Exhibit 13










                              CNB Bancorp, Inc.


                                     2002

                                Annual Report


<PAGE>


DIRECTORS

CNB Bancorp, Inc. and City National Bank and Trust Company

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

GEORGE A. MORGAN..................VICE PRESIDENT AND SECRETARY OF THE COMPANY
                      AND EXECUTIVE VICE PRESIDENT, CASHIER AND TRUST OFFICER
                                                       OF THE SUBSIDIARY BANK

BRIAN K. HANABURGH........................OWNER, D/B/A MCDONALD'S RESTAURANTS
                                                         FAST FOOD RESTAURANT

CLARK D. SUBIK...............................PRESIDENT, SUPERB LEATHERS, INC.
                                                         LEATHER MERCHANDISER

DEBORAH H. ROSE...............(RETIRED) VICE PRESIDENT, HATHAWAY AGENCY, INC.
                                                            GENERAL INSURANCE

THEODORE E. HOYE, III...........................PRESIDENT, FIRST CREDIT CORP.
                               FINANCING AND INSURING OF MANUFACTURED HOUSING

TIMOTHY E. DELANEY......................PRESIDENT, DELANEY CONSTRUCTION CORP.
                                                   HEAVY/HIGHWAY CONSTRUCTION

RICHARD D. RUBY.................................PRESIDENT, RUBY & QUIRI, INC.
                                                    HOME FURNISHINGS RETAILER


OFFICERS - CNB Bancorp, Inc.

WILLIAM N. SMITH..........................CHAIRMAN OF THE BOARD AND PRESIDENT
GEORGE A. MORGAN.................................VICE PRESIDENT AND SECRETARY
MICHAEL J. FRANK....................................................TREASURER
BRIAN R. SEELEY.......................................................AUDITOR


HONORARY DIRECTORS

LYDON F. MAIDER              RICHARD E. HATHAWAY          RICHARD P. TATAR
LLOYD POLITSCH               PAUL E. SMITH                JAMES W. ST. THOMAS
ALFRED J. WASHBURN           ROSS H. HIGIER               CLARK EASTERLY, SR.


<PAGE>


<TABLE>

FINANCIAL HIGHLIGHTS

(Dollars in thousands, except per share data)

<CAPTION>

                                                                                2002              2001             2000

<S>                                                                          <C>               <C>              <C>
NET INCOME                                                                     $4,632            $4,032           $3,705
Earnings Per Share
   Basic                                                                         2.05              1.75             1.56
   Diluted                                                                       2.03              1.72             1.54

CASH DIVIDENDS                                                                 $1,579            $1,520           $1,476
Per Common Share                                                                 0.70              0.66             0.62

STOCKHOLDERS' EQUITY AT YEAR-END                                              $36,884           $34,649          $33,993
Per Common Share                                                                16.58             15.22            14.49

RETURN ON AVERAGE STOCKHOLDERS' EQUITY                                           12.8%             11.7%            11.6%

RETURN ON AVERAGE ASSETS                                                         1.22%             1.14%            1.12%

TOTAL ASSETS AT YEAR-END                                                     $391,804          $359,955         $339,306

</TABLE>

                                      1


<PAGE>


PRESIDENT'S MESSAGE

     This is the twentieth annual message that I have written for our company
and I am pleased to report that it shows continued strong operating results
with the twelfth consecutive year of record earnings.

     Net income at $4.6 million was an increase of 14.9% over the prior
year's result of $4.0 million. More importantly, diluted earnings per share
were $2.03, compared to $1.72 in 2001, an increase of 18.0%.

     Total assets increased $31.8 million or 8.8%, resulting in total assets
at year-end of $391.8 million.

     Total loans, net of unearned income, decreased $8.7 million or 4.5% and
ended the year at $186.3 million. The decrease in loans was due primarily to
a decline in indirect auto lending and a slowdown in residential mortgage
applications.

     Total deposits at year-end were $300.6 million, an increase of $21.4
million, or 7.7% over the balance of $279.2 million at December 31, 2001. The
primary areas of growth were in savings (cash management accounts) and money
market accounts.

     Stockholders' equity at year-end was $36.9 million, as compared to $34.6
million at the prior year-end. This resulted in a year-end stockholders'
equity to total assets ratio of 9.4%, a ratio that is over twice the
regulatory minimum guideline of 4.0%.

     In August, the Board of Directors increased the dividend for the
thirty-sixth consecutive year. The dividend, per share for the year, was
$0.70, an increase of 6.1%, as compared to $0.66 in 2001. Total dividends
paid to stockholders for the year amounted to $1.6 million.

     During the year, we were saddened by the loss of two honorary directors.
Henry Buanno, founder of Buanno Transportation Company, passed away on May
24, 2002. He served on our board of directors for ten years, retiring in
1993. Leon Finkle, Chairman of the Board of Finkle Distributors, Inc., passed
away on May 30, 2002. He served as a director for fourteen years, retiring in
1999. The dedication, loyalty and leadership of these men to our organization
was deeply appreciated.

     In April, David W. McGrattan, Senior Vice President, retired after
fourteen years with the Bank. Dave worked primarily in commercial lending and
for the last several years of employment was the senior lending officer. His
loyalty and commitment to our company were extremely valuable. We wish Dave
and Carol health and happiness in their retirement years.

     In regard to technology, 2002 was a busy year for the company. We
implemented new systems and services that have increased our ability to serve
our customers. We also made internal changes that will allow us to continue
to move in the right direction to take advantage of advanced technology.

     In early 2002, we launched our new web site located at
www.citynatlbank.com. Our web site offers comprehensive information about the
Bank, as well as many extra features such as Google search, stock quotes,
weather forecasts and news stories. In conjunction with our new web site, we
introduced our personal online banking system. This system allows our
customers, through a secure connection, to view account information, transfer
funds, download information into money management programs and pay bills
online.

     To provide our customers with the means to ensure access to their money
after hours using City National Bank ATMs, we installed new ATMs at the main
office, Fifth Avenue, Northville and Perth offices. As the use of ATM cards
and debit cards continue to increase, providing reliable and state-of-the-art
machines to our customers is a priority. To

                                      2


<PAGE>


better serve our business customers, we introduced a business debit card
this year. This service allows business owners to access their funds with a
debit card and allows the owners to grant access to selected employees.

     As we still enjoy seeing our customers in our branches and want to make
visiting the branches an enjoyable experience, we installed new computer
hardware at each teller and customer service station. We also upgraded our
teller system and installed our first automated customer service platform
system.

     To ensure that the Bank continues to move in the right direction with
regard to technology, we created an information technology department staffed
by a vice president of information technology and a network administrator.
Our talented staff is dedicated to the support of our existing technology and
the implementation of new technology so we can continue to fulfill the needs
of our customers.

     In the third quarter, construction began on the new Saratoga Springs
branch facility. The 12,000-square-foot, two-story office building is being
constructed on the site of the former Friendly's Restaurant. Once the new
building is occupied, the old branch will be demolished to provide additional
parking. The new branch will feature two teller drive-thru windows and two
ATMs; one in the front entryway and the other in the drive-thru. The new
branch should be ready for occupancy by mid-year.

     As always, we welcome your comments and suggestions, and please
remember to use our financial 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

                                      3


<PAGE>


Year-End Total Assets
Five Years (1998-2002)

1998                        $255,568
1999                        $314,908
2000                        $339,306
2001                        $359,955
2002                        $391,804

Net Income
Five Years (1998-2002)

1998                          $3,222
1999                          $3,299
2000                          $3,705
2001                          $4,032
2002                          $4,632

                                      4


<PAGE>


Basic Earnings Per Share
Five Years (1998-2002)

1998                           $1.34
1999                           $1.37
2000                           $1.56
2001                           $1.75
2002                           $2.05

Dividends Per Common Share
Five Years (1998-2002)

1998                           $0.56
1999                           $0.59
2000                           $0.62
2001                           $0.66
2002                           $0.70

                                      5


<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. (Company) and its subsidiaries, City National Bank & Trust
Company and Hathaway Agency, Inc. 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.

Forward-Looking Statements:

      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 subsidiaries 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.

Mergers and Acquisitions:

      On June 1, 1999, the Company completed the acquisition of Adirondack
Financial Services Bancorp, Inc. (Adirondack), at which time Adirondack
merged with and into CNB Bancorp, Inc. Upon acquisition, Adirondack's
subsidiary Bank, Gloversville Federal Savings and Loan Association, merged
with the Company's subsidiary Bank, City National Bank & Trust Company.

      On July 1, 2000, the Company completed the acquisition of Hathaway
Agency, Inc., a general insurance agency. Pursuant to the merger, Hathaway
became a wholly-owned subsidiary of CNB Bancorp, Inc.

Financial Condition:

      The table below presents a comparison of average and year-end selected
consolidated balance sheet categories over the past three years, and the
changes in balances for those years (in thousands).

<TABLE>

<CAPTION>

                                                                                                 Increase/(Decrease)

Average Consolidated Balance Sheet              2002           2001          2000           2002/2001         2001/2000

<S>                                          <C>            <C>           <C>                <C>               <C>
Assets:
   Cash and due from banks                     $9,543         $7,932        $7,678            $1,611              $254
   Federal funds sold                          12,628          7,265         5,595             5,363             1,670
   Int. bearing deposits with banks            10,468          3,022         1,128             7,446             1,894
   Total securities<F1>                       140,600        130,902       122,667             9,698             8,235
   Loans, net                                 188,819        190,532       178,444            (1,713)           12,088
   Other assets                                16,111         14,994        16,116             1,117            (1,122)

      Total Assets                           $378,169       $354,647      $331,628           $23,522           $23,019

<FN>

<F1> Includes available for sale securities at fair value, held to maturity
     securities at amortized cost and Federal Reserve Bank and Federal Home
     Loan Bank stock at cost.

</FN>

</TABLE>

                                      6


<PAGE>


<TABLE>

<CAPTION>

                                                                                  Increase/(Decrease)

Average Consolidated Balance Sheet              2002           2001          2000           2002/2001          2001/2000

<S>                                          <C>            <C>           <C>                <C>                <C>
Liabilities:
   Demand deposits                            $28,565        $26,756       $26,972            $1,809              ($216)
   Savings, NOW and money
      market accounts                         141,168        113,416       107,957            27,752              5,459
   Time deposits                              121,716        136,628       137,432           (14,912)              (804)
   Notes payable and repurchase
      agreements                               48,926         41,356        25,765             7,570             15,591
   Other liabilities                            1,690          1,959         1,485              (269)               474
Stockholders' equity                           36,104         34,532        32,017             1,572              2,515

      Total Liabilities and Equity           $378,169       $354,647      $331,628           $23,522            $23,019

</TABLE>


<TABLE>

<CAPTION>

                                                                                               Increase/(Decrease)

Year-End Consolidated Balance Sheet             2002           2001          2000           2002/2001          2001/2000

<S>                                          <C>            <C>           <C>                <C>                <C>
Assets:
   Cash and due from banks                    $11,252        $11,212        $9,166               $40              2,046
   Federal funds sold                          10,900          8,200         5,400             2,700              2,800
   Int. bearing deposits with banks            12,508            317           272            12,191                 45
   Total securities<F1>                       156,949        133,057       124,767            23,892              8,290
   Loans, net                                 183,181        192,443       183,840            (9,262)             8,603
   Other assets                                17,014         14,726        15,861             2,288             (1,135)

      Total Assets                           $391,804       $359,955      $339,306           $31,849            $20,649

Liabilities:
   Demand deposits                            $27,827        $28,103       $26,339             ($276)            $1,764
   Savings, NOW and money
      market accounts                         152,469        130,311       125,974            22,158              4,337
   Time deposits                              120,320        120,813       118,161              (493)             2,652
   Notes payable and repurchase
      agreements                               52,689         44,618        33,128             8,071             11,490
   Other liabilities                            1,615          1,461         1,711               154               (250)
Stockholders' equity                           36,884         34,649        33,993             2,235                656

      Total Liabilities and Equity           $391,804       $359,955      $339,306           $31,849            $20,649

<FN>

<F1> Includes available for sale securities at fair value, held to maturity
     securities at amortized cost and Federal Reserve Bank and Federal Home
     Loan Bank stock at cost.

