<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

                Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                  For the quarterly period ended June 30, 1998
                                                 -------------

                         Commission File Number 0-18513
                                                -------

                            SKANEATELES BANCORP, INC.
                            -------------------------
             (Exact name of registrant as specified in its charter)


          Delaware                                       16-1368745
          --------                                       ----------
(State or other jurisdiction of                        (I.R.S. Employer
 incorporation or organization)                       Identification No.)


                 33 E. Genesee St., Skaneateles, New York, 13152
                 -----------------------------------------------
                (Address of principal executive offices-Zip code)


         Registrant's telephone number, including area code 315-685-2265
                                                            ------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days


Yes   X   No
    -----    -----


Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of the latest practicable date.


                      Class                     Outstanding at August 11, 1998
                      -----                     ------------------------------
    Common Stock (par value $.01 per share)           1,446,403 Shares








<PAGE>   2



PART I. FINANCIAL INFORMATION                                             Page
-----------------------------                                             ----

         Item 1.  Consolidated Financial Statements

                  Consolidated Balance Sheets                               3

                  Consolidated Statements of Income                         4

                  Consolidated Statements of Stockholders' Equity           5

                  Consolidated Statements of Cash Flows                     6

                  Notes to Consolidated Financial Statements                7

         Item 2.  Management's Discussion and Analysis of 
         Financial Condition and Results of Operations                     11

         Item 3.  Quantitative and Qualitative Disclosures 
         About Market Risk                                                 17

PART II. OTHER INFORMATION

         Item 1.  Legal Proceedings                                        18

         Item 2.  Changes in Securities                                    18

         Item 3.  Defaults Upon Senior Securities                          18

         Item 4.  Submission of Matters to a Vote of Security Holders      18

         Item 5.  Other Information                                        18

         Item 6.  Exhibits and Reports on Form 8-K                         18


SIGNATURES                                                                 19




                                       2
<PAGE>   3




SKANEATELES BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                      (UNAUDITED)
                                                                                         JUNE 30,      DECEMBER 31,
ASSETS                                                                                    1998              1997
--------------------------------------------------------------------------------------------------------------------
                                                                                 (In Thousands, Except Share Data)

<S>                                                                                   <C>                     <C>  
Cash and due from banks                                                               $     8,452             9,658
Federal funds sold                                                                         16,200             6,700
Securities available for sale, at fair value                                               11,191             8,416
Securities held to maturity, fair value of
 ($6,357 in 1998 and $7,935 in 1997)                                                        6,157             7,705
Federal Home Loan Bank stock, at cost                                                       1,561             1,561
Mortgage loans                                                                            142,445           153,312
Other loans and leases                                                                     73,243            61,243
--------------------------------------------------------------------------------------------------------------------
                                                                                          215,688           214,555
         Net deferred costs                                                                   575               467
         Allowance for loan losses                                                         (2,657)           (2,560)
--------------------------------------------------------------------------------------------------------------------
         Loans, net                                                                       213,606           212,462
Premises and equipment, net                                                                 6,085             6,155
Real estate owned, net                                                                        902               951
Accrued interest receivable                                                                 1,294             1,372
Other assets                                                                                1,282             1,121
--------------------------------------------------------------------------------------------------------------------
                                                                                       $  266,730           256,101
====================================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------------
Liabilities:
   Interest bearing deposits                                                           $  205,117           197,782
   Demand deposits                                                                         22,556            20,236
--------------------------------------------------------------------------------------------------------------------
       Total deposits                                                                     227,673           218,018

   Borrowings                                                                              17,394            18,057
   Accrued expenses and other liabilities                                                   3,321             2,355
--------------------------------------------------------------------------------------------------------------------
            Total liabilities                                                             248,388           238,430
====================================================================================================================

Stockholders' equity:
   Preferred stock, par value $.01 per share,
      authorized 500,000 shares, none issued                                                    0                 0
   Common stock, par value $.01 per share, authorized 2,500,000 shares,
      1,444,617 and 1,435,992 shares issued in 1998 and 1997, respectively                     14                14
   Additional paid-in capital                                                               9,228             9,119
   Retained earnings                                                                        9,136             8,573
   Accumulated other comprehensive income                                                     (36)              (35)
--------------------------------------------------------------------------------------------------------------------
            Total stockholders' equity                                                     18,342            17,671
--------------------------------------------------------------------------------------------------------------------
                                                                                       $  266,730           256,101
====================================================================================================================
</TABLE>


See accompanying notes to consolidated financial statements.


                                       3
<PAGE>   4




SKANEATELES BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>

                                                             THREE MONTHS ENDED JUNE 30,          SIX MONTHS ENDED JUNE 30,
                                                               1998                1997            1998                1997
----------------------------------------------------------------------------------------------------------------------------
                                                            (In Thousands, Except Per Share Data)
<S>                                                         <C>                   <C>             <C>                 <C>  
Interest income:
   Mortgage loans                                           $ 2,981               3,204           5,969               6,431
   Other loans                                                1,583               1,162           3,076               2,167
   Securities                                                   263                 303             542                 597
   Federal funds sold                                           238                  41             362                  87
----------------------------------------------------------------------------------------------------------------------------
           Total interest income                              5,065               4,710           9,949               9,282

Interest expense:
   Deposits                                                   2,109               2,032           4,195               4,072
   Borrowings                                                   282                 298             572                 588
----------------------------------------------------------------------------------------------------------------------------
            Total interest expense                            2,391               2,330           4,767               4,660

----------------------------------------------------------------------------------------------------------------------------
            Net interest income                               2,674               2,380           5,182               4,622

Provision for loan losses                                       150                 100             250                 200
----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses           2,524               2,280           4,932               4,422

Other operating income:
   Net gain on sale of loans                                     24                  15              44                  65
   Service charges                                              421                 327             786                 624
   Other                                                        104                 107             189                 181
----------------------------------------------------------------------------------------------------------------------------
          Total other operating income                          549                 449           1,019                 870

