Exhibit 13.01

Front Cover:

ALBANK

1996 Annual Report

Inside Front Cover:

Branch Locations

NEW YORK

ALBANY
10 North Pearl Street
  (Main Office)
Colonie Center
Crossgates Mall
  (Merchant Operation)
Delaware Plaza
Empire State Plaza
Guilderland
Latham
Loudonville
Northway Mall
Pine Hills
Schoolhouse Road
Washington Avenue

GLENS FALLS
Bay Street
Queensbury (2 locations)

KINGSTON
Wall Street
Hudson Valley Mall

NEWBURGH
Meadow Hill
Broadway

PLATTSBURGH
Champlain Center North
Margaret Street
West End, Route 3

POUGHKEEPSIE
Poughkeepsie Galleria
Red Oaks Mill

SARATOGA
Saratoga Springs
Wilton Township

UTICA
Genesee Street
New Hartford
Whitesboro

Beacon
Champlain
Clay, Penn-Can Mall
Clifton Park (2 locations)
East Greenbush
Fishkill, Dutchess Mall
Herkimer
Johnstown
Malone
Niskayuna
North Greenbush
Oneida
Pleasant Valley
Schenectady
Spring Valley
Ticonderoga
Troy
Vails Gate
Wappingers Falls
West Haverstraw

MASSACHUSETTS

LUDLOW
Center Street
Downtown

SPRINGFIELD
Island Pond
Main Street
Page Boulevard

Belchertown
Chicopee
Indian Orchard
Wilbraham

VERMONT

RUTLAND
Merchants Row

Bondville
Castleton
Middlebury
Norwich
Poultney
Proctor
Shelburne
Springfield
West Pawlet
White River Junction
Woodstock

Inside Spine:

Design & Production: Tribich Design Associates, Inc., NYC Photography: Mark
McCarty, Cropseyville, NY Printing: Benchemark, Schenectady, NY Financial
Typography: Word Management Corporation, Albany, NY

Inside Back Cover:

Corporate Information

STOCK TRANSFER AGENT

Inquiries regarding stock transfer, lost certificates or changes in name
and/or address should be directed to the stock transfer agent and registrar
by writing to:
ChaseMellon Shareholder Services, LLC
P.O. Box 590
Ridgefield Park, NJ 07660
(800) 953-2705

DIVIDEND REINVESTMENT PLAN

Inquiries regarding the dividend reinvestment plan should be directed in
writing to:
ChaseMellon Shareholder Services, LLC
P.O. Box 750
Pittsburgh, PA 15230
(800) 953-2705

INVESTOR INFORMATION

Shareholders, investors and analysts interested in additional information
may contact:
Richard J. Heller
Executive Vice President and Chief Financial Officer
ALBANK Financial Corporation
10 North Pearl Street
Albany, NY 12207-2774

STOCK LISTING

The Company's common stock trades on The NASDAQ Stock Market
under the symbol ALBK.

STOCK PRICE

<TABLE>
<CAPTION>
The table below shows the reported closing prices of ALBANK common stock during the periods indicated in
calendar 1996 and 1995.
              1996 Quarterly Stock Prices                  1995 Quarterly Stock Prices <F1>
              High           Low            Qtr. End       High           Low            Qtr. End
<S>           <C>            <C>            <C>            <C>            <C>            <C>
First         28.88          22.92 <F1>     28.88          21.25          19.27          20.83
Second        30.63          26.38          26.38          21.98          21.05          21.77
Third         29.56          25.13          28.75          25.52          21.88          25.00
Fourth        32.81          27.38          31.38          25.20          24.06          25.00
<FN>
<F1> Adjusted to reflect the 6-for-5 stock dividend paid on April 1, 1996.
</TABLE>

ANNUAL MEETING OF SHAREHOLDERS

The Annual Meeting of the shareholders of ALBANK Financial Corporation will
be held on May 21, 1997, at 9:30 AM at:
ALBANK Operations Center
833 Broadway
Albany, NY 12207-2415

ANNUAL REPORT ON FORM 10-K

A copy of ALBANK Financial Corporation's annual report on Form 10-K filed
with the Securities and Exchange Commission is available without charge by
writing to:
Freling H. Smith, Esq.
Senior Vice President, Secretary and General Counsel
ALBANK Financial Corporation
10 North Pearl Street
Albany, NY 12207-2774

Outside Back Cover:

/Albank Logo/
ALBANK Financial Corporation
10 North Pearl Street
Albany, NY 12207
(518) 445-2100

Outside Spine:

ALBANK Financial Corporation 1996 Annual Report

About ALBANK

ALBANK Financial Corporation is a publicly owned company (NASDAQ: ALBK)
which was formed to be the holding company for ALBANK, FSB. Founded in 1820
as Albany Savings Bank, ALBANK, FSB is the oldest operating savings bank in
New York State. With headquarters in Albany, New York's capital city, the
Bank and its brokerage and insurance subsidiary, Alvest Financial Services,
Inc., offer a wide range of financial products and services through a
branch network of 71 offices in upstate New York, western Massachusetts and
Vermont. On January 30, 1997, ALBANK Financial announced its intention to
acquire 35 KeyBank branch offices. Pending the necessary bank regulatory
approvals, the transaction should close in mid-1997. The KeyBank offices
are located in the northern, greater Hudson Valley and Binghamton regions
of New York State.

<TABLE>
Bar Graphs
<CAPTION>
                                                  1992        1993      1994      1995      1996
<S>                                               <C>         <C>       <C>       <C>       <C>
CORE NET INCOME (dollars in millions)              21,696      25,435    28,572    30,013    32,584
FULLY DILUTED CORE EARNINGS PER SHARE
  (in dollars)                                       0.92<F1>    1.45      1.77      1.98      2.28
RETURN ON EQUITY BASED ON
  CORE NET INCOME
  (in percentages)                                   8.02        8.23      9.11      9.32     10.20
RETURN ON ASSETS BASED ON  
  CORE NET INCOME
  (in percentages)                                   0.88        0.92      1.02      1.01      0.96
NET INTEREST MARGIN
  (in percentages)                                   3.61        3.69      3.87      3.84      3.91
STOCKHOLDERS' EQUITY
  (dollars in millions at year end)               309,909     313,283   316,789   323,182   319,125
<FN>
<F1> '92 = 9 mos.
</TABLE>

<TABLE>
Financial Highlights
<CAPTION>
(Dollars in thousands, except per share data)
  December 31,                                   1996              1995
<S>                                              <C>               <C>
FOR THE YEAR ENDED
Net income                                       $    26,207           29,283
Net interest income                                  125,641          108,487
Primary earnings per share <F1>                         1.84             1.94
Fully diluted earnings per share <F1>                   1.83             1.93
Core net income <F2>                                  32,584           30,013
Primary earnings per share
     based on core net income <F1> <F2>                 2.29             1.99
Fully diluted earnings per share
     based on core net income <F1> <F2>                 2.28             1.98

AT YEAR END
Total assets                                     $ 3,506,136        2,970,170
Loans receivable                                   2,566,364        1,946,601
Deposits                                           3,013,129        2,558,288
Stockholders' equity                                 319,125          323,182
Book value per share <F1>                              24.72            23.37
Tangible book value per share <F1>                     21.35            22.05

SIGNIFICANT RATIOS FOR THE YEAR
Return on average stockholders' equity ("ROE")          8.20%            9.09%
Return on average assets ("ROA")                        0.77             0.99
ROE based on core net income <F2>                      10.20             9.32
ROA based on core net income <F2>                       0.96             1.01
Net interest spread                                     3.52             3.40
Net interest margin                                     3.91             3.84
Stockholders' equity to total assets (at year end)      9.10            10.88
Efficiency ratio                                       54.32            52.91

ASSET QUALITY RATIOS AT YEAR END
Nonperforming loans to loans receivable                 1.16%            1.19%
Nonperforming assets to total assets                    0.96             0.91
Allowance for loan losses to:
     Loans receivable                                   0.94             0.82
     Nonperforming loans                               80.88            68.88

<FN>
<F1> Adjusted to reflect the 6-for-5 stock dividend paid on April 1, 1996.
<F2> Core net income excludes the net after-tax effect of the 9/30/96 $6.4
million one-time special assessment to recapitalize the Savings Association
Insurance Fund and the 3/31/95 $0.7 million write-off of the capital investment
in Nationar.
</TABLE>

To Our Shareholders

Nineteen ninety-six was without doubt the most successful year that ALBANK
Financial has enjoyed since its public debut. Our company achieved record
core net income for the fourth consecutive year, and total assets increased
18% to $3.5 billion. We saw robust growth in our loan portfolio as total
loans receivable grew 32% to $2.6 billion, and we successfully introduced
ALBANK to the residents of Vermont.

Performance Profile
ALBANK Financial Corporation's consolidated 1996 core earnings per share on
a fully diluted basis were $2.28 compared with $1.98 earned in 1995, an
increase of 15%. Core net income was $32.6 million, up 9% from the $30.0
million earned in 1995. Core earnings in 1996 exclude the one-time Savings
Association Insurance Fund ("SAIF") recapitalization assessment. The
Federal Deposit Insurance Corporation levied this charge against all SAIF-
insured institutions in the third quarter of 1996. ALBANK's after-tax share
amounted to $6.4 million. In return for paying the special assessment,
SAIF-insured institutions received a substantial reduction in their deposit
insurance premiums effective January 1 of this year. This premium
reduction, applied to our current deposit levels, would add approximately
$0.14 per share to ALBANK's earnings. Core earnings in 1995 exclude the
$0.7 million after-tax write-off of the Bank's investment in Nationar, a
special purpose commercial bank, which the New York State Banking
Superintendent took control of in February 1995.

Return on average shareholders' equity ("ROE") in 1996 based on core net
income was 10.20% compared with 9.32% in 1995; return on average assets for
the year was 0.96% compared with 1.01% in 1995.

Net income for 1996, including the one-time SAIF charge, was $26.2 million,
or $1.83 per share fully diluted; net income in 1995, including the
Nationar charge, totaled $29.3 million, or $1.93 per share.

Our 1996 net interest spread increased to 3.52% from 3.40% in 1995 while
the net interest margin was 3.91%, up from 1995's 3.84%. Shareholders'
equity was $319.1 million at year end versus $323.2 million at year-end
1995. During 1996, we invested an additional $25.8 million in our ongoing
stock repurchase program, acquiring 926,517 shares of our outstanding
common stock. Consolidated equity as a percentage of total assets at year
end was 9.10% compared with 10.88% at December 31, 1995. The lower 1996
percentage is one indication that our efforts to improve our capital
leverage are succeeding.

Along with what financial industry analysts refer to as "reported
earnings", analysts during the last year have started to pay particular
attention to what they call "cash earnings". Cash earnings consist of
reported earnings plus certain specific noncash expenses. In ALBANK's case,
cash earnings are core net income plus amortization of goodwill and costs
associated with our employee retention plans, both net of any income tax
benefit. Cash earnings are said to be another indicator of a bank's
fundamental performance and to provide a good basis for comparison among
competing institutions.

/picture of Herbert G. Chorbajian/
Herbert G. Chorbajian
Chairman of the Board,
President & Chief Executive Officer

/picture of four people/
Richard J. Heller
Executive Vice President
& Chief Financial Officer

Margaret F. Ludington
Senior Vice President,
Human Resources

Robert J. Gould
Vice President
& Controller

Freling H. Smith, Esq.
Senior Vice President,
Secretary & General Counsel

ALBANK Financial Corporation's consolidated 1996 cash earnings per share on
a fully diluted basis were $2.54 compared with $2.13 earned in 1995, an
increase of 19%. Cash earnings were $36.3 million, up 12% from the $32.3
million we earned in 1995. For 1996, return on average shareholders'
tangible equity (that is, equity less unamortized goodwill) based on cash
earnings was 12.95% compared with 10.65% in 1995 while return on average
tangible assets for the year was 1.09% compared with 1.10% in 1995.

At December 31, 1996, nonperforming assets totaled $33.8 million, or 0.96%
of total assets; comparable figures for 1995 were $27.1 million and 0.91%.
Nonperforming loans amounted to $29.8 million, or 1.16% of loans
receivable; the 1995 figure was $23.2 million, or 1.19% of loans
receivable. I should point out that the 1996 year-end percentage of
nonperforming assets is 0.19% lower than it was at September 30, 1996. The
drop in this percentage was for the most part the result of our sale of
$10.3 million in nonperforming assets in December. The increase in non-
performing assets during the first three quarters of 1996 was principally
attributable to the two Vermont acquisitions that we made during the
period. At year end, the Bank's loan loss reserve was equal to 81% of
nonperforming loans, up from 69% at December 31, 1995.

Strong Loan Growth
Last year we saw unprecedented growth in our loan portfolio, both in
absolute and relative terms. ALBANK's loan originations in 1996 totaled a
record $638.4 million, a 39% increase from 1995's production. Strong
originations and our two Vermont acquisitions led to significant gains in
nearly all segments of the loan portfolio. Mortgage loans, including home
equity loans and commercial real estate loans, rose to $2.1 billion at the
end of 1996, up 28% from year-end 1995. Commercial loans at year end totaled
$247.8 million, up 114% from the prior year. Consumer loans, led by a 60%
increase in personal and automobile loans, rose to $233.4 million at year
end, an overall increase of 18%. As a result of this across-the-board growth,
total loans receivable as a percentage of total deposits rose to 85.2% at
year-end 1996 compared with 76.1% at the end of 1995.

Market Expansion
On January 30, 1997, we announced that we had entered into an agreement
with KeyCorp to purchase 35 New York State banking offices currently
operated by KeyBank. The offices are located in northern New York, the
greater Hudson Valley, and the Binghamton area. They have approximately
$530 million in deposits for which we will pay a 7% premium. The purchase
is consistent with our strategic business plan which calls for controlled
growth through acquisitions and branch purchases in, or adjacent to, our
existing market area. The Key branches are a natural fit. They will fill in
some gaps which currently exist between Glens Falls and Plattsburgh in the
northern region of the state, increase our presence and market share in the
greater Hudson Valley, and give us a new presence in the Binghamton area
which is adjacent to and west of our current Hudson Valley market. The
transaction should increase earnings, improve our return on equity and
further enhance the value of our franchise. In order to retain the
municipal funds currently on deposit in the KeyBank offices, we will form a
new commercial bank which will acquire the 35 offices. Since ALBANK
Financial will then be the parent company of both ALBANK, FSB and the new
commercial bank, its legal classification will shift from that of a thrift
holding company to a bank holding company. Pending regulatory approval, we
should close the transaction this summer.

During 1996, we completed two acquisitions in the state of Vermont. In
January, ALBANK purchased Marble Financial Corporation of Rutland in a
transaction that involved $396 million in assets, $327 million in deposits
and seven branch offices. In September, we closed on the purchase of six
Vermont branch offices from Arrow Financial Corporation of Glens Falls, New
York. That transaction included $108 million in assets and deposits.

In December of last year, we opened two new full-service supermarket branch
offices in the Capital District. During this year, we will open at least
one more supermarket facility and one traditional retail branch office,
both in the Capital District. These will bring the number of ALBANK branch
offices to 73, not counting the planned KeyBank branch purchases.

Capital Management
Since going public, we have employed three tools to better utilize our
Company's capital. Those tools are acquisitions, stock repurchases and
dividend payouts. Our acquisitions have clearly leveraged capital since, in
every instance, we have increased our assets without having to issue any
additional equity. I have already mentioned the extent of our stock
repurchases in 1996. We have been repurchasing ALBANK's stock since June of
1992. Right now we are in our seventh buyback program in which we expect to
acquire up to 7.5% of our outstanding shares. From June 1992 to year-end
1996, we have invested $108.7 million in these repurchase programs,
acquiring a little more than 5.1 million shares of ALBANK common stock. Our
Company started paying cash dividends in 1994, with an annual split-
adjusted payout of $0.333 per share. We increased the dividend by 20% in
1995 and again in April of last year by the same amount through a six-for-
five stock split. Most recently, in November, we announced a 25% increase
in the quarterly dividend payable in January 1997. This increase brings the
current annual dividend rate up to $0.60 a share. These efforts to improve
the use of our capital and the steady increase in core net income have
combined to drive ALBANK's return on average shareholders' equity from
8.02% in 1992 to 10.20% in 1996. The trend is good and it's getting better;
during the fourth quarter of 1996 ALBANK's ROE rose to 11.24%.

The Board Room
We were saddened last December by the death of my predecessor, Gilbert O.
Robert. Gil became President and a Director of the Bank in 1975, Chairman
of the Board and Chief Executive Officer in 1983, and held those latter
positions until his retirement in 1990. He remained a Director at the time
of his death. As CEO, he led the Bank through a period of successful
restructuring brought on by federal deregulation. By the time of his
retirement, the Bank had achieved then unprecedented profit levels. His
family, friends and business associates are diminished by his passing.

/picture of four people/
Robert L. Meyer
Senior Vice President,
Retail Lending

Margaret J. Welch
Senior Vice President,
Branch Administration

Clifford M. Apgar
Executive Vice President,
Senior Credit Officer

Joseph P. Richardson
Senior Vice President,
Commercial Lending

/picture of four people/
Barry G. Blenis
Executive Vice President,
Operations &  Strategic Planning

Frank J. Vaselewski
Senior Vice President,
Retail Banking

Mary Jean Laraway
Vice President,
Corporate Services

Edward C. Tremblay
Vice President & Auditor

John G. Underhill, a member of our Board of Directors for nearly twenty-
five years retired at the end of 1996. Mr. Underhill was the former
President of Sager Spuck Supply Company, a regional industrial supply
company headquartered in Albany. His experience and business acumen were
instrumental in guiding the Bank through its transition from a local to an
interstate financial institution.

We also added two new members to the Board of Directors in 1996. In
October, Dr. Karen R. Hitchcock joined the Board. Dr. Hitchcock is the
current President of the University at Albany, State University of New
York. In November, Francis L. McKone, President and Chief Executive Officer
of Albany International, was appointed a Director. Dr. Hitchcock and Mr.
McKone bring impeccable credentials and a wealth of ability with them to
our Board.

The Year Ahead
Although 1996 was ALBANK Financial's best year, we are looking forward to
1997 with heightened optimism. There are a number of events, some of which
have already transpired, others that we anticipate will occur in the coming
months, that color our outlook. Congress has finally eliminated much of the
disparity between deposit insurance premiums that banks and thrifts pay. We
have completed the integration of our Vermont acquisitions. Given the
growth in our loan portfolio that has resulted from shifting funds out of
lower yielding assets, our current interest rate forecast indicates our
interest spreads and margins should remain firm. Going forward, we hope to
continue to improve productivity as we realize additional gains from our
1995-96 investment in new information systems and technology ("IST"). The
planned productivity increases should reduce back-office costs without
weakening our commitment to top quality customer service. We also plan to use
the new IST platform as the launching pad for a number of new products and
services. We intend to introduce a debit card and cash management services,
to mention only two. After we complete the purchase of the KeyBank offices,
ALBANK will have a presence in 9 new counties and the third largest market
share of deposits in the 26 counties that will then comprise our New York
State market. When we look at all these factors and the earnings and growth
momentum we have already generated, we are quite confident that ALBANK's
performance in 1997 will once again set new standards.

