UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

                   For the fiscal year ended December 31,1998

                                     0-24739
                             Commission File Number


                            CNY Financial Corporation
             (Exact name of registrant as specified in its charter)

          DELAWARE                                     16-1557490
 (State or other jurisdiction of         (I.R.S. Employment Identification No.)
  incorporation or organization)        

                              ONE NORTH MAIN STREET
                            CORTLAND, NEW YORK 13045
                    (Address of principal executive offices)

                                 (607) 756-5643
               Registrant's telephone number, including area code

                          COMMON STOCK, $0.01 PAR VALUE
           Securities registered pursuant to Section 12(g) of the Act

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  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 day. (X) Yes ( ) No.

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

The  aggregate   market  value  of  the   registrant's   voting  stock  held  by
non-affiliates of the registrant was approximately $54.2 million as of March 17,
1998. As of March 17, 1998, the registrant had 5,088,829  shares of Common Stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions  of the  registrant's  Annual  Stockholders'  Report for the year ended
December 31,1998, are incorporated by reference into Part II hereof and portions
of the Proxy Statement for the registrant's Annual Meeting of Stockholders to be
held on April 28, 1999, are incorporated by reference into Part III hereof.

<PAGE>

                                TABLE OF CONTENTS

                                     PART I

ITEM 1.  Business........................................................  1-12
ITEM 2.  Properties......................................................    13
ITEM 3.  Legal Proceedings...............................................    13
ITEM 4.  Submission of Matters to Vote of Security Holders...............    13

                                     PART II

ITEM 5.  Market for Registrant's Common Equity and Related
           Stockholder Matters.................... ........................  13
ITEM 6.  Selected Financial Data...........................................  13
ITEM 7.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations.... ........................  13
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk.........  14
ITEM 8.  Financial Statements and Supplementary Data.......................  14
ITEM 9.  Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure..... .......................  14

                                    PART III

ITEM 10. Directors and Executive Officers of the Registrant................  14
ITEM 11. Executive Compensation............................................  14
ITEM 12. Security Ownership of Certain Beneficial Owners and Management....  14
ITEM 13. Certain Relationships and Related Transactions....................  14

                                     PART IV

ITEM 14. Exhibits, Financial Statement Schedules and
          Reports on Form 8-K..............................................  15
Signatures  ...............................................................  16

<PAGE>

PART I

ITEM 1.  BUSINESS

         CNY Financial Corporation,  a Delaware corporation incorporated in 1998
(the "Company") is a bank holding company  headquartered  in Cortland,  New York
with total assets of over $281 million at December 31, 1998.  Through its wholly
owned subsidiary, Cortland Savings Bank, which was founded in 1866 (the "Bank"),
the  Company  engages  in  full  service  community  banking.  The  Bank is also
headquartered  in  Cortland,  New York,  and has three full  service  offices in
Cortland County, and a loan production office in Ithaca, Tompkins County.

         The  Company  provides   community   banking   services   primarily  to
individuals  and  small-to-medium-sized  businesses,  in Cortland County and the
neighboring counties.  These services include traditional  checking,  NOW, money
market,  savings and time deposit accounts. The Company offers home equity, home
mortgage,  commercial real estate,  commercial and consumer loans,  safe deposit
facilities and other services  specially tailored to meet the needs of customers
in its target markets.

         The  Company  commenced  operations  on October 6, 1998,  when the Bank
converted from a state chartered  mutual savings bank to a state chartered stock
savings bank.  References to the business  activities,  financial  condition and
operations  of the  Company  prior to October  6, 1998 refer to the Bank,  while
references  to the  Company on or after that date refer to both the  Company and
the Bank as consolidated, unless the context indicates otherwise.

         The  following  discussion  should  be read  in  conjunction  with  the
Company's Consolidated  Financial Statements,  including the accompanying notes,
which appear in the Company's 1998 Annual Report, included as an exhibit to this
Form 10-K.


INVESTMENT ACTIVITIES

         GENERAL. The investment policy of the Company, which is approved by the
Board of Directors,  is based upon its  asset/liability  management goals and is
designed primarily to provide  satisfactory  yields,  while maintaining adequate
liquidity, a balance of high quality, diversified investments, and minimal risk.
The investment  policy is  implemented by the President and the Chief  Financial
Officer.  The Company is assisted in its investment  decisions by an independent
nationally  recognized  investment  advisory firm. All securities  purchases and
sales must be approved by at least two executive  officers and the purchases are
reported to the Board of Directors each month. The Company generally  classifies
its new  securities  investments  as  available-for-sale  in order  to  maintain
flexibility in satisfying future investment and lending requirements.

         The following table sets forth certain  information with respect to the
Company's securities portfolio.

<TABLE>
<CAPTION>

<S>                                  <C>          <C>            <C>         <C>          <C>          <C>       
                                                                    AT DECEMBER 31,
                                     ----------------------------------------------------------------------------
                                                  1998                   1997                       1996
                                     ----------------------------------------------------------------------------
                                      AMORTIZED      FAIR        AMORTIZED     FAIR        AMORTIZED     FAIR
                                        COST         VALUE          COST       VALUE         COST        VALUE
-----------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE-FOR-SALE:                                 (Dollars in thousands)
U.S. Treasury securities             $    8,041   $     8,136    $   15,045  $   15,141   $    14,497  $   14,550
U.S. Government agencies                  4,996         5,028           996       1,005         4,988       4,993
Corporate debt obligations               27,649        27,822        13,819      13,861        13,233      13,252
State and municipal sub-divisions           917           927             -           -             -           -
Mortgage-backed securities               42,801        43,041        12,144      12,211        11,833      11,722
-----------------------------------------------------------------------------------------------------------------
Total debt securities                    84,404        84,954        42,004      42,218        44,551      44,517
Equity securities                         2,072         3,483         1,192       1,922           628       1,077
-----------------------------------------------------------------------------------------------------------------
Total available-for-sale                 86,476        88,437        43,196      44,140        45,179      45,594
-----------------------------------------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY:
U.S. Government agencies                  1,505         1,507         1,992       1,995             -           -
Corporate debt obligations                2,858         2,878         1,854       1,870             -           -
State and municipal sub-divisions           747           764           425         430           858         867
Mortgage-backed securities                5,208         5,255         8,279       8,274        10,899      10,766
-----------------------------------------------------------------------------------------------------------------
Total held-to-maturity                   10,318        10,404        12,550      12,569        11,757      11,633
-----------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES                     $   96,794   $    98,841    $   55,746  $   56,709   $    56,936  $   57,227
=================================================================================================================

</TABLE>

                                       1
<PAGE>

         DEBT SECURITIES. The Company's debt securities totaled $95.3 million at
December 31, 1998. It is the policy of the Company to invest in debt  securities
issued  by the  United  States  Government,  its  agencies,  municipalities  and
corporations.  The Company  purchases only investment  grade debt securities for
its investment  portfolio and at December 31, 1998,  none of its debt securities
were in default or otherwise  classified.  The Company seeks to balance its debt
securities  purchases between U.S.  government and related  securities which are
virtually  risk-free but which have lower yields and corporate  debt  securities
which offer higher yields.  Corporate debt securities present greater risks than
U.S.  Government  securities  because  of the  increased  possibility  that  the
corporate obligor,  compared to the U.S.  government,  will default.  To control
risks,  the Company limits its investment in corporate debt  securities to those
rated  in  the  three  highest   grades  by  a  nationally   recognized   rating
organization.

         The Company also invests in mortgage-backed securities. Mortgage-backed
securities  generally have higher yields than other debt  securities  because of
their longer terms and the uncertainties  associated with the timing of mortgage
repayments.  In  addition,  mortgage-backed  securities  are  more  liquid  than
individual  mortgage  loans and may be used to  collateralize  borrowings of the
Company.  However,  these  securities  generally  yield less than the loans that
underlie them because of the cost of payment  guarantees or credit  enhancements
that reduce credit risk.

         While  mortgage-backed  securities  carry  a  reduced  credit  risk  as
compared to loans, such securities remain subject to the risk that a fluctuating
interest  rate  environment,  along with other  factors  such as the  geographic
distribution of the underlying  mortgage loans, may alter the prepayment rate of
such mortgage loans and so affect both the prepayment  speed, and value, of such
securities.

