CNB BANCORP, Inc.
1998 ANNUAL REPORT

City National Bank
and Trust Company

<PAGE>

DIRECTORS - CNB BANCORP, INC.
City National Bank and Trust Company

(PHOTO)
     Back Row (from left): Brian K. Hanaburgh, Theodore E. Hoye III, Clark D.
Subik, Clark Easterly Sr., John C. Miller, George A. Morgan. Front Row (from
left): Robert L. Maider, William N. Smith, Deborah H. Rose, Frank E.
Perrella.

Missing from Photo: Leon Finkle.

John C. Miller
         President, John C. Miller, Inc., Automobile Dealer

Frank E. Perrella
         President, Sira Corp., Consultant

Robert L. Maider
         Partner, Maider & Smith Attorneys

William N. Smith
         Chairman of the Board, President and Chief Executive
         Officer of the Company and the subsidiary Bank

Leon Finkle
         Chairman of the Board, Finkle Distributors, Inc., Candy and Tobacco
         Distribution 

George A. Morgan
         Vice-President and Secretary of the Company and Executive
         Vice-President, Cashier and Trust Officer of the subsidiary Bank

Clark Easterly, Sr.
         Chairman of the Board, The Johnstown Knitting Mill Company
         Manufacturer of Knitwear

Brian K. Hanaburgh
         Owner, D/B/A McDonald's Restaurants, Fast Food Restaurants

Clark D. Subik
         President, Superb Leathers, Inc., Leather Merchandiser

Deborah H. Rose
         Vice-President, Hathaway Agency, Inc., General Insurance

Theodore E. Hoye, III
         President, First Credit Corp., Financing and Insuring of 
         Manufactured Housing

HONORARY DIRECTORS

Lydon F. Maider            Lloyd Politsch           Ross H. Higier
Richard B. Parkhurst       Henry Buanno             Theodore E. Hoye, Jr.
Edward F. Vonderahe        Alfred J. Washburn       James W. St. Thomas
Henry C. Tauber            Richard E. Hathaway      Richard P. Tatar
                           Paul E. Smith

<PAGE>

FINANCIAL HIGHLIGHTS
(In thousands, except per share data)

                           1998         1997       1996

NET INCOME                 $  3,222     $  3,101   $  3,045
Earnings Per Share
   Basic                       2.01         1.94       1.90
   Diluted                     2.01         1.94       1.90

CASH DIVIDENDS DECLARED    $  1,344     $  1,280   $  1,184
Per Share                      0.84         0.80       0.74

STOCKHOLDERS' EQUITY AT
YEAR-END                   $ 31,511     $ 29,679   $ 27,747
Per Share                     19.69        18.55      17.34

RETURN ON AVERAGE
STOCKHOLDERS' EQUITY           10.5%        10.8%      11.3%

RETURN ON AVERAGE
ASSETS                         1.36%        1.44%      1.45%

TOTAL ASSETS AT YEAR-END   $255,568     $222,325   $214,762

<PAGE>

PRESIDENT'S MESSAGE

     I am pleased to report that 1998 proved to be another year of continued
growth for our Company.

     Net income and earnings per share were $3,222,000 and $2.01 respectively
compared to $3,101,000 and $1.94 the prior year, an increase of 3.9% year to
year.

     Total assets increased $33,243,000 or 15.0% resulting in total assets at
year-end of $255,568,000. Total loans, net of unearned income, increased only
$2,699,000 or 2.3%, with the bulk of the increase in the Installment Loan
Department. With the lack of significant overall loan demand, excess funds
were invested in the securities portfolio. At year-end total securities in
both the available for sale and investment securities categories were
$106,554,000, an increase of $19,149,000 or 21.9% from 1997.

     Deposits increased by $18,731,000 or 10.0% to a new high of
$206,386,000, exceeding $200,000,000 for the first time. The largest
increase, $8,954,000, was in the category of regular savings, N.O.W. and
money market accounts.

     Stockholders' equity increased to $31,511,000, an increase of $1,832,000
or 6.2%. This strong internal generation of capital resulted in a year-end
stockholders' equity to total assets ratio of 12.3%. This ratio compares very
favorably to our regulatory bank holding company peer group's average of 9.9%
as of September 30, 1998.

     In January, the Board increased the dividend for the thirty-second
consecutive year. The dividend per share for the year was $0.84, an increase
of 5.0%, as compared to $0.80 in 1997. Total dividend paid to stockholders
for the year amounted to $1,344,000. At year-end the bid price per share of
stock was $37.25, an increase of $4.25 or 12.9% from the prior year.

     Several personnel changes were made during the year. Bill Argotsinger
was hired as an Assistant Vice President in charge of our Residential
Mortgage Loan Department. He brings over twenty years of experience in
mortgage lending to the Bank. In addition, two officers were promoted and
four new officers were named during the year in recognition of their assuming
new responsibilities. Tammy Warner was promoted to Manager of the Johnstown
Office. In the Main Office, Darrin Ambridge was promoted to a Mortgage Loan
Officer, Denise Cerasia to Operations Officer and Paula Tucker to Systems
Officer. Amy Praught was named a Branch Officer in the Johnstown Office and
Joanne Shy was named a Branch Officer in the Fifth Avenue Office.

     In January, Theodore E. Hoye, III was appointed a Director to complete
the unexpired term of his father, Theodore E. Hoye, Jr. who resigned after
serving as a director of the Company and the subsidiary bank for a period of
36 years. We thank Ted for his wise counsel and dedicated service over this
long period of time.

     At the end of the year, Beverly Lorey retired as an employee of the Bank
after 20 years of dedicated service. We wish her well in her retirement
years.

     As we move closer to the new millennium, the Bank's Year 2000 Committee
has been working diligently to be in compliance with all aspects of the
Bank's operations. Of primary concern is the Bank's application data
processing. Since 1992 we have outsourced our data processing to ALLTEL
Information Services, Inc. ALLTEL is a national firm and a leader in
providing data processing services to many banks across the country. In July
of 1998 we converted all application software from ALLTEL's main frame system
to their community bank system called "Horizon". I am happy to report that in
December of 1998 the last in a series of year 2000 compliant applications of
Horizon was installed making the system fully year 2000 compliant.
Self-testing of the system will begin in March of this year and the Bank is
on schedule to meet complete testing by June 30, 1999.

     During this past year the Bank bacame part of the "World Wide Web" by
creating our own web site. There is more work to be done, but if you have
Internet access, you will find us at www.citynatlbank.com.

     The last quarter of 1998 saw the installation of an automatic teller
machine at Nathan Littauer Hospital and the first quarter of 1999 will see
the completion of the installation of an ATM at the Holiday Inn, Johnstown,
NY. If we have success at these two locations, the opportunity exists for ATM
installations at other sites.

     In December we were approached by Adirondack Financial Services Bancorp,
Inc., the parent company of Gloversville Federal Savings and Loan
Association, and asked if we would consider making an offer to purchase their
company, which we did. In January 1999, we were informed that their Board of
Directors had accepted our offer. I am very excited by this opportunity to
increase and protect our local market share while also gaining entry for us
into the Saratoga Springs' market. This transaction will have to be approved
by regulatory authorities and the stockholders of Adirondack. It is
anticipated that the merger will be completed in the second quarter of 1999.

     As always, I would like to thank our dedicated staff and Board of
Directors for another year of record performance.

     We welcome your comments and suggestions and please remember to use our
banking services and recommend us to your friends and neighbors.

/s/ William N. Smith

WILLIAM N. SMITH
Chairman of the Board, President and Chief Executive,
Officer of the Company and the subsidiary Bank

<PAGE>

Year-End Total Assets
Five Years (1994-1998)

1994 $188,093
1995 $201,516
1996 $214,762
1997 $222,325
1998 $255,568

Net Income
Five Years (1994-1998)

1994 $2,825
1995 $3,003
1996 $3,045
1997 $3,101
1998 $3,222

<PAGE>

Bid Price Per Common
Share Year End
Five Years (1994-1998)

1994 $20.38
1995 $22.50
1996 $24.88
1997 $33.00
1998 $37.25

Dividend Paid Per
Common Share
Five Years (1994-1998)

1994 $0.62
1995 $0.68
1996 $0.74
1997 $0.80
1998 $0.84

<PAGE>

FINANCIAL REVIEW

     The financial review is a presentation of management's discussion and
analysis of the consolidated financial condition and results of operations of
CNB Bancorp, Inc. and its subsidiary, City National Bank & Trust Company. The
financial review is presented to provide a better understanding of the
financial data contained in this report and should be read in conjunction
with the consolidated financial statements and other schedules that follow.

     In addition to historical information, this Annual Report includes
certain forward-looking statements with respect to the financial condition,
results of operations and business of the Company and its subsidiary Bank
based on current management expectations. The Company's ability to predict
results or the effect of future plans and strategies is inherently uncertain
and actual results, performance or achievements could differ materially from
those management expectations. Factors that could cause future results to
vary from current management expectations include, but are not limited to,
general economic conditions, legislative and regulatory changes, monetary and
fiscal policies of the federal government, changes in tax policies, rates and
regulations of federal, state, and local tax authorities, changes in interest
rates, deposit flows, the cost of funds, demand for loan products, demand for
financial services, competition, changes in the quality or composition of the
subsidiary Bank's loan and securities portfolios, changes in accounting
principles, policies or guidelines, and other economic, competitive,
governmental, and technological factors affecting the Company's operations,
markets, products, services and prices.

     Financial Condition: The table below presents a comparison of average
and year-end balance sheet categories over the past three years (in
thousands).

<TABLE>
<CAPTION>

                                                                 Increase/(Decrease)

Average Balance Sheet      1998        1997       1996        1998/1997     1997/1996

<S>                        <C>         <C>        <C>         <C>           <C>
Assets:
   Cash and due from banks $  6,328    $  6,175   $  6,184    $   153       $    (9)
   Federal funds sold        11,710       6,170      7,453      5,540        (1,283)
   Total securities          91,816      86,622     86,735      5,194          (113)
   Loans, net of allowance  119,711     111,227    104,269      8,484         6,958
   Other assets               7,650       5,367      5,149      2,283           218
         Total Assets      $237,215    $215,561   $209,790    $21,654       $ 5,771

Liabilities:
   Demand deposits         $ 19,382    $ 17,900   $ 17,539    $ 1,482       $   361
   Savings, NOW and money
      market accounts        73,503      76,386     74,654     (2,883)        1,732
   Time deposits            101,827      91,151     89,717     10,676         1,434
   Borrowed funds 
      and repos              10,777         592        278     10,185           314
   Other liabilities          1,057         827        722        230           105
Stockholders' Equity         30,669      28,705     26,880      1,964         1,825
         Total Liabilities   
          and Equity       $237,215    $215,561   $209,790    $21,654       $ 5,771

</TABLE>

<PAGE>

FINANCIAL REVIEW (Continued)

<TABLE>
<CAPTION>

Year-End Balance Sheet     1998        1997       1996        1998/1997     1997/1996

<S>                        <C>         <C>        <C>         <C>           <C>
Assets:
   Cash and due from banks $  6,422    $  6,585   $  8,324    $  (163)      $(1,739)
   Federal funds sold        13,900       2,800      8,000     11,100        (5,200)
   Total securities         107,529      88,289     87,886     19,240           403
   Loans, net of allowance  120,257     117,646    105,365      2,611        12,281
   Other assets               7,460       7,005      5,187        455         1,818
         Total Assets      $255,568    $222,325   $214,762    $33,243       $ 7,563

Liabilities:
   Demand deposits         $ 23,268    $ 21,391   $ 18,616    $ 1,877       $ 2,775
   Savings, NOW and money
      market accounts        90,934      81,980     84,213      8,954        (2,233)
   Time deposits             92,184      84,284     83,593      7,900           691
   Borrowed funds 
      and repos              16,844       4,322          1     12,522         4,321
   Other liabilities            827         669        592        158            77
Stockholders' Equity         31,511      29,679     27,747      1,832         1,932
         Total Liabilities 
          and Equity       $255,568    $222,325   $214,762    $33,243       $ 7,563

</TABLE>

     Total assets at December 31, 1998 reached $255.6 million as compared to
$222.3 million at December 31, 1997, an increase of 15.0%. The 1998 asset
growth was funded with a $18.7 million increase in deposits and a $12.5
million increase in borrowings and repurchase agreements. Average assets for
1998 totaled $237.2 million, an increase of $21.6 million or 10.0% from the
1997 average of $215.6 million.

