United States
                             SECURITIES AND EXCHANGE COMMISSION
                                 WASHINGTON, D.C. 20549

                                       Form 10-K

                        ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF
                             THE SECURITIES EXCHANGE ACT OF 1933

     For the Fiscal Year Ended December 31, 1997 Commission File No. 0-19843

                              ALBANK Financial Corporation
                  (Exact name of Registrant as specified in its charter)

               Delaware                                14-1746910
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
 incorporation or organization)

                        10 North Pearl Street, Albany, NY 12207
                       (Address of principal executive offices)
            Registrant's telephone number, including area code: (518) 445-2100

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, 
par value $.01 per share
--------------------------------------
(Title of Class)


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section l3 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K._________________________________________________

As of March 25, 1998, the aggregate market value of the shares of common stock
of the Registrant outstanding was $616,249,817 excluding 459,392 shares held by
affiliates of the Registrant.* This figure is based on the closing price for a
share of the Registrant's common stock on March 25, 1998, which was $49.75 as
reported in the Wall Street Journal on March 26, 1998. The number of shares of
the Registrant's common stock outstanding as of March 25, 1998, was 12,846,323.

DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 19, 1998, and the Annual Report to Stockholders
(which includes two segments; a "1997 Summary Annual Report" and a
"1997 Annual Report Supplement") for the year ended December 31,
1997, are incorporated herein by reference - Parts I, II, III and IV.
--------------
   * Solely for purposes of this calculation, all executive officers and
directors of the Registrant are considered to be affiliates. Also included are
certain shares held by various employee benefit plans where the trustees are
required to vote a portion of unallocated shares at the direction of executive
officers and directors.
                                                   
                                    PART I

ITEM 1                     Business


Forward-Looking Statements

         ALBANK Financial Corporation ("Registrant", "Company" or "ALBANK") may
from time to time make "forward-looking statements" in its periodic reports to
the Securities and Exchange Commission on Forms 10-K, 10-Q and 8-K, in its
Annual Report to stockholders, in its proxy statements, in press releases and
other written materials, and in oral statements made by senior management to
analysts, institutional investors, representatives of the media and others.
Certain statements contained in this Annual Report on Form 10-K and in the
Company's Annual Report to Stockholders, portions of which are incorporated
herein by reference, that are not statements of historical fact constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Act"). Such statements are made in good
faith by the Company pursuant to the "safe harbor" provisions of the Act.

         Forward-looking statements include (1) financial projections and
estimates (including projections of revenues, expenses, income or loss, earnings
or loss per share, the payment or nonpayment of dividends, capital structure and
other financial items); (2) statements regarding plans, objectives and
expectations of ALBANK with respect to future operations, products or services;
(3) statements regarding future economic performance; and (4) statements
relating to the assumptions underlying such projections, estimates, plans,
objectives, expectations and performance. Words such as "believe," "anticipate,"
"plan," "expect," "intend," "target," "estimate," and similar expressions are
intended to identify, but are not the exclusive means of identifying,
forward-looking statements.

         Forward-looking statements involve risks and uncertainties which may
cause actual results to differ materially from those in such statements.
Moreover, ALBANK's plans, objectives and intentions are subject to change based
on various factors (some of which are beyond the Company's control). Among the
uncertainties to which ALBANK's forward-looking statements are subject are risks
related to credit quality, interest rate sensitivity and liquidity. Other
factors that could cause actual results to differ from those discussed in the
forward-looking statements include (1) the strength of the U.S. economy in
general and the strength of the local economies where ALBANK is located; (2) the
effects of, and changes in, monetary and fiscal policies and laws, including
interest rate policies of the Board of Governors of the Federal Reserve System;
(3) inflation, interest rate, market and monetary fluctuations; (4) the timely
development of new products and services and customer perception of the overall
value thereof (including features, pricing and quality) compared to competing
products and services; (5) changes in consumer spending, borrowing and savings
habits; (6) technological changes; (7) acquisitions and the costs and
difficulties associated therewith; (8) the ability to increase market share and
control expenses; (9) the effect of changes in laws and regulations (including
laws and regulations concerning taxes, banking, securities and insurance) and
generally accepted accounting principles; (10) changes in ALBANK's organization,
compensation and benefit plans and in the availability of, and compensation
levels for, employees in its geographic markets; (11) the costs and effects of
litigation and of any adverse outcome in such litigation; and (12) the success
of ALBANK at managing the risks of the foregoing.

     The foregoing list of important factors is not exclusive. Such
forward-looking statements speak only as of the date on which they are made and
ALBANK does not undertake any obligation to update any forward-looking
statement, whether written or oral, to reflect events or circumstances after the
date on which such statement is made. If ALBANK does update or correct one or
more forward-looking statements, investors and others should not conclude that
ALBANK will make additional updates or corrections with respect thereto or with
respect to other forward-looking statements.

General

         ALBANK was formed as a savings and loan holding company under Delaware
Law. On October 10, 1997, the Company became a bank holding company as a result
of the formation of ALBANK Commercial, a newly chartered New York commercial
bank. The information and consolidated financial statements in this report of
ALBANK include the accounts of ALBANK Financial Corporation, its wholly owned
subsidiaries, ALBANK, FSB and ALBANK Commercial, and the wholly owned
subsidiaries of ALBANK, FSB and ALBANK Commercial. The executive offices of
ALBANK are located at the main office of ALBANK, FSB at 10 North Pearl Street,
Albany, New York 12207.

         On April 1, 1992, ALBANK Financial Corporation completed its public
offering for 15,697,500 shares of common stock (the "Common Stock") at $10.00
per share, realizing net proceeds of $150.8 million after expenses, and
concurrently acquired ALBANK, FSB as part of its conversion from a mutual to a
stock form savings bank. ALBANK used $75.4 million of the net proceeds to
acquire all of the issued and outstanding stock of ALBANK, FSB. The remaining
net proceeds were used by the Company for general corporate purposes which, to
date, have included the repurchase of shares of ALBANK's Common Stock.

