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 31,1999

                                     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  $70.8 million as of February
11, 2000. As of February 11, 2000, the registrant had 4,601,373 shares of Common
Stock outstanding.

<PAGE>

                                TABLE OF CONTENTS

                                     PART I

ITEM 1.        Business...................................................     1
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........................................    14
ITEM 6.        Selected Financial Data....................................    14
ITEM 7.        Management's Discussion and Analysis of Financial
               Condition and Results of Operations........................    16
ITEM 7A.       Quantitative and Qualitative Disclosure About Market Risk..    22
ITEM 8.        Financial Statements and Supplementary Data................    23
ITEM 9.        Changes in and Disagreements with Accountants on Accounting
               and Financial Disclosure...................................    49


                                    PART III

ITEM 10.       Directors and Executive Officers of the Registrant.........    49
ITEM 11.       Executive Compensation.....................................    51
ITEM 12.       Security Ownership of Certain Beneficial Owners and
               Management.................................................    54
ITEM 13.       Certain Relationships and Related Transactions.............    55



                                     PART IV

ITEM 14.       Exhibits, Financial Statement Schedules and Reports
               on Form 8-K................................................    55

Signatures     ...........................................................    57

                                       2
<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 $287 million at December 31, 1999.  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 loan production  offices in Ithaca,  Tompkins County,  and
Liverpool, Onondaga 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 Item 8 of this Form 10-K.

       On December 28, 1999,  the Company  signed a  definitive  agreement  with
Niagara Bancorp,  Inc. under which Niagara Bancorp, Inc. will acquire all of the
outstanding  shares of the Company for $18.75 per share.  Cortland  Savings Bank
will become a wholly-owned  subsidiary of Niagara Bancorp, Inc. This transaction
is expected to close during the second quarter of 2000.

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 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>

                                                                   AT DECEMBER 31,
                                       ---------------------------------------------------------------------
                                                 1999                  1998                  1997
                                       ---------------------------------------------------------------------
                                        AMORTIZED      FAIR    AMORTIZED     FAIR    AMORTIZED    FAIR
                                           COST       VALUE       COST      VALUE       COST      VALUE
------------------------------------------------------------------------------------------------------------
<S>                                      <C>        <C>        <C>        <C>        <C>        <C>
SECURITIES AVAILABLE-FOR-SALE:                              (Dollars in thousands)
U.S. Treasury securities                 $  3,016   $  3,021   $  8,041   $  8,136   $ 15,045   $ 15,141
U.S. Government agencies                   11,453     11,225      4,996      5,028        996      1,005
Corporate debt obligations                 20,553     20,328     27,649     27,822     13,819     13,861
State and municipal sub-divisions           1,865      1,804        917        927         --         --
Mortgage-backed securities                 58,684     56,437     42,801     43,041     12,144     12,211
------------------------------------------------------------------------------------------------------------
Total debt securities                      95,571     92,815     84,404     84,954     42,004     42,218
Equity securities                           2,827      4,745      2,072      3,483      1,192      1,922
------------------------------------------------------------------------------------------------------------
Total available-for-sale                   98,398     97,560     86,476     88,437     43,196     44,140
------------------------------------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY:
U.S. Government agencies                    1,000        989      1,505      1,507      1,992      1,995
Corporate debt obligations                  1,853      1,850      2,858      2,878      1,854      1,870
State and municipal sub-divisions             742        737        747        764        425        430
Mortgage-backed securities                  3,508      3,450      5,208      5,255      8,279      8,274
------------------------------------------------------------------------------------------------------------
Total held-to-maturity                      7,103      7,026     10,318     10,404     12,550     12,569
------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES                         $105,501   $104,586   $ 96,794   $ 98,841   $ 55,746   $ 56,709
============================================================================================================
</TABLE>

                                       3
<PAGE>
       DEBT  SECURITIES.  The carrying  value of the Company's  debt  securities
totaled  $99.9  million at December 31, 1999. 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, 1999, 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.

       The Company began an investment program in 1999 to increase the Company's
investment in  mortgage-backed  securities.  The purchases  were funded  through
Federal  Home Loan Bank of New York  borrowings  and a reduction  in  short-term
investments.  The amortized cost of mortgage-backed securities was $62.2 million
at December 31, 1999, compared with $48.0 million at the end of 1998. One effect
of this program has been a lengthening  of the stated  maturity of the Company's
investment portfolio as shown in the table below.

       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 and  municipal  bonds with
maturity  dates as great as 10 years.  At December 31, 1999,  more than 95.0% of
the carrying value of the Company's debt securities,  excluding  mortgage-backed
securities, had remaining terms to maturity of five years or less.

       SECURITIES,  MATURITIES  AND  YIELDS.  The  following  table  sets  forth
contractual  maturities  and the weighted  average  yields of the Company's debt
securities  portfolio at December 31, 1999 and the comparable  total at December
31, 1998.

<TABLE>
<CAPTION>
                                                                                        MORE THAN TEN
                            ONE YEAR OR LESS  ONE TO FIVE YEARS   FIVE TO TEN YEARS         YEARS        TOTAL DEBT SECURITIES
                            ---------------------------------------------------------------------------------------------------
                             CARRYING AVERAGE CARRYING   AVERAGE   CARRYING   AVERAGE  CARRYING  AVERAGE    CARRYING   AVERAGE
                              VALUE    YIELD    VALUE     YIELD     VALUE      YIELD     VALUE    YIELD      VALUE      YIELD
-------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>         <C>   <C>           <C>    <C>           <C>        <C>     <C>   <C>           <C>
                                                                  (Dollars in thousands)
U.S. Treasury securities    $  3,007    6.22% $      14     5.25%  $     --       --% $      --      --%   $   3,021    6.21%
U.S. Government agencies         500    6.19%    11,725     5.94%        --       --%        --      --%      12,225    5.95%
Corporate debt                 8,334    5.95%    13,847     5.98%        --       --%        --      --%      22,181    5.97%
State and municipal
     subdivisions                176    4.14%       358     4.50%     2,012     4.39%        --      --%       2,546    4.39%
Mortgage-backed securities       252    6.99%     1,233     6.22%     3,723     6.17%    54,737    6.40%      59,945    6.39%
-------------------------------------------------------------------------------------------------------------------------------
Total 1999                  $ 12,269          $  27,177            $  5,735           $  54,737            $  99,918
===============================================================================================================================
Total 1998                  $ 20,139          $  28,660            $  5,799           $  40,674            $  95,272
===============================================================================================================================
</TABLE>

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

       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 $4.7 million at December 31, 1999.

       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, 1999.

                                       4
<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>

                                                                    AT DECEMBER 31,
                          -----------------------------------------------------------------------------------------------------
                                  1999              1998                1997                  1996                 1995
                          -----------------------------------------------------------------------------------------------------
                                   PERCENT             PERCENT               PERCENT             PERCENT              PERCENT
                          AMOUNT   OF TOTAL   AMOUNT   OF TOTAL   AMOUNT    OF TOTAL    AMOUNT   OF TOTAL   AMOUNT   OF TOTAL
-------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>        <C>     <C>          <C>     <C>          <C>     <C>          <C>    <C>          <C>
                                                                 (Dollars in thousands)
Real estate loans:
Residential               $104,494   61.76%  $101,885     62.96%  $ 97,303     61.66%  $ 96,097     59.73% $ 95,854     59.57%
Construction                 1,790    1.06        145      0.09        316      0.20        528      0.33       155      0.10
Home equity                  6,520    3.85      6,804      4.20      5,924      3.75      5,882      3.66     6,344      3.94
Commercial mortgages        31,864   18.83     29,224     18.06     30,867     19.56     35,119     21.83    35,165     21.86
-------------------------------------------------------------------------------------------------------------------------------
Total real estate loans    144,668   85.50    138,058     85.31    134,410     85.17    137,626     85.55   137,518     85.47
-------------------------------------------------------------------------------------------------------------------------------
Other loans:
Guaranteed student loans       741    0.44      1,016      0.63      1,507      0.96      1,552      0.96     1,747      1.09
Property improvement
loans                          661    0.39        709      0.44        907      0.57      1,031      0.64       916      0.57
Automobile loans            12,641    7.47     10,854      6.71      8,902      5.64      6,378      3.96     5,510      3.42
Other consumer loans         4,208    2.49      4,597      2.84      5,031      3.19      6,289      3.91     6,174      3.84
Commercial loans             6,278    3.71      6,588      4.07      7,049      4.47      8,020      4.98     9,023      5.61
-------------------------------------------------------------------------------------------------------------------------------
Total other loans           24,529   14.50     23,764     14.69     23,396     14.83     23,270     14.45    23,370     14.53
-------------------------------------------------------------------------------------------------------------------------------
Total loans                169,197  100.00%   161,822    100.00%   157,806    100.00%   160,896    100.00%  160,888    100.00%
Less:
Deferred loan fees, net        110                121                  241                  333                 379
Allowance for loan losses    2,430              2,494                2,143                1,952               2,002
-------------------------------------------------------------------------------------------------------------------------------
Total loans, net          $166,657           $159,207             $155,422             $158,611            $158,507
===============================================================================================================================
</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.  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%.

       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%.

                                       5
<PAGE>

       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  120% 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.  Attorneys'  opinions of title are used instead of title insurance for
smaller commercial mortgage 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.

                                       6

<PAGE>

        The  Company  offers  automobile  loans for both new and used cars.  The
loans have fixed rates with maturities not more than five and a half 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 terms 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
borrowers'  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 sales.

       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  contractual  maturities of commercial
and real estate  construction  loans  outstanding at December 31, 1999. Also set
forth are the amounts of such loans due after one year,  classified according to
sensitivity to changes in interest rates.

<TABLE>
<CAPTION>

                                                                                   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
                                                               ----------------------------------------------------
<S>                                               <C>            <C>            <C>       <C>            <C>          <C>
                                                                                (In thousands)
Commercial and real estate construction loans     $ 4,230        $ 2,404        $ --      $ 1,434        $ --         $ 8,068
===============================================================================================================================
</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.

                                       7
<PAGE>

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

<TABLE>
<CAPTION>

                                                                         AT DECEMBER 31,
                                                       ----------------------------------------------------
                                                           1999     1998      1997      1996      1995
-----------------------------------------------------------------------------------------------------------
<S>                                                      <C>       <C>       <C>       <C>       <C>
                                                                      (Dollars in thousands)
NON-ACCRUAL LOANS: (1)
Residential mortgages                                    $  539    $  667    $2,010    $1,069    $  772
Commercial mortgages                                         --       167     1,235     1,416       421
-----------------------------------------------------------------------------------------------------------
Total real estate loans                                     539       834     3,245     2,485     1,193
Commercial loans                                             57        71       331       790       739
Other loans                                                   7        15       209       358        62
-----------------------------------------------------------------------------------------------------------
Total non-accrual loans                                     603       920     3,785     3,633     1,994
Accruing loans past due 90 days or more:
Residential mortgages                                        --        --         2         1        --
Commercial mortgages                                         --        --        --        --        --
-----------------------------------------------------------------------------------------------------------
Total real estate loans                                      --        --         2         1        --
Commercial loans                                             --        11        --        --        --
Other loans                                                   6         4         7        33        --
-----------------------------------------------------------------------------------------------------------
Total loans past due 90 days or more and still
     accruing                                                 6        15         9        34        --
-----------------------------------------------------------------------------------------------------------
Total non-performing loans                                  609       935     3,794     3,667     1,994
Real estate owned                                           309       260       964       563       374
-----------------------------------------------------------------------------------------------------------
Total non-performing assets                              $  918    $1,195    $4,758    $4,230    $2,368
===========================================================================================================
Non-performing loans as a percent of total loans           0.36%     0.58%     2.37%     2.28%     1.24%
Non-performing assets as a percent of total assets         0.32%     0.42%     2.04%     1.78%     1.00%
===========================================================================================================

</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, 1999 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  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.

                                       8
<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 measure the inherent
risk in the current  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>
                                                                           YEAR ENDED DECEMBER 31,
                                                  ------------------------------------------------------------
                                                      1999       1998       1997       1996        1995
--------------------------------------------------------------------------------------------------------------
<S>                                                 <C>        <C>         <C>        <C>        <C>
                                                                            (Dollars in thousands)
Allowance for loan losses, beginning of year        $ 2,494    $ 2,143     $ 1,952    $ 2,002    $ 1,752
Provision for loan loss                                 100        325       3,300      1,380        600
--------------------------------------------------------------------------------------------------------------
Charge-offs:
Real estate                                             145         16       2,484        264        478
Commercial                                               --         52         395        898         31
Other                                                   135        112         400        551         96
--------------------------------------------------------------------------------------------------------------
Total charge-offs                                       280        180       3,279      1,713        605
Recoveries:
Real estate                                              20         96           9         24        161
Commercial                                               17         40          61        190         --
Other                                                    79         70         100         69         94
--------------------------------------------------------------------------------------------------------------
Total recoveries                                        116        206         170        283        255
--------------------------------------------------------------------------------------------------------------
Net charge-offs (recoveries)                            164        (26)      3,109      1,430        350
--------------------------------------------------------------------------------------------------------------
Allowance for loan losses, end of year              $ 2,430    $ 2,494     $ 2,143    $ 1,952    $ 2,002
==============================================================================================================
Allowance for loan losses as a
     percent of total loans                            1.44%      1.54%       1.34%      1.22%      1.25%
Allowance for loan losses as a
     percent of non-performing loans                 399.01%    266.74%      56.48%     53.23%    100.40%
Ratio of net charge-offs (recoveries)
     to average loans outstanding                      0.10%     (0.02)%      1.97%      0.90%      0.22%
==============================================================================================================

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


                                                                     AT DECEMBER 31,
                             -------------------------------------------------------------------------------------------------
                                   1999              1998                1997                 1996                 1995
                             -------------------------------------------------------------------------------------------------
                                      PERCENT             PERCENT            PERCENT              PERCENT             PERCENT
                                        OF                  OF                  OF                  OF                  OF
                                       LOANS               LOANS              LOANS                LOANS               LOANS
                                        TO                  TO                  TO                  TO                  TO
                                       TOTAL               TOTAL              TOTAL                TOTAL               TOTAL
                             AMOUNT    LOANS   AMOUNT      LOANS    AMOUNT    LOANS     AMOUNT     LOANS    AMOUNT     LOANS
------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>        <C>     <C>         <C>       <C>       <C>       <C>       <C>        <C>      <C>
                                                                  (Dollars in thousands)
ALLOWANCE FOR LOAN
     LOSSES ALLOCATED TO:
Residential mortgages        $ 1,276    62.82%  $ 1,187     67.25%    $ 661     65.61%    $ 389     63.72%     $ 112    63.61%
Commercial mortgages             503    18.83       617     18.06       638     19.56       818     21.83        753    21.86
Commercial loans                 296     3.71       279      4.07       183      4.47       478      4.98        961     5.61
Other loans                      355    14.64       411     10.62       192     10.36       267      9.47        176     8.92
Unallocated                       --       --        --        --       469        --        --        --         --
------------------------------------------------------------------------------------------------------------------------------
Total allowance              $ 2,430   100.00%  $ 2,494    100.00%  $ 2,143    100.00%  $ 1,952    100.00%   $ 2,002   100.00%
==============================================================================================================================
</TABLE>

                                       9
<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,  borrowings, 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, 1999.

                                                          December 31, 1999
             -------------------------------------------------------------------
                                                        (Dollars in thousands)
               Maturing within three months                  $     1,491
               After three but within six months                   2,293
               After six but within twelve months                  3,277
               After twelve months                                 6,940
             -------------------------------------------------------------------
               Total                                          $   14,001
             ===================================================================

       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
$19.2  million of borrowings  from the FHLB at December 31, 1999,  compared with
$1.0  million  at the end of 1998.  This $18.2  million  increase  is  primarily
attributed  to the  mortgage-backed  securities  investment  program  previously
discussed as well as general cash flow requirements.

SUPERVISION AND REGULATION

       Federal  and state laws and the  regulations  of  federal  and state bank
regulatory  agencies have  substantial  effects on the Company and the Bank. The
following is a brief summary of laws and regulations material to the Company and
the Bank.  Any  change in  applicable  laws or  regulations  may have a material
adverse effect on the business of the Company and the Bank.

       BANK HOLDING  COMPANY  REGULATION.  The Company is a bank holding company
subject to  supervision  by the Federal  Reserve.  The  Federal  Reserve has the
authority to examine the Company and may also examine the Bank.

       A bank holding  company,  such as the Company or Niagara  Bancorp,  Inc.,
must  obtain  prior  Federal  Reserve  approval  to acquire  direct or  indirect
ownership  or  control  of more than 5% of the  voting  stock of any other  bank
holding company. Therefore, Niagara Bancorp must obtain Federal Reserve approval
before it acquires the Company. In addition, any company, person or group acting
in concert that is not already a bank holding  company may be required to obtain
prior approval of the Federal Reserve before  acquiring 10% or more of the stock
of the Company. New York State law similarly requires approval from the New York
State  Banking  Board.  These  approval   requirements  could  discourage  other
companies,  persons  or  groups  from  attempting  to  acquire  the  Company  in
competition to the currently pending transaction with Niagara Bancorp.

       The Federal Reserve requires that bank holding companies maintain minimum
capital  levels.  The Company's  capital  ratios  substantially  exceed  Federal
Reserve  requirements.  At December 31,  1999,  the Company had a ratio of total
capital to risk-weighted  assets of 42.81% compared to a Federal Reserve minimum

                                       10
<PAGE>

requirement  of 8%, at least 4% of which must be core capital.  The Company also
had a ratio of core capital to total average  assets (the  "leverage  ratio") of
23.91%, compared to a minimum requirement of from 4% to 6%. Substantially all of
the Company's capital is core capital.

       TRANSACTIONS  WITH  AFFILIATES.  Federal  and state laws and  regulations
restrict   transactions  between  a  bank  and  its  holding  company  or  other
affiliates,  such as loans,  purchases of assets,  and payments of fees or other
distributions.  In general,  these restrictions limit the amount of transactions
between an  institution  and the affiliate,  as well as the aggregate  amount of
transactions between an institution and all of its affiliates. Transactions with
affiliates must generally be on terms comparable to those for transactions  with
unaffiliated entities.

       DIVIDEND LIMITATIONS. 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.  Under Delaware law, 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, the Bank may pay dividends out of its net
profits  unless  there is an  impairment  of  capital.  The Bank may not declare
dividends in any year which  exceed its total net profits of that year  combined
with its retained  net profits of the  preceding  two years,  subject to certain
adjustments,  without  the  approval  of the New York  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  when the Bank
converted from a mutual to a stock institution.

       The Company and the Bank have satisfied  these rules  regarding  dividend
payments.

       The FDIC and the New York  Superintendent  of Banks 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 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.

       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.

       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.

                                       11
<PAGE>

       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.  Generally,  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. The
Bank currently complies with these limits.

       CAPITAL  REQUIREMENTS.  The FDIC  regulates  the capital  adequacy of the
Bank.  At  December  31,  1999,  the Bank's  leverage  capital  ratio was 22.43%
compared to a minimum  requirement  of from 4% to 5%. At December 31, 1999,  the
Bank's  total  risk-based  capital  ratio  was  39.29%,  compared  to a  minimum
requirement of 8%, at least 4% of which must be core capital.  Substantially all
of the Bank's capital is core capital.

       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.  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 Bank received a  satisfactory  rating from the New
York Banking Department at its last state community reinvestment examination.

       STANDARDS  FOR SAFETY AND  SOUNDNESS.  The Federal  Reserve and the FDIC,
together  with the other  federal bank  regulatory  agencies,  have  established
guidelines 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.   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.  The FDIC has various  enforcement powers if
the Bank violates these guidelines.  If non-compliance  continues,  the FDIC may
proceed as in the case of an undercapitalized  bank under the "prompt corrective
action"   requirements   described  below.  The  FDIC  may  also  seek  judicial
enforcement  and civil money  penalties.  The FDIC has not asserted any material
violations of these guidelines by the Bank.

PROMPT CORRECTIVE ACTION.  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. They must 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. The capital ratios
of the  Company  and the  Bank  are  such  that  the  prompt  corrective  action
requirements have not had any effect on either of them.


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,

                                       12
<PAGE>

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,  1999,  the Company  employed  98  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.

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  representative  offices in Ithaca and
Liverpool  for the  origination  of  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 and loan production
offices at December 31, 1999.

