<PAGE>
                                                                    Exhibit 99.1

                          Independent Auditors' Report

The Board of Directors
SBU Bank:


We have audited the accompanying consolidated statements of condition of SBU
Bank (formerly known as The Savings Bank of Utica) and subsidiaries (the "Bank")
as of December 31, 2001 and 2000, and the related consolidated statements of
income, changes in equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The accompanying consolidated
financial statements for the year ended December 31, 1999, were audited by other
auditors whose report thereon dated February 18, 2000, expressed an unqualified
opinion on those statements.

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 2001 and 2000 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of SBU
Bank and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.


/s/ KPMG LLP

Albany, New York
March 8, 2002

                                      -1-

<PAGE>


                        Report of Independent Accountants

The Board of Directors
SBU Bank

In our opinion, the consolidated statements of income, of changes in equity and
of cash flows for the year ended December 31, 1999 present fairly, in all
material respects, the results of operations and cash flows of SBU Bank
(formerly known as The Savings Bank of Utica) and subsidiaries for the year
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Syracuse, New York
February 18, 2000

                                       -1a-

<PAGE>

SBU Bank and Subsidiaries

Consolidated Statements of Condition
December 31, 2001 and 2000
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>


                                                                      2001             2000
                                                                  -------------    -------------
Assets                                                                   (In thousands)
<S>                                                               <C>              <C>
Cash and due from banks                                           $      19,957    $      16,245
Federal funds sold                                                       12,100              700
                                                                  -------------    -------------
     Cash and cash equivalents                                           32,057           16,945
                                                                  -------------    -------------
Securities available-for-sale, at fair value                            296,302          168,709
Securities held-to-maturity (fair value of $1,384 and
   $169,438 at December 31, 2001
   and 2000, respectively)                                                1,383          167,772
Federal Home Loan Bank of New York ("FHLB") stock                        11,350            7,740
Loans receivable                                                        604,205          611,774
Less: Allowance for loan losses                                          (7,934)          (7,564)
                                                                  -------------    -------------
          Net loans                                                     596,271          604,210
                                                                  -------------    -------------
Premises and equipment, net                                              11,751           16,947
Land and buildings held for sale                                          3,551                -
Accrued interest receivable                                               4,537            5,785
Bank-owned life insurance                                                21,534           21,455
Other assets                                                              4,669            7,781
                                                                  -------------    -------------
          Total Assets                                            $     983,405    $   1,017,344
                                                                  =============    =============

Liabilities and Equity
Liabilities:

   Deposits:
      Non-interest bearing                                        $      36,595    $      36,919
      Interest bearing                                                  568,374          604,047
                                                                  -------------    -------------
          Total deposits                                                609,969          640,966
   Borrowings                                                           256,452          266,118
   Mortgagors' escrow funds                                               5,741            5,781
   Other liabilities                                                     16,095           14,568
                                                                  -------------    -------------
          Total liabilities                                             883,257          927,433
                                                                  -------------    -------------
Commitments and contingencies (Note 11)
Equity:
   Surplus fund                                                          17,124           17,124
   Undivided profits                                                     79,249           72,608
   Accumulated other comprehensive income                                 3,775              179
                                                                  -------------    -------------
          Total equity                                                  100,148           89,911
                                                                  -------------    -------------
          Total Liabilities and Equity                            $     983,405    $   1,017,344
                                                                  =============    =============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       -2-

<PAGE>

SBU Bank and Subsidiaries

Consolidated Statements of Income
Years Ended December 31, 2001, 2000 and 1999
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                             2001       2000       1999
                                                           --------   --------   --------
<S>                                                        <C>        <C>        <C>
Interest income:                                                   (In thousands)
   Loans                                                   $ 47,904   $ 47,706   $ 46,529
   Federal funds sold and interest-bearing deposits             274         87         71
   Securities                                                20,351     23,468     20,283
                                                           --------   --------   --------
        Total interest income                                68,529     71,261     66,883
                                                           --------   --------   --------
Interest expense:
   Deposits:
     Savings accounts                                         1,988      3,479      3,621
     Money market accounts                                    3,618      4,578      4,145
     Time accounts                                           17,921     18,304     16,135
     NOW accounts                                               549        751        729
                                                           --------   --------   --------
                                                             24,076     27,112     24,630
                                                           --------   --------   --------
Borrowings:
   Repurchase agreements                                      2,862      7,362      3,636
   FHLB advances                                             11,771      8,334      6,590
   Mortgagors' escrow funds                                     153        164        166
                                                           --------   --------   --------
                                                             14,786     15,860     10,392
                                                           --------   --------   --------

   Total interest expense                                    38,862     42,972     35,022
                                                           --------   --------   --------
   Net interest income                                       29,667     28,289     31,861
Provision for loan losses                                     1,672      1,097         --
                                                           --------   --------   --------
   Net interest income after provision for loan losses       27,995     27,192     31,861
                                                           --------   --------   --------

Non-interest income:
   Service fees                                               3,977      4,082      4,020
   Income from bank-owned life insurance                      2,030      1,277        178
   Net gain on sale of securities available-for-sale            266         --         --
   Other income                                                 860      1,463      1,415
                                                           --------   --------   --------
     Total non-interest income                                7,133      6,822      5,613
                                                           --------   --------   --------

Non-interest expense:
   Salaries and employee benefits                            12,537     13,340     14,452
   Occupancy and equipment expense                            3,020      3,010      2,785
   Writedown of land and buildings held for sale              1,539         --         --
   Marketing expense                                            918      1,174      1,340
   Professional services                                      1,651      1,956      2,157
   Technology expense                                         2,450      2,688      2,506
   Other expense                                              4,043      3,888      4,507
                                                           --------   --------   --------
     Total non-interest expense                              26,158     26,056     27,747
                                                           --------   --------   --------
     Income before income tax expense                         8,970      7,958      9,727
   Income tax expense                                         2,329      2,547      3,601
                                                           --------   --------   --------
     Net income                                            $  6,641   $  5,411   $  6,126
                                                           ========   ========   ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      -3-

<PAGE>

SBU Bank and Subsidiaries

Consolidated Statements of Changes in Equity
Years Ended December 31, 2001, 2000 and 1999
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                         Accumulated
                                                                                           Other
                                              Surplus       Undivided   Comprehensive   Comprehensive
                                               Fund          Profits        Income      Income (Loss)       Total
                                            ----------      ----------  -------------   --------------   ------------
                                                                            (In thousands)
<S>                                         <C>             <C>         <C>             <C>              <C>
Balance at December 31, 1998                $   17,124      $  61,071                    $      1,126    $    79,321
Net income                                           -          6,126   $     6,126                 -          6,126
Other comprehensive loss before tax:
   Increase in unrealized holding losses
     arising during the period                       -              -        (6,371)                -              -
Income tax benefit                                   -              -         2,548                 -              -
                                            ----------      ---------   -----------      ------------    -----------
Other comprehensive loss, net of tax                 -              -        (3,823)           (3,823)        (3,823)
                                            ----------      ---------   -----------      ------------    -----------
Comprehensive income                                                    $     2,303
                                                                        ===========
Balance at December 31, 1999                $   17,124      $  67,197                    $     (2,697)     $  81,624

Net income                                           -          5,411   $     5,411                 -          5,411
Other comprehensive income before tax:
   Increase in unrealized holding gains
     arising during the period                       -              -         4,793                 -              -
Income tax expense                                   -              -        (1,917)                -              -
                                            ----------      ---------   -----------      ------------     ----------
Other comprehensive income, net of tax               -              -         2,876             2,876          2,876
                                            ----------      ---------   -----------      ------------     ----------
Comprehensive income                                 -              -   $     8,287
                                                                        ===========
Balance at December 31, 2000                $   17,124      $  72,608                    $        179    $    89,911