         ALBANK's business currently consists primarily of the business of its
constituent financial institutions. ALBANK, FSB was organized as the second
mutual savings bank in New York State on March 24, 1820, and is currently the
oldest operating savings bank in the state. On June 30, 1982, ALBANK, FSB
converted to a federally chartered mutual savings bank, retaining the leeway
investment authority and broader investment powers available to a New York State
chartered mutual savings bank. ALBANK, FSB's principal business has been and
continues to be attracting retail and corporate deposits and investing those
deposits, together with funds generated from operations and borrowings, in
various loan products and investment securities. With regard to loans, ALBANK,
FSB originates and purchases primarily one- to four-family adjustable rate
mortgage loans ("ARMs"). ALBANK, FSB currently also engages in the provision of
Savings Bank Life Insurance ("SBLI"). Additionally, through ALVEST Financial
Services, Inc. "ALVEST"), a wholly owned brokerage and insurance
subsidiary of ALBANK, FSB that was transferred to ALBANK Commercial on October
31, 1997, ALBANK offers a wide range of financial products and services. (See
"Subsidiaries" regarding the possible cessation of certain insurance activities
of ALBANK, FSB and ALVEST). ALBANK Commercial's business consists
primarily of attracting deposits from retail and corporate customers and
municipal/public entities and investing those deposits together with funds
available from operations, in various loan products and investment securities.
The results of operations of both ALBANK, FSB and ALBANK Commercial are
dependent primarily on net interest income, provisions for loan losses, the
levels of noninterest income earned and noninterest expense incurred and the
effect of income taxes. Results of operations are also significantly affected by
general economic and competitive conditions, particularly changes in market
interest rates, government policies and actions of the regulatory authorities.

         ALBANK is a legal entity separate and distinct from ALBANK, FSB and
ALBANK Commercial. The principal sources of the Company's revenues are 
dividends and interest derived from its investments and dividends the Company 
receives from ALBANK, FSB and, in the future, from ALBANK Commercial. The 
right of the Company to participate as a shareholder in any distribution of 
assets of any subsidiary upon its liquidation or reorganization or otherwise 
is subject to the prior claims of creditors of any such subsidiary.

         As of December 31, 1997, a total of 1,291 full-time employees and 293
part-time employees were employed by ALBANK, FSB and ALBANK Commercial. Employee
relations are considered to be good.

         Acquisition activity during the past three years follows:

         On June 3, 1995, ALBANK, FSB completed the purchase of $18 million in
deposits from The Dime Savings Bank of New York's Galleria Mall office in
Poughkeepsie, New York. ALBANK, FSB is servicing these accounts at its existing
office in the Galleria Mall.

         On January 3, 1996, ALBANK, FSB acquired all of the outstanding common
stock of Marble Financial Corporation of Rutland, Vermont (the "Marble
acquisition") 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, ALBANK, FSB assumed the deposit liabilities of
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 "Green Mountain acquisition"). The acquisition
included $108 million in deposits and loans. 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 Bank. The remaining Green Mountain
Banking offices, together with the seven former Marble Bank banking offices, are
currently operating as the Marble division of ALBANK, FSB.

     On November 10, 1997, ALBANK Commercial purchased 35 New York State banking
offices formerly operated by KeyBank National Association (the "Key Branch
acquisition"). The offices are located in northern New York, the greater Hudson
Valley and the Binghamton area. The acquisition, which included $540.9 million
in deposits (for which ALBANK Commercial paid a deposit premium of 7%) and $52.2
million in small business, consumer and mortgage loans, was accounted for under
the purchase method of accounting and generated goodwill of $40.6 million, which
is being amortized over 15 years.

     On August 13, 1997, ALBANK, FSB entered into a purchase agreement relating
to the purchase of the assets and assumption of the deposit liabilities of three
branches of First Union National Bank located in the greater Hudson Valley. With
the approval of the Banking Department of the State of New York and the FDIC, on
January 23, 1998, ALBANK Commercial acquired $21.2 million in deposits and $0.4
million in loans from two of the former First Union offices and consolidated one
office with an existing branch. It was initially contemplated that ALBANK, FSB
would acquire approximately $12 million in deposits of the remaining branch.
However, ALBANK, FSB withdrew its application to the Office of Thrift
Supervision ("OTS") and ALBANK Commercial has submitted an application to the
FDIC and the State of New York to acquire that branch.

         At year-end 1997, ALBANK, FSB operated through 73 banking offices, 52
of which are located in 17 upstate New York counties, 9 of which are located in
the metropolitan area of Springfield, Massachusetts and 12 of which are located
primarily in central Vermont. ALBANK Commercial operated 36 banking offices, all
located in New York State, which extended ALBANK's presence to nine
additional counties.

         The Company regularly engages in discussions with other depository
institutions with respect to possible acquisition transactions.

Subsidiaries

         Until November 1, 1997, ALBANK, FSB's principal operating subsidiary
was ALVEST, which offers brokerage, investment and insurance products and
services. At that time, ALBANK, FSB transferred all of ALVEST's voting stock to
ALBANK Commercial. As a condition to becoming a bank holding company, the
Company committed to the Federal Reserve Board to cause ALVEST to discontinue
selling life insurance (but not annuities) within two years of ALBANK becoming a
bank holding company (October 10, 1997), unless during that period it becomes
permissible under applicable state or federal banking law for ALVEST to conduct
such business. The Company also committed to cause ALBANK, FSB to discontinue
underwriting SBLI within two years of ALBANK becoming a bank holding company,
unless during that period the activity becomes permissible to ALBANK, FSB (as a
subsidiary of a bank holding company) under applicable law.