</FN>

</TABLE>

      Total assets at December 31, 2002 reached a new record high of $391.8
million as compared to $360.0 million at December 31, 2001, an increase of
$31.8 million or 8.8%. Asset growth for the year consisted of a $23.9 million
increase in total securities and a $14.9 million increase in cash and
short-term investments including a $12.2 million increase in interest bearing
deposits with banks and a $2.7 million increase in federal funds sold. These
increases were partially offset by a decrease in loans, net of unearned
discount, of $8.7 million or 4.5%. Asset growth was funded primarily with
increases in deposits, which increased by $21.4 million or 7.7% and an
increase in repurchase agreements and notes payable in the amount of $8.1
million. Average assets for 2002 totaled $378.2 million, an increase of $23.5
million or 6.6% from the 2001 average of $354.6 million.

      Net loans, which constitute the largest segment of earning assets,
represented 46.8% of total assets at December

                                      7


<PAGE>


FINANCIAL REVIEW (Continued)

31, 2002. Average net loans for 2002 decreased $1.7 million or 0.9% over
2001. Average commercial loans increased for the year 3.8%, while the
averages for both consumer and mortgage loans decreased for the year by 2.3%.
The yield on total loans decreased from 8.17% in 2001 to 7.64% in 2002, which
reflects the lower interest rates that were in effect throughout the year.

      The total securities portfolio, which includes both "available for
sale" and "held to maturity" securities, at December 31, 2002 was $156.9
million as compared to $133.1 million the previous year, an increase of $23.9
million. The increase for 2002 was funded with growth in core deposit
accounts and increased borrowings from the Federal Home Loan Bank. The yield
on the portfolio decreased 103 basis points year-to-year from 6.74% for 2001
to 5.71% for the year 2002. This significant decrease in yield was a result
of the Federal Reserve Bank's numerous interest rate cuts throughout 2001 and
2002 affecting the reinvestment yield of securities as they matured or
repriced in 2002.

      Interest bearing deposits with banks and federal funds sold which are
short-term assets that provide a source of liquidity for the subsidiary Bank
increased from $8.5 million to $23.4 million year-to-year. On average, these
accounts increased by $12.8 million or 124.5%. The increase was due to
accelerated repayments from mortgage backed securities and bonds being called
as a result of lower interest rates in effect throughout the year. Higher
levels of short-term assets were maintained reflecting the overall core
deposit growth during the year.

      Deposits continue to be the subsidiary Bank's primary source of
funding. Total deposits at December 31, 2002 reached $300.6 million, an
increase of $21.4 million or 7.7% over the previous year-end. Core deposits,
which consist of demand, savings, NOW, and money market accounts, grew by
$21.9 million or 13.8%. Time deposits were relatively stable for the year
decreasing only $0.5 million. Average deposits increased during the year to
$291.4 million from $276.8 million, an increase of $14.6 million or 5.3%.

      Cash and due from banks remained the same year-to-year at $11.2 million,
while the average for the year was up $1.6 million or 20.3%.

      Other assets increased for the year by $2.3 million to $17.0 million at
December 31, 2002 from $14.7 million at December 31, 2001, which was
primarily related to the purchase of bank-owned life insurance. Average other
assets increased by $1.1 million year-to-year.

      Stockholders' equity at year-end 2002 was $36.9 million as compared to
$34.6 million at year-end 2001. The increase was due mainly to a combination
of net income after dividends of $3.1 million, plus a net unrealized gain of
market value on securities available for sale, net of tax, in the amount of
$1.6 million, less net treasury stock transactions of $1.6 million and a
minimum pension liability adjustment, net of tax in the amount of $0.8
million. The consolidated statements of changes in stockholders' equity
included in this annual report detail the changes in equity capital.

Results of Operations:

      The comparative consolidated statement of income summarizes income and
expense for the last three years. The Company achieved record earnings for
2002 of $4,632,000 as compared to $4,032,000 for 2001, an increase of
$600,000 or 14.9% over the previous year. Net income for 2001 was 8.8% above
2000 net income of $3,705,000. Basic earnings per share for year 2002 were
$2.05, up 17.1% from 2001 per share earnings of $1.75. Diluted earnings per
share of $2.03 were up 18.0% over 2001 diluted earnings per share of $1.72.
The strong increase in per share earnings was a result of higher net income
divided by fewer shares outstanding due to the repurchase of shares through
the Company's stock repurchase plan and the elimination of goodwill
amortization with the adoption, on January 1, 2002, of FASB No. 142. The
return on average assets for the three years ended December 31, 2002, 2001
and 2000 was 1.22%, 1.14% and 1.12%, respectively. The return on average
equity for the same periods was 12.8%, 11.7% and 11.6%.

      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 of 34%. Net interest income

                                      8


<PAGE>


for 2002 increased $1,189,000 or 8.8%. The overall increase in 2002 was
attributable to a higher average volumes of earning assets and a higher net
interest margin, which increased to 4.14% for year 2002 from 4.04% for 2001.
Higher averages were primarily a result of increases in deposits and
borrowings offset by higher volumes of investment securities and higher
short-term assets. Interest and fees on loans for 2002 decreased by
$1,139,000 or 7.2% from the previous year, due to a decrease in average net
loans of $1.7 million, plus a decrease in yield of 53 basis points from 8.17%
in 2001 to 7.64% in 2002. Interest and dividends on securities also decreased
for the year going from $8.8 million in 2001 to $7.9 million for year 2002.
Even though the average volume of total securities increased by $9.1 million
or 7.0% for the year, it was more than offset by a 103 basis point decrease
in yield from 6.74% in 2001 to 5.71% in 2002. Interest on federal funds sold
decreased $42,000 or 16.7%. The decrease in 2002 was a result of a much lower
average rate of 1.66% compared to 3.47% in 2001 being partially offset by a
higher average balance, in the current year, due to larger cash pre-payments
on mortgage-backed securities and more securities being called due to lower
interest rates throughout 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).

<TABLE>

<CAPTION>

                                                                                             % Change           % Change
                                             2002           2001           2000              2002/2001          2001/2000

<S>                                        <C>            <C>            <C>                  <C>                 <C>
Total interest and dividend income         $22,046        $24,053        $23,760               (8.3)%              1.2%
Total interest expense                       8,300         11,408         12,091              (27.2)              (5.6)

Net interest and dividend income            13,746         12,645         11,669                8.7                8.4
Tax equivalent adjustment                      901            813            791               10.8                2.8

Net interest and dividend income
   taxable equivalent basis                $14,647        $13,458        $12,460                8.8%               8.0%

</TABLE>

      Total interest expense decreased $3,108,000 or 27.2% in 2002 over that
of 2001 compared to a decrease of $683,000 or 5.6% for 2001 over 2000. The
decrease in 2002 was due to substantially lower interest rates on all
interest bearing liabilities throughout the year. The average rate on
interest bearing liabilities for 2002 was 2.66%, a decrease of 125 basis
points from 2001. The rate reduction was partially offset by an increase in
the average volume of $20.4 million from 2001.

      Total other income for 2002 increased by $163,000 or 7.7% due primarily
to higher insurance commissions of $842,000 from the insurance subsidiary,
Hathaway Agency, Inc., compared to commissions of $712,000 for year 2001.
Total other expense in 2002 was virtually flat for the year increasing only
$16,000 over the preceding year. The 2002 increase does include, however,
higher salaries and employee benefits of $313,000 which was offset by the
elimination of $319,000 of goodwill amortization expense due to the adoption
of FASB Statement No. 142 on January 1, 2002.

      Net interest spread, the difference between the average earning assets
yield and the cost of average interest bearing funds, increased 28 basis
points or 7.9% from 2001 to 2002. The net interest margin, net interest
income as a percentage of earning assets, increased 10 basis points or 2.5%.
The increases in net interest spread and net interest margin for 2002 were
attributed to the decline of interest rates affecting shorter term interest
bearing liabilities faster than longer term interest bearing assets.

                                      9


<PAGE>


FINANCIAL REVIEW (Continued)

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

<TABLE>

<CAPTION>

                                                   2002                       2001                       2000

                                              Yearly                     Yearly                     Yearly
                                              Average   Rate             Average   Rate             Average   Rate

<S>                                          <C>        <C>             <C>        <C>             <C>        <C>
Earning assets                               $353,745   6.49%           $333,315   7.46%           $313,578   7.84%
Interest bearing liabilities                  311,810   2.66%            291,400   3.91%            271,176   4.45%
Net interest rate spread                                3.83%                      3.55%                      3.39%
Net interest margin                                     4.14%                      4.04%                      3.97%

</TABLE>

Capital Resources: Stockholders' equity ended 2002 at $36,884,000, up
$2,235,000 or 6.5%, due to a combination of net retained earnings and net
unrealized gains in market value of the available-for-sale securities less
net treasury stock purchases and the recording of a minimum pension liability
adjustment. At December 31, 2002, the ratio of stockholders' equity to total
assets was 9.4%, as compared to 9.6% at December 31, 2001.

      On January 31, 2000, the Board of Directors of the Company (Board)
approved a stock repurchase plan (the "Plan") authorizing the repurchase of
up to 5% or 120,000 shares of the Company's common stock over a two-year
period. On May 29, 2001, the Board extended the plan by authorizing an
additional 5% or approximately 115,000 shares over a new two-year period upon
completion of the original plan. As of December 31, 2002, the Company had
purchased 207,092 shares under the plan at an average price of $29.60 per
share. The repurchased shares are held in treasury stock and may be reissued
to support the Company's dividend reinvestment plan, to satisfy the exercise
of stock options, or other corporate purposes.

      Banks and bank holding companies are required 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 reduced by intangible assets. Total capital consists of
Tier 1 capital plus a portion of 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, 2002,
the Company had Tier 1 and total risk-based capital ratios of 14.9% and
16.2%, respectively. The Company also maintained a leverage ratio of 7.9% as
of December 31, 2002. The leverage ratio is defined as Tier 1 capital in
relation to fourth quarter average assets.

Liquidity: The primary objective of liquidity management is to ensure
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, growth of deposit accounts, and borrowed funds and
securities sold under agreements to repurchase. In addition to existing
balance sheet cash flows, 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 assets as collateral for
deposits from 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 subsidiary Bank's liquidity
position in any material way during the coming year, the subsidiary Bank
continuously monitors its basic liquidity on an ongoing basis.