     Loans are the subsidiary Bank's largest segment of earning assets and at
December 31, 1998 represented 47.1% of total assets. Net loans grew
approximately $2.6 million or 2.2%. The subsidiary Bank continued to see good
loan growth during 1998 as average loans increased $8.5 million or 7.6%. One
of the primary reasons for the growth was an increase of $5.0 million in
consumer loans, which, was primarily attributable to an increase in new and
used car lending through the purchases of dealer paper. Average commercial
and real estate loans were also up for year, increasing by $2.4 and $1.1
million, respectively.

     Federal funds sold, which is a source of liquidity for the Bank,
increased year to year $11.1 million or 396.4% and $5.5 million or 89.8% on
average. A higher level of these funds was kept throughout the year to offset
the increase in $100,000 and over short term certificate of deposits which
increased on average $6.5 million from the previous year.

     During 1998 the subsidiary Bank continued its capital leveraging
strategies increasing its borrowings through the Federal Home Loan Bank from
$4.1 million to $16.2 million. Proceeds from the borrowings were primarily
used to purchase mortgage backed securities which resulted in total
securities increasing $19.2 million or 21.8% for the year. Average securities
increased $5.2 million or 6.0%.

     Deposits continue to be the subsidiary Bank's primary source of funding.
Total deposits at December 31, 1998 reached $206.4 million, an increase of
$18.7 million or 10.0% over the previous year end. Core deposits which
consist of demand, savings, N.O.W., and money market accounts, grew by $10.8
million or 10.5%, and time deposits increased $7.9 million or 9.4%. Average
deposits increased during the year to $194.7 million from $185.4 million, an
increase of $9.3 million or 5.0%.

     Stockholder's equity at year-end 1998 was $31.5 million as compared to
$29.7 million at year-end 1997, an increase of $1.8 million. Most of the
increase was accounted for through net retained earnings. The consolidated
statements of changes in shareholders' equity of this annual report detail
the changes in equity capital, including payments to shareholders in the form
of cash dividends.

<PAGE>

Results of Operations: The comparative consolidated statements of income
summarizes income and expense for the last three years. The Company again
achieved record earnings for 1998 of $3,222,000, as compared to $3,101,000
for 1997, an increase of 3.9% over the previous year. Net income for 1997
increased by 1.8% over that of 1996. The return on average assets for the
three years ended December 31, 1998, 1997 and 1996 was 1.36%, 1.44% and
1.45%, respectively. The return on average equity for the same periods was 
10.5%, 10.8% and 11.3%.

     Net interest income, the most significant component of earnings, is the
amount by which the interest generated from earning assets exceeds the
expense associated with funding those assets. Changes in net interest income
from year to year result from changes in the level and mix of the average
balances (volume) of earning assets and interest-bearing liabilities and from
the yield earned and the cost paid (rate). In the following discussion,
interest income is presented on a fully taxable equivalent basis applying the
statutory Federal income tax rate. Net interest income increased $76,000 or
0.8%, as compared to an increase of $404,000 or 4.4% for the previous year.
The slight increase in 1998 was attributable to higher volumes of loans
throughout the year, but offset with a decreasing net interest margin going
from 4.66% to 4.30%. Interest and fees on loans for 1998 increased by
$608,000 or 6.1% from the previous year, as compared to an increase of
$449,000 or 4.7%, for 1997 over 1996. The increase for 1998 was due primarily
to higher volumes of consumer loans, which increased on average by $5.0
million for the year. Interest on securities increased $146,000 or 2.4% for
the year, as compared to a marginal increase of only $21,000 for 1997 over
1996. The increase in 1998 was due to the average volumes of securities
increasing by $5.2 million or 6.0% for the year. Interest on federal funds
sold increased $284,000 or 82.8%, as compared to a decrease of $49,000 or
12.5% for 1997 over 1996. The increase in 1998 was due to a higher volume of
funds maintained due to a flat or inverted yield curve for most of the year.

     For comparison purposes, the table below shows interest income converted
to a fully taxable basis to recognize the income tax savings between taxable
and tax-exempt assets (in thousands).

                                                        % Change   % Change
                             1998     1997     1996     1998/1997  1997/1996

Total interest income        $16,843  $15,763  $15,305   6.9%       3.0%
Total interest expense         7,917    6,941    6,924  14.1        0.2

Net interest income            8,926    8,822    8,381   1.2        5.3
Tax equivalent adjustment        706      734      771  (3.8)      (4.7)

Net interest income taxable
   equivalent basis          $ 9,632   $9,556  $ 9,152   0.8%       4.4%

     Total interest expense increased $976,000 in 1998 or 14.1% over that of
1997 as compared to an increase of $17,000 or 0.2% for 1997 over 1996. The
increase in 1998 was due primarily to higher volumes of borrowed funds and
repurchase agreements.

     Total other income for 1998 increased by $338,000 or 43.2% due to new
earnings on cash surrender value of key life insurance policies, higher
fiduciary fees, net gains on available for sale securities, and higher credit
card merchant discounts. Total other income for 1997 increased by $66,000 or
9.2% over that for 1996. Total other expense increased $326,000 or 6.7% over
the preceding year as compared to an increase of $336,000 or 7.4% for 1997
over 1996. The 1998 increase was due mainly to higher salary and benefit
costs, higher data processing costs, and one time costs associated with the
conversion of data processing software.

<PAGE>

FINANCIAL REVIEW (Continued)

     Net interest spread, the difference between average earning assets yield
and the cost of average interest bearing funds, decreased from 1997 to 1998
by 33 basis points or 8.4% over the previous year, as compared to an increase
of 7 basis points or 1.8% from 1996 to 1997. Net interest margin, the amount
of net income expressed as a percentage of earning assets, decreased for the
year by 36 basis points or 7.7%, whereas the change from 1996 to 1997
increased by 8 basis points or 1.7%. The decreases in the net interest rate
spread and the net interest margin for 1998 were attributed to leveraged
borrowings and repurchase agreements through the Federal Home Loan Bank with
securities at generally lower spreads than existing interest-bearing assets
and liabilities.

<TABLE>

Interest rate spread and net interest margin (in thousands):
(Tax equivalent basis)

<CAPTION>

                                          1998               1997                1996

                                    Yearly              Yearly              Yearly
                                    Average    Rate     Average    Rate     Average     Rate

<S>                                 <C>        <C>      <C>        <C>      <C>         <C>
Earning assets                      $224,191   7.83%    $205,186   8.04%    $199,675    8.05%
Interest bearing liabilities         186,127   4.25      168,148   4.13      164,667    4.21
Net interest rate spread                       3.58%               3.91%                3.84%
Net interest margin                            4.30%               4.66%                4.58%

</TABLE>

Capital Resources: Stockholders' equity ended 1998 at $31,511,000 up
$1,832,000 or 6.2%. At December 31, 1998, the ratio of stockholders' equity
to total assets was 12.3%, as compared to 13.3% at December 31, 1997. As of
December 31, 1990, banks were required to report new risk-based capital
ratios that require bank holding companies to meet a ratio of qualifying
total capital to risk-weighted assets. Risk-based assets are the value of
assets carried on the books of the Company, as well as certain off-balance
sheet items, multiplied by an appropriate factor as stipulated in the
regulation. Tier 1 capital consists of common stock and qualifying
stockholders' equity. Total capital consists of Tier 1 capital plus a portion
of the allowance for loan losses. Currently, the minimum risk-based ratios,
as established by the Federal Reserve Board, for Tier 1 and total capital are
4% and 8%, respectively. At December 31, 1998, the Company had Tier 1 and
total capital risk-based ratios of 23.4% and 24.6%, respectively. The Company
also maintained a leverage ratio of 12.5% as of December 31, 1998. The
leverage ratio is defined as Tier 1 capital in relation to fourth quarter
average assets. These strong ratios are well in excess of regulatory
minimums, and well above the average for peer banks and the industry as a
whole.

Liquidity: The primary objective of liquidity management is to ensure the
availability of sufficient cash flows to meet all of the Company's funding
needs, such as loan demand and customers' withdrawals from their deposit
accounts. While the primary source of liquidity consists of maturing
securities, other sources of funds are federal funds sold, repayment of
loans, sale of securities available for sale, and growth of deposit accounts.
Throughout 1999, approximately $10 million of securities are scheduled to
mature and approximately $18 million become callable. In addition to existing
liquid assets the subsidiary Bank maintains lines of credit with a
correspondent bank and the Federal Home Loan Bank (FHLB) to supplement its
short term borrowing needs.

     The subsidiary Bank has pledged certain of its assets as collateral for
deposits of municipalities, FHLB borrowings and repurchase agreements. By
utilizing collateralized funding sources, the subsidiary Bank is able to
access a variety of cost effective sources of funds. Management monitors its
liquidity position on a regular basis and does not anticipate any negative
impact to its liquidity from pledging activities. While there are no known
trends or demands that are likely to affect the Bank's liquidity position in
any material way during the coming year, the above funds are available to
satisfy any needs that may arise.

<PAGE>

Provision for loan losses: The adequacy of the allowance for loan losses is
determined by management's evaluation of the quality of the loan portfolio on
a quarterly basis. This is an integral part of the loan function, which
includes the identification of past due loans, non-performing loans, the
recognition of the current economic environment, and the review of historical
loss experience.

     Non-performing loans, defined as non-accruing loans plus loans 90 days
or more past due and still accruing interest and loans in a troubled debt
restructuring, ended 1998 at $529,000 or 0.4% of loans net of unearned
income. Non-performing loans at December 31, 1997 were $371,000 or 0.3% of
loans net of unearned income. There were no troubled debt restructured loans
as of December 31, 1998 or 1997. There are no other loans in the Company's
portfolio that management is aware of that pose significant adverse risk to
the eventual full collection of principal.

     The provision for loan losses for 1998 was $220,000, compared to
$255,000 in 1997 and $220,000 in 1996. Net charge-offs were $132,000,
$383,000, and $105,000 for the years 1998, 1997 and 1996, respectively. The
allowance at year-end 1998 and 1997 was 1.3% of loans net of unearned income.