/s/ Herbert G. Chorbajian
Herbert G. Chorbajian
Chairman of the Board, President
and Chief Executive Officer
February 14, 1997

Contents

13 Five Year Selected Financial Data
14 Management's Discussion and Analysis
25 Statement of Management's Responsibility
26 Independent Auditors' Report
27 Consolidated Statements of Earnings
28 Consolidated Statements of Financial Condition
29 Consolidated Statements of Changes in Stockholders' Equity
30 Consolidated Statements of Cash Flows
31 Notes to Consolidated Financial Statements
50 Directors and Officers

Five Year Selected Financial Data

ALBANK FINANCIAL CORPORATION AND SUBSIDIARY

<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) December 31, 1996           1995        1994        1993        1992
<S>                                                        <C>            <C>         <C>         <C>         <C>
Selected Financial Condition Data at Year End
Total assets                                               $ 3,506,136    2,970,170   2,963,843   2,773,223   2,482,851
Loans receivable                                             2,566,364    1,946,601   1,788,400   1,540,464   1,492,618
Securities available for sale                                  617,943      656,784     167,024      51,256      49,766
Investment securities                                          109,607      153,740     801,247     962,204     720,125
Deposits                                                     3,013,129    2,558,288   2,541,962   2,381,714   2,098,891
Borrowed funds                                                  72,407        1,290      15,300       4,200       7,600
Total stockholders' equity                                     319,125      323,182     316,789     313,283     309,909

Selected Operating Data for the Year
Interest income                                            $   248,526      212,502     186,804     183,986     190,699
Interest expense                                               122,885      104,015      82,092      86,416     104,541
Net interest income                                            125,641      108,487     104,712      97,570      86,158
Provision for loan losses                                        5,775        4,500       4,500       4,200       4,100
Net interest income after provision for loan losses            119,866      103,987     100,212      93,370      82,058
Net security transactions                                            8       (1,198)         14         130         278
Other noninterest income                                        12,146       10,646      10,077       9,905       9,336
Noninterest expense                                             90,303       65,804      61,833      59,718      55,236
Income before income taxes and cumulative net effect of
  changes in accounting principles                              41,717       47,631      48,470      43,687      36,436
Income tax expense                                              15,510       18,348      19,898      18,289      14,740
Income before cumulative net effect of changes
  in accounting principles                                      26,207       29,283      28,572      25,398      21,696
Cumulative net effect of changes in accounting principles           --           --          --          37          --
Net income                                                 $    26,207       29,283      28,572      25,435      21,696
Earnings per share:<F1>
Primary                                                           1.84         1.94        1.77        1.46        0.93<F2>
Fully diluted                                                     1.83         1.93        1.77        1.45        0.92<F2>

Other Selected Financial Data
Book value per share<F1>                                   $     24.72        23.37       21.27       19.48       17.48
Tangible book value per share<F1>                                21.35        22.05       19.98       19.15       17.48
Loan originations (including individual loans purchased)       638,423      459,198     556,785     407,125     331,309
Return on average stockholders' equity ("ROE")                    8.20%        9.09%       9.11%       8.23%       8.02%
Return on average assets ("ROA")                                  0.77         0.99        1.02        0.92        0.88
Stockholders' equity to total assets                              9.10        10.88       10.69       11.30       12.48
Net interest spread                                               3.52         3.40        3.49        3.28        3.09
Net interest margin                                               3.91         3.84        3.87        3.69        3.61
Efficiency ratio                                                 54.32        52.91       51.99       53.97       56.73
Nonperforming loans to loans receivable                           1.16         1.19        1.14        1.49        1.60
Nonperforming assets to total assets                              0.96         0.91        0.81        0.99        1.15
Allowance for loan losses to:
Loans receivable                                                  0.94         0.82        0.87        0.84        0.80
Nonperforming loans                                              80.88        68.88       76.39       56.67       49.77

Core net income<F3>                                        $    32,584       30,013      28,572      25,435      21,696
Earnings per share based on core net income:<F1><F3>
Primary                                                           2.29         1.99        1.77        1.46        0.93<F2>
Fully diluted                                                     2.28         1.98        1.77        1.45        0.92<F2>
ROE based on core net income<F3>                                 10.20%        9.32%       9.11%       8.23%       8.02%
ROA based on core net income<F3>                                  0.96         1.01        1.02        0.92        0.88
Noninterest expense to average assets<F3>                         2.36         2.22        2.20        2.17        2.24
Noninterest expense less other noninterest income
  to average assets<F3>                                           2.00         1.86        1.84        1.81        1.86
<FN>
<F1> Adjusted to reflect the 6-for-5 stock dividend paid on April 1, 1996.
<F2> 1992 earnings per share are calculated for the period April 1, 1992 (the date of conversion from mutual to stock form)
through December 31, 1992.
<F3> Core net income excludes the net after-tax effect of the September 30, 1996, $6.4 million special assessment to
recapitalize the Savings Association Insurance Fund (SAIF) and the March 31, 1995, $0.7 million write-off of the capital
investment in Nationar. Noninterest expense excludes the pre-tax SAIF special assessment amounting to $10.4 million.
</TABLE>

Management's Discussion and Analysis

General
ALBANK Financial Corporation ("ALBANK" or the "Company") is the holding
company and owner of 100% of the common stock of ALBANK, FSB (the "Bank"),
a federally chartered stock savings bank. On April 1, 1992, the Bank 
completed its conversion from a mutual to a stock form savings bank at
which time ALBANK issued 15,697,500 shares of common stock at $10.00 per
share, realizing net proceeds of $150.8 million after expenses. ALBANK used
$75.4 million of the net proceeds to acquire all of the issued and
outstanding stock of the Bank.
ALBANK's business currently consists primarily of the business of the Bank.
The Bank's principal business is attracting retail deposits from the
general public and investing those deposits, together with funds generated
from operations and borrowings, in various loan products and investment
securities. With regard to loans, the Bank originates and purchases 
primarily one- to four-family adjustable rate mortgage loans. The Bank's
results of operations are dependent on net interest income, provisions for
loan losses, the levels of noninterest income earned and noninterest
expense incurred and the effect of income taxes. The Bank's results of
operations are also significantly affected by general economic and
competitive conditions, particularly changes in market interest rates,
government policies and actions of regulatory authorities.

Liquidity and Capital Resources

The Company's primary sources of funds are deposits and principal and
interest payments on loans and investment securities. While maturities and
scheduled amortization of loans and securities are a predictable source of
funds, deposit flows and loan prepayments are greatly influenced by general
interest rates, economic conditions and competition.
The Bank is required to maintain minimum levels of liquid assets as defined
by regulations issued by its primary regulator, the Office of Thrift
Supervision (the "OTS"). This requirement, which may vary at the direction
of the OTS depending on economic conditions and deposit flows, is based
upon a percentage of deposits and short-term borrowings. The required ratio
of liquid assets to deposits and short-term borrowings is currently 5%. At
December 31, 1996 and 1995, the Bank's liquidity ratios were 23.7% and
21.8%, respectively.
The Company's most liquid assets are cash and cash equivalents, which
include investments in highly liquid, short-term investments. The level of
these assets is dependent on the Company's operating, financing and
investing activities during any given period. At December 31, 1996 and
1995, cash and cash equivalents totaled $68.9 million and $105.0 million,
respectively.
At the time of its conversion to stock form, the Bank was required to
establish a liquidation account in an amount equal to its regulatory net
worth as of December 31, 1991. The amount of this liquidation account
reduces to the extent that eligible depositors' accounts are reduced. In
the unlikely event of a complete liquidation (and only in such an event),
each eligible depositor would be entitled to receive a distribution from
the liquidation account before any liquidation distribution could be made
to common stockholders of the Company.
Stockholders' equity totaled $319.1 million at December 31, 1996,
representing a capital-to-assets ratio of 9.10%. At year-end 1996, book
value and tangible book value per common share amounted to $24.72 and
$21.35, respectively. At December 31, 1996, the Bank exceeded all of the
capital requirements of the OTS. The Bank's ratios at December 31, 1996,
were as follows: tangible capital, 7.00%; core capital, 7.00%; core risk-
based capital, 10.80%; and total risk-based capital, 11.88%. The regulatory
capital ratio minimum requirements are 1.5%, 3.0%, 4.0% and 8.0%,
respectively.
Among other things, OTS regulations provide that an institution that
exceeds all capital requirements before and after a proposed capital
distribution could, after prior notice to but without the approval of the
OTS, make capital distributions during the calendar year of an amount that
would reduce by one half its "excess capital ratio" plus its net income for
the current calendar year. Under such limitation, the Bank could declare
dividends to the holding company in 1997 of approximately $43 million plus
an amount equal to 1997 earnings.
As one method of enhancing shareholder value, the Company instituted a
stock repurchase program in June 1992. In May 1996, the Board authorized a
seventh repurchase of the Company's outstanding shares of common stock
under this program. Through December 31, 1996, the Company had repurchased
5,144,247 shares of stock and had remaining authorization to repurchase
another 341,695 shares.
On February 27, 1996, the Board of Directors of the Company declared a 6-
for-5 stock split effected as a 20% stock dividend. This stock dividend was
paid April 1, 1996, to shareholders of record on March 15, 1996. By
maintaining the quarterly per share cash dividend at $0.12 following the
stock dividend, the Board effectively increased the dividend by 20%, the
second such increase in as many years. On November 25, 1996, the Company
announced that its Board increased the Company's quarterly cash dividend an
additional 25% by initiating payment at a quarterly rate of $0.15 per share
commencing with the dividend to be paid on January 2, 1997.

The analyses of net interest income that are shown in the following two
tables are an integral part of the discussion of the results of operations
for 1996, 1995 and 1994 that follows:

ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
<TABLE>
Average Balance Sheets, Interest Rates and Interest Differential
<CAPTION>
Years Ended December 31,                      1996                            1995                            1994
                                              Average                         Average                         Average
                        Average               Yield/   Average                Yield/   Average                Yield/
(Dollars in thousands)  Balance     Interest  Cost     Balance      Interest  Cost     Balance      Interest  Cost
<S>                     <C>         <C>       <C>      <C>          <C>       <C>      <C>          <C>       <C>
Assets
Interest-earning assets:
Mortgage loans, net<F1> $1,923,787  155,914   8.10%    $1,586,878   125,228   7.89%    $1,352,972    98,630   7.29%
Other loans, net<F1>       418,506   38,621   9.23        301,892    28,905   9.57        247,853    21,576   8.71
Securities available
  for sale                 670,111   41,676   6.22        164,970    11,098   6.73        148,852     9,455   6.35
Investment securities      133,937    8,532   6.37        713,198    43,186   6.06        884,409    53,478   6.05
Federal funds sold           9,529      508   5.33         15,680       918   5.85         12,698       535   4.21
Securities purchased
  under agreement
  to resell                 38,115    2,225   5.84         30,247     1,888   6.24         44,186     2,010   4.55
Stock in Federal Home
  Loan Bank                 16,754    1,050   6.27         15,554     1,279   8.22         14,189     1,120   7.89
Total interest-earning
  assets                 3,210,739  248,526   7.74      2,828,419   212,502   7.51      2,705,159   186,804   6.91
Noninterest-earning
  assets                   174,784                        132,663                         108,504
Total assets            $3,385,523                     $2,961,082                      $2,813,663

Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Savings accounts<F2>    $  872,348    25,373   2.91%    $  909,019     26,544  2.92%    $1,036,181    30,572   2.95%
Transaction accounts<F3>   463,864    11,898   2.56        336,647      6,925  2.06        320,767     6,288   1.96
Certificate accounts     1,521,036    82,735   5.44      1,280,662     70,341  5.49      1,020,737    44,027   4.31
Short-term borrowed
  funds and repurchase
  agreements                25,337     1,338   5.28          1,898        125  6.59         21,225     1,037   4.89
Long-term debt              28,305     1,541   5.44          1,463         80  5.47          3,090       168   5.44
Total interest-bearing
  liabilities            2,910,890   122,885   4.22      2,529,689    104,015  4.11      2,402,000    82,092   3.42
Demand deposits             83,634                          53,935                          42,262
Noninterest-bearing
  liabilities               71,405                          55,478                          55,788
Total liabilities        3,065,929                       2,639,102                       2,500,050
Stockholders' equity       319,594                         321,980                         313,613
Total liabilities and
  stockholders' equity  $3,385,523                      $2,961,082                      $2,813,663
Net interest income and
  net interest spread               $125,641   3.52%                 $108,487  3.40%                $104,712   3.49%
Net interest-earning 		
  assets and net
  interest margin       $  299,849             3.91%    $  298,730             3.84%    $  303,159             3.87%
Interest-earning assets
  to interest-bearing
  liabilities                 1.10x                           1.12x                           1.13x
Average balances are derived principally from average daily balances and include nonaccruing loans. Tax-exempt securities
income has not been calculated on a tax equivalent basis. Interest on securities available for sale includes dividends
received on equity securities.
<FN>
<F1> Net of unearned discounts, premiums and related deferred loan fees/costs, where applicable.
<F2> Includes passbook, statement and interest-bearing escrow accounts.
<F3> Includes NOW, Super NOW, money market and interest-bearing demand deposit accounts.
</TABLE>

<TABLE>
Analysis of Changes in Net Interest Income
<CAPTION>
                                       Year Ended December 31, 1996  Year Ended December 31, 1995
                                       Compared with                 Compared with
                                       Year Ended December 31, 1995  Year Ended December 31, 1994
                                       Increase (Decrease)           Increase (Decrease)
                                                 Due to                        Due to
(In thousands)                         Volume    Rate      Net       Volume    Rate      Net
<S>                                    <C>       <C>       <C>       <C>       <C>       <C>
Interest Income
Mortgage loans, net                    $27,224   3,462     30,686    18,004    8,594     26,598
Other loans, net                        10,796  (1,080)     9,716     5,026    2,303      7,329
Securities available for sale           31,478    (900)    30,578     1,063      580      1,643
Investment securities                  (36,790)  2,136    (34,654)  (10,367)      75    (10,292)
Federal funds sold                        (334)    (76)      (410)      144      239        383
Securities purchased under agreement
  to resell                                465    (128)       337      (742)     620       (122)
Stock in Federal Home Loan Bank             93    (322)      (229)      111       48        159
Total                                   32,932   3,092     36,024    13,239   12,459     25,698

Interest Expense
Savings accounts                        (1,067)   (104)    (1,171)   (3,716)    (312)    (4,028)
Transaction accounts                     3,008   1,965      4,973       319      318        637
Certificate accounts                    13,081    (687)    12,394    12,690   13,624     26,314
Short-term borrowed funds and
  repurchase agreements                  1,243     (30)     1,213    (1,182)     270       (912)
Long-term debt                           1,461      --      1,461       (89)       1        (88)
Total                                   17,726   1,144     18,870     8,022   13,901     21,923
Change in net interest income          $15,206   1,948     17,154     5,217   (1,442)     3,775
</TABLE>

Information in the above table is provided in each category with respect to
(i) changes attributable to changes in volume (change in volume multiplied
by prior rate), (ii) changes attributable to changes in rate (change in
rate multiplied by prior volume) and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.

ALBANK FINANCIAL CORPORATION AND SUBSIDIARY

Results of Operations--1996 Compared With 1995

General
Net income for the year ended December 31, 1996, decreased $3.1 million
(11%) from 1995 and totaled $26.2 million for the year. Primary and fully
diluted per share earnings were $1.84 and $1.83 for 1996, each down 5%
compared with $1.94 and $1.93, respectively, in 1995. Return on average
equity was 8.20% for 1996 compared with 9.09% in 1995, while return on
average assets amounted to 0.77% and 0.99% for the respective years. Net
income for 1996 included a one-time Savings Association Insurance Fund
("SAIF") special assessment of $6.4 million after tax ($10.4 million before
tax) while 1995 net income included a $0.7 million after-tax ($1.2 million
before tax) writeoff of the Bank's investment in Nationar, a special
purpose commercial bank. Excluding these respective charges, core net
income totaled $32.6 million for the year ended December 31, 1996, an
increase of $2.6 million (9%) over 1995's core net income level of $30.0
million. Primary and fully diluted earnings per share based on core net
income were $2.29 and $2.28, respectively for 1996, both of which rose 15%
from the respective $1.99 and $1.98 per share earned in 1995. Return on
average equity based on core net income was 10.20% in 1996 and 9.32% in
1995; for return on average assets, the respective ratios were 0.96% and
1.01%. All of the per share earnings results above have been adjusted to
reflect the Company's April 1, 1996, 20% stock dividend.
Cash earnings, a relatively new concept now being used by financial
analysts to evaluate bank performance, is defined as core net income plus
amortization of goodwill and costs associated with the Bank's employees
benefit plans, both net of any related income tax benefits. On this basis,
the Company would have earned $36.3 million in 1996 an increase of 12%
compared with $32.3 million in 1995. On a cash basis, fully diluted
earnings per share were $2.54 compared with $2.13 in 1995. Return on
tangible equity (equity less goodwill) amounted to 12.95% compared with
10.65% in 1995, while return on tangible assets for the current year of
1.09% compared with 1.10% in 1995.
On January 3, 1996, the Bank acquired all of the outstanding common stock
of Marble Financial Corporation of Rutland, Vermont for $18.00 per share in
cash or approximately $61 million in total consideration. On the date of
closing, Marble and its banking subsidiary Marble Bank had consolidated
assets and deposits of $396.2 million and $326.6 million, respectively. An
additional Vermont acquisition was completed on September 27, 1996, when
the Company assumed the deposit liabilities and purchased loans owned and
serviced by six banking offices operated by the Green Mountain Bank of
Rutland, Vermont. This transaction included approximately $108 million in
loans and deposits. Both transactions were accounted for under the purchase
method of accounting and generated accounting goodwill of $20.1 million
with respect to the Marble acquisition and $8.2 million with respect to
Green Mountain. The banking offices from these Vermont acquisitions are
currently operating as the Bank's Marble Division.
On January 30, 1997, the Company entered into a purchase agreement with
KeyCorp. Under the terms of the agreement, the Company will assume deposit
liabilities of approximately $530 million and purchase 35 New York State 
banking offices currently operated by KeyBank. The offices are located in
northern New York, the Hudson Valley, and the Binghamton area. The Company
will pay a deposit premium of approximately 7% based on average deposit
balances just prior to closing and has the option to purchase approximately
$53 million in small business, consumer, and mortgage loans. In order to
retain municipal funds currently on deposit in the KeyBank offices, the
Company intends to form a new commercial bank which will acquire the 35
offices. Since ALBANK Financial Corporation will then be the parent company
of both ALBANK, FSB and the new commercial bank, its legal classification
will shift from that of a thrift holding company to a bank holding company.
The agreement is subject to approval by bank regulatory authorities.
Pending those approvals, the two companies will move to close the sale in
mid-1997.