          ALBANK, FSB owned 100% of the voting common stock of ASBANY Funding
Corporation, a real estate investment trust which invested primarily in
residential real estate mortgage loans originated by ALBANK, FSB, until December
31, 1997, at which time a plan of liquidation was approved and commenced. Such
plan was completed shortly after year end. Another wholly-owned subsidiary of
ALBANK, FSB is ASBANY Corp., the assets of which consist primarily of its
investments in two subsidiaries -- Page-ASBANY Corp. and CDC-ASBANY Corp.
Page-ASBANY Corp. owns certain office premises located in the
State of Massachusetts. (The Company committed to the Federal Reserve Board to
have Page-ASBANY Corp. divest its property within two years of ALBANK becoming a
bank holding company.) CDC-ASBANY Corp. owns limited partnership interests in
real estate development projects that generate low-income housing and historic
preservation income tax benefits that accrue to the Company. A third subsidiary
of ASBANY Corp., Gables CVF, Inc., was incorporated in the State of Nebraska,
has no assets, and is inactive. ALBANK Capital Trust I is a 100% owned
subsidiary business trust of ALBANK Financial Corporation. It's sole
purpose was to issue $50 million of 9.27% capital securities. (See footnote 14
in the 1997 Annual Report Supplement for further information on the capital
securities.)

Market Area

         ALBANK has been, and intends to continue to be, a community-oriented
financial institution offering a variety of financial services to meet the needs
of the communities it serves. Originally operating in the Capital District,
ALBANK now serves communities that extend south through most of the lower Hudson
Valley, north along the Hudson River and Lake Champlain to the Canadian Border,
west through the Mohawk Valley to Syracuse and, since the Key Branch 
acquisition, southwest to Binghamton. ALBANK's market also extends eastward 
to include communities in and surrounding the greater metropolitan area of 
Springfield, Massachusetts and, since the 1996 Marble and Green Mountain 
acquisitions, ALBANK's market has expanded to include communities in the 
central and northern regions of Vermont and in western New Hampshire.

         The population level overall has remained relatively stable in ALBANK's
market area. Major employers include the New York State Government, 
educational institutions and health care organizations throughout New York
State; General Electric and Albany International in the Capital District; IBM in
the lower Hudson Valley; major paper and paper products manufacturers in our
northern region; the insurance industry and manufacturers in our western region;
IBM in the Binghamton area; educational institutions and the insurance industry
in western Massachusetts; and a variety of small to medium sized businesses in
Vermont and New Hampshire.

     The economy of the Northeast, in general, has felt the impact of corporate
restructuring and downsizing in recent years. In New York State, for instance,
General Electric and IBM have reduced the number of local positions, and the New
York State Government has also restructured. Following a nationwide pattern,
however, many "replacement jobs" are being created among smaller companies.
Furthermore, ALBANK's strategy of controlled growth into contiguous markets
through acquisition has diversified its customer deposit base and loan
portfolio, and helped to protect ALBANK from a concentration in any one market
area.

Competition

         ALBANK faces strong competition in its market areas, both in attracting
deposits and making real estate and other loans. ALBANK's most direct
competition for deposits historically has come from savings associations,
commercial banks and credit unions which are located, or have branches, in those
areas. ALBANK also faces additional competition for deposits from national
brokerage houses, short-term money market funds and other corporate and
government securities funds. Factors affecting the acquisition of deposits
include pricing, office location and hours of operation, the variety of deposit
accounts offered, and the quality of customer service provided. Competition for
loans has been especially keen during the past five years. Commercial banks,
savings institutions, insurance companies, traditional mortgage bankers,
mortgage bankers owned by national nonfinancial conglomerates, and mortgage
brokers affiliated with local, but nationally franchised, real estate brokers
are all active and aggressive competitors.

     ALBANK competes in this environment by providing a full range of financial
services based on a tradition of financial strength and integrity dating from
the inception of ALBANK, FSB. ALBANK's subsidiaries compete for loans
principally through the interest rates and loan fees they charge and the
efficiency and quality of services they provide to borrowers.

Regulation and Supervision

         General. As a bank holding company, ALBANK is subject to the regulation
and supervision of the Federal Reserve Board under the Bank Holding Company Act
of 1956 (the "BHC Act") and must file reports with the Federal Reserve Board.
Prior to its registration as a bank holding company in late 1997, ALBANK, as a
savings and loan holding company, was subject to the regulation of the OTS under
the Savings and Loan Holding Company Act. As a bank holding company, ALBANK is
no longer subject to OTS holding company regulation. ALBANK, FSB, as a federally
chartered savings bank, is subject to comprehensive regulation, examination and
supervision by the OTS as its primary federal regulator and by the FDIC as the
administrator of the deposit insurance funds. ALBANK, FSB's deposit accounts are
insured by the FDIC, principally through the Savings Association Insurance Fund
("SAIF"). As a New York chartered commercial bank, ALBANK Commercial is subject
to comprehensive regulation, examination and supervision by th New York
Superintendent of Banks (the "Superintendent") and the New York State Banking
Department under the New York Banking Law. As a state-chartered bank that is not
a member of the Federal Reserve System (a "state non-member bank"), ALBANK
Commercial's primary federal regulator is the FDIC. ALBANK Commercial's deposit
accounts are insured by the FDIC through the Bank Insurance Fund ("BIF").
ALBANK, FSB must file reports with the OTS and the FDIC and ALBANK Commercial
must file reports with the Superintendent and the FDIC concerning their
activities and financial condition and must obtain regulatory approvals prior to
entering into certain transactions, including mergers with, or acquisitions of,
other financial institutions. ALBANK, FSB also is a member of the Federal Home
Loan Bank of New York (the "FHLB-NY"). Both institutions are subject to certain
limited regulation by the Federal Reserve Board.

         Virtually every aspect of the business of ALBANK, FSB and ALBANK
Commercial is subject to numerous requirements and restrictions with respect to
such matters as, for example, the nature and amount of loans and investments
that may be made, the issuance of securities, investment portfolio policy and
other accounting regulations and policies, transactions with affiliates and
insiders, reserves against deposits, the establishment of branches, mergers,
non-banking activities and other operations. This supervision and regulation
establish a comprehensive framework of activities in which the institutions can
engage and is intended primarily for the protection of the insurance funds and
depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes.

