION>

DECEMBER 31,                                                               DECEMBER 31,
                                                                        1997          1996
                                                                     ------------------------
<S>                                                                   <C>          <C>
Actuarial present value of benefit obligations:
  Vested benefit obligation                                           $1,144,289   $1,037,994
                                                                      -----------------------
 Accumulated benefit obligation                                       $1,256,993    $1,137,158
                                                                      ------------------------
Projected benefit obligation                                          $1,521,386    $1,381,795
Plan assets at fair value                                              1,635,664     1,454,079
                                                                      ------------------------
Excess of plan assets at fair value over projected
  benefit obligation                                                     114,278        72,284
Unrecognized net gain from past experience different
   from that assumed and effects of changes in assumptions              (136,424)      (23,217)
Unrecognized prior service cost                                             (322)         (350)
Unrecognized net transition asset                                        (33,949)      (41,022)
                                                                        ----------------------
(Accrued) prepaid pension cost                                         $ (56,417)       $7,695

</TABLE>


The projected benefit obligation at December 31, 1997 and 1996, was determined
using a discount rate of 7.00% and an assumed average rate of increase in future
compensation levels of 5.50%.  The expected long-term rate of return on plan
assets was 7.75%. The plan assets consist primarily of fixed income securities.
The unrecognized net transition asset as of January 1, 1989, is being amortized
over the remaining service lives of the participants at that date, which
approximates 14 years.

The Company also has an executive supplemental income plan which provides for
specified deferred compensation benefits payable to certain officers in the
event of death, disability or retirement.  The liability relating to this plan
was approximately $225,000 and $214,000 at December 31, 1997 and 1996,
respectively, and was determined using a discount rate of 8% and an assumed rate
of increase in future compensation of 3%.  There were charges to income related
to this plan in 1997 and 1996 of approximately $34,700 and $42,500,
respectively.  The Company is both owner and beneficiary of a life insurance
policy on the life of each participant, the proceeds from which can be used to
fund the after-tax cost of the promised benefits.  The cash surrender value of
such life insurance policies was approximately $562,000 and $559,000 as of
December 31, 1997 and 1996, respectively.

The Company sponsors a leveraged employee stock ownership plan (ESOP)

                                       45
<PAGE>

that covers all employees with one year of service, who work at least 1,000
hours per year and who have attained the age of 21. The Company purchased 61,200
shares of common stock in 1986 for $685,500, 15,050 shares in 1993 for $301,000,
5,500 shares in 1995 for $140,500, and 15,050 shares in 1997 for $346,150. The
Company has financed the purchase of ESOP shares with borrowings from the Bank,
which in turn borrows the amount from the Federal Home Loan Bank of New York.
The Company makes annual contributions to the ESOP equal to the ESOP's debt
service. As the debt is repaid, shares are released from collateral and
allocated to active employees, based on the proportion of debt service paid in
the year.



The Company accounts for its ESOP in accordance with Statement of Position 93-6,
"Employers' Accounting for Employee Stock Ownership Plans."  Accordingly, the
debt of the ESOP is recorded as debt and the shares pledged as collateral are
reported as unearned ESOP shares in the consolidated statement of condition.  As
shares purchased by the ESOP prior to December 31, 1992, are released from
collateral, the Company recognizes compensation expense based on actual cash
payments, which approximated or exceeded expense required to be recognized using
the share allocated method.  At December 31, 1994, there were approximately
2,500 shares that were accounted for using this method when released in 1995.
As shares purchased by the ESOP subsequent to December 31, 1992, are released
from collateral, the Company recognizes compensation expense equal to the
current market price of the shares, and the shares become outstanding for
earnings per share computations. Dividends on allocated ESOP shares are recorded
as a reduction of retained earnings; dividends on unallocated ESOP shares are
available for debt service. ESOP compensation expense was $101,800, $149,700 and
$168,700 for the years ended December 31, 1997, 1996 and 1995, respectively. The
ESOP shares are as follows:


<TABLE>
<CAPTION>
                                                    DECEMBER 31,
                                                  1997        1996
                                           ------------------------
<S>                                           <C>          <C>
  Allocated shares                            77,276        56,665
  Allocated shares withdrawn from plan        18,517        13,988
  Unreleased shares                           23,547        11,097
                                         --------------------------
      TOTAL ESOP SHARES                       82,306        81,750
                                         =========================
 Fair value of unreleased shares          $1,130,256      $341,200
                                          ========================
</TABLE>

NOTE 12 - RELATED PARTY TRANSACTIONS:

The Company has entered into transactions with its executive officers,
directors, principal shareholders, and companies in which such individuals have
10% or more ownership (related parties).  It is the Company's policy that all
related party transactions are conducted at "arms- length" and all loans and
commitments included in such transactions are made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other customers.

The aggregate amount of loans to such related parties at December 31,

                                       46
<PAGE>

1997, was $6,464,700. During 1997, new loans and increases in existing loans to
such related parties amounted to $12,606,600 and principal repayments amounted
to $11,789,700. At December 31, 1997, there were approximately $656,500 in
deposits from such related parties.

NOTE 13 - COMMITMENTS AND CONTINGENT LIABILITIES:

The Company operates one branch office under a noncancellable lease agreement
which expires in 2002.  Two other branch offices are located on land which is
being leased through 1999 and 2090, respectively.  These lease agreements
contain various renewal and purchase options at maturity.

Future minimum rentals under these leases are: 1998-2002, $9,600 per year. Total
rental expense was approximately $16,400 in 1997 and  $23,000 in 1996 and 1995.

NOTE 14 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK:

The Company is party to financial instruments with off-balance sheet risk in the
normal course of business in order to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit which involve, to varying degrees, elements of credit,
interest rate or liquidity risk in excess of the amount recognized in the
consolidated statement of condition. The Company's exposure to credit loss in
the event of nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is represented by the
contractual amounts of those instruments. The Company has experienced minimal
credit losses to date on its financial instruments with off-balance sheet risk.

The Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.  The Company controls
the credit risk of off-balance sheet instruments through credit approvals,
limits and monitoring procedures, and management evaluates each customer's
credit worthiness on a case-by-case basis.  The amount of collateral obtained is
based on management's credit evaluation of the customer.

Commitments to extend credit, which generally have fixed expiration dates or
other termination clauses, are legally binding agreements to lend to a customer
(as long as there is no violation of any condition established in the contract).
At December 31, 1997, the Company's total commitments to extend credit
approximated $ 32,612,000. Since a portion of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future liquidity requirements.

The Company has identified certain credit risk concentrations in

                                       47
<PAGE>

relation to its on- and off-balance sheet financial instruments. Credit risk is
defined as the possibility that a loss may occur from the failure of another
party to perform according to the terms of the contract. A credit risk
concentration results when the Company has a significant credit exposure to an
individual or a group engaged in similar activities or affected similarly by
economic conditions.

The Company's customers are located primarily in the counties of Genesee,
Wyoming and Livingston in New York State.  As Note 4 to the consolidated
financial statements indicates, approximately 20% of the Company's outstanding
loans are commercial loans to customers who are directly involved in the
agriculture industry, primarily dairy farmers.  In addition, there are other
commercial and industrial loans, real estate loans and consumer loans
outstanding to customers who are indirectly related to the agriculture industry.

NOTE 15 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:

 CASH AND SHORT-TERM INSTRUMENTS

 For those short-term instruments, the carrying amount represents an estimate of
 fair value.

 LOAN RECEIVABLES

           The fair value of loans is determined by utilizing a discounted cash
 flow model which considers scheduled maturities, repricing characteristics,
 prepayment assumptions and interest cash flows.