         Debt  securities  are  generally  purchased  with a  remaining  term to
maturity  of  two  to  three  years,  with  the  exception  of   mortgage-backed
securities,  which  have  amortization  schedules  as long as thirty  years.  At
December 31, 1998,  more than 97.5% of the carrying  value of the Company's debt
securities,   excluding  mortgage-backed  securities,  had  remaining  terms  to
maturity of five years or less.

         EQUITY  SECURITIES.  The Company  and Bank  invest a limited  amount of
their assets in  corporate  equity  securities.  These  investments  are made to
diversify  the  Company's  investments  and  provide  opportunities  for capital
appreciation as well as dividend income. All equity securities are classified as
available-for-sale.  The Company does not regularly  trade such  securities  and
generally  does not  purchase  them for the  purpose of near term  sale.  Equity
securities  had a fair value of $3.5  million at  December  31,  1998.  The Bank
intends  to  invest  approximately  an  additional  $50,000  per month in equity
securities.


         SECURITIES  OF A SINGLE  ISSUER.  There were no securities of any singe
issuer,  other than the U.S.  Treasury or U.S.  government  sponsored  entities,
which had a book  value in  excess of ten  percent  of  stockholders'  equity at
December 31, 1998.

        SECURITIES,  MATURITIES  AND  YIELDS.  The  following  table  sets forth
maturities and the weighted average yields of the Company's securities portfolio
at December 31, 1998.

<TABLE>
<CAPTION>

<S>                           <C>     <C>       <C>       <C>        <C>      <C>       <C>          <C>       <C>       <C>  
                          ONE YEAR OR LESS   ONE TO FIVE YEARS   FIVE TO TEN YEARS    MORE THAN TEN YEARS   TOTAL DEBT SECURITIES
                          ------------------ ------------------- ------------------- ---------------------- ---------------------
                          CARRYING AVERAGE   CARRYING  AVERAGE   CARRYING   AVERAGE  CARRYING    AVERAGE    CARRYING   AVERAGE
                           VALUE    YIELD     VALUE     YIELD      VALUE     YIELD     VALUE      YIELD       VALUE     YIELD
---------------------------------------------------------------------------------------------------------------------------------
                                                                 (Dollars in thousands)
U.S. Treasury securities  $ 5,066     6.17%  $  3,069     6.33%  $      --      --%  $      --         --%  $   8,135    6.25%
                                                                                            --
U.S. Government agencies    1,001     6.55%     5,533     5.90%         --      --%         --         --%      6,534    6.23%
Corporate debt             13,512     5.65%    17,168     6.01%         --      --%         --         --%     30,680    6.10%
State and municipal                                                                                                            
     subdivisions              --       --%       486     4.25%      1,188    4.25%         --         --%      1,674    4.28%
Mortgage-backed securities    560     6.38%     2,404     7.07%      4,611    7.31%     40,674       6.80%     48,249    6.89%
---------------------------------------------------------------------------------------------------------------------------------
Total                     $20,139            $ 28,660            $   5,799           $  40,674              $  95,272
=================================================================================================================================

</TABLE>

         Expected  maturities  may differ from  contractual  maturities  because
issuers  may  have the  right  to call or  prepay  obligations  with or  without
prepayment penalties.

                                       2
<PAGE>

LENDING ACTIVITIES

         The loan  portfolio is the largest  category of the Company's  interest
earning assets.

         LOAN  PORTFOLIO  COMPOSITION.   The  following  table  sets  forth  the
composition of the Company's loan portfolio in dollar amounts and in percentages
at the dates indicated.

<TABLE>
<CAPTION>

<S>                       <C>         <C>    <C>          <C>    <C>            <C>    <C>          <C>    <C>           <C>   
                                                                      AT DECEMBER 31,
                          -----------------------------------------------------------------------------------------------------
                                  1998                1997                1996                1995                   1994
                          -----------------------------------------------------------------------------------------------------
                                   PERCENT             PERCENT               PERCENT             PERCENT              PERCENT
                           AMOUNT  OF TOTAL   AMOUNT   OF TOTAL   AMOUNT    OF TOTAL    AMOUNT   OF TOTAL   AMOUNT   OF TOTAL
------------------------- -------- --------- --------- --------- ---------- ---------- --------  --------- --------  ----------
                                                                     (Dollars in thousands)
Real estate loans:
Residential               $101,885    62.96% $ 97,303     61.66% $  96,097      59.73% $ 95,854     59.57% $ 92,942      60.12%
Construction                   145     0.09       316      0.20        528       0.33       155      0.10     1,065       0.69
Home equity                  6,804     4.20     5,924      3.75      5,882       3.66     6,344      3.94     7,085       4.58
Commercial mortgages        29,224    18.06    30,867     19.56     35,119      21.83    35,165     21.86    32,756      21.19
------------------------- -------- --------- --------  --------- ---------  ---------- --------  --------- --------  ----------
Total real estate loans    138,058    85.31   134,410     85.17    137,626      85.55   137,518     85.47   133,848      86.58
------------------------- -------- --------- --------  --------- ---------  ---------- --------  --------- --------  ----------
Other loans:
Guaranteed student loans     1,016     0.63     1,507      0.96      1,552       0.96     1,747      1.09     1,960       1.27
Property     improvement                                                                                                       
loans                          709     0.44       907      0.57      1,031       0.64       916      0.57       822       0.53
Automobile loans            10,854     6.71     8,902      5.64      6,378       3.96     5,510      3.42     4,617       2.99
Other consumer loans         4,597     2.84     5,031      3.19      6,289       3.91     6,174      3.84     5,993       3.88
Commercial Loans             6,588     4.07     7,049      4.47      8,020       4.98     9,023      5.61     7,366       4.75
------------------------- -------- --------- --------  --------- ---------  ---------- --------  --------- --------  ----------
Total other loans           23,764    14.69    23,396     14.83     23,270      14.45    23,370     14.53    20,758      13.42
------------------------- -------- --------- --------  --------- ---------  ---------- --------  --------- --------  ----------
Total loans                161,822   100.00%  157,806    100.00%   160,896     100.00%  160,888    100.00%  154,606     100.00%
Less:
Deferred loan fees, net        121                241                  333                  379                 378
Allowance    for    loan     2,494              2,143                1,952                2,002               1,752
losses
------------------------- -------- --------- --------  --------- ---------  ---------- --------  --------- --------  ----------
Total loans, net          $159,207           $155,422            $ 158,611             $158,507            $152,476
========================= ======== ========= ========  ========= =========  ========== ========  ========= ========  ==========

</TABLE>

         RESIDENTIAL MORTGAGE LOANS. The Company offers both adjustable-rate and
fixed-rate  mortgage loans. The relative  proportion of fixed versus  adjustable
mortgage  loans  originated  by the Company  depends  principally  upon customer
preferences,  which are generally  driven by general  economic and interest rate
conditions  and the  pricing  offered by the  Company's  competitors.  In recent
years,  with  relatively low mortgage  interest rates,  customer  preference has
favored  fixed-rate  mortgage loans. The  adjustable-rate  loans generally carry
annual or triennial interest rate caps and life-of-the-loan ceilings which limit
interest rate adjustments.

         Generally,  credit risks on adjustable-rate  loans are somewhat greater
than on  fixed-rate  loans  primarily  because,  as interest  rates rise,  so do
borrowers'  payments,  increasing the potential for default.  The Company offers
teaser  rate loans with low initial  interest  rates that are not based upon the
index plus the margin for  determining  future rate  adjustments;  however,  the
Company  judges the  borrower's  ability to repay based on the payment due at an
interest rate 2% higher than the initial rate.

         In addition to verifying  income and assets of  borrowers,  the Company
obtains  independent  appraisals on all  residential  first  mortgage  loans and
attorney's opinions of title are required at closing. The Company generally uses
title opinions  rather than title insurance on residential  mortgage loans,  but
has not  experienced  losses due to its  reliance on title  opinions  instead of
title  insurance.  As the Company  seeks to  position  itself to be able to sell
mortgage loans on the secondary market towards the middle of 1999, it will begin
to require title insurance on first lien  residential  mortgage loans it intends
to sell.  Private  mortgage  insurance  is required on most loans with a loan to
value ratio in excess of 80%. Real estate tax escrows are generally  required on
residential mortgage loans with loan to value ratios in excess of 80%.