         Federal legislation and regulation have significantly affected the
operations of federally insured savings associations and other federally
regulated financial institutions in the past several years and have increased
competition among savings associations, commercial banks and other financial
institutions.

         In particular, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") included numerous provisions that affected the operation
of all federally insured depository institutions. Among other things, FDICIA
required annual on-site regulatory examinations of insured depository
institutions, required that federal banking regulators intervene promptly when a
depository institution experiences financial difficulties, mandated the
establishment of a risk-based deposit insurance assessment system and required
imposition of numerous additional operational standards and restrictions. FDICIA
also included consumer-oriented incentives and consumer protections.

         The federal banking agencies and, under certain circumstances, the FDIC
as deposit insurer have substantial enforcement authority with respect to
institutions they regulate. This enforcement authority includes, among other
things, the ability to assess substantial civil money penalties, to terminate or
suspend insurance of the institution's accounts, to initiate injunctive actions
and to issue prohibition, removal or cease-and-desist orders. In general, these
enforcement actions may be initiated for violations of laws and regulations and
engaging in unsafe or unsound practices. In addition, banking regulators are
provided with great flexibility to take enforcement action against an
institution that fails to comply with applicable capital requirements.

     Capital Requirements. Each of ALBANK, FSB, ALBANK Commercial and ALBANK are
subject to federal regulatory capital requirements, administered respectively by
the OTS, the FDIC and the Federal Reserve Board. 

         The OTS requires savings associations such as ALBANK, FSB to comply
with each of three separate capital adequacy standards. They must have
"tangible" capital equal to at least 1.5% of adjusted total assets and
"risk-based capital" equal to at least 8% of risk-weighted assets (including
certain off-balance sheet items), of which 4% must be "core capital." In
addition, savings associations must maintain a "leverage ratio" of core capital
(principally common equity, retained earnings and certain types of preferred
stock) equal to 3% of adjusted total assets. The OTS has proposed that the 3%
core capital requirement apply only to the strongest institutions and that all
other institutions maintain core capital of at least 4% of adjusted total assets
or more, depending on the circumstances and the institution's risk profile.

         The Federal Reserve Board has adopted risk-based capital guidelines for
bank holding companies (on a consolidated basis with their subsidiaries), and
the FDIC has adopted comparable guidelines for state non-member banks such as
ALBANK Commercial. These guidelines are similar but not identical to the OTS
standards. For holding companies and state non-member banks, the minimum ratio
of qualifying total capital to risk-weighted assets (including certain
off-balance-sheet items) is 8%, with "Tier 1 capital" (analogous to "core
capital") comprising at least half that amount. In addition, the Federal Reserve
Board has established a minimum leverage ratio (Tier 1 capital to average total
assets) to supplement its risk-based ratio, and the FDIC has adopted
substantially similar requirements. The applicable capital guidelines provide
for a minimum leverage ratio of 3% for bank holding companies and banks that
meet certain specified criteria, including those having the highest regulatory
ratings. All other institutions are required to maintain a leverage ratio of at
least 4%. The Federal Reserve Board guidelines also provide that banking
organizations experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels, without significant reliance on intangible assets.

         In addition, in order to qualify as "well-capitalized" institutions
under the "prompt corrective action" requirements discussed below, the OTS and
the FDIC require savings associations and state non-member banks, respectively,
to maintain, among other requirements, a leverage ratio of at least 5% of
adjusted total assets, a ratio of "Tier 1" (or "core") capital to risk-weighted
assets of at least 6% and a ratio of total capital to risk-weighted assets of at
least 10%. As of December 31, 1997, ALBANK, FSB's leverage ratio, tangible
capital ratio, Tier 1 risk-based capital ratio and total risk-based capital
ratio were 6.67%, 6.67%, 10.81% and 11.99%, respectively. ALBANK Commercial's
leverage ratio, Tier 1 risk-based capital ratio and total risk-based capital
ratio were 7.91%, 14.95% and 16.01% respectively. ALBANK's leverage ratio, Tier
1 risk-based capital ratio and total risk-based capital ratio were 8.38%, 12.97%
and 14.15%, respectively.

         FDICIA required the federal banking agencies to revise risk-based
capital standards to ensure that they take account of interest-rate risk
("IRR"). The OTS adopted a rule in 1994 that established a methodology for
measuring IRR pursuant to which savings associations have been calculating and
reporting to the OTS since that time. The OTS has not required savings
associations to make an automatic deduction from their capital for IRR, pending
the decision of the other federal banking agencies to require such a deduction.
In 1995 the other federal banking agencies, including the FDIC and the Federal
Reserve Board, issued an IRR rule that requires them to review IRR when
assessing an institution's capital adequacy. In 1996 those agencies issued an
IRR policy statement that sets forth the key elements of sound interest rate
risk management and prudent practices for each of these elements, but does not
establish a standardized measure of, or require an explicit capital charge for,
IRR.

         In addition, in 1995 the OTS and the other federal banking agencies
revised their risk-based capital standards to take account of concentration of
credit risk and the risk of nontraditional activities. The OTS rule authorizes
the OTS to take account of such risks, as well as such other factors as a record
of operational losses, management deficiencies and poor record of supervisory
compliance, in setting individual capital requirements for a thrift institution.
Finally, in 1996 the FDIC and the Federal Reserve Board amended their capital
guidelines to require bank holding companies and banks with significant trading
activity to measure and hold capital for exposure to general market risk arising
from fluctuations in interest rates, foreign exchange rates and certain price
risks.

         Under law and regulations specifically applicable to savings
associations, the OTS may impose a number of sanctions on savings associations
that are not in compliance with the OTS capital requirements. Among other
things, the OTS might impose restrictions on asset growth and issue a capital
directive that may require, among other things, an increase in regulatory
capital; reduction of rates paid on savings accounts; cessation of or
limitations on deposit-taking, lending, purchasing loans, making specified
investments, or issuing new accounts; limits on operational expenditures; an
increase in liquidity; and/or such other restrictions or corrective actions as
the OTS may deem necessary or appropriate. In addition, an insured financial
institution such as ALBANK, FSB or ALBANK Commercial must provide its federal
regulators with prior notice before it adds any new director or senior executive
officer if the institution is not meeting its capital requirements or is
otherwise determined to be in a troubled condition. An institution not meeting
its capital requirements is prohibited from making capital distributions without
regulatory approval, could be required to file an appropriate capital plan and
may not accept, renew or roll over brokered deposits. Furthermore, deposits of
employee benefit plans in such an institution are not eligible for
"pass-through" deposit insurance. FDIC regulations permit only well-capitalized
depository institutions to accept, renew or roll over brokered deposits without
restriction.