Net income                                                      6,641   $     6,641                 -          6,641
Other comprehensive income before tax:
   Increase in unrealized holding gains
     arising during the period                       -              -         6,259                 -              -
   Reclassification adjustment for net
     gains on sales of available-for-sale
     securities realized in net income               -              -          (266)                -              -
                                            ----------      ---------   -----------      ------------     ----------
Other comprehensive income before tax                                         5,993
Income tax expense                                   -              -        (2,397)                -              -
                                            ----------      ---------   -----------      ------------     ----------
Other comprehensive income, net of tax               -              -        (3,596)            3,596          3,596
                                            ----------      ---------   -----------      ------------     ----------
Comprehensive income                                                    $    10,237
                                                                        ===========
Balance at December 31, 2001                $   17,124      $  79,249                    $      3,775     $  100,148
                                            ==========      =========                    ============     ==========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       -4-

<PAGE>

SBU Bank and Subsidiaries

Consolidated Statements of Cash Flows
Years Ended December 31, 2001, 2000 and 1999
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                 2001          2000           1999
                                                              ----------    ----------     ---------
                                                                           (In thousands)
<S>                                                           <C>           <C>            <C>
Operating activities:
  Net income                                                  $    6,641    $    5,411     $   6,126
  Adjustments to reconcile net income
   to net cash provided by operating activities:
    Provision for loan losses                                      1,672         1,097             -
    Depreciation and amortization                                  2,512         2,647         2,579
    Income from bank-owned life insurance                         (2,030)       (1,277)         (178)
    Deferred tax (benefit) expense                                (1,373)          625           186
    Net discount accretion on securities                            (504)         (318)         (264)
    Gain on sale of other real estate owned, net                    (151)          (92)         (533)
    Gains on sale of mortgage loans, net                            (262)         (165)          (33)
    Writedown of buildings held for sale                           1,539             -             -
    Loss on disposal of equipment                                     71           103            40
    Net gains on sale of securities available-for-sale              (266)            -             -
    Decrease (increase) in accrued interest receivable             1,248          (584)          397
    Net change in other assets and other liabilities               3,608          (435)        9,058
                                                              ----------    ----------     ---------
      Net cash provided by operating activities                   12,705         7,012        17,378
                                                              ----------    ----------     ---------

Investing activities:
  Purchases of securities held-to-maturity                          (556)      (26,120)      (49,396)
  Proceeds from redemptions, maturities and principal
   collected on securities held-to-maturity                          455        12,982        33,297
  Purchases of securities available-for-sale                     (41,527)      (19,918)      (42,138)
  Proceeds from redemptions, maturities and principal
   collected on securities available-for-sale                     59,186        15,455        22,121
  Proceeds from sales of securities available-for-sale            28,001             -             -
  Purchases of FHLB stock                                         (5,020)         (345)       (2,538)
  Redemptions of FHLB stock                                        1,410             -             -
  Purchase of bank-owned life insurance                                -             -       (20,000)
  Proceeds from bank-owned life insurance                          1,951             -             -
  Net loans made to customers                                    (14,919)      (56,453)      (40,535)
  Proceeds from sales of mortgage loans                           21,118        19,931        16,494
  Purchases of premises and equipment                             (2,477)       (1,991)       (1,977)
  Proceeds from sales of other real estate owned                     488           329         2,725
                                                              ----------    ----------     ---------
      Net cash provided by (used in) investing activities         48,110       (56,130)      (81,947)
                                                              ----------    ----------     ---------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                   (Continued)

                                       -5-

<PAGE>

SBU Bank and Subsidiaries

Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 2001, 2000 and 1999
---------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                           2001        2000          1999
                                                                        ---------    ---------     --------
<S>                                                                     <C>          <C>           <C>
Financing activities:                                                              (In thousands)
     Net increase (decrease) in demand deposits,
       savings accounts and money market accounts                       $   2,202    $ (19,479)    $ (7,970)
     Net (decrease) increase in time accounts                             (38,199)      24,145        2,918
     Net (decrease) increase in mortgagors' escrow funds                      (40)          26          835
     Net (decrease) increase in borrowings                                 (9,666)      31,519       79,038
                                                                        ---------    ---------     --------

               Net cash (used in) provided by financing activities        (45,703)      36,211       74,821
                                                                        ---------    ---------     --------

               Net increase (decrease) in cash and cash equivalents        15,112      (12,907)      10,252

Cash and cash equivalents at beginning of year                             16,945       29,852       19,600
                                                                        ---------    ---------     --------

Cash and cash equivalents at end of year                                $  32,057    $  16,945     $ 29,852
                                                                        =========    =========     ========

Supplemental disclosures:
   Cash paid during the year for:
        Interest on deposits and borrowings                             $  40,013    $  41,784     $ 34,384
        Income taxes                                                    $   2,520    $   2,287     $  3,199

   Non-cash investing and financing activity:
        Transfer of loans to other real estate owned                    $     330    $     267     $  1,266
        Transfer of loans to securities                                 $       -    $       -     $  5,252
        Transfer of securities from held-to-maturity to
          available-for-sale upon adoption of SFAS No. 133
          (fair value of $168,156 on date of transfer)                  $ 166,490    $       -     $      -
        Transfer of premises and equipment to land and
          buildings held for sale                                       $   5,218    $       -     $      -

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       -6-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements

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


1.   Summary of Significant Accounting Policies

     Nature of Operations

     Effective February 8, 2002, SBU Bank (formerly known as The Savings Bank of
     Utica) (the "Bank") was chartered by the Office of Thrift Supervision as a
     mutual institution. Prior to February 8, 2002, the Bank was a New York
     State-chartered mutual savings bank. The Bank provides retail and
     commercial banking services to individual and business customers in Oneida
     and surrounding counties in New York State. The Bank has two active
     wholly-owned subsidiaries: 233 Genesee Street Corp., which operates certain
     cash management, investment, and treasury functions for the Bank, and SBU
     Investment Services, which provides financial services, such as annuity and
     mutual fund sales to the Bank's customers. As discussed in Note 14, the
     Bank's Board of Directors adopted a Plan of Reorganization from a Mutual
     Savings Bank to a Mutual Holding Company and Stock Issuance Plan, pursuant
     to which the Bank will convert from mutual stock form of ownership under a
     two-tier mutual holding company structure and shares of common stock will
     be sold in an initial public offering.

     Principles of Consolidation

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

     Use of Estimates

     The preparation of 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 reported
     amounts of assets and liabilities and disclosure of contingent assets and
     liabilities at the date of the financial statements, and the reported
     amounts of revenues and expenses during the reporting period. Actual
     results could differ from those estimates.

     Cash and Cash Equivalents

     Cash and cash equivalents include cash on hand, amounts due from banks,
     interest-bearing deposits (with an original maturity of three months or
     less) and federal funds sold. Generally, federal funds are sold for one-day
     periods.

     Securities

     The Bank classifies its securities as held-to-maturity or
     available-for-sale. Held-to-maturity securities are those for which the
     Bank has the positive intent and ability to hold to maturity, and are
     reported at cost, adjusted for premiums and discounts that are recognized
     in interest income using the interest method over the period to maturity.
     Securities not classified as held-to-maturity are classified as
     available-for-sale and reported at fair value, with net unrealized gains
     and losses reflected as a separate component of equity, net of taxes. None
     of the Bank's securities have been classified as trading securities.

     Purchases and sales of securities are recorded as of the trade date.
     Premiums and discounts on securities are amortized and accreted,
     respectively, on a systematic basis over the period to maturity, estimated
     life, or earliest call date of the related security. Gains and losses on
     securities sold are computed based on specific identification.

     Federal Home Loan Bank of New York Stock

     As a member of the Federal Home Loan Bank of New York ("FHLB"), the Bank is
     required to hold stock in the FHLB. FHLB stock is carried at cost
     since there is no readily available market value. The stock cannot be sold,
     but can be redeemed by the FHLB at cost.

                                       -7-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------


1.   Summary of Significant Accounting Policies (Continued)

     Securities Sold Under Agreements to Repurchase

     The Bank enters into sales of securities under agreements to repurchase
     ("repurchase agreements"). The Bank transfers the underlying securities to
     a third party custodian's account that explicitly recognizes the Bank's
     interest in the securities. Provided the Bank maintains effective control
     over the transferred securities, repurchase agreements are accounted for as
     borrowings, and the obligations to repurchase securities sold are reflected
     as a liability in the statement of condition. The securities underlying the
     agreements continue to be carried in the Bank's securities portfolio.