                                       3
<PAGE>

         Adjustable-rate mortgage loans originated in recent years have interest
rates that  adjust  annually or every three years based on the one or three year
Treasury bill index, plus 3%. Interest rate adjustments are generally limited to
2% per year for one-year  adjustable  loans and 3% per adjustment for three-year
adjustable loans. There is normally a lifetime maximum interest rate adjustment,
measured from the initial interest rate, of 6%.

         Fixed-rate  residential mortgage loans generally have terms of 10 to 30
years. Although fixed-rate mortgage loans may adversely affect the Company's net
interest income in periods of rising interest rates, the Company originates such
loans to satisfy customer demand. Such loans are generally originated at initial
interest rates which exceed the fully indexed rate on  adjustable-rate  mortgage
loans  offered at the same time.  Therefore,  during  periods of level  interest
rates,  they tend to provide  higher yields than  adjustable  loans.  Fixed-rate
residential   mortgage  loans  originated  by  the  Company   generally  include
due-on-sale  clauses  which permit the Company to demand  payment in full if the
borrower sells the property without the Company's consent.  Due-on-sale  clauses
are an  important  means of  adjusting  the  rates of the  Company's  fixed-rate
mortgage  loan  portfolio,  and the Company has  generally  exercised its rights
under these clauses.

         HOME  EQUITY  LOANS.  The  Company  offers a home equity line of credit
secured by a residential  one-to-four  family  mortgage,  usually a second lien.
These loans have  adjustable  rates of  interest  and  generally  provide for an
initial  advance  period of ten years,  during which the borrower  pays interest
only and can borrower,  repay, and re-borrow the principal balance.  The Company
also offers home equity loans which are fully  advanced at closing and repayable
in monthly  principal and interest  installments  over a period not to exceed 10
years. The maximum loan to value ratio,  including prior liens, is 80% for lines
of credit and 85% for regular amortizing home equity loans.

         COMMERCIAL  MORTGAGE LOANS. The Company originates  commercial mortgage
loans  secured  by  office  buildings,   retail   establishments,   multi-family
residential  real estate and other types of commercial  property.  Substantially
all of the  properties  are  located in the  Company's  market area or in nearby
areas of Central New York State.

         The Company makes  commercial  mortgage loans with loan to value ratios
up to 75%, terms up to five years, and amortization periods up to 20 years. Most
of the Company's recent fixed-rate  commercial  mortgage loans mature after five
years,  which allows the Company to adjust the interest rate after five years if
appropriate.

         For commercial  mortgage loans, the Company  generally  requires a debt
service  coverage  ratio of at  least  110% and the  personal  guarantee  of the
principals  of the  borrower.  The  Company  also  requires an  appraisal  by an
independent  appraiser.  Title  insurance  is  required  for  loans in excess of
$500,000.  Attorney's  opinions of title are used instead of title insurance for
smaller commercial loans, but the Company has not experienced losses as a result
of not having title insurance.

         Loans  secured by  commercial  properties  generally  involve a greater
degree of risk than  one-to-four  family  residential  mortgage  loans.  Because
payments on such loans are often dependent on successful operation or management
of the properties,  repayment may be subject,  to a greater  extent,  to adverse
conditions  in the real  estate  market or the  economy.  The  Company  seeks to
minimize these risks through its underwriting  policies.  The Company  evaluates
the  qualifications  and financial  condition of the borrower,  including credit
history,  profitability and expertise, as well as the value and condition of the
underlying property. The factors considered by the Company include net operating
income;  the debt coverage ratio (the ratio of cash net income to debt service);
and the loan to value ratio. When evaluating the borrower, the Company considers
the  resources and income level of the borrower,  the  borrower's  experience in
owning or managing  similar property and the Company's  lending  experience with
the borrower. The Company's policy requires borrowers to present evidence of the
ability to repay the loan without  having to resort to the sale of the mortgaged
property.

         AUTOMOBILE  LOANS. In recent years,  the Company has exerted efforts to
increase  its level of  automobile  loans in order to provide  improved  yields,
increase the  interest  rate  sensitivity  of its assets and expand its customer
base.  Automobile  loans are originated  both through direct contact between the
Company and the borrower and through  automobile dealers who refer the borrowers
to the Company. The Company conducts its own analysis of the creditworthiness of
borrowers  referred to it by dealers before  approving any automobile  loan. The
dealer loans are represented by installment  sales contracts  between the dealer
and the purchaser  which are  immediately  assigned to the Company.  The dealers
receive fees from the Company for the referrals.

                                       4
<PAGE>

         The Company  offers  automobile  loans for both new and used cars.  The
loans have fixed rates with  maturities  not more than five years.  Loan amounts
generally  equal  85% of the  purchase  price of the car.  These  loans  tend to
present  greater  risks of loss than mortgage  loans  because the  collateral is
rapidly depreciable and easier to conceal.  Therefore, the Company evaluates the
credit  and  repayment  ability  of the  borrower  as well as the  value  of the
collateral in determining whether to approve a loan.

         OTHER  CONSUMER  LOANS.  The Company also makes  short-term  fixed rate
consumer loans either unsecured or secured by savings accounts or other consumer
assets,  as well as  adjustable-rate  revolving  credit card loans and overdraft
checking loans. The fixed-rate loans generally have a term of not more than five
years and have interest rates higher than mortgage  loans.  The shorter terms to
maturity or adjustable rates are helpful in managing the Company's interest rate
risk.  Applications  for these  loans are  evaluated  based upon the  borrower's
ability to repay and, if  applicable,  the value of the  collateral.  Collateral
value, except for loans secured by bank deposits or marketable securities,  is a
secondary  consideration  because personal property collateral generally rapidly
depreciates in value, is difficult to repossess,  and rarely  generates close to
full value at a forced sale.

         COMMERCIAL  LOANS. The Company makes commercial loans to businesses for
automobile dealer floor plan financing, working capital, machinery and equipment
purchases,  expansion,  and other business purposes.  These loans generally have
higher yields than mortgage  loans,  with maturities that generally are not more
than seven years.  Working  capital lines of credit tend to provide for one-year
terms with annual reviews.

         Commercial  loans tend to present  greater  risks than  mortgage  loans
because the collateral,  if any, tends to be rapidly  depreciable,  difficult to
sell at full value and easier to  conceal.  In order to limit these  risks,  the
Company  evaluates  these loans based upon the  borrower's  ability to repay the
loan from ongoing operations.  The Company considers the business history of the
borrower and  perceived  stability  of the  business as  important  factors when
considering  applications for such loans.  Occasionally,  the borrower  provides
commercial or residential  real estate  collateral for such loans, in which case
the value of the  collateral  may be a  significant  factor in the loan approval
process.

LOAN MATURITIES

         The following  table sets forth the  maturities of commercial  and real
estate  construction  loans outstanding at December 31, 1998. Also set forth are
the  amounts  of  such  loans  due  after  one  year,  classified  according  to
sensitivity to changes in interest rates.

<TABLE>
<CAPTION>

<S>                                            <C>            <C>         <C>          <C>       <C>      <C>      
                                                                                MATURITY
                                               --------------------------------------------------------------------
                                                 DUE IN ONE   DUE AFTER ONE YEAR                                   
                                                YEAR OR LESS  THROUGH FIVE YEARS     DUE AFTER FIVE YEARS   TOTAL  
-------------------------------------------------------------------------------------------------------------------
                                                                          FLOATING               FLOATING          
                                                               FIXED        RATE         FIXED     RATE            
                                                              ------------------------------------------           
                                                                             (In thousands)                        
Commercial and real estate construction loans  $       2,971  $ 1,918     $     --     $ 1,844   $    --  $   6,733
===================================================================================================================

</TABLE>

ASSET QUALITY

         NON-PERFORMING LOANS. Non-performing loans include: (1) loans accounted
for on a non-accrual  basis;  (2) accruing loans  contractually  past due ninety
days or more as to interest or  principal  payments;  (3) loans whose terms have
been  renegotiated  to provide a reduction  or deferral of interest or principal
because of a deterioration in the financial position of the borrower.