 DEPOSIT LIABILITIES

 The fair value of demand deposits, savings accounts, and certain money market
 deposits is the amount payable on demand at the reporting date.  The fair value
 of fixed-maturity certificates of deposit is determined by utilizing a
 discounted cash flow model which considers scheduled maturities, repricing
 characteristics and interest cash flows.

 BORROWINGS

 A discounted cash flow model utilizing rates currently available to the bank
 for debt with similar terms and remaining maturities is used to estimate fair
 value of existing debt.

 COMMITMENTS TO EXTEND CREDIT

 Fees charged for commitments to extend credit and stand-by letters of credit
 are not significant and are offset by associated credit risk with respect to
 certain amounts expected to be funded.

                                       48
<PAGE>

Accordingly, the fair value of the financial instruments is immaterial.

The estimated fair values of the Company's financial instruments are as follows:
1996

<TABLE>
<CAPTION>

                                     DECEMBER 31, 1997             DECEMBER 31,1996
                                 CARRYING                       CARRYING
                                  AMOUNT        FAIR VALUE       AMOUNT      FAIR VALUE
                                  -----------------------------------------------------
<S>                               <C>           <C>           <C>           <C>
Financial assets:
 Cash and due from banks          $ 10,863,023  $ 10,863,023  $ 11,115,746  $ 11,115,746
 Federal funds sold                  1,550,000     1,550,000       450,000       450,000
 Investment securities              79,168,153    80,301,131    79,328,369    80,225,200
 Loans, net of allowance
      for possible loan losses     157,943,432   158,960,000   144,455,041   143,592,000

Financial liabilities:
 Deposits                          217,205,324   217,395,300   207,494,297   209,191,000
 Securities sold under
      agreements to repurchase       1,673,911     1,673,911     1,702,729     1,702,729
 Advances from the Federal
       Home Loan Bank                7,812,302     7,812,302     8,144,797     8,144,797
 </TABLE>

The reported fair values of financial instruments are based on a variety of
factors. Accordingly, the fair values may not represent actual values of the
financial instruments that could have been realized as of year-end or that will
be realized in the future.

NOTE 16 - REGULATORY MATTERS:

The Company 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
Company's financial statements.  Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices.  The Company's capital amounts and
classification are 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 Company 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 of Tier I capital (as defined) to average
assets (as defined).  Management believes, as of December 31, 1997, that the
Bank meets all capital adequacy requirements to which it is subject.



As of December 31, 1997, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Company as well capitalized under the
regulatory framework for prompt corrective action.  To be categorized as well
capitalized the Company must maintain minimum total risk-based, Tier I risk-
based, Tier I leverage ratios as set forth in the table.
The Company's actual capital

                                       49
<PAGE>

amounts and ratios are also presented in the table.
There are no conditions or events since that
notification that management believes have changed the institution's category



<TABLE>
<CAPTION>


                                                                                            TO BE WELL
                                                                                         CAPITALIZED UNDER
                                                                   FOR CAPITAL           PROMPT CORRECTIVE
                                             ACTUAL             ADEQUACY PURPOSES        ACTION PROVISIONS
                             --------------------------------------------------------------------------------
                                      AMOUNT         RATIO       >AMOUNT      >RATIO    >AMOUNT      >RATIO
                             --------------------------------------------------------------------------------
<S>                                 <C>              <C>          <C>         <C>       <C>          <C>
AS OF DECEMBER 31, 1997:
 Total capital (to risk
 weighted assets):
  The Company                        $33,135,000      21.29%    $12,451,040     8.0%       N/A
  The Bank                            29,093,000      18.69%     12,465,760     8.0%   $15,582,200     10.0%
 Tier I Capital (to risk
 weighted assets):
  The Company                         31,190,000      20.04%      6,225,520     4.0        N/A
  The Bank                            27,064,000      17.39%      6,232,880     4.0%     9,349,320      6.0%
 Tier I Capital (to average
 assets):
  The Company                          31,190,00      12.18%      7,680,420     3.0%        N/A
  The Bank                            27,064,000      10.57%      7,690,590     3.0%    12,817,650      5.0%

AS OF DECEMBER 31, 1996:
 Total capital (to risk
  weighted assets):
  The Company                         26,830,000      17.96%    $11,948,600     8.0%         N/A
  The Bank                            25,931,000      17.63%     11,767,200     8.0%    $15,305,700    10.0%

Tier I Capital (to Risk
 Weighted Assets):
  The Company                         24,989,000      16.73%      5,974,300     4.0 %        N/A
  The Bank                            24,090,000      16.38%      5,883,000     4.0%      9,183,400     6.0%
 Tier I Capital (to Average
 Assets) :
  The Company                          24,989,000      10.55%     7,103,800     3.0%         N/A
  The Bank                             24,090,000      10.19%     7,093,700     3.0%     11,822,800     5.0%


</TABLE>

NOTE 17 - CONDENSED FINANCIAL INFORMATION:

The Company's principal asset is its investment in the Bank. The Bank is
restricted by law and related regulations as to the amount of funds that can be
transferred to the Company.  Under such restrictions, approval from regulatory
agencies is required for the declaration of dividends in any year that exceed
the total of net income of the subsidiary in the current year, plus retained net
income for the preceding two years.  At December 31, 1997, the Bank could
declare dividends of approximately $7,964,828 without prior approval from
regulatory agencies.

Condensed financial information of the Company follows:

<TABLE>
<CAPTION>

 STATEMENT OF CONDITION
                                                           DECEMBER 31,
                                                         1997         1996
                                                  ----------------------------
<S>                                              <C>               <C>
ASSETS
Cash and due from banks - The Bank of Castile     $ 3,826,493       $   865,099
Investment in The Bank of Castile                  27,657,967        25,022,418
Other assets                                          590,750            12,778
                                                  -----------------------------
                                                  $32,075,210       $25,900,295
                                                  =============================
LIABILITIES AND SHAREHOLDERS' EQUITY

</TABLE>

                                       50
<PAGE>

<TABLE>
<S>                                               <C>         <C>          <C>
Accrued expenses                                  $     4,475       $     4,475
Employee stock ownership plan loan payable            539,320           253,095
                                                  -----------------------------
        TOTAL LIABILITIES                             543,795           257,570

Common stock                                        1,124,852           939,386
Capital surplus                                    14,436,634        10,910,120
Retained earnings                                  16,428,534        14,046,314
Unearned employee stock ownership plan shares        (539,320)         (253,095)
Unrealized gain on investments, net                    80,715
                                                  -----------------------------
         TOTAL SHAREHOLDERS' EQUITY                31,531,415        25,642,725
                                                  -----------------------------
                                                  $32,075,210      $ 25,900,295
                                                  =============================



STATEMENT OF INCOME
                                                     YEAR ENDED DECEMBER 31,
                                                    1997         1996        1995
                                               -----------------------------------
<S>                                               <C>         <C>          <C>
Dividends received - The Bank of Castile          $771,691    $602,192    $909,902
Dividend income                                      1,979           -           -
                                               -----------------------------------
      TOTAL INCOME                                 773,670     602,192     909,902
Operating expenses                                 273,495     294,155     109,527
                                               -----------------------------------
Income before equity in undistributed income
 of subsidiary                                     500,175     308,037     800,375
Equity in undistributed income of
 subsidiary - The Bank of Castile                2,635,549   2,562,304   1,857,076
                                               -----------------------------------
       NET INCOME                               $3,135,724  $2,870,341  $2,657,451
                                               ===================================
</TABLE>




STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                YEAR ENDED DECEMBER 31,

                                              1997           1996          1995
                                     ---------------------------------------------
<S>                                     <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

 Net Income                                 $3,135,724    $2,870,341    $2,657,451
(64,044)

 Adjustments to reconcile net income to
     net cash provided by operating activities-
       ESOP compensation                       101,815       149,655           -
Equity in income of subsidiary              (3,407,240)   (3,164,496)   (2,766,978)
Increase in other assets                      (497,257)      (12,778)          -

          Decrease in accrued expenses               -             -       (12,964)
                                              -------------------------------------
        Net cash used in operating activities (666,958)     (157,278)     (122,491)
   (64,044)
                                              -------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Dividends received - The Bank of Castile      771,691       602,192       909,902
   520,470
                                              -------------------------------------
              Net cash provided by investing
                Activities                     771,691       602,192       909,902
   520,470
                                              -------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
   Cash dividends paid                        (753,504)     (602,191)     (484,542)
   Payment of current borrowings               (59,925)     (112,583)          -

    Proceeds from exercise of options and
      warrants                               4,099,590       706,440        74,750
    Repurchase of warrants                    (429,500)         -              -

</TABLE>

                                       51
<PAGE>

<TABLE>
<S>                                           <C>         <C>       <C>
Net cash provided by financing
      Activities                               2,856,661    (8,334) (409,792)
                                              -------------------------------
Net increase in cash and

      due from banks                           2,961,394   436,580   377,619
Cash and due from banks, beginning of year       865,099   428,519    50,900
                                              -------------------------------
Cash and due from banks, end of year          $3,826,493  $865,099  $428,519
                                              ===============================
</TABLE>


ITEM 8 -     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

    Not applicable.



                             PART III

ITEM 9 -     DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS OF THE REGISTRANT

    In accordance with the Bylaws of the Company, three (3)

classes of directors are elected in three (3) staggered three-year terms.  Each
director so elected serves for a term of three (3) years and until his successor
is duly elected and qualified.

    Executive officers serve until the next annual meeting of directors and
until their successors are appointed and qualified.

    Set forth below is certain information regarding the
executive officers and directors of the Company as of March 17, 1998.
<TABLE>
<CAPTION>


                                                         Positions
                                                         Held With
Name                                  Age                the Company           Address
<S>                                   <C>                 <C>               <C>

James H. Van Arsdale, III              77                Chairman of          71 Park Road East
                                                         the Board of         Castile, NY 14427
                                                         Directors

James W. Fulmer                        46                President, Chief     38 Wolcott Street
                                                         Executive Officer,   LeRoy, NY 14482
                                                         and Director

Charles L. Van Arsdale                  74               Director             5136 Park Road West
                                                                              Castile, NY 14427

Stanley J. Harmon                       77               Secretary and        4845 Luther Road
                                                         Director             Silver Springs, NY 14550

Gunther K. Buerman *                    54               Director         1186 Lake Road
                                                                              Webster, NY 14580
</TABLE>


                                       52
<PAGE>

<TABLE>

<S>                                    <C>                <C>                 <C>
Steven C. Lockwood                     38                 Treasurer           34 N. Lyon Street
                                                                              Batavia, NY 14020
</TABLE>
__________________________________
    * Mr. Beuerman, whose term expires at the Annual Meeting, has notified the
Company that he does not want to be considered for reelection to the Board of
Directors.

    James W. Fulmer also serves as a director of the Bank.  The principal
occupation or employment of each director and each executive officer of the
Company and the year in which each such director became a director of the
Company and/or the Bank is set forth below.

    Mr. James H. Van Arsdale, III, a director of the Company since 1981, was
named Chairman of the Board of Directors of the Company in 1981. Prior to that
time, Mr. Van Arsdale performed various managerial functions for the Bank and
held various executive offices of the Bank. He was the Chairman of the Board of
Directors of the Bank until 1992 when he retired. Mr. Van Arsdale had also been
a director of the Bank since 1948. Mr. Van Arsdale is the brother of Mr. Charles
L. Van Arsdale.

    Mr. James W. Fulmer has served as the President and Chief Executive Officer
of the Company since January 1, 1991, and as the Chief Executive Officer of the
Bank since January, 1996.  Before joining the Company as the Executive Vice
President in December, 1988, Mr. Fulmer held various executive positions with
Fleet Bank of New York (formerly known as Security New York State Corporation
and Norstar Bank) for approximately twelve (12) years and with the Genesee
Valley Penny Saver for approximately one year.  Mr. Fulmer has served as a
director of the Bank since 1988 and as Vice Chairman of the Board of Directors
of the Bank since 1991.  Effective May 1, 1992, he assumed the position of
Chairman of the Board of Directors of the Bank, and he currently serves as a
member of the Board of Directors of the Cherry Valley Cooperative Insurance
Company, Catholic Health System of WNY, Genesee Mercy Healthcare, the Genesee
County Industrial Development Agency, and is secretary of the Independent
Bankers Association of New York State.  He is also a member of the Board of
Directors of the New York State Bankers Association and Monroe Abstract & Title
Corporation.

    Mr. Charles L. Van Arsdale was the President of the Company from the date of
its incorporation in 1981 until December 31, 1990.  In addition, Mr. Van Arsdale
was a director of the Bank from 1949 until his retirement in 1996.  Prior to
1981, Mr. Van Arsdale performed several managerial functions for the Bank and
held various executive offices of the Bank.  Mr. Van Arsdale is the brother of
Mr. James H. Van Arsdale, III.

    Mr. Stanley J. Harmon, the Secretary of the Company since 1981, is a retired
funeral director.  Mr. Harmon also served as a director of the Bank from 1960
until April 30, 1993.

    Mr. Gunther K. Buerman has been a director of the Company since January 25,
1990.  Mr. Buerman has been a partner in the law firm of Harris Beach & Wilcox,
LLP located in Rochester, New York, since 1982 and has been the Managing Partner
of the firm since March, 1984. As set forth above, Mr. Buerman has informed the
Company that he does not want to be considered for reelection to the Board of
Directors.

                                       53
<PAGE>

    Mr. Steven C. Lockwood, Treasurer of the Company since
1992, is also the Chief Financial Officer for the Company and the Bank.  Mr.
Lockwood graduated from St. Bonaventure University in 1981, and joined the Bank
in 1982 as Internal Auditor.  Mr. Lockwood graduated from the Bank
Administration Institute School of Banking located in Madison, Wisconsin in
1995.



The following table sets forth the names and ages of the principal officers and
directors of the Bank and their current positions with the Bank.

<TABLE>
<CAPTION>

Name                            Age                     Position
<S>                             <C>            <S>
James W. Fulmer                  46            Chief Executive Officer,
                                               Chairman of the Board of
                                               Directors, and  Director
Robert L. Brass                  60            Director
Joseph G. Bucci                  54            Director
Brenda L. Copeland               46            President and Director
Thomas E. Cushing                47            Director
Gary D. Gates                    61            Director
Benjamin C. Mancuso, Jr.         64            Director
John McClurg                     36            Director
Craig Yunker                     46            Director
--------------------------------------------------------
</TABLE>

  James W. Fulmer also serves as a director of the Company.  The principal
occupation or employment of all other directors and principal officers of the
Bank and the year in which each such director and principal officer of the Bank
became a director or principal officer of the Bank, as the case may be, is set
forth below.

    Mr. Robert L. Brass, a director of the Bank since 1992,
is President of L.R. Brass, Inc., a retail food market.