      As of December 31, 2002, the Company had various loan commitments and
standby letter of credit commitments totaling approximately $24.6 million.
Included in this amount is approximately $21.9 million in commercial lines of
credit, residential home equity lines of credit and overdraft lines of
credit. Under normal banking conditions these lines are drawn on from time to
time and then repaid so that the full amount of the lines are never drawn
down at any one time.

                                      10


<PAGE>


Provision for loan losses: The Company establishes an allowance for loan
losses based on an analysis of risk factors in its loan portfolio. The
analysis includes concentrations of credit, past loan loss experience,
current economic conditions, amount and composition of the loan portfolio,
estimated fair market value of underlining collateral, delinquencies and
other factors.

      The allowance for loan losses as a percentage of loans, net of unearned
discounts is 1.66% at December 31, 2002 compared to 1.29% at December 31,
2001. The increase is a result of the loan loss provision exceeding the net
charge-offs for the year. At December 31, 2002, non-performing loans were
$1.7 million as compared to $0.5 million at year-end 2001. The increase in
nonperforming loans is the result of the fourth quarter addition of a $1.4
million commercial loan. The Company continues to evaluate this loan and all
other problem credits.

      The Company's allowance for loan losses coverage of non-performing
loans decreased as of December 31, 2002 to 183% from 470% at December 31,
2001. The decrease was primarily caused by the commercial loan previously
mentioned. The provision for loan losses was $1,165,000, $525,000 and
$219,000 for the years 2002, 2001 and 2000, respectively. Net loan
charge-offs for 2002, 2001 and 2000 were $588,000, $769,000 and $166,000,
respectively. The provision for loan loss is a result of management's overall
assessment of the loan portfolio and the adequacy of the allowance for loan
losses.

      The Company will continue to monitor its allowance for loan losses and
make future additions to the allowance through the provision for loan losses
as conditions dictate. Although the Company maintains its allowance at a
level it considers to be adequate to provide for inherent risk of loss in its
loan portfolio, there can be no assurance that future losses will not exceed
estimated amounts or that additional provisions for loan losses will not be
required in future periods. In addition, the Company's determination as to
the amount of the allowance for loan losses is subject to review by the OCC
as part of its examination process, which may result in the establishment of
an additional allowance based on the OCC's judgment of the information
available to it at the time of examination.

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 acceptance
activities. Although the subsidiary Bank manages other risks, such as credit
and liquidity risk, in the normal course of its business management, it
considers interest rate risk to be its most significant market risk and could
potentially have the largest effect on the Bank's financial condition and
results of operations. The Company does not currently have a trading
portfolio or use derivatives such as swaps or options 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 the 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 and borrowings.

      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 an immediate rise or fall in interest rates of 200
basis points for a twelve-month period. The model is based on the
contractural 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.

                                      11


<PAGE>


FINANCIAL REVIEW (Continued)

      The following table shows the approximate effect on the subsidiary
Bank's net interest income on a fully taxable equivalent basis as of December
31, 2002, assuming an increase or decrease of 200 basis points in interest
rates (in thousands).

Change in Interest Rates        Estimated Net             Change in Net
     (basis points)            Interest Income           Interest Income

           +200                   $13,624                     (0.1)%
           +100                    13,835                      1.5
              0                    13,632                      0.0
           -100                    13,301                     (2.4)
           -200                    13,225                     (3.0)

      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. Loans
and security maturities are based on contractural maturities. At December 31,
2002 the Company had a positive 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 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, 2002, the subsidiary Bank was in an asset sensitive
position for one year, which means that more assets are scheduled to mature
or reprice within the next year than liabilities. The subsidiary Bank is also
in an asset sensitive position beyond one year.

      The following table shows the interest rate sensitivity gaps as of
December 31, 2002 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
                                                      3 Months         1 Year      Five Years     Five Years      Total

<S>                                                   <C>             <C>           <C>           <C>           <C>
AT DECEMBER 31, 2002
Interest Earning Assets:
   Securities<F1>                                      $32,044        $38,108       $51,849        $31,536      $153,537
   Total Loans, net of unearned discount                42,450         19,714        60,852         63,248       186,264
   Other Earning Assets                                 23,408             --            --             --        23,408

      Total Earning Assets                              97,902         57,822       112,701         94,784       363,209

Fair Value Above Cost of Securities
   Available-for-Sale                                                                                              3,412
Other Assets                                                                                                      25,183

TOTAL ASSETS                                                                                                    $391,804

Interest-Bearing Liabilities:
   Savings, NOW and MMDA                               $63,826            $--           $--        $88,643      $152,469
   Time Deposits                                        22,565         44,731        53,024             --       120,320
   Other Interest-Bearing Liabilities                   22,966          1,287        10,413         18,023        52,689

      Total Interest-Bearing Liabilities               109,357         46,018        63,437        106,666       325,478

Demand Deposits                                                                                                   27,827
Other Liabilities & Equity                                                                                        38,499

TOTAL LIABILITIES & EQUITY                                                                                      $391,804

Interest Rate Sensitivity Gap                         ($11,455)       $11,804       $49,264       ($11,882)
Cumulative Interest Rate Sensitivity Gap              ($11,455)          $349       $49,613        $37,731       $37,731
                                                                          0.1%

<FN>

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

</FN>

</TABLE>

                                      12


<PAGE>


<TABLE>

FIVE-YEAR FINANCIAL SUMMARY

(In thousands, except per share data)

<CAPTION>

December 31,                                                   2002          2001           2000           1999          1998

<S>                                                         <C>           <C>            <C>            <C>           <C>
Consolidated statement of income data
Interest and dividend income:
    Loans                                                    $14,646       $15,785        $15,367        $12,816       $10,598
    Securities<F1>                                             7,042         7,942          7,980          6,623         5,603
    Federal funds sold and other                                 358           326            413            529           642

        Total interest and dividend income                    22,046        24,053         23,760         19,968        16,843

Interest expense:
    Deposits                                                   6,402         9,397         10,529          8,303         7,347
    Borrowings                                                 1,898         2,011          1,562            966           570

        Total interest expense                                 8,300        11,408         12,091          9,269         7,917

Net interest income                                           13,746        12,645         11,669         10,699         8,926
Provision for loan losses                                      1,165           525            219            180           220

Net interest income after provision
    for loan losses                                           12,581        12,120         11,450         10,519         8,706
Other income                                                   2,287         2,124          1,762          1,467         1,121
Other expenses                                                 8,419         8,403          7,932          7,299         5,224

Income before income taxes                                     6,449         5,841          5,280          4,687         4,603
Provision for income taxes                                     1,817         1,809          1,575          1,388         1,381

Net income                                                    $4,632        $4,032         $3,705         $3,299        $3,222

Per share data:
    Basic earnings per share                                   $2.05         $1.75          $1.56          $1.37         $1.34
    Diluted earnings per share                                  2.03          1.72           1.54           1.36          1.34
    Cash dividends paid                                         0.70          0.66           0.62           0.59          0.56
    Cash dividend payout ratio                                  34.1%         37.7%          39.8%          42.9%         41.7%
Selected year-end consolidated statement
    of condition data:
        Total assets                                        $391,804      $359,955       $339,306       $314,908      $255,568
        Securities<F1>                                       156,949       133,057        124,767        109,280       107,529
        Net loans                                            183,181       192,443        183,840        169,716       120,257
        Deposits                                             300,616       279,227        270,474        265,080       206,386
        Stockholders' equity<F1>                              36,884        34,649         33,993         31,285        31,511

<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>

Per share figures have been adjusted to reflect the 3 for 2 stock split
effected through the 50% stock dividend declared in July 1999.

                                      13


<PAGE>


<TABLE>

CONSOLIDATED STATEMENTS OF CONDITION

(In thousands, except share data)

<CAPTION>

                                                                                       December 31,

                                                                            2002                         2001

<S>                                                                      <C>                          <C>
ASSETS
Cash and cash equivalents
    Non-interest bearing                                                  $11,252                      $11,212
    Interest bearing                                                       12,508                          317
    Federal funds sold                                                     10,900                        8,200

        Total cash and cash equivalents                                    34,660                       19,729

Securities available for sale, at fair value                              144,219                      120,249

Investment securities, at cost (approximate fair value at
    December 31, 2002 - $9,975; at December 31, 2001 - $10,241)             9,569                        9,955

Investments required by law, stock in Federal Home Loan
    Bank of New York and Federal Reserve Bank of New
    York, at cost                                                           3,161                        2,853

Loans                                                                     201,017                      211,683
    Unearned income                                                       (14,753)                     (16,734)
    Allowance for loan losses                                              (3,083)                      (2,506)

        Net loans                                                         183,181                      192,443

Premises and equipment, net                                                 3,996                        3,420
Accrued interest receivable                                                 1,801                        1,661
Goodwill                                                                    3,960                        3,960
Other assets                                                                7,257                        5,685

        Total assets                                                     $391,804                     $359,955

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
    Demand (non-interest bearing)                                         $27,827                      $28,103
    Regular savings, NOW and money market accounts                        152,469                      130,311
    Certificates and time deposits of $100,000 or more                     29,663                       34,061
    Other time deposits                                                    90,657                       86,752

        Total deposits                                                    300,616                      279,227

Securities sold under agreements to repurchase                             13,570                       11,629
Notes payable - Federal Home Loan Bank                                     39,119                       32,989
Other liabilities                                                           1,615                        1,461

        Total liabilities                                                 354,920                      325,306

Commitments and contingent liabilities (Note 16)

STOCKHOLDERS' EQUITY
Common stock, $2.50 par value, 5,000,000 shares authorized,
    2,401,695 shares issued                                                 6,004                        6,004
Surplus                                                                     4,418                        4,418
Undivided profits                                                          30,517                       27,608
Accumulated other comprehensive income                                      1,299                          481
Treasury stock, at cost; 176,491 shares at December 31, 2002 and
    124,553 shares at December 31, 2001                                    (5,354)                      (3,862)

        Total stockholders' equity                                         36,884                       34,649

        Total liabilities and stockholders' equity                       $391,804                     $359,955

</TABLE>

See accompanying notes to consolidated financial statements.

                                      14


<PAGE>


<TABLE>

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

<CAPTION>

                                                                               Years ended December 31,

                                                                        2002             2001              2000

<S>                                                                   <C>              <C>               <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans                                            $14,646          $15,785           $15,367
Interest on federal funds sold                                            210              252               349
Interest on balances due from depository institutions                     148               74                64
Interest on securities available for sale                               6,364            7,063             6,953
Interest on investment securities                                         532              719               870
Dividends on FRB and FHLB stock                                           146              160               157

    Total interest and dividend income                                 22,046           24,053            23,760

INTEREST EXPENSE
Interest on deposits:
    Regular savings, NOW and money market accounts                      2,102            2,520             2,783
    Certificates and time deposits of $100,000 or more                    925            2,292             3,318
    Other time deposits                                                 3,375            4,585             4,428
Interest on securities sold under agreements to repurchase                606              584               433
Interest on other borrowings                                            1,292            1,427             1,129

    Total interest expense                                              8,300           11,408            12,091

NET INTEREST INCOME                                                    13,746           12,645            11,669
Provision for loan losses                                               1,165              525               219

NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES                                                    12,581           12,120            11,450

OTHER INCOME
Income from fiduciary activities                                          174              178               184
Service charges on deposit accounts                                       622              630               473
Net gain on sales or calls of securities                                   33               15                --
Insurance commissions                                                     842              712               252
Other income                                                              616              589               853

    Total other income                                                  2,287            2,124             1,762

OTHER EXPENSES
Salaries and employee benefits                                          4,311            3,998             3,727
Occupancy expense, net                                                    501              502               455
Furniture and equipment expense                                           455              469               414
External data processing expense                                          924              897               733
Other expense                                                           2,228            2,537             2,603

    Total other expenses                                                8,419            8,403             7,932

INCOME BEFORE INCOME TAXES                                              6,449            5,841             5,280
Provision for income taxes                                              1,817            1,809             1,575

NET INCOME                                                             $4,632           $4,032            $3,705

Earnings per share
    Basic                                                               $2.05            $1.75             $1.56
    Diluted                                                              2.03             1.72              1.54

</TABLE>

See accompanying notes to consolidated financial statements.