Market Risk: Market risk is the risk of loss from adverse changes in market
prices and interest rates. The subsidiary Bank's market risk arises primarily
from interest rate risk inherent in its lending and deposit taking
activities. Although the subsidiary Bank manages other risks, as in credit
and liquidity risk, in the normal course of its business, management
considers interest rate risk to be its most significant market risk and could
potentially have the largest material effect on the Bank's financial
condition and results of operation. The Company does not currently have a
trading portfolio or use derivatives to manage market and interest rate risk.

     The subsidiary Bank's interest rate risk management is the
responsibility of the Asset/Liability Management Committee (ALCO), which
reports to the Board of Directors. The Committee, comprised of senior
management, has developed policies to measure, manage and monitor interest
rate risk. Interest rate risk arises from a variety of factors, including
differences in the timing between the contractual maturity or repricing of
the subsidiary Bank's assets and liabilities. For example, the subsidiary
Bank's net interest income is affected by changes in the level of market
interest rates as the repricing characteristics of its loans and other assets
do not necessarily match those of its deposits, other borrowings, and
capital.

     In managing exposure, the subsidiary Bank uses interest rate sensitivity
models that measure both net gap exposure and earnings at risk. ALCO monitors
the volatility of its net interest income by managing the relationship of
interest rate sensitive assets to interest rate sensitive liabilities. The
Committee utilizes a simulation model to analyze net income sensitivity to
movements in interest rates. The simulation model projects net interest
income based on both an immediate rise or fall in interest rates of 200 basis
point shock over a twelve month period. The model is based on the actual
maturity and repricing characteristics of interest rate assets and
liabilities. The model incorporates assumptions regarding the impact of
changing interest rates on the prepayment rate of certain assets and
liabilities.

     The following table shows the approximate effect on the subsidiary
Bank's net interest margin as of December 31, 1998, assuming an increase or
decrease of 200 basis points in interest rates (in thousands).

          Change in Interest Rate  Estimated net       Change in Net
         (basis points)            Interest Margin     Interest Margin

         +200                      $9,185               2.9%
         +100                       9,065               1.6
            0                       9,031               1.1
         -100                       8,764              (1.8)
         -200                       8,596              (3.7)

<PAGE>

FINANCIAL REVIEW (Continued)

     Another tool used to measure interest rate sensitivity is the cumulative
gap analysis. The cumulative gap represents the net position of assets and
liabilities subject to repricing in specified time periods. Deposit accounts
without maturity dates are modeled based on historical run-off
characteristics of these products in periods of rising rates. At December 31,
1998 the Company had a negative one-year cumulative gap position.

     The cumulative gap analysis is merely a snapshot at a particular date
and does not fully reflect that certain assets and liabilities may have
similar repricing periods but may in fact reprice at different times within
that period and at differing rate levels. Management, therefore, uses the
interest rate sensitivity gap only as a general indicator of the potential
effects of interest rate changes on net interest income. Management believes
that the gap analysis is a useful tool only when used in conjunction with its
simulation model and other tools for analyzing and managing interest rate
risk.

     As of December 31, 1998, the subsidiary Bank was in a liability
sensitive position which means that more liabilities are scheduled to mature
or reprice within the next year than assets. The following table shows the
interest rate sensitivity gaps as of December 31, 1998 highlighting the gap
percentages within one year.

<TABLE>
<CAPTION>

                                    Balance Maturing or Subject to Repricing (in Thousands)

                                       After 3 Mo.      After One
                           Within      But Within       But Within        After
AT DECEMBER 31, 1998       3 Months    1 Year           Five Years        Five Years        Total

<S>                        <C>         <C>              <C>               <C>               <C>
Interest Earning Assets:
   Securities<F1>          $19,951     $20,681          $38,956           $27,365           $106,953
   Total Loans, net of 
    unearned discount       38,968      15,716           41,389            25,764            121,837
   Other Earning Assets     13,942           0                0                 0             13,942
         Total Earning 
          Assets            72,861      36,397           80,345            53,129            242,732
Excess Fair Value Over 
 Cost of Securities
 Available for Sale                                                                            576
Other Assets                                                                                  12,260
TOTAL ASSETS                                                                                $255,568

Interest-Bearing 
 Liabilities:
   Savings, NOW and MMDA   $25,939     $  6,958         $ 6,626           $51,411           $ 90,934
   Time Deposits            39,437       34,859          17,888                 0             92,184
   Other Interest-Bearing 
    Liabilities              3,665        6,000           7,200                 0             16,865
         Total Interest-
          Bearing 
          Liabilities       69,041       47,817          31,714            51,411            199,983
Demand Deposits                                                                               23,268
Other Liabilities & Equity                                                                    32,317
TOTAL LIABILITIES & EQUITY                                                                  $255,568
Interest Rate Sensitivity 
 Gap                       $ 3,820     $(11,420)        $48,631           $ 1,718
Cumulative Interest 
 Rate Sensitivity Gap      $ 3,820     $ (7,600)        $41,031           $42,749           $ 42,749
                                           (3.0)%

<FN>

<F1> Includes Available for Sale Securities and Investment Securities at
amortized cost and FHLB and FRB stock at cost.

</FN>

</TABLE>

<PAGE>

Deferred tax asset valuation allowance: Deferred tax assets are recognized
subject to management's judgement that realization is more likely than not.
In considering if it is more likely than not that some or all of the deferred
tax assets will not be realized, the Company considers temporary taxable
differences, historical taxes and future taxable income. The valuation
allowance of $163,000 and $150,000 as of December 31, 1998 and 1997,
respectively, relates to New York State deferred tax assets due to the lack
of carryback and carryforward provisions available in New York State. Based
primarily on the sufficiency of historical taxable income, management
believes it is more likely than not that the remaining net deferred tax asset
at December 31, 1998 and 1997 will be realized.

Impact of year 2000: Entering the year 2000 presents a complicated problem to
industries worldwide, including the banking industry. The year 2000 problem
originates in the method used to code dates in computer software and
hardware. Most computer systems and programs had used six-digit date fields
(YYMMDD) allowing only two digits for the year. As we enter the year 2000, if
not fixed, the two-digit year field would have read 00. Most computer systems
would have interpreted 00 as 1900, not as 2000.

     A year 2000 committee led by senior management and composed of officers
representing all areas of operation, has been formed to evaluate and solve
the year 2000 problem for the subsidiary Bank. With the help of the federal
regulators, the Committee has focused on identifying risks posed by the year
2000 and taking the appropriate action to ensure continuity of operation.
This process has been underway for approximately eighteen months and will
continue until the effort is complete.

     The federal government has designated five phases of the year 2000
project: awareness, assessment, renovation, validation, and implementation.
At this time, the Bank is in the validation phase for most vendors.
Independent testing of mission critical applications was completed in advance
of the December 31, 1998 deadline. Completion of the integrated testing of
mission critical and selected non-mission critical applications, proxy
testing of mission critical applications and independent testing of selected
non-mission critical applications is expected to be completed by March 31,
1999. The goal is to achieve full implementation by June 30, 1999. The Bank
is on schedule to meet these goals.

     Of primary concern to the Bank is Alltel Information Services, Inc., the
distributor of Horizon Banking System (the data processing program being
used). On December 26, 1998, the last in the series of year 2000 compliant
applications of Horizon was installed making the system fully year 2000
compliant.

     The Committee will also be taking the planning process to the final step
-- contingency planning. Even after assurances have been made of a mission
critical vendor's year 2000 compliance, the Committee will draft a business
resumption contingency plan which will ensure the Bank's ability to
temporarily do business without the services of the mission critical vendor.

     The subsidiary Bank, like all other companies, has incurred costs as a
result of preparing for the Year 2000. The portion of the project which has
required the most resources has been the data processing system. To date, the
subsidiary Bank has spent approximately $200,000 on the conversion to the
HORIZON system. The subsidiary Bank has spent a negligible amount in the
other areas. The expected additional cost to finish the project is $100,000.

     The Committee will continue in its diligent efforts to ensure the
preparedness of all systems for the year 2000. The Company is confident that
the Bank will be ready to enter the year 2000 without significant operational
problems. The Company does not foresee the year 2000 having a negative impact
on its financial condition, operation or cash flows.

<PAGE>

FIVE-YEAR SUMMARY OF OPERATIONS
(In thousands, except per share data)

<TABLE>
<CAPTION>

December 31,                    1998       1997        1996       1995       1994

<S>                             <C>        <C>         <C>        <C>        <C>
Consolidated statement 
 of income data
Interest Income:
    Loans                       $ 10,598   $  9,990    $  9,541   $  9,504   $  8,092
    Securities<F1>                 5,603      5,427       5,369      4,727      4,170
    Money market instruments         642        346         395        320        197
        Total interest income     16,843     15,763      15,305     14,551     12,459
Interest expense:
    Deposits                       7,347      6,909       6,914      6,451      4,729
    Borrowings                       570         32          10         22         15
        Total interest expense     7,917      6,941       6,924      6,473      4,744
Net interest income                8,926      8,822       8,381      8,078      7,715
Provision for loan losses            220        255         220        230        310
Net interest income 
 after provision
    for loan losses                8,706      8,567       8,161      7,848      7,405
Other income                       1,121        783         717        748        759
Other expenses                     5,224      4,898       4,562      4,314      4,199
Income before income taxes         4,603      4,452       4,316      4,282      3,965
Applicable income taxes            1,381      1,351       1,271      1,279      1,140
Net income                      $  3,222   $  3,101    $  3,045   $  3,003   $  2,825
Per share data:
    Basic earnings per share    $   2.01   $   1.94    $   1.90   $   1.88   $   1.77
    Diluted earnings per share      2.01       1.94        1.90       1.88       1.77
    Cash dividends paid             0.84       0.80        0.74       0.68       0.62

Selected year-end consolidated 
 statement of condition data:
        Total assets            $255,568   $222,325    $214,762   $201,516   $188,093
        Securities<F1>           107,529     88,289      87,886     77,664     73,898
        Net loans                120,257    117,646     105,365    102,969     99,336
        Deposits                 206,386    187,655     186,422    174,348    164,516
        Stockholders' 
          equity<F1>              31,511     29,679      27,747     25,980     22,925

<FN>

<F1> Securities figures include investment securities, securities available for
sale, FRB and FHLB stock. Securities available for sale were recorded at fair
value with any unrealized gain or loss at December 31 included in
stockholders' equity, on a net of tax basis.