    Mr. Joseph G. Bucci, a director of the Bank since 1986,
is a self-employed real estate agent.

    Ms. Brenda L. Copeland became the President of the Bank
on January 1, 1991.  In addition, she has served as a director of the Bank since
1988, and has been employed by the Bank since 1971.

    Mr. Thomas E. Cushing, a director since 1989, is the Vice President,
Secretary and Treasurer of J.O. Cook, Inc.

    Mr. Gary D. Gates, a director since 1986, is the President of Gary's TV,
Inc.

    Mr. Benjamin C. Mancuso, Jr., a director since 1992, is
President of Charles Mancuso and Son, Inc., a family-owned holding company.

    Mr. Craig Yunker, a director of the Bank since 1991, is
a partner in CY Farms.

                                       54
<PAGE>

    John McClurg, a director since 1995, is President and owner of McClurg
Chrysler-Plymouth, Inc. and McClurg Chevrolet-Pontiac-Oldsmobile, Inc., two
automobile dealerships located in Perry, New York.

ITEM 10 -    EXECUTIVE COMPENSATION

    The following tables show, for the years ended December

31, 1997, 1996, and 1995, respectively, the total cash compensation paid by the
Company and the Bank to executive officers who received total annual salary and
bonus in excess of $100,000 and to the Chief Executive Officer of the Company.

                          SUMMARY COMPENSATION TABLE

                              Annual Compensation

Name and                                         Other Annual
Principal                                        Compensation(2)

Position          Year   Salary($)(1)  Bonus($)      ($)
--------          -----  ----------    -----         ----
James W. Fulmer     1997    $141,463    $20,000     $   0
President, CEO      1996    $128,015    $17,500     $8,345
& Director of       1995    $119,111    $17,500     $8,345
the Company, and
Chairman of the
Board of the Bank
Brenda L. Copeland  1997    $113,311    $15,000     None
President of        1996    $105,601    $13,000     None
  the Bank          1995    $ 98,775    $13,000     None

                            Long Term Compensation
<TABLE>
<CAPTION>
                                                 Awards
                                                                Long Term
Name and                                 Restricted    Options  Incentive        All Other
Principal                               Stock Award(s)  SARs      Payout        Compensation(3)
Position                       Year          ($)        (#)        ($)               ($)
---------                     -------         --         --         --                --
<S>                           <C>            <C>        <C>        <C>             <C>
James W. Fulmer                1997          None       None       None            $16,087
President, CEO                 1996          None       None       None              7,349
& Director of                  1995          None       None       None             10,454
the Company, and
Chairman of the
Board of the Bank

Brenda L. Copeland             1997          None       None       None            $16,477
President of
 the Bank                      1996          None       None       None              6,042
                               1995          None       None       None              8,648
</TABLE>
--------------------------

(1) Includes matching contributions under the Company's 401(k) plan in an amount
equal to $3,680.30, $3,290.30, and $3,050.32, respectively, for James W. Fulmer,
and $2,999.04, $2,790.00, and $2,624.96, respectively, for Ms. Brenda L.
Copeland, for the years ended December 31, 1997, 1996, and 1995, respectively,
as well as director's fees and certain fringe benefits such as automobiles and
group term life insurance.

(2) The amounts disclosed represent the Company's contribution pursuant to the
Executive Supplemental Income Agreements executed by and between the Company and
Mr. Fulmer.  See "Executive Compensation - Benefits --Executive Supplemental
Income Agreements."

                                       55
<PAGE>

  (3) The amounts disclosed represent the portion of Company's contribution to
the Employee Stock Ownership Plan ("ESOP") allocated to Mr. Fulmer and Ms.
Copeland, respectively.

    During 1997, all directors of the Company received an amount equal to $3,350
per year.  During 1997, the Board of Directors of the Company met six (6) times,
and all of the directors attended 75% or more of the meetings.

    During 1997, the directors of the Bank each received an annual retainer of
$7,550 in lieu of meeting attendance fees. During 1997, the Board of Directors
of the Bank met fourteen (14) times. Two (2) of the members of the Board of
Directors of the Bank entered into a certain Deferred Compensation Agreement
relating to all amounts received from the Bank during the period from 1986 until
1990. Under these agreements, all fees earned as a director during that period
are deferred until such director's death or retirement from the Board of
Directors of the Bank. Payments of the fees so deferred, as well as all earnings
on such deferred amounts, are then paid to such director or his beneficiary, as
the case may be, in one hundred twenty (120) equal monthly installments. The
Bank does not currently intend to offer such agreements to other members of its
Board of Directors.

    In addition, during 1997, one designated director of the Board of Directors
of the Bank received a weekly fee of $100 for his services in connection with
the Bank's Loan Committee. Members of the Examining Committee also receive a
quarterly fee of $100 in lieu of meeting attendance fees.

Employment Contracts

    On January 1, 1991, James W. Fulmer began to serve as the President and
Chief Executive Officer of the Company in accordance with his employment
agreement dated September 12, 1989, as amended, effective January 1, 1991.
Subsequently, on May 1, 1992, Mr. Fulmer became the Chairman of the Board of
Directors of the Bank. Pursuant to the terms of the agreement, as amended, each
year the term of Mr. Fulmer's employment agreement is automatically extended for
an additional year so that the term of the employment agreement is always three
(3) years.  In the event that the Company terminates the employment agreement
without cause, the Company is required to pay Mr. Fulmer, as severance pay, his
annual compensation plus all fringe benefits for a period of three (3) years
from the date of such termination.  In addition, in the event of such
termination without cause or the sale, merger, or substantial reorganization of
the Company or the Bank, all of Mr. Fulmer's options to purchase common stock
shall become immediately exercisable.  See "Executive Compensation - Benefits --
Stock Option Plan."

    Effective January 1, 1991, the Company entered into an amended employment
agreement with Ms. Brenda L. Copeland whereby Ms. Copeland agreed to serve as
the President of the Bank or in any other capacity that the Board of Directors
of the Company or the Bank may reasonably request.  Each year the term of Ms.
Copeland's employment agreement is automatically extended for an additional year
so that the term of the employment

                                       56
<PAGE>

agreement is always three (3) years. In the event that the Company terminates
the employment agreement without cause, the Company is required to pay Ms.
Copeland, as severance pay, her annual compensation plus all fringe benefits for
a period of eighteen (18) months from the date of such termination. In addition,
in the event that the Company terminates the employment agreement as a result of
a change of "control" of the Company, the Company is required to pay Ms.
Copeland, as severance pay, her annual compensation plus all fringe benefits for
a period of three (3) years from the date of such termination. For purposes of
the employment agreement, the term "control" is defined as the possession of the
power to elect a majority of the members of the Board of Directors of the
Company through the ownership of voting securities in the Company.

Benefits

    Employee Stock Ownership Plan.  In 1986, the Board of Directors of the
    -----------------------------
Company adopted the Employee Stock Ownership Plan ("ESOP"), effective as of
January 1, 1986. Employees eligible to participate in the ESOP are all employees
who have met the eligibility requirements on the effective date of adoption of
the ESOP, and any employees hired subsequent to that date who have completed one
year of service, work at least 1,000 hours per year, and have attained the age
of 21 years. Contributions to the ESOP are discretionary, as determined by the
Board of Directors of the Bank. All funds contributed are received, held,
invested and reinvested by the ESOP trustee. Although the trustee may invest the
funds contributed to the ESOP in such prudent investments as the trustee deems
desirable, substantially all the trust funds are invested in the common stock of
the Company.