         Prompt Corrective Regulatory Action. FDICIA established five capital
zones ("well- capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized") in which
insured depository institutions such as ALBANK, FSB and ALBANK Commercial would
be placed, and authorized (and, in certain circumstances, required) the
appropriate federal banking agency to take "prompt corrective action" to resolve
an institution's problems, with the nature and extent of such action dependent
primarily on the zone in which the institution is placed.

         In general, an insured depository institution may not make a capital
contribution (including a payment of a dividend) or pay any management fee to
its holding company if the institution would thereafter be undercapitalized. The
severity of the other actions required to be taken by the appropriate federal
banking agency increases as an institution's capital position deteriorates.
Among other things, these actions could include, under certain circumstances,
requiring recapitalization of or a capital restoration plan by a depository
institution; restricting transactions between such an institution and its
affiliates; restricting interest rates, asset growth, activities or investments
in subsidiaries; ordering a new election for directors; dismissing directors or
senior executive officers; and/or requiring the employment of additional
qualified senior executive officers. If the agency determines that an
institution is in an unsafe and unsound condition or if the institution is
deemed by the agency to be engaging in an unsafe and unsound practice by virtue
of having received a less-than-satisfactory rating for asset quality,
management, earnings or liquidity in its most recent examination, the agency
may, if the institution is "well-capitalized," reclassify it to "adequately
capitalized," if the institution is "adequately capitalized," require it to
comply with restrictions applicable to "undercapitalized" institutions and if
the institution is "undercapitalized," require it to comply with restrictions
applicable to "significantly undercapitalized" institutions.

         Each company having control of a capital deficient depository
institution must (i) guarantee that the institution will comply with a required
capital restoration plan until the institution has been adequately capitalized
on average during each of four consecutive calendar quarters, and (ii) provide
appropriate assurances of performance. The aggregate guarantee liability of all
companies having control of a depository institution will be the lesser of 5% of
the institution's total assets when it becomes undercapitalized or the amount
that is necessary to bring the institution into compliance with the capital
standards as of the time the institution fails to comply with the capital
restoration plan.

         FDICIA also significantly expanded the grounds for the appointment of a
conservator or receiver for an insured depository institution, including grounds
based upon the institution's compliance with the prompt corrective action
provisions.

         Restrictions on Dividends and other Capital Distributions. OTS
regulations limit the ability of a savings association to pay dividends and make
other capital distributions according to the association's level of capital and
income, with the greatest flexibility afforded to an institution that meets or
exceeds its capital requirements. A savings association that exceeds its capital
requirements both before and after a proposed distribution (a "Tier 1
Association") and has not been advised by the OTS that it is in need of more
than normal supervision could, after prior notice to the OTS, make capital
distributions during a calendar year up to the higher of (i) 100% of its net
income to date during the calendar year plus the amount that would reduce by
one-half its "surplus capital ratio" (the association's excess capital over its
capital requirement) at the beginning of the calendar year, or (ii) 75% of its
net income to date over the most recent four-quarter period. In addition, a Tier
1 Association may make capital distributions in excess of the foregoing limits
if it gives the OTS 30 days' notice of the proposed distribution and the OTS
does not object. Bank management believes that ALBANK, FSB at December 31, 1997,
met the requirements to qualify as a Tier 1 Association. An institution not
qualifying as a Tier 1 Association is subject to more stringent restrictions on
its capital distributions. The OTS may also prohibit a capital distribution that
would otherwise be permitted if the OTS determines that the distribution would
constitute an unsafe or unsound practice. In addition, a savings association,
such as ALBANK, FSB, that has converted from mutual to stock form may not
declare or pay a dividend on or repurchase any of its capital stock if the
effect of such action would be to reduce the regulatory capital of the
association below the amount required for the liquidation account established
for the benefit of certain of its depositors in connection with such conversion.

         In January 1998 the OTS proposed to amend its capital distribution
regulation. In general, well-capitalized savings associations that meet certain
other criteria and that would be at least adequately capitalized after making a
capital distribution could make most types of capital distributions without
prior notice or application to the OTS so long as all distributions (including
the proposed distribution) for the applicable calendar year did not exceed net
income for that year to date plus retained net income for the preceding two
years. Subsidiaries of savings and loan holding companies would be required to
give notice to the OTS.

         ALBANK Commercial is subject to dividend limitations under the New York
Banking Law, including a requirement that prior regulatory approval be obtained
for dividends paid in any year that would exceed ALBANK Commercial's net profits
for such year combined with retained net profits for the prior two years.

         All insured depository institutions, including ALBANK, FSB and ALBANK
Commercial, are prohibited from making a capital distribution if, following such
distribution, an institution would be "undercapitalized" under the prompt
corrective action provisions discussed above.