     Loans

     Loans are reported at their outstanding principal balance net of
     charge-offs, the allowance for loan losses, net deferred loan fees and
     costs on originated loans, and unamortized premiums or discounts on
     purchased loans.

     Nonrefundable loan origination fees and related direct costs are netted,
     and the net amount is deferred and amortized over the contractual life of
     the loan using the interest method, which results in a constant effective
     yield over the loan term.

     Allowance for Loan Losses

     The allowance for loan losses is periodically evaluated by the Bank in
     order to maintain the allowance at a level which represents management's
     estimate of all known and inherent losses in the loan portfolio at the
     statement of condition date. Management's evaluation of the allowance is
     based on the Bank's past loan loss experience, known and inherent losses
     in the loan portfolio, adverse circumstances that may affect the ability
     of the borrower to repay, the estimated value of collateral, and an
     analysis of the levels and trends of delinquencies, charge-offs, and the
     risk ratings of the various loan categories. Such factors as the level and
     trend of interest rates and the condition of the national and local
     economies are also considered.

     The allowance for loan losses is established through charges to earnings in
     the form of a provision for loan losses. When a loan or portion of a loan
     is determined to be uncollectible, the portion deemed uncollectible is
     charged against the allowance and subsequent recoveries, if any, are
     credited to the allowance.

     A loan is considered impaired, based on current information and events, if
     it is probable that the Bank will be unable to collect the scheduled
     payments of principal or interest when due according to the contractual
     terms of the loan agreement. Smaller balance, homogeneous loans which are
     collectively evaluated for impairment, such as residential real estate and
     consumer loans, as well as commercial real estate and commercial loans less
     than $250,000, are specifically excluded from the classification of
     impaired loans. Impairment is measured based on the present value of
     expected future cash flows discounted at the historical effective interest
     rate, except that all collateral-dependent loans are measured for
     impairment based on the fair value of collateral. Loans continue to be
     classified as impaired unless they are brought fully current and the
     collection of scheduled interest and principal is considered probable.

     Income Recognition on Impaired and Nonaccrual Loans

     Loans, including impaired loans, are generally classified as nonaccrual if
     they are past due as to maturity or payment of principal or interest for a
     period of more than 90 days, unless such loans are well-collateralized and
     in the process of collection. If a loan or a portion of a loan is
     internally classified as doubtful or is partially charged-off, the loan is
     classified as nonaccrual. Loans that are on a current payment status or
     past due less than 90 days may also be classified as nonaccrual if
     repayment in full of principal and/or interest is in doubt.

                                       -8-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------


1.   Summary of Significant Accounting Policies (Continued)

     Income Recognition on Impaired and Nonaccrual Loans (Continued)

     Loans may be returned to accrual status when all principal and interest
     amounts contractually due (including arrearages) are reasonably assured of
     repayment within an acceptable period of time, and there is a sustained
     period of repayment performance (generally a minimum of six months) by the
     borrower, in accordance with the contractual terms of the loan.

     While a loan is classified as nonaccrual and the future collectibility of
     the recorded loan balance is uncertain, any payments received are generally
     used to reduce the principal balance. When the future collectibility of the
     recorded loan balance is expected, interest income may be recognized on a
     cash basis. In the case where a nonaccrual loan had been partially
     charged-off, recognition of interest on a cash basis is limited to that
     which would have been recognized on the recorded loan balance at the
     contractual interest rate. Interest collections in excess of that amount
     are recorded as recoveries to the allowance for loan losses until prior
     charge-offs have been fully recovered.

     Loan Sales and Mortgage Servicing Rights

     The Bank sells certain residential real estate loans in the secondary
     market. The Bank may retain the right to service the loan, or may sell the
     loan servicing released. The Bank makes the determination of whether or not
     to identify a loan as held for sale at the time the application is received
     from the borrower. Loans held for sale are regularly evaluated on an
     aggregate basis to determine if fair value is less than carrying value. If
     necessary, a valuation allowance is recorded by a charge to income for
     unrealized losses attributable to changes in market interest rates. Gains
     and losses on the disposition of loans held for sale are determined on the
     specific identification method. As the amounts were not considered material
     at December 31, 2001 or 2000, loans held for sale were classified with
     loans receivable on the consolidated statements of condition at both dates.
     There was no valuation allowance necessary at December 31, 2001 or 2000.

     Originated mortgage servicing rights are recorded at their fair value at
     the time a loan is sold and servicing rights are retained. Originated
     mortgage servicing rights are amortized in proportion to and over the
     period of estimated net servicing income. The Bank uses a valuation model
     that calculates the present value of future cash flows to determine the
     fair value of servicing rights. In using this valuation method, the Bank
     incorporates assumptions that market participants would use in estimating
     future net servicing income, which include estimates of the cost of
     servicing per loan, the discount rate, float value, an inflation rate,
     ancillary income per loan and prepayment speeds. The carrying value of
     originated mortgage servicing rights is periodically evaluated for
     impairment using current market assumptions. At December 31, 2001 and 2000,
     mortgage servicing rights, included in other assets, amounted to
     approximately $178,000 and $290,000, respectively.

     Purchased mortgage servicing rights are capitalized and amortized on a
     straight-line basis over the estimated period of net servicing income (6 to
     10 years).

     Loans serviced for others are not included in the accompanying consolidated
     statements of condition. The unpaid principal balances of loans serviced
     for others was approximately $212.6 million, $232.6 million, and $242.5
     million at December 31, 2001, 2000 and 1999, respectively.

     Custodial escrow balances included in demand deposits were approximately
     $4.0 million and $4.6 million at December 31, 2001 and 2000 respectively.

     Premises and Equipment

     Premises and equipment are stated at cost, less accumulated depreciation
     and amortization. Depreciation is generally computed by the straight-line
     method over the estimated useful life of each type of asset (generally 5 to
     40 years for buildings and 3 to 5 years for furniture and equipment).
     Leasehold improvements are stated at cost less an allowance for
     amortization, which is computed by the straight-line method over the
     shorter of the term of the related lease or the estimated useful life of
     the asset. Maintenance and repairs are charged to operating expense as
     incurred.

                                      -9-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------

1.   Summary of Significant Accounting Policies (Continued)

     Surplus Fund and Undivided Profits

     The surplus fund primarily represents accumulated mandatory transfers from
     undivided profits required by New York State banking regulations. Such
     mandatory transfers are computed at 10% of "net earnings", as defined, and
     are required in each year so long as the equity of the Bank is less than
     10% of the amount due depositors. The surplus fund is subject to certain
     restrictions.

     Undivided profits represent accumulated undistributed net earnings of the
     Bank and its subsidiaries which have not been allocated to the surplus fund
     and are not restricted as to use under New York State banking regulations.

     Income Taxes

     Provisions for income taxes are based on taxes currently payable or
     refundable, and deferred taxes which are based on temporary differences
     between the tax basis of assets and liabilities and their reported amounts
     in the financial statements. Deferred tax assets and liabilities are
     reported in the financial statements at currently enacted income tax rates
     applicable to the period in which the deferred tax assets and liabilities
     are expected to be realized or settled.

     Deferred tax assets are recognized subject to management's judgement that
     those assets will more likely than not be realized. A valuation allowance
     is recognized if, based on an analysis of available evidence, management
     believes that all or a portion of the deferred tax assets will not be
     realized. Adjustments to increase or decrease the valuation allowance are
     charged or credited, respectively, to income tax expense.

     Derivative Financial Instruments and Hedging Activities

     Derivative instruments utilized by the Bank have included interest rate
     floor and cap agreements. The Bank is an end-user of derivative instruments
     and does not conduct trading activities for derivatives.