                                      15


<PAGE>


<TABLE>

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

<CAPTION>

                                                                                  Accumulated
                                                                                     Other                     Total
                                              Common                  Undivided  Comprehensive    Treasury  Stockholders'
                                               Stock       Surplus     Profits   Income/(Loss)      Stock      Equity

<S>                                           <C>          <C>         <C>          <C>          <C>           <C>
Balance at December 31, 1999                  $6,004       $4,415      $23,048      ($2,182)         $--       $31,285
Comprehensive income:
    Net income                                    --           --        3,705           --           --         3,705
    Other comprehensive income                    --           --           --        2,141           --         2,141

            Total comprehensive income                                                                           5,846

Treasury stock purchased (62,200 shares)          --           --           --           --       (1,755)       (1,755)

Treasury stock sold
    (exercise of 5,954 stock options)             --           --          (78)          --          168            90

Other                                             --            3           --           --           --             3

Cash dividends ($0.62 per share)                  --           --       (1,476)          --           --        (1,476)

Balance at December 31, 2000                   6,004        4,418       25,199          (41)      (1,587)       33,993
Comprehensive income:
    Net income                                    --           --        4,032           --           --         4,032
    Other comprehensive income                    --           --           --          522           --           522

        Total comprehensive income                                                                               4,554

Treasury stock purchased (105,765 shares)         --           --           --           --       (3,381)       (3,381)

Treasury stock sold
    (exercise of stock options
    and dividend reinvestment plan -
    37,458 shares)                                --           --         (103)          --        1,106         1,003

Cash dividends ($0.66 per share)                  --           --       (1,520)          --           --        (1,520)

Balance at December 31, 2001                   6,004        4,418       27,608          481       (3,862)       34,649
Comprehensive income:
    Net income                                    --           --        4,632           --           --         4,632
    Other comprehensive income                    --           --           --          818           --           818

        Total comprehensive income                                                                               5,450

Treasury stock purchased (85,886 shares)          --           --           --           --       (2,544)       (2,544)

Treasury stock sold
    (exercise of stock options
    and dividend reinvestment plan -
    33,948 shares)                                --           --         (144)          --        1,052           908

Cash dividends ($0.70 per share)                  --           --       (1,579)          --           --        (1,579)

Balance at December 31, 2002                  $6,004       $4,418      $30,517       $1,299      ($5,354)      $36,884

</TABLE>

See accompanying notes to consolidated financial statements.

                                      16


<PAGE>


<TABLE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

<CAPTION>

                                                                                        Years ended December 31,

                                                                                2002              2001             2000

<S>                                                                          <C>                <C>              <C>
Cash flows from operating activities:
    Net income                                                                 $4,632            $4,032           $3,705
Adjustments to reconcile net income to net cash
    provided by operating activities:
    (Increase)/decrease in interest receivable                                   (140)              553             (466)
    Decrease/(increase) in other assets                                           462               140             (550)
    (Decrease)/increase in other liabilities                                     (318)             (250)             653
    Deferred income tax (benefit)/expense                                        (308)               32              238
    Goodwill amortization expense                                                  --               319              319
    Depreciation and other amortization expense                                   542               532              532
    Net increase in cash surrender value of bank-owned life insurance            (218)             (131)            (124)
    Amortization (accretion) of premiums/discounts on securities, net             388               (44)              49
    Net gain on securities transactions                                           (33)              (15)              --
    Provision for loan losses                                                   1,165               525              219
    Other                                                                          --                --                3

        Total adjustments                                                       1,540             1,661              870

        Net cash provided by operating activities                               6,172             5,693            4,575

Cash flows from investing activities:
    Purchase of investment securities                                          (2,124)           (1,719)          (5,627)
    Purchase of securities available for sale                                (104,966)          (84,387)         (32,260)
    Net purchase of FRB and FHLB stock                                           (308)             (584)            (281)
    Proceeds from maturities, paydowns and calls of
        investment securities                                                   2,499             7,415            3,396
    Proceeds from maturities, paydowns and calls of
        securities available for sale                                          82,255            71,899           21,920
    Proceeds from sale of securities available for sale                         1,021                --            1,043
    Net decrease/(increase) in loans                                            7,945            (9,432)         (14,718)
    Purchase of bank-owned life insurance                                      (2,850)               --               --
    Purchases of premises and equipment, net                                     (958)             (339)            (211)
    Net cash paid in acquisition                                                   --                --             (456)

        Net cash used by investing activities                                 (17,486)          (17,147)         (27,194)

Cash flows from financing activities:
    Net increase in deposits                                                   21,389             8,753            5,394
    Increase/(decrease) in securities sold under agreements
        to repurchase                                                           1,941              (159)           2,207
    Increase in notes payable - FHLB                                            6,130            11,649           13,167
    Treasury stock purchased                                                   (2,544)           (3,381)          (1,755)
    Cash dividends paid on common stock                                        (1,579)           (1,520)          (1,476)
    Proceeds from the sale of treasury stock                                      908             1,003               90

        Net cash provided by financing activities                              26,245            16,345           17,627

Net increase/(decrease) in cash and cash equivalents                           14,931             4,891           (4,992)
Cash and cash equivalents beginning of year                                    19,729            14,838           19,830

Cash and cash equivalents end of year                                         $34,660           $19,729          $14,838

Supplemental disclosures of cash flow information:
    Cash paid during the year:
        Interest                                                               $8,406           $11,523          $11,878
        Income taxes                                                            2,120             1,493            1,418

Supplemental schedule of noncash activities:
    Net reduction in loans resulting from transfers to real estate owned          $80              $211             $262
    Decrease in taxes payable due to exercise of non-qualified stock options       49               127               --
Fair value of non-cash assets acquired in acquisition                              --                --             $376
Fair value of liabilities assumed in acquisition                                   --                --              269

</TABLE>

                                      17


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      The accounting and reporting policies of CNB Bancorp, Inc. (Parent
Company), City National Bank and Trust Company (subsidiary Bank) and Hathaway
Agency, Inc. (subsidiary Insurance Agency) conform to accounting principles
generally accepted in the United States of America and general practices
within the banking and insurance fields. 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 financial holding
company whose principal activity is the ownership of all outstanding shares
of the subsidiary Bank's and Insurance Agency's stock. The subsidiary Bank is
a commercial bank providing community banking services to individuals, small
businesses and local municipal governments in Fulton County and Saratoga
County, New York. The subsidiary Insurance Agency primarily serves Fulton
County providing various insurance products to businesses and individuals.
Management makes operating decisions and assesses performance based on an
ongoing review of the subsidiary Bank's and Insurance Agency's community
operations. The consolidated financial statements include the accounts of the
Parent Company and its wholly-owned subsidiaries (referred to together as the
"Company") after elimination of all significant intercompany transactions.

      SECURITIES - Management determines the appropriate classification of
securities at the time of purchase. If management has the positive intent and
ability to hold debt 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 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 stockholders' 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 securities are based on the
amortized cost of the specific security sold. Amortization of premiums and
accretion of discounts are recognized in interest income on a level-yield
basis to the earlier of call or maturity date. At December 31, 2002 and 2001,
the Company did not have any securities classified as trading securities.

      NET LOANS RECEIVABLE - Loans receivable are reported at the principal
amount outstanding, net of unearned income, net deferred loan fees and costs,
and the allowance for loan losses. Unearned income and net deferred loan fees
and costs are accreted to income using an effective interest method.

      When, in the opinion of management, the collection of interest and/or
principal is in doubt, a 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. 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 for loan losses is maintained
at a level estimated by management to provide adequately for probable losses
inherent in the loan portfolio. 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.

                                      18


<PAGE>


      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.

      GOODWILL - Goodwill represents the excess of the purchase price over
the fair value of the net assets acquired for business combinations accounted
for using purchase accounting. FASB Statement No. 142, "Goodwill and Other
Intangible Assets", requires acquired intangible assets (other than goodwill)
to be amortized over their useful economic life, while goodwill and any
acquired intangible asset with an indefinite economic life would not be
amortized, but would be reviewed for impairment on an annual basis. Statement
No. 142 also requires additional disclosures pertaining to goodwill and
intangible assets. The provisions of Statement No. 142 were required to be
adopted starting with fiscal years beginning after December 15, 2001.
Accordingly, the Company adopted the Statement on January 1, 2002. The
Company performed the first of the required impairment tests of goodwill
during the quarter ending March 31, 2002. Based on management's evaluation,
the Company determined that no transitional impairment losses were required
to be recognized as of January 1, 2002 as a cumulative effect of a change in
accounting principle.

      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 not be realized. 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 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 preferred 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.

      STOCK-BASED COMPENSATION - The Company accounts for stock options in
accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees". Accordingly, compensation
expense is recognized only if the exercise price of the option is less than
the fair value of the underlying stock at the grant date. FASB Statement No.
123, "Accounting for Stock-Based Compensation", encourages entities to
recognize the fair value of all stock-based awards on the date of grant as
compensation expense over the vesting period. Alternatively, Statement No.
123 allows entities to continue to apply the provisions of APB Opinion No. 25
and provide pro forma disclosures of net income and earnings per share as if
the fair-value-based method defined in Statement No. 123 had been applied.
The Company has elected to continue to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosures required by Statement No. 123.

      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. On April 16, 2002, the Company's shareholders approved the Long-Term
Incentive Compensation Plan which provided the Company's Compensation
Committee with the authority to grant stock options to employees,
non-employee directors and consultants of the Company and its subsidiaries.
Under the Stock Option Plan, 240,000 shares of authorized but unissued common
stock are reserved for issuance upon option exercises. Under the Long-Term
Incentive Compensation Plan, 225,000 shares of authorized but unissued common
stock are reserved for issuance upon option exercises. The Company also has
the alternative to fund both plans with treasury stock. Options under the
plans may be either non-qualified stock options or incen-

                                      19


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

tive 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 June 26, 2001, 35,850 options were awarded at an exercise price of
$32.50 per share. These options have a ten-year term with fifty percent
vesting one year from the date of the grant and the remaining fifty percent
vesting two years from the date of the grant. On June 24, 2002, 40,550
options were awarded at an exercise price of $29.43 per share. These options
have a ten-year term with twenty-five percent vesting each year starting one
year from the date of the grant.