Interest Income
Interest income of $248.5 million for the year ended December 31, 1996, was
$36.0 million (17%) higher than the $212.5 million earned during 1995, as a
$382.3 million (14%) increase in average interest-earning assets to $3.211
billion combined with a 23 basis point (3%) rise in average rate earned to
7.74%. The increase in interest-bearing assets was primarily related to the
assets acquired from the Vermont acquisitions.
Interest income on mortgage loans totaled $155.9 million for the year, a
$30.7 million (25%) improvement from the prior year. The increase was
generally the result of increased average balances of $336.9 million (21%),
about two-thirds of which were related to the Vermont acquisitions, along
with an increase in the average rate earned of 21 basis points (3%).
Interest income on other loans increased $9.7 million (34%) to $38.6
million as an increase in the average amount invested of $116.6 million
(39%) was only partially offset by a decrease of 34 basis points (4%) in
the average rate earned. Commercial loans had the most significant impact
as an increase in the average balance of $96.8 million (101%), again about
two-thirds of which resulted from the Vermont acquisitions, more than
offset a 22 basis point (2%) decline in the average rate earned and
resulted in an increase in interest income of $8.5 million (96%) compared
with the prior year.
Interest income on securities available for sale amounted to $41.7 million,
an advance of $30.6 million (276%) over 1995. The higher earnings were a
net result of an increase in the average balance outstanding of $505.1
million (306%) and a 51 basis point (8%) reduction in the average rate
earned. The increased average amount invested was primarily the result of a
December 29, 1995, transfer of investment securities with a total market
value of $491.9 million to securities available for sale and, to a lesser
extent, the addition of securities from the Vermont acquisitions.
Earnings on investment securities amounted to $8.5 million, a decline of
$34.7 million (80%) from 1995 as a net result of a $579.3 million (81%)
reduction in the average amount invested and an increase of 31 basis points
(5%) in the average rate earned. Reductions in the average amount invested
were primarily the result of the previously mentioned transfer to
securities available for sale and a decision to redirect funds generated
from maturing investments into the loan portfolio.
A decline in the average amount invested and the average rate earned on
federal funds sold of $6.2 million (39%) and 52 basis points (9%),
respectively, combined to reduce the related interest income by $0.4
million (45%).
Interest income from securities purchased under agreement to resell rose
$0.3 million (18%) to $2.2 million as an increase in the average amount
invested of $7.9 million (26%) was partially offset by a decline in the
average rate earned of 40 basis points (6%).
A decline in the average rate earned of 195 basis points (24%) on stock in
the Federal Home Loan Bank was only partially offset by an increase in the
average amount invested of $1.2 million (8%) resulting in a $0.2 million
(18%) decline in interest income to $1.1 million.

Interest Expense
Interest expense for the year ended December 31, 1996, was $122.9 million,
an increase of $18.9 million (18%) over the $104.0 million paid in 1995.
The higher level of expense resulted from a $381.2 million (15%) increase
in average interest-bearing liabilities to $2.911 billion and a rise in the
average rate paid of 11 basis points (3%) to 4.22%. Almost 90% of the rise
in average interest-bearing liabilities was the result of deposits acquired
in the Vermont acquisitions.
Interest paid on savings accounts declined $1.2 million (4%) to total $25.4
million for 1996. Savings account average balances declined $36.7 million
(4%) while the average rate paid declined 1 basis point. The average
balance of savings accounts declined despite the addition of $30.8 million
in average balances that resulted from the Vermont acquisitions. The
decrease in savings balances resulted from the movement of savings balances
into higher yielding certificate accounts coupled with general deposit
outflow.
Interest paid on transaction accounts increased by $5.0 million (72%) as
the average balance increased $127.2 million (38%), four-fifths of which
was related to the Vermont acquisitions, while the average rate paid rose
50 basis points (24%).
Interest paid on certificate accounts for the year amounted to $82.7
million, an advance of $12.4 million (18%) over 1995. The balance in
certificate accounts averaged $1.521 billion for 1996, an increase of
$240.4 million (19%) over last year, while the average rate paid was 5.44%,
a 5 basis point (1%) decline compared with 1995. Over four-fifths of the
increase in the average balances of certificate accounts was directly
attributable to the Vermont acquisitions.
Interest paid on short-term borrowed funds and repurchase agreements
increased $1.2 million as the net effect of a $23.4 million increase in the
average balance, and a 131 basis point (20%) decrease in the average rate
paid.
Interest paid on long-term debt increased $1.5 million as a $26.8 million
increase in the average balance, which was the direct result of borrowings
to fund the Marble acquisition, more than offset a 3 basis point (1%)
decrease in the average rate paid.

Net Interest Income
Net interest income for the year ended December 31, 1996, totaled $125.6
million, $17.2 million (16%) greater than the prior year as an interest
income rise of $36.0 million (17%) to $248.5 million was somewhat offset by
an increase in interest expense of $18.9 million (18%) to $122.9 million.
The increase in net interest income was driven by an almost equal increase
in the levels of average interest-earning assets and interest-bearing
liabilities, which was primarily the result of the Vermont acquisitions,
coupled with improved interest spreads and margins. The net interest spread
for 1996 equaled 3.52%, an increase of 12 basis points (4%) over last year,
while the net interest margin advanced 7 basis points (2%) to total 3.91%
for 1996 compared with 3.84% in 1995.

Provision for Loan Losses
The provision for loan losses increased to $5.8 million for the year ended
December 31, 1996, up $1.3 million (28%) from the $4.5 million recorded in
1995. The allowance for loan losses at year-end 1996 was $24.1 million, an
increase of $8.2 million (51%) over the prior year. In addition to the
provision for loan losses, the allowance for loan losses increased due to
$11.3 million in balances acquired as components of the Vermont
acquisitions. Offsetting these additions were net charge-offs of $8.9
million which included a charge-off of $4.1 million resulting from the
December 1996 sale of a group of one- to four-family nonperforming loans
with a book value of $10.3 million.
The Bank utilizes the provision for loan losses to maintain an allowance
for loan losses that it deems appropriate to provide for known and inherent
risks in its loan portfolio. In determining the adequacy of its allowance
for loan losses, management takes into account the current status of the
Bank's loan portfolio and changes in appraised values of collateral as well
as general economic conditions. Although the Bank maintains its allowance
for loan losses at a level which it considers to be adequate to provide for
potential losses, there can be no absolute assurance that such losses will
not exceed the current estimated amounts. The allowance as a percentage of
loans receivable at year-end 1996 was 0.94% compared with 0.82% at the end
of 1995. The allowance as a percentage of nonperforming loans at December
31, 1996, was 81% compared with 69% a year earlier. Nonperforming loans at
December 31, 1996, were 1.16% of loans receivable while nonperforming
assets to total assets were 0.96%; comparable 1995 percentages were 1.19%
and 0.91%, respectively. Of the nonperforming loans outstanding at year-end
1996, approximately 55% were one- to four-family mortgages while federally
guaranteed loans comprised approximately 9% of nonperforming loans. The
increase in nonperforming assets between 1995 and 1996 was the combined
effect of nonperforming loans acquired from the Vermont acquisitions as
well as a measure of economic softening in the Bank's market area.

Noninterest Income
Noninterest income increased $2.7 million (29%) to $12.2 million for the
year ended December 31, 1996. Noninterest income for 1995 included a loss
of $1.2 million for the write-off of the Bank's investment in Nationar
stock and debentures. Excluding the Nationar loss, the increase in
noninterest income of $1.5 million (14%) was primarily the result of
service charges on deposits which rose $0.5 million (10%), driven by NOW
and business account activity; brokerage and insurance commissions were up
$0.4 million (26%) as stepped up cross-selling efforts by the Bank combined
with favorable market conditions for the financial products offered; and
increased servicing income on mortgage loans of $0.3 million (19%) 
primarily due to loan servicing commitments resulting from the Vermont
acquisitions. These improvements in noninterest income were all positively
impacted by the Company's 1996 acquisition activity and the resultant
expansion of its branch network. Noninterest income also included increases
over 1995 of $0.3 million (42%) due to an increase in gains realized on the
origination of loans for sale and net increases in various other
noninterest income categories.

Noninterest Expense
Noninterest expense of $90.3 million for the year ended December 31, 1996,
included a one-time Federal Deposit Insurance Corporation ("FDIC") SAIF
special assessment of $10.4 million. Excluding the SAIF special assessment,
noninterest expense would have increased $14.1 million (21%) over the
previous year's total of $65.8 million. The increase was primarily the
result of costs associated with operating the Bank's expanded franchise
which includes branches added as a result of the Vermont acquisitions.
Compensation and employee benefits increased $6.7 million (21%) to equal
$38.5 million for 1996 compared with $31.8 million in 1995. Approximately
two-thirds of the 1996 increase was a result of salaries directly related
to the Vermont acquisitions while the remaining increase was split nearly
equally between salary merit increases and benefit costs related to the
Bank's expanded employee base.
Increases of $0.3 million (35%) in building depreciation, $0.3 million
(16%) in maintenance and repair expenses and $0.2 million (13%) in property
taxes contributed to the overall increase in occupancy expense of $0.9
million (11%) which totaled $9.2 million for 1996 compared with $8.3
million in 1995. These increases were due mainly to branches added to the
Bank's franchise during 1996.
Furniture, fixtures and equipment expense rose $1.2 million (31%) to $5.3
million in 1996. Approximately three-fifths of the 1996 increase was the
result of a full year's depreciation of the Bank's 1995 data processing
hardware and software upgrades while the operational costs of the Vermont
acquisitions accounted for most of the remaining increase.
Despite increased levels of total deposits, FDIC insurance expense declined
$0.8 million (16%) below 1995 to equal $4.3 million for the year ended
December 31, 1996. The reduction reflects a change in the Bank's deposit
mix as the percentage of Bank Insurance Fund ("BIF") insured deposits
increased as a result of deposits acquired in the Vermont acquisitions. At
December 31, 1996, approximately 34% of the Bank's deposits were BIF
insured with the remaining deposits insured by the SAIF. During 1996, the
BIF insurance rate was effectively zero while the SAIF insurance rate was
$0.23 per $100 for the first three quarters of 1996 and $0.18 per $100 for
the last quarter.
The FDIC special SAIF assessment in 1996 of $10.4 million represents a one-
time charge to the Bank to recapitalize the SAIF insurance fund. As a
result of the recapitalization, the Bank will receive a substantial
reduction in deposit insurance premiums on SAIF insured deposits beginning
in 1997. The Bank's SAIF insurance assessment rate was reduced to
approximately 6.5 basis points for its intital semi-annual assessment
period in 1997; simultaneously, the BIF insurance assessment rate has
increased from effectively zero to approximately 1.3 basis points.
Professional, legal and other fees increased $0.7 million (29%) to $3.2
million for the year ended December 31, 1996. Higher legal fees were the
most significant component of the increase.
Telephone, postage and printing expense of $4.4 million for 1996 increased
$0.3 million (8%) above 1995 levels, as higher 1996 postage and printing
costs associated with the operation of the expanded branch network were
somewhat offset by a reduction in telephone expense.
Goodwill amortization increased $1.5 million (96%) over 1995 levels as a
direct result of goodwill generated by the Vermont acquisitions.
Other noninterest expense of $12.0 million represented a $3.6 million (42%)
increase over 1995. Categories showing increases included advertising,
foreclosure and acquisition costs, real estate owned write-downs and
losses, appraisal fees, other losses, real estate owned expenses, and
computer processing and software charges; the operation of the Bank's
expanded branch network was a prominent factor in all of the aforementioned
increases.
Excluding the special SAIF assessment in 1996, the ratios of noninterest
expense to average assets were 2.36% and 2.22% for 1996 and 1995,
respectively. Another measure of cost containment is the efficiency ratio
which measures noninterest expense (excluding amortization of intangibles,
real estate owned related expense, and the FDIC special SAIF assessment) as
a percentage of net interest income plus noninterest income (exclusive of
net security transactions and real estate owned related income). The
efficiency ratio of 54.32% for 1996 compared with 52.91% in 1995.

Income Tax Expense
Income tax expense for the year ended December 31, 1996, was $15.5 million,
a decrease of $2.8 million (15%) from the previous year. The decrease was
the combined result of a lower amount of income before income taxes
combined with a slightly lower overall effective income tax rate for 1996
of 37.2% compared with 38.5% in 1995. A continuing trend of tax rate
reductions in New York State coupled with an expansion of operations into
the State of Vermont resulted in a lower effective state income tax rate.
Adjustments affecting the effective federal income tax rate are disclosed
in Footnote 14 to the consolidated financial statements.

Results of Operations--1995 Compared With 1994

General
Net income for 1995 totaled $29.3 million, an increase of $0.7 million (2%)
over 1994. Primary and fully diluted earnings per share for 1995 increased
over 9% from 1994 levels to $1.94 and $1.93, respectively. Return on
average equity was 9.09% and return on average assets was 0.99% in 1995
compared with 9.11% and 1.02% for 1994, respectively. Net income for 1995
included a $0.7 million after-tax writeoff of the the Bank's investment in
Nationar. Excluding the Nationar charge, core net income increased $1.4
million (5%) over 1994 and totaled $30.0 million for the year ended
December 31, 1995. Primary and fully diluted earnings per share based on
core net income were $1.99 and $1.98, respectively, for 1995 and
represented a 12% increase over the $1.77 earned on both a primary and
fully diluted basis in 1994. Return on average equity based on core net
income was 9.32% in 1995 and 9.11% in 1994; for return on average assets,
the respective ratios were 1.01% and 1.02%. The above per share earnings
results have been adjusted to reflect the Company's April 1, 1996, 20%
stock dividend.
On October 21, 1994, the Bank purchased the deposits of the Ludlow Savings
Bank of Ludlow, Massachusetts from the FDIC. The transaction added
approximately $216 million in deposits and nine banking offices, all
located in the metropolitan Springfield area. The acquisition was accounted
for under the purchase method of accounting and generated accounting
goodwill of approximately $14.6 million. Accordingly, ALBANK'S 1995 results
reflect the full year impact of the Ludlow acquisition.

Interest Income
Interest income increased $25.7 million (14%) from the prior year to equal
$212.5 million for 1995 as a $123.3 million (5%) rise in average earning
assets to $2.828 billion combined with a 60 basis point (9%) increase in
the average rate earned to 7.51%.
The most significant factor contributing to the higher level of interest
income was a rise of $26.6 million (27%) in interest earned on mortgage
loans to $125.2 million that was the combined effect of increases in both
the average outstandings of $233.9 million (17%) and the average rate
earned of 60 basis points (8%).
Income earned on other loans increased $7.3 million (34%) to $28.9 million
due to an increase of $54.0 million (22%) in average outstandings which
combined with an 86 basis point (10%) jump in the average rate earned.
Commercial loans accounted for almost half of the increase in average
outstandings.
Income earned on securities available for sale rose $1.6 million (17%) to
equal $11.1 million as a result of increases of $16.1 million (11%) in the
average amount invested and 38 basis points (6%) in yield.
A decline of $10.3 million (19%) to $43.2 million in interest income on
investment securities resulted primarily from a $171.2 million (19%)
decline in the average amount invested as funds generated from maturities
were reinvested in loan products.

Interest Expense
Interest expense for 1995 increased $21.9 million (27%) over 1994 levels to
$104.0 million as a result of increases in the average outstandings of
$127.7 million (5%) to $2.530 billion and a rise in the average rate paid
of 69 basis points (20%) to 4.11%. The increase in average outstandings was
the result of a full year's impact of the 1994 Ludlow acquisition.
Interest expense on savings accounts declined $4.0 million (13%) due to a
decrease in the average outstandings of $127.2 million (12%) and a drop in
the average rate paid of 3 basis points (1%).
Interest expense on transaction accounts rose $0.6 million (10%) as a
result of an increase of $15.9 million (5%) in the average balance and a 10
basis point (5%) increase in the average rate paid.
Most significantly, interest expense on certificate accounts rose $26.3
million (60%) to $70.3 million as an increase in the average outstandings
of $259.9 million (25%) combined with a rise in the average rate paid of
118 basis points (27%).
Average short-term borrowed funds decreased $19.3 million (91%) to $1.9
million and more than offset a 170 basis point (35%) jump in the average
rate paid; resulting interest expense declined $0.9 million (88%).
Interest expense on long-term debt declined primarily as a result of a $1.6
million (53%) decline in the average balance outstanding.

Net Interest Income
Net interest income totaled $108.5 million in 1995, an increase of $3.8
million (4%) from the prior year, as interest income advanced $25.7 million
(14%), while interest expense increased $21.9 million (27%). The net
interest spread declined 9 basis points (3%) to 3.40% in 1995, while the
net interest margin declined 3 basis points (1%) to 3.84%.

Provision for Loan Losses
The provision for loan losses amounted to $4.5 million for both 1995 and
1994. Net chargeoffs during 1995 totaled $4.1 million or 0.22% of average
loans; comparable 1994 figures were $2.1 million or 0.13%. The allowance
for loan loss as a percentage of nonperforming loans was 69% at December
31, 1995, compared with 76% a year earlier. The allowance as a percentage
of loans receivable at year-end 1995 and 1994 was 0.82% and 0.87%,
respectively. Nonperforming loans were 1.19% of loans receivable while
nonperforming assets to total assets equaled 0.91% at December 31, 1995;
comparable 1994 figures were 1.14% and 0.81%, respectively.

Noninterest Income
Noninterest income totaled $9.4 million for the year ended December 31,
1995, a decrease of $0.6 million (6%) from 1994. Excluding the Bank's $1.2
million write-off of its investment in Nationar, noninterest income would
have increased $0.6 million (6%). Service charges on deposit accounts
totaled $5.0 million for the year ended December 31, 1995, an increase of
$0.9 million (21%). This increase was reflective of fees related to deposits
acquired in the Ludlow acquisition. Brokerage and insurance commissions
decreased $0.7 million (29%) to $1.6 million as declining annuity sales
combined with a shift in the product mix away from higher-commission mutual
funds to lower-commission bonds. Other noninterest income rose $0.4 million
(10%) to total $4.0 million as a result of increases in loan related
servicing fees and customer based fees of $0.1 million (6%) and $0.3
million (20%), respectively.

Noninterest Expense
Noninterest expense for 1995 totaled $65.8 million, an increase of $4.0
million (6%) over 1994 levels. The full year impact of the operation of the
Ludlow branches and three supermarket branches combined with expenses
incurred in our data center conversion to drive up operating expenses.
Compensation and employee benefits increased $3.1 million (11%) to $31.8
million as a result of the full year impact of the Ludlow and supermarket
branches, annual merit increases, as well as overtime and temporary help
related to the data center conversion. Mitigating factors were decreases in
commission expense and costs related to employee benefits.
Net occupancy expense increased $0.6 million (7%) and totaled $8.3 million
as a result of the operation of an expanded branch network throughout all
of 1995. Similarly, expense related to furniture, fixtures and equipment
totaled $4.0 million, an increase of $0.6 million (18%).
Telephone, postage and printing expense increased $0.9 million (29%) to
$4.1 million as a result of the expanded branch network, the data center
conversion, and increased postal rates.
During 1995, FDIC premiums decreased $0.4 million (6%) to total $5.2
million. The reduction in the Bank's premium expense was directly related
to a lower premium rate paid on that portion of its deposits insured by the
BIF compared with SAIF insured deposits. Additionally, professional, legal
and other fees declined $0.5 million (16%) to $2.5 million.
During 1995, amortization of goodwill increased $0.8 million (98%) which
was reflective of a full year's amortization on goodwill generated in the
Ludlow acquisition.
Increases in computer processing and software charges and advertising
expenditures were offset by reductions in various other operating expense
categories and produced a decline in other noninterest expense of $1.2
million (12%) compared with the prior year.
The ratios of noninterest expense to average assets were 2.22% and 2.20%
for 1995 and 1994, respectively. The efficiency ratio of 52.91% for 1995
compared with 51.99% for 1994.