Other operating expenses:
   Salaries and employee benefits                               985                 938           1,934               1,825
   Building, occupancy and equipment                            360                 304             757                 612
   Data processing                                              165                  96             299                 177
   Correspondent bank fees                                      143                  98             272                 189
   Advertising and promotions                                    70                  59             137                 106
   Postage and delivery                                         136                 129             265                 276
   Stationery and supplies                                       56                  42             119                  91
   Deposit insurance                                              9                   7              14                  13   
   Real estate owned, net                                        40                   8              74                  15
   Other                                                        458                 354             892                 670
----------------------------------------------------------------------------------------------------------------------------
            Total other operating expenses                    2,422               2,035           4,763               3,974

            Income before income taxes                          651                 694           1,188               1,318
Income tax                                                      233                 247             423                 469
----------------------------------------------------------------------------------------------------------------------------
            Net income                                      $   418                 447             765                 849
----------------------------------------------------------------------------------------------------------------------------

Basic earnings per share                                    $  0.29                0.31            0.53                0.59
Diluted earnings per share                                  $  0.28                0.30            0.51                0.58
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to consolidated financial statements.



                                       4
<PAGE>   5




SKANEATELES BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)


<TABLE>
<CAPTION>
                                                                                                   ACCUMULATED
                                                                           ADDITIONAL                 OTHER
                                                                  COMMON    PAID-IN-    RETAINED  COMPREHENSIVE
                                                                   STOCK     CAPITAL    EARNINGS      INCOME         TOTAL
-----------------------------------------------------------------------------------------------------------------------------
                                                                                      (In Thousands)
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>          <C>         <C>             <C>       <C>   
Balance at December 31, 1996                                       $     9      8,978       7,300           (57)      16,230

Comprehensive income:
  Net income                                                             0          0         849              0         849

  Change in net unrealized gain on securities, net of tax
    effect of $2                                                       0          0           0              7           7
-----------------------------------------------------------------------------------------------------------------------------
     Total comprehensive income                                          0          0         849              7         856

Sale of 4,350 shares under option                                        1         25           0              0          26

Issuance of 1,820 shares of stock under
  1995 Non-employee Director's Stock Plan                                0         21           0              0          21

Issuance of 1,530 shares of stock under Dividend Reinvestment
  Plan                                                                   0         18           0              0          18

Cash dividend declared on Common stock ($.13 per share)                  0          0       (190)              0       (190)
-----------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1997                                           $    10      9,042       7,959           (50)      16,961
=============================================================================================================================

-----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997                                       $    14      9,119       8,573           (35)      17,671

Comprehensive income:
  Net income                                                             0          0         765              0         765

  Change in net unrealized gain on securities, net of tax
    effect of $0                                                         0          0           0            (1)         (1)
-----------------------------------------------------------------------------------------------------------------------------
     Total comprehensive income                                          0          0         765            (1)         764

Sale of 4,080 shares under option                                        0         30           0              0          30

Issuance of 1,702 shares of stock under
  1995 Non-employee Director's Stock Plan                                0         35           0              0          35

Issuance of 1,500 shares of stock under
  1995 Non-employee Director's Warrant Plan                              0         19           0              0          19

Issuance of 990 shares of stock under Dividend Reinvestment
  Plan                                                                   0         18           0              0          18

Issuance of 353 shares of stock under 1997 Employee Stock
  Purchase Plan                                                          0          7           0              0           7


Cash dividend declared on Common stock ($.14 per share)                  0          0        (202)             0        (202)
-----------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998                                           $    14      9,228       9,136           (36)      18,342
=============================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.



                                       5
<PAGE>   6




SKANEATELES BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
                                                                                                SIX MONTHS ENDED JUNE 30,
                                                                                                1998               1997
------------------------------------------------------------------------------------------------------------------------
                                                                                                    (In Thousands)
<S>                                                                                        <C>                      <C>
OPERATING ACTIVITIES
Net Income                                                                                 $     765                849
Adjustments to reconcile net income to net cash provided by operating activities:
  Provision for loan losses                                                                      250                200
  Provision for losses on real estate owned                                                       60                  0
  Depreciation and amortization                                                                  402                397
  Mortgage loans originated for sale                                                          (8,527)            (1,564)
  Proceeds from sale of loans originated for sale                                              7,603              1,948
  Net (increase) decrease in interest receivable                                                  78                (70)
  Net increase (decrease) in other liabilities                                                   967               (448)
  Loss on disposal of computer equipment                                                          38                  0
  Other, net                                                                                    (138)              (509)
------------------------------------------------------------------------------------------------------------------------
        Total adjustments                                                                        733                (46)
------------------------------------------------------------------------------------------------------------------------
        Net cash provided by operating activities                                              1,498                803

INVESTING ACTIVITIES
  Proceeds from maturities of securities available for sale                                    1,000              1,004
  Proceeds from maturities of securities held to maturity                                      1,245                445
  Principal collected on asset-backed securities                                                 387                598
  Purchase of Federal Home Loan Bank stock                                                         0               (151)
  Purchase of securities held to maturity                                                        (70)               (60)
  Purchase of securities available for sale                                                   (4,000)            (2,325)
  Net increase in loans made to customers                                                       (531)            (4,648)
  Proceeds from sale of real estate owned                                                        168                135
  Purchase of property and equipment, net                                                       (302)              (138)
------------------------------------------------------------------------------------------------------------------------
        Net cash used in investing activities                                                 (2,103)            (5,140)

FINANCING ACTIVITIES:
  Net decrease in time certificates                                                             (693)            (4,092)
  Net increase in other deposits                                                              10,348              9,254
  Decrease in overnight borrowings                                                              (607)              (163)
  Increase in long-term borrowings                                                                 0                500
  Repayment of long-term borrowings                                                              (56)              (273)
  Proceeds from issuance of stock pursuant to stock plans                                        109                 65
  Dividends paid                                                                                (202)              (190)
------------------------------------------------------------------------------------------------------------------------
       Net cash provided by financing activities                                               8,899              5,101
------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents                                                      8,294                764
Cash and cash equivalents at beginning of period                                              16,358              9,526
------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                                  $ 24,652             10,290
========================================================================================================================
Interest paid                                                                                  4,763              4,674
Income taxes paid                                                                                317                451
Supplemental schedule of noncash investing activities:
   Mortgage loans foreclosed and transferred to real estate owned                                179                116
========================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       6
<PAGE>   7




                            SKANEATELES BANCORP, INC.
                   Notes to Consolidated Financial Statements

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS
Skaneateles Bancorp, Inc. (the Company) is a bank holding company registered
under the Bank Holding Company Act of 1956. The results of the Company are
largely dependent upon the results of Skaneateles Savings Bank (the Bank), its
sole subsidiary. Skaneateles Savings Bank is a full service retail bank.