         Deposit Insurance and Other Assessments. As of December 31, 1997, 58%
of ALBANK's consolidated deposit accounts were insured up to applicable limits
by the FDIC through the SAIF and 42% of deposits were insured up to applicable
limits by the FDIC through the BIF. Under FDICIA, the FDIC has established a
risk-based assessment system for insured depository institutions that takes into
account the risks attributable to different categories and concentrations of
assets and liabilities. Depository institutions are placed into one of nine
confidential risk assessment categories using a two-step process based first on
capital ratios and then on other factors derived from reviews by the
institution's primary federal and, if applicable, state regulator and other
information deemed by the FDIC to be relevant. The disclosure of the
confidential supervisory subgroup to which an institution is assigned is
prohibited by FDIC regulation. Until mid-1995, the range of deposit insurance
premiums paid with respect to BIF-insured deposits was the same as that for
SAIF-insured deposits. However, as a result of a series of actions taken by the
FDIC, from mid-1995 through 1996 BIF premiums were substantially lower than SAIF
premiums. Indeed, beginning in 1996, institutions with the most favorable
capital and risk categories paid only the statutory minimum of $2,000 annually
with respect to BIF-insured deposits (the assessment range was $0 to $0.27 per
$100 of deposits), while SAIF-insured deposits were subject to an assessment
that ranged from $0.23 to $0.31 per $100 of deposits. As a result of the
recapitalization of the SAIF (discussed below) that occurred effective October
1, 1996, the FDIC reduced the premiums on SAIF deposits to a range of $0 to
$0.27 per $100 of deposits (the same as for BIF-insured deposits), except that
SAIF-member savings associations (such as ALBANK, FSB) were subject from October
1, 1996 through December 31, 1996, to a premium range of $0.18 to $0.27 per $100
of SAIF deposits. Throughout 1997 and in the first quarter of 1998, all
deposits, SAIF or BIF, were subject to the same range of $0 to $0.27, with no 
statutory minimum.

     In September 1996 Congress passed and the President signed the Deposit
Insurance Funds Act of 1996 (the "Funds Act"), which, among other things,
required the FDIC to impose a one-time special assessment on SAIF-insured
deposits in an amount that would recapitalize the SAIF at its required reserve
ratio of 1.25%. Certain institutions, including ALBANK, FSB, were permitted to
reduce the amount of deposits to which the assessment was applied by 20%.
ALBANK, FSB paid a special assessment in the amount of $10.4 million. The Funds
Act provides that the FDIC may not set semiannual assessments with respect to
SAIF or BIF in excess of the amount needed (i) to maintain the 1.25% designated
reserve ratio, or, if the reserve ratio is less than the designated reserve
ratio, (ii) to increase the reserve ratio to the designated level.

         The Funds Act also provided that beginning in 1997, both BIF deposits
and SAIF deposits will be assessed by the Financing Corporation ("FICO") for
interest payments due on bonds issued by FICO for purposes of recapitalizing the
Federal Savings and Loan Insurance Corporation in the late 1980s. The Funds Act
provides that through the earlier of December 31, 1999, or the date as of which
the last savings association ceases to exist, BIF deposits will be assessed for
FICO at a rate that is one-fifth the rate applicable to SAIF deposits. After
that date, the FICO assessment will be the same for both BIF and SAIF deposits.
For 1997, the FICO assessment (payable quarterly) on SAIF deposits ranged from
$0.063 to $0.065 per $100 of deposits and for BIF deposits was $0.0126 to $0.013
per $100 of deposits. The FICO assessment for the first quarter of 1998 was
$0.0622 per $100 of SAIF deposits and $0.0124 per $100 of BIF deposits for
ALBANK, FSB and $0.0249 per $100 of BIF deposits for ALBANK Commercial.

         Prior to enactment of the Funds Act, institutions were generally
prohibited from changing from BIF membership to SAIF membership or vice versa.
Since October 1, 1996, institutions have been permitted to change insurance
funds but must pay exit and entrance fees to the respective funds. However, a
SAIF member may acquire deposits from a BIF member or vice versa in a merger or
assumption of deposits without changing funds, so long as the acquired deposits
continue to be treated as deposits insured by the fund of the selling
institution and assessments go to that fund. Another provision of the Funds Act
requires the federal banking agencies to take "appropriate actions" (including
denial of applications, enforcement actions and the imposition of entrance and
exit fees) to prevent insured depository institutions and holding companies from
"facilitating or encouraging" the shifting of deposits from SAIF-assessable
deposits to BIF-assessable deposits for the purpose of evading the assessments
applicable to SAIF-assessable deposits. The provision terminates on the earlier
of December 31, 1999, or the date on which the last savings association ceases
to exist.

     Savings associations are required by OTS regulation to pay assessments to
the OTS to fund its operations. The general assessment is computed on the basis
of a savings association's total assets, including consolidated subsidiaries. A
premium assessment is charged for associations designated as troubled
institutions. ALBANK, FSB's general assessment for the year ended December 31,
1997, totaled $522,000. 

     Safety and Soundness Standards. Pursuant to FDICIA and subsequent
legislation, the federal banking agencies have prescribed standards relating to,
among other things, internal controls and audit systems, credit underwriting and
loan documentation, interest rate exposure, asset growth, compensation of
directors and officers, asset quality and earnings.

         The federal banking agencies require each insured depository
institution to establish and maintain written internal real estate lending
standards consistent with safe and sound banking practices, taking into account
the size of the institution and the nature and scope of its real estate lending
activities. Subject to certain exceptions, the policies of each institution must
also be consistent with accompanying interagency guidelines, which include
loan-to-value ratios for the following types of real estate loans: raw land
(65%); land development (75%); nonresidential construction (80%); improved
property (85%); and one- to four-family residential construction (85%). One- to
four-family mortgage and home equity loans do not have maximum loan-to-value
ratio limits, but those with a loan-to-value ratio at origination of 90% or
greater are expected to be backed by private mortgage insurance or readily
marketable collateral. Institutions are also permitted to make a limited amount
of loans that do no conform to the loan-to-value limitations.

         Consumer Laws and Regulations. Numerous laws and regulations set forth
special restrictions and procedural requirements applicable to ALBANK, FSB and
ALBANK Commercial with respect to extensions of credit, credit practices, the
disclosure of credit and savings account terms and discrimination in credit
transactions. For example, under the Community Reinvestment Act ("CRA") and
implementing regulations, ALBANK, FSB and ALBANK Commercial have an obligation
to help meet the credit needs of their local communities, including low- and
moderate-income neighborhoods, consistent with the safe and sound operation of
the institutions. In May 1995, the federal banking agencies issued revisions to
the rules governing CRA compliance. The new rules, which became effective July
1, 1997, were intended to give financial institutions guidance regarding their
CRA obligations and to simplify CRA evaluations by establishing
performance-based criteria. The rules establish a methodology for evaluating an
institution's CRA compliance in three broad areas, lending, investment and
service, with the actual criteria applied being dependent on the type of
institution (retail or wholesale) and the nature of its service area.