<TABLE>
<CAPTION>
                                                                           DATE              OWNED/               NET BOOK
LOCATION                                                                 ACQUIRED            LEASED                VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>             <C>                   <C>
                                                                                         (In thousands)
One North Main Street, Cortland, NY  13045
     and nearby drive through facility at 29-31 North Main Street         Various            Owned               $   843
12 South Main Street, Homer, NY  13077                                    Various            Owned               $   922
860 Route 13, Cortlandville, NY  13045                                    Various            Owned               $   475
200 East Buffalo Street, Ithaca, NY  14850                                 1998              Leased                 None
290 Elwood Davis Rd, Liverpool, NY 13088                                   1999              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

       Not applicable.

                                       13
<PAGE>

PART II

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

       The Company's common stock is traded on the Nasdaq National Market System
under the symbol "CNYF".  At December 31, 1999,  there were 4,601,373  shares of
CNY Financial  Corporation  common stock issued and outstanding,  and there were
approximately  1,500  holders of record.  The table below shows the high and low
bid price on the common stock and cash dividends per share  declared  during the
last two years. The share prices shown do not represent actual  transactions and
do not include retail markups, markdowns or commissions.

<TABLE>
<CAPTION>
                                                                  Bid
                                                     ------------------------------  Dividends
                                                          High            Low        Per Share
                                                     -------------------------------------------------
           <S>                                        <C>              <C>            <C>
           1998:
           ----
              October 6 - December 31 (1)              $  10.19       $   8.88        $     --
           1999 quarter ended:
           ------------------
              March 31                                    12.13           9.88            0.04
              June 30                                     12.06          11.25            0.05
              September 30                                15.63          11.88            0.08
              December 31                              $  17.94       $  13.94        $   0.10
           -------------------------------------------------------------------------------------------
</TABLE>

           (1) The Company's common stock began trading on October 6, 1998.

The stock price  information  set forth in the table  above was  provided by the
National Association of Securities Dealers, Inc.

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

<TABLE>
<CAPTION>

                                                                          DECEMBER 31,
                                            --------------------------------------------------------------------------
SELECTED BALANCE SHEET DATA:                    1999           1998           1997           1996           1995
                                            --------------------------------------------------------------------------
<S>                                         <C>             <C>            <C>            <C>            <C>
                                                                (In thousands, except share data)
Total assets                                $   287,445     $  281,186     $  233,729     $   238,100    $  235,681
Loans receivable, net                           166,657        159,207        155,422         158,611       158,507
Allowance for loan losses                         2,430          2,494          2,143           1,952         2,002
Loans held-for-sale                                   -              -          2,541              --            --
Securities available-for-sale                    97,560         88,437         44,140          45,594        41,777
Securities held-to-maturity                       7,103         10,318         12,550          11,757        11,188
Cash & cash equivalents                           6,272         14,536          8,079          12,536        14,176
Real estate owned                                   309            260            964             563           374
Deposits                                        195,470        196,014        199,770         204,640       203,110
Borrowings                                       19,200          1,000             --              --            --
Total stockholders' equity                  $    67,700     $   79,070     $   30,740     $    30,345    $   29,030
Book value per share(1)                     $     15.43     $    15.06            N/A             N/A           N/A
Book value per share, excluding
     unallocated ESOP shares(2)             $     16.99     $    16.38            N/A             N/A           N/A
</TABLE>

(CONTINUED ON NEXT PAGE)

                                       14
<PAGE>

(CONTINUED FROM PREVIOUS PAGE)

<TABLE>
<CAPTION>

                                                                                YEAR ENDED DECEMBER 31,
                                                       ----------------------------------------------------------- --------------
SELECTED OPERATIONS DATA:                                    1999           1998           1997           1996           1995
                                                       ----------------------------------------------------------- --------------
<S>                                                    <C>            <C>            <C>            <C>            <C>
                                                                           (In thousands, except share data)
Interest income                                        $    19,770    $    18,003    $    17,667    $     17,787   $    17,811
Interest expense                                             7,607          7,986          8,328           8,758         8,613
---------------------------------------------------------------------------------------------------------------------------------
Net interest income                                         12,163         10,017          9,339           9,029         9,198
Provision for loan losses                                      100            325          3,300           1,380           600
---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses         12,063          9,692          6,039           7,649         8,598
Other non-interest income                                    1,078          1,583            889             770           671
---------------------------------------------------------------------------------------------------------------------------------
                                                            10,985         11,275          6,928           8,419         9,269
Other non-interest expense                                   7,874          8,326          6,872           6,201         5,945
---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes                                   5,267          2,949             56           2,218         3,324
Income tax expense (benefit)                                 2,295          1,270            (16)            853         1,400
---------------------------------------------------------------------------------------------------------------------------------
Net income                                             $     2,972    $     1,679    $        72    $      1,365   $     1,924

Basic earnings per share(3)                            $      0.67    $        --            N/A             N/A           N/A
Diluted earnings per share(3)                          $      0.66    $        --            N/A             N/A           N/A
=================================================================================================================================
Diluted earnings per share, excluding contribution
     to Foundation(4)                                  $      0.66    $      0.13            N/A             N/A           N/A
=================================================================================================================================
Weighted average diluted shares outstanding              4,496,584      4,928,044            N/A             N/A           N/A
=================================================================================================================================


SELECTED FINANCIAL RATIOS AND OTHER DATA:                                AT OR FOR THE YEAR ENDED DECEMBER 31,
                                                       --------------------------------------------------------------------------
                                                           1999           1998           1997           1996           1995
                                                       --------------------------------------------------------------------------
<S>                                                          <C>          <C>             <C>           <C>             <C>
PERFORMANCE RATIOS:
Return on average assets                                     1.04%        0.64%           0.03%         0.58%           0.82%
Return on average assets, excluding
     contribution to Foundation(4)                           1.04%        0.87%           0.03%         0.58%           0.82%
Return on average equity                                     3.96%        3.21%           0.23%         4.64%           6.85%
Return on average equity, excluding
     contribution to Foundation(4)                           3.96%        4.38%           0.23%         4.64%           6.85%
Net interest rate spread                                     3.36%        3.52%           3.58%         3.48%           3.70%
Net interest margin                                          4.46%        4.28%           4.17%         4.02%           4.18%
Efficiency ratio                                            59.57%       72.00%          67.49%        63.38%          60.34%
Efficiency ratio, excluding
     contribution to Foundation(4)                          59.57%       63.15%          67.49%        63.38%          60.34%

STOCKHOLDERS' EQUITY AND ASSET QUALITY RATIOS:
Average equity to average total assets                      26.31%       19.86%          13.04%        12.40%          12.00%
Total equity to assets end of period                        23.55%       28.12%          13.15%        12.74%          12.32%
Non-performing assets to total assets                        0.32%        0.42%           2.04%         1.78%           1.00%
Non-performing loans to total loans                          0.36%        0.58%           2.37%         2.28%           1.24%
Allowance for loan losses to total loans                     1.44%        1.54%           1.34%         1.22%           1.25%
Allowance for loan losses to non-performing loans          399.01%      266.74%          56.48%        53.23%         100.40%

OTHER DATA:
Full service offices                                            3            3               3             3               3
Full-time equivalent employees                                 98           91              93            95              96
=============================================================================================================================
</TABLE>


(1)Book value per share is equal to total  stockholders'  equity  divided by the
   common  shares  outstanding  at December 31.
(2)Equal to  stockholders'  equity  divided by common shares  outstanding,  less
   unallocated ESOP shares.
(3)Earnings per share for 1998  calculated  on earnings  from date of conversion
   (October 6, 1998) to December 31, 1998.
(4)Excludes   contribution   expense  to  the  Cortland  Savings  Foundation  of
   $1,023,000, or $614,000 after taxes in 1998.

                                       15
<PAGE>

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

       The  following   discussion  should  be  read  in  conjunction  with  the
Consolidated  Financial Statements of CNY Financial  Corporation,  including the
accompanying notes, appearing elsewhere in this Form 10-K.

GENERAL

       The  Company's  principal  business  is  conducted  by  its  wholly-owned
subsidiary,  Cortland  Savings  Bank (the  "Bank") and  consists of full service
community  banking.  The Bank's results of operations depend  principally on its
net interest  income,  which is the difference  between the income earned on its
loans  and  securities  and its  cost of  funds,  principally  interest  paid on
deposits. Net interest income is dependent on the amounts and yields of interest
earning  assets as  compared  to the  amounts of and rates on  interest  bearing
liabilities.  Net  interest  income is  sensitive  to changes in market rates of
interest and the Company's asset/liability  management procedures in coping with
such changes.  Results of operations are also affected by the provision for loan
losses,  the volume of  non-performing  assets  and the  levels of  non-interest
income, and non-interest expense.

       Sources of non-interest income include categories such as deposit account
fees and other service  charges,  gains on the sale of  securities  and fees for
banking   services  such  as  safe  deposit  boxes.   The  largest  category  of
non-interest  expense is  compensation  and benefits  expense.  Other  principal
categories of non-interest  expense are occupancy  expense and real estate owned
expense,  which  represents  expenses in connection with real estate acquired in
foreclosure or in satisfaction of a debt owed to the Company.

       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 (the "Conversion"). On that date, the Company sold 5,251,629 shares
of common stock in its initial public offering and received $50.3 million of net
proceeds from the sale, which have been invested primarily into  mortgage-backed
securities  and  investment  grade  corporate  bonds.  The shares sold  included
428,532 shares purchased by the Company's  Employee Stock Ownership Plan (ESOP),
which purchase was funded by a loan from the Company. The Company contributed an
additional  105,033  shares to the Cortland  Savings  Foundation  as part of the
Conversion  and an expense of $1.0  million,  or  approximately  $614,000  after
taxes,  was recorded in October  1998 due to this  donation.  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.


COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1999 AND DECEMBER 31, 1998

       Total assets at December 31, 1999 were $287.4 million, compared to $281.2
million at December 31, 1998. The primary cause of the $6.3 million increase was
increased investing and lending activity by the Company.

       The Company  repositioned a portion of its invested funds in 1999 to take
advantage  of higher  rates  available  by  extending  the  average  maturity of
investments.  The Company also  expanded its  investment  program to enhance net
interest  income.  The Company  concentrated  its new securities  investments in
mortgage-backed  securities which tend to have higher yields than government and
corporate debt securities.  The mortgage-backed securities had contractual terms
to  maturity  of 15 to 30  years,  and were  funded by a  reduction  in cash and
short-term investments of $8.3 million and an increase in borrowings.

       Net loans were $166.7  million at December 31, 1999,  an increase of $7.5
million from the end of 1998. This growth occurred as the Company maintained its
emphasis in  residential  lending and increased its level of loan  originations.
Loan  closings,  including  undisbursed  funds and  refinancings,  totaled $41.3
million in 1999, an increase of 4.8% from the 1998 total of $39.4 million.

       Total deposits were $195.5 million at the end of 1999, compared to $196.0
million at December 31, 1998.  This  $544,000  reduction is attributed to a $3.9
million  reduction in certificates of deposit and a $711,000  decline in savings
accounts,  partially  offset by a $1.3 million increase in demand accounts and a
$2.8 million increase in money market accounts. During 1999, management chose to
reduce the  Company's  reliance  on higher  cost  certificates  of  deposit  and
actively promote the Company's checking account and money market products.


                                       16
<PAGE>

       Borrowings  were $19.2  million and $1.0 million at December 31, 1999 and
1998, respectively.  This $18.2 million increase was required to fund the growth
in assets, and the stock repurchases discussed in the following paragraph.

       Stockholders'  equity was $67.7  million on December 31, 1999 compared to
$79.1 million at the end of 1998. The primary  contributor to this $11.4 million
decline was  completion  of the Company's  share  repurchase  programs.  649,664
shares of the Company's  common stock were purchased during 1999 at an aggregate
price of $9.4 million.  Additionally,  the Company repurchased 214,266 shares in
May  1999 at a price  of  $12.00  per  share to be used  for  grants  under  the
Company's  Personnel  Recognition and Retention Plan. As of December 31, 1999, a
total of 181,278 shares have been granted to participants in this plan.

INTEREST EARNING ASSETS AND INTEREST BEARING LIABILITIES

       The following table sets forth the average daily  balances,  net interest
income and expense and average yields and rates for the Company's earning assets
and interest bearing  liabilities for the indicated  periods.  No tax-equivalent
adjustments were made.

<TABLE>
<CAPTION>

                                                                    YEAR ENDED DECEMBER 31,
                                  ---------------------------------------------------------------------------------------------
                                              1999                           1998                            1997
                                  ---------------------------------------------------------------------------------------------
                                                       AVERAGE                        AVERAGE                         AVERAGE
                                             AVERAGE    YIELD/              AVERAGE    YIELD/              AVERAGE     YIELD/
                                  INTEREST   BALANCE     COST    INTEREST   BALANCE     COST    INTEREST   BALANCE      COST
                                  ---------------------------------------------------------------------------------------------
<S>                               <C>       <C>         <C>       <C>      <C>         <C>      <C>       <C>          <C>
                                                                     (Dollars in thousands)

Loans(1)                          $ 13,183  $161,371    8.17%     $13,420  $156,649    8.57%    $13,582   $157,713     8.61%
Securities(2)                        6,429   107,571    5.98%       4,016    66,228    6.06%      3,769     60,226     6.26%
Other short-term investments           158     3,615    4.37%         567    11,387    4.98%        316      6,019     5.25%
-------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets       19,770   272,557    7.25%      18,003   234,264    7.68%     17,667    223,958     7.89%
Non-interest-earning assets                   12,697                         29,141                         12,254
-------------------------------------------------------------------------------------------------------------------------------
Total assets                                $285,254                       $263,405                       $236,212
===============================================================================================================================

Savings accounts(3)                  1,517  $ 63,853    2.38%       1,851  $ 66,709    2.77%      1,936   $ 64,576     3.00%
Money market accounts                  256     9,211    2.78%         220     8,176    2.69%        243      8,643     2.81%
NOW accounts                           133    10,747    1.24%         167    10,015    1.67%        166      9,457     1.76%
Certificates of deposit              5,140   102,470    5.02%       5,723   106,860    5.36%      5,983    110,728     5.40%
Borrowings                             561     9,237    6.07%          25       430    5.81%         --         --       --
-------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities   7,607   195,518    3.89%       7,986   192,190    4.16%      8,328    193,404     4.31%
Non-interest-bearing liabilities              14,684                         18,900                         12,002
-------------------------------------------------------------------------------------------------------------------------------
Total liabilities                            210,202                        211,090                        205,406
Stockholders' equity                          75,052                         52,315                         30,806
-------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity                $285,254                       $263,405                       $236,212
===============================================================================================================================

Net interest income/spread        $ 12,163              3.36%     $10,017              3.53%    $ 9,339                3.58%

Net earning assets/net
interest margin                             $ 77,039    4.46%              $ 42,074    4.28%              $ 30,554     4.17%

Ratio of average interest-earning
   assets  to average interest-bearing
   liabilities                                  1.39x                          1.22x                          1.16x
---------------------------------
</TABLE>

(1) Average balances include loans  held-for-sale  and nonaccrual  loans, net of
    the  allowance for loan losses.  Interest is recognized on nonaccrual  loans
    only as and when received.
(2) Securities  are included at amortized  cost,  with net  unrealized  gains or
    losses  on  securities   available-for-sale   included  as  a  component  of
    non-earning assets. Securities include Federal Home Loan Bank stock.
(3) Includes  advance   payments  for  taxes  and  insurance   (mortgage  escrow
    deposits).

                                       17
<PAGE>

CHANGES IN INTEREST INCOME AND EXPENSE

       One method of analyzing net interest income is to consider how changes in
average  balances  and  average  rates  from one  period to the next  affect net
interest  income.  The  following  table  shows the dollar  amount of changes in
interest income and expense by major  categories of interest  earning assets and
interest bearing liabilities  attributable to changes in volume or rate or both,
for the periods indicated.

       Volume  variances are computed  using the change in volume  multiplied by
the previous  year's rate. Rate variances are computed using the changes in rate
multiplied  by the previous  year's  volume.  The change in interest due to both
rate and volume has been  allocated  between  the factors in  proportion  to the
relationship of the absolute dollar amounts of the change in each.

<TABLE>
<CAPTION>

                                                                           YEAR ENDED DECEMBER 31,
                                               ---------------------------------------------------------------------
                                                            1999 VS. 1998                           1998 VS. 1997
                                               ---------------------------------------------------------------------
                                                     INCREASE (DECREASE) DUE TO:  INCREASE (DECREASE) DUE TO:
                                                  VOLUME        RATE     TOTAL     VOLUME       RATE      TOTAL
                                               ---------------------------------------------------------------------
<S>                                              <C>        <C>        <C>        <C>        <C>        <C>
                                                                               (In thousands)
INTEREST-EARNING ASSETS:
Loans                                            $   398    $  (635)   $  (237)   $   (91)   $   (71)   $  (162)
Securities                                         2,472        (59)     2,413        367       (120)       247
Other short-term investments                        (347)       (62)      (409)       268        (17)       251
--------------------------------------------------------------------------------------------------------------------
Total interest-earning assets                    $ 2,523    $  (756)   $ 1,767    $   544    $  (208)   $   336
====================================================================================================================

INTEREST-BEARING LIABILITIES:
Savings accounts                                 $   (76)   $  (258)   $  (334)   $    62    $  (147)       (85)
Money market accounts                                 29          7         36        (13)       (10)       (23)
NOW accounts                                          11        (45)       (34)         9         (8)         1
Certificates of deposit                             (229)      (354)      (583)      (207)       (53)      (260)
Borrowings                                           535          1        536         25         --         25
--------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities               $   270    $  (649)   $  (379)   $  (124)   $  (218)   $  (342)
====================================================================================================================

Net change in net interest income                $ 2,253    $  (107)   $ 2,146    $   668    $    10    $   678
====================================================================================================================
</TABLE>

COMPARISON  OF  OPERATING  RESULTS  FOR THE YEARS  ENDED  DECEMBER  31, 1999 AND
DECEMBER 31, 1998

       GENERAL.  Net income for 1999 was $3.0 million  compared to net income of
$1.7 million in 1998. The primary reason for the  improvement was an increase in
net interest  income of $2.1 million and a $452,000  decrease in other operating
expenses.  These  improvements were partially offset by a $505,000  reduction in
non-interest income and a $1.0 million increase in income tax expense

       NET INTEREST  INCOME.  Net interest  income  increased by $2.1 million or
24.5% from 1998 to 1999.  This  improvement  occurred  primarily  due to a $38.3
million  increase in average total  earning  assets as a result of the Company's
stock  offering  on October 6, 1998,  offset  partially  by a  reduction  in the
average  rate  earned on assets of 43 basis  points.  The  reduction  in rate is
attributable  to an increase in  securities  as a  percentage  of total  earning
assets and a reduction in the rate earned on loans due to competitive  pressures
and market  interest  rates in  general.  Securities  increased  as the  Company
invested  the  proceeds  of its  stock  offering  in  such  investments  pending
redeployment  in  loans  as  appropriate  opportunities  arise  and  due  to the
investment program previously discussed. Loans generally have higher yields than
the Company's other investments.

       The Company also  experienced  a decline in the cost of  interest-bearing
liabilities  to 3.89% in 1999  compared to 4.16% in 1998.  The decline in market
interest  rates at the end of 1998 allowed the Company to reduce its savings and
NOW account pricing while remaining competitive in its market. Furthermore,  the
infusion of capital from the Company's conversion allowed the Company to be more
conservative  in pricing its  certificates  of deposit.  The  investment  of the
additional  capital  resulted in an  increase  in average net earning  assets of
$35.0 million in 1999,  which  resulted in an  improvement  in the Company's net
interest margin to 4.46% in 1999, compared to 4.28% in 1998.

                                       18
<PAGE>

       PROVISION FOR LOAN LOSSES.  The  provision  for loan losses  results from
management's  analysis  of the  adequacy  of the  Company's  allowance  for loan
losses. If management determines that an increase in the allowance is warranted,
then the increase is accomplished  through a provision for loan losses, which is
charged  as an expense  on the  Company's  consolidated  income  statement.  The
provision  for loan losses was  $100,000  for the year ended  December  31, 1999
compared to $325,000 in 1998. A lower  provision was  appropriate in 1999 due to
the Company's improved asset quality.

       NON-INTEREST   INCOME.   The  Company's   primary   source  of  recurring
non-interest income is service charges, principally on deposit accounts. Service
charges  increased  by $117,000  in 1999 versus  1998,  which  increase  related
primarily to the implementation of ATM surcharges and increased debit card usage
by the Company's customers.

       The Company began  surcharging  non-Bank  customers for using its ATMs in
April 1999. A total of $61,000 of income was  recognized for this service during
the year. Additionally,  through a customer awareness campaign, debit card usage
increased, resulting in a $44,000 improvement in income from this product.

       During 1998,  the Company also  received  $658,000 in  settlement  of its
insurance claim related to an officer  defalcation which was discovered in 1996.
The settlement brought this matter to a close.

