August 11, 1998

Board of Directors
Cortland Savings Bank
1 North Main Street
Cortland, New York 13 045

Dear Members of the Board:

The notice of proposed mutual-to-stock conversion and subsequent amendments thereto, filed on behalf of Cortland Savings Bank, Cortland, New York (Bank) have been reviewed by the Federal Deposit Insurance Corporation (FDIC) pursuant to section 303.15 of the FDIC Rules and Regulations. As described in the notice and amendments, the Bank proposes to convert from a New York State chartered mutual savings bank to a New York State chartered stock savings bank. As part of the conversion, it is our understanding that the Bank and its holding company will create a Charitable Foundation (Foundation) with common stock contributed by the holding company.

The FDIC has relied on information provided in the Bank's notice of conversion and the accompanying business plan in reaching its decision. It is anticipated that notification of any planned material deviations from the business plan, such as a return of capital, will be provided to the FDIC in advance of the event. Based on the information presented in the Bank's notice of conversion, as amended, the FDIC plans to issue a letter of nonobjection to the proposed conversion transaction, provided that the Bank satisfies the following conditions:

1. The Foundation's organizers committing to the following oversight provisions:

(a) Common stock of CNY Financial Corporation (CNY) held by the Foundation shall be voted by the Foundation at the same ratio as all other shares voted on each and every proposal considered by the stockholders of CNY;

(b) The Foundation shall be subject to examination by the FDIC;

(c) The Foundation shall comply with all supervisory directives imposed by the FDIC;

(d) The Foundation shall operate in accordance with written policies adopted by the Foundation's board of directors, including adopting a conflict of interest policy acceptable to the FDIC; and

(e) The Foundation shall provide a proposed operating plan prior to conversion and annual reports to the FDIC describing the grants made and grant recipients.

2. The Bank must provide written evidence that its Plan of Conversion has been approved by the affirmative vote of a majority of the votes eligible to be cast at a special meeting of the Bank's members.

3. The Bank must advise this office of the results of the subscription offering and deliver an updated appraisal that:

a) takes the results of the subscription offering into account;

b) discusses any material occurrences during the subscription period; and

c) explains any order that may have been rejected.

4. The Bank must receive final approval from the appropriate State of New York officials (State Authority) for its establishment as a stock savings bank and final approval must be received from the Board of Governors of the Federal Reserve System and the State Authority for CNY to acquire the bank.

Provided that the Bank meets the conditions outlined above and that the FDIC is satisfied with the appraiser's determination in the updated appraisal that the results of the subscription offering represent fair value for the Bank, and provided further that there has been no significant alteration to the terms of the conversion transaction (by action of other regulators or otherwise) subsequent to the date of this letter, the FDIC will issue a letter of nonobjection to the proposed conversion transaction.

Sincerely,

Mark S. Schmidt
Associate Director

cc: Mr. Jay L. Hack
Serchuk & Zelermyer, LLP
81 Main Street
White Plains, New York 10601