      The fair value of each option grant, excluding the options granted in
connection with the acquisition of Adirondack, 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 2002 and 2001:
dividend yield of 2.41% and 2.11%, respectively; expected volatility of 15.8%
and 18.8%, respectively; risk free interest rate of 4.19% and 4.81%,
respectively; and an expected life of five years for grants awarded in both
years. Based on the aforementioned assumptions, the Company has estimated
that the fair value of the options granted on June 24, 2002 was $4.71 and the
options granted on June 26, 2001 was $6.60.

      The Company applies APB Opinion No. 25 in accounting for its stock
options and, accordingly, no compensation cost has been recognized for its
stock options in the consolidated financial statements. Had the Company
determined compensation cost based on the estimated fair value at the grant
date for its stock options under Statement No. 123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below for the years ended December 31 (in thousands, except per
share data):

                                      2002        2001        2000

Net income:
     As reported                    $4,632      $4,032       3,705
     Pro forma                       4,471       3,912       3,526
Basic earnings per share:
     As reported                      2.05        1.75        1.56
     Pro forma                        1.98        1.70        1.48
Diluted earnings per share:
     As reported                      2.03        1.72        1.54
     Pro forma                        1.96        1.67        1.47

      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.

      TREASURY STOCK - Treasury stock is recorded at cost. During 2002, the
Company purchased 85,886 shares of treasury stock at an average cost of
$29.62. Also during 2002, the Company sold 33,948 shares at an average price
of $26.75 as a result of the exercise of stock options and the dividend
reinvestment plan.

      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 any calendar year in excess of the subsidiary
Bank's earnings retained in the current year plus retained net profits, as
defined, for the preceding two years.

      TRUST ASSETS - Assets held in fiduciary or agency capacities for
customers of the subsidiary Bank are not included in the accompanying
consolidated statements of condition as such assets are not assets of the
subsidiary Bank. Trust assets under management totaled $28.5 million as of
December 31, 2002.

      CASH AND CASH EQUIVALENTS - 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 accounting principles generally accepted in
the United States of America, requires management to make estimates and
assumptions that affect the

                                      20


<PAGE>


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.

      RECENT ACCOUNTING PRONOUNCEMENTS - The Company adopted the provisions
of Financial Accounting Standards Board ("FASB") Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", effective
January 1, 2001. Statement No. 133, as amended by Statement No. 137 and
Statement No. 138, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. As of January 1, 2001 and during
the year of 2001, the Company did not have any derivative instruments or
derivative instruments embedded in other contracts. Therefore, the adoption
of SFAS No. 133, as amended, did not have any effect on the Company's
consolidated financial statements.

      In July 2001, the FASB issued Statement No. 141, "Business
Combinations". Statement No. 141 supercedes Accounting Principles Board
("APB") No. 16, "Business Combinations", and requires all business
combinations to be accounted for under the purchase method of accounting,
thus eliminating the pooling of interests method of accounting. The Statement
did not change many of the provisions of APB No. 16 related to the
application of the purchase method. However, the Statement does specify
criteria for recognizing intangible assets separate from goodwill and
requires additional disclosures regarding business combinations. The
Statement is effective for business combinations initiated after June 30,
2001.

      In August 2001, the FASB issued Statement No. 143, "Accounting for
Asset Retirement Obligations", which addresses financial accounting and
reporting for obligations associated with retirement of tangible long-lived
assets and the associated asset retirement costs. This statement is effective
for financial statements issued for fiscal years beginning after June 15,
2002. Earlier application is permitted. The Company does not expect the
adoption of this pronouncement to have a material effect on its consolidated
financial statements.

      In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supersedes Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". This
statement also supersedes the accounting and reporting provisions of
Accounting Principles Board (APB) Opinion No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions". This statement is effective for financial statements issued
for fiscal years beginning after December 15, 2001. The Company adopted the
provisions of Statement No. 144 effective January 1, 2002. The adoption of
this pronouncement did not have a material effect on the Company's
consolidated financial statements.

      In April 2002, the FASB issued Statement No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections". Statement No. 145 rescinds Statement No. 4,
"Reporting Gains and Losses from Extinguishment of Debt", which required
gains and losses from extinguishment of debt to be aggregated and, if
material, classified as an extraordinary item, net of related income tax
effect. Upon adoption of Statement No. 145, companies will be required to
apply the criteria in APB Opinion No. 30 in determining the classification of
gains and losses resulting from the extinguishment of debt. Additionally,
Statement No. 145 amends Statement No. 13, "Accounting for Leases", to
require that certain lease modifications that have economic effects similar
to sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. The provisions of Statement No. 145 related to
the rescission of Statement No. 4 are effective for fiscal years beginning
after May 15, 2002. All other provisions of Statement No. 145 are effective
for transactions occurring and/or financial statements issued on or after May
15, 2002. The implementation of the Statement No. 145 provisions which were
effective May 15, 2002 did not have any effect on the Company's consolidated
financial statements. The implementation of the remaining provisions is not
expected to have a material impact on the Company's consolidated financial
statements.

      In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". This statement is effective for exit or disposal activities
initiated after December 31, 2002. The Company will review the impact of
applying this standard to any exit or disposal activities initiated after
December 31, 2002.

      In October 2002, the FASB issued Statement No. 147, "Acquisitions of
Certain Financial Institutions". This statement amends Statement No. 72,
"Accounting for Certain Acquisitions of Banking or Thrift Institutions",
Statement No. 144, and FASB Interpretation No. 9. Except for transactions
between two or more mutual enterprises, this statement removes acquisitions
of financial institutions from the scope of both Statement No. 72 and FASB
Interpretation No. 9 and requires that those transactions be accounted for in
accordance with Statement No. 141 and Statement No. 142. In addition, this
statement amends Statement No. 144 to include in its scope long-term
customer-relationship intangible assets of financial institutions. The
provisions of this statement are to be applied retroactively to January 1,
2002 and are effective after September 30, 2002. The adoption of this
pronouncement did not have any effect on the Company's consolidated financial
statements.

                                      21


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

      ACQUISITION - On July 1, 2000, the Company acquired Hathaway Agency,
Inc. (Hathaway), a local insurance agency. At the date of the acquisition,
Hathaway had approximately $1,300,000 in assets, $300,000 in liabilities and
$1,000,000 in shareholders' equity. Pursuant to the merger agreement,
Hathaway became a wholly-owned subsidiary of CNB Bancorp, Inc.

      Upon consummation of the acquisition, each preferred share of Hathaway
was exchanged for $100 in cash which totaled approximately $700,000 and each
common share of Hathaway was exchanged for $2,432 in cash which totaled
approximately $600,000. In addition, under a non-compete agreement each
preferred and common shareholder of Hathaway will receive payments over a
period of five years totaling, in the aggregate, approximately $300,000.

      The acquisition was accounted for using purchase accounting in
accordance with APB Opinion No. 16. Under purchase accounting, the purchase
price is allocated to the respective assets acquired and liabilities assumed
based on their fair values. The acquisition of Hathaway resulted in
approximately $300,000 in excess of cost over net assets acquired
("goodwill"). Covenant not to compete payments are being expenses as paid
over the five-year period of the covenant.

      On June 1, 1999, the Company acquired Adirondack Financial Services
Bancorp, Inc. (Adirondack) and its wholly-owned subsidiary, Gloversville
Federal Savings and Loan Association. At the date of the merger, Adirondack
had approximately $68.5 million in assets, $56.4 million in deposits and $9.5
million in shareholders' equity. Pursuant to the merger agreement, Adirondack
was merged into CNB Bancorp, Inc. and Gloversville Federal Savings and Loan
Association was merged into City National Bank and Trust Company. The
combined bank now operates as one institution under the name of City National
Bank and Trust Company.

      Under consummation of the merger, each share of Adirondack received
$21.92 in cash which totaled approximately $14.6 million. In addition, under
the merger agreement, the Company agreed to issue 35,614 stock options to
purchase CNB Bancorp, Inc. stock at an exercise price of $15.22 per share.
The estimated fair value of these options as of the acquisition date was
$11.04 per share. The issuance of these options was included in the
computation of goodwill, with the offsetting increase to surplus.

      The acquisition was accounted for using purchase accounting in
accordance with APB No. 16. The acquisition of Adirondack resulted in
approximately $4.8 million in excess of cost over net assets acquired
("goodwill"). The results of operations of Adirondack have been included in
the Company's consolidated statements of income for periods subsequent to the
date of acquisition.

      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: EARNINGS PER SHARE

      The following sets forth certain information regarding the calculation
of basic and diluted earnings per share (EPS) for the years ended December 31
(in thousands, except per share data):

                                           2002       2001        2000

Net income                               $4,632     $4,032      $3,705

Weighted average common
  shares outstanding                      2,257      2,303       2,377
Dilutive effect of potential
  common shares related to
  stock based compensation plans             24         39          27

Weighted average common shares
  including potential dilution            2,281      2,342       2,404

Basic earnings per share                  $2.05      $1.75       $1.56
Diluted earnings per share                $2.03      $1.72       $1.54

      There were 74,400 and 35,850 antidilutive stock options outstanding at
December 31, 2002 and 2001, respectively. There were no antidilutive stock
options outstanding at December 31, 2000.

                                      22


<PAGE>


      The following adjusts reported net income and earnings per share to
consistently reflect the provisions of SFAS No. 142 for the years ended
December 31 (in thousands, except per share data):

                                              2002         2001        2000
Net income:
     As reported                            $4,632       $4,032      $3,705
     Add back: Goodwill amortization            --          319         319

     Adjusted net income                    $4,632       $4,351      $4,024

Basic EPS:
     As reported                             $2.05        $1.75       $1.56
     Add back: Goodwill amortization            --         0.14        0.13

     Adjusted basic EPS                      $2.05        $1.89       $1.69

Diluted EPS:
     As reported                             $2.03        $1.72       $1.54
     Add back: Goodwill amortization            --         0.14        0.13

     Adjusted diluted EPS                    $2.03        $1.86       $1.67

Note 3: 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
$4,282,000 and $3,993,000 at December 31, 2002 and 2001, respectively.

Note 4: 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>

                                                                                   2002

                                                                           Gross           Gross           Estimated
                                                       Amortized        Unrealized      Unrealized           Fair
                                                         Cost              Gains          Losses             Value

<S>                                                    <C>                <C>              <C>             <C>
Debt securities available for sale:
  U.S. Treasury securities                               $2,117              $70            $--              $2,187
  Obligations of U.S. Government agencies                95,637            1,813             32              97,418
  Collateralized mortgage obligations:
     U.S. Government agencies                             9,211               83              4               9,290
     Corporate securities                                   719               --              7                 712
  Other corporate securities                              7,645              253            334               7,564
  Obligations of state and political subdivisions        24,268            1,421             --              25,689

     Total debt securities available for sale           139,597            3,640            377             142,860

Equity securities available for sale:
  Corporate securities                                    1,210              149             --               1,359

     Total equity securities available for sale           1,210              149             --               1,359

         Total securities available for sale           $140,807           $3,789           $377            $144,219

</TABLE>


<TABLE>

<CAPTION>

                                                                                   2001

                                                                           Gross           Gross           Estimated
                                                       Amortized        Unrealized      Unrealized           Fair
                                                         Cost              Gains          Losses             Value

<S>                                                    <C>                <C>              <C>             <C>
Debt securities available for sale:
  U.S. Treasury securities                               $2,130              $32            $--              $2,162
  Obligations of U.S. Government agencies                61,941              572            214              62,299
  Collateralized mortgage obligations:
     U.S. Government agencies                            22,415              124            145              22,394
     Corporate securities                                 1,055               --              3               1,052
  Other corporate securities                              8,123              215            206               8,132
  Obligations of state and political subdivisions        22,687              462            114              23,035

     Total debt securities available for sale           118,351            1,405            682             119,074

Equity securities available for sale:
  Corporate securities                                    1,110               65             --               1,175

     Total equity securities available for sale           1,110               65             --               1,175

         Total securities available for sale           $119,461           $1,470           $682            $120,249

</TABLE>

                                      23


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

      The amortized cost and estimated fair value of debt securities
available for sale at December 31, 2002, 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.
Collateralized mortgage obligations are included in this schedule based on
the contractual maturity date.