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

The data in the consolidated balance sheet for December 31, 1997 was derived
from the Company's 1997 Annual Report to Stockholders. That data, along with the
other interim financial information presented in the consolidated balance
sheets, statements of income, statements of stockholders' equity and cash flows
should be read in conjunction with the consolidated financial statements,
including the notes thereto, contained in the 1997 Annual Report to
Stockholders.

OPINION OF MANAGEMENT
The interim financial statements of the Company included in this Report reflect
all adjustments which are, in the opinion of management, necessary to present a
fair statement of the financial condition of the Company. All adjustments made
to the interim financial statements were of a normal recurring nature.

The following summarizes the significant accounting policies of the Company:

a)       BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
the Bank. All significant intercompany balances and transactions are eliminated
in consolidation.

b)       SECURITIES
The Company classifies its debt securities as either available-for-sale or
held-to-maturity. Equity securities are classified as available-for-sale.
Held-to-maturity securities are those debt securities that the Company has the
ability and intent to hold until maturity. All other securities not included as
held-to-maturity are classified as available-for-sale.

Available-for-sale securities are recorded at fair value. Held-to-maturity
securities are recorded at amortized cost, adjusted for the amortization or
accretion of premiums or discounts. Unrealized gains and losses, net of the
related tax effect, on available-for-sale securities are excluded from earnings
and are reported as a separate component of stockholders' equity until realized.
Transfers of securities between categories are recorded at fair value at the
date of transfer. Unrealized gains or losses associated with transfers of
securities from held-to-maturity to available-for-sale are recorded as a
separate component of stockholders' equity. The unrealized gains or losses
included in the separate component of equity for securities transferred from
available-for-sale to held-for-maturity are maintained and amortized into
earnings over the remaining life of the security as an adjustment to yield in a
manner consistent with the amortization or accretion of premium or discount on
the associated security.

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

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




                                       7
<PAGE>   8



1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONT.

c)       LOANS
Loans are reported at the principal amount outstanding, net of deferred fees and
costs. Accrual of interest on a loan, including impaired loans, is discontinued
when management believes, after considering economic and business conditions and
collection efforts, that the borrower's financial condition precludes accrual.
Generally, interest income is not recognized on loans which are delinquent over
90 days, and income is subsequently recognized only to the extent that cash
payments are received until, in management's judgment, the borrower's ability to
make periodic interest and principal payments is back to normal, in which case
the loan is returned to accrual status.

Net loan fees and costs are deferred as an adjustment of loan principal and
amortized over the life of the related loan as an adjustment of yield using the
interest method.

The Bank originates some mortgage loans with the intent to sell. These loans are
carried at the lower of aggregate cost or fair value. Gains or losses on sales
of mortgages are recorded equal to the difference between sales proceeds and the
carrying value of the loans. The Bank typically retains the servicing rights to
mortgages sold.

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

Management believes that the allowance for loan losses is adequate. Management
uses presently available information to recognize losses on loans; however,
future additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for loan
losses and may require the Company to recognize additions to the allowance based
on their judgment of information available to them at the time of their
examination.

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

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



                                       8
<PAGE>   9



1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONT.

e)       PER COMMON SHARE DATA
On December 31, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." The
statement supersedes Accounting Principles Board Opinion No. 15, "Earnings Per
Share," and specifies the computation, presentation, and disclosure requirements
for earnings per share (EPS) for entities with publicly held common stock. It
requires dual presentation of "Basic EPS" and "Diluted EPS" on the face of the
income statement for all entities with complex capital structures. All prior
period EPS data has been restated to conform to the provisions of this
statement.

Basic earnings per share is calculated by dividing net income available to
common shareholders by the weighted average number of shares outstanding during
the year. Diluted earnings per share includes the maximum dilutive effect of
stock issuable upon conversion of stock options and warrants.

In October, 1997, the Company declared a three-for-two stock split, effected by
means of a stock dividend paid November 28, 1997. All share and per share data
included in the consolidated financial statements and in the related notes
thereto have been retroactively adjusted to reflect the stock split.

The following table presents a reconciliation of the numerator and denominator
of the earnings per share computations (in thousands except share and per-share
amounts):

<TABLE>
<CAPTION>
                                      QUARTER ENDED JUNE 30, 1998                SIX MONTHS ENDED JUNE 30, 1998
                                     -----------------------------               ------------------------------
                                  INCOME          SHARES        PER-SHARE      INCOME           SHARES       PER-SHARE
                               (NUMERATOR)     (DENOMINATOR)     AMOUNT      (NUMERATOR)    (DENOMINATOR)      AMOUNT
                               -----------     -------------     ------      -----------    -------------      ------
<S>                               <C>               <C>           <C>           <C>               <C>          <C>  
BASIC EARNINGS PER SHARE:
Net income                        $ 418             1,442,877     $ .29         $ 765             1,440,453    $ .53

Effect of assumed exercise
of stock options and                                   53,000                                        55,765
warrants

DILUTED EARNINGS PER SHARE:
Income available to common
shareholders and assumed
exercise of stock options
and warrants                  ------------------------------------------------------------------------------------------
                                  $ 418             1,495,877     $ .28         $ 765             1,496,218    $ .51
                              ------------------------------------------------------------------------------------------