    Each participant is entitled to direct the trustee as to the exercise of any
voting rights attributable to the shares of common stock allocated to such
participant and if the trustee receives no voting instructions, the shares of
common stock are not voted. All common stock of the ESOP not allocated to the
plan participants is voted by the trustee in its sole discretion. The ESOP also
contains provisions permitting the ESOP to borrow funds to purchase common stock
and on June 16, 1986, the ESOP borrowed $500,000 pursuant to a certain loan and
pledge agreement with two (2) unaffiliated banks. The proceeds of the loan were
used to purchase approximately 48,000 newly issued shares of common stock, after
giving effect to a 6-for-1 stock split of the Company, with such shares pledged
as security for the payment of principal and interest as provided in the above-
mentioned agreement. All amounts due and owing under this loan have been
satisfied.

    In November of 1990, the Company borrowed $185,500 on behalf of the ESOP
pursuant to a loan and pledge agreement with an unaffiliated bank.  The loan
proceeds were used to purchase 14,000 shares of the Company's outstanding stock,
with such shares pledged as security for the payment of principal and interest
as provided in said agreement.  In November of 1993, the Company borrowed
$301,000 on behalf of the ESOP to purchase 15,050 shares of the Company's common
stock and 15,050 warrants to purchase additional shares of common stock as part
of the public offering.  All amounts due and owing under these loans were
subsequently refinanced with the Bank (with appropriate collateral granted to
the Bank), which in turn, borrowed the funds from the Federal Home Loan Bank
under an existing

                                       57
<PAGE>

accommodation. In 1995, the Company borrowed $140,511 on behalf of the ESOP to
purchase 5,500 shares of common stock. During 1997, the ESOP exercised its
warrants and purchased 15,050 shares of common stock from the Company for an
amount equal to $346,150.

    Upon an ESOP participant's retirement, disability or
death, as those terms are defined in the ESOP, the participant shall be fully
vested in all amounts allocated to such participant under the ESOP, as well as
such participant's share in the allocation of all contributions made by the
Company during the "Plan Year" (as that term is defined in the ESOP) in which
such retirement, disability or death occurs.  In the event a participant's
service terminates for any reason other than retirement, disability or death,
such participant's account becomes vested based upon the number of years of
"Credited Service" of such participant (as that term is defined in the ESOP) in
accordance with the following schedule, as amended so as to comply with the
requirements of the Tax Reform Act of 1986, as amended (the "1986 Act"):


<TABLE>
<CAPTION>

    Credited Service             Vested Percentage
    <S>                                <C>
    Less than three years                 0%
    Three years                          30%
    Four years                           40%
    Five years                          100%

</TABLE>

    Contributions to the ESOP amounted to $101,800 , $149,700, and $168,700, for
the years ended December 31, 1997, 1996, and 1995, respectively. See Note 11 to
"Notes to Consolidated Financial Statements" included in this Annual Report on
Form 10-KSB on pages 50-52.

    Defined Benefit Pension Plan.  The Company maintains a
    ----------------------------
defined benefit pension plan for the benefit of all employees covered under the
Company's prior pension plan and any other employees with at least six (6)
months of service who work at least 1,000 hours per year and have attained the
age of 21 years.  Amounts contributed to the pension plan for each covered
employee by the Company are determined on an actuarial basis.  The discount rate
used in determining the actuarial present value of accumulated benefits was
seven percent at December 31, 1997 and at December 31, 1996, respectively. See
Note 11 to "Notes to Consolidated Financial Statements" included in this Annual
Report on Form 10-KSB on pages 50-52.

    Under the plan, a participant is eligible for the "Normal Retirement Pension
Benefits" upon attainment of age 65 years. Vested employees who terminate before
attaining age 65 may elect optional early retirement benefits (at reduced
levels).

    The following table sets forth the current regular vesting schedule for
participants under the plan, as amended so as to comply with the requirements of
the 1986 Act:

<TABLE>
<CAPTION>

    Years of Service        Vested Percentage
    <S>                    <C>
    Less than three years          0%
    Three years                   20%

</TABLE>

                                       58
<PAGE>

<TABLE>

<S>                              <C>
    Four years                    40%
    Five years                    60%
    Six years                     80%
    Seven years                  100%

</TABLE>

An employee's "Normal Retirement Pension" benefit under the plan is an amount
(payable monthly in the form of a life only annuity) equal to the product of 1%
of such employee's "Average Compensation" and such employee's years of "Benefit
Accrual Service" (not to exceed forty (40) years), as those terms are defined in
the plan. The following table sets forth the annual Normal Retirement Pension
benefit at age 65 to an employee covered by the plan for each of the following
Average Compensation amounts and periods of Benefit Accrual Service with the
Company.


                Normal Retirement Pension Benefit
               for Years of Benefit Accrual Service
<TABLE>
<CAPTION>


Average
<S>         <C>       <C>       <C>       <C>       <C>       <C>
Compensation 15 Years  20 Years  25 Years  30 Years  35 Years  40 Years

$15,000      $ 2,250    $ 3,000  $  3,750  $ 4,500    $ 5,250  $ 6,000

$30,000      $ 4,500    $ 6,000  $  7,500  $ 9,000    $10,500  $12,000

$45,000      $ 6,750    $ 9,000  $ 11,250  $13,500    $15,750  $18,000

$60,000      $ 9,000    $12,000  $15,000`  $18,000    $21,000  $24,000

$75,000      $11,250    $15,000  $ 18,750  $22,500    $26,250  $30,000

</TABLE>

The pension plan also provides for certain disability retirement benefits and
death benefits as well as optional forms of payment of benefits which a covered
employee may elect.  The benefits provided for under the plan are in addition to
and separate from the benefits available to the participants under the Social
Security Act.

    The pension plan was adopted in 1986, to be effective as
of January 1, 1986, the date in which the Company terminated its former defined
benefit pension plan.  There were no contributions made in 1997  1996, or 1995.

    401(k) Plan. The Bank maintains a qualified 401(k) plan,
    -----------
entitled "The Bank of Castile Salary Savings Plan", to encourage the
accumulation of savings for retirement or other purposes. Employees of the Bank
who have attained the age of 20-1/2 years are eligible to join the plan
following the completion of three (3) months of service.

    Under the terms of the plan, participants may elect to

                                       59
<PAGE>

contribute from 1% to 6% of their eligible salary and the Bank contributes an
amount equal to 50% of this participant contribution for employees.  Employees
may elect to contribute up to an additional 9% of eligible salary without any
matching Bank contribution.

    All amounts contributed into the plan are invested with the Principal Mutual
Life Insurance Company (formerly known as Bankers Life Company), with its
principal office located at 711 High Street, Des Moines, Iowa. Pursuant to the
plan, contributions by and for employees are held in trust by the Bank.

    Participants are immediately fully vested in all contributions to the plan.
Withdrawals of contributions are subject to limitations and generally not
permitted, except in the event of hardship, until termination of employment, or
the participant's attainment of "Normal Retirement Age", as that term is defined
in the plan. During 1997, the Company contributed a total of $3,680.30 as a
matching contribution for James W. Fulmer, and $2,999.04 as a matching
contribution for Brenda L. Copeland, which amounts are included in the Summary
Compensation Table set forth on pages 61-62 of this Annual Report on Form 10-
KSB.