       NON-INTEREST  EXPENSE.  Non-interest expense decreased $452,000 from 1998
to 1999.  The  primary  reasons  for the  decrease  were a $415,000  decrease in
salaries and employee benefits and the $1.0 million contribution to the Cortland
Savings  Foundation  in 1998.  Partially  reducing the impact of these items was
$315,000 of  expenses  incurred  related to the  announced  merger with  Niagara
Bancorp, Inc. These merger expenses are not tax deductible,  and thus net income
was reduced by that amount.

       The  decrease  in  salaries  and  employee  benefits  included a $516,000
reduction of expense related to the termination of the Company's defined benefit
pension  plan,  versus an  expense  of  $377,000  in 1998.  This  reduction  was
partially  offset by  increased  expense of the  Company's  ESOP and stock grant
plan, increased medical claims of $85,000 and normal merit increases.

       The  fluctuation  in the impact of the defined  benefit plan  termination
between 1998 and 1999 was caused by the  settlement  gain on the  termination of
the plan in 1999 of $394,000  combined  with a $122,000  reduction in the actual
contribution to the Company's 401(k) plan in 1999 from the estimate  recorded in
1998.

       Expense  related to the  allocation  of ESOP shares was  $279,000 for the
year ended  December 31, 1999,  compared with $51,000 in 1998. The primary cause
of this  $228,000  increase  was a full year of  allocation  in 1999  versus one
quarter in 1998.  The higher  average  per share price of the  Company's  common
stock in 1999 versus 1998 also contributed to this increase.

       Shareholders  of the  Company  approved  the  Personnel  Recognition  and
Retention  Plan ("PRRP") of the Company in April 1999 and stock grants were made
to officers and  directors of the Company  under this plan.  Expense of $288,000
was recorded in 1999 for this plan, and there was no such expense in 1998.

       During the fourth quarter of 1998, the Company  donated  105,033 share of
its common stock to the Cortland  Savings  Foundation,  a charitable  foundation
created in connection  with the Conversion.  The donation  resulted in a pre-tax
$1.0 million financial statement expense during 1998.

       Professional  fees  increased  by  $213,000  from 1998 to 1999,  due to a
variety of matters,  including  the  establishment  of a real estate  investment
trust in 1999.

       The Company recorded net expense of $83,000 from its real estate owned in
1999  compared with net revenue of $72,000 in 1998.  This  $155,000  increase in
expense  occurred because the Company recorded a gain of $209,000 on the sale of
one property in 1998 which gain exceeded the aggregate  other expenses  incurred
on real estate owned during that year.

       Other  non-interest   expense  increased  $412,000  from  1998  to  1999,
reflecting increased costs associated with being a publicly-traded company for a
full year in 1999 versus less than one quarter in 1998.  Adding to the  increase
in other  expense  was a $51,000  increase  in the costs of  upgrading  personal
computers in 1999, and a $55,000  increase in the costs  associated with ATM and
debit cards due to higher volume levels as  previously  discussed.  Furthermore,
the Company experienced a $74,000 increase in foreclosure expenses as the number
of actions  increased  compared  with 1998.  This  increased  activity  did not,

                                       19
<PAGE>

however,  result in an increase in the level of other real estate owned  because
the Company aggressively worked to manage its level of nonperforming assets.

       INCOME  TAXES.  Income tax expense  increased  $1.0  million from 1998 to
1999, primarily reflecting the improved earnings of the Company.

COMPARISON  OF  OPERATING  RESULTS  FOR THE YEARS  ENDED  DECEMBER  31, 1998 AND
DECEMBER 31, 1997

       GENERAL.  Net income for 1998 was $1.7 million  compared to net income of
$72,000 in 1997. The primary reason for the improvement was the reduction in the
costs incurred to resolve the Company's problem assets, including a $3.0 million
reduction  in the  provision  for loan  losses and a $572,000  reduction  in the
expense of real estate owned.  Also affecting the  improvement in net income was
an improvement in net interest income of $678,000,  a $694,000 increase in other
operating income and a $1.5 million increase in other operating expenses.

        During  the  fourth  quarter  of  1997,  the  Company  decided  that its
non-performing  loans were creating too great a strain on  management  resources
and the work necessary to collect those assets was diverting management from its
core goal of running the Company in a profitable manner.  Therefore, in order to
improve overall asset quality and free  management  from less  productive  tasks
associated with the resolution of problem loans,  the Company decided to seek to
sell a substantial  portion of its  non-performing  loans to a single  unrelated
purchaser which was completed in the first quarter of 1998. The decision to sell
the loans  resulted in a $1.7  million  charge  against the  allowance  for loan
losses.

       NET INTEREST  INCOME.  Net interest income  increased by $678,000 or 7.3%
form 1997 to 1998. This  improvement  occurred  primarily due to a $10.3 million
increase in average  total  earning  assets as a result of the  Company's  stock
offering on October 6, 1998, offset partially by a reduction in the average rate
earned on assets of 21 basis points. The reduction in rate is attributable to an
increase in securities and other short-term  investments and the overall decline
in market interest rates.

       The Company also  experienced  a decline in the cost of  interest-bearing
liabilities  to 4.16% in 1998  compared to 4.31% in 1997.  The decline in market
interest rates allowed the Company to reduce its deposit pricing while remaining
competitive  in  its  market.   The  infusion  of  capital  from  the  Company's
conversion,  and related increase in average net earning assets of $11.5 million
in 1998,  resulted in an  improvement  in the Company's  net interest  margin to
4.28% for 1998, compared to 4.17% in 1997.

       PROVISION FOR LOAN LOSSES. The provision for loan losses was $325,000 for
the year ended  December  31,  1998  compared to $3.3  million in 1997.  A lower
provision was  appropriate  in 1998 due to the  significant  improvement  in the
Company's  asset quality.  Despite the decrease in the provision,  the allowance
for loan losses  increased from $2.1 million at year-end 1997 to $2.5 million at
year-end 1998, when it represented 1.54% of total loans.

       NON-INTEREST   INCOME.   The  Company's   primary   source  of  recurring
non-interest income is service charges, principally on deposit accounts. Service
charges  increased  by $87,000  in 1998  versus  1997,  which  increase  related
primarily to fee changes on products and an increase in loan-related fees.

       During 1998, the Company also received  $658,000 from the insurance claim
settlement previously discussed.

       NON-INTEREST  EXPENSES.  Non-interest expense increased $1.4 million from
1997 to 1998. The primary  reasons for the increase were a $918,000  increase in
salaries and employee  benefits and a $1.0 million  contribution to the Cortland
Savings  Foundation.  The increase in salaries and employee  benefits included a
$377,000  expense  related to the  termination of the Company's  defined benefit
pension plan, $113,000 of severance expense for employee terminations, increased
medical  claims of $82,000,  $51,000 of expense  related to the Company's  ESOP,
representing  ESOP expense for approximately one quarter of the year, and normal
merit increases.

       The $377,000 expense related to the termination of the Company's  defined
benefit  plan  represents  the  estimated  plan  curtailment  expense of $35,000
combined with an estimated  expense of $437,000 for the Company's  commitment to
contribute  25% of the excess of plan  assets over the cost of  annuities  to be
purchased at the time of settlement of the plan  (expected to be in 1999) to the
Company's 401(k) plan. These amounts are partially offset by the $95,000 benefit
of the pension plan prior to termination.

                                       20
<PAGE>

       Professional  fees  increased by $257,000  from 1997 to 1998,  reflecting
$210,000 of expenses  related to the Company's  unsuccessful  attempt to acquire
another financial institution during the fourth quarter of 1998.

       Directors'  fees increased  $189,000,  primarily the effect of a $150,000
retirement benefit for three retired directors in 1998.

       The Company  recorded  net revenues of $72,000 from its real estate owned
in 1998  compared  with a net  expense of  $500,000  in 1997.  This  improvement
occurred as the level of real estate owned declined significantly during 1998 as
the Company continued its efforts to resolve and reduce  non-performing  assets.
The Company recorded a gain of $209,000 on the sale of one property,  which gain
exceeded the aggregate other expenses incurred on real estate owned.

       INCOME  TAXES.  Income tax expense  increased  $1.3  million from 1997 to
1998,  reflecting  the improved  earnings of the  Company,  as well as a $80,000
excise tax recorded for the termination of the defined benefit plan.

LIQUIDITY AND CAPITAL

       The  Company's  primary  sources of funds are deposits,  borrowings,  and
payments received on loans and securities. While scheduled payments on loans and
securities,  either installment payments or payments at maturity, are relatively
predictable  sources  of  funds,  deposit  outflows  and  loan  prepayments  can
fluctuate and are influenced by market interest rates,  economic  conditions and
competition.

       The Company's primary  investing  activities are the origination of loans
and the purchase of  securities.  The Company's  loans,  net, after payments and
charge-offs, increased by $7.5 million during 1999 and $4.1 million during 1998,
and decreased by $3.1 million during 1997.  Securities,  excluding the effect of
unrealized gains and losses, increased by $8.7 million in 1999 and $41.0 million
during 1998 and decreased by $1.2 million during 1997.

       In general,  the Company invests  available funds in securities,  federal
funds sold and short-term  investments  pending the investment of those funds in
loans. Generally,  the regular flow of deposits and loan repayments,  along with
payments on and maturities of securities,  provides sufficient funds to fund new
loan  originations.  The Company can also  regulate the level of  deposits,  and
hence  the flow of  funds,  by  adjusting  the  rates  it  offers  on  deposits,
especially  certificates  of deposit.  Federal  funds sold and other  short-term
investments  are  transitory  and also provide  available  funds when needed for
other purposes.  Furthermore,  as part of its management of the loan origination
process, the Company tracks the progress of loan applications and commitments so
that the volume and timing of new securities  purchases can be adjusted as funds
are needed for other purposes.  Finally,  the Bank has available lines of credit
and borrowing  capabilities to provide  additional funds if the need arises.  At
December  31,  1999,  the Company had  available  lines of credit and  borrowing
capabilities with the Federal Home Loan Bank of New York of $27.3 million.

       At December 31, 1999, the Company and the Bank substantially exceeded all
regulatory  capital  requirements  of the Federal Reserve Board of Governors and
the FDIC applicable to them.  Compliance with minimum capital  requirements does
not currently  have a material  affect on the Bank or the Company.  The Bank was
classified as "well capitalized" at December 31, 1999 under FDIC regulations.

IMPACT OF INFLATION AND CHANGING PRICES

       The  Company  prepares  its  financial  statements  and  other  financial
disclosures according to Generally Accepted Accounting Principles, which in most
cases require the  measurement of financial  condition and operating  results in
terms of  historical  dollar  amounts  without  considering  the  changes in the
relative  purchasing  power of money over time due to  inflation.  Inflation can
increase  operating  costs  and  affect  the  value of  collateral  for loans in
general, and real estate collateral in particular.  Unlike industrial companies,
nearly all of the Company's assets and liabilities are monetary in nature.  As a
result,  interest  rates have a greater impact on net income than do the effects
of general levels of inflation.  Interest rates do not  necessarily  move in the
same  direction  or to the same  extent  as the  price of  goods  and  services.
However,  interest  rates  generally  increase  during  periods when the rate of
inflation is increasing  and decrease  during  periods of decreasing  inflation.
Periods of high  inflation are ordinarily  accompanied  by high interest  rates,
which could have a negative effect on net income.

                                       21
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ASSET/LIABILITY MANAGEMENT AND MARKET RISK

       As a continuing part of its financial  strategy,  the Company attempts to
manage the impact of  fluctuations  in market interest rates on its net interest
income. This effort entails providing a reasonable balance between interest rate
risk,  credit risk,  liquidity risk and  maintenance  of yield.  Asset/liability
management  policies are  established and monitored by management in conjunction
with the Board of  Directors  of the Bank,  subject to general  oversight by CNY
Financial  Corporation's Board of Directors.  The policies establish  guidelines
for  acceptable  limits on the  sensitivity  of the  market  value of assets and
liabilities to changes in interest rates.

       The  Company's  net income is dependent on its net interest  income.  Net
interest  income  is  susceptible  to  interest  rate  risk to the  degree  that
interest-bearing  liabilities  mature  or  reprice  on a  different  basis  than
interest-earning  assets.  When  interest-bearing  liabilities mature or reprice
more quickly  than  interest-earning  assets in a given  period,  a  significant
increase in market rates of interest could adversely affect net interest income.
Similarly,  when  interest-earning  assets  mature or reprice  more quickly than
interest-bearing liabilities,  falling interest rates could result in a decrease
in net income.

       The following  table  illustrates the Company's  estimated  interest rate
sensitivity  and periodic and  cumulative  gap  positions  as  calculated  as of
December 31, 1999.

<TABLE>
<CAPTION>

                                                         AMOUNTS ESTIMATED TO MATURE OR REPRICE WITHIN
                                  ---------------------------------------------------------------------------------------------
                                   LESS THAN
                                     THREE         3 - 6      6 MONTHS       1 - 2         3 - 5       OVER 5
                                     MONTHS       MONTHS      TO 1 YEAR      YEARS         YEARS        YEARS        TOTAL
-------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>           <C>          <C>          <C>           <C>          <C>          <C>
                                                                     (Dollars in thousands)
INTEREST-EARNING ASSETS:
Short-term investments            $    221      $     --     $      --    $      --     $       --   $      --    $     221
Securities, including FHLB stock     3,082         7,864         8,593       18,290         39,123      29,348      106,300
Loans                               13,672         8,636        13,207       18,762         45,237      67,143      166,657
-------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets       16,975        16,500        21,800       37,052         84,360      96,491      273,178
-------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Savings accounts, including escrow   1,493         2,986         4,479        8,958         26,873      17,915       62,704
Money market accounts                  360           719         1,079        2,158          6,473          --       10,789
NOW accounts                           370           740         1,110        2,220          6,661          --       11,101
Certificates of deposit              9,114        18,983        29,408       24,400         18,533          --      100,438
Borrowings                           1,200         2,000         8,000        1,000          7,000          --       19,200
-------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities  12,537        25,428        44,076       38,736         65,540      17,915      204,232
Interest sensitivity gap          $  4,438      $ (8,928)     $(22,276)   $  (1,684)       $18,820      78,576     $ 68,946
===============================================================================================================================
Cumulative interest sensitivity
gap                               $  4,438      $ (4,490)     $(26,766)   $ (28,450)       $(9,630)  $  68,946
===============================================================================================================================

Ratio of cumulative gap to total
     interest-earning assets          1.62%        (1.64%)       (9.80%)     (10.41%)        (3.53%)     25.24%
===============================================================================================================================

Ratio of interest-earnings assets
     to interest-bearing
     liabilities                    135.40%        64.89%        49.46%       95.65%        128.72%     538.60%       133.76%
===============================================================================================================================
</TABLE>

       While the gap position illustrated above is a useful tool that management
can assess for general  positioning of the Company's  balance sheet,  management
uses an additional measurement tool to evaluate its asset/liability  sensitivity
which  determines  exposure  to  changes in  interest  rates by  estimating  the
percentage change in net interest income due to changes in rates over a one-year
time horizon.  Management  measures the estimated  percentage change assuming an
instantaneous  permanent  parallel shift in the yield curve of 100 and 200 basis
points,  both  upward  and  downward.  The model  uses an  option-based  pricing
approach to estimate the  sensitivity of mortgage  loans.  The most  significant
embedded  option in these types of assets is the  borrower's  optional  right to
prepay the loan. The model uses various  prepayment  assumptions  depending upon
the type of mortgage instrument  (residential  mortgages,  commercial mortgages,
mortgage-backed  securities,  etc.).  Prepayment rates for mortgage  instruments
ranged from 1% to 39% CPR (Constant Repayment Rate) as of December 31, 1999. For
administered  rate core  deposits  (e.g.  NOW and savings  accounts),  the model
utilizes  interest  rate floors equal to 100 basis  points  below their  current
levels.
                                       22
<PAGE>

       Utilizing this measurement  concept,  the estimated interest rate risk of
the  Company,  expressed as a  percentage  change in net interest  income over a
one-year  time horizon due to changes in interest  rates,  at December 31, 1999,
was as follows:

<TABLE>
<CAPTION>
                                                                                           BASIS POINT CHANGE
                                                                             ------------------------------------------------
                                                                                 +200        +100        -100         -200
                                                                             ------------------------------------------------
<S>                                                                             <C>         <C>          <C>          <C>
Estimated percentage change in net interest income due to an immediate
    change in interest rates over a one-year time horizon.............          (3.55%)     (1.09%)      3.87%        3.95%
                                                                             ------------------------------------------------
</TABLE>

       Actual  results  may differ  from  these  estimates  due to the  inherent
uncertainty of the assumptions, including the timing, magnitude and frequency of
rate changes,  customer buying  patterns,  economic  conditions,  and management
strategies.

       The  Company  does not  currently  engage in  trading  activities  or use
instruments such as swaps, collars or floors to control interest rate risk. Even
though  such  activities  may be  permitted  with the  approval  of the Board of
Directors,  the  Company  does not  intend to engage in such  activities  in the
immediate future.

       Market risk is the risk of loss from adverse changes in market prices and
rates.  The  Company's  market risk arises  primarily  from  interest  rate risk
inherent in its lending and deposit activities. Other types of market risk, such
as foreign currency exchange rate risk and commodity price risk, do not arise in
the normal course of the Company's business activities.

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          Independent Auditors' Report


         The Board of Directors and Stockholders
         CNY Financial Corporation


         We have audited the  accompanying  consolidated  balance  sheets of CNY
         Financial  Corporation  and subsidiary as of December 31, 1999 and 1998
         and the related consolidated statements of income, stockholders' equity
         and  comprehensive  income  and cash flows for each of the years in the
         three-year period ended December 31, 1999. These consolidated financial
         statements  are the  responsibility  of the Company's  management.  Our
         responsibility is to express an opinion on these consolidated financial
         statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
         standards.  Those standards  require that we plan and perform the audit
         to obtain reasonable assurance about whether the consolidated 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.  An  audit  also  includes
         assessing the accounting principles used and significant estimates made
         by management,  as well as evaluating the overall  financial  statement
         presentation. We believe that our audits provide a reasonable basis for
         our opinion.

         In our opinion, the consolidated financial statements referred to above
         present fairly, in all material respects, the financial position of CNY
         Financial Corporation and subsidiary at December 31, 1999 and 1998, and
         the  results of their  operations  and their cash flows for each of the
         years in the  three-year  period ended December 31, 1999, in conformity
         with generally accepted accounting principles.