     The Bank adopted the provisions of Statement of Financial Accounting
     Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and
     Hedging Activities," effective January 1, 2001. SFAS No. 133 establishes
     accounting and reporting standards for derivative instruments, including
     certain derivative instruments embedded in other contracts, and for hedging
     activities. It requires that an entity recognize all derivatives as either
     assets or liabilities in the statement of condition and measure those
     instruments at fair value. Changes in the fair value of the derivative
     financial instruments are reported in either net income or as a component
     of other comprehensive income, depending on the use of the derivative and
     whether or not it qualifies for hedge accounting. Consequently, there may
     be increased volatility in net income, other comprehensive income and
     equity on an ongoing basis as a result of accounting for derivatives in
     accordance with SFAS No. 133.

                                      -10-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------


1.   Summary of Significant Accounting Policies (Continued)

     Derivative Financial Instruments and Hedging Activities (Continued)

     Special hedge accounting treatment is permitted only if specific criteria
     are met, including a requirement that the hedging relationship be highly
     effective both at inception and on an ongoing basis. Accounting for hedges
     varies based on the type of hedge - fair value or cash flow. Results of
     effective hedges are recognized in current earnings for fair value hedges
     and in other comprehensive income for cash flow hedges. Ineffective
     portions of hedges are recognized immediately in earnings and are not
     deferred.

     During 2000, the Bank entered into three interest rate cap agreements,
     which expire at various dates through 2002. The cap agreements were entered
     into as a hedge against the exposure to rising interest rates on the Bank's
     borrowings. The cap agreements require the counterparty to pay the Bank, at
     specified dates, the amount, if any, by which the underlying index rate
     rises above the agreed-upon cap of 7.00%, applied to a notional principal
     amount totaling $80.0 million. During 1997, the Bank entered into an
     interest rate floor agreement, which expired in October 2000. The floor
     agreement required the counterparty to pay the Bank, at specified dates,
     the amount, if any, by which the underlying index rate fell below the
     agreed-upon floor of 5.75%, applied to a notional principal amount of $50.0
     million. Payments received under the cap and floor agreements, if any, are
     recorded as interest income or interest expense. Prior to the adoption of
     SFAS No. 133, the amounts paid for the cap and floor agreements were being
     amortized to expense on a straight-line basis over the lives of the
     respective agreements.

     Upon the adoption of SFAS No. 133 as of January 1, 2001, the Bank recorded
     the cap agreements at estimated fair value. The impact to the Bank's
     consolidated financial statements was not significant and therefore the
     impact has not been presented as the cumulative effect of a change in
     accounting principle in the consolidated statement of income for the year
     ended December 31, 2001. The estimated fair value of the cap agreements at
     December 31, 2001 is not significant. As permitted by SFAS No. 133, as of
     January 1, 2001, the Bank transferred securities classified as
     held-to-maturity with an amortized cost of approximately $166.5 million and
     a fair value of approximately $168.2 million to securities classified as
     available-for-sale.

     Comprehensive Income

     Comprehensive income consists of net income and the net change in
     unrealized gains and losses on securities available-for-sale, net of taxes.
     The Company reports comprehensive income in the statement of changes in
     equity.

     Segment Reporting

     The Bank's operations are solely in the financial services industry and
     include providing to its customers traditional banking and other financial
     services. The Bank operates primarily in the geographical regions of
     Oneida, Herkimer and Onondaga counties of New York. Management makes
     operating decisions and assesses performance based on an ongoing review of
     the Bank's consolidated financial results. Therefore, the Bank has a single
     operating segment for financial reporting purposes.

                                      -11-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements
------------------------------------------------------------------------------

1.   Summary of Significant Accounting Policies (Continued)

     Reclassifications

     Certain reclassifications have been made to the 2000 and 1999
     consolidated financial statements to conform to the presentation adopted in
     2001.

2.   Securities

     The amortized cost and estimated fair value of securities are summarized as
     follows (in thousands):

<TABLE>
<CAPTION>

                                                          December 31, 200l
                                          ------------------------------------------------
                                                          Gross Unrealized
                                          Amortized    ----------------------    Esimated
                                            Cost         Gains        Losses    Fair Value
                                          ---------    ---------     --------   ----------
Held-to-maturity:
<S>                                       <C>          <C>           <C>        <C>
  Other securities                            1,383            1     $      -   $    1,384
                                          ---------    ---------     --------   ----------
      Total held-to-maturity              $   1,383    $       1     $      -   $    1,384
                                          =========    =========     ========   ==========

Available-for-sale:
  U.S. Treasury and obligations of
     U.S. government corporations
     and agencies                         $  59,388    $   1,909     $     56   $   61,241
  Corporate securities                          981           45            -        1,026
  Fannie Mae preferred stock                 10,003            -          207        9,796
  Other securities                            1,303            -           19        1,284
  Collateralized mortgage obligations        98,136        2,237           38      100,335
  Other mortgage-backed securities          120,200        2,601          181      122,620
                                          ---------    ---------     --------   ----------
     Total available-for-sale             $ 290,011    $   6,792     $    501   $  296,302
                                          =========    =========     ========   ==========
</TABLE>



                                      -12-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------

2.   Securities (Continued)

<TABLE>
<CAPTION>
                                                                     December 31, 2000
                                                   --------------------------------------------------
                                                                   Gross Unrealized
                                                   Amortized    ----------------------      Estimated
                                                      Cost        Gains        Losses      Fair Value
                                                   ---------    ---------     --------     ----------
<S>                                                <C>          <C>           <C>          <C>
Held-to-maturity:
   U.S. Treasury and obligations of
     U.S. government corporations
     and agencies                                  $  57,948    $     894     $     29     $   58,813
   Corporate securities                                  978           13            4            987
   Other securities                                    2,535                                    2,535
   Collateralized mortgage obligations                94,195        1,073          491         94,777
   Other mortgage-backed securities                   12,116          210                      12,326
                                                   ---------    ---------     --------     ----------
        Total held-to-maturity                     $ 167,772    $   2,190     $    524     $  169,438
                                                   =========    =========     ========     ==========

Available-for-sale:
   Fannie Mae preferred stock                      $  10,014    $      66     $      -     $   10,080
   Collateralized mortgage obligations                20,463           13          322         20,154
   Other mortgage-backed securities                  137,934        1,414          873        138,475
                                                   ---------    ---------     --------     ----------
        Total available-for-sale                     168,411    $   1,493     $  1,195     $  168,709
                                                   =========    =========     ========     ==========
</TABLE>


Privately-issued collateralized mortgage obligations totaled $19.4 million and
$9.9 million at December 31, 2001 and 2000, respectively. These bonds are AAA
rated at each date. All other mortgage-backed securities and collateralized
mortgage obligations at December 31, 2001 and 2000, were backed by either Fannie
Mae, Freddie Mac or Ginnie Mae.

                                      -13-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------

     The amortized cost and estimated fair value of debt securities (in
     thousands) at December 31, 2001 (excluding other securities), by
     contractual maturity, are shown below. Expected maturities will differ from
     contractual maturities because borrowers may have the right to call or
     prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                   Amortized    Estimated
                                                     Cost       Fair Value
                                                 ------------- --------------
<S>                                              <C>             <C>
Available-for-sale:
   Due in one year or less                         $   7,119     $   7,207
   Due after one year through five years              47,155        48,414
   Due after five years through ten years              6,095         6,646
                                                   ---------     ---------
                                                      60,369        62,267

   Mortgage-backed securities and collateralized
     mortgage obligations                            218,336       222,955
                                                   ---------     ---------
        Total                                      $ 278,705     $ 285,222
                                                   =========     =========
</TABLE>

     During the year ended December 31, 2001, the Bank realized gross gains of
     $335,000 and gross losses of $69,000 related to the sales of securities
     available-for-sale. There were no sales of securities during 2000 or 1999.

     Securities at December 31, 2001 and 2000 include approximately $82.5
     million and $130.5 million, respectively, of securities which are pledged
     under depository agreements, treasury, tax and loan accounts, and other
     collateral agreements, including repurchase agreements.