                                      QUARTER ENDED JUNE 30, 1998                 SIX MONTHS ENDED JUNE 30, 1997
                                      ---------------------------                 ------------------------------
                                  INCOME          SHARES        PER-SHARE      INCOME           SHARES       PER-SHARE
                               (NUMERATOR)     (DENOMINATOR)     AMOUNT      (NUMERATOR)    (DENOMINATOR)      AMOUNT
                               -----------     -------------     ------      -----------    -------------      ------
BASIC EARNINGS PER SHARE:
Net income                        $ 447             1,429,294     $ .31         $ 849             1,427,043    $ .59

Effect of assumed exercise
of stock options                                       35,652                                        35,693
                              ------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE:
Income available to common
shareholders and assumed      
exercise of stock options         $ 447             1,464,946     $ .30         $ 849             1,462,736    $ .58
                              ------------------------------------------------------------------------------------------
</TABLE>

f)      CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash,
amounts due from banks and federal funds sold.

g)      RECLASSIFICATIONS
Certain reclassifications have been made to prior period amounts for consistency
in reporting.




                                       9
<PAGE>   10



1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONT.

h)       NEW ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes comprehensive
accounting and reporting requirements for derivative instruments and hedging
activities. The statement requires companies to recognize all derivatives as
either assets or liabilities, with the instruments measured at fair value. The
accounting for gains and losses resulting from changes in fair value of the
derivative instrument, depends on the intended use of the derivative and the
type of risk being hedged. This statement is effective for all fiscal quarters
beginning January 1, 2000 for calendar year companies. Earlier adoption,
however, is permitted. At the present time, the Company has not fully analyzed
the effect or timing of the adoption of SFAS 133 on the Company's consolidated
financial statements.

Effective January 1, 1998, the Company adopted the remaining provisions of SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which relate to the accounting for securities
lending, repurchase agreements, and other secured financing activities. These
provisions, which were delayed for implementation by SFAS No. 127, are not
expected to have a material impact on the Company.

On January 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income." This statement establishes standards for
reporting and display of comprehensive income and its components. Comprehensive
income includes the reported net income of a company adjusted for items that are
currently accounted for as direct entries to equity, such as the mark to market
adjustment on securities available for sale, foreign currency items and minimum
pension liability adjustments. At the Company, comprehensive income represents
net income plus other comprehensive income, which consists of the net change in
unrealized gains or losses on securities available for sale for the period.
Accumulated other comprehensive income represents the net unrealized gains or
losses on securities available for sale as of the balance sheet dates.
Comprehensive income for the three-months and six months ended June 30, 1998 and
1997 is summarized as follows:

<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED JUNE 30,           SIX MONTHS ENDED JUNE 30,
                                                            1998            1997              1998             1997
                                                            ----            ----              ----             ----
<S>                                                        <C>                <C>              <C>              <C>
Net income                                                 $ 418              447              765              849

Other comprehensive income:
  Unrealized holding gain (loss) on securities,
     before tax                                               (6)              18               (1)               9
  Income tax (expense) benefit                                 2               (4)               0               (2)
-------------------------------------------------------------------------------------------------------------------
 Other comprehensive income, net of tax                       (4)              14               (1)               7
-------------------------------------------------------------------------------------------------------------------
Comprehensive Income                                       $ 414              461              764              856
===================================================================================================================
</TABLE>

In June 1997, the FASB issued Statement No. 131 entitled "Disclosures about
Segments of an Enterprise and Related Information." The statement requires
publicly-held companies to report financial and other information about key
revenue-producing segments of the entity for which such information is available
and is utilized by the chief operating decision maker. Specific information to
be reported for individual segments includes profit or loss, certain revenue and
expense items and total assets. A reconciliation of segment financial
information to amounts reported in the financial statements would be provided.
Statement 131 is effective for financial statements for periods beginning after
December 15, 1997. The new standard is not expected to result in significant
changes in the Company's reporting.




                                       10
<PAGE>   11



         Item 2. Management's Discussion and Analysis of Financial Condition &
Results of Operations

General
-------
Skaneateles Bancorp, Inc. (the "Company") is a bank holding company, with
Skaneateles Savings Bank (the "Bank") being its sole subsidiary. The financial
condition and operating results of the Company are largely dependent on the
Bank, its primary investment.

Certain statements in this discussion are forward-looking. These may be
identified by the use of forward-looking words or phrases, such as "believe,"
"expect," "anticipate," "should," "planned," "estimated," and "potential." These
forward-looking statements are based on the Company's current expectations. The
Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for
such statements. To comply with the terms of the safe harbor, the Company notes
that a variety of factors could cause actual results and experience to differ
materially from the anticipated results or other expectations expressed in such
forward-looking statements. Among the risks and uncertainties that may affect
the operations, performance and results of the business of the Company and the
Bank are prevailing market rates of interest for both loans and deposits, loan
prepayments by, and the financial health of, the Bank's borrowers, general
economic conditions in the Bank's designated lending area, and competition from
banks and other financial institutions with greater resources operating in the
Bank's marketplace.

                                 YEAR 2000 ISSUE

The Year 2000 issue stems from date coding practices in both software and
hardware. Specifically, hardware and software developers have often used
two-digit numbers rather than four-digit numbers to represent years. This was
done in a conscious effort to provide cost-effective and efficient business
solutions, given resource constraints and requirements in the past.
Consequently, when the year turns to 2000, the software may calculate the date
as 1900 because the century has not been defined.