         /s/ KPMG LLP
         ------------------
         Syracuse, New York
         January 14, 2000


                                       23
<PAGE>

<TABLE>
<CAPTION>
                    CNY Financial Corporation and Subsidiary
                           Consolidated Balance Sheets
                           December 31, 1999 and 1998
                        (In thousands, except share data)


                                                                              1999       1998
------------------------------------------------------------------------------------------------
<S>                                                                       <C>          <C>
ASSETS
Cash and due from banks                                                   $   6,051    $   4,432
Interest-bearing balances at financial institutions                             221        6,104
Federal funds sold                                                               --        4,000
Securities available-for-sale, at fair value                                 97,560       88,437
Securities held-to-maturity (fair value of $7,026 in 1999 and
     $10,404 in 1998)                                                         7,103       10,318
Loans, net of deferred fees                                                 169,087      161,701
Less allowance for loan losses                                                2,430        2,494
------------------------------------------------------------------------------------------------
     Net loans                                                              166,657      159,207
Premises and equipment, net                                                   3,084        3,243
Federal Home Loan Bank stock, at cost                                         1,637        1,303
Other assets                                                                  5,132        4,142
------------------------------------------------------------------------------------------------
                                                                          $ 287,445    $ 281,186
================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
     Non-interest bearing demand accounts                                 $  12,033    $  10,780
     Savings accounts                                                        61,109       61,820
     Certificates of deposit                                                100,438      104,317
     Money market accounts                                                   10,789        7,975
     NOW accounts                                                            11,101       11,122
------------------------------------------------------------------------------------------------
Total deposits                                                              195,470      196,014
Advance payments by borrowers for property taxes and insurance                1,595        1,450
Borrowings                                                                   19,200        1,000
Other liabilities                                                             3,480        3,652
------------------------------------------------------------------------------------------------
     Total liabilities                                                      219,745      202,116
------------------------------------------------------------------------------------------------
Commitments and contingencies (note 13)
Stockholders' equity
     Common Stock, $0.01 par value, 20,000,000 shares authorized,
        5,356,662 shares issued                                                  54           54
     Additional paid-in capital                                              51,353       51,289
     Retained earnings, substantially restricted                             33,554       31,848
     Accumulated other comprehensive income (loss)                             (503)       1,178
     Treasury stock, at cost 788,277 shares in 1999 and 105,625
       in 1998                                                              (10,908)      (1,067)
     Unallocated shares of Employer Stock Ownership Plan (ESOP),
       401,749 shares in 1999 and  423,175 in 1998                           (4,017)      (4,232)
     Unearned common stock for PRRP                                          (1,833)          --
------------------------------------------------------------------------------------------------
Total stockholders' equity                                                   67,700       79,070
------------------------------------------------------------------------------------------------
                                                                          $ 287,445    $ 281,186
================================================================================================
See accompanying notes to consolidated financial statements
</TABLE>

                                       24

<PAGE>
<TABLE>
<CAPTION>

                    CNY Financial Corporation and Subsidiary
                        Consolidated Statements of Income
                  Years Ended December 31, 1999, 1998 and 1997
                        (In thousands, except share data)


                                                                     1999          1998           1997
--------------------------------------------------------------------------------------------------------
<S>                                                             <C>           <C>            <C>
Interest income
    Loans                                                       $    13,183   $    13,420    $    13,582
    Securities                                                        6,429         4,016          3,769
    Other short-term investments                                        158           567            316
--------------------------------------------------------------------------------------------------------
Total interest income                                                19,770        18,003         17,667
Interest expense
    Deposits                                                          7,046         7,961          8,328
    Borrowings                                                          561            25             --
--------------------------------------------------------------------------------------------------------
Total interest expense                                                7,607         7,986          8,328
--------------------------------------------------------------------------------------------------------
Net interest income                                                  12,163        10,017          9,339
Provision for loan losses                                               100           325          3,300
--------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses                  12,063         9,692          6,039
Non-interest income
    Service charges                                                     840           723            636
    Net gain on sale of securities                                       23             6             46
    Gain on loan sales                                                   --            30             --
    Insurance proceeds                                                   --           658             --
    Other                                                               215           166            207
--------------------------------------------------------------------------------------------------------
Total non-interest income                                             1,078         1,583            889
Non-interest expense
    Salaries and employee benefits                                    3,431         3,846          2,928
    Building, occupancy and equipment                                   822           905            981
    Postage and supplies                                                337           349            323
    Professional fees                                                   738           525            361
    Directors fees                                                      297           311            122
    Real estate owned                                                    83           (72)           500
    Contribution to charitable foundation                                --         1,023             --
    Merger related expenses                                             315            --             --
    Other                                                             1,851         1,439          1,657
--------------------------------------------------------------------------------------------------------
Total non-interest expenses                                           7,874         8,326          6,872
--------------------------------------------------------------------------------------------------------
Income before income tax expense (benefit)                            5,267         2,949             56
Income tax expense (benefit)                                          2,295         1,270            (16)
Net income                                                      $     2,972   $     1,679    $        72
========================================================================================================
Earnings per share (for 1998 calculated using post
  conversion net income) (see note 2)
    Basic                                                       $      0.67   $        --            N/A
    Diluted                                                     $      0.66   $        --            N/A
Weighted average diluted shares outstanding                       4,496,584     4,928,044            N/A
========================================================================================================
   See accompanying notes to consolidated financial statements
</TABLE>

                                      25
<PAGE>
<TABLE>
<CAPTION>

                    CNY Financial Corporation and Subsidiary
    Consolidated Statements of Stockholders' Equity and Comprehensive Income
                  Years Ended December 31, 1999, 1998 and 1997
                        (In thousands, except share data)

                                                                            Accumulated                          Unearned
                                                      Additional               Other               Unallocated   Common
                                              Common   Paid-in   Retained  Comprehensive  Treasury    ESOP        Stock
                                              Stock    Capital   Earnings     Income       Stock     Shares      For PRRP   Total
----------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>     <C>        <C>       <C>            <C>       <C>         <C>       <C>
Balance at December 31, 1996                  $   --  $      --  $ 30,097  $    248       $     --  $       --  $    --   $ 30,345
Comprehensive income:
    Other comprehensive income                    --         --        --       323             --          --       --        323
    Net income                                    --         --        72        --             --          --       --         72
----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income                        --         --        72       323             --          --       --        395
----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997                      --         --    30,169       571             --          --       --     30,740
Net proceeds from issuance of 5,251,629
      shares of common stock                      53     50,294        --        --             --          --       --     50,347
Common stock acquired by ESOP
    (428,532 shares)                              --         --        --        --             --      (4,285)      --     (4,285)
Charitable contribution of common stock
    to Cortland Savings Foundation
    (105,033 shares)                               1        997        --        --             --          --        --       998
Treasury stock purchased (105,625 shares)         --         --        --        --         (1,067)         --        --    (1,067)
ESOP shares released for allocation
    (5,357 shares)                                --         (2)       --        --             --          53        --       51
Comprehensive income:
    Other comprehensive income                    --         --        --       607             --          --        --      607
    Net income                                    --         --     1,679        --             --          --        --    1,679
---------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income                        --         --     1,679       607             --          --        --    2,286
---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998                      54     51,289    31,848     1,178         (1,067)     (4,232)       --   79,070
---------------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased (863,930 shares)         --         --        --        --        (12,016)         --        --  (12,016)
ESOP shares released for allocation
     (21,426 shares)                              --         64        --        --             --         215        --      279
Stock awarded under Personal Recognition and
     Retention Plan (PRRP) (181,278 shares)       --         --       (54)       --          2,175          --    (2,121)      --
Expense of PRRP                                   --         --        --        --             --          --       288      288
Dividend payments ($0.27 per share)               --         --    (1,212)       --             --          --        --   (1,212)
Comprehensive income:
     Other comprehensive loss                     --         --        --    (1,681)            --          --        --   (1,681)
     Net income                                   --         --     2,972        --             --          --        --    2,972
---------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income                        --         --     2,972    (1,681)            --          --        --    1,291
---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999                  $   54  $  51,353  $ 33,554   $  (503)      $(10,908)     (4,017) $ (1,833) $67,700
=================================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>

                                       26
<PAGE>
<TABLE>
<CAPTION>

                    CNY Financial Corporation and Subsidiary
                        Consolidated Cash Flow Statements
                  Years Ended December 31, 1999, 1998 and 1997
                                 (In thousands)
                                                                      1999           1998           1997
-------------------------------------------------------------------------------------------------------------
<S>                                                              <C>           <C>            <C>
Cash flow from operating activity:
Net income                                                       $    2,972     $    1,679     $       72
Adjustments to reconcile net income to net cash provided by
     operating activities:
      Depreciation and amortization                                     474            487            579
      (Increase) decrease in accrued interest receivable                 40           (306)           233
      Provision for loan losses                                         100            325          3,300
      Write-down of real estate owned                                    10             50            365
      Net gains on sales of securities                                  (23)            (6)           (46)
      Nationar recovery                                                  --             --            (45)
      Net gain on sale of real estate owned                              (7)          (192)           (11)
      Net amortization of premiums and discounts                        (98)            55            104
      Net gain on sale of loans held-for-sale                            --            (30)            --
      Proceeds from sale of loans held-for-sale                          --          3,131             --
      Increase in other liabilities                                     853            807            148
      Deferred tax expense (benefit)                                     86            277           (869)
      Decrease (increase) in other assets                                51          1,032           (709)
      Donation to charitable foundation                                  --            997             --
      PRRP expense                                                      288             --             --
      ESOP shares released for allocation                               279             51             --
      Gain on curtailment of postretirement benefit plan                (70)            --             --
-------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                             4,955          8,357          3,121
-------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
      Net increase in loans                                          (7,816)        (4,744)        (3,746)
      Proceeds from recovery of Nationar                                 --             --             45
      Proceeds from sales of securities available-for-sale            6,108          2,006          3,121
      Proceeds from maturities and principle reductions of
           securities available-for-sale                             53,297         18,337         18,040
      Purchases of securities available-for-sale                    (71,686)       (63,237)       (19,237)
      Purchase of securities held-to-maturity                            --         (2,484)        (3,847)
      Proceeds from maturities and principle reductions
           of securities held-to-maturity                             3,196          4,780          3,054
      Proceeds from sale of real estate owned                           214            920            340
      Additions to premises and equipment                              (315)          (283)          (371)
      Purchase of FHLB stock                                           (334)           (12)           (63)
-------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                               (17,336)       (44,717)        (2,664)
-------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Decrease in deposits                                                   (544)        (3,756)        (4,870)
Net increase in Federal Home Loan Bank advances                      18,200          1,000             --
Increase (decrease) in advance payments by borrowers for
     property taxes and insurance                                       145            121            (44)
Net proceeds from issuance of common stock                               --         50,347             --
Purchase of shares of common stock by ESOP                               --         (4,285)            --
Par value of donation of stock to charitable foundation                  --              1             --
Treasury stock purchases                                            (12,472)          (611)            --
Dividends paid                                                       (1,212)            --             --
-------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                  (4,117)        42,817         (4,914)
-------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                 (8,264)         6,457         (4,457)
Cash and cash equivalents at beginning of year                       14,536          8,079         12,536
-------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                         $    6,272     $   14,536     $    8,079
=============================================================================================================
</TABLE>

                                      27
<PAGE>
<TABLE>
<CAPTION>

                    CNY Financial Corporation and Subsidiary
                  Consolidated Cash Flow Statements (Continued)
                  Years Ended December 31, 1999, 1998 and 1997
                                 (In thousands)


                                                                      1999           1998           1997
-------------------------------------------------------------------------------------------------------------
<S>                                                               <C>           <C>            <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non-cash investing activities:
      Purchases of securities available-for-sale not settled      $       --    $      499     $       --
      Treasury stock purchases not settled                                --           456             --
      Transfer of loans held-to-maturity to loans held-for-sale           --           661          2,541
      Transfer of loans held-for-sale to loans held-for-maturity          --           101             --
      Additions to real estate owned                                     266            74          1,095
Cash paid during the year for:
      Interest                                                         7,568         7,991          8,321
      Income taxes                                                $    1,854    $      105     $    1,125
=============================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>

                                      28

<PAGE>

                    CNY Financial Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1999, 1998 and 1997

(1)    BUSINESS

       CNY Financial  Corporation  (the  "Company") is a registered bank holding
       company,  organized  under the laws of Delaware and is the parent company
       of  Cortland  Savings  Bank and  subsidiary  (the  "Bank").  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 (the "Conversion").  On that date, the Company sold 5,251,629 shares
       of common stock in its initial public offering and received $50.3 million
       of net proceeds from the sale.  The shares sold included  428,532  shares
       purchased by the Company's  Employee Stock  Ownership Plan (ESOP),  which
       was  funded  by a loan  from the  Company.  The  Company  contributed  an
       additional  105,033 shares to the Cortland Savings  Foundation as part of
       the Conversion and an expense of $1.0 million or  approximately  $614,000
       after  taxes,  was  recorded in October  1998 due to this  donation.  The
       Company operates solely in the financial  services  industry and includes
       the provision of traditional  community  banking  services  primarily for
       individuals  and  small-  to  medium-sized   businesses  concentrated  in
       Cortland County,  New York and surrounding  areas. The financial services
       subsidiary of the Bank has been inactive since its formation in 1986. The
       Company  and its  subsidiary  financial  institution  are  subject to the
       regulations of certain  Federal and State  agencies and undergo  periodic
       examinations by those regulatory agencies.

       On December 28, 1999,  the Company  signed a  definitive  agreement  with
       Niagara Bancorp,  Inc. under which Niagara Bancorp, Inc. will acquire all
       of the outstanding  shares of the Company for $18.75 per share.  Cortland
       Savings Bank will become a  wholly-owned  subsidiary of Niagara  Bancorp,
       Inc.  Included in  non-interest  expenses  is $315,000 in merger  related
       expenses  consisting  primarily  of the  fees  for the  fairness  opinion
       delivered  by  the  Company's  investment  banker.  This  transaction  is
       expected to close during the second quarter of 2000.

(2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       The  consolidated  financial  statements have been prepared in conformity
       with generally accepted accounting principles. Certain prior year amounts
       have been reclassified to conform to the current year's  classifications.
       A description of the significant  accounting policies is presented below.
       In  preparing  the  consolidated  financial  statements,   management  is
       required to make  estimates  and  assumptions  that  affect the  reported
       amounts of assets and liabilities and disclosure of contingent assets and
       liabilities as of the date of the balance sheet and revenues and expenses
       for the period. Actual results could differ from those estimates.

       (a)  PRINCIPLES OF CONSOLIDATION

            The consolidated  financial  statements  include the accounts of the
            Company   and   its   wholly-owned   subsidiary.   All   significant
            intercompany  balances  and  transactions  have been  eliminated  in
            consolidation.

       (b)  CASH AND CASH EQUIVALENTS

            Cash and cash equivalents include vault cash, amounts due from banks
            and Federal  funds sold which  represent  short-term  highly  liquid
            investments.

       (c)  SECURITIES

            The   Company    classifies   its   debt    securities   as   either
            available-for-sale  or held-to-maturity as the Company does not hold
            any  securities  considered  to be trading.  Equity  securities  are
            classified as  available-for-sale.  Held-to-maturity  securities are
            those debt securities the Company has the ability and intent to hold
            until  maturity.   All  other  debt  securities  are  classified  as
            available-for-sale.

                                       29
<PAGE>
                    CNY Financial Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1999, 1998 and 1997

(2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

       (c)  SECURITIES, CONTINUED

            Available-for-sale   securities   are   recorded   at  fair   value.
            Held-to-maturity   securities   are  recorded  at  amortized   cost.
            Unrealized  holding gains and losses, net of the related tax effect,
            on  available-for-sale  securities  are excluded  from  earnings and
            reported as a component of accumulated other comprehensive income in
            stockholders' equity until realized.

            A  decline   in  the  fair   value  of  an   available-for-sale   or
            held-to-maturity  security that is deemed to be other than temporary
            results in a charge to earnings  resulting in the establishment of a
            new cost basis for the security.

            Purchases  and  sales  are  recorded  on a  trade  date  basis  with
            settlement occurring shortly thereafter.  Premiums and discounts are
            amortized  or accreted  over the life of the related  security as an
            adjustment to yield using the interest method. Dividend and interest
            income are  recognized  when  earned.  Realized  gains and losses on
            securities  are  included in earnings and are  calculated  using the
            specific  identification  method,  for  determining  the cost of the
            securities sold.

       (d)  LOANS

            Loans are  reported  at the  principal  amount  outstanding,  net of
            deferred fees. Fees and certain direct  origination costs related to
            lending  activities  are  recognized as an adjustment of yield using
            the interest method over the lives of the loans. The Company has the
            ability  and  intent  to hold  its  loans  to  maturity  except  for
            education  loans  which  are  sold to a third  party  upon  reaching
            repayment status.

            Interest on loans is accrued and  included in income at  contractual
            rates applied to principal  outstanding.  The accrual of interest on
            loans  (including  impaired  loans) is  generally  discontinued  and
            previously  accrued  interest is reversed  when loan payments are 90
            days or more  past  due or  when,  by the  judgment  of  management,
            collectibility  becomes uncertain.  Subsequent recognition of income
            occurs  only to the  extent  that  payment  is  received.  Loans are
            returned to an accrual  status when both  principal and interest are
            current and the loan is  determined  to be  performing in accordance
            with the applicable loan terms.

       (e)  ALLOWANCE FOR LOAN LOSSES

            The allowance for loan losses  consists of the provision  charged to
            operations  based  upon  past  loan  loss  experience,  management's
            evaluation of the loan portfolio under current  economic  conditions
            and  such  other  factors  that  require   current   recognition  in
            estimating  loan  losses.   Loan  losses  and  recoveries  of  loans
            previously  written-off  are charged or credited to the allowance as
            incurred or realized, respectively.

            The allowance  for loan losses is maintained at a level  believed by
            management  to be sufficient to absorb  probable  losses  related to
            loans  outstanding  as of the balance  sheet date.  Management  uses
            presently  available  information  to  recognize  losses  on  loans;
            however, future additions to the allowance may be necessary based on
            changes in economic  conditions.  In  addition,  various  regulatory
            agencies,   as  an  integral  part  of  their  examination  process,
            periodically  review the Company's allowance for loan losses and may
            require the Company to recognize additions to the allowance based on
            their judgment of information available to them at the time of their
            examination.

                                       30
<PAGE>
                    CNY Financial Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1999, 1998 and 1997

(2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

       (e)  ALLOWANCE FOR LOAN LOSSES, CONTINUED

            The Company  estimates losses on impaired loans based on the present
            value of  expected  future  cash  flows  (discounted  at the  loan's
            effective  interest  rate)  or the  fair  value  of  the  underlying
            collateral if the loan is collateral  dependent.  An impairment loss
            exists if the recorded investment in a loan exceeds the value of the
            loan as measured by the  aforementioned  methods.  Impairment losses
            are included as a component of the allowance for loan losses. A loan
            is considered  impaired when it is probable that the Company will be
            unable to collect all amounts due according to the contractual terms
            of the loan agreement.  Generally, all commercial mortgage loans and
            commercial  loans in a  delinquent  payment  status (90 days or more
            delinquent)  are considered  impaired.  Residential  mortgage loans,
            consumer loans,  home equity lines of credit and education loans are
            evaluated collectively since they are homogenous and generally carry
            smaller individual balances.  The Company recognizes interest income
            on impaired loans using the cash basis of income  recognition.  Cash
            receipts on impaired  loans are generally  applied  according to the
            terms of the loan agreement,  or as a reduction of principal,  based
            upon management judgment and the related factors discussed above.

       (f)  PREMISES AND EQUIPMENT

            Land is carried at cost and buildings and improvements and furniture
            and  equipment  are carried at cost less  accumulated  depreciation.
            Depreciation  is  computed  on the  straight-line  method  over  the
            estimated  useful  lives of the assets  (3-39 years for building and
            improvements; 3-7 years for furniture and equipment.)

       (g)  REAL ESTATE OWNED

            Real estate  acquired in settlement of loans is carried at the lower
            of the unpaid  loan  balance or fair value less  estimated  costs to
            sell.  Write-downs from the unpaid loan balance to fair value at the
            time of  foreclosure  are charged to the  allowance for loan losses.
            Subsequent  write-downs to fair value,  net of disposal  costs,  are
            charged to other expenses.

       (h)  INCOME TAXES

            Deferred tax assets and  liabilities  are  recognized for the future
            tax consequences  attributable to temporary  differences between the
            financial   statement   carrying  amounts  of  existing  assets  and
            liabilities and their respective tax bases.  Deferred tax assets and
            liabilities  are measured  using enacted tax rates expected to apply
            to taxable income in the years in which those temporary  differences
            are expected to be recovered or settled.  The effect on deferred tax
            assets and  liabilities  of a change in tax rates is  recognized  in
            income in the period that includes the enactment date.

       (i)  PENSION AND OTHER POSTRETIREMENT PLANS

            The  Company  sponsors  a  defined  benefit  health  care  and  life
            insurance plan that provides  postretirement benefits to current and
            retired  employees and certain eligible  dependents who meet minimum
            age and  service  requirements.  The  estimated  costs of  providing
            benefits are accrued over the years the  employees  render  services
            necessary to earn those benefits.

            The Company  also  maintained  a  non-contributory  defined  benefit
            pension  plan  that  covered   substantially   all  employees,   but
            terminated the plan effective  December 31, 1998. The benefits under
            the pension plan were based on the  employee's  years of service and
            compensation. The cost of this program was funded currently.

                                       31
<PAGE>
                    CNY Financial Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1999, 1998 and 1997

(2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

       (j)  OTHER EMPLOYEE BENEFIT PLANS

            The Company  sponsors a  non-contributory  Employee Stock  Ownership
            Plan (ESOP)  covering  substantially  all employees.  Allocations to
            individual   participant   accounts   are   based   on   participant
            compensation.  The Company  accounts  for ESOP shares  purchased  in
            accordance   with   Statement  of  Position  No.  93-6,   EMPLOYERS'
            ACCOUNTING  FOR EMPLOYEE  STOCK  OWNERSHIP  PLANS.  Accordingly,  as
            shares are  committed  to be released to  participants,  the Company
            reports  compensation  expense equal to the average  market price of
            the shares and the shares become  outstanding for earnings per share
            computations.

            The Company's  Personal  Recognition  and Retention Plan ("PRRP") is
            accounted for in accordance  with APB Opinion No. 25. The fair value
            of the shares awarded,  measured as of the grant date, is recognized
            as unearned  compensation (a component of stockholders'  equity) and
            amortized to compensation expense as the shares become vested.

       (k)  FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

            The Company's only financial instruments with off-balance sheet risk
            are limited to  commitments to extend credit and  commitments  under
            unused  lines of  credit.  The  Company's  policy is to record  such
            instruments when funded.