Income Tax Expense
Income tax expense totaled $18.3 million for the year ended December 31,
1995, a decrease of $1.6 million (8%) from 1994. The decrease was
principally the result of downward trends in state franchise tax rates
which produced an effective tax rate of 38.5% for 1995 compared with 41.0%
in 1994.

Impact of Inflation and Changing Prices

The consolidated financial statements and accompanying notes have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in
terms of historical dollars without considering the changes in the relative
purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Company's operations.
Unlike most industrial companies, nearly all the assets and liabilities of
the Company are monetary. As a result, interest rates have a greater impact
on the Company's performance than do the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or
to the same extent as the price of goods and services.

Impact of Changes in Accounting Standards

Accounting for Mortgage Servicing Rights
In May 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 122, "Accounting
for Mortgage Servicing Rights," which amends SFAS No. 65 "Accounting for
Certain Mortgage Banking Activities." SFAS No. 122 requires that entities
recognize as a separate asset, the rights to service mortgage loans for
others, regardless of how those servicing rights are acquired.
Additionally, SFAS No. 122 requires that capitalized mortgage servicing
rights be assessed for impairment based on the fair value of those rights,
and that impairment, if any, be recognized through a valuation allowance.
The Company adopted SFAS No. 122 in the first quarter of 1996. The adoption
of SFAS No. 122 resulted in increased gains recognized on the sale of
mortgage loans when the servicing rights are retained, offset by the
amortization of the capitalized mortgage servicing rights. The adoption of
SFAS No. 122 did not have a material effect on the Company's consolidated
financial statements.

Accounting for Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which establishes a fair value based method of accounting
for employee stock options, such as the Company's stock option plans, or
similar equity instruments. Under SFAS No. 123, entities can recognize
stock-based compensation expense in the basic financial statements using
either (i) the intrinsic value based approach set forth in the Accounting
Principles Board ("APB") Opinion No. 25 or (ii) the fair value based method
introduced in SFAS No. 123. Entities electing to continue the application
of APB Opinion No. 25, must make pro forma disclosures of net income and
earnings per share, as if the fair value based method of accounting defined
in SFAS No. 123 had been applied. Under the method currently utilized by
the Company (APB Opinion No. 25), compensation expense is determined based
upon the option's intrinsic value, or the excess (if any) of the market
price of the underlying stock at the measurement date over the amount the
employee is required to pay. Under the fair value based method introduced
by SFAS No. 123, compensation expense is based on the option's estimated
fair value at the grant date and is generally recognized over the vesting
period. Management elected to continue to measure stock-based compensation
costs in accordance with APB Opinion No. 25; accordingly, the required pro
forma disclosure requirements of SFAS No. 123 are presented in Note 17 of
the accompanying consolidated financial statements.

Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No.
125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and is to
be applied prospectively. This Statement provides accounting and reporting
standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are
secured borrowings. SFAS No. 125 is effective for transfers and servicing
of assets and extinguishments of liabilities occurring after December 31,
1996, and will supersede SFAS No. 122. Certain aspects of SFAS No. 125 were
amended by SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125." Management believes the adoption of
SFAS No. 125 will not have a material impact on the Company's consolidated
financial statements.

Interest rate sensitivity analysis

The Company employs many strategies to manage interest rate risk, the
general goal of which has been to shorten the repricing periods of assets
within the Company's balance sheet. This goal has been pursued actively in
the management of the mortgage loan and investment portfolios. Since the
early 1980's, the Company has emphasized the origination of one- to four-
family ARMs for portfolio retention. As a result, the percentage of ARMs
has grown steadily and at December 31, 1996, represented 76% of total
mortgage loans outstanding. Additions to the investment securities and
securities available for sale portfolios in 1996 of $70.8 million generally
had maturities or expected average lives of three to five years; applying
reasonable prepayment assumptions to the securities backed by certain
tangible assets, the entire portfolio at year-end 1996 had an expected
average life of between two and three years.
The interest rate risk analysis table that follows sets forth at December
31, 1996, the approximate amounts of interest-earning assets and interest-
bearing liabilities outstanding which are expected to reprice or mature in
each of the time periods indicated. Loans that have an adjustable interest
rate are shown as being due in the period during which the interest rate is
next subject to change.
Principal amortization of loans is shown in accordance with contractual
terms (scheduled amortization) and by using assumptions on the rate at
which the loan will repay in excess of scheduled amortization
(prepayments). Monthly prepayment factors were developed taking into
account current economic forecasts as well as historic prepayment activity.
The monthly prepayment factors utilized were as follows: ARMs, 0.57% to
1.08%; convertible ARMs, 3.33%; residential fixed rate mortgage loans,
0.32% to 1.29%; fixed rate home equity loans, 1.15% to 1.26%; adjustable
rate home equity loans, 1.72%; nonresidential fixed rate mortgage loans,
0.19% to 0.80%; consumer loans, 0.92% to 1.00%; and student loans, 1.00%.
With regard to deposit accounts, the following withdrawal/repricing rates
have been assumed: savings accounts, 20% per year; NOW and super NOW
accounts, 10% per year, in years one through four with the remainder
repricing in year five; regular money market accounts, 25% per year;
premium money market accounts, 100% repricing in less than one year. The
20% sensitivity of savings accounts represents the portion of total savings
that management believes to be interest rate sensitive. In arriving at this
judgment, management considered a number of factors including the trend and
level of overall interest rates and the review of historic, current and
projected future deposit flows. The perceived sensitivity of premium money
market accounts to interest rate shifts is reflected in their 100%
classification in the less than one year category. The lower relative
interest rate sensitivity of regular money market accounts is reflected in
their 25% per year classification. The classification of 10% of the NOW and
super NOW accounts in the less than one year category illustrates their
lesser degree of interest rate sensitivity.

Interest rate "gap" analysis is a common, though imperfect, measure of
interest rate risk. It measures the relative dollar amounts of interest-
earning assets and interest-bearing liabilities which reprice within a
specific time period, either through maturity or by rate adjustment.
A "positive" gap for a given period means that the amount of interest-
earning assets maturing or otherwise repricing exceeds the amount of
interest-bearing liabilities maturing or otherwise repricing within the
same period. Accordingly, in a rising interest rate environment, an
institution with a positive gap would generally be expected, absent the
effects of other factors, to experience a greater increase in the yield of
its assets relative to the cost of its liabilities. Conversely, the cost of
funds for an institution with a positive gap would generally be expected to
decline less quickly than the yield on its assets in a falling interest
rate environment. Changes in interest rates generally have the opposite
effect on an institution with a "negative" gap.
There are some shortcomings inherent in the method of analysis presented in
the following table. For example, although certain assets and liabilities
have similar periods to maturity or to repricing, they may react in
different degrees to changes in market rates. Also, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes
in market interest rates, while interest rates on other types may lag
behind changes in market rates. Additionally, certain assets such as
adjustable rate mortgage loans have features which restrict changes in
interest rates on a short-term basis and over the life of the assets.
Further, in the event of a significant change in interest rates, prepayment
and early withdrawal levels would likely deviate significantly from those
assumed in the table. Finally, the ability of many borrowers to service
their debt may decrease in the event of a significant interest rate
increase. Management takes these factors into account when reviewing the
Bank's gap position and establishing future asset/liability strategy.
As of December 31, 1996, the following table indicates that total interest-
earning assets maturing or repricing within one year exceeded total
interest-bearing liabilities maturing or repricing in the same time period
by $345.6 million.

<TABLE>
<CAPTION>
                                       One Year       One to         Three to       Five to        Over
(Dollars in thousands)
              At December 31, 1996     or Less        Three Years    Five Years     Ten Years      Ten Years      Total
<S>                                    <C>            <C>            <C>            <C>            <C>            <C>
Interest-Earning Assets
Mortgage loans                         $1,390,814      347,888         76,307        120,013        127,371       2,062,393<F1>
Other loans                               223,362      106,183         54,789         61,647         28,174         474,155<F1>
Securities available for sale             239,020      215,901         74,303         85,225            598         615,047<F2>
Investment securities                      31,785       29,616         33,497         14,454            255         109,607
Stock in Federal Home Loan Bank                --           --             --         16,913             --          16,913
Total interest-earning assets           1,884,981      699,588        238,896        298,252        156,398       3,278,115

Interest-Bearing Liabilities
Deposits:
Savings accounts                          164,831      329,660        329,660             --         25,480         849,631<F3>
Transaction accounts                      207,959       97,355        188,883             --             --         494,197<F4>
Certificate accounts                    1,114,227      417,300         44,674          7,676             48       1,583,925
Short-term borrowed funds
  and repurchase agreements                42,346           --             --             --             --          42,346
Long-term debt                             10,000       20,000             --             --             61          30,061
Total interest-bearing liabilities      1,539,363      864,315        563,217          7,676         25,589       3,000,160
Interest Sensitivity Gap
Per period                             $  345,618     (164,727)      (324,321)       290,576        130,809         277,955
Cumulative                             $  345,618      180,891       (143,430)       147,146        277,955         277,955
Cumulative interest sensitivity gap
  as a percentage of total assets            9.86%        5.16%         (4.09)%        4.20%           7.93%
Cumulative interest-earning assets
  as a percentage of cumulative
  interest-bearing liabilities             122.45%      107.53%         95.17%       104.95%         109.26%
<FN>
<F1> Mortgage and other loans are reduced for nonperforming loans but are not reduced for the allowance for loan losses.
<F2> Does not include SFAS No. 115 unrealized gain of $2,896.
<F3> Includes interest-bearing escrow accounts of $25,480.
<F4> Does not include noninterest-bearing demand deposits of $110,856.

</TABLE>

Management's Discussion and Analysis

ALBANK FINANCIAL CORPORATION AND SUBSIDIARY

<TABLE>
QUARTERLY RESULTS OF OPERATIONS
<CAPTION>
The Company's quarterly results of operations for the years ended December 31, 1996 and 1995 are as follows:
(In thousands, except per share data)
Year Ended December 31, 1996           First Quarter  Second Quarter Third Quarter  Fourth Quarter
<S>                                    <C>            <C>            <C>            <C>
Quarterly Operating Data
Interest income                        $ 61,588        61,089         61,660         64,189
Interest expense                         30,696        29,847         30,282         32,060
Net interest income                      30,892        31,242         31,378         32,129
Provision for loan losses                 1,425         1,425          1,425          1,500
Noninterest income                        3,010         3,092          2,910          3,142
Noninterest expense                      19,648        19,729         30,571         20,355
Income before income taxes               12,829        13,180          2,292         13,416
Income tax expense                        5,118         5,345            644          4,403
Net income                             $  7,711         7,835          1,648          9,013
Core net income<F1>                    $  7,711         7,835          8,025          9,013
Primary and fully diluted
  earnings per share                   $   0.53          0.54           0.12           0.64
Primary and fully diluted
  earnings per share based on
  core net income<F1>                      0.53          0.54           0.57           0.64
Dividends declared per share               0.12          0.12           0.12           0.15
(In thousands, except per share data)
Year Ended December 31, 1995           First Quarter  Second Quarter Third Quarter   Fourth Quarter
Quarterly Operating Data
Interest income                        $ 51,224        52,779         54,549         53,950
Interest expense                         23,545        26,113         27,268         27,089
Net interest income                      27,679        26,666         27,281         26,861
Provision for loan losses                 1,125         1,125          1,125          1,125
Noninterest income                        1,419         2,916          2,602          2,511
Noninterest expense                      16,547        16,513         16,253         16,491
Income before income taxes               11,426        11,944         12,505         11,756
Income tax expense                        4,475         4,687          4,935          4,251
Net income                             $  6,951         7,257          7,570          7,505
Core net income<F1>                    $  7,681         7,257          7,570          7,505
Primary and fully diluted earnings
  per share<F2>                        $   0.45          0.48           0.50           0.51
Primary and fully diluted earnings
  per share based on core net
  income<F1><F2>                           0.50          0.48           0.50           0.51

Dividends declared per share<F2>           0.10          0.10           0.10           0.10
<FN>
<F1>  Core net income excludes the net after-tax effect of the September 30, 1996, $6.4 million special assessment to
recapitalize the SAIF and the March 31, 1995, $0.7 million write-off of the capital investment in Nationar.
<F2> Adjusted to reflect the 6-for-5 stock dividend paid on April 1, 1996.

</TABLE>

ALBANK FINANCIAL CORPORATION AND SUBSIDIARY

Statement of Management's Responsibility

ALBANK Financial Corporation
10 North Pearl Street
Albany, NY 12207-2774

To Our Stockholders:

The accompanying consolidated financial statements and the related
financial information in this Annual Report were prepared by the management
of ALBANK Financial Corporation in accordance with generally accepted
accounting principles and, where appropriate, reflect management's best
estimates and judgment. Management is responsible for the integrity,
objectivity, consistency and fair presentation of the consolidated
financial statements and all financial information contained in this Annual
Report.
In order to fulfill its responsibility, management relies in part on a
system of internal accounting control which has been designed to safeguard
the Company's assets from material loss or misuse and ensure that
transactions are properly authorized and recorded in its financial records.
An extensive internal auditing program monitors compliance with established
procedures and controls to provide assurance that the system of internal
accounting control is functioning in a proper manner. There are limits
inherent in all systems of internal control based on the recognition that
the cost of such systems should not exceed the benefits to be derived.
Management believes the Company's system of internal accounting control
provides reasonable assurance that its assets are safeguarded and that its
financial records are reliable.
The consolidated financial statements have been audited by KPMG Peat
Marwick LLP, independent public accountants, who rendered an independent
professional opinion on the accompanying consolidated financial statements.
Their appointment was ratified by the stockholders of ALBANK Financial
Corporation. Their examination provides an objective assessment of the
degree to which the Company's management has met its responsibility for
financial reporting. The opinion of the independent public accountants on
the consolidated financial statements is based on auditing procedures which
include reviewing the internal control structure to determine the timing
and scope of audit procedures and performing selected tests of transactions
and records as they deem appropriate. Their auditing procedures are
designed to provide a reasonable level of assurance that the consolidated
financial statements are fairly presented in all material respects.
The Company's internal auditor and independent auditors have direct access
to the Audit Committee of the Board of Directors. This committee, which is
composed entirely of outside directors, meets periodically with management,
the internal auditor and the independent auditors to gain assurance the
financial accounting and audit process is properly conducted.

/s/ Herbert G. Chorbajian
Herbert G. Chorbajian
Chairman of the Board,
President and Chief Executive Officer

/s/ Richard J. Heller
Richard J. Heller
Executive Vice President
and Chief Financial Officer

Independent Auditors' Report

ALBANK FINANCIAL CORPORATION AND SUBSIDIARY

KPMG Peat Marwick LLP
Certified Public Accountants
74 North Pearl Street
Albany, NY 12207-2774

The Board of Directors and Stockholders
ALBANK Financial Corporation and Subsidiary:

We have audited the accompanying consolidated statements of financial
condition of ALBANK Financial Corporation and subsidiary as of December 31,
1996 and 1995, and the related consolidated statements of earnings, changes
in stockholders' equity and cash flows for each of the years in the three-
year period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ALBANK
Financial Corporation and subsidiary as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.

/s/ KPMG Peat Marwick LLP

January 31, 1997

ALBANK FINANCIAL CORPORATION AND SUBSIDIARY

<TABLE>
Consolidated Statements of Earnings
<CAPTION>
(In thousands, except per share data)
Years Ended December 31,                    1996           1995           1994
<S>                                         <C>            <C>            <C>
Interest Income
Mortgage loans                              $ 155,914       125,228         98,630
Other loans                                    38,621        28,905         21,576
Securities available for sale                  41,676        11,098          9,455
Investment securities                           8,532        43,186         53,478
Federal funds sold                                508           918            535
Securities purchased under agreement
  to resell                                     2,225         1,888          2,010
Stock in Federal Home Loan Bank                 1,050         1,279          1,120
Total interest income                         248,526       212,502        186,804
Interest Expense
Deposits and escrow accounts                  120,006       103,810         80,887
Short-term borrowed funds and
  repurchase agreements                         1,338           125          1,037
Long-term debt                                  1,541            80            168
Total interest expense                        122,885       104,015         82,092
Net interest income                           125,641       108,487        104,712
Provision for loan losses                       5,775         4,500          4,500
Net interest income after provision
  for loan losses                             119,866       103,987        100,212
Noninterest Income
Service charges on deposit accounts             5,556         5,046          4,181
Net security transactions                           8        (1,198)            14
Brokerage and insurance commissions             2,049         1,621          2,276
Other                                           4,541         3,979          3,620
Total noninterest income                       12,154         9,448         10,091
Noninterest Expense
Compensation and employee benefits             38,455        31,817         28,705
Occupancy, net                                  9,186         8,260          7,710
Furniture, fixtures and equipment               5,270         4,036          3,418
Federal deposit insurance premiums              4,331         5,152          5,508
Federal deposit insurance special
  SAIF assessment                              10,397            --             --
Professional, legal and other fees              3,242         2,512          2,982
Telephone, postage and printing                 4,393         4,062          3,144
Goodwill amortization                           3,078         1,570            794
Other                                          11,951         8,395          9,572
Total noninterest expense                      90,303        65,804         61,833
Income before income taxes                     41,717        47,631         48,470
Income tax expense                             15,510        18,348         19,898
Net income                                  $  26,207        29,283         28,572
Earnings per share:
Primary                                     $    1.84          1.94           1.77
Fully diluted                                    1.83          1.93           1.77
See accompanying notes to consolidated financial statements.
</TABLE>

ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
<TABLE>
Consolidated Statements of Financial Condition
<CAPTION>
(Dollars in thousands, except per share data)
December 31,                                1996           1995
<S>                                         <C>            <C>
Assets
Cash and due from banks                     $    68,883       54,002
Federal funds sold                                   --        1,000
Securities purchased under agreement
  to resell                                          --       50,000
Total cash and cash equivalents                  68,883      105,002
Securities available for sale, at
  approximate market value                      617,943      656,784
Investment securities (approximate market
  value of $111,091 at December 31,
  1996 and $155,862 at December 31, 1995)       109,607      153,740

Loans receivable                              2,566,364    1,946,601
Less: allowance for loan losses                  24,114       15,949
Loans receivable, net                         2,542,250    1,930,652