                                                   Amortized       Estimated
                                                     Cost         Fair Value

Due in one year or less                              $2,672          $2,691
Due after one year through five years                23,366          23,769
Due after five years through ten years               31,530          32,685
Due after ten years                                  82,029          83,715

     Total debt securities available for sale      $139,597        $142,860

      Proceeds from sales of securities available for sale during 2002 and
2000 were $1,021,000 and $1,043,000, respectively. There were no sales of
securities available for sale during 2001. Gross gains in 2002 were $31,000.
There were no losses in 2002. There were no gains or losses on sales during
2000.

      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, 2002 and 2001 were $88,123,000 and $79,848,000, respectively.
Actual deposits secured by these securities at December 31, 2002 and 2001
were $45,504,000 and $44,286,000, respectively. Repurchase agreements secured
by these securities at December 31, 2002 and 2001 were $13,570,000 and
$11,629,000, respectively.

Note 5: 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>

                                                                                   2002

                                                                            Gross           Gross          Estimated
                                                        Amortized        Unrealized      Unrealized          Fair
                                                          Cost              Gains          Losses            Value

<S>                                                      <C>                <C>             <C>              <C>
Obligations of U.S. Government agencies                     $15              $--            $--                 $15
Obligations of states and political subdivisions          7,554              413              7               7,960
Corporate securities                                      2,000               --             --               2,000

     Total investment securities                         $9,569             $413             $7              $9,975

</TABLE>


<TABLE>

<CAPTION>

                                                                                   2001

                                                                            Gross           Gross          Estimated
                                                        Amortized        Unrealized      Unrealized          Fair
                                                          Cost              Gains          Losses            Value

<S>                                                      <C>                <C>             <C>             <C>
Obligations of U.S. Government agencies                     $42               $1            $--                 $43
Obligations of states and political subdivisions          7,913              289              4               8,198
Corporate securities                                      2,000               --             --               2,000

     Total investment securities                         $9,955             $290             $4             $10,241

</TABLE>

      The amortized cost and estimated fair value of investment securities at
December 31, 2002, 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                         $1,785            $1,802
Due after one year through five years            2,821             3,016
Due after five years through ten years           2,314             2,486
Due after ten years                              2,649             2,671

     Total investment securities                $9,569            $9,975


      There were no sales of investment securities during 2002, 2001 and
2000. In 2002 and 2001, municipal issues called at premium produced gains of
$2,000 and $15,000, respectively. No municipal issues were called at premiums
during 2000.

                                      24


<PAGE>


      The amortized cost of all investment securities pledged to secure public
deposits as required by law at December 31, 2002 and 2001 were $2,822,000 and
$4,078,000, respectively. Actual deposits secured by these securities at
December 31, 2002 and 2001 were $2,696,000 and $3,699,000, respectively.

Note 6: LOANS

      Loans are comprised of the following at December 31 (in thousands):

                                                2002                2001

Commercial and commercial real estate         $51,313             $48,979
Residential real estate                        80,616              85,977
Installment                                    69,088              76,727

     Total loans                             $201,017            $211,683

      Non-accrual loans at December 31, 2002, 2001 and 2000 were $1,620,000,
$374,000 and $936,000, 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 $67,000, $159,000 and $210,000 as of
December 31, 2002, 2001 and 2000, respectively.

      As of December 31, 2002 and 2001, respectively, there were $1,620,000
and $374,000 of commercial loans that were placed on non-accrual status and
were classified as impaired loans. As of December 31, 2002 and 2001, $324,000
and $40,000 of the allowance for loan losses was allocated to the impaired
loans, respectively. During 2002, 2001 and 2000, the average balance of
impaired loans was $665,000, $601,000 and $1,188,000, respectively. Interest
income of $58,000, $17,000 and $103,000 was recognized on impaired loans
during 2002, 2001 and 2000, respectively.

      The subsidiary Bank's primary business area consists of the Counties of
Fulton and Saratoga 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, 2002 and 2001, 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 $4.3 million as of December 31, 2002 and $4.2 million as
of December 31, 2001. These figures represent 17.7% and 14.4% of the total
loan commitments outstanding at the end of each respective year. Loans
outstanding to this segment were $4.2 million as of December 31, 2002 and
$5.3 million as of December 31, 2001. These figures represent 2.1% and 2.5%
of gross loans outstanding at the end of each respective year.

      In the ordinary course of business, the subsidiary Bank has made loans
to certain directors and executive officers of the Company, its subsidiaries,
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, 2002 and 2001 amounted to $4,664,000 and $3,956,000,
respectively. During 2002, $3,413,000 of new loans were made and repayments
totaled $2,705,000.

Note 7: ALLOWANCE FOR LOAN LOSSES

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

                                          2002           2001          2000

Balance at beginning of year            $2,506         $2,750        $2,697
Provision charged to income              1,165            525           219
Loans charged off                         (723)          (996)         (239)
Recoveries of loans charged off            135            227            73

Balance at end of year                  $3,083         $2,506        $2,750

Note 8: PREMISES AND EQUIPMENT

      Premises and equipment at December 31 are as follows (in thousands):

                                                         2002          2001

Land                                                     $687          $687
Premises and leasehold improvements                     3,995         3,306
Equipment, furniture and fixtures                       3,174         2,905

                                                        7,856         6,898
Less: Accumulated depreciation                         (3,860)       (3,478)

     Total premises and equipment                      $3,996        $3,420

      Depreciation expense amounted to $382,000, $351,000 and $347,000 for
the years 2002, 2001 and 2000, respectively.

                                      25


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 9: TIME DEPOSITS

      The approximate amount of contractual maturities of time deposit
accounts for the years subsequent to December 31, 2002 are as follows (in
thousands):

Years ended December 31,

          2003                                   $67,296
          2004                                    43,268
          2005                                     4,084
          2006                                     4,266
          2007                                     1,406

          Total                                 $120,320

Note 10: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

      For the years ended December 31, 2002 and 2001, the average balance of
Securities Sold Under Agreements to Repurchase was $12,436,000 and
$10,971,000, respectively. The highest month end balances for these
borrowings during 2002 and 2001 were $13,570,000 and $11,629,000,
respectively. The average rate paid for these borrowings during 2002 and 2001
was 4.87% and 5.33%, respectively.

      The underlying securities associated with customer repurchase
agreements are under the control of the subsidiary Bank. All customer
repurchase agreements at December 31, 2002 matured within two days. The
underlying securities associated with repurchase agreements with the Federal
Home Loan Bank (FHLB) are held in a collateral account for our account until
maturity of the agreements. All FHLB repurchase agreements have stated
maturities of ten years or less.

Note 11: NOTES PAYABLE - FEDERAL HOME LOAN BANK

      Information on the borrowings is summarized as follows (dollars in
thousands):

                    Floating Rate and Fixed Rate Advances

                     Balance at           Interest Rate as
Maturity Date     December 31, 2002     of December 31, 2002       Call Date

 12/08/2003            $1,000                  4.870%              03/07/2003
 02/03/2004             1,000                  4.800               02/03/2003
 01/27/2005             1,000                  6.150               01/27/2003
 11/22/2005             2,000                  5.920               02/22/2003
 12/13/2010             2,000                  5.090               03/13/2003
 01/11/2011             2,000                  4.600               01/11/2003
 01/11/2011             2,000                  4.910               01/11/2004
 02/28/2011             1,000                  4.460               02/28/2003
 03/08/2011             2,000                  4.820               03/08/2004
 05/02/2011             2,000                  4.720               04/30/2004
 11/28/2011             1,000                  4.020               11/28/2004
 03/19/2012             2,000                  4.410               03/18/2005
 06/23/2003*            2,000                  1.449                    *
 11/28/2003*            1,000                  1.470                    *
 02/05/2004*            1,000                  1.759                    *
 05/14/2004*            2,000                  1.440                    *
 06/15/2004*            1,000                  1.390                    *
 04/18/2005*            2,000                  1.833                    *
 05/02/2005*            2,000                  1.770                    *
 06/15/2005*            2,000                  1.460                    *
 07/12/2005*            2,000                  1.714                    *
 07/15/2005*            1,000                  1.804                    *
 08/30/2005*            1,000                  1.443                    *
 10/31/2005*            1,000                  1.878                    *
 05/23/2007*            1,500                  1.604                    *

     Total            $38,500

* These borrowings are non-callable but retain a monthly or quarterly
  repricing frequency to the current 1-month or 3-month LIBOR rate plus or
  minus 0 to 18 basis points. The interest on these borrowings is calculated
  on an actual/360-day basis and is payable monthly or quarterly to the
  Federal Home Loan Bank depending on the repricing frequency.

                                      26


<PAGE>


                    Monthly Amortizing Fixed Rate Advances

                           Balance at             Interest Rate as
Maturity Date           December 31, 2002       of December 31, 2002

10/28/2003                  $    81                    5.038%
11/10/2003                      222                    5.412
10/28/2005                      185                    5.228
10/28/2008                      131                    5.436

         Total              $   619

      These borrowings call for monthly payments of principal and interest of
approximately $35,000 per month. Interest on these advances is calculated on
a 30/360 day basis.

      At December 31, 2002 and 2001, the subsidiary Bank had available lines
of credit with correspondent banks and the Federal Home Loan Bank of
$123,291,000 and $112,708,000, 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, 2002 and 2001, advances outstanding on these lines with the
Federal Home Loan Bank were $39,119,000 and $32,989,000, respectively.

Note 12: 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 (dollars in thousands).