                                      -14-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------

3.   Loans Receivable

     The components of loans receivable at the dates indicated are as follows
     (in thousands):

<TABLE>
<CAPTION>

                                                         December 31,
                                                  -------------------------
                                                      2001          2000
                                                  ------------   ----------

<S>                                               <C>            <C>
        One-to-four family real estate            $  384,594     $  358,026
        Commercial real estate                       127,750        143,297
        Commercial                                    32,477         46,673
        Consumer, including home equity loans         59,821         64,286
                                                  ----------     ----------
           Total loans                               604,642        612,282

        Less:
          Net deferred loan fees and costs               434            505
          Unearned discounts                               3              3
          Allowance for loan losses                    7,934          7,564
                                                  ----------     ----------
           Net loans                              $  596,271     $  604,210
                                                  ==========     ==========
</TABLE>

     The Bank grants commercial, consumer and residential loans primarily
     throughout Oneida, Herkimer and Onondaga Counties in New York State.
     Although the Bank has a diversified loan portfolio, a substantial portion
     of its debtors' ability to honor their contracts is dependent upon the
     employment and economic conditions within these counties.

     At December 31, 2001 and 2000, loans to Bank officers were not significant.

     At December 31, 2001 and 2000, impaired loans totaled approximately
     $4.9 million and $1.7 million, respectively. The corresponding valuation
     allowance on these impaired loans totaled approximately $550,000 and
     $600,000 as of December 31, 2001 and 2000, respectively. For the years
     ended December 31, 2001, 2000 and 1999, the average record investment in
     impaired loans was approximately $1.7 million, $3.9 million and $2.5
     million, respectively. No interest income was recognized on impaired loans
     while such loans were considered impaired during the years ended
     December 31, 2001, 2000 or 1999.

     The amount of loans on which the Bank has ceased accruing interest totaled
     approximately $8.8 million, $5.8 million and $9.1 million at December 31,
     2001, 2000 and 1999, respectively. The amount of interest not recorded on
     nonaccrual loans was approximately $309,000, $443,000, and $630,000 for the
     years ended December 31, 2001, 2000 and 1999, respectively.


                                      -15-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------

3.   Loans Receivable (Continued)

     Changes in the allowance for loan losses for the years indicated are as
     follows (in thousands):

<TABLE>
<CAPTION>
                                           2001       2000        1999
                                         ---------  ---------   ---------
<S>                                      <C>        <C>         <C>
     Balance at beginning of year        $ 7,564    $ 9,328     $ 10,150
     Charge-offs                          (2,767)    (3,612)      (2,338)
     Recoveries                            1,465        751        1,516
     Provision for loan losses             1,672      1,097            -
                                         -------    -------     --------
         Balance at end of year          $ 7,934    $ 7,564     $  9,328
                                         =======    =======     ========
</TABLE>

4.   Premises and Equipment

     Premises and equipment at cost less accumulated depreciation and
     amortization at the dates indicated are as follows (in thousands):

<TABLE>
<CAPTION>

                                                                    December 31,
                                                             -------------------------
                                                                 2001          2000
                                                             -------------  ----------
<S>                                                          <C>            <C>
     Land                                                    $   2,482      $   2,588
     Buildings                                                  11,664         17,150
     Leasehold improvements                                      2,038          2,037
     Furniture, fixtures and equipment                           9,600         10,292
     Computer software purchased                                 2,124          2,101
     Construction in progress                                       18            127
                                                             ---------      ---------
           Total cost                                           27,926         34,295
     Less:  Accumulated depreciation and amortization          (16,175)       (17,348)
                                                             ---------      ---------
                                                             $  11,751      $  16,947
                                                             =========      =========
</TABLE>

     Depreciation and amortization expense was approximately $2.5 million, $2.6
     million and $2.6 million, for the years ended December 31, 2001, 2000 and
     1999, respectively.

5.   Land and Buildings Held for Sale

     During 2001, the Bank recorded an impairment charge of $1.5 million on two
     buildings it is seeking to sell. The charge reduced the recorded net book
     value of the properties to their estimated net fair value, which was $3.6
     million at December 31, 2001. The net fair value of the properties was
     estimated by the Bank's in-house appraiser in consultation with a
     commercial real estate broker. One property is an office building that
     previously housed several operations functions of the Bank. During 2001,
     all but one of the departments was relocated to other existing facilities.
     As the Bank does not expect to need the space for future operations, it was
     decided to list the property for sale with a commercial real estate broker.
     Depreciation continues to be recorded on this property because a portion of
     the building continues to be used for the Bank's call center. The second
     property is a former branch location that was consolidated into a new
     branch office less than a mile away. The sale of this property is expected
     during the first half of 2002. Depreciation expense was discontinued on
     this property effective September 30, 2001.

                                      -16-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------

6.   Accrued Interest Receivable

     Accrued interest receivable at the dates indicated consists of the
following (in thousands):

<TABLE>
<CAPTION>

                                                        December 31,
                                                ---------------------------
                                                    2001           2000
                                                -------------   -----------
     <S>                                        <C>             <C>
     Loans                                      $       2,744   $     3,460
     Securities                                         1,793         2,325
                                                -------------   -----------
        Total accrued interest receivable       $       4,537   $     5,785
                                                =============   ===========
</TABLE>

7.   Deposits

     Deposits consisted of the following at the dates indicated (in thousands):

<TABLE>
<CAPTION>
                                                       December 31,
                                                ---------------------------
                                                    2001           2000
                                                -------------   -----------
     <S>                                        <C>             <C>
     Savings accounts                           $     102,524   $   107,392
     Money market accounts                            117,364       109,353
     Time accounts                                    291,707       329,906
     Demand deposits                                   93,374        94,315
                                                -------------   -----------
        Total deposits                          $     604,969   $   640,966
                                                =============   ===========
</TABLE>

     The maturity of time accounts at December 31, 2001 follows (dollars in
     thousands):

<TABLE>
<CAPTION>

                                          December 31, 2001
                                       ----------------------
        Maturity                          Amount     Percent
                                       -----------  ---------

     <S>                               <C>          <C>
     One year or less                  $   209,375       71.7%
     Over one year to three years           57,937       19.9%
     Over three years                       24,395        8.4%
                                       -----------  ---------
     Total time accounts               $   291,707      100.0%
                                       ===========  =========
</TABLE>

     The aggregate amount of time accounts $100,000 or greater was approximately
     $48.4 million and $49.7 million at December 31, 2001 and 2000,
     respectively. Deposit amounts in excess of $100,000 are not federally
     insured.

                                      -17-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------

8.   Borrowings

     The following is a summary of borrowings at the dates indicated (in
thousands):

<TABLE>
<CAPTION>

                                                        December 31,
                                                ----------------------------
                                                     2001           2000
                                                -------------    -----------
     <S>                                        <C>              <C>
     Repurchase agreements                      $      29,452    $   114,618
     Federal Home Loan Bank term advances             227,000        145,000
     Federal Home Loan Bank overnight advances              -          6,500
                                                -------------    -----------
        Total borrowings                        $     256,452    $   266,118
                                                =============    ===========
</TABLE>

     The following table sets forth certain information with respect to
     repurchase agreements at and for the years indicated (dollars in
     thousands):

<TABLE>
<CAPTION>
                                                December 31,
                                       -------------------------------
                                         2001        2000       1999
                                       --------    --------   --------
     <S>                               <C>         <C>        <C>
     Maximum month-end balance         $ 62,657    $118,392   $ 94,162
     Average balance during period       49,835     110,758     71,721
     Weighted average interest rate
        at end of period                   2.63%       6.60%      5.91%
     Weighted average interest rate
        during period                      5.74%       6.65%      5.07%
</TABLE>

     Repurchase agreements outstanding at December 31, 2001 are at interest
     rates ranging from 1.92% to 7.25%, and were at interest rates ranging from
     5.35% to 7.25% at December 31, 2000. At December 31, 2001 and 2000,
     securities pledged under repurchase agreements and other borrowings
     approximated $74.3 million and $128.2 million, respectively.