Accrued interest receivable                      27,092       26,351
Office premises and equipment, net               48,554       40,655
Stock in Federal Home Loan Bank, at cost         16,913       15,750
Real estate owned                                 4,012        3,899
Other assets                                     70,882       37,337
                                            $ 3,506,136    2,970,170
Liabilities
Deposits                                    $ 3,013,129    2,558,288
Escrow accounts                                  26,603       34,928
Accrued income taxes payable                      3,938        4,529
Short-term borrowed funds and
  repurchase agreements                          42,346        1,290
Long-term debt                                   30,061           --
Obligation under capital lease                    4,646        4,743
Other liabilities                                66,288       43,210
Total liabilities                             3,187,011    2,646,988
Commitments and contingent liabilities
Stockholders' Equity
Preferred stock, $.01 par value.
  Authorized 25,000,000 shares;
  none outstanding                                   --           --
Common stock, $.01 par value. Authorized
  50,000,000 shares; 15,697,500 shares
  issued; 12,910,763 shares outstanding
  at December 31, 1996 and 11,521,970
  at December 31, 1995                              157          157
Additional paid-in capital                      180,670      151,969
Retained earnings, substantially restricted     214,283      258,631
Treasury stock, at cost (2,786,737 shares
  at December 31, 1996 and 4,175,530 at
  December 31, 1995)                            (71,235)     (82,381)
Unrealized gain on securities available for
  sale, net of tax                                1,781        3,528
Common stock acquired by:
Employee stock ownership plan ("ESOP")           (6,279)      (7,535)
Bank recognition plan ("BRP")                      (252)      (1,187)
Total stockholders' equity                      319,125      323,182
                                            $ 3,506,136    2,970,170
See accompanying notes to consolidated financial statements.
</TABLE>

ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
<TABLE>
Consolidated Statements of Changes in Stockholders' Equity
<CAPTION>
                                                                               Net Unrealized
                                                                               Gain (Loss)    Common    Common
                                            Additional                         on Securities  Stock     Stock
                                  Common    Paid-in    Retained       Treasury Available      Acquired  Acquired
(Dollars in thousands)            Stock     Capital    Earnings       Stock    for Sale       by ESOP   by BRP    Total
<S>                               <C>       <C>        <C>            <C>      <C>            <C>       <C>       <C>
Balance at JANUARY 1, 1994        $ 157     150,976     211,659       (36,406)     --         (10,046)  (3,057)   313,283
January 1, 1994 cumulative effect
  of change in accounting for
  securities available for sale,
  net of tax                         --          --          --            --   3,239              --       --      3,239
Net income                           --          --      28,572            --      --              --       --     28,572
Purchase of treasury stock
  (1,008,122 shares)                 --          --          --       (22,072)     --              --       --     (22,072)
Exercise of stock options            --          --         (38)          260      --              --       --         222
Tax benefits related to vested
  BRP stock and stock options
  exercised                          --         457          --            --      --              --       --         457
Adjustment of securities available
  for sale to market, net of tax     --          --          --            --  (3,974)             --       --      (3,974)
Cash dividends declared              --          --      (5,128)           --      --              --       --      (5,128)
Amortization of award of ESOP stock  --          --          --            --      --           1,255       --       1,255
Amortization of award of BRP stock   --          --          --            --      --              --      935         935
Balance at December 31, 1994        157     151,433     235,065       (58,218)   (735)         (8,791)  (2,122)    316,789
Net income                           --          --      29,283            --      --              --       --      29,283
Purchase of treasury stock
  (898,053 shares)                   --          --          --       (24,233)     --              --       --     (24,233)
Exercise of stock options            --          --         (10)           70      --              --       --          60
Tax benefits related to vested
  BRP stock and stock options
  exercised                          --         536          --            --      --              --       --         536
Adjustment of securities available
  for sale to market, net of tax     --          --          --            --   4,263              --       --       4,263
Cash dividends declared              --          --      (5,707)           --      --              --       --      (5,707)
Amortization of award of
  ESOP stock                         --          --          --            --      --           1,256       --       1,256
Amortization of award of BRP stock   --          --          --            --      --              --      935         935
Balance at December 31, 1995        157     151,969     258,631       (82,381)  3,528          (7,535)  (1,187)    323,182
Net income                           --          --      26,207            --      --              --       --      26,207
Purchase of treasury stock
  (926,517 shares)                   --          --          --       (25,847)     --              --       --     (25,847)
Exercise of stock options            --          --         275           745      --              --       --       1,020
Tax benefits related to
  vested BRP stock and stock
  options exercised                  --         898          --            --      --              --       --         898
Adjustment of securities
  available for sale to market,
  net of tax                         --          --          --            --  (1,747)             --       --      (1,747)
Cash dividends declared              --          --      (6,779)           --      --              --       --      (6,779)
Stock dividend declared              --      27,803     (64,051)       36,248      --              --       --          --
Amortization of award
  of ESOP stock                      --          --          --            --      --           1,256       --       1,256
Amortization of award
   of BRP stock                      --          --          --            --      --              --      935         935
Balance at December 31, 1996      $ 157     180,670     214,283       (71,235)  1,781          (6,279)    (252)    319,125
See accompanying notes to consolidated financial statements.
</TABLE>

ALBANK FINANCIAL CORPORATION AND SUBSIDIARY
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
(In thousands) Years Ended December 31,          1996           1995           1994
<S>                                              <C>            <C>            <C>
Decrease in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net income                                       $  26,207        29,283         28,572
Reconciliation of net income to net cash
  provided by operating activities:
Depreciation and lease amortization                  5,385         3,962          3,429
Goodwill amortization                                3,078         1,570            794
Net amortization of premiums and accretion of
  discounts on securities                            1,233         1,326          2,128
Amortization of award of ESOP and BRP stock          2,191         2,191          2,190
Net loss (gain) on security transactions                (8)        1,198            (14)
Net gain on sale of real estate owned                 (383)         (328)          (338)
Origination of loans receivable for sale           (22,631)      (15,401)       (12,506)
Proceeds from sale of loans receivable              34,024        31,379         15,112
Provision for loan losses                            5,775         4,500          4,500
Writedown of real estate owned                         603           312            336
Net increase in accrued income taxes payable           277         2,632            131
Net decrease (increase) in accrued
  interest receivable                                2,814        (1,682)        (2,299)
Net increase in other assets                          (619)       (3,291)        (3,956)
Net increase (decrease) in other liabilities and
  obligation under capital lease                    18,692        (6,272)        10,505
Net cash provided by operating activities           76,638        51,379         48,584
Cash Flows from Investing Activities
Net cash provided (used) by acquisition activity   (61,439)       17,488        201,483
Proceeds from the sale of securities
  available for sale                                22,985            --          5,015
Proceeds from the maturity or call of securities
  available for sale                               154,445        90,008         61,563
Proceeds from the maturity or call of
  investment securities                             70,032       173,113        211,279
Purchase of securities available for sale          (45,105)      (79,902)       (95,248)
Purchase of investment securities                  (25,678)      (20,350)      (141,318)
Purchase of loans receivable                      (229,342)     (125,894)      (146,162)
Net increase in loans receivable                   (30,157)      (58,002)      (114,205)
Redemption (purchase) of Federal Home Loan
  Bank stock                                         2,912        (1,621)           407
Proceeds from the sale of real estate owned          6,950         5,648          8,624
Capital expenditures                                (6,740)       (9,882)        (6,293)
Net cash used by investing activities             (141,137)       (9,394)       (14,855)
Cash Flows from Financing Activities
Net increase (decrease) in deposits                 20,530        (1,868)       (55,704)
Net increase (decrease) in escrow accounts          (8,465)        1,441          2,969
Net increase (decrease) in short-term borrowed
  funds and repurchase agreements                   17,907       (12,010)        13,300
Proceeds from long-term debt                        30,061            --             --
Redemption of long-term debt                            --        (2,000)        (2,200)
Purchase of treasury stock                         (25,847)      (24,233)       (22,072)
Dividends paid                                      (6,210)       (5,565)        (3,884)
Cash proceeds from the exercise of stock options       404            60            222
Net cash provided (used) by financing activities    28,380       (44,175)       (67,369)
Net decrease in cash and cash equivalents          (36,119)       (2,190)       (33,640)
Cash and cash equivalents at beginning of year     105,002       107,192        140,832
Cash and cash equivalents at end of year         $  68,883       105,002        107,192
Supplemental Disclosures of Cash Flow
  Information
Cash paid during the year:
Interest on deposits, escrows, short-term
  borrowed funds, repurchase agreements and
  long-term debt                                 $ 122,662       104,022         82,055
Income taxes                                        12,804        16,118         18,576
Supplemental schedule of noncash investing and
  financing activities:
Net reduction in loans resulting from transfers
  to real estate owned                               5,941         5,710          8,026
Net unrealized gain (loss) on securities
  available for sale                                (3,098)        7,251         (1,256)
Transfer of investment securities to securities
  available for sale                                    --       492,246         87,793
Transfer of investment securities to other
  assets                                                --            --            353
Transfer of investment securities to commercial
  loans                                                 --            --            175
Tax benefits related to vested BRP stock and
  stock options                                        898           536            457
Acquisition activity:
Fair value of noncash
  assets acquired                                  523,406           712         15,843
Fair value of liabilities assumed                  461,967        18,200        217,326
See accompanying notes to consolidated financial statements.
</TABLE>

                  Notes to Consolidated Financial Statements

ALBANK
FINANCIAL
CORPORATION
AND SUBSIDIARY

1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ALBANK Financial Corporation (the "Holding Company") completed its
initial public offering on April 1, 1992. Simultaneously, the Holding
Company purchased all of the outstanding stock of ALBANK, FSB. To
date, the principal operations of ALBANK Financial Corporation and
subsidiary (the "Company") have been those of the ALBANK, FSB and
subsidiaries (the "Bank").

The accounting and reporting policies of the Company conform in all
material respects to generally accepted accounting principles and
to general practice within the savings bank industry. Management of
the Company has made a number of estimates and assumptions relating
to the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these consolidated financial statements
in conformity with generally accepted accounting principles. Actual
results could differ from those estimates. Certain prior year amounts
have been reclassified to conform to current year classifications.

The following is a description of the more significant policies which
the Company followed in preparing and presenting its consolidated
financial statements.

(A) Basic Presentation

The accompanying consolidated financial statements include the accounts
of the Holding Company, its wholly owned subsidiary, ALBANK, FSB,
and the Bank's wholly owned subsidiaries. Significant intercompany
transactions and balances have been eliminated in consolidation.

(B) Cash Equivalents

For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with original maturities
of three months or less to be cash equivalents.

(C) Restriction on Cash Balances

The Bank was required to retain cash funds of $28,164,000 at December 31, 1996,
and $23,546,000 at December 31, 1995, to satisfy minimum reserve requirements
established by the Federal Reserve Bank of New York.

(D) Securities

Securities are classified at the time of purchase as investment securities,
securities available for sale, or trading account securities. Investment
securities are those securities that management has the positive intent
and ability to hold to maturity and are carried at amortized cost.
Securities available for sale are those that management intends to
hold for an indefinite period of time. Such securities may be sold
in response to changes in interest rates, prepayment risk, liquidity
needs or other similar factors. Securities available for sale are
reported at fair value, with unrealized gains and losses reported,
net of tax, as a separate component of stockholders' equity. If securities
are purchased for the purpose of selling them in the near term, they
are classified as trading securities and are reported at fair value
with unrealized gains and losses reflected in current earnings. The
Company had no trading account securities during the three-year period
ended December 31, 1996.

Any portion of unrealized loss on an individual security deemed to
be other than temporary is recognized as a realized loss in the accounting
period in which such determination is made. Gains and losses on the
sale of securities are determined using the specific identification
method. Discounts and premiums on securities are accreted or amortized
into income using a method which approximates the level-yield method.

(E) Loans Receivable/Allowance for Loan Losses

Loans receivable are stated at unpaid principal amounts, net of unearned
discounts, unamortized premiums and net deferred loan fees/costs.
Discounts, premiums and deferred loan fees/costs on loans are accreted
into or amortized against interest income as appropriate using a method
that approximates the level-yield method over the estimated terms
of the loans.

Loans considered doubtful of collection by management are placed on
nonaccrual status. Generally, nonperforming one- to four-family residential
mortgage loans continue to accrue interest income until a formal summons
and complaint is executed by the Bank, at which time they are placed
on nonaccrual status. Loans other than residential mortgage loans
past due 90 days or more as to principal or interest are placed on
nonaccrual status except for those loans which, in management's judgment,
are adequately secured and for which collection is probable. Generally,
previously accrued income that has not been collected is reversed
from current income, and subsequent cash receipts are applied to reduce
the unpaid principal balance. Amortization of related deferred fees
is suspended when a loan is placed on nonaccrual status.

The Company accounts for impairment of loans in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan--Income Recognition and Disclosure."
These Statements prescribe recognition criteria for loan impairment,
generally related to commercial type loans. The statements also prescribe
measurement methods for certain impaired loans as well as all loans
whose terms are modified in troubled debt restructurings. A loan is
considered impaired when collection of principal and interest is doubtful,
and there is insufficient collateral or other repayment resources
available to repay the principal balance of the loan along with all
interest that would accrue until the loan is fully satisfied.

The Company generally places impaired loans on nonaccrual status and
recognizes interest income on such loans only on a cash basis upon
receipt of interest payments from the borrower. In some instances,
all moneys received from the borrower, or from the proceeds of collateral,
are applied directly to reduce the principal balance of the loan,
and no interest income is recognized until the principal balance of
the impaired loan is paid in full or is no longer considered impaired.

The Bank maintains a valuation allowance for losses on loans for estimable
and probable future losses. The allowance for loan losses is maintained
at a level deemed appropriate by management to adequately provide
for known and inherent risks in the present portfolio. The determination
of the amount of the allowance includes estimates that are susceptible
to significant changes due to changes in appraised values of collateral
and general economic conditions. In connection with such determination
concerning collateral, management obtains independent appraisals for
significant properties. While management uses available information
to recognize future losses on loans, future additions to the allowance
may be necessary based on changes in relevant facts and circumstances
including changes in general economic conditions. In addition, various
regulatory agencies as an integral part of their examination process
periodically review the Bank's allowance for loan losses. Such agencies
may require the Bank to recognize additions to the allowance based
on their judgments of information available to them at the time of
their examinations.

(F) Originated Mortgage Servicing Rights

In May 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 122, "Accounting for Mortgage Servicing Rights," which amends
SFAS No. 65, "Accounting for Certain Mortgage Banking Activities."
SFAS No. 122 requires that entities recognize as separate assets,
the rights to service mortgage loans for others, regardless of how
those servicing rights are acquired. Additionally, SFAS No. 122 requires
that the capitalized mortgage servicing rights be assessed for impairment
based on the fair value of those rights, and that impairment, if any,
be recognized through a valuation allowance. The Company adopted SFAS
No. 122 in the first quarter of 1996. The adoption of SFAS No. 122
resulted in increased gains recognized on the sale of mortgage loans
when the servicing rights are retained, offset by the amortization
of the capitalized mortgage servicing rights. The adoption of SFAS
No. 122 did not have a material effect on the Company's consolidated
financial statements.

(G) Real Estate Owned

It is the Company's policy to include in real estate owned all assets
received from loan foreclosure and loans deemed to be in-substance
foreclosures. A loan is considered an in-substance foreclosure when
the Company has taken possession of the collateral regardless of whether
formal foreclosure proceedings have taken place.

Real estate owned is recorded on an individual asset basis at net
realizable value which is the lower of (1) fair value minus estimated
costs to sell or (2) "cost" (defined as the fair value at initial
foreclosure). When a property is acquired, any excess of the loan
balance over fair value is charged to the allowance for loan losses.
Subsequent write-downs to carry the property at net realizable value
are included in other noninterest expense.

(H) Office Premises and Equipment

Office premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization of premises
and equipment are computed primarily using the straight-line method
over the estimated useful life of the respective asset. Useful lives
vary between 20 and 50 years for banking facilities and between 3
and 15 years for furniture, fixtures, and equipment. Amortization
of capital leases and leasehold improvements is computed on the straight-line
method over the lesser of the term of the lease or the useful life
of the property.

(I) Goodwill

In acquisitions accounted for as a purchase, goodwill results when
the consideration paid exceeds the fair value of net assets acquired.
Goodwill resulting from acquisition activity by the Company is being
amortized using the straight-line method generally over 15 years.

(J) Income Taxes

Deferred income taxes arise from the recognition of certain items
of income and expense for tax purposes in years different from those
in which they are recognized in the consolidated financial statements.
The Company records deferred tax assets and liabilities for the temporary
differences between the financial reporting basis and the tax basis
of the Company's assets and liabilities at enacted tax rates expected
to be in effect when such amounts are realized or settled. To the
extent that current available evidence about the future raises doubt
about the realization of a deferred tax asset, a valuation allowance
is established.

(K) Treasury Stock

Repurchases of common stock are accounted for under the cost method,
whereby shares repurchased are recorded in a contra-equity account.

(L) Stock Option Plan

Prior to January 1, 1996, the Company accounted for its stock option
plans in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations. As such, compensation expense would be
recorded on the date of grant only if the then current market price
of the underlying stock exceeded the exercise price. On January 1,
1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," with respect to employee stock options granted subsequent
to 1994. As such, the Company has adopted the provision of SFAS No.
123 whereby it will continue to apply the provisions of APB Opinion
No. 25 in its financial statements and supplementally provide in its
footnotes to financial statements pro forma net income and proforma
earnings per share disclosures as if the fair value based method of
valuing options defined in SFAS No. 123 had been applied.

(M) Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities

In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities."
SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December
31, 1996, and is to be applied prospectively. This Statement provides
accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control.
It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS No. 125 is effective for
transfers and servicing of assets and extinguishments of liabilities
occurring after December 31, 1996, and will supersede SFAS No. 122.
Certain aspects of SFAS No. 125 were amended by SFAS No. 127, "Deferral
of the Effective Date of Certain Provisions of FASB Statement No.
125." Management believes the adoption of SFAS No. 125 will not have
a material impact on the Company's consolidated financial statements.

(N) Earnings Per Share

Earnings per share are calculated by dividing net income by the weighted
average number of common shares and common stock equivalents outstanding
for the respective period, retroactively adjusted to give effect to
the declaration of stock dividends. Stock options are regarded as
common stock equivalents and are therefore considered in the earnings
per share calculations if dilutive. Common stock equivalents are computed
using the treasury stock method. The weighted average common stock
equivalents utilized for primary earnings per share were 14,259,059,
15,112,284 and 16,130,677 for 1996, 1995, and 1994, respectively.
The weighted average common stock equivalents utilized for fully diluted
earnings per share were 14,322,166, 15,161,602 and 16,149,694 for
1996, 1995, and 1994, respectively.

2.

RESTRICTIONS ON STOCKHOLDERS' EQUITY

As part of its conversion to a stock form savings bank, the Bank established
a liquidation account for the benefit of eligible depositors who continue
to maintain their deposit accounts in the Bank after conversion. In
the unlikely event of a complete liquidation of the Bank, each eligible
depositor will be entitled to receive a liquidation distribution from
the liquidation account, in the proportionate amount of the then current
adjusted balance for deposit accounts held, before distribution may
be made with respect to the Bank's capital stock. The Bank may not
declare or pay a cash dividend to the Holding Company on, or repurchase
any of, its capital stock if the effect thereof would cause the retained
earnings of the Bank to be reduced below the amount required for the
liquidation account. Except for such restrictions, the existence of
the liquidation account does not restrict the use or application of
retained earnings.

The Bank's capital exceeds all capital regulatory requirements. The
Office of Thrift Supervision (the "OTS") regulations provide that
an institution that exceeds all capital requirements before and after
a proposed capital distribution could, after prior notice to but without
the approval of the OTS, make capital distributions during the calendar
year of an amount that would reduce by one half its "excess capital
ratio" plus its net income for the current calendar year. Under such
limitation, the Bank could declare dividends to the Holding Company
in 1997 of approximately $43 million plus an amount equal to 1997
earnings.