    Executive Supplemental Income Agreements.  The Bank has also entered into
    ----------------------------------------
certain executive supplemental income agreements which provide for specified
deferred compensation benefits payable to certain highly compensated officers
and members of a select management group of the Bank in the event of death,
disability or retirement. The Board of Directors, in its sole discretion,
determines who is eligible to participate in this arrangement. Although the Bank
is not under any obligation whatsoever to fund its obligations under the above-
mentioned agreements, the Bank is both the owner and beneficiary of a life
insurance policy on the life of each participant, the proceeds from which can be
used to fund the after-tax cost of the promised benefits. Charges to income
related to these agreements were approximately $34,700, $42,500, and $37,000 for
the years ended December 31, 1997, 1996, and 1995, respectively.

    Under these agreements, a participant who has reached "Normal Retirement
Age," as that term is defined in the agreements, and has attained twenty (20)
continuous years of service with the Bank (including periods of disability and
authorized leaves of absence) receives an annual amount equal to the difference
between (i) 75% of such officer's average "Annual Compensation," as that term is
defined in the agreements, during his final five (5) calendar years of
employment with the Bank, and (ii) the sum of all social security benefits paid
to such officer and any amounts paid to such officer under the Company's defined
benefit pension plan. Participants may retire after age 55 with the approval of
the Board of Directors and in the event that there has been a buy-out, merger,
or substantial change in ownership of the Bank, an officer may retire at any
time after attaining the age of 55 years without approval of the Board of
Directors. In either case, the benefits available on early retirement are equal
to the benefits available at "Normal Retirement Age," actuarially reduced. The
agreements also contain certain provisions for the payment of pre-"Normal
Retirement Age" death benefits.

                                       60
<PAGE>

    Stock Option Plan.  At the Annual Meeting of Shareholders of the Company on
    -----------------
April 26, 1990, the shareholders approved the Letchworth Independent Bancshares
Corporation Stock Option Plan of 1990 (the "Option Plan").  The purpose of the
Option Plan is to increase the incentive and to encourage the continued
employment and services of key employees of the Company and the Bank by
facilitating their purchase of a stock interest in the Company. Management
believes that the implementation of the Option Plan is in the best interests of
the Company and its shareholders since it will enhance the Company's ability to
continue to attract and retain qualified directors, officers and other key
employees.

        Under the Option Plan, the Board of Directors may grant incentive stock
options as well as options that do not qualify as incentive stock options ("non-
statutory stock options").  The Board of Directors determines the individuals to
receive grants and the number of shares to be awarded, subject to certain
federal tax regulations in the case of incentive stock options granted under the
Option Plan.  The Option Plan provides that the exercise price under each
incentive stock option shall be no less than 100% of the "Fair Market Value" (as
defined in the Option Plan) of the common stock on the date the option is
granted.  The exercise price for each non-statutory stock option granted under
the Option Plan is the price established by the Board of Directors of the
Company, which normally is expected to be no less than 100% of the "Fair Market
Value" (as defined in the Option Plan) on the date the option is granted.

    On May 3, 1990, the Company issued options to acquire
81,258 shares of its common stock at a purchase price of $15.00 per share. On
July 16, 1996, the Company granted options to acquire 17,000 shares of its
common stock at a purchase price of $29.00 per share.

  As of December 31, 1997, 45,782 stock options have been exercised under the
Option Plan, 20,766 of which were exercised in 1997. During 1997, James W.
Fulmer and Brenda L. Copeland exercised 10,000 options and 8,400 options,
respectively, and Mr. Fulmer and Ms. Copeland have exercised a total of 20,000
options and 16,800 options, respectively.  The following table shows the
aggregate number of options outstanding as of March 17,1998 for each of James W.
Fulmer and Brenda L. Copeland, and for all executive officers as a group.


<TABLE>
<CAPTION>

                       Number of Options   Average Per
                          Outstanding      Share Price*
<S>                         <C>                 <C>
James W. Fulmer             13,576              $15.00
Brenda L. Copeland           8,382              $15.00
All Executive
  Officers as a Group       24,458              $16.43**

</TABLE>
 --------------------
* This price represents the "Fair Market Value," as that term is defined in the
Option Plan, of the common stock of the Company on the date that the options
were granted.

** This price represents a weighted average of the exercise price of all options
currently outstanding to all executive officers of the Company.

                                       61
<PAGE>

  The following table shows the number of options exercised, and the value of
the "in-the-money" options exercised, by each of Mr. Fulmer and Ms. Copeland
during 1997, as well as the breakdown between options granted to James W. Fulmer
and Brenda L. Copeland that were exercisable and unexercisable as of December
31, 1997, and the potential value of "in-the-money" options, both exercisable
and unexercisable, as of December 31, 1997.  "In-the-money" options are those
options where the fair market value of the Company's common stock as of the
close of the fiscal year was in excess of the exercise price established on the
grant date.  This value is only realized by the executive when the option is
exercised and will fluctuate with changes in the price for the Company's common
stock after the close of the fiscal year.
<TABLE>
<CAPTION>


                                                                    No. of Unexercised    Value of "In-the-Money"
                                                                       Options at         Unexercised Options at
                              Shares                                December 31, 1997       December 31, 1997
                             Acquired            Value                  (Exercisable/        (Exercisable/
Name                       on Exercise         Realized*               Unexercisable)**      Unexercisable)

<S>                   <C>             <C>                 <C>                      <C>
James W. Fulmer              10,000             $317,500                13,576/ 0            $448,008/ $0
Brenda L. Copeland            8,400              266,700                 8,382/ 0            $276,606/  0

</TABLE>

*  Represents the value of "in-the money" options on that date that the options
were exercised by Mr. Fulmer and Ms. Copeland during 1997.
Assumes that the "Bid" price of $46.75 at October 29, 1997, the date of
exercise, represented a reasonable valuation of the Company's common stock. As
of the date of this Annual Report on Form 10-KSB, neither Mr. Fulmer nor Ms.
Copeland have sold any of the shares of common stock acquired by the exercise of
said options.

** Assumes that the "Bid" price of $48.00 at December 31, 1997 represents a
reasonable valuation of the Company's common stock.

  No assurances can be given relating to the dilutive effect
that the Option Plan or options granted thereunder may have on the outstanding
common stock.

ITEM 11 -    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    Based upon information made available to the Company, the following table
sets forth certain information as of March 24, 1998, with respect to the
beneficial ownership of common stock by the only persons or entities known to
the Company to be the beneficial owner of more than 5% of the Company's
outstanding common stock, each director of the Company, and as to all executive
officers and directors as a group:

                            Amount and
                            Nature of      Percent of
                            Beneficial     Common Stock
Name and Address            Ownership(1)   Outstanding (2)
<TABLE>
<CAPTION>
<S>                           <C>                <C>
Charles L. Van Arsdale        75,270 (3)          6.56%
5136 Park Road West
Castile, NY  14427
</TABLE>


                                       62
<PAGE>

<TABLE>
<S>                                                       <C>           <C>
James H. Van Arsdale, III                                  37,283 (4)    3.25%
71 Park Road East
Castile, NY 14427

James W. Fulmer                                            38,466 (5)    3.35%
38 Wolcott Street
LeRoy, New York  14482

Stanley J. Harmon                                           9,594        0.84%
Luther Road
Silver Springs, New York 14550

Brenda L. Copeland                                         34,697 (6)    3.02%
130 South Main Street
Gainesville, New York  14066

Gunther K. Buerman                                          4,200         .37%
1186 Lake Road
Webster, New York  14580

Steven C. Lockwood                                          1,931(7)      .17%
34 North Lyon Street
Batavia, New York 14020

Letchworth Independent Bancshares Corporation Employee    Stock Ownership Plan
50 North Main Street                                       82,702 (8)    7.20%
Castile, New York  14427
Executive officers and
directors, as a group
(7 persons)                                             201,441 (9)        17.55%
</TABLE>
___________________________________
(1) Except for the shares of common stock beneficially owned by the Letchworth
Independent Bancshares Corporation Employee Stock Ownership Plan (the "ESOP"),
all such shares are owned with sole investment and voting power.