         Under a consent decree filed in the U.S. District Court for the
Northern District of New York on August 13, 1997, entered into by the U.S.
Department of Justice, the Company and ALBANK, FSB concerning allegations of
fair lending violations relating to certain of ALBANK, FSB's arrangements with
unaffiliated "correspondent" mortgage bankers or brokers from which ALBANK, FSB
purchased loans originated in Connecticut and in Westchester County, New York,
ALBANK, FSB agreed to make available $35 million of home mortgage loans at 1.5%
below market rates to homebuyers in the Connecticut cities of Bridgeport,
Hartford, New Britain, New Haven, Norwalk, Stamford and Waterbury over a period
of five years. In Westchester County below I-287, ALBANK, FSB will make
available $20 million in similarly discounted loans over two years. ALBANK, FSB
will also contribute $350,000 over five years to support homebuying counseling
and education programs provided by local organizations in these areas, and will
spend another $350,000, primarily in the form of services, for ALBANK,
FSB's homebuyer education programs.

         In agreeing to the consent decree, ALBANK, FSB denied any and all
allegations that it intentionally violated fair lending laws. In particular,
ALBANK, FSB believes that the loan origination criteria that it set for the
mortgage bankers from whom it purchased loans in Connecticut and Westchester
County were based primarily on credit quality considerations and, initially, the
desire to stay within markets similar to ALBANK, FSB's upstate New York
lending area. ALBANK, FSB agreed to accept the conditions of the consent decree
because it believed that the cost of contesting allegations in the courts would
have been significant, and that protracted litigation would have hampered
ALBANK, FSB's strategic growth plans.

         Certain Loss Valuation Policies. Adequate valuation allowances,
consistent with generally accepted accounting principles, are required to be
established for classified assets, and the federal banking agencies have issued
an interagency policy statement relating to allowances for loan and lease
losses. This statement reaffirms that an institution's board of directors and
management are responsible for establishing and maintaining an adequate level of
allowances, and contains general guidance on calculating the allowances. At a
minimum, the allowance should be no less than the sum of (i) estimated credit
losses for the remaining effective lives of loans and leases classified as
"substandard" and "doubtful"; (ii) estimated credit losses for the upcoming 12
months for components of the loan and lease portfolio that are not classified;
and (iii) estimated credit losses resulting from the transfer risk of
international loans. ALBANK, FSB and ALBANK Commercial believe that their
methodologies for establishing a general valuation allowance are in accordance
with the policy statement. (See "Statistical Data - IV. Summary of Loan Loss
Experience".)

         Certain Operational Matters Respecting ALBANK, FSB. Savings 
associations are required to maintain 65% of their "portfolio assets" (total 
assets minus goodwill, intangibles, property used to conduct business and 
liquid assets up to 20% of assets) in "qualified thrift investments." 
Qualified thrift investments include loans and other investments 
related to residential real estate, credit card loans, education 
loans and small business loans, and a lesser amount of other 
consumer loans. Savings associations that fail the "qualified thrift
lender" ("QTL") test are subject to substantial restrictions on
their activities and to certain other penalties. As a savings bank chartered
under state law prior to October 15, 1982, ALBANK, FSB is exempt from many of
such restrictions and penalties. However, failure by ALBANK, FSB to maintain QTL
status could affect its ability to branch across state lines. As of December 31,
1997, ALBANK, FSB complied with the QTL requirements (with 85.03% of it assets
in qualified thrift investments).

         Until they were amended in November 1997, OTS regulations required
savings associations such as ALBANK, FSB to maintain an average daily balance of
liquid assets (including, among other things, cash, certain time deposits,
bankers' acceptances, specified U.S. government, state or federal agency
obligations) equal to at least 5% of the average daily balance of its net
withdrawable accounts plus short-term borrowings during the preceding calendar
month (the "long-term liquidity ratio"). OTS regulations also required each
savings association to maintain an average daily balance of short-term liquid
assets (generally those having maturities of 12 months or less) equal to at
least 1% of the average daily balance of its net withdrawable accounts plus
short-term borrowings during the preceding calendar month (the "short-term
liquidity ratio"). Effective in November 1997, the OTS amended its regulations
to reduce the long-term liquidity ratio to 4% of the average daily balance of
net withdrawable accounts plus short-term borrowings either during or at the end
of the preceding calendar quarter; to add additional qualifying investments,
such as certain mortgage-related securities and mortgages; and to remove the
short-term liquidity ratio requirement. This liquidity requirement may be
changed from time to time by the OTS to an amount within a range of 4% to 10% of
designated accounts and borrowings. Monetary penalties may be imposed for
failure to meet the liquidity ratio requirement. At December 31, 1997, the
liquidity ratio of ALBANK, FSB was 25.2%.

         Federal savings associations are also subject to comprehensive
regulation governing their investments and activities. Among other things, a
federal association may invest in (i) mortgage loans in an unlimited amount,
(ii) nonresidential real estate loans up to 400% of capital, (iii) commercial
loans up to 20% of assets so long as the last 10% are small business loans and
(iv) consumer loans, commercial paper and corporate debt securities in the
aggregate up to 35% of assets. In addition, a federal savings association may
invest up to 3% of its assets in service corporations and an unlimited
percentage of its assets in operating subsidiaries (which may engage only in
activities permissible for the association). Other than investment in service
corporations and operating subsidiaries, and stock of government sponsored
enterprises such as the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"), federal savings associations
generally are not authorized to make equity investments.