3.

ACQUISITIONS

On January 3, 1996, the Bank acquired all of the outstanding common
stock of Marble Financial Corporation of Rutland, Vermont for $18.00
per share in cash or approximately $61 million in total consideration.
On the date of closing, Marble Financial and its banking subsidiary
Marble Bank had consolidated assets and deposits of approximately
$396 million and $327 million, respectively. The transaction, which
was accounted for under the purchase method of accounting, generated
accounting goodwill of $20.1 million which is being amortized over
15 years.

On September 27, 1996, the Company assumed the deposit liabilities
and purchased loans owned and serviced by six banking offices formerly
operated by the Green Mountain Bank of Rutland, Vermont, a wholly
owned subsidiary of Arrow Financial Corporation. The acquisition included
$107.7 million in deposits and loans with a net book value of $108.4
million. This acquisition, which was accounted for under the purchase
method of accounting, generated goodwill amounting to $8.2 million
which is being amortized over a period of 15 years. The Rutland banking
office of Green Mountain was consolidated with the existing Rutland
banking office acquired from Marble. The remaining Green Mountain
banking offices together with the seven former Marble banking offices
are currently operating as the Bank's Marble division.

On a pro forma basis, certain historical financial information for
the Company adjusted for the acquisition of Marble Financial Corporation
and calculated for the year ended December 31, 1995, as if such acquisition
had been consummated on January 1, 1995, follows: net interest income,
$120.4 million; net income, $29.7 million; and $1.96 for both primary
and fully diluted earnings per share.

Subsequent Event (Unaudited)

On January 30, 1997, the Company entered into a purchase agreement
with KeyCorp. Under the terms of the agreement, the Company will assume
deposit liabilities of approximately $530 million and purchase 35
New York State banking offices currently operated by KeyBank. The
offices are located in northern New York, the greater Hudson Valley,
and the Binghamton area. The Company will pay a deposit premium of
approximately 7% based on average deposit balances just prior to closing
and has the option to purchase $53 million in small business, consumer,
and mortgage loans. The agreement is subject to approval by bank regulatory
authorities. Pending those approvals, the two companies will move
to close the sale in mid-1997.

4.

SECURITIES

The amortized cost and estimated market value of investment securities
are as follows:

<TABLE>
<CAPTION>
                                                                          Gross               Gross
                                                                          Unrealized          Unrealized          Estimated
(In thousands)                December 31, 1996       Amortized Cost      Gains               Losses              Market Value

<S>                                                   <C>                 <C>                 <C>                 <C>

U.S. Government obligations                           $   1,744                   9                  (6)              1,747

U.S. Government agency obligations                       25,140                 129                  --              25,269

Mortgage-backed securities                               25,082               1,456                  (5)             26,533

Corporate bonds                                             219                  --                  --                 219

Collateralized mortgage obligation and
  real estate mortgage investment conduit securities     34,587                  21                (248)             34,360

Asset-backed securities                                  21,532                 141                 (48)             21,625

Other debt securities                                     1,303                  35                  --               1,338

Total                                                 $ 109,607               1,791                (307)            111,091

</TABLE>

<TABLE>
<CAPTION>

                                                                          Gross               Gross
                                                                          Unrealized          Unrealized          Estimated
(In thousands)                     December 31, 1995   Amortized Cost     Gains               Losses              Market Value

<S>                                                    <C>                <C>                 <C>                 <C>

U.S. Government obligations                            $   1,592                 35                  --                 1,627

U.S. Government agency obligations                        20,393                174                  --                20,567

Mortgage-backed securities                                31,030              1,957                  --                32,987

Collateralized mortgage obligation and
  real estate mortgage investment conduit securities      55,446                241                (341)               55,346

Asset-backed securities                                   43,540                159                (151)               43,548

Other debt securities                                      1,739                 54                  (6)                1,787

Total                                                  $ 153,740              2,620                (498)              155,862

</TABLE>

There were no sales of investment securities in the three year period
ended December 31, 1996. Gross gains and losses recorded on calls
and writedowns of investment securities were as follows:

<TABLE>
<CAPTION>

(In thousands)                         Years Ended December 31,      1996      1995        1994

<S>                                                                  <C>       <C>         <C>

Gross gains recognized                                               $ 3            1      14

Gross losses recognized                                               --       (1,199)     --

Total                                                                $ 3       (1,198)     14

</TABLE>

The contractual maturity schedule of investment securities at amortized
cost and estimated market value is as follows:

<TABLE>
<CAPTION>

                                                                                         Estimated
(In thousands)                         December 31, 1996             Amortized Cost      Market Value

<S>                                                                  <C>                 <C>

Within 1 year                                                        $   7,432               7,527

After 1 year through 5 years                                            49,035              49,209

After 5 years through 10 years                                          10,380              10,477

After 10 years                                                          42,760              43,878

Total                                                                $ 109,607             111,091

</TABLE>

In the foregoing table and the contractual maturity table of securities
available for sale on the following page, maturities of mortgage-backed
securities, collateralized mortgage obligation securities, real estate
mortgage investment conduit securities and asset-backed securities
are based on the maturity of the final scheduled payment. Such securities,
which comprise most of the balances shown as maturing beyond five
years, generally amortize on a regular basis, predominantly monthly,
and are subject to prepayment. Taking into account such contractual
amortization and expected prepayments, a significant amount of principal
reduction on the aforementioned securities will occur within five
years.

In November 1995, the FASB released its Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities." The Special Report contained a unique
provision that, as of one date between November 15, 1995, and December
31, 1995, allowed entities to assess the appropriateness of the
classifications of all securities held at that time. In conjunction with
the provisions of this Special Report, as of December 29, 1995, the
Company transferred investment securities with a book value of
$492.3 million and a market value of $491.9 million to securities
available for sale.

The amortized cost and estimated market value of securities available
for sale are as follows:

<TABLE>
<CAPTION>

                                                                          Gross               Gross
                                                                          Unrealized          Unrealized          Estimated
(In thousands)                     December 31, 1996  Amortized Cost      Gains               Losses              Market Value

<S>                                                   <C>                 <C>                 <C>                 <C>

U.S. Government obligations                           $  75,910                 604                (252)             76,262

U.S. Government agency obligations                        6,032                  24                 (42)              6,014

Mortgage-backed securities                              200,870               1,407              (2,235)            200,042

Corporate bonds                                         282,867               1,862                (869)            283,860

Collateralized mortgage obligation and
  real estate mortgage investment conduit securities     19,443                  --                (392)             19,051

Asset-backed securities                                  23,093                  94                 (31)             23,156

Equity securities                                         6,832               2,732                  (6)              9,558

Total                                                 $ 615,047               6,723              (3,827)            617,943

</TABLE>

<TABLE>
<CAPTION>

                                                                          Gross               Gross
                                                                          Unrealized          Unrealized          Estimated
(In thousands)                     December 31, 1995  Amortized Cost      Gains               Losses              Market Value

<S>                                                   <C>                 <C>                 <C>                 <C>

U.S. Government obligations                           $ 120,980               1,602                 (96)            122,486

Mortgage-backed securities                              122,952                 562              (1,072)            122,442

Corporate bonds                                         352,727               4,213                (461)            356,479

Collateralized mortgage obligation and
  real estate mortgage investment conduit securities     25,322                  41                (269)             25,094

Asset-backed securities                                  24,043                 178                 (20)             24,201

Equity securities                                         4,766               1,329                 (13)              6,082

Total                                                 $ 650,790               7,925              (1,931)            656,784

</TABLE>

Proceeds from the sale of securities available for sale in 1996, 1995
and 1994 amounted to $22,985,000, $0, and $5,015,000, respectively.
In 1996, gains and losses amounted to $11,198 and $6,575, respectively.
There were no gains or losses in 1995 or 1994.

The contractual maturity schedule of securities available for sale
(exclusive of equity securities) at amortized cost and estimated market
value is as follows:

<TABLE>
<CAPTION>

                                                                                         Estimated
(In thousands)                         December 31, 1996             Amortized Cost      Market Value

<S>                                                                  <C>                 <C>

Within 1 year                                                        $ 191,060           190,987

After 1 year through 5 years                                           269,831           270,066

After 5 years through 10 years                                          56,055            56,206

After 10 years                                                          91,269            91,126

Total                                                                $ 608,215           608,385

</TABLE>

The book value of securities pledged as required by law and for other
purposes amounted to $107.2 million and $3.8 million at December 31, 1996 
and 1995, respectively. The increase in such securities in 1996
was primarily used to secure municipal deposits located in the state
of Vermont.

The Bank has entered into an agreement to loan certain securities
to investment brokers for which the Bank receives a fee. The total
book value of securities loaned to brokers under this agreement was
approximately $67.0 million and $75.7 million at December 31, 1996
and 1995, respectively.

5.

ACCRUED INTEREST RECEIVABLE

Accrued interest receivable consists of the following:

<TABLE>
<CAPTION>

 (In thousands)                    December 31,        1996           1995

<S>                                                   <C>            <C>

Loans                                                 $ 18,223       15,151

Securities available for sale                            7,669        9,368

Investment securities                                      989        1,269

Other earning assets                                       211          563

Total                                                 $ 27,092       26,351

</TABLE>

6.

LOANS RECEIVABLE

Loans receivable consist of the following:

<TABLE>
<CAPTION>

(In thousands)                    December 31,        1996                1995

<S>                                                   <C>                 <C>

Mortgage Loans
One- to four-family                                   $ 1,730,059         1,362,277

Home equity                                               169,214           147,136

Commercial real estate                                    135,284            81,448

Multi-family                                               31,792            28,313

Construction                                               13,338            11,577

Total                                                   2,079,687         1,630,751

Other Loans
Commercial                                                247,783           115,698

Student                                                    94,478            93,816

Personal, secured and unsecured                            84,308            52,627

Home improvement                                           23,593            22,800

Credit cards                                               14,754            17,233

Overdraft and other                                        16,222            12,065

Total                                                     481,138           314,239

Total loans receivable                                  2,560,825         1,944,990

Net discounts, premiums and
  deferred loan fees and costs                              5,539             1,611

Loans receivable                                      $ 2,566,364         1,946,601

</TABLE>

Real estate mortgage loans serviced by the Bank for other institutions
of approximately $289.7 million and $138.2 million at December 31, 1996 
and 1995, respectively, are not included in loans receivable.

Nonperforming loans are as follows:

<TABLE>
<CAPTION>

(In thousands)                     December 31,       1996           1995           1994

<S>                                                   <C>            <C>            <C>

Mortgage Loans
Nonaccrual                                            $ 15,298       12,571         10,231

Delinquent more than 90 days and still accruing          7,367        5,567          5,104

Total nonperforming mortgage loans                      22,665       18,138         15,335

Other Loans
Nonaccrual                                               3,933          372            424

Delinquent more than 90 days and still accruing          3,218        4,646          4,544

Total nonperforming other loans                          7,151        5,018          4,968

Total nonperforming loans                             $ 29,816       23,156         20,303

</TABLE>

Assuming all nonaccrual loans had been current, the amounts of interest
income recorded on such loans during the years ended December 31, 1996,
1995 and 1994, based on such loans' original rates of interest,
would have totaled $1.7 million, $1.0 million and $0.9 million, respectively.
The amounts included in interest income recorded in these periods
with respect to such loans were $320,000, $295,000 and $290,000, respectively.
The Bank has no commitments to extend further credit on nonaccrual
loans.

Certain directors and executive officers of the Company, as well as
certain affiliates of directors, were customers of and had other transactions
with the Company in the ordinary course of the Company's business.
Loans to these parties were made in the ordinary course of business
at the Company's normal credit terms, including interest rate and
collateralization. The aggregate of such loans totaled $463,000 and
$894,000 at December 31, 1996 and 1995, respectively. Total advances
to these directors and executive officers during the year ended 
December 31, 1996, were $152,000. Total payments made on these loans 
were $583,000.

7.

ALLOWANCE FOR LOAN LOSSES

Changes in the allowance for loan losses were as follows:

<TABLE>
<CAPTION>

(In thousands)         Years Ended December 31,          1996          1995          1994

<S>                                                      <C>           <C>           <C>

Balance, beginning of year                               $ 15,949      15,510        12,984

Allowance of acquired banks                                11,310          --           151

Provision charged to operations                             5,775       4,500         4,500

Loans charged-off                                          (9,648)     (4,421)       (3,011)

Recoveries of loans previously charged-off                    728         360           886

Balance, end of year                                     $ 24,114      15,949        15,510

</TABLE>

Of the total loans charged-off in 1996, $4.1 million was related to
a sale of a group of one- to four-family nonperforming loans consummated
during the fourth quarter of 1996.

8.

ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN

The allowance for loan losses related to impaired loans is based on
discounted cash flows using the loan's initial effective interest
rate or the fair value of the collateral for certain loans where repayment
of the loan is expected to be provided solely by the underlying collateral
(collateral dependent loans). Impaired loans at December 31, 1996
and 1995, were generally collateral dependent. The Company considers
estimated costs to sell, on a discounted basis, when determining the
fair value of collateral in the measurement of impairment if those
costs are expected to reduce the cash flows available to repay or
otherwise satisfy the loans.

At December 31, 1996 and 1995, the recorded investment in loans that
were considered to be impaired under SFAS No. 114 totaled $4,358,000
and $948,000, respectively. Restructured loans included in the foregoing
impaired loan balances amounted to $320,000 and $398,000 at the respective
year-end dates. The allowance for loan losses allocated to impaired
loans at December 31, 1996 and 1995, was $1,375,000 and $390,000,
respectively. Included in the total impaired loans at December 31, 1995,
were $106,000 of impaired loans that as a result of charge-offs
of $75,000 did not have an allowance for loan losses determined in
accordance with SFAS No. 114. The average recorded investment in impaired
loans during the twelve months ended December 31, 1996 and 1995, was
approximately $3,560,000 and $1,433,000, respectively.

Impaired loans are included in nonperforming loans generally as nonaccrual
loans. Commercial type loans past due greater than 90 days and still
accruing are generally not considered to be impaired as the Company
expects to collect all amounts due, including interest accrued at
the contractual interest rate for the delinquent period. As of December
31, 1996, the balance of loans restructured prior to the adoption
of SFAS No. 114 amounted to $742,000; such loans were not considered
impaired.

For the years ended December 31, 1996 and 1995, the Company recognized
no interest income on impaired loans.

9.

REAL ESTATE OWNED

A summary of real estate acquired through foreclosure follows:

<TABLE>
<CAPTION>

(In thousands)               December 31,     1996         1995

<S>                                           <C>          <C>

Residential (1-4 family)                      $ 2,750      3,760

Commercial properties                           1,262        139

Total                                         $ 4,012      3,899

</TABLE>

10.

DEPOSITS

A summary of depositors' balances is as follows:

<TABLE>
<CAPTION>

(Dollars in thousands)     December 31,                          1996                                 1995
                                                                 Weighted                             Weighted
                                                Amount           Average Rate         Amount          Average Rate

<S>                                             <C>              <C>                  <C>             <C>

Passbook and statement accounts                 $   824,151      2.94%                $   826,875     2.96%

Certificate accounts:

  2.01% to 3.00%                                      9,215                                 4,626

  3.01% to 4.00%                                     11,908                                16,384

  4.01% to 5.00%                                    411,986                               237,755

  5.01% to 6.00%                                    967,800                               630,827

  6.01% to 7.00%                                    110,113                               348,158

  7.01% to 8.00%                                     69,572                                61,070

  8.01% to 9.00%                                      3,196                                 9,502

  9.01% to 10.00%                                        --                                   414

  10.01% to 11.00%                                      135                                   122

Total certificate accounts                        1,583,925      5.37                   1,308,858     5.64

Money market accounts                               260,521      3.14                     157,056     2.74

Super NOW accounts                                   27,908      1.82                      10,139     1.09

NOW accounts                                        195,479      1.02                     181,022     1.00

Commercial demand deposit accounts
  from 0% to 2.47% in 1996 and 0%
  to 1.50% in 1995                                   74,238      0.29                      45,113     0.05

Demand deposit accounts                              46,907        --                      29,225       --

Total                                           $ 3,013,129      3.99%                $ 2,558,288     4.09%

</TABLE>

At December 31, 1996 and 1995, the aggregate amounts of certificate
accounts with balances equal to or in excess of $100,000 were approximately
$174.5 million and $91.0 million, respectively.

The approximate amount of contractual maturities of certificate accounts
for the years subsequent to December 31, 1996, is as follows:

<TABLE>
<CAPTION>

(In thousands)                         Amount

<S>                                    <C>

1997                                   $ 1,114,101

1998                                       225,080

1999                                       192,220

2000                                        33,703

2001                                        10,971

Thereafter                                   7,850

Total                                  $ 1,583,925

</TABLE>

Components of interest expense on deposits and escrow accounts are
detailed as follows:

<TABLE>
<CAPTION>

(In thousands)     Years Ended December 31,     1996            1995          1994

<S>                                             <C>             <C>           <C>

Passbook and statement accounts                 $  24,773       25,870        30,057

Certificate accounts                               82,734       70,341        44,027

Money market accounts                               9,320        4,346         3,124

Super NOW and NOW accounts                          2,499        2,557         3,093

Commercial demand deposit accounts                     79           22            21

Escrow accounts                                       601          674           565

Total                                           $ 120,006      103,810         80,887

</TABLE>

11.

SHORT-TERM BORROWED FUNDS AND REPURCHASE AGREEMENTS

Short-term borrowed funds and repurchase agreements, consisting of
advances with maturities of less than one year are as follows:

<TABLE>
<CAPTION>

(Dollars in thousands)          December 31,     Interest Rate         1996             1995

<S>                                              <C>                   <C>              <C>

Federal Home Loan Bank advances                           5.38%        $     --         1,290

                                                 6.88% to 7.38%          36,000            --

Repurchase agreements                                     4.00%           4,796            --

Other short-term borrowings                               6.00%           1,550            --

Total                                                                  $ 42,346         1,290

</TABLE>

Repurchase agreements are accounted for as borrowings and are secured
by certain mortgage-backed and other qualifying securities. Short-term
Federal Home Loan Bank advances are made pursuant to several different
credit programs, each of which has its own interest rate and range
of maturities, and are collateralized by Federal Home Loan Bank stock
and real estate mortgages.

12.

LONG-TERM DEBT

Long-term debt, consisting of advances from the Federal Home Loan
Bank with maturities of one year or more is as follows:

<TABLE>
<CAPTION>

(Dollars in thousands)          December 31,     Interest Rate     1996         1995

<S>                                              <C>               <C>          <C>

Year of Maturity

1997                                             5.40%             $ 10,000     --

1998                                             5.41%               10,000     --

1999                                             5.52%               10,000     --

2016                                             7.47%                   61     --

Total                                                              $ 30,061     --

</TABLE>

Long-term Federal Home Loan Bank advances are collateralized by Federal
Home Loan Bank stock and real estate mortgages.

13.