</FN>

</TABLE>

<PAGE>

CONSOLIDATED STATEMENT OF CONDITION
(In thousands, except per share data)

                                                     December 31,

ASSETS:                                        1998              1997
Cash and cash equivalents
    Non-interest bearing                       $  6,422          $  6,585
    Interest bearing                                 42                22
    Federal funds sold                           13,900             2,800
        Total cash and cash equivalents          20,364             9,407

Securities available for sale, at fair value     89,157            54,358

Investment securities (approximate fair 
  value at December 31, 1998 - $18,125; 
  at December 31, 1997 - $33,790)                17,397            33,047

Investments required by law, stock in 
  Federal Home Loan Bank of New York and 
  Federal Reserve Bank of New York, at cost         975               884

Loans                                           132,027           128,552
    Unearned income                             (10,190)           (9,414)
    Allowance for loan losses                    (1,580)           (1,492)
        Net loans                               120,257           117,646

Premises and equipment, net                       2,575             2,508
Accrued interest receivable                       1,460             1,413
Other assets                                      3,383             3,062
        Total assets                           $255,568          $222,325

LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
    Demand (non-interest bearing)              $ 23,268          $ 21,391
    Regular savings, N.O.W. and money 
      market accounts                            90,934            81,980
    Certificates and time deposits of 
      $100,000 or more                           30,439            25,503
    Other time deposits                          61,745            58,781
        Total deposits                          206,386           187,655

Securities sold under agreements 
  to repurchase                                  12,844             4,322
Notes payable - Federal Home Loan Bank            4,000                 0
Other liabilities                                   827               669
        Total liabilities                       224,057           192,646

Commitments and contingent liabilities

STOCKHOLDERS' EQUITY
Common stock, $2.50 par value, 
  5,000,000 shares authorized,
  1,600,000 shares issued and outstanding 
  in 1998 and 1997                                4,000             4,000

Surplus                                           4,000             4,000
Undivided profits                                23,165            21,287
Accumulated other comprehensive income              346               392
        Total stockholders' equity               31,511            29,679
        Total liabilities and 
          stockholders' equity                 $255,568          $222,325

See accompanying notes to consolidated financial statements.

<PAGE>

CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)

<TABLE>
<CAPTION>

                                                       Years ended December 31,

                                                      1998      1997      1996

<S>                                                   <C>       <C>       <C>
INTEREST AND DIVIDEND INCOME:    
Interest and fees on loans                            $10,598   $ 9,990   $ 9,541
Interest on federal funds sold                            627       343       392
Interest on balances due from depository institutions      15         3         3
Interest on securities available for sale               3,985     3,356     3,323
Interest on investment securities                       1,555     2,015     2,005
Dividends on FRB and FHLB stock                            63        56        41
    Total interest and dividend income                 16,843    15,763    15,305

INTEREST EXPENSE:
Interest on deposits:
    Certificates and time deposits of $100,000          2,213     1,887     1,961
      or more 
    Regular savings, NOW and money market               1,794     1,927     2,072
    Other time deposits                                 3,340     3,095     2,881
Interest on securities sold under agreements 
  to repurchase                                           544        31        10
Interest on other borrowed money                           26         1         0
    Total interest expense                              7,917     6,941     6,924
NET INTEREST INCOME:                                    8,926     8,822     8,381
Provision for loan losses                                 220       255       220
NET INTEREST INCOME AFTER PROVISION
  FOR LOAN LOSSES                                       8,706     8,567     8,161

OTHER INCOME:
Income from fiduciary activities                          150       126       108
Service charges on deposit accounts                       330       333       358
Net gain on sale of securities                            116         1         0
Other income                                              525       323       251
    Total other income                                  1,121       783       717

OTHER EXPENSES:
Salaries and employee benefits                          2,628     2,531     2,384
Occupancy expense, net                                    297       298       284
Furniture and equipment expense                           318       318       311
External data processing expense                          694       479       441
F.D.I.C. insurance expense                                 22        23         2
Printing, stationary and supplies                         132       143       156
Other expense                                           1,133     1,106       984
    Total other expenses                                5,224     4,898     4,562
INCOME BEFORE INCOME TAXES                              4,603     4,452     4,316
Applicable income taxes                                 1,381     1,351     1,271

NET INCOME                                            $ 3,222   $ 3,101   $ 3,045

Earnings per share
    Basic                                             $  2.01   $  1.94   $  1.90
    Diluted                                              2.01      1.94      1.90

See accompanying notes to consolidated financial statements.

</TABLE>

<PAGE>

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY 
(In thousands, except per share data)

<TABLE>
<CAPTION>

                                                      For the three years ended December 31, 1998.

                                                                              Accumulated
                                                                              Other             Total
                                                 Common             Undivided Comprehensive     Stockholders'
                                                 Stock    Surplus   Profits   Income            Equity

<S>                                              <C>      <C>       <C>       <C>               <C>
Balance at December 31, 1995                     $4,000   $ 4,000   $17,605   $375              $25,980
Comprehensive income:
    Net income                                       --        --     3,045     --                3,045
    Change in net unrealized gain on securities
        available for sale, net of tax               --        --        --    (94)                 (94)
            Total comprehensive income               --        --        --     --                2,951

Cash dividends ($0.74 per share)                     --        --    (1,184)    --               (1,184)
Balance at December 31, 1996                      4,000     4,000    19,466    281               27,747
Comprehensive income:
    Net income                                       --        --     3,101     --                3,101
    Change in net unrealized gain on securities
        available for sale, net of tax               --        --        --    111                  111
            Total comprehensive income               --        --        --     --                3,212

2-for-1 stock split (800,000 shares)              4,000    (4,000)       --     --                   --

Reduce par value from $5.00 to $2.50             (4,000)    4,000        --     --                   --

Cash dividends ($0.80 per share)                     --        --    (1,280)    --               (1,280)
Balance at December 31, 1997                      4,000     4,000    21,287    392               29,679
Comprehensive income:
    Net income                                       --        --     3,222     --                3,222
    Change in net unrealized gain on securities
        available for sale, net of tax               --        --        --    (46)                 (46)
            Total comprehensive income               --        --        --     --                3,176

Cash dividends ($0.84 per share)                     --        --    (1,344)    --               (1,344)

Balance at December 31, 1998                      4,000    $4,000   $23,165   $346              $31,511

See accompanying notes to consolidated financial statements.

</TABLE>

<PAGE>

CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>

                                                      Years ended December 31,

                                                   1998        1997          1996
<S>                                                <C>         <C>           <C>
Cash flows from operating activities:
    Net income                                     $  3,222    $  3,101      $  3,045
Adjustments to reconcile net income to cash 
  and cash equivalents provided by
  operating activities:
    (Increase) decrease in interest receivable          (47)         (9)           95
    (Increase) decrease in other assets                (336)         80           182
    Increase in other liabilities                       158          77           228
    Deferred income tax (benefit) expense               (24)         62           (64)
    Depreciation and amortization expense               290         296           278
    Net increase in cash surrender value 
      of bank-owned life insurance                      107           0             0
    Amortization of premiums/discounts on 
      securities, net                                   222         129           163
    Net gain on sale of securities                     (116)         (1)            0
    Provision for loan losses                           220         255           220
        Total adjustments                               474         889         1,102

        Net cash provided by operating activities     3,696       3,990         4,147

Cash flows from investing activities:
    Purchase of investment securities                (1,267)     (8,968)      (13,902)
    Purchase of securities available for sale       (65,140)    (16,505)      (21,584)
    Purchase of FRB and FHLB stock                      (91)        (50)         (685)
    Proceeds from matured investment securities      16,888       6,788         9,672
    Proceeds from matured securities 
      available for sale                             27,932      18,134        15,955
    Proceeds from sale of securities 
      available for sale                              2,255         254             0
    Net increase in loans                            (2,868)    (12,681)       (2,781)
    Purchase of bank-owned life insurance                 0      (2,135)            0
    Purchases of premises and equipment, net           (357)        (56)         (916)
        Net cash used by investing activities       (22,648)    (15,219)      (14,241)

Cash flows from financing activities:
    Net increase in deposits                         18,731       1,232        12,074
    Increase (decrease) in securities 
      sold under agreement to repurchase              8,522       4,322          (824)
    Increase in notes payable                         4,000           0             0
    Payment of dividends                             (1,344)     (1,280)       (1,184)
        Net cash provided by financing activities    29,909       4,274        10,066

Net increase (decrease) in cash and 
  cash equivalents                                   10,957      (6,955)          (28)

Cash and cash equivalents beginning of year           9,407      16,362        16,390

Cash and cash equivalents end of year              $ 20,364    $  9,407      $ 16,362

Supplemental disclosures of cash flow information:
    Cash paid during the year:
        Interest                                   $  7,757    $  7,118      $  6,762
        Income taxes                                  1,394       1,146         1,390

Supplemental schedule of noncash investing 
  activities:
    Net reduction in loans resulting from the 
    transfer to real estate owned                  $     37    $    144      $    165

See accompanying notes to consolidated financial statements.

</TABLE>

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The accounting and reporting policies of CNB Bancorp, Inc. (Company) and
City National Bank and Trust Company (subsidiary Bank) conform to generally
accepted accounting principles in a consistant manner and are in accordance
with the general practices within the banking field. The following is a
summary of the significant policies used in the preparation of the
consolidated financial statements.

     BASIS OF PRESENTATION - The Parent Company is a bank holding company
whose principal activity is the ownership of all outstanding shares of the
subsidiary Bank's stock. The subsidiary Bank is a commercial bank providing
community banking services to individuals, small businesses and local
municipal governments in Fulton County, New York. Management makes operating
decisions and assesses performance based on an ongoing review of the
subsidiary Bank's community banking operations, which constitute the
Company's only operating segment for financial reporting purposes. The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiary after elimination of all significant intercompany
transactions. The investment in the subsidiary Bank is carried under the
equity method of accounting.

     SECURITIES - Management determines the appropriate classification of
securities at the time of purchase. If management has the positive intent and
ability to hold securities to maturity, they are classified as investment
securities and are stated at amortized cost. If securities are purchased for
the purpose of selling them in the near term, they are classified as trading
securities and they are reported at fair value with unrealized holding gains
and losses reflected in current earnings. All other marketable securities are
classified as securities available for sale and are reported at the fair
value, with net unrealized gains or losses reported, net of income taxes, as
a separate component of shareholders' equity. A decline in the fair value of
any security below cost that is deemed other than temporary is charged to
earnings resulting in the establishment of a new cost basis for the security.

     Nonmarketable equity securities such as Federal Reserve Bank stock, and
Federal Home Loan Bank stock, are carried at cost. These investments are
required for membership.

     Gains and losses on the disposition of all securities are based on the
adjusted cost of the specific security sold. The adjusted cost of each debt
security sold is determined by taking the stated cost and adjusting for any
amortization of premiums or accretion of discount to the earlier of call or
maturity date. At December 31, 1998 and 1997, the subsidiary Bank did not
have any securities classified as trading securities.

     LOANS - Loans are shown at their principal amount outstanding, less any
unearned discount and the allowance for loan losses. Interest income on
commercial and real estate loans is accrued on the basis of unpaid principal.
Interest on installment loans is accrued based on methods that approximate
the interest method.

     Loan income is recognized on the accrual basis of accounting. When, in
the opinion of management, the collection of interest and/or principal is in
doubt, the loan is categorized as non-accrual. Generally, loans past due
greater than 90 days are categorized as non-accrual. Thereafter, no interest
is taken into income until received in cash or until such time as the
borrower demonstrates the ability to make scheduled payments of interest and
principal.

     Management considers a loan to be impaired if, based on current
information, it is probable that the subsidiary Bank will be unable to
collect all scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. When a loan is considered to be
impaired, the amount of the impairment is measured based on the present value
of expected future cash flows discounted at the loan's effective interest
rate or, as a practical expedient, at the loan's observable market price or
the fair value of collateral if the loan is collateral dependent. Except for
loans restructured in a troubled debt restructuring subsequent to January 1,
1995, management excludes large groups of smaller balance homogeneous loans
such as residential mortgages and consumer loans which are collectively
evaluated. Impairment losses, if any are recorded through a charge to the
provision for loan losses.