                                       5
<PAGE>

         The  following  table  provides  certain  information  on the Company's
non-performing loans at the dates indicated.

<TABLE>
<CAPTION>

<S>                                                       <C>            <C>            <C>           <C>           <C>    
                                                                                   AT DECEMBER 31,
                                                          ------------------------------------------------------------------
                                                             1998           1997          1996          1995          1994
----------------------------------------------------------------------------------------------------------------------------
                                                                               (Dollars in thousands)
Non-accrual loans: (1)
Residential mortgages                                     $    667       $ 2,010        $ 1,069       $   772       $    --
Commercial mortgages                                           167         1,235          1,416           421         1,295
----------------------------------------------------------------------------------------------------------------------------
Total real estate loans                                        834         3,245          2,485         1,193         1,295
Commercial loans                                                71           331            790           739            51
Other loans                                                     15           209            358            62            --
----------------------------------------------------------------------------------------------------------------------------
Total non-accrual loans                                        920         3,785          3,633         1,994         1,346
Accruing loans past due 90 days or more:
Residential mortgages                                           --             2              1            --           747
Commercial mortgages                                            --            --             --            --           310
----------------------------------------------------------------------------------------------------------------------------
Total real estate loans                                         --             2              1            --         1,057
Commercial loans                                                11            --             --            --            13
Other loans                                                      4             7             33            --            47
----------------------------------------------------------------------------------------------------------------------------
Total loans past due 90 days or more and still
     accruing                                                   15             9             34            --         1,117
----------------------------------------------------------------------------------------------------------------------------
Total non-performing loans                                     935         3,794          3,667         1,994         2,463
Real estate owned                                              260           964            563           374           572
----------------------------------------------------------------------------------------------------------------------------
Total non-performing assets                               $  1,195       $ 4,758        $ 4,230       $ 2,368       $ 3,035
=============================================================================================================================
Non-performing loans as a percent of total loans              0.58%         2.37%          2.28%         1.24%         1.60%
Non-performing assets as a percent of total assets            0.42%         2.04%          1.78%         1.00%         1.32%
=============================================================================================================================

</TABLE>

(1)      Non-accrual  loans  at  December  31,  1997  include  $2.3  million  of
non-accrual  loans held for sale. These loans were sold during the first quarter
of 1998, representing the largest component of the decline in non-accrual loans.

         At December  31, 1998 there were no loans other than those  included in
the table with regard to which management had information  about possible credit
problems of the borrower that caused  management to seriously  doubt the ability
of the borrower to comply with present loan repayment terms.

         DELINQUENCY  PROCEDURES.  When a  borrower  fails  to  make a  required
payment on a loan,  the Company  attempts to cause the deficiency to be cured by
contacting  the  borrower.  Late notices are sent when a payment is more than 15
days past due and a late charge is generally  assessed at that time. The Company
attempts to contact  personally  any borrower who is more than 20 days past due.
All loans past due 90 days or more are added to a watch list and an  employee of
the  Company  contacts  the  borrower  on a  regular  basis  to seek to cure the
delinquency.  If a  mortgage  loan  becomes  past due from 90 to 120  days,  the
Company  refers the matter to an  attorney,  who first  seeks to obtain  payment
without  litigation  and, if  unsuccessful,  generally  commences a  foreclosure
action or other  appropriate  legal  action to collect the loan.  A  foreclosure
action,  if the default is not cured,  generally leads to a judicial sale of the
mortgaged real estate.

         If an  automobile  loan becomes 60 days past due, the Company  seeks to
repossess the collateral.  If the default is not cured,  then upon  repossession
the  Company  sells  the  automobile  as soon  as  practicable  through  a local
automobile auction.  When other types of non-mortgage loans become past due, the
Company takes measures to cure defaults  through  contacts with the borrower and
takes  appropriate  action,  depending  upon the nature of the  borrower and the
collateral, to obtain repayment of the loan.

         ALLOWANCE FOR LOAN LOSSES.  The allowance for loan losses is maintained
at a level considered adequate to provide for potential future losses. The level
of  the  allowance  is  based  upon  management's   periodic  and  comprehensive
evaluation  of the loan  portfolio,  as well as current and  projected  economic
conditions.  Reports  of  examination  furnished  by state and  federal  banking
authorities are also considered by management in this regard.  These evaluations
by management in assessing the adequacy of the allowance  include  consideration
of past loan loss experience,  changes in the composition of the loan portfolio,
the volume and condition of loans  outstanding  and current  market and economic
conditions.

                                       6
<PAGE>

         The  analysis  of the  adequacy  of the  allowance  is  reported to and
reviewed by the Loan  Committee of the Board of  Directors of the Bank  monthly.
Management  believes it uses a  reasonable  and prudent  methodology  to project
potential future losses in the loan portfolio,  and hence assess the adequacy of
the allowance for loan losses.  However,  any such assessment is speculative and
future  adjustments  may be necessary if economic  conditions  or the  Company's
actual  experience  differ  substantially  from the  assumptions  upon which the
evaluation  of the  allowance  was  based.  Moreover,  future  additions  to the
allowance  may be necessary  based on changes in economic and real estate market
conditions,   new  information  regarding  existing  loans,   identification  of
additional  problem  loans  and  other  factors,  both  within  and  outside  of
management's control.

         Loans  are  charged  to the  allowance  for  loan  losses  when  deemed
uncollectible by management,  unless  sufficient  collateral exists to repay the
loan.

         Set forth in the  following  table is an analysis of the  allowance for
loan losses.

<TABLE>
<CAPTION>

<S>                                                <C>               <C>            <C>             <C>            <C>    
                                                                           YEAR ENDED DECEMBER 31,
                                                 --------------------------------------------------------------------------
                                                       1998           1997            1996           1995            1994
---------------------------------------------------------------------------------------------------------------------------
                                                                            (Dollars in thousands)
Allowance for loan losses, beginning
  of year                                          $   2,143         $ 1,952        $ 2,002         $ 1,752        $ 1,620
Provision for loan loss                                  325           3,300          1,380             600            300
---------------------------------------------------------------------------------------------------------------------------
Charge-offs:                                                                                                              
Real estate                                               16           2,484            264             478            110
Commercial                                                52             395            898              31             21
Other                                                    112             400            551              96            137
---------------------------------------------------------------------------------------------------------------------------
Total charge-offs                                        180           3,279          1,713             605            268
Recoveries:
Real estate                                               96               9             24             161             --
Commercial                                                40              61            190              --             --
Other                                                     70             100             69              94            100
---------------------------------------------------------------------------------------------------------------------------
Total recoveries                                         206             170            283             255            100
---------------------------------------------------------------------------------------------------------------------------
Net charge-offs (recoveries)                             (26)          3,109          1,430             350            168
---------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses, end of year             $   2,494         $ 2,143        $ 1,952         $ 2,002        $ 1,752
===========================================================================================================================
Allowance for loan losses as a
     percent of total loans                             1.54%           1.34%          1.22%           1.25%          1.14%
Allowance for loan losses as a
     percent of non-performing loans                  266.74%          56.48%         53.23%         100.40%         71.13%
Ratio of net charge-offs (recoveries)
     to average loans outstanding                     (0.02)%           1.97%          0.90%           0.22%          0.12%
===========================================================================================================================

</TABLE>

         The following  table  presents the allocation of the allowance for loan
losses.