     As of the dates indicated, principal balances of FHLB term advances mature
     as follows (dollars in thousands):

<TABLE>
<CAPTION>

                                             December 31, 200l        December 31, 2000
                                          -----------------------  -----------------------
                                          Weighted                 Weighted
                                          Average                   Average
                                            Rate         Amount      Rate         Amount
                                          --------     ----------  --------     ----------
           Maturing
           <S>                            <C>          <C>         <C>          <C>
           2001                                                       6.31%     $   65,000
           2002                              4.73%     $   88,500     5.56%         20,000
           2003                              5.32%         98,500     6.32%         40,000
           2004                              4.76%         10,000                        -
           2005                              5.97%         30,000     6.31%         20,000
                                                       ----------               ----------
                Total FHLB term advances     5.15%     $  227,000     6.21%     $  145,000
                                                       ==========               ==========
</TABLE>

     Two of the Bank's fixed-rate term FHLB advances totaling $30.0 million at
     both December 31, 2001 and 2000, are callable. If called, the Bank has the
     option to reprice the advance at the then-current FHLB rates, or repay the
     advance. The first advance for $10 million has a rate of 6.15% and matures
     in October 2003 (callable quarterly beginning October 2001). The second
     advance for $20.0 million has a rate of 6.31% and matures in August 2005
     (callable quarterly beginning August 2001).

                                      -18-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------

8.   Borrowings (Continued)

     The Bank had available $295.8 million and $293.5 million in borrowing
     capacity with the FHLB (subject to limitations) at December 31, 2001 and
     2000, respectively, of which approximately $227.0 million and $151.5
     million, respectively, was outstanding. FHLB advances are collateralized by
     certain mortgage loans, mortgage-backed securities, and other securities
     under a blanket pledge agreement with the FHLB.

9.   Employee Benefits

     The Bank has a noncontributory pension plan covering substantially all
     employees. Under the Plan, retirement benefits are primarily a function of
     both the years of service and the level of compensation. The amounts
     contributed to the plan are determined annually on the basis of (a) the
     maximum amount that can be deducted for Federal income tax purposes, or (b)
     the amount certified by an actuary as necessary to avoid an accumulated
     funding deficiency as defined by the Employee Retirement Income Security
     Act of 1974. Plan assets consist primarily of fixed income and equity
     mutual funds. The Bank also provides postretirement medical and life
     insurance benefits to eligible retirees. The costs of these benefits are
     accrued over the employment period of the active employees. The
     postretirement benefit plan is unfunded.

     The following table represents a reconciliation of the change in the
     benefit obligation, plan assets and funded status of the plans at December
     31 (in thousands):

<TABLE>
<CAPTION>

                                             Pension Benefits      Postretirement Benefits
                                           --------------------    -----------------------
                                             2001        2000        2001           2000
                                           --------    --------    --------       --------
     <S>                                   <C>         <C>         <C>            <C>
     Change in benefit obligation:
        Benefit obligation at

          beginning of year                $  9,183    $  9,708    $  3,779       $  3,702
        Service cost                            306         348          60             93
        Interest cost                           715         729         234            265
        Plan participants' contributions          -           -          46             30
        Amendments                                -           -         348            199
        Actuarial loss (gain)                   250        (302)       (803)          (245)
        Benefits paid                          (818)     (1,300)       (264)          (265)
                                           --------    --------    --------       --------
             Benefit obligation at

               end of year                 $  9,636    $  9,183    $  3,400       $  3,779
                                           ========    ========    ========       ========

     Change in plan assets:
        Fair value of plan assets
          at beginning of year             $ 13,574    $ 12,712    $      -       $      -
        Actual (loss) return on plan
          assets                             (1,886)      2,162           -              -
        Employer contributions                    -           -         264            265
        Benefits paid                          (818)     (1,300)       (264)          (265)
                                           --------    --------    --------       --------
             Fair value of plan assets
               at end of year              $ 10,870    $ 13,574    $      -       $      -
                                           ========    ========    ========       ========

     Components of accrued benefit cost:

        Funded (unfunded) status           $  1,234    $  4,391    $ (3,400)      $ (3,779)
        Unrecognized prior service
          cost (credit)                          61          68         306            (21)
        Unrecognized actuarial gain          (1,303)     (4,835)     (1,185)          (442)
                                           --------    --------    --------       --------
             Accrued benefit cost          $     (8)   $   (376)   $ (4,279)      $ (4,242)
                                           ========    ========    ========       ========
</TABLE>

                                      -19-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------


9.   Employee Benefits (Continued)

     The composition of the net periodic benefit plan cost for the years ended
     December 31, 2001, 2000 and 1999 is as follows (in thousands):

<TABLE>
<CAPTION>

                                                      Pension Benefits                Postretirement Benefits
                                            ----------------------------------   ---------------------------------
                                              2001        2000        1999         2001        2000        1999
                                            ---------   ---------   ---------    ---------   ---------   ---------
<S>                                         <C>         <C>         <C>          <C>         <C>         <C>
Service cost                                $     306   $     348   $     384    $      60   $      93   $     131
Interest cost                                     715         729         684          234         265         265
Amortization of unrecognized
  actuarial gain                                 (247)       (149)        (34)         (60)         (5)          -
Amortization of unrecognized
  prior service cost (credit)                       7           7           7           21          (8)        (25)
Expected return on plan assets                 (1,149)       (954)       (940)           -           -           -
                                            ---------   ---------   ---------    ---------   ---------   ---------
     Net periodic benefit plan
        (credit) cost                       $    (368)  $     (19)  $     101    $     255   $     345   $     371
                                            =========   =========   =========    =========   =========   =========
</TABLE>

Unrecognized net actuarial gains or losses in excess of 10% of the greater of
the projected benefit obligation or the fair value of the plan assets are
amortized over the average remaining service period of active plan participants.

<TABLE>
Weighted-average assumptions
  as of December 31:
<S>                                            <C>          <C>         <C>          <C>         <C>        <C>
     Discount rate                               7.25%        8.00%       7.75%       7.25%       7.50%       7.50%
     Expected return on plan assets              9.00%        9.00%       8.00%
     Rate of compensation increase               4.50%        5.50%       5.50%
</TABLE>

     For measurement purposes, a 10.0% annual rate of increase in the per capita
     cost of covered health care benefits was assumed for 2001. This rate was
     assumed to decrease gradually to 5.0% by 2011 and remain at that level
     thereafter.

     The Bank also maintains a defined contribution employee savings 401(k)
     plan. Contributions associated with the plan amounted to approximately
     $224,000, $247,000 and $244,000 for the years ended December 31, 2001, 2000
     and 1999, respectively.

     In June 2001, the Bank entered into an Executive Supplemental Retirement
     Income Agreement (the "SERP") with the Chief Executive Officer (the "CEO").
     Under the terms of the SERP, upon the CEO's retirement on or after
     attainment of age 65, the CEO will be entitled to an annual supplemental
     retirement income benefit equal to 60% of his average annual base salary,
     payable in monthly installments over 15 years. The SERP also contains
     provisions regarding the benefits payable to the CEO or his beneficiary in
     the event of early retirement, disability, death or a change in control of
     the Bank. The Bank has also entered into an endorsement split dollar
     agreement for the benefit of the CEO, under which the Bank purchased life
     insurance to provide death benefits to the CEO's beneficiary until the CEO
     has a vested interest in death benefits under the SERP (i.e., until he
     attains age 60). The Bank will pay the annual premiums on the policy and
     will have an interest in the policy equal to the greater of the aggregate
     amount of the premiums paid or the policy's entire cash surrender value.
     The accrued benefit liability under the SERP was approximately $70,000 as
     of December 31, 2001. For the year ended December 31, 2001, the Bank
     recorded an expense of approximately $161,000 related to the SERP,
     including premiums paid on the life insurance policy. The cash surrender
     value of the life insurance policy as of December 31, 2001 was not
     significant.