                                                       2002           2001
Change in projected benefit obligation:
     Projected benefit obligation
       at beginning of year                          $4,115         $3,467
     Service cost                                       200            171
     Interest cost                                      271            264
     Benefits paid                                     (213)          (209)
     Expenses paid                                      (32)           (28)
     Assumption changes and other                       738            450

     Projected benefit obligation
       at end of year                                 5,079          4,115

Change in plan assets:
     Fair value of plan assets
       at beginning of year                           4,078          4,444
     Actual loss on plan assets                        (211)          (364)
     Employer contribution                               --            235
     Benefits paid                                     (213)          (209)
     Expenses paid                                      (32)           (28)

     Fair value of plan assets at end of year         3,622          4,078

     Funded status                                   (1,457)           (37)
     Unrecognized net actuarial loss                  1,989            908
     Unrecognized prior service cost                    281            106
     Unrecognized transition asset                       (1)            (2)

     Prepaid pension cost                              $812           $975

Amounts recognized in the consolidated
  statements of condition consist of:
     Prepaid pension cost                              $812           $975
     Additional minimum liability                    (1,565)            --
     Intangible asset                                   281             --
     Accumulated other comprehensive
       loss (pre-tax basis)                           1,284             --

     Prepaid pension cost                              $812           $975

Weighted average assumptions as of September 30
     Discount rate                                     6.25%          6.75%
     Rate of compensation increase                     4.00           4.00
     Expected return on plan assets                    8.50           8.50

                                      27


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

<TABLE>

<CAPTION>

                                                              2002                    2001                   2000

<S>                                                           <C>                     <C>                    <C>
Components of net periodic pension cost:
     Service cost                                             $200                    $171                   $173
     Interest cost                                             271                     264                    239
     Expected return on plan assets                           (344)                   (375)                  (338)
     Amortization of loss from earlier periods                  31                      --                     --
     Amortization of unrecognized prior service cost             6                      (2)                    (2)
     Amortization of unrecognized transition asset              (1)                     (1)                    (1)

     Net periodic pension cost                                $163                     $57                    $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, 2002, 2001 and 2000 was approximately $60,000, $58,000 and
$62,000, 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. Under the terms of this plan, upon the
death of a participant, the beneficiary receives an amount equal to three
times the final year's salary of the participant. The subsidiary Bank has
invested approximately $5.1 million for this coverage and is receiving an
annual tax-free return. The cash surrender value of the bank-owned life
insurance is included in other assets and was approximately $5.8 million and
$2.7 million as of December 31, 2002 and December 31, 2001, respectively.

      Profit Sharing Plan - The subsidiary Bank has a non-contributory 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. Contributions are accrued during the year
and are distributed December 31st of each year. The subsidiary Bank's
contribution to the plan for 2002, 2001 and 2000 was $152,000, $146,000 and
$140,000, 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 2002, 2001 or 2000.

Note 13: STOCK OPTIONS

      A summary of the status of the Company's stock option plans as of
December 31, 2002, 2001 and 2000 and changes during the years then ended is
presented below:

<TABLE>

<CAPTION>

                                                2002                         2001                         2000

                                                 Weighted Average             Weighted Average             Weighted Average
                                       Shares     Exercise Price    Shares     Exercise Price    Shares     Exercise Price

<S>                                    <C>            <C>           <C>            <C>           <C>            <C>
Options:
     Outstanding at
       beginning of year               231,258        $25.32        232,115        $23.83        238,069        $23.61
     Granted                            40,550         29.43         35,850         32.50             --            --
     Exercised                         (22,047)        23.35        (34,968)        22.72         (5,954)        15.22
     Cancelled                          (2,000)        32.50         (1,739)        26.25             --            --

     Outstanding at year-end           247,761         26.11        231,258         25.32        232,115         23.83

     Exercisable at year-end           185,657        $25.08        181,163        $24.70        160,046        $24.21

</TABLE>

      The following table summarizes information about the Company's stock
options at December 31, 2002:

                                         Weighted Average
Exercise                                     Remaining
  Price            Outstanding             Contract Life         Exercisable

 $29.43               40,550                 9.5 years                  --
  32.50               33,850                 8.5 years              16,925
  26.25              103,990                 6.3 years             103,990
  23.67               46,228                 5.8 years              46,228
  15.22               23,143                 5.7 years              18,514

                     247,761                                       185,657

                                      28


<PAGE>


Note 14: INCOME TAXES

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

                                                 2002        2001        2000

Current tax expense:
     Federal                                   $1,861      $1,567      $1,207
     State                                        264         210         130

     Total current tax expense                  2,125       1,777       1,337

Deferred tax (benefit) expense:
     Federal                                     (249)         26         218
     State                                        (59)          6          20

     Total deferred tax (benefit) expense        (308)         32         238

Provision for income taxes                     $1,817      $1,809      $1,575

      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>

                                                            2002                  2001                  2000

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

<S>                                                  <C>         <C>       <C>         <C>       <C>         <C>
Tax expense at statutory rate                        $2,193      34.0%     $1,986      34.0%     $1,795      34.0%
Increase (decrease) resulting from:
     Tax-exempt interest income                        (533)     (8.2)       (506)     (8.7)       (487)     (9.2)
     State tax expense, net of federal deductions       135       2.1         140       2.4         107       2.0
     Interest expense incurred to carry
        tax-exempt bonds                                 47       0.7          63       1.1          67       1.3
     Amortization of goodwill                            --        --         129       2.2         125       2.4
     Other                                              (25)     (0.4)         (3)       --         (32)     (0.7)

Provision for income taxes                           $1,817      28.2%     $1,809      31.0%     $1,575      29.8%

</TABLE>

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

                                                         2002       2001
Deferred tax assets:
     Allowance for loan losses                         $1,201       $976
     Director's deferred compensation                       9          9
     Accrued pension liability                            168        146
     Purchase accounting adjustments                       32         33
     ORE writedown                                         --          4
     Covenant not to compete                               55         34
     Loan fees                                             15         19

        Total gross deferred tax assets                 1,480      1,221

Deferred tax liabilities:
     Premises and equipment, primarily due to
       accelerated depreciation                           (54)       (69)
     Securities discount accretion                        (68)       (80)
     Prepaid pension cost                                (370)      (380)
     Purchase accounting adjustments                     (164)      (176)

        Total gross deferred tax liabilities             (656)      (705)

        Net deferred tax asset end of year                824        516
        Net deferred tax asset beginning of year          516        548

Deferred tax (benefit)/expense                          ($308)       $32

      In addition to the deferred tax assets and liabilities described above,
the Company also has a deferred tax liability of $1,329,000 at December 31,
2002 related to the unrealized gain on securities available for sale as of
December 31, 2002 and a deferred tax asset of $500,000 related to the
recognition of a minimum pension liability as of December 31, 2002. The
Company had a deferred tax liability of $307,000 at December 31, 2001 related
to the unrealized gain on securities available for sale as of December 31,
2001.

      Deferred tax assets are recognized subject to management's judgment
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. 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, 2002 and 2001 will be
realized.

                                      29


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 15: COMPREHENSIVE INCOME

      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 and minimum pension liability adjustments. The Company has reported its
comprehensive income or loss for 2002, 2001 and 2000 in the consolidated
statements of changes in stockholders' equity.

      The Company's other comprehensive income consisted of the following
components for the years ended December 31 (in thousands):

<TABLE>

<CAPTION>

                                                                                 2002              2001             2000

<S>                                                                            <C>                 <C>            <C>
Net unrealized holding gains arising during the year, net of taxes
     of ($1,034) in 2002, ($333) in 2001 and ($1,366) in 2000                  $1,621              $522           $2,141

Reclassification adjustment for net realized gains included in
     income, net of taxes of $12 in 2002, $0 in 2001 and $0 in 2000               (19)               --               --

Minimum pension liability adjustment, net of taxes of $500 in 2002,
     $0 in 2001 and $0 in 2000                                                   (784)               --               --

Other comprehensive income                                                       $818              $522           $2,141

</TABLE>

Note 16: 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, 2002 and 2001 at fixed and variable rates are as follows (in
thousands):

                                                   2002

                                  Fixed          Variable            Total
Commitment and unused
  lines of credit:
     Home equity loans              $--            $4,516           $4,516
     Commercial loans             1,024            15,994           17,018
     Overdraft loans              1,377                --            1,377
     Mortgage loans               1,379                --            1,379

                                  3,780            20,510           24,290
Standby letters of credit            --               261              261

Total commitments                $3,780           $20,771          $24,551


                                                   2001

                                  Fixed          Variable            Total
Commitment and unused
  lines of credit:
     Home equity loans              $--            $4,571           $4,571
     Commercial loans             2,850            18,153           21,003
     Overdraft loans              1,390                --            1,390
     Mortgage loans               1,866                --            1,866

                                  6,106            22,724           28,830
Standby letters of credit            --               125              125

Total commitments                $6,106           $22,849          $28,955

      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

                                      30


<PAGE>


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.


      In November 2002, the FASB issued FASB Interpretation No. 45 (FIN No.
45), "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others; an Interpretation of
FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No.
34". FIN No. 45 requires certain new disclosures and potential
liability-recognition for the fair value at issuance of guarantees that fall
within its scope. Under FIN No. 45, the Company does not issue any guarantees
that would require liability-recognition or disclosure, other than its
standby letters of credit.

      The Company has issued conditional commitments in the form of standby
letters of credit to guarantee payment on behalf of a customer and guarantee
the performance of a customer to a third party. Standby letters of credit
generally arise in connection with lending relationships. The credit risk
involved in issuing these instruments is essentially the same as that
involved in extending loans to customers. Contingent obligations under
standby letters of credit totaled approximately $261,000 at December 31, 2002
and represent the maximum potential future payments the Company could be
required to make. Typically, these instruments have terms of twelve months or
less and expire unused; therefore, the total amounts do not necessarily
represent future cash requirements. Each customer is evaluated individually
for creditworthiness under the same underwriting standards used for
commitments to extend credit and on-balance sheet instruments. Company
policies governing loan collateral apply to standby letters of credit at the
time of credit extension. Loan-to-value ratios are generally consistent with
loan-to-value requirements for other commercial loans secured by similar
types of collateral. The fair value of the Company's standby letters of
credit at December 31, 2002 was insignificant.

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

Note 17: 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 judgments by the regulators
about capital components, risk weightings and other factors.

      As of December 31, 2002 and 2001, 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.

                                      31


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

      The following is a summary of the actual capital amounts and ratios as
of December 31, 2002 and 2001 for the Company (consolidated) and the
subsidiary Bank (in thousands):

<TABLE>

<CAPTION>

                                                           2002                                     2001

                                                 Amount              Ratio                Amount              Ratio

<S>                                              <C>                 <C>                  <C>                 <C>
Consolidated
     Leverage (Tier 1) capital                   $30,619              7.9%                $29,961              8.4%
     Risk-based capital:
        Tier 1                                    30,619             14.9                  29,961             14.7
        Total                                     33,266             16.2                  32,496             16.0

Subsidiary Bank
     Leverage (Tier 1) capital                   $28,995              7.5%                $28,466              8.0%
     Risk-based capital:
        Tier 1                                    28,995             14.1                  28,466             14.0
        Total                                     31,620             15.3                  30,981             15.3

</TABLE>

Note 18: PARENT COMPANY ONLY FINANCIAL INFORMATION

      The following presents the financial condition of the Parent Company as
of December 31, 2002 and 2001 and the results of its operations and cash
flows for the years ended December 31, 2002, 2001 and 2000 (in thousands):

               CONDENSED STATEMENTS OF CONDITION (Parent only)

                                                            At December 31,

                                                           2002         2001

ASSETS
     Cash                                                   $392         $314
     Securities available for sale, at fair value            169          156
     Investment in subsidiaries                           36,346       34,197

        Total assets                                     $36,907      $34,667

LIABILITIES AND STOCKHOLDERS'  EQUITY
     Deferred taxes payable - FASB No. 115                   $23          $18

        Total liabilities                                     23           18

STOCKHOLDERS' EQUITY
     Common stock                                         $6,004       $6,004
     Surplus                                               4,418        4,418
     Undivided profits                                    30,517       27,608
     Treasury stock, at cost                              (5,354)      (3,862)
     Accumulated other comprehensive income                1,299          481

