Northern Chautauqua County is located on Lake Erie in the western portion of New York and is approximately 45 miles from Buffalo, New York. There are multiple prime industrial and building sites in this county and a skilled and productive labor force. Northern Chautauqua County is served by three accredited hospitals and offers higher education opportunities.

Southern Chautauqua County is more of a tourist attraction, featuring Chautauqua Lake, but it also hosts a broad diversity of industry, commercial establishments and financial institutions as well as a skilled and productive workforce. Jamestown, New York is the most populous city in Chautauqua County. It is also the ninth largest metropolitan region in the State of New York.

Erie County is a metropolitan center located on the Western border of New York covering 1,058 square miles. Located within Erie County is the city of Buffalo, the second largest city in the State of New York. As the city of Buffalo has redeveloped, so too have its suburbs throughout Erie County, which also host the Buffalo Niagara International Airport in Cheektowaga, New York and professional sports franchises. One of the main commercial thorough-fares in Erie County is Transit Road, which has experienced robust development in recent years.

The Bank offers adjustable rate mortgage loans with a maximum term of 30 years. Its adjustable rate mortgage loans include loans that provide for an interest rate based on the interest paid on U.S. treasury securities of varying maturities plus varying margins. The Bank currently offers adjustable rate mortgage loans with initial rates below those which would prevail under the foregoing computation, based upon a determination of market factors and competitive rates for adjustable-rate loans in its market area.

The Bank provides home equity loans and home equity lines of credit to its customers. The Bank offers a home equity loan or line of credit with a minimum balance of $5,000 up to a maximum of 90% of the total loan to value ratio. Home equity lines of credit products, which have interest rates tied to prime, generally have a 15 year draw period and a 15 year payback period. Fixed rate home equity loans range from terms of 5 to 15 years.

The Bank originates commercial real estate loans to finance the purchase of real property, which generally consists of developed real estate. In underwriting commercial real estate loans, consideration is given to the property’s historic cash flow, current and projected occupancy, location, and physical condition.

The Bank originates loans to finance the construction of both one-to-four family homes and commercial real estate. These loans typically have a one-year construction period, whereby draws are taken and interest only payments are made. As part of the draw process, inspection and lien checks are required prior to the disbursement of the proceeds.

In addition to commercial real estate loans, the Bank also engages in small business commercial lending, including business installment loans, lines of credit, and other commercial loans.

The Bank offers a variety of consumer loans. At June 30, 2005 and December 31, 2004, the Bank’s consumer loan portfolio totaled $2.5 million and $2.9 million, respectively, or 1.3% and 1.4%, respectively, of total loans. The largest component of the Bank’s consumer loan portfolio are personal consumer loans and overdraft lines of credit, which are available for amounts up to $5,000 for unsecured loans and greater amounts for secured loans depending on the type of loan and value of the collateral. Consumer loans, excluding overdraft lines of protection, generally are offered for terms of up to 10 years, depending on the collateral, at fixed interest rates.

Cash and cash equivalents increased by $4.4 million to $16.0 million at June 30, 2005, from $11.6 million at December 31, 2004.

Investment securities decreased by $2.9 million to $101.3 million at June 30, 2005 from $104.2 million at December 31, 2004.

Loans receivable, net increased by $483 thousand to a total of $200 million at June 30, 2005 from $199.5 million at December 31, 2004.

Deposits grew by $3.8 million, or 1.6%, to $247.4 million at June 30, 2005, as compared to $243.6 million at December 31, 2004.

Borrowings, consisting of advances from the Federal Home Loan Bank of New York, decreased by $2.6 million from $54.0 million at December 31, 2004 to $51.4 million at June 30, 2005.

Total equity increased by $887 thousand from $26.9 million at December 31, 2004 to $27.8 million at June 30, 2005.