     ALLOWANCE FOR LOAN LOSSES - The allowance is increased by provisions for
loan losses charged to operating expense and decreased by loan charge-offs
net of recoveries. Adequacy of the allowance and determination of the amount
to be charged to operating expense are based on an evaluation of the loan
portfolio, its overall composition, size of the individual loans,
concentration by industry, past due and non-accrual loan statistics,
historical loss experience and general economic conditions in the Company's
market area.

     While management uses all of the above information to recognize losses
on loans, 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 losses on loans. Such agencies may require the Company to
recognize additions to the allowance based on their judgments of information
available to them at the time of their examination which may not be presently
available.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     OTHER REAL ESTATE OWNED - Included in other assets is other real estate
owned which consists of properties acquired through foreclosure or by
acceptance of a deed in lieu of foreclosure. These assets are recorded at the
lower of the recorded investment in the loan or fair value of the property,
less any estimated costs of disposal. Loan losses arising from the
acquisition of such assets are charged to the allowance for loan losses and
subsequent valuation write-downs are charged to non-interest expense.
Operating costs associated with the properties are charged to expense as
incurred. Gains on the sale of other real estate owned are included in income
when title has passed and the sale has met the minimum down payment
requirements prescribed by Generally Accepted Accounting Principles.

     BANK PREMISES AND EQUIPMENT - These assets are reported at cost less
accumulated depreciation. Depreciation is charged to operating expense over
the useful lives of the assets using the straight line method. Maintenance
and repairs are charged to operating expense as incurred.

     INCOME TAXES - Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. 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. The
Company's policy is that deferred tax assets are reduced by a valuation
reserve if, based on the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will be realized. In
considering if it is more likely than not that some or all of the deferred
tax assets will be realized, the Company considers temporary taxable
differences, historical taxes and estimates of future taxable income.

     EARNINGS PER COMMON SHARE - Basic earnings per share ("EPS") is computed
by dividing income available to common stockholders (net income less
dividends on perferred stock, if any) by the weighted average number of
common shares outstanding for the period. Entities with complex capital
structures must also present diluted EPS which reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common shares that then shared in the
earnings of the entity, such as the Company's stock options.

     Basic earnings per common share were computed based on average
outstanding common shares of 1,600,000 in 1998, 1997 and 1996, respectively.
Diluted earnings per common share were computed based on average outstanding
common shares of 1,600,590 in 1998 and 1,600,000 in 1997 and 1996.

     DIVIDEND RESTRICTIONS - Certain restrictions exist regarding the ability
of the subsidiary Bank to transfer funds to the Company in the form of cash
dividends. The approval of the Comptroller of the Currency is required to pay
dividends in excess of the subsidiary Bank's earnings retained in the current
year plus retained net profits, as defined, for the preceding two years.

     CASH FLOWS - Cash and cash equivalents as shown in the consolidated
statements of condition and consolidated statements of cash flows consists of
cash, due from banks and federal funds sold.

     FINANCIAL INSTRUMENTS - The Company is a party to certain financial
instruments with off-balance sheet risk, such as commitments to extend
credit, unused lines of credit, standby letters of credit and commercial
letters of credit. The Company's policy is to record such instruments when
funded.

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

     NEW ACCOUNTING PRONOUNCEMENTS - On January 1, 1998, the Company adopted
the provisions of Statement of Financial Accounting Standards No. 130 (SFAS
No. 130), "Reporting Comprehensive Income." This Statement establishes
standards for reporting and display of comprehensive income and its
components. Comprehensive income includes the reported net income of a
company, adjusted for items that are currently accounted for as direct
entries to equity, such as the mark to market adjustment on securities
available for sale, foreign currency items and minimum pension liability
adjustments. At the Company comprehensive income represents net income plus
other comprehensive income, which consists of the net change in unrealized
gains and losses on securities available for sale for the period. Accumulated
other comprehensive income represents the net unrealized gains and losses on
securities available for sale as of the consolidated statements of condition
dates. Comprehensive income is shown on the accompanying consolidated
statements of changes in stockholders' equity for the three year periods
ending December 31, 1998, 1997 and 1996.

<PAGE>

     In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 is effective for consolidated financial statements
for fiscal periods begining after December 15, 1997. In the initial year of
application, comparative information for earlier years is to be restated.
SFAS No. 131 requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. On December
31, 1998, the Company adopted the provisions of SFAS No. 131. The Company has
not identified any separate operating segments requiring disclosure.
Therefore, the adoption of this statement had no material effect on the
Company's consolidated financial statements.

     In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other Post
Retirement Benefits." This Statement revises employers' disclosures about
pension and other post retirement benefit plans. It does not change the
measurement or recognition of these plans. This Statement was adopted by the
Company on December 31, 1998 and had no impact on the Company's consolidated
financial position or results of operations.

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

     SUBSEQUENT EVENTS - On January 25, 1999, CNB Bancorp, Inc. announced
that it had entered into a definitive agreement of merger to acquire
Adirondack Financial Service Bancorp, Inc., Gloversville, New York, parent
company of Gloversville Federal Savings and Loan Association. Completion of
the transaction is subject to approval by Adirondack's shareholders and
regulatory authorities. The terms of the acquisition call for CNB Bancorp to
pay $15 million in cash in the aggregate for all of the outstanding shares of
Adirondack (subject to possible adjustment). The transaction will be
accounted for as a purchase and is expected to close, upon shareholder and
regulatory approval, in the second quarter of 1999.

     RECLASSIFICATIONS - Amounts in the prior years' financial statements are
reclassified, whenever necessary, to conform to the presentation in the
current years' financial statements.

Note 2: RESERVE REQUIREMENTS

     The subsidiary Bank is required to maintain certain reserves of cash
and/or deposits with the Federal Reserve Bank. The amount of this reserve
requirement, included in cash and cash equivalents, was approximately
$1,094,000 and $1,169,000 at December 31, 1998 and 1997, respectively.

Note 3: SECURITIES AVAILABLE FOR SALE

     The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of securities available for sale as of December 31 are
as follows (in thousands):

<TABLE>
<CAPTION>

                                                                 1998

                                                      Gross            Gross         Estimated
                                           Amortized  Unrealized       Unrealized    Fair
                                           Cost       Gains            Losses        Value

<S>                                        <C>        <C>              <C>           <C>
U.S. Treasury securities                   $ 7,015    $ 20             $  0          $ 7,035
Obligations of U.S. Government agencies     49,658     243              100           49,801
Collateralized mortgage obligations:
         U.S. Government agencies           18,071      66              108           18,029
Corporate securities                         3,351      44                0            3,395
Obligations of states and 
    political subdivisions                  10,485     420                8           10,897
         Total securities available
             for sale                      $88,580    $793             $216          $89,157

</TABLE>

<TABLE>
<CAPTION>

                                                                 1997 
                                                      Gross            Gross         Estimated
                                           Amortized  Unrealized       Unrealized    Fair
                                           Cost       Gains            Losses        Value

<S>                                        <C>        <C>              <C>           <C>
U.S. Treasury securities                   $15,988    $ 39             $  0          $16,027
Obligations of U.S. Government agencies     18,152     212               95           18,269
Collateralized mortgage obligations:
         U.S. Government agencies           10,242      60               50           10,252
Obligations of states and political
    subdivisions                             9,323     487                0            9,810
         Total securities available 
             for sale                       $53,705    $798             $145          $54,358

</TABLE>

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     The amortized cost and estimated fair value of debt securities available
for sale at December 31, 1998, by contractual maturity, are shown in the
accompanying table (in thousands). Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties. Mortgage backed
securities are included in this schedule based on the contractual maturity
date.

                                                     Amortized  Estimated
                                                     Cost       Fair Value

Due in one year or less                              $ 7,664    $ 7,708
Due after one year through five years                  9,093      9,264
Due after five year through ten years                 23,653     23,832
Due after ten years                                   48,170     48,353
         Total debt securities available for sale    $88,580    $89,157

     Proceeds from sales of securities available for sale during 1998 and
1997 were $2,255,000 and $254,000, respectively. There were no sales of
securities available for sale in 1996. Gross gains in 1998 and 1997 were
$116,000 and $1,000, respectively. There were no losses on sales during 1998
and 1997.

     The fair value of all securities available for sale pledged to secure
public deposits and for other purposes as required or permitted by law at
December 31, 1998 and 1997 were $61,543,000 and $33,571,000, respectively.
Actual deposits secured by these securities at December 31, 1998 and 1997
were $20,197,000 and $10,285,000, respectively. Repurchase agreements secured
by these securities at December 31, 1998 and 1997 were $12,844,000 and
$4,322,000, respectively.

Note 4: INVESTMENT SECURITIES

     The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of investment securities as of December 31 are as
follows (in thousands):

<TABLE>
<CAPTION>

                                                                       1998

                                                              Gross        Gross       Estimated
                                                   Amortized  Unrealized   Unrealized  Fair
                                                   Cost       Gains        Losses      Value

<S>                                                <C>        <C>          <C>         <C>
Obligations of U.S. Government agencies            $ 6,105    $ 73         $0          $ 6,178
Obligations of states and political subdivisions    11,292     659          4           11,947
         Total investment securities               $17,397    $732         $4          $18,125

</TABLE>

<TABLE>
<CAPTION>

                                                                       1997

                                                              Gross        Gross       Estimated
                                                   Amortized  Unrealized   Unrealized  Fair
                                                   Cost       Gains        Losses      Value

<S>                                                <C>        <C>          <C>         <C>
Obligations of U.S. Government agencies            $20,732    $103         $36         $20,799
Obligations of states and political subdivisions    12,315     676           0          12,991
         Total investment securities               $33,047    $779         $36         $33,790

</TABLE>

     The amortized cost and estimated fair value of investment securities at
December 31, 1998, by contractual maturity, are shown in the accompanying
table (in thousands). Expected maturities will differ from contractual
maturities because issuers may have the right to call or prepay obligations
with or without call or prepayment penalties.

                                            Amortized  Estimated
                                            Cost       Fair Value

Due in one year or less                     $ 2,181    $ 2,196
Due after one year through five years         7,886      8,247
Due after five year through ten years         5,214      5,463
Due after ten years                           2,116      2,219
         Total investment securities        $17,397    $18,125

     The amortized cost of all investment securities pledged to secure public
deposits and for other purposes as required or permitted by law at December
31, 1998 and 1997 were $13,123,000 and $25,122,000, respectively. Actual
deposits secured by these securities at December 31, 1998 and 1997 were
$9,092,000 and $16,937,000, respectively.

<PAGE>

Note 5: LOANS

     Loans on the accompanying consolidated statement of financial condition
are comprised of the following at December 31 (in thousands):

                                            1998       1997

Commercial and Commercial Real Estate       $ 35,877   $ 37,265
Residential Real Estate                       46,423     46,750
Installment                                   49,727     44,537
         Total loans                        $132,027   $128,552

     Non-accrual loans at December 31, 1998, 1997 and 1996 were $280,000,
$283,000 and $680,000, respectively. The difference between the interest
collected on these loans and recognized as income, and the amounts which
would have been accrued is not significant. There were loans ninety days past
due and still accruing interest of $249,000, $88,000 and $557,000 as of
December 31, 1998, 1997 and 1996, respectively.