        Total stockholders' equity                        36,884       34,649

        Total liabilities and stockholders' equity       $36,907      $34,667

                                      32


<PAGE>


                 CONDENSED STATEMENTS OF INCOME (Parent only)

                                                    Years ended December 31,

                                                  2002        2001       2000
Income
     Dividends from subsidiaries                $3,312      $4,025     $4,718
     Dividends on securities
       available for sale                            6           6          4

        Total dividend income                    3,318       4,031      4,722

Expenses
     Salaries and employee benefits                 --          --          3
     Other expense                                  38          49         19

        Total expenses                              38          49         22

Income before income taxes
  and equity in/(distributions
  in excess of) undistributed
  net income of subsidiaries                     3,280       3,982      4,700

Income tax benefit                                  13          17         30

Income before equity in (distribution
  in excess of) undistributed
  net income of subsidiaries                     3,293       3,999      4,730
Equity in/(distribution in excess of)
  undistributed net income of subsidiaries       1,339          33     (1,025)

Net income                                      $4,632      $4,032     $3,705


<TABLE>

               CONDENSED STATEMENTS OF CASH FLOWS (Parent only)

<CAPTION>

                                                                            Years ended December 31,

                                                              2002                    2001                   2000

<S>                                                         <C>                     <C>                    <C>
Cash flows from operating activities:
     Net income                                             $4,632                  $4,032                 $3,705
     Decrease/(increase) in other assets                        --                      30                    (30)
     (Decrease)/increase in other liabilities                   --                      (6)                     6
     Other                                                      --                      --                      3
     (Equity in)/distributions in excess of undistributed
        net income                                          (1,339)                    (33)                 1,025

Net cash provided by operating activities                    3,293                   4,023                  4,709

Cash flows from investing activities:
     Purchase of Hathaway Agency, Inc.                          --                      --                 (1,433)
     Purchase of available for sale securities                  --                      --                   (110)
     Proceeds from sales of available for sale securities       --                      --                     50

Net cash used by investing activities                           --                      --                 (1,493)

Cash flows from financing activities:
     Proceeds from the sale of treasury stock                  908                   1,003                     90
     Treasury stock purchased                               (2,544)                 (3,381)                (1,755)
     Cash dividends paid on common stock                    (1,579)                 (1,520)                (1,476)

Net cash used by financing activities                       (3,215)                 (3,898)                (3,141)

Net increase in cash                                            78                     125                     75

Cash beginning of period                                       314                     189                    114

Cash end of period                                            $392                    $314                   $189

</TABLE>

                                      33


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 19: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

      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 premises 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 and the historical experience
that these securities are redeemed at cost.

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 value.

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.

Securities Sold Under Agreements to Repurchase

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

                                      34


<PAGE>


or discount is 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 is 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. Therefore, carrying
value approximates 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>

                                                                   2002                               2001

                                                          Carrying       Estimated           Carrying       Estimated
                                                           Amount       Fair Value            Amount       Fair Value

<S>                                                        <C>            <C>                 <C>            <C>
Financial Assets:
     Cash and cash equivalents                             $34,660        $34,660             $19,729        $19,729
     Securities available for sale<F1>                     147,380        147,380             123,102        123,102
     Investment securities                                   9,569          9,975               9,955         10,241
     Loans (net of unearned income)                        186,264        188,493             194,949        195,389
        Less allowance for loan losses                       3,083             --               2,506             --

           Net loans                                       183,181        188,493             192,443        195,389

     Accrued interest receivable                             1,801          1,801               1,661          1,661

Financial Liabilities:
     Deposits
        Non-interest bearing demand                        $27,827        $27,827             $28,103        $28,103
        Savings, NOW and money market                      152,469        152,469             130,311        130,311
        Certificates of deposit and other time             120,320        122,080             120,813        122,679

           Total deposits                                  300,616        302,376             279,227        281,093

        Securities sold under agreements to repurchase      13,570         13,918              11,629         11,873
        Notes Payable - FHLB                                39,119         39,470              32,989         33,372
        Accrued interest payable                               326            326                 432            432

<FN>

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

</FN>

</TABLE>

                                      35


<PAGE>


INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated statements of condition of CNB
Bancorp, Inc. and subsidiaries (the Company) as of December 31, 2002 and
2001, 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, 2002. 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 auditing standards generally
accepted in the United States of America. 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 subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.

/s/ KPMG LLP

Albany, New York
January 31, 2003

                                      36


<PAGE>


UNAUDITED INTERIM FINANCIAL INFORMATION

(In thousands, except per share data)

      The following is a summary of unaudited quarterly financial information
for each quarter of 2002 and 2001.

<TABLE>

<CAPTION>

                                                                               THREE MONTHS ENDED

                                                        March 31, 2002    June 30, 2002    Sept. 30, 2002     Dec. 31, 2002

<S>                                                         <C>               <C>              <C>               <C>
Total interest and dividend income                          $5,619            $5,588           $5,539            $5,300
Total interest expense                                       2,109             2,118            2,093             1,980

Net interest income                                          3,510             3,470            3,446             3,320

Provision for loan losses                                      310               225              355               275

Noninterest income                                             700               482              634               471
Noninterest expense                                          2,069             2,143            2,007             2,200

Income before income taxes                                   1,831             1,584            1,718             1,316
Provision for income taxes                                     550               453              494               320

Net income                                                  $1,281            $1,131           $1,224              $996

Earnings per share:
    Basic                                                    $0.56             $0.50            $0.54             $0.45
    Diluted                                                   0.55              0.49             0.54              0.44

</TABLE>


<TABLE>

<CAPTION>

                                                                               THREE MONTHS ENDED

                                                        March 31, 2001    June 30, 2001    Sept. 30, 2001     Dec. 31, 2001

<S>                                                         <C>               <C>              <C>               <C>
Total interest and dividend income                          $6,100            $6,128           $6,065            $5,760
Total interest expense                                       3,061             3,061            2,884             2,402

Net interest income                                          3,039             3,067            3,181             3,358

Provision for loan losses                                      140                70              185               130

Noninterest income                                             611               544              531               438
Noninterest expense                                          2,055             2,092            2,016             2,240

Income before income taxes                                   1,455             1,449            1,511             1,426
Provision for income taxes                                     450               448              477               434

Net income                                                  $1,005            $1,001           $1,034              $992

Earnings per share:
    Basic                                                    $0.43             $0.43            $0.46             $0.44
    Diluted                                                   0.42              0.43             0.45              0.43

</TABLE>

                                      37


<PAGE>


DESCRIPTION OF BUSINESS

CNB Bancorp, Inc., a New York corporation, organized in 1988, is a registered
financial 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 five
branches located in the county of Fulton and one branch located in the county
of Saratoga. 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
Bank and the Office of the Comptroller of the Currency. On July 1, 2000, CNB
Bancorp, Inc. acquired another wholly-owned subsidiary, Hathaway Agency,
Inc., which was organized in 1915 and is also headquartered in Gloversville,
New York. The subsidiary Insurance Agency specializes in commercial,
industrial and not-for-profit businesses, as well as insuring the personal
automobiles and homes of the people of Fulton County. The insurance agency is
under the supervision of the New York State Insurance Department.

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>

                                                                      2002

                                         High               Low                Close          Dividend Paid

<S>                                     <C>               <C>                 <C>                 <C>
First Quarter                           $33.500           $29.500             $32.500             $ .17
Second Quarter                           33.300            29.850              29.900               .17
Third Quarter                            29.900            26.700              27.000               .18
Fourth Quarter                           28.000            23.500              26.500               .18

Number of shareholders on December 31                      693

</TABLE>


<TABLE>

<CAPTION>

                                                                      2001

                                         High               Low                Close          Dividend Paid

<S>                                     <C>               <C>                 <C>                 <C>
First Quarter                           $29.875           $27.750             $29.125             $ .16
Second Quarter                           34.000            28.000              33.000               .16
Third Quarter                            38.750            32.500              32.500               .17
Fourth Quarter                           35.000            29.500              29.500               .17

Number of shareholders on December 31                      692

</TABLE>

A copy of Form 10K (Annual Report) for 2002, 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

                                      38


<PAGE>


NOTES

                                      39


<PAGE>


NOTES

                                      40


<PAGE>


CITY NATIONAL BANK & TRUST COMPANY


                                ADMINISTRATION

WILLIAM N. SMITH...........................CHAIRMAN OF THE BOARD AND PRESIDENT
GEORGE A. MORGAN..........EXECUTIVE VICE-PRESIDENT, CASHIER, AND TRUST OFFICER


                                   FINANCE

MICHAEL J. FRANK................................VICE-PRESIDENT AND COMPTROLLER


                                  COMPLIANCE

GEORGE E. DOHERTY...............................................VICE-PRESIDENT


                                   LENDING

BILL ARGOTSINGER................................................VICE-PRESIDENT
ROBERT A. GRUGLE................................................VICE-PRESIDENT
HENRI LANGEVIN..................................................VICE-PRESIDENT
MICHAEL G. LISKY................................................VICE-PRESIDENT
MICHAEL J. PEPE.................................................VICE-PRESIDENT
GARY R. CANFIELD......................................ASSISTANT VICE-PRESIDENT
MARY E. IANNOTTI......................................ASSISTANT VICE-PRESIDENT
KATHRYN E. SMULLEN....................................ASSISTANT VICE-PRESIDENT


                                  OPERATIONS

RONALD J. BRADT..........................................SENIOR VICE-PRESIDENT
DENISE L. CERASIA...............................................VICE-PRESIDENT
PAULA K. TUCKER................................................SYSTEMS OFFICER


                                  TECHNOLOGY

L. RANDY MARSICANO..............................................VICE-PRESIDENT


                                    TRUST

DEBORAH M. BUCK..................................................TRUST OFFICER


                             INVESTMENT SERVICES

RICHARD DIXON.......................................FINANCIAL SERVICES OFFICER


                                    AUDIT

BRIAN R. SEELEY........................................................AUDITOR


                               HUMAN RESOURCES

DEBORAH A. BRANDIS..............................................VICE-PRESIDENT
CAROLE A. GOTTUNG.............................................TRAINING OFFICER


                                  MARKETING

LAWRENCE D. PECK................................................VICE-PRESIDENT




                                BRANCH OFFICES

ELIZABETH J. SIMONDS...................VICE-PRESIDENT AND BRANCH ADMINISTRATOR


                       GLOVERSVILLE - NORTH MAIN STREET

DEBRA ELLSWORTH.................................................BRANCH OFFICER


                         GLOVERSVILLE - FIFTH AVENUE

ROSEANN LAURIA....................................................AVP, MANAGER
DENISE HLADIK...................................................BRANCH OFFICER


                                  NORTHVILLE

CONSTANCE A. ROBINSON.............................................AVP, MANAGER
KAREN SCHERMERHORN..............................................BRANCH OFFICER


                        GLOVERSVILLE - FREMONT STREET

NANCY RUPERT....................................................BRANCH OFFICER


                                  JOHNSTOWN

TAMMY L. WARNER...................................................AVP, MANAGER
TAMMY MALAGISI..................................................BRANCH OFFICER


                                    PERTH

AMY PRAUGHT.......................................................AVP, MANAGER


                                   SARATOGA

PETER E. BROWN....................................................AVP, MANAGER