Management has initiated an enterprise-wide program to prepare the Company's
computer systems and applications for the year 2000. The Company expects to
incur internal staffing costs as well as consulting and other expenses related
to infrastructure and facilities enhancements necessary to prepare the systems
for the year 2000. The Company is expending significant resources to assure 
that its computer systems are reprogrammed in time to effectively deal with
transactions in the year 2000 and beyond. The estimated expense associated 
with the Company's entire Year 2000 project is approximately $400,000.
Included in this amount is approximately $294,000 that has already been
expended to date, $180,000 of which was to purchase new computer equipment

A committee continues to direct the Company's Year 2000 activities under the
framework of the FFIEC's Five Step Program. Testing of core systems is expected
to be complete by year-end 1998, with testing of minor systems to continue
through the third quarter of 1999. The Company continues to work closely with
its data services and item processing providers regarding Year 2000 compliance.
The Company has recently begun evaluating Year 2000 readiness of its commercial
loan applicants as part of the loan underwriting process and is calling upon
major existing borrowers to assess their readiness and identify potential
problems. Failures of borrowers' computer systems could, in the aggregate, have
an adverse impact on the Company's results if their ability to conduct business
is significantly impaired.

The Year 2000 problem creates risk for the Company from both unforeseen problems
in its own computer systems and from problems in the computer systems of third
parties (including vendors and service providers) with whom the Company deals on
financial transactions. Failures of the Company's and/or third parties' computer
systems could have a material adverse impact on the Company's ability to conduct
its business.

The Company expects its Year 2000 date conversion project to be completed on a
timely basis and within budgeted expense. However, there can be no assurance
that the systems of other companies on which the Company's systems rely also
will be timely converted or that any such failure to convert by another company
would not have an adverse effect on the Company's systems.

The Company is currently developing a contingency plan to be implemented in the
event its core systems are not Year 2000 compliant by the turn of the century.
The contingency plan is expected to be completed by the end of 1998.



                                       11
<PAGE>   12



                       Changes in Financial Condition from
                       December 31, 1997 to June 30, 1998

Assets
------
Consolidated assets of the Company were $266.7 million at June 30, 1998, a $10.6
million or 4.1% increase from December 31, 1997.

Loans
-----
Gross loans were $215.7 million at June 30, 1998, a modest increase of $1.1
million from December 31, 1997. Residential mortgages outstanding decreased
$10.2 million, while commercial loans and mortgages increased $4.4 million and
consumer loans increased $6.9 million. The low interest rate environment has
prompted a wave of mortgage refinancings that is affecting Skaneateles and many
other financial institutions.

Total loan closings (including undisbursed funds) were $38.3 million in the
first half of 1998, compared with $26.9 million in the year ago period, an
increase of 42.4%. Commercial loan originations increased 37.9%, to $14.9
million in the first half of 1998 compared with the year ago period. Residential
mortgage originations increased $4.4 million or 81.5%, due in large part to an
increase in refinancings. Consumer loan originations increased $3.0 million or
27.5% to $13.7 million due in large part to an increase in indirect consumer
loan originations and to the success of direct marketing and cross-selling
efforts. The growth in the indirect program, now in its second full year, was
generated largely from the Bank's existing boat and recreational vehicle dealer
relationships.

Skaneateles' residential mortgage portfolio decreased 8.5% in the first half of
1998, despite an increase in originations. Approximately 90% of these
originations were fixed rate loans, most of which were sold on the secondary
market. The Bank in most cases retains the servicing on sold loans.

The increase in commercial loan activity is a direct result of the Bank's
efforts to expand its commercial portfolio within its market niche of small to
mid sized businesses in central New York, including corporations, partnerships
and sole proprietorships.

The results of the first half are indicative of what may occur throughout 1998
if interest rates remain low. The increase in mortgage prepayments and
refinancings, coupled with the overwhelming demand for fixed rate mortgages over
adjustable rates, is likely to continue absent an increase in rates. As a
result, the accelerated runoff in the Bank's residential mortgage portfolio will
hamper overall portfolio growth.

The following table sets forth the composition of Skaneateles' loan portfolio by
loan type as of the dates indicated.

<TABLE>
<CAPTION>
                                               JUNE 30,                                 DECEMBER 31,
                              --------------------- --------------------  --------------------  --------------------
                                      1998                 1997                  1997                  1996
                              --------------------- --------------------  --------------------  --------------------
                                AMOUNT       %        AMOUNT      %         AMOUNT      %         AMOUNT      %
                              --------------------- --------------------  --------------------  --------------------
                                                             (DOLLARS IN THOUSANDS)
<S>                             <C>         <C>        <C>       <C>         <C>       <C>         <C>       <C>   
Loans secured by first mortgages 
   on real estate:
   Residential                  $109,157    50.61%     124,706   59.15%      119,350   55.63%      129,651   62.74%
   Commercial                     33,288    15.43%      32,826   15.57%       33,962   15.83%       31,728   15.35%
Other loans:
   Commercial loans & leases      28,056    13.02%      20,588    9.76%       22,995   10.72%       18,861    9.13%
   Home equity and improvement    20,519     9.51%      19,062    9.04%       20,624    9.61%       17,599    8.52%
   Guaranteed student                807     0.37%         727    0.34%        1,059    0.49%          882    0.43%
   Other consumer                 23,861    11.06%      12,941    6.14%       16,565    7.72%        7,924    3.83%
-------------------------------------------------------------------------------------------------------------------
          Total                 $215,688   100.00%     210,850  100.00%      214,555  100.00%      206,645  100.00%
--------------------------------------------------------------------------------------------------------------------
</TABLE>

The allowance for loan losses was $2.7 million at June 30, 1998. Loan loss
provisions of $250,000 in the first half of 1998 were partially offset by net
charge-offs totaling $153,000.