       (l)  EARNINGS PER SHARE

            Basic  earnings  per share is  calculated  by  dividing  net  income
            available to common  shareholders by the weighted  average number of
            shares outstanding during the year. Stock options and unvested stock
            grants are regarded as common stock  equivalents  and are considered
            in  earnings  per  share  calculations  if  dilutive.  Prior  to the
            conversion  to a stock  savings  bank,  earnings  per  share are not
            applicable  as the mutual  savings  bank had no shares  outstanding.
            After the conversion,  earnings per share is determined from October
            6, 1998, the date of conversion,  to the end of the reporting period
            based upon the weighted average number of shares outstanding for the
            period.  The  income  included  in the  computation  is based on the
            actual results of operations  only for the  post-conversion  period.
            Unallocated  shares held by the  Company's  ESOP are not included in
            the weighted  average  number of shares  outstanding.  The following
            table summarizes the computation of earnings per share for the years
            ended December 31:

<TABLE>
<CAPTION>

                                                  1999                                       1998
                                ------------------------------------------------------------------------------------
                                                                  Per                                        Per
                                   Income         Shares         Share        Income         Shares         Share
                                (Numerator)    (Denominator)     Amount    (Numerator)    (Denominator)    Amount
                                ------------------------------------------------------------------------------------
                                                     (In thousands, except per share amounts)
<S>                             <C>               <C>            <C>          <C>             <C>         <C>
   Basic EPS
      Net income                $  2,972          4,465          $  0.67      $    7          4,928       $   --
   Effect of Dilutive
   Securities
      Options                                         9                                          --
      Unearned stock grants                          23                                          --
                                -----------------------                       ---------------------
   Diluted EPS                  $  2,972          4,497          $  0.66      $    7          4,928       $   --
   =================================================================================================================
</TABLE>

       (m)   COMPREHENSIVE INCOME

             Comprehensive  income  represents  net income and the net change in
             unrealized gains or losses on securities available for sale, net of
             taxes,  and  is  presented  in  the   Consolidated   Statements  of
             Stockholders' Equity and Comprehensive Income.

                                       32
<PAGE>

                    CNY Financial Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1999, 1998 and 1997

(2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

       (n)   SEGMENT REPORTING

             The  Company's  operations  are  solely in the  financial  services
             industry and include the provision of traditional banking services.
             The Company  operates  primarily in Cortland County and surrounding
             areas in New York State.  The Company has determined that it has no
             reportable segments.

(3)    SECURITIES
       Securities are summarized as follows (in thousands):

<TABLE>
<CAPTION>

                                                            December 31, 1999
                                                -----------------------------------------
                                                             Gross       Gross
                                                Amortized  Unrealized  Unrealized  Fair
                                                  Cost       Gains       Losses   Value
       ----------------------------------------------------------------------------------
<S>                                               <C>       <C>       <C>       <C>
       Available-for-sale:
         U.S. Government and sponsored
            Enterprise securities                 $14,469   $     5   $   228   $14,246
         Mortgage-backed securities                58,684        39     2,286    56,437
         State and municipal sub-divisions          1,865        --        61     1,804
         Corporate debt securities                 20,553        --       225    20,328
       ----------------------------------------------------------------------------------
       Total debt securities                       95,571        44     2,800    92,815
       Equity securities                            2,827     2,066       148     4,745
       ----------------------------------------------------------------------------------
                                                  $98,398   $ 2,110   $ 2,948   $97,560
       ==================================================================================
       Held-to-maturity:
         U.S. Government and sponsored
             Enterprise securities                $ 1,000   $    --   $    11   $   989
         Mortgage-backed securities                 3,508        20        78     3,450
         State and municipal sub-divisions            742         1         6       737
         Corporate debt securities                  1,853        --         3     1,850
       ----------------------------------------------------------------------------------
                                                  $ 7,103   $    21   $    98   $ 7,026
       ==================================================================================


                                                             December 31, 1998
                                                -----------------------------------------
                                                              Gross      Gross
                                                 Amortized  Unrealized Unrealized  Fair
                                                   Cost       Gains       Losses  Value
       ----------------------------------------------------------------------------------
<S>                                               <C>       <C>       <C>       <C>
       Available-for-sale:
            U.S. Government and sponsored
                Enterprise securities             $13,037  $    128   $     1   $13,164
           Mortgage-backed securities              42,801       265        25    43,041
           State and municipal sub-divisions          917        10        --       927
           Corporate debt securities               27,649       178         5    27,822
       ----------------------------------------------------------------------------------
       Total debt securities                       84,404       581        31    84,954
       Equity securities                            2,072     1,470        59     3,483
       ----------------------------------------------------------------------------------
                                                  $86,476  $  2,051   $    90   $88,437
       ==================================================================================
       Held-to-maturity:
           U.S. Government and sponsored
                Enterprise securities             $ 1,505  $      2   $    --   $  1,507
           Mortgage-backed securities               5,208        69        22      5,255
           State and municipal sub-divisions          747        17        --        764
           Corporate debt securities                2,858        21         1      2,878
       ----------------------------------------------------------------------------------
                                                  $10,318   $   109   $    23   $ 10,404
       ==================================================================================
</TABLE>

                                       33
<PAGE>

                    CNY Financial Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1999, 1998 and 1997

(3)    SECURITIES, CONTINUED

       The following  table  presents the amortized  cost and fair value of debt
       securities at December 31, 1999, based on the earlier of call or maturity
       date.  Actual maturities may differ from contractual  maturities  because
       issuers may have the right to call or prepay  obligations with or without
       call or prepayment penalties. (in thousands):

<TABLE>
<CAPTION>

                                                                         Amortized              Fair
                                                                           Cost                Value
       --------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                 <C>
       Available-for-sale
           Due within one year                                         $      10,005       $      9,989
           Due after one year through five years                              25,017             24,586
           Due after five years through ten years                              1,865              1,803
           Due after ten years                                                    --                 --
           Mortgage-backed securities                                         58,684             56,437
       --------------------------------------------------------------------------------------------------------
                                                                       $      95,571       $     92,815
       ========================================================================================================
       Held-to-maturity:
           Due within one year                                         $       2,028       $      2,025
           Due after one year through five years                               1,358              1,348
           Due after five years through ten years                                209                203
           Due after ten years                                                    --                 --
           Mortgage-backed securities                                          3,508              3,450
       --------------------------------------------------------------------------------------------------------
                                                                       $       7,103       $      7,026
       ========================================================================================================
</TABLE>

       Gross gains of  $41,000,  $6,000 and  $46,000  were  realized on sales of
       securities in 1999, 1998 and 1997, respectively.  Gross losses of $18,000
       were realized on sales of securities in 1999.  There were no gross losses
       in 1998 and 1997.

       Securities carried at $30.4 million at December 31, 1999 were pledged for
       borrowings and other  purposes  required by law. There were no securities
       of a  single  issuer  (other  than  the  U.S.  Government  and  sponsored
       enterprises)  that exceeded 10% of  stockholders'  equity at December 31,
       1999 or 1998.

(4)    LOANS

       Loans are summarized as follows (in thousands):

<TABLE>
<CAPTION>

                                                                                    December 31,
                                                                       ----------------------------------------
                                                                              1999            1998
       --------------------------------------------------------------------------------------------------------
<S>                                                                    <C>              <C>
       Mortgage loans:
           Residential                                                 $     105,407    $      100,976
           Commercial                                                         31,864            29,224
           Partially guaranteed by VA                                            246               337
           Insured by FHA                                                        631               717
       --------------------------------------------------------------------------------------------------------
                                                                             138,148           131,254
       --------------------------------------------------------------------------------------------------------
       Other loans:
           Commercial                                                          6,278             6,588
           Automobile                                                         12,641            10,854
           Home equity line of credit                                          6,520             6,804
           Property improvement                                                  661               709
           Guaranteed student                                                    741             1,016
           Other consumer                                                      4,208             4,597
       --------------------------------------------------------------------------------------------------------
                                                                              31,049            30,568
       --------------------------------------------------------------------------------------------------------
       Total loans                                                           169,197           161,822
       --------------------------------------------------------------------------------------------------------
       Less:  Net deferred origination fees                                      110               121
       --------------------------------------------------------------------------------------------------------
                                                                       $     169,087    $      161,701
       ========================================================================================================
</TABLE>

                                       34
<PAGE>
                    CNY Financial Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1999, 1998 and 1997

(4)    LOANS, CONTINUED

       Changes in the  allowance  for loan losses are  summarized as follows (in
       thousands):
<TABLE>
<CAPTION>
                                                                 Years Ended
                                                                 December 31,
                                                   -----------------------------------------
                                                     1999          1998           1997
       -------------------------------------------------------------------------------------
<S>                                                <C>           <C>            <C>
       Balance at beginning of year                $  2,494      $   2,143      $  1,952
       Provision charged to operations                  100            325         3,300
       Recoveries                                       116            206           170
       Loans charged off                               (280)          (180)       (3,279)
       -------------------------------------------------------------------------------------
       Balance at end of year                      $  2,430      $   2,494      $  2,143
       =====================================================================================
</TABLE>

       At  December  31,  1999 and 1998,  impaired  loans  totaled  $49,000  and
       $736,000,  respectively.  At December 31, 1999,  impaired  loans included
       $49,000  of loans for which the  related  allowance  for loan  losses was
       $25,000.  At December 31, 1998, impaired loans included $736,000 of loans
       for which the related allowance for loan losses was $194,000. The average
       recorded investment in impaired loans was $564,000, $1.1 million and $2.7
       million  during  the  years  ended  December  31,  1999,  1998 and  1997,
       respectively.  Interest  income  recognized on impaired loans was $7,000,
       $147,000 and $290,000  during the years ended December 31, 1999, 1998 and
       1997,  respectively,  all of which was recognized using the cash basis of
       income recognition.

       The  principal  balances  of loans  not  accruing  interest  amounted  to
       approximately  $603,000  and  $920,000  at  December  31,  1999 and 1998,
       respectively.  Interest  income  that  would  have been  recorded  if the
       non-accruing  loans had been performing in accordance with their original
       terms was approximately  $44,000,  $115,000 and $402,000 during the years
       ended December 31, 1999, 1998 and 1997, respectively.

       In the ordinary course of business, the Company makes loans to directors,
       officers  and  employees,   as  well  as  to  other  related  parties  on
       substantially the same terms, including interest rate and collateral,  as
       those prevailing at the same time for comparable  transactions with other
       customers and do not involve more than normal risk of  collectibility  or
       present other unfavorable features.

       A summary of the  changes in these  outstanding  loans is as follows  (in
       thousands):

                                                            Years End
                                                           December 31,
                                                  ------------------------------
                                                       1999          1998
       -------------------------------------------------------------------------
       Balance at beginning of year                $   2,151      $    2,207
       New loans and increase in existing loans          731             521
       Loan principal repayments                        (808)           (577)
       -------------------------------------------------------------------------
       Balance at end of year                      $   2,074      $     2,151
       =========================================================================

                                       35

<PAGE>

                    CNY Financial Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1999, 1998 and 1997

(5)    PREMISES AND EQUIPMENT

       Premises and equipment are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                         December 31,
                                                                -------------------------------
                                                                    1999            1998
       ----------------------------------------------------------------------------------------
<S>                                                             <C>          <C>
       Land                                                     $      886   $        886
       Buildings and furniture                                       2,978          2,901
       Furniture and equipment                                       1,805          1,962
       ----------------------------------------------------------------------------------------
                                                                     5,669          5,749
       Less accumulated depreciation and amortization                2,585          2,506
       ----------------------------------------------------------------------------------------
                                                                $    3,084    $     3,243
       ========================================================================================
</TABLE>

       Depreciation and amortization expense amounted to $474,000,  $487,000 and
       $579,000  during  the  years  ended  December  31,  1999,  1998 and 1997,
       respectively.

(6)    DEPOSITS

       At December 31, 1999 and 1998, the aggregate  amounts of time deposits in
       denominations  of $100,000 or more were  approximately  $14.0 million and
       $13.0 million, respectively.

       Contractual  maturities  of  certificates  of deposit at December 31, are
       summarized as follows (in thousands):

                                                               1999
       ------------------------------------------------------------------
       Within one year                                     $   57,505
       One through two years                                   24,400
       Two through three years                                  9,612
       Three through four years                                 6,439
       Four through five years                                  2,482
       Five years and over                                         --
       ------------------------------------------------------------------
       Total certificates of deposit                        $ 100,438
       ==================================================================

       Interest expense on deposits is summarized as follows (in thousands):

                                                    Years Ended
                                                    December 31,
                                    --------------------------------------------
                                        1999           1998            1997
       -------------------------------------------------------------------------
       Savings accounts             $    1,517    $     1,861       $  1,936
       Certificates of deposit           5,140          5,713          5,983
       Money market accounts               256            220            243
       NOW accounts                        133            167            166
       -------------------------------------------------------------------------
                                    $    7,046    $     7,961       $  8,328
       =========================================================================

(7)    BORROWINGS

       The  Company  is a member of the  Federal  Home Loan  Bank  (FHLB).  As a
       member,  the Company is required to own capital  stock in the FHLB and is
       authorized to apply for advances from the FHLB.

                                       36
<PAGE>
                    CNY Financial Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1999, 1998 and 1997

(7)    BORROWINGS, CONTINUED

       At December 31, 1999 and 1998, advances from the FHLB were as follows (in
       thousands):
<TABLE>
<CAPTION>
                                                                                    Advance Amount
                                                                            -------------------------------
           Maturity Date           Interest Rate       Fixed or Variable         1999            1998
       ----------------------------------------------------------------------------------------------------
               <S>                     <C>                   <C>            <C>            <C>
              1/03/00                  5.60%                 Fixed          $    1,200     $        --
              3/24/00                  6.08%                 Fixed               2,000              --
              9/20/00                  5.92%                 Fixed               5,000              --
              9/27/00                  5.96%                 Fixed               3,000              --
              6/25/01                  5.99%                 Fixed               1,000              --
              7/30/01                  5.52%                 Fixed                  --           1,000
              6/17/02                  6.23%                 Fixed               3,000              --
              6/23/04                  6.53%                 Fixed               4,000              --
       ----------------------------------------------------------------------------------------------------
               Total                                                        $   19,200      $    1,000
       ====================================================================================================
</TABLE>

       Under  terms of a  blanket  collateral  agreement  with the  FHLB,  these
       outstanding  balances are collateralized by certain qualifying assets not
       otherwise  pledged  (primarily first mortgage loans). At December 31,1999
       the Company may borrow up to an additional $27.3 million from the FHLB.

(8)    INCOME TAXES

       The  components of income tax expense  (benefit)  attributable  to income
       from operations are (in thousands):

                                                   Years Ended
                                                  December 31,
                                  ----------------------------------------------
                                     1999           1998            1997
       -------------------------------------------------------------------------
       Current:
           Federal                $    1,761     $      799     $      672
           State                         448            194            181
       -------------------------------------------------------------------------
                                       2,209            993            853
       Deferred:
           Federal                        53            207           (698)
           State                          33             70           (171)
       -------------------------------------------------------------------------
                                          86            277           (869)
       -------------------------------------------------------------------------
                                  $    2,295     $    1,270    $       (16)
       =========================================================================


       Actual tax expense  (benefit)  attributable to income before income taxes
       differed from "expected" tax expense (benefit),  computed by applying the
       U.S.  Federal  statutory  tax rate of 34% to income  before income tax as
       follows (in thousands):

<TABLE>
<CAPTION>

                                                                              Years Ended
                                                                              December 31,
                                                              ---------------------------------------------
                                                                  1999          1998            1997
       ----------------------------------------------------------------------------------------------------
<S>                                                            <C>          <C>            <C>
       Computed "expected" tax expense                         $   1,791    $     1,003    $       19
       Increase (decrease) in income taxes resulting from:
           State taxes, net of Federal tax benefits                  310            175             7
           Non-taxable interest income                               (40)           (21)          (35)
           Non-deductible merger expenses                            107             --            --
           Other non-deductible expenses                              35             48            16
           Pension termination excise tax                            109             80            --
           Other items, net                                          (17)           (15)          (23)
       ----------------------------------------------------------------------------------------------------
                                                               $   2,295    $     1,270     $     (16)
       ====================================================================================================
</TABLE>

                                       37
<PAGE>
                    CNY Financial Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1999, 1998 and 1997

(8)    INCOME TAXES, CONTINUED

       The tax effects of temporary  differences  that give rise to  significant
       portions of the deferred tax assets and deferred tax  liabilities are (in
       thousands):

<TABLE>
<CAPTION>

                                                                                     December 31,
                                                                            -------------------------------
                                                                                1999            1998
       ----------------------------------------------------------------------------------------------------
<S>                                                                         <C>            <C>
       Deferred tax assets:
           Allowance for loan losses                                        $      946     $       986
           Net deferred loan fees                                                   99              98
           Postretirement benefit obligation                                       663             669
           Deferred director fees                                                  143              92
           Foundation contribution carryforward                                    115             329
           Personnel Recognition and Retention Plan vesting                        112              --
           Unrealized loss on securities, net                                      335              --
           Other                                                                    36              56
       ----------------------------------------------------------------------------------------------------
       Total gross deferred tax assets                                           2,449           2,230
       ----------------------------------------------------------------------------------------------------
       Deferred tax liabilities:
           Accumulated depreciation on premises and equipment                     (115)           (101)
           Unrealized gains on securities, net                                      --            (783)
           Tax allowance for loan losses in excess of base year amount             (43)           (105)
           Other                                                                   (38)            (20)
       ----------------------------------------------------------------------------------------------------
       Total gross deferred tax liabilities                                       (196)         (1,009)
       ----------------------------------------------------------------------------------------------------
       Net deferred tax assets                                              $    2,253       $   1,221
       ====================================================================================================
</TABLE>

       Realization  of deferred tax assets is dependent  upon the  generation of
       future  taxable  income or the  existence of  sufficient  taxable  income
       within the carryback period. A valuation allowance is provided when it is
       more likely than not that some  portion of the  deferred  tax assets will
       not be  realized.  In  assessing  the  need  for a  valuation  allowance,
       management   considers  the  scheduled   reversal  of  the  deferred  tax
       liabilities,  the level of historical taxable income and projected future
       taxable  income  over the  periods  in which  the  temporary  differences
       comprising  the  deferred  tax  assets  will  be  deductible.  Management
       believes that no valuation allowance is necessary.

       In accordance with SFAS No. 109, the Company has not recognized  deferred
       tax  liabilities  with respect to the Bank's Federal and state  base-year
       reserve of  approximately  $3.7 million at December  31, 1999,  since the
       Company  does not expect that these  amounts  will become  taxable in the
       forseeable  future.  Under the tax laws,  as  amended,  events that would
       result in taxation of these  reserves  include  redemptions of the Bank's
       stock or certain excess  distributions  to the Company.  The unrecognized
       deferred tax liability at December 31, 1999 with respect to the base-year
       reserve was approximately $1.4 million.


(9)    PENSION AND OTHER POSTRETIREMENT PLANS

       The  following  table  presents  changes  in the  Company's  pension  and
       postretirement plans' accumulated benefit obligations and plan assets and
       the plans'  funded  status  reconciled  with  amounts  recognized  in the
       Company's consolidated balance sheet at December 31. (in thousands):

                                       38
<PAGE>
                    CNY Financial Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>

(9)    PENSION AND OTHER POSTRETIREMENT PLANS, CONTINUED

                                                                  Pension Benefits             Other Benefits
                                                                  ----------------             --------------
                                                                 1999          1998          1999          1998
       -------------------------------------------------------------------------------------------------------------
<S>                                                           <C>          <C>           <C>           <C>
       Change in benefit obligations:
       Benefit obligation at beginning of year                $   4,075    $   3,490     $   1,890     $   1,597
       Service cost                                                  --           84            47            42
       Interest cost                                                 --          244           121           108
       Amendments                                                    --           60            --            --
       Curtailment                                                   --         (591)         (264)           --
       Actuarial loss (gain)                                        610          938           (86)          238
       Benefits paid                                             (3,032)        (150)          (87)          (95)
       Settlement gain                                             (394)          --            --            --
       Paid to Company                                           (1,259)          --            --             -
       -------------------------------------------------------------------------------------------------------------
       Benefit obligation at end of year                      $      --    $   4,075     $   1,621     $   1,890
       =============================================================================================================

       Change in plan assets:
       Fair value of plan assets at beginning of year         $   4,940    $   5,083     $      --     $      --
       Actual return on plan assets                                (649)           7            --            --
       Employer contribution                                         --           --            87            95
       Benefits paid                                             (3,032)        (150)          (87)          (95)
       Paid to Company                                           (1,259)          --            --            --
       -------------------------------------------------------------------------------------------------------------
       Fair value of plan assets at end of year               $      --    $   4,940     $      --     $      --
       =============================================================================================================

       Funded status                                          $      --    $     865     $  (1,621)    $  (1,890)
       Unrecognized net actuarial (gain) loss                        --           --           (50)          235
       -------------------------------------------------------------------------------------------------------------
       Prepaid (accrued) benefit cost                         $      --    $     865     $  (1,671)    $  (1,655)
       =============================================================================================================

       Weighted average assumptions:
            Discount rate                                           N/A         5.00%         7.75%         6.50%
            Expected return on plan assets                          N/A         7.00%           --%           --%
            Rate of compensation increase                           N/A         4.00%         5.50%         4.50%
</TABLE>

       For  measurement  purposes,  a 6.50%  annual  rate of increase in the per
       capita cost of covered  health care  benefits  was assumed for 1999.  The
       rate was  assumed to decrease  gradually  to 5.00% for 2003 and remain at
       that level  thereafter.  A  one-percentage  point increase or decrease in
       assumed  health care cost trend rates does not have a material  effect on
       the benefit obligation.