                                      -20-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------


10.  Income Taxes

     The provision for income taxes consisted of the following for the years
     ended December 31 (in thousands):

                          2001       2000       1999
                      ---------  ---------  ---------

     Current:
        Federal       $   3,187  $   1,854  $   3,015
        State               515         68        400

     Deferred:
        Federal          (1,109)       396        144
        State              (264)       229         42
                      ---------  ---------  ---------
                      $   2,329  $   2,547  $   3,601
                      =========  =========  =========


     A reconciliation of the federal statutory rate to the effective income tax
     rate for years indicated is as follows:

<TABLE>
<CAPTION>
                                                     2001      2000      1999
                                                   --------  --------  --------
  <S>                                              <C>       <C>       <C>
  Federal statutory income tax rate                    34 %      34 %      34 %
  State tax, net of Federal benefit                     2 %       2 %       3 %
  Tax-exempt income on securities and loans            (3)%      (3)%      (1)%
  Income from bank-owned life insurance                (5)%      (5)%      (l)%
  Death benefit from bank-owned life insurance         (3)%       - %       - %
  Other                                                 1 %       4 %       2 %
                                                   --------  --------  --------
                                                       26 %      32 %      37 %
                                                   ========  ========  ========
</TABLE>

                                      -21-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------


10.  Income Taxes (Continued)

     The components of deferred income taxes included in other assets in the
     consolidated statements of condition are as follows (in thousands):

<TABLE>
<CAPTION>

                                                       December 31,
                                               ---------------------------
                                                   2001           2000
                                               -------------   -----------
     <S>                                       <C>             <C>
     Deferred tax assets:
       Allowance for loan losses               $       2,752   $     2,607
       Accrued postretirement benefit                  1,749         1,662
       Depreciation                                      496           448
       Deferred compensation                             297             -
       Interest on non-accrual loans                     274           162
       Writedown of land and buildings
        held for sale                                    600             -
       Other                                             306           371
                                               -------------   -----------
          Total deferred tax assets                    6,474         5,250
                                               -------------   -----------

     Deferred tax liabilities:
       Bond discount accretion                           (46)         (195)
       Net unrealized gain on securities
         available-for-sale                           (2,516)         (119)
                                               -------------   -----------
          Total deferred tax liabilities              (2,562)         (314)
                                               -------------   -----------
     Net deferred tax assets                   $       3,912   $     4,936
                                               =============   ===========
</TABLE>

     Deferred tax assets are recognized subject to management's judgment that
     realization is more likely than not. Based on the sufficiency of temporary
     taxable items, historical taxable income, as well as estimates of future
     taxable income, the Bank believes it is more likely than not that the gross
     deferred tax assets at December 31, 2001 and 2000 will be realized.

     As a thrift institution, the Bank is subject to special provisions in the
     Federal and New York State tax laws regarding its allowable tax bad debt
     deductions and related tax bad debt reserves. These deductions historically
     have been determined using methods based on loss experience or a percentage
     of taxable income. Tax bad debt reserves are maintained equal to the excess
     of allowable deductions over actual bad debt losses and other reserve
     reductions. These reserves consist of a defined base-year amount, plus
     additional amounts ("excess reserves") accumulated after the base year.
     Deferred tax liabilities are recognized with respect to such excess
     reserves, as well as any portion of the base-year amount which is expected
     to become taxable (or "recaptured") in the foreseeable future.

     In accordance with SFAS No. 109, deferred tax liabilities have not been
     recognized with respect to the Federal base-year reserve of $5.1 million at
     December 31, 2001, and the New York State base-year reserve of $20.8
     million at December 31, 2001, since the Bank does not expect that these
     amounts will become taxable in the foreseeable future. The unrecognized
     deferred tax liability with respect to the Federal base-year reserve was
     $1.7 million at December 31, 2001. The unrecognized deferred tax liability
     with respect to the New York State base-year reserve was $1.0 million (net
     of Federal benefit) at December 31, 2001.

                                      -22-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------

11.    Commitments and Contingencies

       The Bank is a party to financial instruments with off-balance sheet risk
       in the normal course of business to meet the financing needs of its
       customers. These financial instruments consist primarily of commitments
       to extend credit and letters of credit, which involve, to varying
       degrees, elements of credit risk in excess of the amount recognized in
       the consolidated statement of condition. The contract amount of those
       commitments and letters of credit reflects the extent of involvement the
       Bank has in those particular classes of financial instruments. The Bank's
       exposure to credit loss in the event of nonperformance by the
       counterparty to the financial instrument for commitments to extend credit
       and letters of credit is represented by the contractual amount of the
       instruments. The Bank uses the same credit policies in making commitments
       and letters of credit as it does for on-balance sheet instruments.

       The following presents financial instruments whose contract amounts
       represent credit risk at the dates indicated (in thousands):

<TABLE>
<CAPTION>
                                                   Contract Amount at
                                                       December 31,
                                             --------------------------------
                                                  2001               2000
                                             -------------      -------------
         <S>                                 <C>               <C>

          Commitments to extend credit       $      62,516      $      37,055
          Letters of credit                          5,378              5,647
</TABLE>

       As of December 31, 2001 and 2000, fixed rate loan commitments totaled
       $29.1 million and $9.5 million, with rates between 6.125% - 14.50% and
       6.35% - 14.50%, respectively.

       Commitments to extend credit are agreements to lend to a customer as long
       as there is no violation of any condition established in the contract.
       Commitments generally have fixed expiration dates or other termination
       clauses and may require payment of a fee. Since some of the commitment
       amounts are expected to expire without being drawn upon, the total
       commitment amounts do not necessarily represent future cash requirements.

       Standby and other letters of credit are conditional commitments issued by
       the Bank to guarantee the performance of a customer to a third party.
       Those guarantees are primarily issued to support public and private
       borrowing arrangements, including bond financing and similar
       transactions. The credit risk involved in issuing letters of credit is
       essentially the same as that involved in extending loan facilities to
       customers. Since a portion of the letters of credit are expected to
       expire without being drawn upon, the total commitment amounts do not
       necessarily represent future cash requirements.

       For both commitments to extend credit and letters of credit, the amount
       of collateral obtained, if any, is based on management's credit
       evaluation of the counterparty. Collateral held varies, but may include
       residential and commercial real estate.

       The Bank is required to maintain a reserve balance, as established by the
       Federal Reserve Bank of New York. The required average total reserve for
       the 14-day maintenance periods ended December 31, 2001 and 2000 was $6.2
       million and $5.9 million, respectively, which was satisfied by cash on
       hand.

       The Bank leases office space and certain branches under noncancelable
       operating lease agreements having initial terms which expire at various
       dates through 2010. Certain leases provide for renewal options of two
       five-year terms. Rent expense totaled approximately $443,000, $403,000
       and $322,000 for the years ended December 31, 2001, 2000 and 1999,
       respectively.

                                      -23-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------


11.    Commitments and Contingencies (Continued)

       Minimum rentals under the initial terms of these leases are summarized as
       follows:

       Year ending December 31 (in thousands):

            2002                                                $     251
            2003                                                      231
            2004                                                      233
            2005                                                      242
            2006                                                      135
            Thereafter                                                426
                                                                ---------
              Total minimum lease payments                      $   1,518
                                                                =========


12.    Disclosures about Fair Values of Financial Instruments

       SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
       requires disclosure of fair value information about financial
       instruments, whether or not recognized in the statement of condition, for
       which it is practicable to estimate that value. In cases where quoted
       market prices are not available, fair values are based on estimates using
       present value or other valuation techniques. Those techniques are
       significantly affected by the assumptions used, including the discount
       rate and estimates of future cash flows. In that regard, the derived fair
       value estimates cannot be substantiated by comparison to independent
       markets and, in many cases, could not be realized in immediate settlement
       of the instrument. SFAS No. 107 excludes certain financial instruments
       and all nonfinancial assets and liabilities from its disclosure
       requirements. Accordingly, the aggregate fair value amounts presented do
       not represent the underlying value of the Bank.

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

         Cash and Cash Equivalents

         The carrying values reported in the statement of condition for cash and
         cash equivalents are equal to the assets' fair value.

         Securities

         Fair values for securities are based on quoted market prices or dealer
         quotes. The fair value of accrued interest approximates carrying value.