<TABLE>
<CAPTION>

<S>                           <C>       <C>      <C>        <C>      <C>        <C>      <C>        <C>       <C>       <C>   
                                                                      AT DECEMBER 31,
                              ------------------------------------------------------------------------------------------------
                                   1998                1997               1996                1995                1994
                              ------------------------------------------------------------------------------------------------
                                       PERCENT             PERCENT             PERCENT             PERCENT             PERCENT
                                         OF                  OF                  OF                  OF                   OF
                                        LOANS               LOANS               LOANS               LOANS                LOAN
                                         TO                  TO                  TO                  TO                   TO
                                        TOTAL               TOTAL               TOTAL               TOTAL                TOTAL
                              AMOUNT    LOANS    AMOUNT     LOANS     AMOUNT    LOANS     AMOUNT    LOANS      AMOUNT    LOANS
------------------------------------------------------------------------------------------------------------------------------
                                                                 (Dollars in thousands)
ALLOWANCE FOR LOAN
LOSSES ALLOCATED TO:
Residential mortgages         $1,187    67.25%   $  661     65.61%   $  389     63.72%   $  112     63.61%    $  746    65.39%
Commercial mortgages             617    18.06       638     19.56       818     21.83       753     21.86        341    21.19
Commercial loans                 279     4.07       183      4.47       478      4.98       961      5.61        331     4.75
Other loans                      411    10.62       192     10.36       267      9.47       176      8.92        334     8.67
Unallocated                       --       --       469        --        --        --        --        --         --       --
------------------------------------------------------------------------------------------------------------------------------
Total allowance               $2,494   100.00%   $2,143    100.00%   $1,952    100.00%   $2,002    100.00%    $1,752   100.00%
==============================================================================================================================

</TABLE>

                                       7
<PAGE>

SOURCES OF FUNDS

         GENERAL.  The  Company's  primary  source  of  funds  is  deposits.  In
addition,  the Company  derives  funds for loans and  investments  from loan and
security  repayments and  prepayments  and revenues from  operations.  Scheduled
payments on loans and securities are a relatively stable source of funds,  while
savings   inflows  and  outflows  and  loan  and  securities   prepayments   are
significantly influenced by general interest rates and money market conditions.

         DEPOSITS.  The Company offers several types of deposit  programs to its
customers,  including  passbook and statement  savings  accounts,  NOW accounts,
money market deposit  accounts,  checking  accounts and certificates of deposit.
Deposit account terms vary according to the minimum balance  required,  the time
periods  the funds must  remain on deposit and the  interest  rate,  among other
factors.  The Company's  deposits are obtained  predominantly  from its Cortland
County  market  area.  The Company  relies  primarily  on  customer  service and
long-standing relationships with customers to attract and retain these deposits;
however,  market  interest  rates  and  rates  offered  by  competing  financial
institutions  significantly  affect the Company's  ability to attract and retain
deposits.  The  Company  does not use  brokers  to  obtain  deposits  and has no
brokered deposits.

         The  Company  prices  its  deposit  offerings  based  upon  market  and
competitive  conditions  in its market  area.  Pricing  determinations  are made
weekly by a committee of senior officers. The Company seeks to price its deposit
offerings to be competitive with other institutions in its market area.

         The  following  table  sets forth the  maturities  of  certificates  of
deposit and other time deposits of $100,000 or more at December 31, 1998.

                                                       December 31, 1998
       --------------------------------------------------------------------
                                                     (Dollars in thousands)
       Maturing within three months                           $ 1,705
       After three but within six months                        1,528
       After six but within twelve months                       4,153
       After twelve months                                      5,642
       --------------------------------------------------------------------
       Total                                                  $13,028
       ====================================================================

         BORROWINGS. The Company maintains an available overnight line of credit
with the  Federal  Home  Loan  Bank of New York  (FHLB)  for use in the event of
unanticipated  funding  needs  which  cannot be  satisfied  from other  sources.
Additionally, the Company may borrow term advances for the FHLB. The Company had
$1 million of borrowings from the FHLB at December 31, 1998.

SUPERVISION AND REGULATION

         Bank  holding  companies  and banks  are  extensively  regulated  under
federal and state law.  References  under this heading to applicable  statues or
regulations are brief  summaries of portions  thereof which do not purport to be
complete  and  which are  qualified  in their  entirety  by  reference  to those
statutes and regulations.  Any change in applicable laws or regulations may have
a material  adverse  effect on the  business of savings  banks and bank  holding
companies,  including the Company and the Bank. However, management is not aware
of  any  current   recommendations   by  any  regulatory   authority  which,  if
implemented, would have or would be reasonable likely to have a material adverse
effect on liquidity, capital resources or operations of the Company or the Bank.

         BANK HOLDING COMPANY  REGULATION:  The Company is registered as a "bank
holding  company"  with the  Federal  Reserve  and  accordingly,  is  subject to
supervision by the Federal  Reserve under the Bank Holding Company Act (the "BHC
Act"). The Company is required to file with the Federal Reserve periodic reports
and such additional  information as the Federal Reserve may require  pursuant to
the BHC Act.  The Federal  Reserve has the  authority to examine the Company and
may also examine the Bank.

                                       8
<PAGE>

         The BHC Act requires  prior Federal  Reserve  approval for, among other
things,  the  acquisition  by a bank  holding  company  of  direct  or  indirect
ownership  or  control  of more  than  five  percent  of the  voting  shares  or
substantially  all the  assets  of any bank or bank  holding  company,  or for a
merger or  consolidation  of a bank  holding  company  with another bank holding
company.  With certain exceptions,  the BHC Act prohibits a bank holding company
from acquiring  direct or indirect  ownership or control of voting shares of any
company which is not a bank or bank holding  company and from engaging  directly
or  indirectly  in any activity  other than  banking or managing or  controlling
banks or performing services for its authorized subsidiaries.  Under the BHC Act
and Federal  Reserve  regulations,  the Company and the Bank are prohibited from
engaging in certain  tie-in  arrangements  in  connection  with an  extension of
credit, lease, sale of property, or furnishing of services.

         Any person, including associates and affiliates of and groups acting in
concert with such person, who purchases or subscribes for ten percent or more of
any class of the Company's voting stock may be required to obtain prior approval
of the Federal  Reserve  under the BHC Act.  Prior  regulatory  approval is also
required  before  acquiring  the power to  directly  or  indirectly  direct  the
management,  operations or policies of the Company or the Bank. In addition, any
corporation,  partnership,  trust or organized group that acquires a controlling
interest in the  Company or the Bank may have to obtain  approval of the Federal
Reserve to become a bank holding company and thereafter be subject to regulation
as such.  Furthermore,  in order for the  Company to acquire  control of another
bank or bank holding  company so that the Company owns,  directly or indirectly,
two separate  banks,  the advance  approval of the New York Banking  Board would
generally also be required.

         It is the policy of the Federal Reserve that the Company is expected to
act as a source of  financial  strength to the Bank and to commit  resources  to
support the Bank.  The Federal  Reserve takes the position that in  implementing
this policy, it may require the Company to provide such support when the Company
otherwise would not consider itself able to do so.

         The Federal Reserve has adopted  risk-based  capital  requirements  for
assessing  bank  holding  company  capital  adequacy.   These  standards  define
regulatory capital and establish minimum capital standards in relation to assets
and off-balance sheet exposures, as adjusted for credit risks. Under the Federal
Reserve's risk-based guidelines,  capital is classified into two categories. For
bank  holding   companies,   Tier  1  or  "core"  capital   consists  of  common
shareholders' equity,  perpetual preferred stock and trust preferred stock (both
subject to certain  limitations)  and  minority  interest  in the common  equity
accounts of consolidated subsidiaries, and is reduced by goodwill, certain other
intangible  assets  and  certain  investments  in  other  corporations  ("Tier 1
capital").  Tier 2 capital  consists of the  allowance for loan and lease losses
(subject to certain conditions and limitations),  perpetual  preferred stock (to
the  extent not  included  in Tier 1  capital),  "hybrid  capital  instruments,"
perpetual debt and mandatory convertible debt securities,  and term subordinated
debt and intermediate-term preferred stock.

         Under the Federal Reserve's capital guidelines,  bank holding companies
are required to maintain a minimum ratio of qualifying  capital to risk-weighted
assets of 8.0%,  of which at least  4.0% must be in the form of Tier 1  capital.
The Federal Reserve also requires a minimum  leverage ratio of Tier 1 capital to
total average  assets of 4.0%,  except that bank holding  companies not rated in
the highest category under the regulatory rating system are required to maintain
a leverage ratio of 1.0% to 2.0% above such minimum.  The 4.0% Tier 1 capital to
total average assets ratio  constitutes the minimum  leverage  standard for bank
holding companies,  and will be used in conjunction with the risk-based ratio in
determining the overall capital adequacy of banking organizations.  In addition,
the Federal Reserve considers the Tier 1 leverage ratio in evaluating  proposals
for expansion or new activities.