(2)  These percentages have been calculated based upon 1,148,060 shares of the
Company's common stock outstanding, which amount includes the shares of
common stock that Mr. Fulmer, Ms. Copeland and Mr. Lockwood have the right
to acquire pursuant to the exercise of certain options granted under the
Option Plan that are exercisable within sixty (60) days of the date of this
Annual Report on Form 10-KSB.

(3)  Includes 18,668 shares of common stock owned by Mr. Van Arsdale's wife.

(4) Includes 4,851 shares of common stock owned by Mr. Van Arsdale's wife.

(5) Includes 13,576 shares of common stock that Mr. Fulmer has the right to
acquire by the exercise of certain stock options granted under the Option Plan
that are exercisable within sixty (60) days of the date of this Annual Report on
Form 10-KSB, as well as 3,182 shares of common stock allocated to Mr. Fulmer
under the ESOP and 309 shares of common stock owned by Mr. Fulmer's wife.

(6) Includes 8,382 shares of common stock that Ms. Copeland has the right to
acquire by the exercise of certain stock options granted under the Option

                                       63
<PAGE>

Plan that are exercisable within sixty (60) days of the date of this Annual
Report on Form 10-KSB, as well as 569 shares of common stock that Ms. Copeland
has or would have voting control as custodian under the New York Uniform Gift to
Minors Act, 3,581 shares of common stock allocated to Ms. Copeland under the
ESOP, and 228 shares of common stock owned by Ms. Copeland's husband.

(7) Includes 1,517 shares of common stock allocated to Mr. Lockwood under the
ESOP, as well as 250 shares of common stock that Mr. Lockwood has the right to
acquire by the exercise of certain stock options granted under the Option Plan
that are exercisable within sixty (60) days of the date of this Annual Report on
Form 10-KSB.

(8) Includes the shares of common stock allocated to Mr. Fulmer, Ms. Copeland
and Mr. Lockwood in accordance with footnotes (5), (6), and (7) above. The
participants in the ESOP have the sole power to vote shares and dispositive
powers for shares which have been allocated to participant accounts.  Only
23,547 shares of common stock in the ESOP have not been allocated to participant
accounts.  See    "Item 11 - Executive Compensation -- Benefits --- Employee
Stock Ownership Plan."

(9)    Includes all of the shares of common stock referenced in footnotes
(3),(4), (5), (6), and (7) above.


ITEM 12 -    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Certain of the directors and officers of the Company and
the Bank, members of their families and companies or firms with which they are
associated, were customers of and had banking transactions with the Bank in the
ordinary course of business during 1997.  All loans and commitments to loan
included in such transactions were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and, in the opinion of management,
did not involve more than a normal risk of collectibility or present other
unfavorable features.  None of such loans outstanding to directors or officers
of the Company, members of their families or companies or firms with which
directors or officers of the Company are associated were non-performing as of
December 31, 1997.  Total loans outstanding to all directors and executive
officers of the Company and the Bank amounted to $6,464,700 at December 31,
1997.



ITEM 13 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) Financial Statements and Report of Independent Accountants:

                                       64
<PAGE>

      The following financial statements and accountant's report are included in
this Annual Report on Form 10-KSB on the following pages:

<TABLE>
<CAPTION>
                                                     Page
     <S>                                            <C>
     Report of Independent Accountants.........     35-36

     Consolidated Statement of Condition
     as of December 31, 1997 and 1996..........     36-37

     Consolidated Statement of Income for
     the Years Ended December 31, 1997, 1996
     and 1995..................................     37-38

     Consolidated Statement of Changes in
     Shareholders' Equity for the Years Ended
     December 31, 1997, 1996, and 1995........      38

           Consolidated Statement of Cash Flows
     for the Years Ended December 31, 1997 and
     1996 and 1995.............................     38-39

     Notes to Consolidated Financial
     Statements................................     39-57

(2)  Financial Statement Schedules:

</TABLE>

    All financial statement schedules have been omitted as they are not
applicable, not required, or the information is included in the Consolidated
Financial Statements or the Notes thereto.



(3)  Exhibits:

      3(a)  Certificate of Incorporation of Registrant filed by the New York
            Department of State on July 17, 1981, incorporated by reference to
            the Registrant's Registration Statement on Form S-18 (Reg. No.
            33-31149-NY), filed with the Commission on September 2, 1989, and
            wherein such Exhibit is designated Exhibit

      3(b)  Certificate of Amendment to Certificate of Incorporation of
            Registrant filed by the New York Department of State on July 26,
            1989, incorporated by reference to the Registrant's Registration
            Statement on Form S-18 (Reg. No.33-31149-NY), filed with the
            Commission on September 2, 1989, and wherein such Exhibit is
            designated Exhibit 3(b).

      3(c)  Certificate of Amendment to Certificate of Incorporation of
            Registrant filed by the New York Department of State on May

                                       65
<PAGE>

            2, 1990, incorporated by reference to the Registrant's Quarterly
            Report on Form 10-Q for the quarter ended June 30, 1990 and filed
            with the Commission on August 9, 1990, and wherein such Exhibit is
            designated Exhibit (4)-b.

      3(d)  Bylaws of Registrant, as amended by the stockholders of the
            Registrant at a special meeting of stockholders on July 11,
            1989,incorporated by reference to the Registrant's Registration
            Statement on Form S-18 (Reg. No. 33-31149-NY), filed with the
            Commission on September 2, 1989, and wherein such Exhibit is
            designated Exhibit 3(c).

      4(a)  Form of Common Stock Certificate of Registrant, incorporated by
            reference to the Registrant's Amendment No. 1 to Form S-18
            Registration Statement (Reg. No. 33-31149-NY), filed with the
            Commission on October 31, 1989, and wherein such Exhibit is
            designate Exhibit 4.

      4(b)  Letchworth Independent Bancshares Corporation Stock Option Plan of
            1990 and form of Stock Option Agreement, incorporated by reference
            to the Registrant's Quarterly Report on Form 10-Q for the quarter
            ended June 30, 1990 and filed with the Commission on August 9, 1990,
            and wherein such Exhibit is designated Exhibit 19.

       10(a) Employment Agreement, dated September 12, 1989, by and between
            Registrant and James W. Fulmer, incorporated by reference to the
            Registrant's Amendment No. 1 to Form S-18 Registration Statement
            (Reg. No. 33-31149-NY), filed with the Commission on October 31,
            1989, and wherein such Exhibit is designated Exhibit 10(a).

      10(b) Employment Agreement, dated as of January 1,1991, by and between
            Registrant and Brenda L.Copeland, incorporated by reference to the
            Registrant's Annual Report on Form 10-K for the year ended December
            31, 1991, filed with the Commission on March 30,

                                       66
<PAGE>

            1992, and wherein such Exhibit is designated Exhibit 10(b).

      10(c) Employee Stock Ownership Plan of Registrant, incorporated by
            reference to the Registrant's Registration Statement on Form S-18
            (Reg. No. 33-31149-NY), filed with the Commission on September 2,
            1989, and wherein such Exhibit is designated Exhibit 10(c).