         FHLB Stock

         Fair value of FHLB stock is equal to its book value since there is no
         readily available market value and the stock cannot be sold, but can be
         redeemed by the FHLB at cost.

         Loans

         Fair values for loans are estimated using discounted cash flow
         analysis, based on interest rates approximating those currently being
         offered for loans with similar terms and credit quality. The fair value
         of accrued interest approximates carrying value.

         Deposits

         The fair values disclosed for non-interest bearing accounts and
         accounts with no stated maturities are, by definition, equal to the
         amount payable on demand at the reporting date. The fair value of time
         deposits was estimated by discounting expected monthly maturities at
         interest rates approximating those currently being offered on time
         deposits of similar terms. The fair value of accrued interest
         approximates carrying value.

         Borrowings

         The carrying amounts of repurchase agreements and other short-term
         borrowings approximate their fair values. Fair values of long-term
         borrowings are estimated using a discounted cash flow approach, based
         on current market rates for similar borrowings. The fair value of
         accrued interest approximates carrying value.

                                      -24-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------


12.  Disclosures about Fair Values of Financial Instruments (Continued)

     Mortgagors' Escrow Funds

     The fair value for mortgagors' escrow funds approximates carrying value.
     The fair value of accrued interest approximates carrying value.

     Off-Balance Sheet and Derivative Instruments

     Off-balance sheet financial instruments consist of letters of credit and
     commitments to extend credit. Derivative instruments include interest rate
     cap and floor agreements. The fair value of these financial instruments is
     not significant.

     The net carrying amounts and fair values of financial instruments as of the
     dates indicated are as follows (in thousands):

<TABLE>
<CAPTION>

                                                   December 31,
                                --------------------------------------------------
                                         2001                       2000
                                -----------------------  -------------------------
                                 Carrying      Fair        Carrying        Fair
                                  Amount       Value        Amount         Value
                                ----------   ----------  ------------  -----------
<S>                             <C>          <C>         <C>           <C>
Financial assets:
   Cash and cash equivalents     $ 32,057    $ 32,057     $  16,945    $   16,945
   Securities                     297,685     297,686       336,481       338,147
   FHLB stock                      11,350      11,350         7,740         7,740
   Loans                          604,205     610,817       611,774       606,813
   Allowance for loan losses       (7,934)          -        (7,564)            -
                                 --------    --------     ---------    ----------
     Net loans                    596,271     610,817       604,210       606,813

   Accrued interest receivable      4,537       4,537         5,785         5,785

Financial liabilities:
   Deposits                      $609,969    $608,879     $ 640,966    $  641,244
   Borrowings                     256,452     265,983       266,118       268,720
   Mortgagors' escrow funds         5,741       5,741         5,781         5,781
</TABLE>

13.  Regulatory Matters

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

     Quantitative measures established by regulation to ensure capital adequacy
     require the Bank to maintain minimum amounts and ratios (set forth in the
     table below) of total and Tier I capital (as defined in the regulations) to
     risk-weighted assets (as defined), and of Tier I capital (as defined) to
     average assets (as defined). Management believes, December 31, 2001 and
     2000, that the Bank met all capital adequacy requirements to which it was
     subject.

                                      -25-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------


13.  Regulatory Matters (continued)

     As of December 31, 2001, the most recent notification from the Federal
     Deposit Insurance Corporation categorized the Bank as well capitalized
     under the regulatory framework of prompt corrective action. To be
     categorized as well capitalized the Bank must maintain minimum total
     risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in
     the following table (dollars in thousands). There are no conditions or
     events since that notification that management believes have changed the
     Bank's category.

<TABLE>
<CAPTION>

                                                                                       To Be Well Capitalized
                                                                 For Capital           Under Prompt Corrective
                                              Actual          Adequacy Purposes           Action Provisions
                                      ---------------------- --------------------     -------------------------
                                        Amount      Ratio      Amount      Ratio          Amount        Ratio
                                      ---------   ---------- ---------   --------     -----------   -----------
<S>                                   <C>         <C>        <C>         <C>          <C>           <C>
As of December 31, 200l:
   Total Capital
     (to Risk-Weighted Assets)        $ 102,653      20.4%    $ 40,273       8%         $ 50,341          10%
   Tier I Capital
     (to Risk-Weighted Assets)           96,355      19.2%      20,136       4%           30,204           6%
   Tier I Capital
     (to Average Assets)                 96,355       9.9%      39,087       4%           48,858           5%

As of December 31,200O:
   Total Capital
     (to Risk-Weighted Assets)        $  96,488      17.9%    $ 43,227       8%         $ 54,034          10%
   Tier I Capital
     (to Risk-Weighted Assets)           89,703      16.6%      21,613       4%           32,420           6%
   Tier I Capital
     (to Average Assets)                 89,703       8.8%      40,670       4%           50,837           5%
</TABLE>

     The following is a reconciliation of the Bank's equity under accounting
     principles generally accepted in the United States of America (GAAP) to
     regulatory capital as of the dates indicated (in thousands):

<TABLE>
<CAPTION>

                                                                   December 31,
                                                            ---------------------------
                                                                2001           2000
                                                            ---------------------------

<S>                                                           <C>             <C>
GAAP equity                                                   $100,148        $ 89,911
(Less):
   Unrealized holding gains on securities
      available-for-sale, net of tax                            (3,775)           (179)
   Disallowed mortgage servicing assets                            (18)            (29)
                                                              --------        --------
      Tier I capital                                            96,355          89,703

Plus:
   Allowable portion of the allowance for loan losses            6,298           6,755
   45% of net unrealized gains on marketable equity
      securities                                                     -              30
                                                              --------        --------
      Total capital                                           $102,653        $ 96,488
                                                              ========        ========
</TABLE>

14.  Adoption of Plan of Conversion

     On October 2, 2001, the Board of Directors of the Bank adopted the Plan of
     Reorganization From a Mutual Savings Bank to a Mutual Holding Company and
     Stock Issuance Plan (the "Plan"). Pursuant to the Plan, the Bank will
     reorganize into the mutual holding company form of organization as a
     wholly-owned subsidiary of Partners Trust Financial Group, Inc., a mid-tier
     stock holding company (the "holding company") that will be a majority-owned
     subsidiary of Partners Trust, MHC (the "MHC"). Following receipt of all
     required regulatory approvals, the approval of the depositors of the Bank
     entitled to vote on the Plan, and the satisfaction of all other conditions
     precedent to the reorganization, the Bank will consummate the
     reorganization. Pursuant to the Plan, the reorganization will be effected
     in a manner that is consistent with applicable federal law and regulations.
     Contemporaneously with the reorganization, Partners Trust Financial Group,
     Inc. will sell a minority interest in shares of common stock in a public
     stock offering (the "offering"). The offering began on February 14, 2002,
     and is expected to terminate on March 18, 2002.

                                      -26-

<PAGE>

SBU Bank and Subsidiaries

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------


14.  Adoption of Plan of Conversion (Continued)

     Subsequent to the reorganization and offering, the minority interest will
     represent 49% or less of Partners Trust Financial Group, Inc.'s outstanding
     shares, with the MHC owning at least 51%.

     The reorganization will be accounted for as a change in corporate form with
     no resulting change in the historical basis of the Bank's assets,
     liabilities and equity.

     In connection with the reorganization, the Bank proposes to create a
     charitable foundation to be funded by the holding company by contributing a
     number of authorized but unissued shares of common stock and cash to the
     charitable foundation, immediately following the reorganization. Such
     contributions, once made, will not be recoverable by the Bank or the
     holding company. The holding company will recognize expense equal to the
     cash contributed and the fair value of the stock in the quarter in which
     the contributions occur, which is expected to be the second quarter of
     2002. Such expense will reduce earnings and could have a material impact on
     the Bank's earnings for such quarter and for 2002.

     Offering costs are being deferred and will be deducted from the proceeds of
     the shares sold in the offering. If the reorganization and conversion is
     not completed, all costs will be charged to expense. As of December 31,
     2001, approximately $228,000 of costs had been deferred.

                                      -27-