         As  of  December  31,  1998,  the  Company  had a  Tier  1  capital  to
risk-weighted  assets  ratio  ("Tier 1  Ratio")  of  47.42%,  total  capital  to
risk-weighted  assets  ratio  ("Tier 2 Ratio") of 48.91% and a Tier 1 capital to
total average assets ratio ("leverage ratio") of 29.57%.

         TRANSACTIONS  WITH  AFFILIATES.  Transactions  between  a bank  and its
holding company or other affiliates are subject to various  restrictions imposed
by state and federal regulatory  agencies.  Such transactions  include loans and
other  extensions  of credit,  purchases of  securities  and other  assets,  and
payments of fees or other  distributions.  In general,  these restrictions limit
the amount of  transactions  between an  institution  and an  affiliate  of such
institution,  as  well  as the  aggregate  amount  of  transactions  between  an
institution and all of its affiliates,  and require transactions with affiliates
to be on terms comparable to those for transactions with unaffiliated entities.

         DIVIDEND  LIMITATIONS.  As a holding company,  the Company is primarily
dependent upon dividend  distributions from the Bank and interest on investments
for its income.  Federal  statutes and  regulations  impose  restrictions on the
payment of dividends by the Company and the Bank.

                                       9
<PAGE>

         Federal  Reserve policy provides that a bank holding company should not
pay  dividends  unless (i) the bank holding  company's net income over the prior
year is sufficient to fully fund the dividends and (ii) the prospective  rate of
earnings  retention appears consistent with the capital needs, asset quality and
overall financial condition of the bank holding company and its subsidiaries.

         Delaware  law also  places  certain  limitations  on the ability of the
Company to pay dividends.  For example, the Company may not pay dividends to its
stockholders  if, after giving effect to the dividend,  the Company would not be
able to pay its debts as they become due.

         Under the New York  Banking  Law,  a stock  form  savings  bank may pay
dividends out of its net profits  unless there is an  impairment  of capital.  A
savings  bank may not declare  dividends  in any year which exceed the total net
profits  of that year  combined  with the  bank's  retained  net  profits of the
preceding two years, subject to certain adjustments, without the approval of the
Superintendent of Banks. Furthermore,  the Bank may not declare a dividend which
would  cause it to fail to meet its capital  requirements  and may not declare a
dividend that would cause its capital to decline below the  liquidation  account
created in the conversion.

         The FDIC and the  Superintendent  may  prohibit  the Bank  from  paying
dividends  if, in either of their  opinions,  the  payment  of  dividends  would
constitute an unsafe or unsound  practice.  Dividends are also prohibited if the
payment would cause the Bank to be undercapitalized.

         BANK  REGULATIONS.   The  Bank  is  subject  to  extensive  regulation,
examination,  and  supervision by the New York State Banking  Department and the
FDIC.  The Bank's  deposit  accounts are insured up to applicable  limits by the
Bank  Insurance  Fund of the FDIC.  The Bank must file  reports with the Banking
Department and the FDIC concerning its activities and financial  condition,  and
it must get regulatory approvals before entering into certain transactions, such
as  mergers  with other  banks.  The  Banking  Department  and the FDIC  conduct
periodic  examinations  of the Bank to determine the safety and soundness of the
Bank and whether the Bank is complying with regulatory requirements.

         BUSINESS ACTIVITIES. The Bank derives its lending, investment and other
authority  primarily  from the New York Banking Law and the  regulations  of the
Superintendent of Banks and the New York State Banking Board, as limited by FDIC
regulations  and  other  federal  laws  and  regulations.   The  Bank  may  make
investments  and engage in activities  only as permitted under specific laws and
regulations  which grant powers to the Bank.  The Bank may invest in real estate
mortgages,  consumer and  commercial  loans,  certain types of debt  securities,
including  certain  corporate debt securities and obligations of federal,  state
and local government agencies,  certain types of corporate equity securities and
certain  other  assets.  The Bank may invest up to 7.5% of its assets in certain
corporate  stock and may also invest up to 7.5% of its assets in certain  mutual
fund securities.  Investment in stock of a single  corporation is limited to the
lesser of 2% of the  outstanding  stock of such  corporation or 1% of the Bank's
assets,  except as set forth below.  In order to qualify for  investment  by the
Bank, the equity  securities  must meet certain tests of financial  performance.
The Bank may also make  investments  not otherwise  permitted  under the Banking
Law. This authority permits investments in otherwise  impermissible  investments
of up to 1% of the Bank's  assets in any single  investment,  subject to certain
restrictions,  and to an aggregate limit for all such investments of up to 5% of
assets.  Additionally,  instead  of  investing  in  securities  as  specifically
permitted  in the  Banking  Law,  the Bank may elect to  invest  under a prudent
person standard in a wider range of debt and equity securities. The Bank has not
exercised the right to invest under this prudent  person  standard.  If the Bank
elects to utilize the "prudent  person"  standard,  it will be unable to use the
other  provisions  of the  Banking Law and  regulations  which  permit  specific
investments.  New York State  chartered  savings banks may also  exercise  trust
powers  upon  approval  of the  Banking  Board.  The  Bank has not  sought  such
approval.

         At December 31, 1998, the Bank did not have any operating subsidiaries.
The Bank may invest in  subsidiaries  that engage in activities in which savings
banks  may  engage  directly,  plus  any  additional  activities  which  may  be
authorized  by the Banking  Board.  Investment  in the stock,  capital notes and
debentures of all  subsidiaries is limited to 3% of the Bank's assets,  and such
investments,  together with the Bank's loans to its subsidiaries, may not exceed
10% of the Bank's assets.

         Under  FDIC  regulations,  the  Bank  generally  may  not  directly  or
indirectly acquire or retain any equity investment that is not permissible for a
national  bank. In addition,  the Bank may not directly or indirectly  through a
subsidiary,  engage as "principal" in any activity that is not permissible for a
national bank unless the FDIC has determined that such activities  would pose no
risk to the applicable  FDIC  insurance fund and the Bank is in compliance  with
applicable regulatory capital requirements.

                                       10
<PAGE>

         Savings bank life  insurance  activities  are permitted if (i) the FDIC
does not decide that such activities  pose a significant  risk to the applicable
deposit  insurance fund, (ii) the insurance  underwriting is conducted through a
division of the Bank that meets the  definition of a separate  department  under
FDIC  regulations  and (iii) the Bank  discloses to purchasers of life insurance
policies and other  products that they are not insured by the FDIC,  among other
things.

         Also excluded from the prohibition on making  investments not permitted
for national banks are certain  investments in common and preferred stock listed
on a  national  securities  exchange  and in  shares  of an  investment  company
registered  under the  Investment  Company Act of 1940,  as amended.  The Bank's
total investment in such securities may not exceed 100% of the Tier 1 capital as
calculated under FDIC regulations. The Bank qualifies for this exclusion and has
used its authority to invest in corporate  equity  securities.  The authority to
continue  these  investments  may  terminate  if the  FDIC  determines  that the
investments pose a safety and soundness risk to the Bank or if the Bank converts
its charter or undergoes a change in control.

         LOANS TO ONE BORROWER.  The Bank, as a New York State chartered savings
bank,  may make  mortgage  loans to any borrower or group of  borrowers  without
regard to mandatory  maximum loan amount  limits based upon capital or any other
measure imposed by law,  except for general  concepts of prudence and safety and
soundness.  However, with certain exceptions, the Bank may not make non-mortgage
loans for commercial, corporate or business purposes (including lease financing)
to a single  borrower,  in an  aggregate  amount in excess of 15% of the  Bank's
stockholders'  equity, plus an additional 10% of the Bank's stockholders' equity
if such  amount is secured by certain  types of readily  marketable  collateral.
Similar  limits  apply to most  other  types  of  non-mortgage  loans.  The Bank
currently complies with these limits.

         CAPITAL  REQUIREMENTS.  The FDIC regulates the capital  adequacy of the
Bank.  The FDIC requires that the highest rated banks  maintain a leverage ratio
of at least 3.0%.  All other banks  subject to FDIC  capital  requirements  must
maintain a leverage  ratio of 4.0% to 5.0% or more. As of December 31, 1998, the
Bank's leverage capital ratio was 23.40%.