                                       12
<PAGE>   13



The following table sets forth the activity in the allowance for loan losses for
the periods indicated:

<TABLE>
<CAPTION>
                                        SIX MONTHS ENDED
                                            JUNE 30,                            YEAR ENDED DECEMBER 31,
                                 -------------------------------    ------------------------------------------------
                                     1998              1997             1997             1996             1995
                                 --------------    -------------    --------------   --------------   --------------
                                                                   (In Thousands)

<S>                                     <C>               <C>               <C>              <C>              <C>  
Beginning Balance                       $2,560            2,114             2,114            2,667            3,040

Provision                                  250              200               500              175              235

Charge-offs
-----------
     Residential mortgages                 (28)             (22)              (92)             (74)               0
     Commercial mortgages                    0             (188)             (237)            (168)            (569)
     Business                              (74)             (68)             (137)            (999)            (153)
     Other consumer                        (75)            (114)             (107)             (60)             (10)
--------------------------------------------------------------------------------------------------------------------
                                          (177)            (392)             (573)          (1,301)            (732)
--------------------------------------------------------------------------------------------------------------------

Recoveries
----------
     Residential mortgages                   0                0                 2                0                0
     Commercial mortgages                    0                4                 5                0                0
     Business                               15               34               496              118              118
     Other consumer                          9               11                16                8                6
--------------------------------------------------------------------------------------------------------------------
                                            24               49               519              126              124
--------------------------------------------------------------------------------------------------------------------
Net Charge-offs                           (153)            (343)              (54)          (1,175)            (608)
--------------------------------------------------------------------------------------------------------------------

Allowance of Cicero Bank
at time of acquisition                       0                0                 0              447                0
--------------------------------------------------------------------------------------------------------------------
Ending Balance                          $2,657            1,971             2,560            2,114            2,667
--------------------------------------------------------------------------------------------------------------------

Ratio of net charge-offs
  to average loans outstanding           0.07%            0.17%             0.03%            0.62%            0.36%
--------------------------------------------------------------------------------------------------------------------
</TABLE>





                                       13
<PAGE>   14



The following table sets forth information with respect to loans delinquent 90
days or more, nonaccrual loans, restructured loans, and real estate owned as of
the dates indicated.

<TABLE>
<CAPTION>
                                                         JUNE 30,                        DECEMBER 31,
                                                 -------------------------   --------------------------------------
                                                    1998          1997          1997         1996         1995
                                                 ------------  -----------   -----------  -----------  -----------
                                                                          (In Thousands)
<S>                                               <C>               <C>           <C>          <C>            <C>
Nonaccruing loans
     Residential real estate mortgages            $    1,077        1,056         1,091        1,359          271
     Commercial (1)                                    2,506        1,646         2,573        1,626        1,757
     Consumer                                            164          204           253          186          110
------------------------------------------------------------------------------------------------------------------
Total                                             $    3,747        2,906         3,917        3,171        2,138
==================================================================================================================

Other loans past due 90 days or more and still accruing:
     Consumer (2)                                          0           66             0           29            1
     Commercial (1)                                        0        1,047             0          370            0
------------------------------------------------------------------------------------------------------------------
Total                                             $        0        1,113             0          399            1
==================================================================================================================

Restructured loans, not included above                     0            0             0            0        1,125
==================================================================================================================

Real estate owned                                        902          698           951          717          397
==================================================================================================================

Total assets containing specific risk elements    $    4,649        4,717         4,868        4,287        3,661
==================================================================================================================

Ratio of total loans past due
90 days or more to gross loans                         1.74%        1.91%         1.83%        1.73%        1.25%
------------------------------------------------------------------------------------------------------------------

Ratio of assets containing specific
risk elements to total assets                          1.74%        1.90%         1.90%        1.77%        1.74%
------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes commercial real estate loans.
(2) Consists primarily of Guaranteed Student Loans.

Nonperforming assets (nonaccrual loans and real estate owned) totaled $4.6
million, or 1.7% of total assets at June 30, 1998, compared with $4.9 million,
or 1.9% of total assets at December 31, 1997, and $3.6 million, or 1.5% at June
30, 1997. Included in nonperforming assets at June 30, 1998 were nonaccrual
loans of $3.7 million or 1.7% of gross loans, compared with $3.9 million or 1.8%
at December 31, 1997 and $2.9 million or 1.4% at June 30, 1997.

At June 30, 1998, nonaccrual loans were comprised of 29% residential mortgages,
67% commercial loans and mortgages and 4% consumer loans. Approximately $2.1
million of the commercial nonaccrual loans, representing 86% of such balances,
are secured by real estate.

The allowance for loan losses covered 71% of nonaccrual loans at June 30, 1998,
compared with coverage of 65% at December 31, 1997 and 68% at June 30, 1997.

Impaired loans, which included troubled debt restructured loans, were $2.3
million and $1.1 million at June 30, 1998 and 1997, respectively. Included in
these amounts are $1.1 million and $107,000 of impaired loans for which the
related allowance for loan losses is $476,000 and $19,000, respectively. In
addition, included in the total impaired loans at June 30, 1998 and 1997 are
$1.2 million and $976,000, respectively, of impaired loans for which no
allowance is recorded due to the adequacy of collateral values in accordance
with SFAS 114. The average recorded investment in impaired loans during the
first half of 1998 and 1997 was approximately $2.3 million and $961,000,
respectively.

The amount of interest income recognized on impaired loans for the three months
ended June 30, 1998 and 1997 was approximately $24,000 and $7,000, respectively.
The amount of interest income recognized on impaired loans for the six months
ended June 30, 1998 and 1997 was approximately $27,000 and $7,000 respectively.
The Bank is not committed to lend additional funds to these borrowers.



                                       14
<PAGE>   15

Potential problem loans at June 30, 1998 amounted to $1.3 million. "Potential
problem loans" are defined as loans which are not included with past due and
non-accrual loans discussed above, but about which management, through normal
internal credit review procedures, has information about possible credit
problems which may result in the borrower's inability to comply with the present
loan repayment terms. There have been no loans classified for regulatory
purposes as loss, doubtful, or substandard that are not included above or which
caused management to have serious doubts as to the ability of the borrower to
comply with repayment terms. In addition, there were no material commitments to
lend additional funds to borrowers whose loans were classified as
non-performing.

Deposits
--------
Total deposits (including advance payments by borrowers for property taxes and
insurance) were $227.7 million at June 30, 1998, compared with $218.0 million at
December 31, 1997 and $210.1 million at June 30, 1997.