<TABLE>
<CAPTION>
                                                           Pension Benefits                  Other Benefits
                                                           ----------------                  --------------
                                                       1999        1998      1997      1999       1998       1997
       -------------------------------------------------------------------------------------------------------------
<S>                                                 <C>          <C>       <C>       <C>        <C>        <C>
       Components of net periodic benefit cost:                              (in thousands)
       Service cost                                  $   --       $  84     $  87    $   47     $   42     $   37
       Interest cost                                     --         244       242       121        108        107
       Expected return on plan assets                    --        (391)     (350)       --         --         --
       Recognized net actuarial gain                    (39)        (32)       --        --         --         --
       Curtailment charge                                --          35        --       (70)        --         --
       Settlement gain                                 (394)         --        --        --         --         --
       -------------------------------------------------------------------------------------------------------------
       Net periodic benefit cost                     $ (433)      $ (60)    $ (21)   $   98     $  150     $  144
       =============================================================================================================
</TABLE>

                                       39
<PAGE>
                    CNY Financial Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1999, 1998 and 1997

(9)    PENSION AND OTHER POSTRETIREMENT PLANS, CONTINUED

       In 1998, the Company recorded a curtailment expense of $35,000 related to
       the  termination of its defined  benefit  pension plan. The settlement of
       the plan's obligations was expected to occur in 1999 through the purchase
       of  annuities  for the plan  participants.  In  1998,  the  Company  also
       committed to  contribute  25% of the excess of the plan's assets over the
       cost of purchasing  annuities to the Company's  401(k) plan. An estimated
       accrual of $437,000 was recorded related to this commitment.

       During 1999, the Company recorded a settlement gain on the termination of
       its  defined  benefit  pension  plan of  $394,000,  as well as a $122,000
       reduction in the actual  contribution  to the  Company's  401(k) from the
       estimate recorded in 1998.

(10)   STOCK OPTION PLAN

       On April 28, 1999, the Company's  shareholders approved the CNY Financial
       Corporation  Stock  Option  Plan  ("Stock  Option  Plan").   The  primary
       objective of the Stock Option Plan is to provide  officers and  directors
       with a proprietary  interest in the Company and an incentive to encourage
       such persons to remain with the Company.

       Under the Stock Option Plan,  535,662  shares of authorized  but unissued
       common stock are reserved for issuance upon option exercises. The Company
       also has the  alternative  to fund the Stock  Option  Plan with  treasury
       stock.  Options under the plan may be either  non-qualified stock options
       or incentive  stock options.  Each option entitles the holder to purchase
       one share of common  stock at an exercise  price equal to the fair market
       value on the date of  grant.  On April 28,  1999,  280,690  options  were
       awarded  at an  exercise  price of $11.50 per share and on  September  8,
       1999,  60,000  shares  were  awarded at an  exercise  price of $14.50 per
       share.  These  options have a ten year term and vest at a rate of 20% per
       year from the grant date.

       A summary of the status of the Company's Stock Option Plan as of December
       31, 1999 and changes during the year ended December 31, 1999 is presented
       below:

<TABLE>
<CAPTION>

                                                                                                 Weighted-Average
                                                                                Shares           Exercise Price
       -------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                  <C>
       OPTIONS
       Outstanding at beginning of year                                              --              $       --
       Granted                                                                  340,690                   12.03
       Exercised                                                                     --                      --
       Forfeited                                                                     --                      --
       -------------------------------------------------------------------------------------------------------------
       Outstanding at end of year                                               340,690              $    12.03
       =============================================================================================================
       Exercisable at end of year                                                    --                     N/A
       =============================================================================================================
       Estimated weighted-average fair value of options granted on December 31, 1999                 $     3.81
       =============================================================================================================
</TABLE>

       The  Company  applies APB Option No. 25 and  related  Interpretations  in
       accounting for its Stock Option Plan.  Accordingly,  no compensation cost
       has been  recognized  for its Stock  Option  Plan.  SFAS No. 123 requires
       companies  not using a fair value based  method of  accounting  for stock
       options or similar plans,  to provide pro forma  disclosure of net income
       and earnings per shares as if that method of accounting had been applied.
       The fair value of each option  grant is  estimated  on the dates of grant
       using  the   Black-Scholes   option-pricing   model  with  the  following
       weighted-average  assumptions  used for grants in the year ended December
       31, 1999;  dividend yield of 2.00%;  expected  volatility of 30.20%; risk
       free interest rate of 6.70%; expected lives of five years.

                                      40
<PAGE>
                    CNY Financial Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1999, 1998 and 1997

(10)   STOCK OPTION PLAN, CONTINUED

       Pro forma  disclosures  for the Company for the year ended  December  31,
       1999  utilizing  the estimated  fair value of the options  granted and an
       assumed 5% forfeiture rate are as follows:

                                               Basic                 Diluted
                             Net              Earnings              Earnings
                           Income            Per Share              Per Share
       -------------------------------------------------------------------------
                                  (in thousands, except per share data)
       As reported        $  2,972             $  0.67               $  0.66
       Pro Forma          $  2,876             $  0.64               $  0.64
       =========================================================================

       Because the Company's  stock options have  characteristics  significantly
       different from those of traded options for which the Black-Scholes  model
       was developed,  and because changes in the subjective  input  assumptions
       can materially  affect the fair value estimate,  the existing models,  in
       management's option, do not necessarily provide a reliable single measure
       of the fair  value of its  stock  options.  In  addition,  the  effect on
       reported net income and  earnings  per share for the year ended  December
       31, 1999 may not be  representative of the effects on reported net income
       or earnings per share for future years.

(11)   PERSONNEL RECOGNITION AND RETENTION PLAN

       The Company's  shareholders  also approved the CNY Financial  Corporation
       Personnel  Recognition and Retention Plan ("PRRP") on April 28, 1999. The
       purpose of the plan is to promote the long-term  interests of the Company
       and its shareholders by providing a stock-based  compensation  program to
       attract and retain officers and directors.

       During 1999,  181,278 shares were awarded under the PRRP. The shares vest
       over a period of equal installments  commencing one year from the date of
       grant.  The fair market  value of the shares  awarded  under the plan was
       $2.1 million at the grant date,  and is being  amortized to  compensation
       expense  on a  straight-line  basis  over  the  vesting  periods  of  the
       underlying shares. Compensation expense of $288,000 was recorded in 1999,
       with the remaining unearned  compensation cost of $1.8 million shown as a
       reduction  of  stockholders'  equity at  December  31,  1999.  The shares
       awarded under the PRRP were  transferred from treasury stock at cost with
       the  difference  between the fair market  value on the grant date and the
       cost of the shares recorded as a reduction of retained earnings.

(12)   OTHER EMPLOYEE BENEFIT PLANS

       The Company sponsors a defined  contribution 401(k) Savings Plan covering
       substantially all employees.  Employees are permitted to contribute up to
       6% of base pay to the Savings Plan, subject to certain  limitations.  The
       Company matches 50% of each employee contribution up to 6%.

       Contributions  to the  defined  contribution  401(k)  Savings  Plan  were
       approximately  $44,000,  $60,000  and  $64,000  during  the  years  ended
       December 31, 1999, 1998 and 1997, respectively.

       In connection with  establishing the Employee Stock Ownership Plan (ESOP)
       in 1998,  the ESOP  borrowed  $4.3  million  from the Company to purchase
       428,532  common shares of the Company.  The loan bears  interest at 8.25%
       and is payable in twenty equal annual installments. At December 31, 1999,
       26,783  shares were  released  or  committed  to be released  and 401,749
       remained as unallocated  shares. The fair value of the unallocated shares
       on  December  31,  1999  was  $7.2   million.   The  Company   recognized
       compensation   expense  of  $279,000   and  $51,000  in  1999  and  1998,
       respectively.

                                       41
<PAGE>

                    CNY Financial Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1999, 1998 and 1997

(13)   COMMITMENTS AND CONTINGENCIES

       The Company is a party to financial  instruments with  off-balance  sheet
       risk in the normal course of business to meet the financing  needs of its
       customers.  These financial  instruments consist of commitments to extend
       credit and involve,  to varying degrees,  elements of credit,  market and
       interest   rate  risk  in  excess  of  the  amounts   recognized  in  the
       consolidated  balance sheet.  Credit risk  represents the accounting loss
       that  would  be   recognized   at  the   reporting   date  if   obligated
       counterparties  failed  completely to perform as contracted.  Market risk
       represents  risk that  future  changes in market  prices  make  financial
       instruments less valuable.

       Commitments to extend credit are agreements to lend to a customer as long
       as there is no violation of any  condition  established  in the contract.
       Commitments  generally have fixed expiration  dates or other  termination
       clauses and may require  payment of a fee. Since some of the  commitments
       are expected to expire  without  being drawn upon,  the total  commitment
       amounts  do not  necessarily  represent  future  cash  requirements.  The
       Company  evaluates  each  customer's  creditworthiness  on a case-by-case
       basis.  The amount of  collateral  obtained,  if deemed  necessary by the
       Company upon extension of credit, is based on management's  evaluation of
       the  customer's  financial  position.  Collateral  held  varies,  but may
       include real estate, accounts receivable,  inventory, property, plant and
       equipment and income-producing  commercial properties.  Substantially all
       commitments to extend credit, if exercised,  will represent loans secured
       by real estate.

       The  Company  was  committed  to  originate  fixed  and  adjustable  rate
       mortgages of approximately  $7.3 million and $3.9 million at December 31,
       1999 and 1998, respectively.  Unused lines of credit, which includes home
       equity, consumer,  commercial and credit cards, amounted to $11.8 million
       and $10.7 million at December 31, 1999 and 1998, respectively.

       The Company's  exposure to credit loss in the event of  nonperformance by
       the other  party to the  financial  instrument  for loan  commitments  is
       represented by the contractual or notional  amount of these  instruments.
       The Company  uses the same credit  policies in making  commitments  as it
       does for on-balance  sheet  instruments.  The Company controls its credit
       risk through credit approvals, limits, and monitoring procedures.

       In the normal  course of business,  there are various  outstanding  legal
       proceedings.  In the opinion of management, the aggregate amount involved
       in such proceedings is not material to the financial condition or results
       of operations of the Company.

(14)   CONCENTRATIONS OF CREDIT

       A substantial  portion of the  Company's  loans are mortgage and consumer
       loans in Central New York State. Accordingly, the ultimate collectibility
       of a substantial  portion of the Company's  loan portfolio is susceptible
       to changes in market conditions in this area. A majority of the Company's
       loan portfolio is secured by real estate.

       The Company's concentrations of credit risk are disclosed in the schedule
       of loan classifications. Other than general economic risks, management is
       not aware of any material  concentrations  of credit risk to any industry
       or individual borrower.

                                       42
<PAGE>
                    CNY Financial Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1999, 1998 and 1997

(15)   COMPREHENSIVE INCOME

       The following summarizes the components of other comprehensive income (in
       thousands):

<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                                  ----------------------------------
                                                                                    1999        1998        1997
       -------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>        <C>          <C>
       Other comprehensive income, before tax:
           Net unrealized holding gain (loss) on securities                        $(2,776)   $ 1,023      $ 575
           Reclassification adjustment for net gains realized on the sale of
            securities                                                                 (23)        (6)       (46)
       -------------------------------------------------------------------------------------------------------------
       Other comprehensive income, before tax                                       (2,799)     1,017        529
       Income tax expense (benefit) related to items of other comprehensive
          income                                                                    (1,118)       410        206
       -------------------------------------------------------------------------------------------------------------
       Other comprehensive income, net of tax                                      $(1,681)   $   607      $ 323
       =============================================================================================================
</TABLE>

 (16)  STOCKHOLDERS' EQUITY AND CAPITAL STANDARDS

       The Company's  ability to pay dividends is primarily  dependent  upon the
       ability of its  subsidiary  bank to pay  dividends  to the  Company.  The
       payment of dividends by the Bank is subject to continued  compliance with
       minimum regulatory capital requirements. In addition, regulatory approval
       is generally required prior to the Bank declaring  dividends in an amount
       in excess of net  income for that year plus net  income  retained  in the
       preceding two years.

       The Company and the Bank are subject to various  regulatory  requirements
       administered  by the  federal  banking  agencies  and the Bank is further
       regulated by the New York State Banking Department.

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

       The  Federal  Deposit  Insurance  Corporation  Improvement  Act  of  1991
       (FDICIA),  established capital levels for which insured  institutions are
       categorized    as    well    capitalized,     adequately     capitalized,
       undercapitalized,    significantly   undercapitalized,    or   critically
       undercapitalized.

       As of December 31, 1999 and 1998, the most recent  notification  from the
       FDIC  categorized  the  Bank as well  capitalized  under  the  regulatory
       framework  for  prompt  corrective  actions.  To be  categorized  as well
       capitalized,  the Bank must meet the  minimum  ratios as set forth in the
       table.  There have been no conditions  or events since that  notification
       that  management  believes have changed the Bank's  category.  Management
       believes,  as of December  31,  1999,  that the Company and Bank meet all
       capital adequacy requirements to which they are subject.

                                       43
<PAGE>
                    CNY Financial Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1999, 1998 and 1997

(16)   STOCKHOLDERS' EQUITY AND CAPITAL STANDARDS, CONTINUED

       The following is a summary of the  Company's  and Bank's  actual  capital
       amounts and ratios compared to the regulatory  minimum  capital  adequacy
       requirements  and the  FDIC  requirements  for  classification  as a well
       capitalized   institution   under  prompt  corrective  action  provisions
       (dollars in thousands):

<TABLE>
                                                                                              To be classified as
                                                                         Minimum capital    well capitalized under
                                                                             adequacy          prompt corrective
                                                         Actual            requirements        action provisions
                                                  ------------------------------------------------------------------
                                                   Amount      Ratio     Amount     Ratio      Amount       Ratio
       -------------------------------------------------------------------------------------------------------------
<S>                                               <C>          <C>       <C>          <C>   <C>              <C>
       At December 31, 1999:
       TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
           Company                                $ 71,149     42.81%   $ 13,295    =>8.00%       N/A
           Bank                                   $ 64,415     39.29%   $ 13,116    =>8.00% $  16,394     => 10.00%
       TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
           Company                                $ 68,204     41.04%   $  6,648    =>4.00%       N/A
           Bank                                   $ 61,487     37.51%   $  6,558    =>4.00% $   9,837     =>  6.00%
       TIER I CAPITAL (TO AVERAGE ASSETS):
           Company                                $ 68,204     23.91%   $ 11,410    =>4.00%       N/A
           Bank                                   $ 61,487     22.43%   $ 10,965    =>4.00% $  13,706     =>  5.00%

       At December 31, 1998:
       TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
           Company                                $ 80,333     48.91%   $ 13,140    =>8.00%       N/A
           Bank                                   $ 60,078     38.82%   $ 12,381    =>8.00% $  15,476     => 10.00%
       TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
           Company                                $ 77,892     47.42%   $  6,571    =>4.00%       N/A
           Bank                                   $ 57,751     37.32%   $  6,191    =>4.00% $   9,286     =>  6.00%
       TIER I CAPITAL (TO AVERAGE ASSETS):
           Company                                $ 77,892     29.57%   $ 10,536    =>4.00%       N/A
           Bank                                   $ 57,751     23.40%   $  9,873    =>4.00% $  12,341     =>  5.00%
</TABLE>

       In order to grant priority in the Conversion to the eligible  depositors,
       the Bank  established  a special  account at the time of conversion in an
       amount equal to its total net worth at September  30, 1998.  In the event
       of a future  liquidation  of the converted bank (and only in such event),
       eligible  account  holders who  continue to  maintain  accounts  shall be
       entitled to receive a distribution  from the special  account.  The total
       amount of the  special  account  will be  decreased  (as the  balances of
       eligible  accounts are reduced) on annual  determination  dates.  No cash
       dividends  may  be  paid  to  the  stockholders  and  no  shares  may  be
       repurchased  by the  Company  if such  actions  would  reduce  the Bank's
       stockholders'  equity below the amount required for the special  account.
       At December 31, 1999, the amount  remaining in this  liquidation  account
       was $14.4 million.

(17)   FAIR VALUE OF FINANCIAL INSTRUMENTS

       The  following  methods  and  assumptions  were  used by the  Company  in
       estimating fair values of financial instruments:

           CASH  AND  CASH  EQUIVALENTS:  The  fair  values  are  considered  to
           approximate  the  carrying  values,  as reported on the  consolidated
           balance sheet.

           SECURITIES:  Fair values of securities  are based on exchange  quoted
           market  prices,  where  available.  If quoted  market  prices are not
           available,  fair values are based on quoted  market prices of similar
           instruments.

                                       44
<PAGE>

                    CNY Financial Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1999, 1998 and 1997

(17)   FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED

           LOANS AND ACCRUED INTEREST  RECEIVABLE:  For variable rate loans that
           reprice frequently and loans due on demand with no significant change
           in credit risk,  fair values are considered to  approximate  carrying
           values. The fair values for certain mortgage loans (e.g., one-to-four
           family  residential)  and  other  consumer  loans are based on quoted
           market prices of similar loans sold on the secondary market, adjusted
           for  differences in loan  characteristics.  The fair values for other
           loans  (e.g.,  commercial  real estate and rental  property  mortgage
           loans) are  estimated  using  discounted  cash flow  analyses,  using
           interest rates  currently  being offered for loans with similar terms
           to borrowers of similar credit rating. The carrying amount of accrued
           interest approximates its fair value.

           FHLB  STOCK:  The  carrying  value  of  this  instrument,   which  is
           redeemable at par, approximates fair value.

           DEPOSITS:   The  fair  values  of  demand   deposits   (interest  and
           non-interest checking),  passbook,  statement savings, club and money
           market  accounts are, by  definition,  equal to the amount payable on
           demand at the reporting  date (i.e.,  their carrying  amounts).  Fair
           values  for  fixed-rate   certificates  of  deposits  and  individual
           retirement  accounts  are  estimated  using a  discounted  cash  flow
           calculation  that applies  interest rates  currently being offered on
           these  products  to  a  schedule  of  aggregated   expected   monthly
           maturities on time deposits.

           ADVANCE  PAYMENTS BY BORROWERS FOR PROPERTY TAXES AND INSURANCE:  The
           fair value of advance  payments by borrowers  for property  taxes and
           insurance  is, by  definition,  equal to the  amount  payable  at the
           reporting date (i.e., its carrying amount).

           BORROWINGS:  The fair value of term  advances  from the Federal  Home
           Loan Bank is estimated  using  discounted cash flow analysis based on
           the  Company's  current   incremental   borrowing  rate  for  similar
           borrowing arrangements.

           OFF-BALANCE-SHEET   INSTRUMENTS:   Fair  values  for  the   Company's
           off-balance-sheet  instruments  (lines of credit and  commitments  to
           fund loans) are based on fees currently charged to enter into similar
           agreements, taking into account the remaining terms of the agreements
           and the  counterparties'  credit  standing.  The fair  value of these
           financial  instruments  is immaterial and has therefore been excluded
           from the table below.