         The Bank must also meet a risk-based  capital standard.  The risk-based
standard requires the Bank to maintain total capital (defined as Tier 1 and Tier
2 capital) to  risk-weighted  assets of at least 8% of which at least 4% must be
Tier 1 capital.  In determining the amount of risk-weighted  assets, all assets,
plus certain  off-balance sheet assets, are multiplied by a risk-weight of 0% to
100%, based on the risks the FDIC believes are inherent in the type of asset. As
of December 31,  1998,  the Bank  maintained a 37.32% Tier 1 risk-based  capital
ratio and a 38.82% total risk-based capital ratio.

         COMMUNITY REINVESTMENT.  Under the Community Reinvestment Act, the Bank
must,  consistent with its safe and sound operation,  help meet the credit needs
of its entire community, including low and moderate income neighborhoods.  There
are no specific  lending  requirements  or  programs  nor does the law limit the
Bank's  discretion  to develop  products and services  that it believes are best
suited to its particular  community.  The FDIC periodically  assesses the Bank's
record of meeting the credit  needs of its  community  and must take such record
into account in its evaluation of certain applications made by the Bank.

         FDIC  regulations   provide  that  the  Bank's  performance  under  the
Community  Reinvestment  Act is  evaluated  based on its actual  performance  in
meeting  community  needs.  In  particular,  the rating system  focuses on three
tests:  (a) a lending test, to evaluate the Bank's record of making loans in its
assessment  areas;  (b) an  investment  test,  to evaluate the Bank's  record of
investing in community  development  projects,  affordable housing, and programs
benefiting low or moderate income individuals and businesses;  and (c) a service
test, to evaluate the Bank's delivery of banking  services.  The Bank received a
satisfactory  rating from the FDIC at its last  examination  under the Community
Reinvestment Act.

         The  New  York  Banking  Law  imposes  similar  community  reinvestment
obligations  on the  Bank.  The  Banking  Department  makes  an  annual  written
assessment of the Bank's compliance. The Banking Department considers the Bank's
state community  reinvestment  rating when reviewing an application to engage in
certain transactions,  including mergers,  asset purchases and the establishment
of branch offices or automated teller machines. The Bank received a satisfactory
rating  from the Banking  Department  at its last state  community  reinvestment
examination.

                                       11
<PAGE>

         STANDARDS FOR SAFETY AND SOUNDNESS.  The Federal  Reserve and the FDIC,
together  with the  other  federal  bank  regulatory  agencies,  has  prescribed
guidelines  which  establish  minimum  general  standards  relating  to internal
controls and information  systems,  internal audit systems,  loan documentation,
credit  underwriting,  interest rate exposure,  asset growth,  and compensation,
fees and  benefits.  In general,  the  guidelines  require,  among other things,
appropriate systems and practices to identify and manage the risks and exposures
specified  in the  guidelines.  The  guidelines  also cover  asset  quality  and
earnings  evaluation and monitoring as well. The guidelines  prohibit  excessive
compensation  as an unsafe and unsound  practice  and describe  compensation  as
excessive  when the amounts paid are  unreasonable  or  disproportionate  to the
services  performed by an  executive  officer,  employee,  director or principal
stockholder.  In addition, the FDIC may order an institution that has been given
notice by the FDIC that it is not  satisfying  any of such safety and  soundness
standards to submit a compliance plan. If an institution then fails to submit an
acceptable  plan or  fails in an  material  respect  to  implement  an  accepted
compliance  plan, the FDIC must issue an order  directing  action to correct the
deficiency and may issue an order  directing other actions of the types to which
an  undercapitalized  bank is  subject  under  the  "prompt  corrective  action"
requirements  described  below.  If an institution  fails to comply with such an
order,  the FDIC may seek  enforcement in judicial  proceedings  and civil money
penalties.

         PROMPT   CORRECTIVE   ACTION.   FDICIA  requires  the  federal  banking
regulators,  including  the  Federal  Reserve  and  the  FDIC,  to  take  prompt
corrective  action  with  respect  to  depository  institutions  that fall below
certain capital standards.  Institutions that are not adequately capitalized may
be subject to a variety of supervisory  actions  including,  but not limited to,
restrictions  on  growth,  investment  activities,   capital  distributions  and
affiliate transactions and will be required to submit a capital restoration plan
which,  to be  accepted by the  regulators,  must be  guaranteed  in part by any
company having control of the institution (such as the Company). Federal banking
agencies have indicated that, in regulating bank holding companies, the agencies
may  take  appropriate  action  at the  holding  company  level  based  on their
assessment of the  effectiveness of supervisory  actions imposed upon subsidiary
insured depository institutions pursuant to the prompt corrective action rules.

FORWARD-LOOKING STATEMENTS

         In this Form 10-K, the Company,  when  discussing  the future,  may use
words  like  "will  probably  result",  "are  expected  to",  "may  cause",  "is
anticipated",  "estimate",  "project",  or similar words.  These words represent
forward-looking  statements.  In  addition,  any analysis of the adequacy of the
allowance  for loan losses or the interest  rate  sensitivity  of the  Company's
assets  and  liabilities,  represent  attempts  to  predict  future  events  and
circumstances and also represent forward-looking statements.

         Many  factors  could  cause  future  results  to  differ  from  what is
anticipated in the  forward-looking  statements.  For example,  future financial
results could be affected by (i) deterioration in local,  regional,  national or
global economic  conditions which could cause an increase in loan delinquencies,
a decrease in property  values,  or a change in the housing  turnover rate; (ii)
changes  in  market  interest  rates or  changes  in the  speed at which  market
interest  rates  change;  (iii)  changes in laws and  regulations  affecting the
financial  service  industry;  (iv)  changes in  competition  and (v) changes in
consumer preferences.

         Please  do  not  place   unjustified  or  excessive   reliance  on  any
forward-looking  statements.  They  speak  only as of the date  made and are not
guarantees,  promises or assurances of what will happen in the future.  Remember
that  various  factors,  including  those  described  above,  could  affect  the
Company's financial  performance and could cause the Company's actual results or
circumstances  for future periods to be materially  different from what has been
anticipated or projected.

PERSONNEL

         At December 31,  1998,  the Company  employed 91  full-time  equivalent
employees.  The employees are not represented by a collective  bargaining  unit,
and the Company considers its relationship with its employees to be good.

COMPETITION

         The  Company's  principal  competitors  for deposits are other  savings
banks, savings and loan associations,  commercial banks and credit unions in the
Company's market area, as well as money market mutual funds, insurance companies
and securities  brokerage firms, many of which are substantially  larger in size
than the Company.  The Company's  competition for loans comes  principally  from
savings  banks,  savings  and  loan  associations,  commercial  banks,  mortgage
bankers,  finance  companies  and  other  institutional  lenders.  Some  of  the
institutions  which  compete with the Company have much  greater  financial  and
marketing  resources  than the  Company.  The  Company's  principal  methods  of
competition  include loan and deposit pricing,  maintaining  close ties with its
local  community,  advertising and marketing  programs and the types of services
provided. 

                                       12
<PAGE>

ITEM 2.  PROPERTIES


         The Company  conducts its business through its headquarters in the City
of  Cortland,  a  nearby  drive-up  facility,   and  two  branches  in  adjacent
communities in Cortland County. The Company also has a representative  office in
Ithaca for the  originations of mortgage loans.  The Company believes that these
properties  are  adequate  for current  needs.  The  following  table sets forth
certain information regarding the Company's  deposit-taking  offices at December
31, 1998.

<TABLE>
<CAPTION>
<S>                                                                 <C>           <C>          <C>     
                                                                     DATE         OWNED/       NET BOOK
LOCATION                                                           ACQUIRED       LEASED        VALUE
-------------------------------------------------------------------------------------------------------
                                                                              (In thousands)
One North Main Street, Cortland, NY  13045
  and nearby drive through facility at 29-31 North Main Street      Various       Owned          $836
12 South Main Street, Homer, NY  13077                              Various       Owned          $916
860 Route 13, Cortlandville, NY  13045                              Various       Owned          $482
200 East Buffalo Street, Ithaca, NY  14850                           1998         Leased         None
=======================================================================================================

</TABLE>

ITEM 3.  LEGAL PROCEEDINGS

         The  Company  and the Bank are from  time to time  parties  in  various
routine  legal  actions  arising in the normal  course of  business.  Management
believes that there is no proceeding  threatened or pending  against the Company
or the Bank which, if determined  adversely,  would materially  adversely affect
the consolidated financial position or operations of the Company.