The Bank's deposit strategy has focused on growing its low cost transaction
account base (savings, checking and NOW accounts), while reducing its reliance
on higher cost time certificates. In addition to reducing the Bank's cost of
funds, transaction accounts provide a more stable funding source than time
accounts and the Bank earns service fee income on most transaction accounts. An
ongoing direct mail marketing program supports this strategy. Transaction
accounts (including escrow) comprised 42.8% of total deposits at June 30, 1998,
up from 40.1% at December 31, 1997 and 39.9% at June 30, 1997.

The following table sets forth deposits by type of account as of the dates
indicated.

<TABLE>
<CAPTION>
                                              JUNE 30,                                  DECEMBER 31,
                             -------------------------------------------- ------------------------------------------
                                     1998                   1997                  1997                 1996
                             ---------------------- --------------------- --------------------- --------------------
                                          Percent              Percent               Percent               Percent
                                         of total              of total              of total             of total
                               Amount    deposits    Amount    deposits    Amount    deposits    Amount   deposits
                             ---------------------- --------------------- --------------------- --------------------
                                                             (Dollars in Thousands)

<S>                            <C>          <C>        <C>        <C>        <C>        <C>        <C>       <C>   
Savings and club accounts      $  47,154    20.70%     42,443     20.19%     42,451     19.47%     38,690    18.87%
Time certificates                104,379    45.85%    103,337     49.16%    105,072     48.19%    107,429    52.39%
Money market accounts             24,786    10.89%     23,081     10.98%     24,234     11.12%     21,991    10.73%
NOW accounts                      27,122    11.91%     21,393     10.18%     24,456     11.22%     20,314     9.91%
Demand accounts                   22,556     9.91%     18,108      8.62%     20,236      9.28%     14,861     7.25%
Escrow accounts                    1,676     0.74%      1,829      0.87%      1,569      0.72%      1,744     0.85%
--------------------------------------------------------------------------------------------------------------------
          Total                 $227,673   100.00%    210,191    100.00%    218,018    100.00%    205,029   100.00%
====================================================================================================================
</TABLE>

Stockholders' Equity
--------------------
Stockholders' equity at June 30, 1998 was $18.3 million, or $12.70 per share,
compared with $17.7 million or $12.31 per share at December 31, 1997 and $17.0
million or $11.86 at June 30, 1997. At June 30, 1998, the Bank's leverage
capital ratio was 6.71% and its risk-based capital ratio was 11.23%. Both
capital measurements were in excess of regulatory requirements.

In July 1998 the Company declared a dividend of $.07 per share payable on August
18, 1998 to shareholders of record on August 4.

                     Comparison of the Results of Operations

General
-------
Net income was $418,000 or $.28 per diluted share for the second quarter of
1998, compared with $447,000 or $.30 per diluted share for the same period in
1997. A $294,000 increase in net interest income and a $100,000 increase in
other operating income was offset by increases in other operating expenses and
loan loss provisions of $387,000 and $50,000, respectively.




                                       15
<PAGE>   16



Net Interest Income
-------------------
Net interest income is affected by the difference between the yield earned on
interest earning assets and rates paid on interest bearing deposits and
borrowings. The relative amounts of interest earning assets, interest bearing
deposits, and borrowings also impact net interest income levels.

The following table sets forth, for the three months ended June 30, information
regarding (i) the total dollar amount of interest income from interest-earning
assets and the resulting average yields; (ii) the total dollar amount of
interest expense on interest-bearing liabilities and the resultant average cost;
(iii) net interest income; (iv) interest rate spread; (v) net interest-earning
assets; (vi) net yield on interest-earning assets; and (vii) ratio of
interest-earning assets to interest-bearing liabilities. Nonaccruing loans,
which are immaterial, have been included in interest earning-assets. No tax
equivalent adjustments were made.

<TABLE>
<CAPTION>
                                                       1998                                     1997
                                        ------------------------------------     -----------------------------------
                                          AVERAGE                   YIELD/        AVERAGE                   YIELD/
                                          BALANCE    INTEREST        RATE         BALANCE    INTEREST        RATE
                                        ------------------------------------     -----------------------------------
                                                                  (Dollars In Thousands)
<S>                                       <C>             <C>         <C>           <C>           <C>         <C>  
Interest-earning assets:
  Mortgage loans                          $ 145,573       2,981       8.19%         158,972       3,204       8.06%
  Other loans                                69,080       1,583       9.19%          50,439       1,162       9.24%
--------------------------------------------------------------------------------------------------------------------
Total loans                                 214,653       4,564       8.51%         209,411       4,366       8.34%
--------------------------------------------------------------------------------------------------------------------
  Securities                                 16,632         263       6.34%          16,346         303       7.41%
  Federal funds sold                         16,760         238       5.70%           2,796          41       6.03%
--------------------------------------------------------------------------------------------------------------------
Total interest-earning assets               248,045       5,065       8.18%         228,553       4,710       8.25%
--------------------------------------------------------------------------------------------------------------------
Non-interest earning assets                  13,882           0                      15,372           0
--------------------------------------------------------------------------------------------------------------------
Total assets                              $ 261,927       5,065                     243,925       4,710
====================================================================================================================

Interest-bearing liabilities:
  Deposits:
     Savings and club accounts           $   45,782         325       2.85%          41,581         295       2.85%
     Time certificates                      103,548       1,403       5.43%         103,183       1,413       5.49%
     Money market accounts                   25,346         238       3.77%          22,192         204       3.69%
     Now and escrow accounts                 27,434         143       2.09%          22,853         120       2.11%
--------------------------------------------------------------------------------------------------------------------
  Total interest-bearing deposits           202,110       2,109       4.19%         189,809       2,032       4.29%
--------------------------------------------------------------------------------------------------------------------
  Borrowings                                 17,616         282       6.42%          18,333         298       6.56%
--------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities          219,726       2,391       4.36%         208,142       2,330       4.49%
Non-interest-bearing deposits                21,383           0                      16,498           0
Non-interest-bearing liabilities              2,457           0                       2,306           0
--------------------------------------------------------------------------------------------------------------------
Total liabilities                           243,534       2,391                     226,946       2,330
Stockholders' equity                         18,361           0                      16,979           0
--------------------------------------------------------------------------------------------------------------------
Total liabilities and
  stockholders' equity                    $ 261,927       2,391                     243,925       2,330
--------------------------------------------------------------------------------------------------------------------
Net interest income/
  interest rate spread                                    2,674       3.82%                       2,380       3.76%
--------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/
  net yield on interest-earning
  assets                                 $   28,319                   4.31%          20,411                   4.17%
--------------------------------------------------------------------------------------------------------------------
Ratio of interest-earning assets
  to interest-bearing liabilities                                      1.13                                    1.10
--------------------------------------------------------------------------------------------------------------------
</TABLE>