       The estimated carrying values and fair values of the Company's  financial
       instruments are as follows: (in thousands):

<TABLE>
<CAPTION>
                                                                  December 31,
                                           -----------------------------------------------------------
                                                       1999                          1998
                                           -----------------------------------------------------------
                                             Carrying         Fair         Carrying         Fair
                                              Amount          Value         Amount          Value
      -------------------------------------------------------------------------------------------------
<S>                                       <C>            <C>             <C>            <C>
      Financial assets:
          Cash and cash equivalents       $     6,272    $     6,272     $    14,536    $    14,536
          Securities                          104,663        104,586          98,755         98,841
          Loans, net                          166,657        165,478         159,207        166,435
          FHLB stock                            1,637          1,637           1,303          1,303
          Accrued interest receivable           1,945          1,945           1,985          1,985
      Financial liabilities:
          Deposits:
            Demand accounts                    12,033         12,033          10,780         10,780
            Savings accounts                   61,109         61,109          61,820         61,820
            Certificates of deposits          100,438         99,523         104,317        104,575
            Money market accounts              10,789         10,789           7,975          7,975
            NOW accounts                       11,101         11,101          11,122         11,122
            Advance payments by borrowers
              for property taxes and
              insurance                         1,595          1,595           1,450          1,450
      Borrowings                           $   19,200    $    19,153     $     1,000    $       997
      =================================================================================================
</TABLE>

                                       45
<PAGE>


                    CNY Financial Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1999, 1998 and 1997

(17)   FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED

       Fair  value  estimates  are made at a  specific  point in time,  based on
       relevant  market   information   and  information   about  the  financial
       instrument.   These  estimates  are  subjective  in  nature  and  involve
       uncertainties and matters of significant judgment and, therefore,  cannot
       be determined with precision.  Changes in assumptions could significantly
       affect the estimates.

(18)   CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS

       Presented below are the condensed  balance sheets as of December 31, 1999
       and 1998 and  statements  of income and  statements of cash flows for the
       year ended  December  31, 1999 and for the period from October 6, 1998 to
       December 31, 1998 for CNY Financial Corporation (in thousands):
<TABLE>
<CAPTION>
       Condensed Balance Sheets                              1999             1998
       -------------------------------------------------------------------------------
<S>                                                      <C>             <C>
       Assets:
       Cash and cash equivalents                         $      1,951    $     11,929
       Securities available-for-sale, at fair value             5,399           8,238
       Investment in bank subsidiary                           61,037          58,939
       Other assets                                               368             712
       -------------------------------------------------------------------------------
                                                         $     68,755    $     79,818
       ===============================================================================
       Liabilities:
       Other liabilities                                 $      1,055    $        748
       -------------------------------------------------------------------------------
       Total liabilities                                        1,055             748
       -------------------------------------------------------------------------------
       Total stockholders' equity                              67,700          79,070
       -------------------------------------------------------------------------------
       Total liabilities and stockholders' equity        $     68,755    $     79,818
       ===============================================================================

       Condensed Statements of Income                        1999            1998
       -------------------------------------------------------------------------------
       Interest from securities available-for-sale       $        532    $         --
       -------------------------------------------------------------------------------
       Total operating income                                     532              --
       Donation to charitable foundation                           --          (1,023)
       Other operating expenses                                (1,536)           (192)
       -------------------------------------------------------------------------------
       Total operating expenses                                (1,536)         (1,215)
       -------------------------------------------------------------------------------
       Loss before undistributed income of subsidiary          (1,004)         (1,215)
       Applicable income tax benefit                             (240)           (485)
       Equity in undistributed income of subsidiary bank        3,736           2,409
       -------------------------------------------------------------------------------
       Net income                                        $      2,972    $      1,679
       ===============================================================================
</TABLE>
(CONTINUED ON FOLLOWING PAGE)
                                       46
<PAGE>
                    CNY Financial Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
(18)   CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS, CONTINUED

                                                                                   1999              1998
       ---------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                <C>
           Condensed Statements of Cash Flows
           Operating activities:
           Net income                                                          $      2,972       $     1,679
           Adjustments to reconcile net income to cash provided by
              (used in) operating activities:
               Equity in undistributed earnings of subsidiary bank                   (3,736)           (2,409)
               Decrease (increase) in other assets                                      372              (712)
               Increase in other liabilities                                            763               292
               ESOP shares released for allocation                                      279                51
               Donation to charitable foundation                                         --               997
               PRRP expense                                                             288                --
       ---------------------------------------------------------------------------------------------------------
           Net cash provided by (used in) operating activities                          938              (102)
           Investing activities:
           Purchase of securities available-for-sale                                (38,105)          (33,421)
           Proceeds from sales of securities available-for-sale                       4,563                --
           Proceeds from maturities of securities available-for-sale                 36,310                --
       ---------------------------------------------------------------------------------------------------------
           Net cash provided by (used in) investing activities                        2,768           (33,421)
           Financing activities:
           Par value of donation of stock to charitable foundation                       --                 1
           Purchase of shares of common stock by ESOP                                    --            (4,285)
           Payments on ESOP loan                                                                           --
           Treasury stock purchases                                                 (12,472)             (611)
           Dividends                                                                 (1,212)               --
           Net proceeds from issuance of common stock                                    --            50,347
       ---------------------------------------------------------------------------------------------------------
           Net cash provided by (used in) financing activities                      (13,684)           45,452
           Net (decrease) increase in cash                                           (9,978)           11,929
           Cash at beginning of year                                                 11,929                --
       ---------------------------------------------------------------------------------------------------------
           Cash at December 31                                                 $      1,951        $   11,929
       =========================================================================================================

</TABLE>

                                      47
<PAGE>
                    CNY Financial Corporation and Subsidiary
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1999, 1998 and 1997

(19)   UNAUDITED INTERIM FINANCIAL INFORMATION

       The following table  summarizes the Company's  quarterly  results for the
       years ended December 31, 1999 and 1998 (in thousands, except share data):
<TABLE>
<CAPTION>
                                                                                    1999
                                                          ----------------------------------------------------------
                                                              First         Second         Third         Fourth
       -------------------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>            <C>           <C>
       Interest income                                    $   4,816      $    4,861     $    5,074    $   5,019
       Interest expense                                       1,792           1,822          1,966        2,027
       -------------------------------------------------------------------------------------------------------------
       Net interest income                                    3,024           3,039          3,108        2,992
       Provision for loan losses                                 75              25             --           --
       Total non-interest income                                216             291            285          286
       Total non-interest expenses                            1,830           1,862          2,092        2,090
       -------------------------------------------------------------------------------------------------------------
       Income before income taxes                             1,335           1,443          1,301        1,188
       -------------------------------------------------------------------------------------------------------------
       Net income                                         $     749      $      893     $      740    $     590
       =============================================================================================================
       Net income per diluted common share                $    0.16      $     0.19     $     0.16    $    0.14
       =============================================================================================================

                                                                                    1998
                                                          ----------------------------------------------------------
                                                              First         Second         Third         Fourth
       -------------------------------------------------------------------------------------------------------------
       Interest income                                    $   4,311      $    4,337     $    4,442    $   4,913
       Interest expense                                       2,010           2,003          2,064        1,909
       -------------------------------------------------------------------------------------------------------------
       Net interest income                                    2,301           2,334          2,378        3,004
       Provision for loan losses                                 75              75            100           75
       Total non-interest income                                245             278            817          243
       Total non-interest expenses                            1,645           1,693          1,953        3,035
       -------------------------------------------------------------------------------------------------------------
       Income before income taxes                               826             844          1,142          137
       -------------------------------------------------------------------------------------------------------------
       Net income                                         $     493      $      561     $      566    $      59(2)
       =============================================================================================================
       Net income per common share                               (1)             (1)            (1)   $      --
       =============================================================================================================
</TABLE>

       (1) Not  applicable  because the Company  converted  from mutual to stock
           form of  ownership  in  October  1998.  Income  per  common  share is
           presented  from October 6, 1998,  the date of the  conversion,  based
           upon the weighted  average  number of shares  issued and  outstanding
           since that date. The income  included in the  computation is based on
           the actual operating results only for the post-conversion period.

       (2) The  decrease  in net income in the fourth  quarter is related to the
           stock  contribution  to the Cortland  Savings  Foundation of $614,000
           after taxes.

       Summation of the quarterly  net income per diluted  common share does not
       necessarily  equal the annual amount due to the  averaging  effect of the
       number of shares throughout the year.

                                       48
<PAGE>

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  following  information  is provided  regarding  the directors of the
Company and executive  officers of the Company who are not directors.  There are
no arrangements or understandings by which any director was selected to serve as
such,  except for the agreement with Mr. Seidman as discussed  below. All of our
directors  are also  directors  of the Bank.  There are no family  relationships
among directors and executive officers of the Company and the Bank.

       JOSEPH H.  COMPAGNI,  age 57, has been a director of the Company since it
was formed in 1998. He has been a director of the Bank since 1990. Mr.  Compagni
is President of Economy Paving Co., Inc., which constructs  highways and bridges
in New York State.  He is currently a director of the New York State  Associated
General  Contractors and has been a director of the Cortland Memorial  Hospital,
the J.M. Murray Center, Cortland Family Health Network, Cortland Rotary Club and
Cortland YMCA. His term as a director of the Company expires in 2000.

       PATRICK J. HAYES,  M.D., age 50, has been a director of the Company since
it was formed in 1998. He has been a director of the Bank since 1995.  Dr. Hayes
is a practicing  physician in Cortland.  He is a past  president of the Cortland
Memorial  Hospital  Medical Staff and currently  serves as Chief of Staff of the
Cortland  Health  Center.  Dr.  Hayes is a member of the  Board of the  Cortland
Memorial  Hospital  Foundation  and a former  director of the Cortland  Memorial
Hospital. Dr. Hayes is a member of the Board of the American Lung Association of
Central New York, Inc. His term as a director expires in 2002.

       ROBERT S. KASHDIN,  CPA, age 56, has been a director of the Company since
it was  formed in 1998.  He has been a  director  of the Bank  since  1995.  Mr.
Kashdin has been a practicing  certified public accountant for over 30 years and
is the present  managing  partner of the CPA firm of Port,  Kashdin and McSherry
located  in  Cortland.  Mr.  Kashdin  is a  member  of  numerous  community  and
professional organizations including past chairman of the New York State Society
of CPA's Agri Business Committee and District Treasurer of Rotary District 7170.
He is a former  Board  member of the Jewish  Homes of  Central  New York and the
United Way of Cortland County. His term as a director expires in 2002.

       HARVEY  KAUFMAN,  age 64, has been  Chairman  of the Board of the Company
since it was formed in 1998.  He has been  Chairman of the Board of Directors of
the Bank since  June of 1997.  Mr.  Kaufman  retired  as  Superintendent  of the
Cortland  City School  District in 1992 and  currently  provides  administrative
consulting  services in the field of  education.  He is a former  Cortland  City
Police Commissioner,  past president of the Cortland County Chamber of Commerce,
past president of the New York State Association of Small City School Districts,
and was a member of the New York State Assembly Task Force on the Regents Action
Plan. Mr.  Kaufman is also currently the Chairman of the J.M.  Murray Center and
Cortland Memorial Hospital Services, a for profit affiliate of Cortland Memorial
Hospital. He is also a director of the Cortland Savings Foundation.  His term as
a director of the Company expires in 2001.

       DONALD P. REED,  age 59, has been a director of the Company  since it was
formed in 1998.  He has been a director of the Bank since 1991.  Mr. Reed is the
principal of Reed's Seeds, a business which sells crop seeds,  farm seeds,  farm
chemicals  and  fertilizer.  He is also  Chairman of the Board of Dryden  Mutual
Insurance  Company.  Mr.  Reed is a former  director  of Key Bank of Central New
York,  formerly the Homer  National  Bank. His term as a director of the Company
expires in 2000.

       LAWRENCE B. SEIDMAN, ESQ., age 52, has been a director of the Company and
Bank  since  1999.  Mr.  Seidman  is an  attorney  and the  manager of Seidman &
Associates,  L.L.C. and Seidman  Associates II, L.L.C.;  the President of Veteri
Place Corp., the sole General Partner of Seidman Investment Partnership,  LP and
Seidman Investment Partnership II, LP, manager of Federal Holdings, L.L.C, and a
business consultant to certain corporations and individuals,  including, but not
limited to,  Kerrimatt,  LP and Crown  Associates,  L.L.C.  These  entities  are
generally engaged in investing in publicly-traded  securities.  Mr. Seidman is a
former director of Crestmont Financial Corporation, The Savings Bank of Rockland
County and Atlantic Gulf  Corporation.  On November 8, 1995, the acting director
of the Office of Thrift  Supervision  ("OTS")  issued a Cease and  Desist  Order
against Mr.  Seidman  after  finding  that he  recklessly  engaged in unsafe and
unsound practices in the business of an insured  institution.  The order imposed
various  restrictions  on  Mr.  Seidman  related  to  OTS  matters  and  imposed

                                       49
<PAGE>

obligations on OTS-regulated institutions if Mr. Seidman becomes affiliated with
them. Neither the Company nor the Bank is regulated by the OTS.

       The  Company  entered  into an  agreement  with Mr.  Seidman  and certain
related individuals and entities (referred to the "Seidman Group") in connection
with Mr.  Seidman  becoming a member of the Board of  Directors.  The  Agreement
provided  that the size of the Boards of  Directors  of the Bank and the Company
each be increased by one person and each Board of Directors  elected Mr. Seidman
as a director  to fill the  vacancies  created by the  increase in the number of
directors.  The Seidman Group also agreed not to engage in any  solicitation  in
opposition to  management  or propose any other  matters for a stockholder  vote
prior to matters  raised at the annual  meeting  in the year 2000.  The  Seidman
Group also agreed that,  subject to the  fiduciary  duties of any plan  trustee,
unallocated  shares  of stock  owned by the ESOP and  unallocated  shares of the
PRRP,  may be voted as described in those plans.  Both plans  generally  provide
that unallocated shares will be voted in the same percentage as the vote cast by
the holders of allocated shares who exercise their right to direct the voting of
allocated shares. His term as a director expires in 2002.

       TERRANCE D. STALDER,  age 58, has been a director of the Company since it
was formed in 1998. He has been a director of the Bank since 1987.  Mr.  Stalder
is Associate Vice  President for Finance and Management of the State  University
of New York at Cortland,  a public  four-year  college,  and is responsible  for
general  business  operations  of the $48 million  operating  budget,  including
billing  and  collections,  payroll,  purchasing,   accounting,  budgeting,  and
internal  control,  with ongoing  involvement  in human  resources and strategic
planning.  He also serves on the Board of  Directors of the  Auxiliary  Services
Corporation  which provides food and college store services under contract.  Mr.
Stalder is a past member of the Village of Homer  Planning  Board,  the Board of
Trustees of the  Cortland  YMCA,  and the Cortland  Rotary  Club.  His term as a
director of the Company expires in 2001.

       WESLEY D.  STISSER,  age 64, has served as the  President  of the Company
since 1998 and has served as President and Chief  Executive  Officer of the Bank
since 1983. Mr. Stisser has been with the Bank for 46 years. He is a graduate of
the Graduate  School of Savings  Banking at Brown  University and the School for
Executive Development  sponsored by the Community Bankers Association.  An eagle
scout and recipient of the Silver Beaver Award B.S.A.,  Mr. Stisser is an active
member of numerous professional,  civic and community service organizations.  He
is presently a member of the SBLI USA Mutual Insurance Company of New York, Inc.
Board of Directors and is Chairman of the Cortland City Police Commission. He is
a former  member of the  Board of  Directors  for  Cortland  Memorial  Hospital,
serving  as  its  Chairman,  and  is a  member  of  the  SUNY  Cortland  College
Foundation.  He is also a director of the Cortland Savings Foundation.  His term
as a director of the Company expires in 2001.

EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

       Executive  officers  are  elected  for one year  terms  and  serve at the
pleasure  of the  Board of  Directors.  Provided  below is  certain  information
regarding  the  executive  officers  of the  Company  and the  Bank  who are not
directors.

       STEVEN  A.  COVERT,  CPA,  age 38,  joined  the Bank in June 1998 and now
serves as an Executive  Vice President and Chief  Financial  Officer of both the
Company  and the Bank.  From  August 1995 to June 1998,  he was  Executive  Vice
President  and Chief  Financial  Officer of  Success  Bancshares,  Inc.,  a bank
holding  company in Chicago,  Illinois.  He was Senior Vice  President and Chief
Financial Officer of Ithaca Bancorp, Inc., a savings and loan holding company in
Ithaca,  New York, from July 1993 to December 1994. Mr. Covert has been a member
of various community  organizations including the United Way and an organization
that provides food for the homeless.

       F. MICHAEL STAPLETON, age 60, joined the Bank in June 1998 and now serves
as Executive  Vice  President and Chief  Operating  Officer.  From February 1986
through  April  1998,  Mr.  Stapleton  was with  OnBank and Trust  Co.,  holding
positions of Senior Vice  President and Regional  President.  He then  continued
with  Manufacturers  and Traders Trust Company after it acquired  OnBank.  He is
Vice Chairman of the Loretto  Foundation,  which  provides care for the elderly,
and is a director of Mercy Health and Rehabilitation  Center,  Finance Committee
Chairman of the  Tioughnioga  District Boy Scouts of America and a member of the
Cortland Rotary Club. Mr. Stapleton is also former Chairman of the Cayuga County
Economic  Development  Council,  former  director of the Industrial  Development
Foundation  of Auburn  and  Cayuga  County,  and  former  member  of the  Auburn
Industrial  Development  Authority,  all of  which  are  involved  in  fostering
economic development in Central New York.

       KERRY D. MEEKER, age 47, joined the Bank in 1996 and serves as its Senior
Vice  President and Senior Loan Officer.  Prior to joining the Bank, he held the
position of Vice  President and Chief Loan Officer of Oneida  Savings Bank since
1989. He previously  served as a Vice President and  Commercial  Loan Officer of
Marine Midland Bank and as a Senior Financial  Analyst at Bankers Trust Company.

                                       50
<PAGE>

He is a member of the Rotary Club of  Cortland;  has served as  President of the
Greater Oneida Chamber of Commerce,  Inc.,  Treasurer of the Oneida  Improvement
Committee,   Inc.,   President   of  the   Oneidas   Club,   President   of  the
Sherrill-Kenwood  Community Chest, Inc., and is a past member of the Rotary Club
of Oneida.


ITEM 11. EXECUTIVE COMPENSATION

DIRECTORS' COMPENSATION

       Directors who are not also employees of the Company or the Bank or any of
their subsidiaries receive a fee of $500 for each Board of Directors meeting and
$400 for each committee  meeting.  The chair of each committee is entitled to an
additional  fee of $100 per  meeting.  The  Chairman of the Board of the Company
receives  an annual  retainer  of  $15,000  in  addition  to per  meeting  fees.
Directors  are also  eligible for  participation  in, and have  received  awards
under, the Stock Option Plan and the PRRP.

       All of the directors of the Company are also directors of the Bank.  Each
director  of the Bank who is not an  employee  receives  an annual  retainer  of
$3,000  plus a fee of $250 for each Board  meeting  and $400 for each  committee
meeting.  The  Chairman  of the  Board of the Bank  receives  a  $12,000  annual
retainer plus per meeting fees,  except that no fees are paid to the Chairman of
the Board for attendance at a committee meeting in an ex officio  capacity.  The
chair of each committee receives an additional $100 per committee  meeting.  Per
meeting  fees are paid  only for  actual  attendance  at a  meeting  but not for
attendance by conference telephone call.

EXECUTIVE OFFICER COMPENSATION

       None of our officers  receives  compensation  directly  from the Company.
Their compensation is paid by the Bank.

       The following table includes  information about  compensation paid to Mr.
Stisser,  Mr. Covert and Mr. Stapleton,  who were the only executive officers of
the  Company or the Bank with total  salary and bonus in excess of  $100,000  in
1999.

<TABLE>
<CAPTION>

                                                                       SUMMARY COMPENSATION TABLE
                                          --------------------------------------------------------------------------------------
                                                   ANNUAL COMPENSATION
                                          -------------------------------------------------------------------
                                                                                            AWARDS
                                                                                  ---------------------------
                                                                                    RESTRICTED  SECURITIES
                                                                      OTHER ANNUAL     STOCK    UNDERLYING      ALL OTHER
                                               SALARY         BONUS  COMPENSATION(1)  AWARD(S)    OPTIONS    COMPENSATION(2)
--------------------------------------------------------------------------------------------------------------------------------

<S>                                    <C>    <C>           <C>          <C>          <C>          <C>          <C>
Wesley D. Stisser, President           1999   $171,635      $  7,525     None         $460,000     50,000       $ 43,273
   and Chief Executive Officer         1998   $175,000      $  7,087     None         $     --         --       $ 11,656
                                       1997   $167,890          None     None         $     --         --       $  7,336

Steven A. Covert, Executive            1999   $110,827      $  4,859     None         $230,000     25,000       $ 26,608
   Vice President and Chief            1998   $ 96,346(3)   $  7,599     None         $     --         --           None
   Financial Officer

F. Michael Stapleton, Executive        1999   $110,827      $  4,859     None         $287,500     25,000       $ 27,349
   Vice President and Chief            1998   $ 63,462      $  2,599     None         $     --         --           None
   Operating Officer
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Mr.  Stisser,  Mr.  Covert  and Mr.  Stapleton  did not  receive  additional
    benefits or perquisites totaling more than 10% salary and bonus.