      10(d) Defined Benefit Pension Plan of Registrant, incorporated by
            reference to the Registrant's Registration Statement on Form S-18
            (Reg. No.33-31149-NY), filed with the Commission on September 2,
            1989, and wherein such Exhibit is designated Exhibit 10(d).

      10(e) Form of Executive Supplemental Income Agreement, as amended,
            incorporated by reference to the Registrant's Annual Report on Form
            10-K for the year ended December 31, 1991 and filed with the
            Commission on March 30, 1992, and where in such Exhibit is
            designated Exhibit 19.

      10(f) Form of Director Deferred Compensation Agreement, incorporated by
            reference to the Registrant's Registration Statement on Form S-18
            (Reg. No. 33-31149-NY), filed with the Commission on September 2,
            1989, and wherein such Exhibit is designated Exhibit 10(f).

      10(g) Loan and Pledge Agreement, dated June 16, 1986, by and between
            Employee Stock Ownership Trust of Registrant and Salamanca Trust
            Company, incorporated by reference to the Registrant's Registration
            Statement on Form S-18 (Reg. No. 33-31149-NY), filed with the
            Commission on September 2, 1989, and wherein such Exhibit is
            designated Exhibit 10(g).

      10(h) Loan and Pledge Agreement, dated June 16, 1986, by and between
            Employee Stock Ownership Trust of Registrant and Community National
            Bank, incorporated by reference to the Registrant's Registration
            Statement on Form S-18 (Reg. No. 33-31149-NY), filed with the

                                       67
<PAGE>

            Commission on September 2, 1989, and wherein such Exhibit is
            designated Exhibit 10(h).

      10(i) Lease Agreement, dated March 1, 1982, by and between Registrant and
            Herald Ford, Inc., incorporated by reference to the Registrant's
            Registration Statement on Form S-18 (Reg. No. 33-31149-NY), filed
            with the Commission on September 2, 1989, and wherein such Exhibit
            is designated Exhibit 10(i).

      10(j) Lease Agreement, dated April 12, 1982, and an Addendum thereto,
            dated January 25, 1973, by and between Registrant and 15 South
            Center Street, Inc., incorporated by reference to the Registrant's
            Registration Statement on Form S-18 (Reg. No. 33-31149-NY), filed
            with the Commission on September 2, 1989, and wherein such Exhibit
            is designated Exhibit 10(j).

      10(k) Lease Agreement, dated August 1, 1974, by and between The Citizen
            Bank, Attica and Fred Glickstein, which Lease Agreement was assumed
            by Registrant on December 7, 1984,incorporated by reference to the
            Registrant's Registration Statement on Form S-18 (Reg. No.
            33-31149-NY), filed with the Commission on September 2, 1989, and
            wherein such Exhibit is designated Exhibit 10(k).

      10(l) Salary Savings Plan (401(k) Plan) of Registrant, incorporated by
            reference to the Registrant's Amendment No. 1 to Form S-18
            Registration Statement (Reg. No. 33-31149-NY), filed with the
            Commission on October 31, 1989, and wherein such Exhibit is
            designated Exhibit 10(l).

      10(m) Loan Agreement, dated November 6, 1990, by and between Registrant
            and Alden State Bank, incorporated by reference to the Registrant's
            Annual Report on Form 10-K for the year-ended December 31, 1990 and
            filed with the Commission on April 1, 1991, and wherein such Exhibit
            is designated Exhibit 10(m).

      10(n) Sales Contract, dated September 10, 1991, by and between John
            Piraino, Jr.

                                       68
<PAGE>

            ("Piraino") and the Bank, incorporated by reference to
            the Registrant's Annual Report on Form 10-K for the year ended
            December 31, 1992 and filed with the Commission on March 30, 1992,
            and wherein such Exhibit is designated Exhibit 10(n).

      10(o) Indenture of Lease, dated September 10, 1991,by and between Piraino
            and the Bank, incorporated by reference to the Registrant's Annual
            Report on Form 10-K for the year ended December 31, 1992 and filed
            with the Commission on March 30, 1992, and wherein such Exhibit is
            designated Exhibit 10(o).

      10(p) Purchase and Assumption Agreement, dated as of January 10, 1991, by
            and between the Registrant, The Bank of Castile, and Anchor Savings
            Bank FSB, incorporated by reference to the Registrant's Report on
            Form 8 amending the Registrant's Current Report on Form 8-K dated
            January 31, 1992, and which Form 8 was filed with the Commission on
            April 3, 1992, and wherein such Exhibit is designated Exhibit 10(a).

      10(q) Sales Contract, dated as of January 10, 1991,by and between The Bank
            of Castile and Anchor Savings Bank FSB, incorporated by referenced
            to the Registrant's Report on Form 8 amending the Registrant's
            Current Report on Form 8-K dated January 31, 1992, and which Form 8
            was filed with the Commission on April 3, 1992, and wherein such
            Exhibit is designated Exhibit 10(b).

      10(r) Purchase and Assumption Agreement, dated as of May 11, 1994, by and
            between The Bank of Castile and The Chase Manhattan Bank (National
            Association), incorporated by reference to the Registrant's Report
            on Form 8-K, dated December 12, 1994, and which Form 8-K was filed
            with the Commission on December 19, 1994, and wherein such Exhibit
            is designated Exhibit 2.1.

      10(s) Sales Contract, dated as of May 11, 1994, by and between The Bank of
            Castile and The Chase Manhattan Bank (National Association),
            incorporated by reference

                                       69
<PAGE>

            to the Registrant's Report on Form 8-K, dated December 12, 1994, and
            which Form 8-K was filed with the Commission on December 19, 1994,
            and wherein such Exhibit is designated Exhibit 2.2.

      11    Computation of Earnings Per Share for the year ended December 31,
            1997.

      13    Annual Report to Shareholders of Registrant for the year ended
            December 31, 1997, incorporated by reference.

      21    Subsidiaries of Registrant.

      23    Consent of Price Waterhouse LLP for the Annual Report on Form 10-KSB
            for the fiscal year ended December 31, 1997.

      24    Power of Attorney, included with the Signature Page of this Annual
            Report on Form 10-KSB.

(b) Reports on Form 8-K. The Company did not file any Current Reports on Form
8-K during the fiscal year ended December 31, 1997.


                            SIGNATURES

      In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Annual Report on Form 10-KSB to be
signed on its behalf by the undersigned, thereunto duly authorized.

Date:     March 26, 1998      LETCHWORTH INDEPENDENT
                              BANCSHARES CORPORATION

                                       70
<PAGE>

                              By: /s/ James W. Fulmer
                                 James W. Fulmer, President
                                  and Chief Executive Officer


                        POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints JAMES W. FULMER his true and lawful
attorney-in-fact and agent with full power of substitution and re-substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Annual Report on Form 10-KSB, and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue thereof.

      In accordance with the Securities Exchange Act of 1934, this Annual Report
on Form 10-KSB has been signed below on March 26, 1997 by the following persons
on behalf of the Registrant and in the capacities indicated.

      Signatures                         Title


 /s/ James W. Fulmer             President, Chief Executive
     James W. Fulmer              Officer and Director

 /s/ Charles L. Van Arsdale      Director
     Charles L. Van Arsdale

/s/ James H. Van Arsdale, III    Chairman of the Board
    James H. Van Arsdale, III     of Directors


 /s/ Stanley J. Harmon           Secretary and Director
     Stanley J. Harmon

 /s/ Steven C. Lockwood          Treasurer and Chief
     Steven C. Lockwood           Financial Officer

 /s/ Gunther K. Buerman          Director
     Gunther K. Buerman

                                       71