OFFICE PREMISES AND EQUIPMENT

A summary of office premises and equipment follows:

<TABLE>
<CAPTION>

(In thousands)               December 31,               1996          1995

<S>                                                     <C>           <C>

Banking house, land and land improvements               $ 37,975      30,607

Leasehold improvements                                     9,010       9,206

Furniture, fixtures and equipment                         35,488      30,118

Capitalized lease                                          5,775       5,775

                                                          88,248      75,706

Less: accumulated depreciation and amortization           39,694      35,051

Total                                                   $ 48,554      40,655

</TABLE>

Amounts charged to expense for depreciation and amortization aggregated
$5,385,000, $3,962,000 and $3,429,000 for the years ended December
31, 1996, 1995 and 1994, respectively.

14.

INCOME TAXES

Income tax expense consists of the following:

<TABLE>
<CAPTION>

(In thousands)     Years Ended December 31,    1996         1995       1994

<S>                                            <C>          <C>        <C>

Current tax expense:

Federal                                        $ 10,860     15,648     14,347

State                                             2,835      3,626      4,864

                                                 13,695     19,274     19,211

Deferred tax expense (benefit)                    1,815       (926)       687

Total                                          $ 15,510     18,348     19,898

</TABLE>

The income tax provisions are higher than the statutory federal income
tax rate. The reasons for the differences are as follows:

<TABLE>
<CAPTION>

Years Ended December 31,             1996                   1995                    1994
                                                  % of                    % of                      % of
                                                  Pretax                  Pretax                    Pretax
(Dollars in thousands)               Amount       Income    Amount        Income    Amount          Income

<S>                                  <C>          <C>       <C>           <C>       <C>             <C>

Federal income tax at 35%            $ 14,601     35.0%     $ 16,671      35.0%     $ 16,965        35.0%

Tax-exempt income and 
  dividend received deduction            (272)    (0.7)         (178)     (0.4)         (122)       (0.3)

State income taxes, net of
  federal tax benefit                   1,843      4.4         2,357       4.9         3,162         6.5

Other                                    (662)    (1.5)         (502)     (1.0)         (107)       (0.2)

Total                                $ 15,510     37.2%     $ 18,348      38.5%     $ 19,898        41.0%

</TABLE>

Prior to 1996, the Bank was allowed to claim a special bad debt deduction
in excess of its actual loss experience; such special deduction was
not subject to deferred tax allocation prior to 1988 in accordance
with SFAS No. 109. Accordingly, no deferred tax liability has been
recorded for the tax bad debt reserve at December 31, 1987 (the "base
year reserve"). The pre-1988 tax bad debt reserve, which was approximately
$27.3 million at December 31, 1996, will not be subject to tax as
long as the Bank does not redeem stock or distribute amounts to the
Company in excess of historical tax earnings.

As a result of tax legislation passed by Congress in 1996, the Bank
is no longer eligible to claim the special bad debt deduction for
federal income tax purposes. The total federal tax bad debt reserve,
aggregating approximately $33.5 million at December 31, 1995, exceeds
the base year reserve by approximately $6.2 million (the "excess reserve").
The excess reserve is to be recaptured as taxable income over a defined
number of years. The Company had previously established a deferred
tax liability for this excess reserve such that there is no impact
on total tax expense for the Company for 1996 or any future year based
on current tax rates.

Significant net temporary differences and carryforwards that give
rise to net deferred tax assets are as follows:

<TABLE>
<CAPTION>

(In thousands)               December 31,      1996           1995

<S>                                            <C>            <C>

Allowance for loan losses                      $ 6,279        5,000

Net operating loss carryforwards                   247          389

Employee benefit plans                           5,589        5,153

Net deferred fees on loans                      (1,225)        (329)

Prepaid expenses                                (1,907)      (1,826)

Accrued expenses                                 1,246          987

Unrealized gain on securities
  available for sale                            (1,115)      (2,466)

Other items                                        (92)        (161)

                                                 9,022        6,747

Valuation reserve                               (1,689)      (2,150)

Net deferred tax asset--at year end              7,333        4,597

Less: net deferred tax asset--
  at beginning of year                           4,597        6,657

Decrease (increase) in deferred
  tax asset                                     (2,736)       2,060

Change in temporary difference
  for unrealized gain on
  securities available for sale                  1,351       (2,986)

Deferred tax asset acquired                      3,200           --

Deferred tax expense (benefit)
  for the years ended                          $ 1,815         (926)

</TABLE>

The Company established valuation reserves at December 31, 1996 and
1995, based on an evaluation of the Company's historical levels of
taxable income in prior years and the anticipated time period for
the reversal of the items giving rise to the deferred tax asset. Management
believes that it is more likely than not that the results of future
operations of the Company will generate sufficient taxable income
to realize the net deferred tax asset as of December 31, 1996. At
December 31, 1996, the Company has a net operating loss carryforward
of $705,000 available to offset future taxable income. Such carrryforward
expires in 2004.

15.

RETIREMENT PLANS

The Company maintains a noncontributory defined benefit pension plan
covering substantially all employees 21 years of age or older who
have completed at least one year of service. 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 a consulting actuary as necessary to avoid
an accumulated funding deficiency as defined by the Employee Retirement
Income Security Act of 1974. Contributions are intended to provide
for benefits attributed to service to date and for those expected
to be earned in the future. Assets of the plan are primarily invested
in pooled equity funds and fixed income funds.

The following table sets forth the plan's funded status and amounts
recognized in the consolidated financial statements at or for the
years ended December 31, 1996 and 1995:

<TABLE>
<CAPTION>

(In thousands)               December 31,      1996            1995

<S>                                            <C>             <C>

Accumulated benefit obligation,
  including vested benefits of $21,081
  in 1996 and $21,434 in 1995                  $ (23,488)      (23,267)

Projected benefit obligation for
  service rendered to date                     $ (30,379)      (28,589)

Plan assets at fair value                         33,261        30,097

Plan assets greater than projected
  benefit obligation                               2,882         1,508

Unrecognized net loss from past
  experience different from that
  assumed and effects and changes
  in assumptions                                     359         1,987

Unrecognized prior service cost                      758           816

Unrecognized net asset at July 1, 1987,
  being recognized over a weighted
  average period of 13 years                        (879)       (1,077)

Prepaid pension asset                          $   3,120         3,234

</TABLE>

Net periodic pension cost includes the following components:

<TABLE>
<CAPTION>

 (In thousands)     Years Ended December 31,       1996           1995           1994

<S>                                                <C>            <C>            <C>

Service cost--benefits earned
  during the year                                  $   820           561            794

Interest cost on projected
  benefit obligation                                 2,119         1,959          1,921

Actual return on plan assets                        (4,245)       (5,196)           (17)

Net amortization and deferral                        1,652         2,994         (1,928)

Net periodic pension cost                          $   346           318            770

</TABLE>

Significant assumptions used in the accounting for the plan were:

<TABLE>
<CAPTION>

 (In percentages)     As of December 31,           1996           1995           1994
<S>                                                <C>            <C>            <C>

Settlement rate                                    7.50%          7.50           8.50

Expected long-term rate of return
  on plan assets                                   8.50           8.50           8.50

Salary increase rate                               5.00           5.00           4.50

</TABLE>

The Company also has a directors' retirement plan which was amended
to freeze participation in the plan to directors who were participants
in the plan on January 1, 1992. The directors' retirement plan, which
is unfunded, provides a benefit of $500 for each quarter of service
not to exceed 40 quarters or a total annual maximum pension payment
of $20,000. The amount of pension liability recorded on the books
of the Company related to the directors' retirement plan was $2.4
million and $2.0 million at December 31, 1996 and 1995, respectively.
Net periodic pension costs for this plan for the years ended 
December 31, 1996, 1995 and 1994, were $248,000, $284,000 and $348,000, 
respectively. Settlement rates used in accounting for the plan were 7.50%, 
7.50% and 8.50% as of December 31, 1996, 1995 and 1994, respectively.

The Company also has supplemental retirement contracts with certain
key executives. The amount of pension liability recorded on the books
of the Company related to these supplemental retirement contracts
was $1.0 million and $0.7 million at December 31, 1996 and 1995, respectively.
Net periodic pension costs in connection with these contracts for
the years ended December 31, 1996, 1995 and 1994 were $238,700, $173,300
and $116,200, respectively. Settlement rates used in accounting for
the plan were 7.50%, 7.50% and 8.50% as of December 31, 1996, 1995
and 1994, respectively.

16.

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The Company sponsors a defined benefit postretirement medical plan
that covers all of its full-time employees who have retired from the
Bank and attained age 55 with 15 years of service. Retired employees
contribute towards these benefits for themselves and their spouses
based on age and service at retirement. The Company also sponsors
an employer paid postretirement life insurance plan which covers all
employees who have retired from the Bank and attained 15 years of
service.

The following table sets forth the plan's funded status and amounts
recognized in the consolidated financial statements:

<TABLE>
<CAPTION>

(In thousands)          December 31,             1996          1995

<S>                                              <C>           <C>

Accumulated postretirement
  benefit obligation:

Retired employees                                $ (5,586)     (4,981)

Active employees                                   (2,520)     (1,720)

Unfunded postretirement benefit obligation         (8,106)     (6,701)

Unrecognized net loss (gain) resulting
  from past experience different from that
  assumed and changes in assumptions                  521        (479)

Accrued postretirement benefit liability         $ (7,585)     (7,180)

</TABLE>

Net periodic postretirement benefit cost included the following components:

<TABLE>
<CAPTION>

(In thousands)     Years Ended December 31,         1996       1995       1994

<S>                                                 <C>        <C>        <C>

Service cost--benefits earned
  during the year                                   $ 169       81         83

Interest cost                                         580      474        453

Net amortization and deferral                           6      (56)        --

Net periodic postretirement benefit cost            $ 755      499        536

</TABLE>

For measurement purposes, an 8.5% annual rate of increase in the per
capita cost of covered health care benefits was assumed for fiscal
1997; the rate was assumed to decrease gradually down to 5.5% for
fiscal 2003 and remain at that level thereafter. The healthcare cost
trend rate assumption has a significant effect on the amounts reported.
To illustrate, increasing the assumed health care cost trend rate
one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1996, by $712,000 (9%) 
and the aggregate of the service and interest cost components of the net 
periodic postretirement benefit cost for fiscal 1996 by $52,400 (7%). The 
weighted average discount rates used in determining the accumulated 
postretirement benefit obligation were 7.50%, 7.25% and 8.50% as of 
December 31, 1996, 1995 and 1994, respectively.

17.

STOCK BENEFIT PLANS

At December 31, 1996, the Company had several stock-based compensation
plans, which are described below. As allowed by SFAS No. 123, the
Company has continued to apply APB Opinion No. 25 and related interpretations
in accounting for its plans. Accordingly, no compensation cost has
been recognized for its fixed stock option plans. Alternatively, had
compensation cost for the Company's stock-based compensation plans
been determined consistent with the fair value based method outlined
in SFAS No. 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>

(In thousands, except per share data)       Years Ended December 31,     1996          1995

<S>                                                                      <C>           <C>

Net income:

  as reported                                                            $ 26,207      29,283

  pro-forma                                                                25,822      29,236

Primary earnings per share:

  as reported                                                                1.84        1.94

  pro-forma                                                                  1.81        1.93

Fully dilurted earnings per share:

  as reported                                                                1.83        1.93

  proforma                                                                   1.80        1.93

</TABLE>

Under the 1992 Incentive Stock Option Plan as amended, the Company
may grant up to 1,674,500 shares to senior officers. Under this plan,
the exercise price of each option equals the market price of the Company
stock on the date of grant. Options granted before December 18, 1995,
become exercisable on a cumulative basis in equal installments at
a rate of one-fifth per year commencing one year from the date of
grant; however, all options become 100% exercisable in the event the
employee's employment is terminated due to death, disability or in
the event of a change in control of the Bank or the Company. Options
granted on or after December 18, 1995, become exercisable on a cumulative
basis in equal installments at a rate of one-third per year commencing
one year from the date of grant. All options granted under the 1992
Incentive Stock Option Plan as amended give rise to a "limited right"
with respect to the shares covered by the options. Limited rights
granted are subject to certain terms and conditions and can be exercised
only in the event of a change in control of the Company. Upon exercise
of a limited right, the holder shall receive from the Company a cash
payment equal to the difference between the exercise price of the
option and the fair market value of the underlying shares of the Company's
common stock. All options granted under the 1992 Incentive Stock Option
Plan as amended, including limited rights, expire ten years following
the date of grant.

Under the 1992 Directors' Option Plan, the Company granted to directors
who were not officers or employees of the Company options to acquire
330,000 shares. Under this plan, the exercise price of each option
equals the market price of the Company stock on the date of grant
with limited rights. Options are exercisable by a director on a cumulative
basis in equal installments at the rate of one-fifth per year commencing
one year from the date of grant; however, all options become 100%
exercisable in the event a director dies or becomes disabled or in
the event of a change in control of the Bank or the Company. All options
granted under this Directors' Option Plan, including limited rights
which have characteristics similar to the rights granted under the
1992 Incentive Stock Option Plan as amended, expire upon the earlier
of ten years following the date of grant or one year following the
date the optionee's term as a director or a director emeritus expires.

Under the 1995 Directors' Option Plan, which superseded the 1992 Directors'
Option Plan, the Company may grant up to 240,000 options to acquire
shares to directors who are not officers or employees of the Company.
Options are exercisable by a director on a cumulative basis in equal
installments at a rate of one-third per year commencing one year from
the date of grant. All other significant provisions of this plan are
identical to those of the 1992 Directors' Option Plan.

In connection with the acquisition of Marble, the Company assumed
liability for the Marble stock option plans (the "Marble Option Plan").
All options granted under the Marble Option Plan were converted to
options to acquire 0.732 shares of ALBANK stock, based on the market
price of the Company stock and cash consideration paid for the Marble
common stock on the acquisition date. All options granted under these
plans have an original maximum term of ten years from the date of
grant and are fully vested. The Company recorded a liability of $1,867,000
for the estimated fair value of these options on the assumption date.

In regard to the disclosure required by SFAS No. 123, the fair value
of each of the option grants in the years ended December 31, 1996
and 1995, was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions
used for grants in 1996 and 1995, respectively: dividend yields of
1.91% and 1.92%; expected volatility of 25% and 25%; risk-free interest
rates of 6.5% and 5.6%; and expected lives of 7.5 years for all plan
options.

A summary of the status of the Company's fixed-stock option plans
as of December 31, 1996, 1995 and 1994 is as follows:

<TABLE>
<CAPTION>

Years Ended December 31,                                 1996                        1995                        1994

<S>                                      <C>             <C>           <C>           <C>           <C>           <C>

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

Outstanding at beginning of year           1,464,960     $ 10.7550     1,263,960     $  8.5791     1,290,600     $ 8.5740

Granted                                      192,000       31.1146       208,200       23.8809            --           --

Assumed in acquisition                       112,362        8.1784            --            --            --           --

Exercised                                    (53,349)       7.5708        (7,200)       8.3333       (26,640)      8.3333

Forfeited                                         --            --            --            --            --           --

Outstanding at end of year                 1,715,973     $ 12.9633     1,464,960     $ 10.7550     1,263,960     $ 8.5791

Options exercisable at year-end            1,113,893                     722,400                     468,120

Weighted-average fair value of
  options granted during the year        $ 2,077,000                   1,611,000

Weighted-average fair value of
  options assumed during the year        $ 1,867,000

</TABLE>

The following table summarizes information about fixed-stock options
outstanding at December 31, 1996:

<TABLE>
<CAPTION>

                                                             Options Outstanding        Options Exercisable
                                                         Weighted-
                                                         Average       Weighted-                   Weighted-
                                                         Remaining     Average                     Average
                                         Number          Contractual   Exercise      Number        Exercise
Range of Exercise Prices                 Outstanding     Life          Price         Exercisable   Price

<S>                                      <C>             <C>           <C>           <C>           <C>

$ 6.6598 to $ 9.9999                     1,228,029       5.1 years     $  8.2705       983,949     $  8.2549

$10.0000 to $14.9999                        85,914       6.5 years       12.9388        63,114       12.6339

$15.0000 to $24.9999                       234,030       8.8 years       23.9184        66,830       23.9307

$25.0000 to $32.1250                       168,000       9.9 years       32.0179            --            --

$ 6.6598 to $32.1250                     1,715,973       6.1 years     $ 12.9633     1,113,893     $  9.4435

</TABLE>

Incentive Savings and Employee Stock Ownership Plans

The Bank maintains an Incentive Savings Plan which is a tax-qualified
defined contribution plan. All salaried employees of the Bank become
eligible to participate in the plan after completing one year of service.
The Incentive Savings Plan was amended effective April 1, 1992, to
discontinue after-tax contributions and instead provide for pretax
contributions pursuant to Section 401(k) of the Internal Revenue Code.
The plan as amended requires a minimum age of 21 for participation.

In connection with the amendment of the Incentive Savings Plan, the
Bank established an employee stock ownership plan ("ESOP"). The ESOP
borrowed $12.4 million from the Holding Company and, along with $126,000
contributed by the Bank, purchased 8%, or 1,255,800 shares, of common
stock issued in the Bank's conversion to stock form. The cost of the
purchased shares is being amortized over a ten-year period. At December
31, 1996, the total unamortized cost of $6.3 million is reflected
as a reduction of stockholders' equity. Shares purchased by the ESOP
are held in a suspense account for allocation among participants as
the ESOP loan is repaid. The Bank's current intention is to repay
the loan in substantially equal installments over a remaining term
of five years. The Bank will make scheduled discretionary cash contributions
as approved by the Board of Directors to the ESOP at least sufficient
to fund the scheduled principal and interest payments on the debt
of the ESOP. During 1996 and 1995, dividends on unallocated ESOP shares
amounted to $427,000 and $417,000, respectively and were used to reduce
the Company's compensation expense. The Company has elected to make
payments on the loan obligation equal to the amount of these dividends;
such amounts will be used to reduce the regularly scheduled principal
and interest payments due on the ESOP obligation. At December 31,
1996 and 1995, the loan had an outstanding balance of $6.3 million
and $7.5 million, respectively, and respective interest rates of 8.00%
and 8.25%, both of which were based on the prime lending rate less
0.25%. Interest paid by the Bank on the obligation of $596,000 and
$742,000 for the years ended December 31, 1996 and 1995, respectively,
was eliminated in consolidation. ESOP shares are allocated to contributing
participants in the Bank's amended 401(k) plan in order to satisfy
the Company's minimum matching obligation. The shares released from
the ESOP in excess of the amount necessary to satisfy the minimum
matching allocation of the 401(k) plan are allocated to eligible employees
on the basis of compensation subject to Internal Revenue Code limitations.
In connection with these plans, an expense of $780,000, $790,000 and
$849,000 was recognized for the years ended December 31, 1996, 1995
and 1994, respectively.

Bank Recognition Plans and Trusts

In conjunction with the Bank's conversion, a Bank recognition plan
("BRP") was established to acquire, in the aggregate, 3% of the shares
of common stock issued in the conversion to provide employees, officers,
and directors of the Company with a proprietary interest in the Holding
Company in a manner designed to encourage such persons to remain with
the Company. The Bank's BRP trustee acquired a total of 470,925 shares
of common stock in the conversion and an additional 6,183 shares during
the first quarter of 1993. The BRP will vest on the anniversary of
the date of award at a rate of one-fifth per year. The BRP becomes
100% vested in the event an employee, officer or director's employment
is terminated due to death, disability or in the event of a change
in control of the Bank or the Company.