     In the ordinary course of business, the subsidiary Bank has made loans
to certain directors and executive officers of the Company and the subsidiary
Bank, and other related parties. Such transactions are on substantially the
same terms, including interest rates and collateral on loans, as comparable
transactions made to others. Total loans to these persons and companies on
December 31, 1998 and 1997 amounted to $2,231,000 and $2,194,000,
respectively. During 1998, $13,257,000 of new loans were made and repayments
totaled $13,220,000.

     As of December 31, 1998 and 1997, respectively, there were $276,000 and
$278,000 of commercial loans that were placed on non-accrual status and were
classified as impaired loans. As of December 31, 1998 and 1997, $55,000 and
$56,000 of the allowance for loan losses was allocated to the impaired loans,
respectively. During 1998, 1997 and 1996, the average balance of impaired
loans was $270,000, $498,000, and $656,000, respectively. Interest income of
$6,000, $10,000 and $16,000 was recognized on impaired loans during 1998,
1997 and 1996, respectively.

     The subsidiary Bank's primary business area consists of the County of
Fulton and, therefore, there are certain concentrations of loans and loan
commitments within that geographic area. Accordingly, a substantial portion
of its debtors' ability to honor their contracts is dependent upon the
economy of this region. At December 31, 1998 and 1997, the only area of
industry concentration that existed within the subsidiary Bank's commitments
were to the leather and leather-related industries. Outstanding commitments
to this segment were $4.2 million as of December 31, 1998 and $4.5 million as
of December 31, 1997. These figures represent 16.7% and 19.3% of the total
commitments outstanding at the end of each respective year. Loans outstanding
to this segment were $5.6 million as of December 31, 1998 and $5.5 million as
of December 31, 1997. These figures represent 4.2% and 4.3% of gross loans
outstanding at the end of each respective year.

Note 6: ALLOWANCE FOR LOAN LOSSES

     A summary of the changes in the allowance for loan losses is as follows
(in thousands):

                                    1998     1997     1996
Balance at beginning of year        $1,492   $1,620   $1,505
Recoveries credited                     17       21       22
Provision for loan losses              220      255      220
Less: Charged off loans               (149)    (404)    (127)
Balance at end of year              $1,580   $1,492   $1,620

Note 7: BANK PREMISES AND EQUIPMENT

Premises and equipment at December 31 (in thousands),      1998     1997
Land                                                       $   604  $   604
Bank Premises                                                2,285    2,245
Equipment, furniture and fixtures                            2,041    1,914

                                                             4,930    4,763

Less: Accumulated depreciation and amortization             (2,355)  (2,255)
         Total bank premises and equipment                 $ 2,575  $ 2,508

     Depreciation and amortization expense amounted to $290,000, $296,000,
and $278,000 for the years 1998, 1997 and 1996, respectively.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8: DEPOSITS

     The approximate amount of contractual maturities of time deposit
accounts for the years subsequent to December 31, 1998 are as follows (in
thousands):

        Years ended December 31,
                  1999                $74,296
                  2000                 12,842
                  2001                  2,076
                  2002                  1,610
                  2003                  1,360

                                      $92,184

Note 9: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

     For the years ended December 31, 1998 and 1997, the average balance of
Securities Sold Under Agreements to Repurchase was $10,225,000 and $571,000,
respectively. The highest month end balances for these securities during 1998
and 1997 were $12,844,000 and $4,322,000, respectively. The average rate paid
for these securities during 1998 and 1997 was 5.32% and 5.36%, respectively.

     The underlying securities associated with customer repurchase agreements
are under the control of the subsidiary Bank. The underlying securities
associated with repurchase agreements with the Federal Home Loan Bank and
brokerage firms are held in collateral accounts for our account until
maturity of the agreements.

Note 10: NOTES PAYABLE - FEDERAL HOME LOAN BANK

     In fiscal 1998, the subsidiary Bank began using fixed rate convertible
advances and floating rate fixed term advances from the Federal Home Loan
Bank, as a source of funds. Information on the borrowings is summarized as
follows (in thousands):

                                    Interest   Rate as
                  Maturity Date     Amount     of 12/31/98    Call Date

                  12/08/2003        $1,000     4.870%         12/07/2001
                  10/23/2008         2,000     4.355          10/23/2000
                  11/28/2003*        1,000     5.290

     * This borrowing is non-callable but retains a quarterly repricing
frequency to the current 3-month LIBOR rate plus 4 basis points. The interest
on all borrowings is calculated on an actual/360-day basis and is payable
quarterly to the Federal Home Loan Bank.

     At December 31, 1998 and 1997, the subsidiary Bank had available lines
of credit with correspondent banks and the Federal Home Loan Bank of
$80,670,000 and $16,886,000, respectively. Advances on these lines are
secured by the subsidiary Bank's real estate mortgages, investment
securities, available for sale securities and Federal Home Loan Bank stock.
At December 31, 1998, $4,000,000 was outstanding in borrowings against these
lines with the Federal Home Loan Bank. There were no advances outstanding on
these lines of credit at December 31, 1997.

<PAGE>

Note 11: EMPLOYEE BENEFIT PLANS

     Pension Plan - The subsidiary Bank is a member of the New York State
Bankers Retirement System and offers a non-contributory defined benefit
retirement plan to substantially all full-time employees. Benefit payments to
retired employees are based upon their length of service and percentages of
average compensation during the final three to five years of employment.
Contributions are intended to provide not only for benefits attributed to
service to date, but also for those expected to be earned in the future.
Assets of the plan are primarily invested in equity and debt securities.

     The following table sets forth the plan's funded status as of a
September 30 measurement date, and the amounts recognized in the accompanying
consolidated financial statements (in thousands).

<TABLE>
<CAPTION>

                                                              1998      1997
<S>                                                           <C>       <C>
Change in projected benefit obligation:

         Projected benefit obligation at beginning of year    $2,590    $2,333
         Service cost                                            140       123
         Expenses                                                (37)      (30)
         Interest cost                                           196       176
         Benefits paid                                          (123)     (120)
         Assumption changes and other                            177       108
         Projected benefit obligation at end of year           2,943     2,590

Change in plan assets:
         Fair value of plan assets at beginning of year        3,339     2,723
         Actual return on plan assets                            141       611
         Employer contribution                                   159       156
         Benefits paid                                          (123)     (120)
         Expenses                                                (37)      (31)
         Fair value of plan assets at end of year              3,479     3,339

Funded status
         Unrecognized net actuarial loss/(gain)                  536       749
         Unrecognized prior service cost                          68      (249)
         Unrecognized transition asset                           (23)      (25)
         Prepaid pension cost                                     (4)       (4)
                                                              $  577    $  471
Weighted average assumptions as of September 30
         Discount rate                                          7.00%     7.75%
         Rate of compensation increase                          4.00      5.00
         Expected return on plan assets                         8.50      8.50

</TABLE>

<TABLE>
<CAPTION>

                                                              1998      1997     1996

<S>                                                           <C>       <C>      <C>
Components of net periodic pension cost:       
         Service cost                                         $ 140     $ 123    $ 118
         Interest cost                                          196       176      167
         Expected return on plan assets                        (280)     (228)    (211)
         Amortization of unrecognized prior service cost         (2)       (2)      (2)
         Amortization of unrecognized transition asset            0         0       (1)
         Net periodic pension cost                            $  54     $  69    $  71

</TABLE>

     The subsidiary Bank has a Supplemental Executive Retirement Plan for key
management personnel. The subsidiary Bank's expense for the years ended
December 31, 1998, 1997 and 1996 was approximately $57,000, $55,000, and
$52,000, respectively.

     The subsidiary Bank has also established a Supplemental Life Insurance
Plan/Split Dollar for all officers, vice president and above, with at least
ten years of service to the Company. The subsidiary Bank invested
approximately $2,000,000 for this coverage in 1997 and is receiving an annual
tax-free return.

     Profit Sharing Plan - The subsidiary Bank has a non-contributory
deferred profit sharing plan under which contributions are made by the
subsidiary Bank to a separate trust for the benefit of the subsidiary Bank's
participating employees. Annual contributions to the plan are determined by
the board of directors of the subsidiary Bank. Earnings are accrued during
the year and are distributed December 31st of each year. The subsidiary
Bank's contribution to the plan for 1998, 1997 and 1996 was $108,000,
$102,000 and $96,000, respectively.

     Other than certain life insurance benefits which are provided to a
closed group of retirees, the Company does not provide post-retirement
benefits to employees. The costs associated with the life insurance to the
closed group of retirees is not significant in 1998, 1997 or 1996.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 12: STOCK BASED COMPENSATION

     On October 20, 1998, the Company's shareholders approved the CNB
Bancorp, Inc. Stock Option Plan (Stock Option Plan) which permits the
issuance of options to selected employees. The primary objective of the Stock
Option Plan is to provide employees with a proprietary interest in the
Company and as an incentive to encourage such persons to remain with the
Company.

     Under the Stock Option Plan, 160,000 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 the grant. Options expire no later than ten years following the date of
the grant.

     On October 26, 1998, 66,500 options were awarded at an exercise price of
$35.50 per share. These shares have a ten-year term with fifty percent
vesting immediately and the remaining fifty percent vesting one year from the
grant date.

     A summary of the status of the Company's stock option plans as of
December 31, 1998 and changes during the year is presented below:

                                                     998

                                                          Weighted Average
                                            Shares        Exercise Price

Options:
         Outstanding at beginning of year        0        $  .00
         Granted                            66,500         35.50
         Exercised                               0           .00
         Cancelled                               0           .00
         Outstanding at year-end            66,500         35.50

         Exercisable at year-end            33,250        $35.50

     SFAS No. 123 requires Companies not using a fair value based method of
accounting for employee stock options or similar plans, to provide pro forma
disclosure of net income and earnings per share as if that method of
accounting had been applied. The fair value of each option grant is estimated
on the date of the grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants in fiscal 1998:
dividend yield of 2.25%; expected volatility of 25.0%; risk free interest
rate of 5.15% for the October 26, 1998 grant; and an expected life of five
years. Based on the aforementioned assumptions, the Company has estimated
that the fair value of the options granted on October 26, 1998 was $8.83. Had
the Company determined compensation cost based on the fair value at the grant
date for its options under SFAS No. 123, the pro forma disclosures for the
Company for the year ended December 31, 1998 would be as follows (in
thousands, except per share data):

Net income:
         As reported       $3,222
         Pro forma          3,046

Basic earnings per share
         As reported         2.01
         Pro forma           1.90

Diluted earnings per share
         As reported         2.01
         Pro forma           1.90

     Because the Company's employee 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 opinion, do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

<PAGE>

Note 13: INCOME TAXES

     The following is a summary of the components of income tax expense for
the years ended December 31 (in thousands):

                                       1998         1997      1996
Current tax expense:
         Federal                       $1,062       $  965    $1,000
         State                            343          324       335
         Total current tax expense      1,405        1,289     1,335