(2) For Mr. Stisser,  amount includes the Banks' matching contribution under its
    401(k) Plan of $7,125 in 1997,  $6,931 in 1998, and $5,000 in 1999; and life
    insurance  premium  payments of $211 in 1997, $215 in 1998 and $160 in 1999.
    For 1998 and 1999, the amount also includes $4,510 and $30,905 respectively,
    representing  Mr. Stisser's  allocated share of contributions  that the Bank
    made to the ESOP to repay the principal balance of the loan used by the ESOP
    to purchase  stock of the Company.  The 1999 amount also includes  $7,208 in
    dividends  paid to Mr. Stisser on restricted  stock awards.

    For Mr. Covert,  the 1999 amount includes $23,004  representing Mr. Covert's
    ESOP allocation and $3,604 in dividends on restricted stock awards.

    The amount for Mr. Stapleton includes $22,844 for ESOP allocation and $4,505
    for restricted stock dividends.

(3) Includes a $35,000 one-time payment upon commencement of employment.

                                       51

<PAGE>

       On April 28, 1999, the stockholders of CNY Financial Corporation approved
the  Personnel  Recognition  and  Retention  Plan which  provides  for awards of
restricted  stock to directors and officers and other  employees of the Company.
The awards to directors  became  immediately  effective upon the approval of the
plans and  awards to  officers  and other  employees  are at the  discretion  of
committee of the Board of  Directors.  The awards vest annually over a five year
period  beginning  on the date of  stockholder  approval.  Dividends on unvested
shares are paid to the award recipient.

       The  vesting  of all  shares  accelerates  in the  event of a  change  in
control,  retirement,  death or disability. All awards under the plan will fully
vest upon stockholder approval of the proposed Agreement and Plan of Merger with
Niagara Bancorp, Inc.

       The following table sets forth  information  regarding  awards made under
the plan to the  executive  officers  named in the  above  Summary  Compensation
Table.

                                AGGREGATE RESTRICTED STOCK GRANTS
--------------------------------------------------------------------------------
                                       Restricted
                                     Stock Holdings             Value at
Name                                   At 12/31/99              12/31/99
--------------------------------------------------------------------------------
Wesley D. Stisser                        40,000                $  720,000
Steven A. Covert                         20,000                $  360,000
F. Michael Stapleton                     25,000                $  450,000
================================================================================

       On April 28, 1999, the stockholders of CNY Financial Corporation approved
the Stock Option Plan which  provides  for grants of stock  options to directors
and officers and other employees of the Company.  The grants to directors became
immediately  effective upon the approval of the plans and grants to officers and
other  employees are at the discretion of a committee of the Board of Directors.
The  grants  vest  annually  over a five year  period  beginning  on the date of
stockholder  approval.  The vesting of all options  granted  under the plan will
fully vest upon  stockholder  approval  of the  proposed  Agreement  and Plan of
Merger with Niagara Bancorp, Inc.

<TABLE>
<CAPTION>
                                                      OPTION GRANTS IN LAST FISCAL YEAR
--------------------------------------------------------------------------------------------------------------------
                             Number of      Percent of total
                             securities         options
                             underlying        granted to         Exercise
                              options         employees in          price           Expiration        Grant date
Name                         granted(#)       fiscal year          ($/Sh)              date          value $ (1)
--------------------------------------------------------------------------------------------------------------------
<S>                            <C>               <C>               <C>               <C>              <C>
Wesley D. Stisser              50,000            27.8%             $11.50            4/28/09          $ 362,500
Steven A. Covert               25,000            13.9%             $11.50            4/28/09          $ 181,250
F. Michael Stapleton           25,000            13.9%             $11.50            4/28/09          $ 181,250
===================================================================================================================
</TABLE>

(1) On December 28, 1999, the Company signed a definative agreement with Niagara
    Bancorp,  Inc.  under  which  Niagara  Bancorp,  Inc.  will  acquire all the
    outstanding  shares of the Company for $18.75 per share. As such, this share
    price was used to value the options.

<TABLE>
<CAPTION>
                                                     AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                                                                 AND FY-END OPTION VALUE
-------------------------------------------------------------------------------------------------------------------------------
                                                                        Number of                         Value of
                                                                  securities underlying              unexercised in-the-
                                Shares                             unexercised options                  money options
                               acquired          Value                at FY-end (#)                     at FY-end ($)
                             on exercise       Realized      ------------------------------------------------------------------
Name                             (#)              ($)          Exercisable     Unexercisable    Exercisable    Unexercisable
-------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>              <C>            <C>              <C>               <C>           <C>
Wesley D. Stisser                None             N/A               --             50,000            $ --          $ 325,000
Steven A. Covert                 None             N/A               --             25,000            $ --          $ 162,500
F. Michael Stapleton             None             N/A               --             25,000            $ --          $ 162,500
===============================================================================================================================
</TABLE>

                                       52
<PAGE>
EMPLOYMENT CONTRACTS

       In 1998, the Bank entered into employment contracts with Mr. Stisser, Mr.
Stapleton,  Mr. Covert and Mr.  Meeker.  The contracts  with Mr. Stisser and Mr.
Stapleton provide for three-year terms and the contracts with Mr. Covert and Mr.
Meeker provide for two-year terms. The current salaries under the four contracts
are  $175,000 for Mr.  Stisser,  $116,000  for Mr.  Stapleton,  $116,000 for Mr.
Covert and $85,000 for Mr.  Meeker,  subject to such bonuses or increases as may
be approved by the Board of  Directors.  The  contracts  also  provide that each
officer will participate in all other retirement and fringe benefit plans by the
Bank to employees generally, except that they are not entitled to participate in
the Employee  Severance  plan because  their  contracts  separately  address the
issues covered by the plan.

       If the Bank terminates any of the executive  officer's  employment  other
than for cause, he will be entitled to a lump sum payment.  For Mr. Stisser, Mr.
Stapleton and Mr. Covert,  the payment is generally  equal to the greater of one
year's salary or salary for the unexpired term of the contract.  Mr. Meeker, the
payment is generally  equal to lesser of one year's salary or his salary for the
remainder  of the  term of the  contract.  All the  contracts  provide  that the
payment will also be made if the officer  resigns after  material  breach by the
Bank or after certain adverse changes in the terms and conditions of employment.

       The contracts  further provide that,  subject to certain  conditions,  if
employment is terminated within six months after a change in control of the Bank
or the Company,  or if the  executive  officer  resigns  after  certain  adverse
changes in terms and conditions of  employment,  the officer will be entitled to
receive a lump sum payment  generally equal to 299% of the annual salary payable
to the officer prior to such termination,  but in no event more than the maximum
amount which the Bank may pay without an excise tax being due under Section 280G
of the Internal  Revenue Code.  Under certain  circumstances,  the amount of the
payment to be made to some of the executive  officers may be less.  For purposes
of the contracts, a "change in control" will generally be deemed to occur when a
person or group acting together acquires beneficial  ownership of 25% or more of
any class of equity security of the Company or Bank; upon  stockholder  approval
of a merger or consolidation unless certain conditions are met; upon a change of
the  majority  of the Board of  Directors  of the  Company or the Bank;  or upon
liquidation or sale of substantially  all the assets of the Company or the Bank.
Under certain circumstances,  severance benefits payable under the contracts are
reduced by the value of Stock  Option  Plan and PRRP  awards  which the  officer
receives.

       Mr.  Stisser has waived his right to receive  any payment  upon change in
control in connection with the proposed  transaction with Niagara Bancorp,  Inc.
and he expects to retire when that transaction is consummated. Mr. Stapleton and
Mr. Meeker are expected to continue in the employ of Cortland Savings Bank after
consummation,  so no change in control  payment  would be  payable to them.  Mr.
Covert's employment is expected to terminate on or about the consummation of the
Niagara Bancorp  transaction  and he will be paid a severance  payment under his
contract of approximately $348,000.

       PENSION PLAN. The Bank formerly maintained a defined benefit pension plan
for eligible  employees.  The Bank  terminated  the plan at the end of 1998. All
employees who were  participants in the plan at that time  automatically  became
fully vested in their pension  benefit.  All pension  benefit  amounts under the
plan were frozen at  September  30,  1998,  based on  compensation  and years of
service with the Bank at that time. In general,  each participant is entitled to
an annual  retirement  benefit equal to 2% of the  participant's  average annual
compensation  multiplied by the participant's  number of years of service, up to
30 years of service, with an offset for social security.

       At the termination of the plan, Mr. Stisser chose a lump sum distribution
of his entire pension  benefit and received  approximately  $1.0 million for his
more than 30 years of service (actually  approximately 45 years of service) with
the Bank.  Mr.  Covert and Mr.  Stapleton had no years of service under the plan
when it was terminated.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

       The Human  Resources  Committee  of the Bank and the  Company  consist of
directors Compagni, Hayes, Kashdin and Reed. None of these individuals is or has
been an  officer  or  employee  of the  Company  or the Bank,  nor has any other
director  of the Company or the Bank other than Mr.  Stisser.  When the Board of
Directors function on matters pertaining specifically to the compensation of Mr.
Stisser,  he does not participate in the deliberations or vote of the Board. See
Item 13 below regarding transactions between the Bank and certain directors.

                                       53
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

       The following  table provides  information,  to the best of the Company's
knowledge, about stock ownership by directors, executive officers and any person
or group the Company knows to  beneficially  own more than 5% of its outstanding
common stock.  The  information  is as of February 11, 2000.  Information  about
persons or groups who own beneficially more than 5% of our common stock is based
on filings with the Securities and Exchange Commission on or before February 11,
2000.

<TABLE>
<CAPTION>
                                                                              Shares Beneficially         Percent of total
                                                                                     owned                     shares
Beneficial Owner                                                            at February 11, 2000 (1)      outstanding (2)
----------------                                                            -----------------------       ---------------
<S>                                                                                 <C>                         <C>
CNY Financial Corporation Employee Stock Ownership Plan                             401,696 (3)                 8.62%
   One North Main Street, Cortland, New York, 13045
Wesley D. Stisser, President and Chief Executive Officer                             67,140 (4)                 1.44%
Joseph H. Compagni, Director                                                         39,355 (5)                    *
Patrick J. Hayes, M.D., Director                                                     46,355 (6)                 1.00%
Robert S. Kashdin, CPA., Director                                                    27,355 (7)                    *
Harvey Kaufman, Director and Chairman of the Board                                   30,355 (8)                    *
Donald P. Reed, Director                                                             26,355 (9)                    *
Lawrence B. Seidman, Esq., Director                                                 463,882 (10)                9.96%
Terrance D. Stalder, Director                                                        20,395 (11)                   *
Steven A. Covert, Executive Vice President and Chief Financial Officer               36,278 (12)                   *
Directors and Executive Officers of the Company and Executive
   Officers of the Bank, as a group (11 persons)                                    834,171 (13)               17.91%
---------------------------------------------------------------------------
</TABLE>

NOTES TO THE STOCK OWNERSHIP TABLE

(1) Amount  includes shares held directly,  as well as shares  allocated to such
individuals  under the CNY  Financial  Corporation  ESOP,  and other shares with
respect to which a person may be deemed to have sole voting or investment power.
The table also includes 7,142 shares awarded in April 1999 to each  non-employee
director  (except for Lawrence B. Seidman)  pursuant to the PRRP. The table also
includes 3,213 options awarded to each of the ten non-employee directors, 10,000
options for Mr.  Stisser,  5,000  options for Mr.  Covert and 9,000  options for
other executive officers. These options, representing 20% of the options awarded
to such persons  under the CNY  Financial  Corporation  Stock Option Plan,  will
become exercisable on April 28, 2000 and hence are includable in the table.

(2) Based upon  4,601,373  shares  outstanding  on February 11, 2000 plus 56,130
options  exercisable on April 28 as described in note 1. An asterisk ("*") means
that the percentage is less than 1%.

(3) Excludes  26,836  shares  allocated  to ESOP  participants.  HSBC Bank,  the
trustee of the ESOP, may be deemed to own  beneficially  the unallocated  shares
held by the ESOP.  Unallocated  shares and allocated  shares for which no voting
instructions  are received are voted in the same proportion as allocated  shares
voted by participants.

(4) Includes  40,000  unvested PRRP shares,  14,972 shares owned by Mr.  Stisser
through the  Company's  401(k) Plan;  500 shares in  custodial  accounts for the
benefit of his  grandchildren;  and 2,168 shares allocated to Mr. Stisser in the
CNY Financial Corporation ESOP.

(5) Includes 1,000 shares owned by a testamentary trust of which Mr. Compagni is
the trustee and his mother is a beneficiary.

(6) Includes 36,000 shares owned by Dr. Hayes' Individual Retirement Account.

(7) Includes 2,500 shares owned by Mr. Kashdin's  Individual  Retirement Account
and 1,000 shares owned by his wife.

(8) Includes 15,000 shares owned by Mr. Kaufman's Individual Retirement Account.

(9) Includes 3,100 shares owned by Mr. Reed's Individual Retirement Account. The
amount shown excludes  15,000 shares owned by Dryden Mutual  Insurance  Company.
Mr. Reed is the Chairman of the Board of Dryden Mutual Insurance  Company but is
not an employee of it. He has no ownership  interest in Dryden Mutual  Insurance
except for a minuscule  interest as a policy  holder.  Mr.  Reed  disclaims  any
ownership  interest  in those  shares and does not vote as a director  of Dryden
Mutual  on any  matters  related  to the  investment  in or the  voting of those
shares.

                                       54
<PAGE>

(10) The shares shown  include all shares listed on a report filed under Section
13(d) of the Securities  Exchange Act of 1934 by Lawrence B. Seidman,  100 Misty
Lane,  Parsippany,  New Jersey 07054, jointly with Seidman and Associates L.L.C.
("SAL"),  Seidman  and  Associates  II,  L.L.C.  ("SALII"),  Seidman  Investment
Partnership, L.P. ("SIP"); Seidman Investment Partnershp II, L.P. ("SIPII") (the
address of the last three named entities is 19 Veteri Place,  Wayne,  New Jersey
07470); Kerrimatt,  L.P. ("Kerrimatt"),  80 Main Street, West Orange, New Jersey
07052; Federal Holdings L.L.C.  ("Federal"),  One Rockefeller Plaza, 31st Floor,
New York, NY 10020; The Benchmark Company,  Inc. ("TBCI"),  Benchmark  Partners,
L.P. ("Partners"); Richard Witman; Lorraine DiPaolo (the address of the last two
named  individuals and the previous two named entities is 750 Lexington  Avenue,
New York, NY 10022); and Dennis Pollack, 47 Blueberry Drive, Woodcliff Lakes, NJ
07675. Not all of the shares shown are reported to be owned  beneficially by Mr.
Seidman,  but all are reported to be owned  beneficially  by the individuals and
entities filing the Schedule 13D as a group.  According to the Schedule 13D, the
following is a breakdown of the ownership of the shares shown:  (a) Mr.  Seidman
has sole  investment  discretion and voting  authority for 374,400 shares of the
Company  owned  by SAL,  SALII,  SIP,  SIPII,  Kerrimatt,  Federal  and  various
individual  clients of Mr.  Seidman;  (b) Mr.  Whitman and Ms. DiPaola share the
investment  discretion  and voting  authority  for 72,400  shares of the Company
owned by TBCI and Partners,  and each of them has sole investment discretion and
voting  authority for an additional  1,000 shares each;  (c) Mr. Pollack has the
sole investment discretion and voting authority over 11,869 shares owned by him.

(11) Includes 8,540 shares owned by Mr. Stalder's Individual Retirement Account.

(12) Includes 20,000 unvested PRRP shares.  Also includes 1,278 shares allocated
to Mr. Covert in the CNY Financial Corporation ESOP.

(13)  This  total  includes  shares  beneficially  owned  by all  directors  and
executive  officers  listed  in  the  table  plus  two  executive  officers  not
separately  listed.  The total also includes 45,000 unvested PRRP shares awarded
to the two  executive  officers  of the  Company  and the Bank and 2,449  shares
allocated to those officers in the CNY Financial Corporation ESOP not separately
listed. The total also includes 86,269 shares reported in the Schedule 13D filed
by Mr.  Seidman  and  others,  over which  other  persons  are  reported to have
investment discretion and voting authority (see note 10).

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

       The  directors  and  executive  officers of the Company  maintain  normal
deposit account  relationships  with the Bank in the ordinary course of business
on terms and conditions no more  favorable  than those  available to the general
public.  In the ordinary course of business,  the Bank makes loans to directors,
officers and employees, as well as other related parties. All loans to directors
and executive  officers and related parties are on substantially the same terms,
including interest rate and collateral, as those prevailing at the same time for
comparable loans to other customers and do not involve more than the normal risk
of collectibility or present other unfavorable features.

       Directors Kaufman and Compagni are uncompensated volunteer members of the
Board of Directors  of the J.M.  Murray  Center,  a  not-for-profit  corporation
providing services to the developmentally disabled. The J.M. Murray Center has a
loan in which the Bank is a 50% participant with another local bank. The loan is
secured by a mortgage on a light manufacturing facility operated by the borrower
as a source of employment for the developmentally disabled.

PART IV

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

(a)      Documents filed as part of this report:

         3.0      Exhibits
                  --------

                  2.1    Agreement and Plan of Berger,  dated  December 28, 1999
                         by  and  between  CNY  Financial  Corporation,  Niagara
                         Bancorp, Inc. and Niagara Merger Corp., including Stock
                         Option   Agreement  and  letter  voting   agreement  as
                         exhibited. (incorporated by reference to Exhibit 2.1 of
                         the Company's  Form 8-K filing with the  Securities and
                         Exchange Commission on January 6, 2000).

                  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).

                                       55
<PAGE>

                  3.2    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).

                  3.3    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).

                  10.5   CNY  Financial   Corporation   Stock  Option  Plan  for
                         Directors, Officers and Employees.

                  10.6   CNY Financial  Corporation  Personnel  Recognition  and
                         Retention Plan for Directors, Officers and Employees.

                  10.7   Agreement  with CIBC World Markets Corp. for investment
                         banking services.

                  21.1   Subsidiaries of the Company

                  23.1   Consent of KPMG, LLP

                  27.1   Financial Data Schedule

(b)            Reports on Form 8-K

               The Company  filed a Form 8-K with the  Securities  and  Exchange
               Commission  on January 6, 2000  announcing  the merger  agreement
               with Niagara Bancorp, Inc.

                                       56
<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.


                               CNY FINANCIAL CORP.


       By:   /s/  WESLEY D. STISSER                                      2/21/00
             -------------------------------------------------------    --------
                  Wesley D. Stisser                                      (Dated)
                  President & Chief Executive Officer

             /s/  STEVEN A. COVERT                                       2/21/00
             -------------------------------------------------------    --------
                  Steven A. Covert                                       (Dated)
                  Executive Vice President & Chief Financial Officer


         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.


             /s/  JOSEPH H. COMPAGNI                                     2/21/00
             -------------------------------------------------------    --------
                  Joseph H. Compagni                                     (Dated)
                  Director

             /s/  PATRICK J. HAYES                                       2/21/00
             -------------------------------------------------------    --------
                  Patrick J. Hayes                                       (Dated)
                  Director

             /s/  ROBERT S. KASHDIN                                      2/21/00
             -------------------------------------------------------    --------
                  Robert S. Kashdin                                      (Dated)
                  Director

             /s/  Harvey Kaufman                                         2/21/00
             -------------------------------------------------------    --------
                  Harvey Kaufman                                         (Dated)
                  Director

             /s/  DONALD P. REED                                         2/21/00
             -------------------------------------------------------    --------
                  Donald P. Reed                                         (Dated)
                  Director

             /s/
             -------------------------------------------------------    --------
                  Lawrence Seidman                                       (Dated)
                  Director

             /s/  TERRANCE D. STALDER                                    2/21/00
             -------------------------------------------------------    --------
                  Terrance D. Stalder                                    (Dated)
                  Director

             /s/  Wesley D. Stisser                                      2/21/00
             -------------------------------------------------------    --------
                  Wesley D. Stisser                                      (Dated)
                  Director

                                       57
<PAGE>
                                Index To Exhibits


    2.1      Agreement and Plan of Merger, dated December 28, 1999 by and
             between CNY Financial Corporation, Niagara Bancorp, Inc. and
             Niagara Merger Corp., including Stock Option Agreement and letter
             voting agreement as 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*
   10.5      CNY Financial Corporation Stock Option Plan for Directors, Officers
             and Employees
   10.6      CNY Financial Corporation Personnel Recognition and Retention Plan
             for Directors, Officers and Employees
   10.7      Agreement with CIBC World Markets Corp. for investment banking
             services.
   21.1      Subsidiaries of the Company
   23.1      Consent of KPMG LLP
   27.1      Financial Data Schedule

*Previously filed.


                                       58