The $4.8 million contributed to the BRP is being amortized to compensation
expense as the Company's employees become vested in those shares.
Amortized expense related to the BRP of $900,000, $907,000 and $916,000
was recognized for the years ended December 31, 1996, 1995 and 1994,
respectively. The expense includes the pro-rata amount of shares earned
but not yet vested. The Bank distributed 93,583, 80,010 and 83,442
shares of common stock pursuant to the BRP during the years ended
December 31, 1996, 1995 and 1994, respectively. The unamortized cost
is reflected as a reduction of stockholders' equity.

18.

FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
requires the Company to disclose estimated fair values for its financial
instruments. SFAS No. 107 defines fair value of financial instruments
as the amount at which the instrument could be exchanged in a current
transaction between willing parties other than in a forced or liquidation
sale. SFAS No. 107 defines a financial instrument as cash, evidence
of ownership interest in an entity, or a contract that imposes on
one entity a contractual obligation to deliver cash or another financial
instrument to a second entity or to exchange other financial instruments
on potentially unfavorable terms with a second entity and conveys
to that second entity a contractual right to receive cash or another
financial instrument from the first entity or to exchange other financial
instruments on potentially favorable terms with the first entity.

Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Company's entire holdings
of a particular financial instrument. Because no ready market exists
for a significant portion of the Company's financial instruments,
fair value estimates are based on judgments regarding future expected
net cash flows, current economic conditions, risk characteristics
of various financial instruments, and other factors. These estimates
are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities
that are not considered financial instruments. Significant assets
and liabilities that are not considered financial assets or liabilities
include the deferred tax asset and office premises and equipment.
In addition, tax ramifications related to the realization of the unrealized
gains and losses on securities available for sale, which can have
a significant effect on fair value estimates, have not been considered
in the estimates of fair value under SFAS No. 107.

In addition there are significant intangible assets that SFAS No.
107 does not recognize, such as the value of "core deposits," the
Bank's branch network and other items generally referred to as "goodwill".

The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments:

<TABLE>
<CAPTION>

(In thousands)     December 31,                         1996                         1995
                                        Carrying        Estimated      Carrying      Estimated
                                        Amount          Fair Value     Amount        Fair Value

<S>                                     <C>             <C>            <C>           <C>

Cash and cash equivalents               $    68,883        68,883        105,002       105,002

Securities available for sale               617,943       617,943        656,784       656,784

Investment securities                       109,607       111,091        153,740       155,862

Stock in Federal Home Loan Bank              16,913        16,913         15,750        15,750

Accrued interest receivable                  27,092        27,092         26,351        26,351


Loans receivable                          2,560,825     2,602,160      1,944,990     1,963,541

Allowance for loan losses                   (24,114)           --        (15,949)           --

Net discounts, premiums and deferred
  loan fees and costs                         5,539            --          1,611            --

Loans receivable, net                     2,542,250     2,602,160      1,930,652     1,963,541

Demand deposits                             121,145       121,145         74,338        74,338

Passbook, statement, NOW and
  super NOW accounts                      1,047,538     1,047,538      1,018,036     1,018,036

Money market accounts                       260,521       260,521        157,056       157,056

Certificates of deposit                   1,583,925     1,589,489      1,308,858     1,317,599

Escrow accounts                              26,603        26,603         34,928        34,928

Short-term borrowed funds and
  repurchase agreements                      42,346        42,346          1,290         1,290

Long-term debt                               30,061        29,958             --            --

</TABLE>

Financial Instruments with Carrying Amount Equal to Fair Value

The carrying amount of cash and due from banks, federal funds sold
and securities purchased under agreement to resell (collectively defined
as "cash and cash equivalents"), accrued interest receivable and
stock in the Federal Home Loan Bank is considered to be equal to fair
value as a result of their short-term nature or limited marketability.

Securities Available for Sale and Investment Securities

The fair value of securities available for sale and investment securities
is estimated based on bid prices published in financial newspapers
and bid quotations received from either quotation services or securities
dealers.

Loans

Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as one- to four-family,
commercial real estate, consumer and commercial loans. Each loan category
is further segmented into fixed and adjustable rate interest terms
and by performing and nonperforming categories.

The fair value of performing loans is calculated by discounting scheduled
cash flows through the estimated maturity using estimated market discount
rates that reflect the credit and interest rate risk inherent in the
loan. The estimate of maturity is based on the contractual term of
the loans to maturity, adjusted for estimated prepayments.

The fair value estimate for credit card loans is based on the value
of existing loans at December 31, 1996 and 1995. This estimate does
not include the value of estimated cash flows from new loans generated
from existing cardholders over the remaining life of the portfolio.

Fair value for nonperforming loans is based on recent external appraisals
and discounting of cash flows. Estimated cash flows are discounted
using a rate commensurate with the risk associated with the estimated
cash flows. Assumptions regarding credit risk, cash flows, and discount
rates are judgmentally determined using available market information
and specific borrower information.

Deposits, Escrow Accounts, Short-Term Borrowed Funds and Repurchase
Agreements, and Long-Term Debt

Under SFAS No. 107, the fair value of deposits with no stated maturity,
such as noninterest-bearing demand deposits, passbook, statement,
NOW and super NOW accounts, money market accounts and escrow accounts,
is estimated to be the amount payable on demand as of December 31,
1996 and 1995. The fair value of certificates of deposit is based
on the discounted value of contractual cash flows. The discount rate
is estimated using the rates currently offered for deposits of similar
remaining maturities. As per SFAS No. 107, the fair value estimates
of deposit liabilities in the foregoing table do not include the benefit
that results from the low cost funding provided by the deposit liabilities
compared to the cost of borrowing funds in the debt market.

The fair value of short-term borrowed funds and repurchase agreements
for 1996 and 1995 is considered to be equal to the carrying amount
due to their short-term nature. The fair value of long-term debt for
1996 and 1995 is estimated using the present value of the anticipated
cash flows related to the debt considering the remaining maturity
and yield.

Commitments to Extend Credit and Standby Letters of Credit

The fair value of commitments to extend credit is estimated using
the fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the present
credit worthiness of the counterparties. For fixed rate loan commitments,
fair value also considers the difference between current levels of
interest rates and the committed rates. The fair value of letters
of credit is based on fees currently charged for similar agreements
or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties. Fees such as these are not a
major part of the Bank's business. Based on an analysis of the foregoing
factors, the fair value of these items is deemed insignificant at
December 31, 1996 and 1995.

19.

COMMITMENTS AND CONTINGENT LIABILITIES

(A) Financial Instruments with Off-Balance Sheet Risk and Concentrations
of Credit

The Bank enters into financial agreements in the normal course of
business that have off-balance sheet risk. These agreements include
commitments to extend credit and standby letters of credit and involve,
to varying degrees, elements of credit risk in excess of the amount
recognized on the consolidated statements of financial condition.

The Bank's exposure to credit loss in the event of nonperformance
by the other party to the commitments to extend credit and standby
letters of credit is represented by a contractual amount. The Bank
uses the same credit policies in making commitments as it does for
on-balance sheet instruments.

Contract amounts of financial instruments that represent credit risk
are as follows:

<TABLE>
<CAPTION>

(In thousands)               December 31,           1996          1995

<S>                                                 <C>           <C>

Mortgage loans                                      $  30,757      19,404

Commercial real estate loans                            9,726       5,320

Construction loans                                     12,247       6,722

Credit cards                                           42,002      43,942

Commercial loans                                       98,115      74,972

Student loans                                           6,322       6,063

Overdraft loans                                        17,883      13,808

                                                      217,052     170,231

Standby letters of credit                               1,599         230

Total                                               $ 218,651     170,461

</TABLE>

The range of interest rates on fixed rate commitments was 7.13% to
18.00% at December 31, 1996, and 7.00% to 18.00% at December 31, 1995.
The Bank offers a variety of adjustable rate mortgage ("ARM") products
on one- to four-family residential dwellings. Generally, the principal
one-year ARM offered by the Bank has a 2.00% annual interest rate
adjustment cap, and uses the weekly average from the one-year Treasury
Constant Maturity Index, plus a margin of 3.00%, as an index for rate
adjustments. The lifetime rate ceilings for one-year ARM originations
generally are 6.00% over the initial first year rate. Another one-year
product offered by the Bank is an ARM that is convertible to a fixed
rate loan between the 13th and 60th months. Three-, five- and seven-year
ARMs are also available; such loans have a 3.00% periodic adjustment
cap at the first adjustment date and a 2.00% cap in all subsequent
years. The Bank does not originate loans which provide for negative
amortization. Loan terms vary from 5 to 30 years.

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 many of
the commitments are expected to expire without being fully drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's credit worthiness
on a case-by-case basis. The amount of collateral, if any, required
by the Bank upon the extension of credit is based on management's
credit evaluation of the customer. Mortgage and construction loan
commitments are secured by a first lien on real estate. Collateral
on extensions of credit for commercial loans varies but may include
accounts receivable, inventory, property, plant and equipment, and
income producing commercial property.

Standby 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 borrowing arrangements.
The credit risk involved in issuing standby letters of credit is essentially
the same as that involved in extending loan facilities to customers.

The Bank grants residential, consumer and commercial loans to customers
principally throughout much of upstate New York State and Vermont,
and in a part of western Massachusetts. Although the Bank has a diversified
loan portfolio, a substantial portion of its debtors' ability to honor
their contracts is dependent upon the real estate and construction
related sectors of the local/regional economy.

(B) Leases

The Bank leases several branch office facilities and equipment used
in its operations which are accounted for as operating leases. These
leases expire (excluding renewal options) in periods ranging from
1 to 9 years. The Bank also occupies its main office building under
a lease agreement which is accounted for as a "capital lease" for
financial reporting purposes. Minimum rental commitments under operating
and capital leases are as follows:

<TABLE>
<CAPTION>

(In thousands)                    Operating Leases     Capital Leases

<S>                               <C>                  <C>

1997                              $ 2,311                415

1998                                1,502                415

1999                                1,052                415

2000                                  761                415

2001                                  616                415

Thereafter                          2,483              6,656

Total minimum lease payments        8,725              8,731

Imputed interest at 6.76%            n.a.              4,085

Present value of minimum
  lease payments                  $  n.a.              4,646

</TABLE>

Rent expense aggregated $2,544,000, $2,082,000 and $1,873,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.

(C) Litigation

There are legal proceedings against the Company arising in the ordinary
course of business. Although it is not possible to determine the ultimate
outcome of the Company's legal proceedings, management believes that
the outstanding litigation will not result in material losses to the
Company upon resolution.

20.

CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS

The following condensed statements of financial condition as of December
31, 1996 and 1995, and condensed statements of earnings and cash flows
for each of the years in the three-year period ended December 31, 1996,
for ALBANK Financial Corporation (parent company only) should
be read in conjunction with the consolidated financial statements
and accompanying notes.

<TABLE>

Statements of Financial Condition

<CAPTION>

(In thousands)               December 31,     1996              1995

<S>                                           <C>               <C>

Assets

Cash and cash equivalents                     $  13,813           1,581

Securities available for sale                     9,453          16,137

Loans receivable                                 12,994          14,752

Equity in net assets of subsidiary              284,813         290,890

Intercompany accounts receivable                  3,037           2,073

Other assets                                        180             129

                                              $ 324,290         325,562

Liabilities

Accrued income taxes payable                  $   1,031             571

Other liabilities                                 4,134           1,809

Total liabilities                                 5,165           2,380

Stockholders' Equity

Preferred stock                                      --              --

Common stock                                        157             157

Additional paid-in capital                      180,670         151,969

Retained earnings                               214,283         258,631

Treasury stock                                  (71,235)        (82,381)

Unrealized gain on securities
  available for sale, net of tax                  1,781           3,528

Common stock acquired by ESOP                    (6,279)         (7,535)

Common stock acquired by BRP                       (252)         (1,187)

Total stockholders' equity                      319,125         323,182

                                              $ 324,290         325,562

</TABLE>

<TABLE>

Statements of Earnings

<CAPTION>

(In thousands)     Years Ended December 31,     1996               1995             1994

<S>                                             <C>                <C>              <C>

Interest income                                 $  1,984             2,091           2,742

Interest expense                                      63               215             435

Net interest income                                1,921             1,876           2,307

Noninterest income                                     2               157              16

Noninterest expense                                  967               782             951

Income before income taxes and
  equity in earnings of subsidiary                   956             1,251           1,372

Income tax expense                                   256               459             577

Income before equity in earnings
  of subsidiary                                      700               792             795

Equity in earnings of subsidiary                  25,507            28,491          27,777

Net income                                      $ 26,207            29,283          28,572

</TABLE>

<TABLE>

Statements of Cash Flows

<CAPTION>

 (In thousands)     Years Ended December 31,    1996               1995             1994

<S>                                             <C>                <C>              <C>

Increase (Decrease) in Cash
  and Cash Equivalents

Cash Flows from Operating Activities

Net income                                      $  26,207           29,283           28,572

Reconciliation of net income to net
  cash provided (used) by
  operating activities:

Equity in earnings of subsidiary                  (25,507)         (28,491)         (27,777)

Net amortization of premiums and accretion
  of discounts on securities                           32              106              316

Net decrease (increase) in other assets               (51)              61               14

Net increase in intercompany
  accounts receivable                                (964)             (47)          (1,791)

Net increase in accrued income
  taxes payable                                       103                5              110

Net increase (decrease) in other liabilities        2,372             (128)            (740)

Net cash provided (used) by
  operating activities                              2,192              789           (1,296)

Cash Flows from Investing Activities

Net decrease (increase) in loans receivable         1,758           (1,359)          (3,347)

Proceeds from the sale of securities
  available for sale                                   --               --            5,015

Proceeds from the maturity of
  investment securities                                --            7,500           10,000

Proceeds from the maturity of securities
  available for sale                               10,000               --               --

Purchase of securities available for sale          (2,065)          (3,205)          (1,182)

Net cash provided by investing activities           9,693            2,936           10,486

Cash Flows from Financing Activities

Net increase (decrease) in repurchase
  agreements                                           --          (11,800)           9,300

Dividends received                                 32,000           28,000           17,500

Dividends paid                                     (6,210)          (5,565)          (3,884)

Purchase of treasury stock                        (25,847)         (24,233)         (22,072)

Cash proceeds from the exercise
  of stock options                                    404               60              222

Net cash provided (used) by
  financing activities                                347          (13,538)           1,066

Net increase (decrease) in cash and
  cash equivalents                                 12,232           (9,813)          10,256

Cash and cash equivalents at
  beginning of year                                 1,581           11,394            1,138

Cash and cash equivalents at end of year        $  13,813            1,581           11,394

Supplemental Disclosures of Cash
  Flow Information

Net unrealized gain on securities
  available for sale, net of tax                 $    824              677              125

Transfer of investment securities to
  securities available for sale                        --               --           23,196

Tax benefits related to stock
  options exercised                                   100               40              117

</TABLE>

21.

REGULATORY CAPITAL REQUIREMENTS

Office of Thrift Supervision ("OTS") capital regulations require savings
institutions to maintain minimum levels of regulatory capital. Under
the regulations in effect at December 31, 1996, the Bank was required
to maintain a minimum ratio of tangible capital to tangible assets
of 1.5%; a minimum leverage ratio of core (Tier 1) capital to total
adjusted tangible assets of 3.0%; and a minimum ratio of total capital
(core capital and supplementary capital) to risk-weighted assets of
8.0%, of which 4.0% must be core (Tier 1) capital.

Under its prompt corrective action regulations, the OTS is required
to take certain supervisory actions (and may take additional discretionary
actions) with respect to an undercapitalized institution. Such actions
could have a direct material effect on an institution's financial
statements. The regulations establish a framework for the classification
of savings institutions into five categories: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized. Generally, an institution is considered
well capitalized if it has a core (Tier 1) capital ratio of at least
5.0% (based on adjusted total assets); a core (Tier 1) risk-based
capital ratio of at least 6.0%; and a total risk-based capital ratio
of at least 10.0%.

The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance sheet items
as calculated under regulatory accounting practices. Capital amounts
and classifications are also subject to qualitative judgments by the
OTS about capital components, risk weightings and other factors.

Management believes that, as of December 31, 1996, the Bank meets
all capital adequacy requirements to which it is subject. Further,
the most recent OTS notification categorized the Bank as a well-capitalized
institution under the prompt corrective action regulations. There
have been no conditions or events since that notification that management
believes have changed the Bank's capital classification.

The following is a summary of the Bank's actual capital amounts and
ratios as of December 31, 1996, compared to the OTS minimum bank capital
adequacy requirements and the OTS requirements for classification
as a well-capitalized institution. Although the OTS capital regulations
apply at the Bank level only, the Company's consolidated capital amounts
and ratios are also presented. The OTS does not have a holding company
capital requirement.

<TABLE>
<CAPTION>

                                                               OTS Bank Capital Requirements
                                                               Minimum              For Classification
                                                               Capital Adequacy     as Well Capitalized

(Dollars in thousands)            Amount         Ratio         Ratio                Ratio

<S>                               <C>            <C>           <C>                  <C>

Tangible capital:

  Bank only                       $ 241,150      7.00%         1.50%                 5.00%

  Consolidated                      273,835      7.92

Core (Tier 1) capital:

  Bank only                         241,150      7.00          3.00                  5.00

  Consolidated                      273,835      7.92

Risk-based capital:

  Core (Tier 1):

    Bank only                       241,150     10.80          4.00                  6.00

   Consolidated                     273,835     12.24

  Total:

    Bank only                       265,094     11.88          8.00                 10.00

    Consolidated                    290,971     13.00

</TABLE>

Directors and Officers

BOARD OF DIRECTORS

Herbert G. Chorbajian
Chairman of the Board, President and Chief Executive Officer


William J. Barr
Retired Senior Vice President and Controller, ALBANK, FSB


Henry M. Elliot, Jr.
Retired Agency Manager, Equitable Life Assurance Society of the United States


John E. Maloy, Sr.
President, J.H. Maloy, Inc.


Susan J. Stabile, Esq.
Associate Professor of Law, St. John's University School of Law


Anthony P. Tartaglia, M.D.
Professor of Medicine, Albany Medical College


John G. Underhill
Retired President, Sager Spuck Supply Company, Inc.


Karen R. Hitchcock, Ph.D.
President, University at Albany, State University of New York


Francis L. McKone
President and Chief Executive Officer, Albany International Corp.


OFFICERS

Herbert G. Chorbajian
Chairman of the Board, President and Chief Executive Officer


Clifford M. Apgar
Executive Vice President--Senior Credit Officer


Barry G. Blenis
Executive Vice President--Operations and Strategic Planning


Richard J. Heller
Executive Vice President and Chief Financial Officer


Freling H. Smith, Esq.
Senior Vice President, Secretary and General Counsel


Frank J. Vaselewski
Senior Vice President--Retail Banking


Margaret F. Ludington
Senior Vice President--Human Resources


Robert L. Meyer
Senior Vice President--Retail Lending


Joseph P. Richardson
Senior Vice President--Commercial Lending


Margaret J. Welch
Senior Vice President--Branch Administration


Robert J. Gould
Vice President and Controller


Mary Jean Laraway
Vice President--Corporate Services


Edward C. Tremblay
Vice President and Auditor