Deferred tax expense (benefit):
         Federal                          (30)          51       (55)
         State                              6           11        (9)
         Total deferred tax 
           expense (benefit)              (24)          62       (64)
Provision for income taxes             $1,381       $1,351    $1,271

     The provision for income taxes is less than the amount computed by
applying the U.S. Federal income tax rate of 34% to income before taxes as
follows (in thousands):

<TABLE>
<CAPTION>

                                                            1998              1997              1996

                                                                % of              % of              % of
                                                                Pretax            Pretax            Pretax
                                                       Amount   Income   Amount   Income   Amount   Income

<S>                                                    <C>      <C>      <C>      <C>      <C>      <C>
Tax expense at statutory rate                          $1,565   34.0%    $1,514   34.0%    $1,467    34.0%
Increase (decrease) resulting from:
         Tax-exempt interest income                      (429)  (9.3)      (443)  (9.9)      (462)  (10.7)
         State tax expense, net of federal deductions     224    4.9        215    4.8        212     4.9
         Interest expense incurred to carry
            tax-exempt bonds                               49    1.1         47    1.1         50     1.2
         Other                                            (28)  (0.6)        18    0.4          4     0.1
Provision for income taxes                             $1,381   30.1%    $1,351   30.4%    $1,271    29.5%


</TABLE>

     Significant temporary differences that give rise to the deferred tax
assets and liabilities as of December 31, are as follows (in thousands):

                                                     1998      1997
Deferred tax assets:
         Allowance for loan losses                   $ 680     $ 642
         Director's deferred compensation                9         9
         Post-retirement benefits                       88        65
            Total gross deferred tax assets            777       716
            Less valuation allowance                  (163)     (150)
            Net deferred tax assets                    614       566

Deferred tax liabilities:
         Premises and equipment, primarily 
           due to accelerated depreciation             (76)      (81)
         Securities discount accretion                 (34)      (47)
         Prepaid pension obligation                   (230)     (188)
            Total gross deferred tax liabilities      (340)     (316)
            Net deferred tax asset end of year         274       250
            Net deferred tax asset beginning of year   250       312
Deferred tax expense (benefit)                       $ (24)    $  62

     In addition to the deferred tax assets and liabilities described above,
the Company also has a deferred tax liability of $230,000 and $261,000
relating to the net unrealized gain on securities available for sale as of
December 31, 1998 and 1997, respectively.

     Deferred tax assets are recognized subject to management's judgement
that realization is more likely than not. In considering if it is more likely
than not that some or all of the deferred tax assets will not be realized,
the Company considers temporary taxable differences, historical taxes and
future taxable income. The valuation allowance of $163,000 and $150,000 as of
December 31, 1998 and 1997, respectively, relates to New York State deferred
tax assets due to the lack of carryback and carryforward provisions available
in New York State. Based primarily on the sufficiency of historical taxable
income, management believes it is more likely than not that the remaining net
deferred tax asset at December 31, 1998 and 1997 will be realized.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14: COMPREHENSIVE INCOME

     The Company has adopted SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for the reporting and display of comprehensive
income (and its components) in financial statements. Comprehensive income
represents the sum of net income and items of "other comprehensive income"
which are reported directly in stockholders' equity, such as the net
unrealized gain or loss on securities available for sale. While SFAS No. 130
does not require a specific reporting format, it does require that an
enterprise display an amount representing total comprehensive income for each
period for which an income statement is presented. In accordance with SFAS
No. 130, the Company has reported its comprehensive incomes for 1998, 1997
and 1996 in the consolidated statements of changes in stockholders' equity.

     The Company's accumulated other comprehensive income, which is included
in stockholders' equity, represents the after-tax net unrealized gain on
securities available for sale at the balance sheet date. The Company's other
comprehensive income, which is attributable to gains and losses on securities
available for sale, consisted of the following components for the years ended
December 31 (in thousands):

<TABLE>
<CAPTION>

                                                                             1998     1997     1996

<S>                                                                          <C>      <C>      <C>
Net unrealized holding gains (losses) arising during the year,
         net of taxes of ($16) in 1998, ($73) in 1997 and $66 in 1996        $ 23     $112     $(94)

Reclassification adjustment for net realized gains included in
         income, net of taxes of $47 in 1998, $0 in 1997 and $0 in 1996       (69)      (1)       0

Other comprehensive income (loss), net of taxes of $31 in 1998,
         ($73) in 1997 and $66 in 1996                                       $(46)    $111     $(94)

</TABLE>

Note 15: COMMITMENTS AND CONTINGENT LIABILITIES

     Various commitments and contingent liabilities arise in the normal
conduct of the subsidiary Bank's business that include certain financial
instruments with off-balance sheet risk to meet the financing needs of its
customers. These financial instruments include commitments to extend credit,
unused lines of credit, standby letters of credit and commercial letters of
credit. Those instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized on the consolidated statements of
financial condition. The contract amounts of those instruments reflect the
extent of involvement the subsidiary Bank has in particular classes of
financial instruments. The subsidiary Bank's exposure to credit loss in the
event of nonperformance by the other party to the commitments to extend
credit, unused lines of credit, standby letters of credit and commercial
letters of credit are represented by the contractual notional amount of those
instruments. The subsidiary Bank uses the same credit policies in making
commitments as it does for on-balance sheet instruments.

     Contract amounts of financial instruments that represent credit risk as
of December 31, 1998 and 1997 at fixed and variable rates are as follows (in
thousands):

                                                       1998

Commitment and unused lines of credit:      Fixed    Variable  Total
         Home Equity loans                  $    0   $ 4,678   $ 4,678
         Commercial loans                      137    18,064    18,201
         Overdraft loans                     1,256         0     1,256
         Mortgage loans                        900         0       900

                                             2,293    22,742    25,035

Standby & Commercial letters of credit           0        85        85
Total                                       $2,293   $22,827   $25,120

                                                       1997

Commitment and unused lines of credit:      Fixed    Variable  Total
         Home Equity loans                  $    0   $ 4,751   $ 4,751
         Commercial loans                      420    15,539    15,959
         Overdraft loans                     1,228         0     1,228
         Mortgage loans                        594        17       611

                                             2,242    20,307    22,549

Standby & Commercial letters of credit           0       767       767
Total                                       $2,242   $21,074   $23,316

<PAGE>

     Commitments to extend credit and unused lines of 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
many of the commitments are expected to expire without being fully drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. The subsidiary Bank evaluates each customer's credit worthiness
on a case-by-case basis. The amount of collateral, if any, required by the
subsidiary Bank upon the extension of credit is based on management's credit
evaluation of the customer. Mortgage and Home Equity loan commitments are
secured by a lien on real estate. Collateral on extensions of credit for
commercial loans varies but may include accounts receivable, inventory,
property, plant and equipment, and income producing property.

     Standby and Commercial letters of credit are conditional commitments
issued by the subsidiary Bank to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support borrowing
arrangements. The credit risk involved in issuing standby letters of credit
and commercial letters of credit is essentially the same as that involved in
extending loan facilities to customers.

     The Company and its subsidiary may, from time to time, be defendants in
legal proceedings relating to the conduct of their business. In the best
judgements of management, the consolidated financial position of the Company
and its subsidiary Bank would not be affected materially by the outcome of
any pending legal procedures.

Note 16: REGULATORY CAPITAL REQUIREMENTS

     National banks are required to maintain minimum levels of regulatory
capital in accordance with regulations of the Office of the Comptroller of
the Currency ("OCC"). The Federal Reserve Board ("FRB") imposes similar
requirements for consolidated capital of bank holding companies. The OCC and
FRB regulations require a minimum leverage ratio of Tier 1 capital to total
adjusted average assets of 3.0% to 4.0% depending on the institution and
minimum ratios of Tier 1 and total capital to risk-weighted assets of 4.0%
and 8.0%, respectively.

     Under its prompt corrective action regulations, the OCC is required to
take certain supervisory actions (and may take additional discretionary
actions) with respect to an undercapitalized bank. Such actions could have a
direct material effect on a bank's financial statements. The regulations
establish a framework for the classification of banks into five categories:
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. Generally, a bank is
considered well capitalized if it has a leverage (Tier 1) capital ratio of at
least 5.0%; (based on total adjusted average assets); a Tier 1 risk-based
capital ratio of at least 6.0%; and a total risk-based capital ratio of at
least 10.0%.

     The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgements by the regulators
about capital components, risk weightings and other factors.

     As of December 31, 1998 and 1997, the Company and the subsidiary Bank
met all capital adequacy requirements to which they are subject. Further, the
most recent OCC notification categorized the subsidiary Bank as a
well-capitalized bank under the prompt corrective action regulations. There
have been no conditions or events since that notification that management
believes have changed the subsidiary Bank's capital classification.

     The following is a summary of the actual capital amounts and ratios as
of December 31, 1998 and 1997 for the Company (consolidated) and the
subsidiary Bank (in thousands):

                                         1998             1997

                                    Amount   Ratio    Amount   Ratio

Consolidated
         Leverage (Tier 1) capital  $31,165  12.5%    $29,287  13.4%
         Risk-based capital:
            Tier 1                   31,165  23.4      29,287  24.0
            Total                    32,745  24.6      30,779  25.3

Subsidiary Bank
         Leverage (Tier 1) capital  $31,158  12.5%    $29,278  13.4%
         Risk-based capital:
            Tier 1                   31,158  23.4      29,278  24.0
            Total                    32,738  24.6      30,770  25.3

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 17: PARENT COMPANY ONLY FINANCIAL INFORMATION

     The following presents the financial condition of the Parent Company as
of December 31, 1998 and 1997 and the results of its operations and cash
flows for the years ended December 31, 1998, 1997 and 1996 (in thousands):

CONDENSED STATEMENTS OF CONDITION (Parent only)
                                                   At December 31,
                                                 1998         1997

ASSETS:  
         Cash                                    $     7      $     9
         Investment in subsidiary                 31,504       29,670
            Total assets                         $31,511      $29,679

STOCKHOLDERS' EQUITY:

         Common stock                            $ 4,000      $ 4,000
         Surplus                                   4,000        4,000
         Undivided profits                        23,165       21,287
         Accumulated other comprehensive income      346          392
            Total stockholders' equity            31,511       29,679
            Total liabilities and 
              stockholders' equity               $31,511      $29,679

CONDENSED STATEMENTS OF INCOME (Parent only)

                                                    Years ended December 31,

                                                    1998     1997     1996
Income:
         Dividends from subsidiary                  $1,344   $1,290   $1,184

Expenses:
         Other Expense                                   3        6        2
Income before income taxes and equity in
         undistributed net income of subsidiary      1,341    1,284    1,182

Income tax benefit                                       1        2        0

Income before equity in undistributed net income
         of subsidiary                               1,342    1,286    1,182

Equity in undistributed net income of subsidiary     1,880    1,815    1,863

Net income                                          $3,222   $3,101   $3,045

CONDENSED STATEMENTS OF CASH FLOWS (Parent only)

                                                    Years ended December 31,

                                                  1998      1997     1996
Cash flows from operating activities:

         Net income                               $ 3,222   $ 3,101  $ 3,045
         Equity in undistributed earnings 
           of subsidiary                           (1,880)   (1,815)  (1,863)
Net cash provided by operating activities           1,342     1,286    1,182

Cash flows from financing activities:                   0         0
         Payment of dividends                      (1,344)   (1,280)  (1,184)

Net cash used by financing activities              (1,344)   (1,280)  (1,184)

Net increase (decrease) in cash                        (2)        6       (2)

Cash beginning of year                                  9         3        5

Cash end of year                                  $     7   $     9  $     3

<PAGE>

Note 18: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

     A financial instrument is defined as cash, evidence of ownership
interest in an entity, or a contract that imposes on one entity a contractual
obligation to deliver cash or another financial instrument to a second entity
or to exchange other financial instruments on potentially unfavorable terms
with a second entity and conveys to that second entity a contractual right to
receive cash or another financial instrument from the first entity or to
exchange other financial instruments on potentially favorable terms with the
first entity.

     Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the subsidiary Bank's entire holdings of a
particular financial instrument. Because no market exists for a significant
portion of the subsidiary Bank's financial instruments, fair value estimates
are based on judgments regarding future expected net cash flows, current
economic conditions, risk characteristics of various financial instruments,
and other factors. 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.

     Fair value estimates are based on existing on-and-off balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not
considered financial instruments. Significant assets and liabilities that are
not considered financial assets or liabilities include the net deferred tax
asset and property, plant, and equipment. In addition, the tax ramifications
related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in
the estimates of fair value. In addition, there are significant intangible
assets that the fair value estimates do not recognize, such as the value of
"core deposits", the subsidiary Bank's branch network, trust relationships
and other items generally referred to as "goodwill".

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

Cash and Cash Equivalents

     For these short-term instruments, carrying value approximates fair
value.

Securities Available for Sale & Investment Securities

     The fair value of securities available for sale and investment
securities, except certain state and municipal securities, is estimated on
bid prices published in financial newspapers or bid quotations received from
securities dealers. The fair value of certain state and municipal securities
is not readily available through market sources other than dealer quotations,
so fair value estimates are based on quoted market prices of similar
instruments, adjusted for differences between the quoted instruments and the
instruments being valued. The estimated fair value of stock in the Federal
Reserve Bank and Federal Home Loan Bank is assumed to be its cost given the
lack of a public market for these investments.

Loans

     Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, consumer,
and real estate. Each loan category is further segmented into fixed and
adjustable rate interest terms and by performing and nonperforming
categories.

     The fair value of performing loans is calculated by discounting
scheduled cash flows through the contractual estimated maturity using
estimated market discount rates that reflect the credit and interest rate
risk inherent in the loan. The estimate of maturity is based on the term of
the loans to maturity, adjusted for estimated prepayments.

     Fair value for nonperforming loans is based on recent external
appraisals and discounting of cash flows. Estimated cash flows are discounted
using a rate commensurate with the risk associated with the estimated cash
flows. Assumptions regarding credit risk, cash flows, and discount rates are
judgmentally determined using available market information and specific
borrower information.

Accrued Interest Receivable

     For accrued interest receivable, a short-term instrument, carrying value
approximates fair.

Deposit Liabilities

     The fair value of deposits with no stated maturity, such as non-interest
bearing demand deposits, savings, NOW accounts and money market accounts is
estimated to be the amount payable on demand. The fair value of certificates
and time deposits is based on the discounted value of contractual cash flows.
The discount rate is estimated using the rates currently offered for deposits
of similar remaining maturities. These fair value estimates do not include
the benefit that results from the low-cost funding provided by the deposit
liabilities compared to the cost of borrowing funds in the market.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Securities Sold Under Agreements to Repurchase

     For these short-term instruments that mature in one day through ninety
days, carrying value approximates fair value. For these instruments that
mature in more than ninety days the fixed borrowing rate is compared to rates
for similar advances and a premium or discount calculated.

Notes Payable - Federal Home Loan Bank

     For these instruments that mature in more than ninety days the current
borrowing rate is compared to rates for similar advances and a premium or
discount calculated.

Accrued Interest Payable

     For accrued interest payable, a short-term instrument, carrying value
approximates fair value.

Commitments to Extend Credit, Standby and Commercial Letters of Credit, and
Financial Guarantees Written 

     The fair value of commitments to extend credit and unused lines of
credit is estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For fixed rate loan
commitments, fair value also considers the difference between current levels
of interest rates and the committed rates. The fair value of financial
guarantees written and letters of credit is based on fees currently charged
for similar agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties. Fees, such as these
are not a major part of the subsidiary Bank's business and in the subsidiary
Bank's business territory are not a "normal business practice". Therefore,
based upon the above facts it is stated that book value equals fair value and
the amounts are not significant.

Financial Instruments

     The estimated fair values of the Company's financial instruments at
December 31 are as follows (in thousands):

<TABLE>
<CAPTION>

                                                               1998                    1997

                                                      Carrying     Estimated   Carrying     Estimated
                                                      Amount       Fair Value  Amount       Fair Value

<S>                                                   <C>          <C>         <C>          <C>
Financial Assets:
         Cash and cash equivalents                    $ 20,364     $ 20,364    $  9,407     $  9,407
         Securities available for sale<F1>              90,132       90,132      55,242       55,242
         Investment securities                          17,397       18,125      33,047       33,790
         Loans (net of unearned income)                121,837      122,552     119,138      119,391
            Less allowance for loan losses               1,580            0       1,492            0
               Net loans                               120,257      122,552     117,646      119,391
         Accrued interest receivable                     1,460        1,460       1,413        1,413

Financial Liabilities:
         Deposits
            Non-interest bearing demand               $ 23,268     $ 23,268    $ 21,391     $ 21,391
            Savings, NOW and money market               90,934       90,934      81,980       81,980
            Certificates of deposit and other time      92,184       92,607      84,284       84,704
               Total deposits                          206,386      206,809     187,655      188,075
            Securities sold under agreements 
              to repurchase                             12,844       13,004       4,322        4,322
            Notes Payable - FHLB                         4,000        3,989           0            0
            Accrued interest payable                       351          351         191          191

<FN>

<F1> Includes investments required for membership in FRB and FHLB.

</FN>

</TABLE>

<PAGE>

INDEPENDENT AUDITORS REPORT

To The Board of Directors and Stockholders of CNB Bancorp, Inc.:

     We have audited the accompanying consolidated statements of condition of
CNB Bancorp, Inc. and subsidiary (the "Company") as of December 31, 1998 and
1997, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998. 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 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 CNB
Bancorp, Inc. and subsidiary at December 31, 1998 and 1997, the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998 in conformity with generally accepted
accounting principles.

/s/ KPMG LLP

Albany, N.Y.
February 5, 1999

<PAGE>

DESCRIPTION OF BUSINESS

CNB Bancorp, Inc., a New York corporation, organized in 1988, is a registered
bank holding company headquartered in Gloversville, New York. Its
wholly-owned subsidiary, City National Bank and Trust Company, was organized
in 1887 and is also headquartered in Gloversville, New York, with four
branches located in the county of Fulton. The subsidiary Bank is a full
service commercial Bank that offers a broad range of demand and time
deposits; consumer, mortgage, and commercial loans; and trust and investment
services. The subsidiary Bank is a member of the Federal Deposit Insurance
Corporation and the Federal Reserve System and is subject to regulation and
supervision of the Federal Reserve and the Comptroller of the Currency.

MARKET AND DIVIDEND INFORMATION
CNB BANCORP, INC.

     The common capital stock - $2.50 par value is the only registered
security of the Company and is inactively traded. The range of prices of this
security known to management based on records of the Company and as supplied
by Ryan, Beck and Co. on a quarterly basis and the quarterly cash dividends
paid for the most recent two years are shown below.

<TABLE>
<CAPTION>

                                1998                              1997

                       Bid              Asked             Bid              Asked

                  High     Low      High    Low      High     Low      High     Low

<S>               <C>      <C>      <C>     <C>      <C>      <C>      <C>      <C>
First Quarter     35.50    33.50    37.00   35.00    26.25    25.00    27.00    25.75
Second Quarter    37.00    35.50    38.00   37.00    26.50    26.50    28.75    27.50
Third Quarter     37.00    36.00    38.50   37.50    31.00    28.75    33.00    30.00
Fourth Quarter    37.50    35.50    38.50   37.50    33.00    32.00    36.00    33.50

</TABLE>

Cash dividends paid - per share

                                            1998     1997

First Quarter                               $0.21    $0.20
Second Quarter                               0.21     0.20
Third Quarter                                0.21     0.20
Fourth Quarter                               0.21     0.20

Total cash dividends per share              $0.84    $0.80

Number of shareholders on December 31         694      669

A copy of Form 10K (Annual Report) for 1998, filed with the Securities and
Exchange Commission by the Company, is available to shareholders free of
charge by written request to:

         George A. Morgan, Vice President and Secretary
         CNB Bancorp, Inc., 10-24 N. Main Street, P.O. Box 873, 
         Gloversville, NY 12078

<PAGE>

CNB BANCORP, Inc.

OFFICERS

WILLIAM N. SMITH, Chairman of the Board and President
GEORGE A. MORGAN, Vice-President and Secretary
MICHAEL J. FRANK, Treasurer
BRIAN R. SEELEY, Auditor

CITY NATIONAL BANK & TRUST COMPANY

OFFICERS

WILLIAM N. SMITH, Chairman of the Board and President
GEORGE A. MORGAN, Executive Vice-President, Cashier, and Trust Officer
DAVID W. McGRATTAN, Senior Vice-President
ROBERT W. BISSET, Vice-President
RONALD J. BRADT, Vice-President
GEORGE E. DOHERTY, Vice-President
MICHAEL J. FRANK, Vice-President and Comptroller
BILL ARGOTSINGER, Assistant Vice-President
DEBORAH A. BRANDIS, Assistant Vice-President
LAWRENCE D. PECK, Marketing Officer
DENISE L. CERASIA, Operations Officer
DONALD F. STANYON, JR., Financial Services Officer
DARRIN R. AMBRIDGE, Loan Officer
KATHRYN E. SMULLEN, Loan Officer
PAULA K. TUCKER, Systems Officer
BRIAN R. SEELEY, Auditor

MAIN OFFICE

LYNNE M. CIRILLO, Branch Manager

FIFTH AVENUE OFFICE

CONSTANCE A. ROBINSON, Branch Manager
JOANNE M. SHY, Branch Officer

JOHNSTOWN OFFICE

TAMMY L. WARNER, Branch Manager
AMY M. PRAUGHT, Branch Officer

NORTHVILLE OFFICE

DONALD R. HOUGHTON, Vice-President and Branch Manager

PERTH OFFICE

TIENA M. DI MATTIA, Branch Manager

<PAGE>

City National Bank
and Trust Company

BANKING OFFICES:

MAIN OFFICE

10-24 North Main Street 
P.O. Box 873 
Gloversville, NY 12078 

FIFTH AVENUE OFFICE

185 Fifth Avenue 
Gloversville, NY 12078 

JOHNSTOWN OFFICE 

142 North Comrie Avenue
Johnstown, NY 12095

NORTHVILLE OFFICE 

231 Bridge Street
Northville, NY 12134 

PERTH OFFICE 

4178 State Highway 30 
Town of Perth
Amsterdam, NY 12010