Net interest income was $2.7 million for the three months ended June 30, 1998
compared with $2.4 million for the same period in 1997. The increase is
attributable to a $16.1 million increase in average earning assets combined with
a 14 basis point increase in the net interest margin.



                                       16
<PAGE>   17

Average loans outstanding in the second quarter were $214.6 million, compared
with $209.4 million in the year ago quarter. All of this growth was in the
Bank's consumer and commercial loan portfolios, which increased a combined $19.8
million to offset a $10.2 million decline in the Bank's residential mortgage
portfolio due primarily to a wave of refinancings.

The Company's earning-asset yield was 8.18% in the second quarter of 1998,
compared with 8.25% in the year ago quarter. The lower yield is the result of
generally lower interest rates and a proportionately larger amount of total
earning assets invested in federal funds sold, due mainly to the increased
residential refinance activity in the first half of 1998.

The average cost of interest-bearing liabilities decreased 13 basis points due
mainly to a change in the mix of interest bearing deposits, and to a lower cost
of time certificates. Savings and NOW accounts, which are the Company's lowest
costing source of interest-bearing funds, grew to 32.8% of average interest
bearing deposits in the second quarter of 1998, from 31.3% in the year ago
quarter. The cost of time certificates decreased 6 basis points because of
generally lower interest rates and continued customer preference for short-term
maturities.

The net interest margin, which is equal to net interest income divided by
average interest-earning assets, was 4.31% for the second quarter of 1998, up
from 4.17% in the year ago quarter. 956659178 Recoveries of past due interest on
nonaccruing loans added approximately 9 basis points to the 1998 margin.

The goal of asset/liability management is to reduce the volatility of net
interest income during periods of changing market interest rates (interest rate
risk). The Company uses three methods to measure its interest rate risk: i) gap;
ii) income simulation; and iii) market value of equity analysis. Gap analysis
measures the difference between assets and liabilities which reprice and/or
mature within a given time frame, typically the cumulative one-year horizon. An
asset-sensitive gap position could lead to an increase in net interest income in
a rising rate environment, and a decrease in net interest income in a falling
rate environment, as assets reprice or mature quicker than liabilities.
Conversely, a liability-sensitive gap position could lead to a decrease in net
interest income in a rising rate environment and an increase in net interest
income in a falling rate environment. Income simulation measures the potential
impact on net interest income of hypothetical changes in interest rates. Market
value of equity analysis measures the potential impact on stockholders' equity
of hypothetical changes in interest rates.

In February 1996, the Bank purchased an interest rate floor with a notional
amount of $18 million, to hedge a portion of its prime-based loan portfolio.
Under the agreement, which expires in February 1999, the Bank will receive
payments on a quarterly basis if the prime rate drops below 8.25% (the "strike
rate"). Payments are equal to the amount by which the prime rate falls below the
strike rate multiplied by the notional amount of the floor. The fee paid for the
floor is included in other assets and is being amortized to interest income
using the interest method over the life of the floor.

The Company's cumulative one-year ratio of rate sensitive assets to rate
sensitive liabilities (one-year gap) was 1.01 at June 30, 1998.

Other Operating Income
----------------------
Total other operating income was $549,000 in the second quarter of 1998, an
increase of $100,000 or 22.3% from the second quarter of 1997. Gains on loan
sales increased $21,000 or 140% due to an increase in sales of fixed rate
residential mortgages. Service charges and other operating income increased
$94,000 or 28.7% due mainly to fee income generated by the growth in the
Company's checking and savings accounts.

Other Operating Expenses
------------------------
Total other operating expenses were $2.4 million for the quarter ended June 30,
1998, compared with $2.0 million for the same period in 1997. Salaries and
benefits expense increased by $47,000 due primarily to increases in insurance
costs and greater participation in Company benefit plans. Costs relating to the
Company's Year 2000 project and other technology improvements added
approximately $42,000 of expense in the second quarter of 1998. Other increases
in operating expenses were due primarily to higher customer transaction volume
and the costs of operating the North Medical branch, which opened in September
1997.





                                       17
<PAGE>   18



PART II.  OTHER INFORMATION

         Item 1.  Legal Proceedings
                  Not applicable

         Item 2.  Changes in Securities
                  Not applicable

         Item 3.  Defaults Upon Senior Securities
                  Not applicable

         Item 4.  Submission of Matters to a Vote of Security Holders
                  Not applicable

         Item 5.  Other Information
                  On July 14, 1998, the Company declared a cash dividend of $.07
                  per share, payable on August 18, 1998 to shareholders of
                  record on August 4.

         Item 6.  Exhibits and Reports on Form 8-K
                  a. Exhibits
                      No.      Exhibit
                      ---      -------
                      27       Financial Data Schedule








                                       18
<PAGE>   19



                                   SIGNATURES

 Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                            SKANEATELES BANCORP, INC.
                                            ------------------------------ 
                                                   (Registrant)





By:  /s/ JOHN P. DRISCOLL                                Date: August 12, 1998
     -------------------------------                           ---------------
     John P. Driscoll
     Chairman, President and 
     Chief Executive Officer


By:  /s/ J. DANIEL MOHR                                  Date: August 12, 1998
     -------------------------------                           ---------------
     J. Daniel Mohr
     Chief Financial Officer
     and Treasurer



                                       19