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

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of 1998.


PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Information  required  in  response  to this item is  contained  in the
Company's  Annual Report under the captions  "Stock Listing" and "Dividends" and
is incorporated  herein by reference.  The Company did not engage in the sale of
any securities which were not registered under the Securities Act of 1933.


ITEM 6.  SELECTED FINANCIAL DATA

         Information  required  in  response  to this item is  contained  in the
Annual Report to Stockholders under the caption "Selected Financial  Highlights"
and is incorporated herein by reference.


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         The  information  required in response to this item is contained in the
Company's  Annual  Report  to  Stockholders  under  the  caption   "Management's
Discussion and Analysis of Financial  Condition and Results of Operations,"  and
is  incorporated  herein by reference.  The discussion and analysis of financial
condition  and  results of  operations  should be read in  conjunction  with the
consolidated  financial  statements  and  supplementary  data  contained  in the
Company's Annual Report to Stockholders.

                                       13
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The  information  required in response to this item is contained in the
Company's  Annual  Report  to  Stockholders  under  the  caption   "Management's
Discussion and Analysis of Financial  Condition and Results of Operations,"  and
is  incorporated  herein by reference.  The discussion and analysis of financial
condition  and  results of  operations  should be read in  conjunction  with the
consolidated  financial  statements  and  supplementary  data  contained  in the
Company's Annual Report to Stockholders.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The  information  required in response to this item is contained in the
Annual  Report  to  Stockholders  under  the  caption  "Consolidated   Financial
Statements," and is incorporated herein by reference.


ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

         Not Applicable.

PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The  information  required in response to this item is contained in the
Company's  definitive  Proxy  Statement (the "Proxy  Statement")  for its Annual
Meeting of  Stockholders  to be held April 28, 1999 under the caption "The Board
of Directors,  Nominees and Executive  Officers" and is  incorporated  herein by
reference.


ITEM 11. EXECUTIVE COMPENSATION

         The  information  required in response to this item is contained in the
Company's Proxy Statement under the caption "Executive Officer Compensation" and
is incorporated herein by reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information  with respect to security  ownership of certain  beneficial
owners and  management is  incorporated  by reference to the section  "Principal
Owners of Our Common  Stock" in the Proxy  Statement  for the Annual  Meeting of
Stockholders to be held on April 28, 1999.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The  information  required in response to this item is contained in the
Proxy Statement under the caption "Transactions with Directors and Officers" and
is incorporated herein by reference.

                                       14
<PAGE>

PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)      Documents filed as part of this report:

         1., 2.    Financial Statements and Schedules

                   The  Consolidated  Financial  Statements are  incorporated by
                   reference to the following  pages from the 1998 Annual Report
                   to Stockholders, attached hereto as Exhibit 13.1:

                                                                        Page
                                                                        ----

                   Independent Auditor's Report                           14
                   Consolidated Balance Sheets                            15
                   Consolidated Statements of Income                      16
                   Consolidated Statements of Stockholders' Equity 
                     and Comprehensive Income                             17
                   Consolidated Cash Flow Statements                     18-19
                   Notes to Consolidated Financial Statements            20-37

                   No schedules are required to be filed with this report.

         3.0       Exhibits

                   3.1    Certificate   of    Incorporation   of   the   Company
                          (incorporated  by  reference  to  Exhibit  3.1  of the
                          Company's   Form  S-1   Registration   Statement  (No.
                          333-57259)  filed  with the  Securities  and  Exchange
                          Commission on June 19, 1998).

                   3.2    Bylaws of the Company  (incorporated  by  reference to
                          Exhibit  3.2 of the  Company's  Form S-1  Registration
                          Statement  (No.  333-57259)  filed with the Securities
                          and Exchange Commission on June 19, 1998).

                   10.1   Employment Agreement between Cortland Savings Bank and
                          Wesley  D.  Stisser   (incorporated  by  reference  to
                          Exhibit 10.1 of the  Company's  Form S-1  Registration
                          Statement  (No.  333-57259)  filed with the Securities
                          and Exchange Commission on June 19, 1998).

                   10.2   Employment Agreement between Cortland Savings Bank and
                          F.  Michael  Stapleton  (incorporated  by reference to
                          Exhibit 10.2 of the  Company's  Form S-1  Registration
                          Statement  (No.  333-57259)  filed with the Securities
                          and Exchange Commission on June 19, 1998).

                   10.3   Employment Agreement between Cortland Savings Bank and
                          Steven A. Covert (incorporated by reference to Exhibit
                          10.3 of the Company's Form S-1 Registration  Statement
                          (No. 333-57259) filed with the Securities and Exchange
                          Commission on June 19, 1998).

                   10.4   Employment Agreement between Cortland Savings Bank and
                          Kerry D. Meeker  (incorporated by reference to Exhibit
                          10.4 of the Company's Form S-1 Registration  Statement
                          (No. 333-57259) filed with the Securities and Exchange
                          Commission on June 19, 1998).

                   13.1   1998 Annual Report to Stockholders

                   21.1   Subsidiaries of the Company

                   27.1   Financial Data Schedule


(b)      Reports on Form 8-K

               None.

                                       15
<PAGE>

                                   SIGNATURES


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

<TABLE>
<CAPTION>

                               CNY FINANCIAL CORP.


<S>  <C>    <C>                    <C>                                                         <C>
                                     WESLEY D. STISSER                                           MARCH 25, 1999
     By:    Wesley D. Stisser    /s/ ----------------------------------------------------     -------------------
                                     President & Chief Executive Officer                          (Dated)

                                     STEVEN A. COVERT                                            MARCH 25, 1999
            Steven A. Covert     /s/ ----------------------------------------------------     -------------------
                                     Executive Vice President & Chief Financial Officer           (Dated)

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


                                     JOSEPH H. COMPAGNI                                          MARCH 25, 1999
            Joseph H. Compagni   /s/ ----------------------------------------------------     -------------------
                                     Director                                                      (Dated)

                                     PATRICK J.HAYES                                             MARCH 25, 1999
            Patrick J. Hayes     /s/ ----------------------------------------------------     -------------------
                                     Director                                                      (Dated)

                                     ROBERT S. KASHDIN                                           MARCH 25, 1999
            Robert S. Kashdin    /s/ ----------------------------------------------------     -------------------
                                     Director                                                      (Dated)

                                     HARVEY KAUFMAN                                              MARCH 25, 1999
            Harvey Kaufman       /s/ ----------------------------------------------------     -------------------
                                     Director                                                      (Dated)

                                     DONALD P. REED                                              MARCH 25, 1999
            Donald P. Reed       /s/ ----------------------------------------------------     -------------------
                                     Director                                                      (Dated)

            Lawrence Seidman         ----------------------------------------------------     -------------------
                                     Director                                                      (Dated)

                                     TERRANCE D. STALDER                                         MARCH 25, 1999
            Terrance D. Stalder  /s/ ----------------------------------------------------     -------------------
                                     Director                                                      (Dated)

                                     WESLEY D. STISSER                                           MARCH 25, 1999
            Wesley D. Stisser    /s/ ----------------------------------------------------     -------------------
                                     Director                                                      (Dated)

</TABLE>

                                       16
<PAGE>

                                INDEX TO EXHIBITS


3.1      Certificate of Incorporation of the Company*

3.2      Bylaws of the Company*

10.1     Employment  Agreement  between  Cortland  Savings  Bank and  Wesley  D.
         Stisser*

10.2     Employment  Agreement  between  Cortland  Savings  Bank and F.  Michael
         Stapleton*

10.3     Employment  Agreement  between  Cortland  Savings  Bank and  Steven  A.
         Covert*

10.4     Employment Agreement between Cortland Savings Bank and Kerry D. Meeker*

13.1     1998 Annual Report to Stockholders

21.1     Subsidiaries of the Company

27.1     Financial Data Schedule


*Previously filed.