         Until its conversion to a federally chartered savings bank in 1982,
ALBANK, FSB was a New York state chartered savings bank with investment powers
conferred by New York law. Federal law and OTS regulations authorize ALBANK, FSB
to make investments or engage in activities to the degree it was authorized to
do so as a state chartered savings bank under New York law at the time of its
conversion from a state to a federal charter and to the degree permissible for
ALBANK, FSB in its capacity as a federal savings bank prior to October 15, 1982,
in each case to the extent authorized by the OTS and subject to the authority of
the FDIC to limit activities incompatible with deposit insurance. These powers
are in addition to powers that ALBANK, FSB currently possesses as a federally
chartered savings bank.

         ALBANK, FSB's grandfathered powers include the authority to
invest in various types of investment securities, including corporate bonds and
stock, and in real estate for development, in each case subject to certain
limitations. In addition, ALBANK, FSB has grandfathered authority to make
so-called "leeway investments," which include any investment not otherwise
authorized under New York law at the time of ALBANK, FSB's charter conversion
(other than investments in the common stock of commercial banks or life
insurance companies), so long as any single investment does not exceed 1% of
ALBANK, FSB's assets and all such investments do not exceed 5% of its assets.

     As a "non-bank" subsidiary of a bank holding company, ALBANK, FSB is, as of
October 10, 1997, subject to certain restrictions on its activities. As a
result, ALBANK, FSB is not permitted to exercise certain of its grandfathered
powers, including investment in real estate for development and investment in
more than 5% of the voting stock of certain companies, and (subject to a limited
phase-out ending October 10, 1999) including the conduct of SBLI activities.
(See "Regulation and Supervision - Regulation of Bank Holding Companies".)

     Certain Operational Matters Respecting ALBANK Commercial. The New York
Banking Law and Regulations delimit the powers of New York banks, which include
the powers, among others, subject to certain restrictions, to lend money,
including on real and personal security, to discount commercial paper, to
receive deposits and to invest in certain securities. Legislation enacted in New
York in 1997 authorizes the Superintendent to permit New York banks to exercise
any power permissible for national banks. In addition, as a state non-member
bank, ALBANK Commercial is subject to numerous requirements and restrictions
under New York and federal law with respect to its business and operations,
generally of the type applicable to ALBANK, FSB and discussed under "Regulation
and Supervision - General."

         The Federal Deposit Insurance Act provides that a state bank, including
a state non-member bank such as ALBANK Commercial, generally may not engage as
principal in any activity that is not permissible for a national bank.

         Regulation of Bank Holding Companies. As a bank holding company, the
Company is subject to regulation under the BHC Act, which is administered by the
Federal Reserve Board. As such, the Company is required to file reports with the
Federal Reserve Board and is subject to Federal Reserve Board examination and
notice/application requirements. The BHC Act generally limits activities of a
bank holding company to the ownership and management of banks and companies
engaged in activities that the Federal Reserve Board has determined to be so
closely related to banking as to be a proper incident thereto ("non-banking
subsidiaries"). The activities of the Company conducted directly or through
non-bank subsidiaries are generally limited to furnishing services to its
subsidiaries and activities that qualify under the "closely related" and "proper
incident" tests. Notice to or application to the Federal Reserve Board is
required for new activities and acquisitions of most non-banking subsidiaries.
Among other activities, operating a savings association has been determined by
the Federal Reserve Board to be a permissible non-banking activity, provided the
savings association engages only in activities that are permissible for bank
holding companies under the "closely related" and "proper incident" test. As a
result, ALBANK, FSB cannot take advantage of certain grandfathered powers (see
"Regulation and Supervision - Certain Operational Matters Respecting ALBANK,
FSB") and as a condition to becoming a bank holding company, the Company
committed to the Federal Reserve Board, among other things, to divest or
discontinue the sale of SBLI and certain life insurance products, as well as its
investment in certain office premises, unless during such period such activities
become permissible to ALBANK, FSB (as a "non-bank" subsidiary of a bank holding
company) or ALBANK Commercial, as the case may be, under applicable law. (See
"Subsidiaries".)

         Under Federal Reserve Board Policy, a bank holding company is expected
to act as a source of financial strength to its banks and to commit resources to
support such banks in circumstances where it might not do so absent such policy.
In addition, any loans by a bank holding company to its subsidiary banks are
subordinate in right of payment to deposits and to certain other indebtedness of
its banks. Under the Federal Deposit Insurance Act, a depository institution
insured by the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC in connection with (i) the default of a
commonly controlled FDIC-insured depository institution, or (ii) any assistance
provided by the FDIC to a commonly controlled FDIC-insured depository
institution in danger of default. "Default" is defined generally as the
appointment of a conservator or receiver, and "in danger of default" is defined
generally as the existence of certain conditions indicating that a default is 
likely to occur in the absence of regulatory assistance.

         Acquisitions. A bank holding company is not permitted to acquire the
ownership or control of more than 5% of any class of voting shares or
substantially all of the assets of any company -- including a bank, a bank
holding company, a savings and loan association or a savings and loan holding
company -- or merge or consolidate with another company without the prior
approval (or in some cases, non-objection) of the Federal Reserve Board. The OTS
no longer regulates acquisitions by the Company but it regulates acquisitions by
ALBANK, FSB. The FDIC (under the Bank Merger Act) and the Superintendent (under
the New York Banking Law) regulate acquisitions by ALBANK Commercial.

     Under applicable federal law, bank holding companies are permitted to
acquire banks located in states other than their home states without regard to
whether the transaction is permissible under state law. In addition, commencing
June 1, 1997, state and national banks with different home states are permitted
to merge across state lines, with approval of the appropriate federal banking
agency, unless the relevant state passed legislation by May 31, 1997, expressly
prohibiting interstate mergers. A bank may also establish and operate a new
branch in a state in which it does not maintain a branch if that state expressly
permits such de novo branching. By contrast, federal savings associations such
as ALBANK, FSB are permitted to branch nationwide by acquisition or de novo
without regard to state law so long as the institution and the branches meet the
QTL test. 

          Other Regulatory Requirements. The Federal Home Loan Bank System,
which consists of 12 Federal Home Loan Banks (the "FHLBanks"), provides a
central credit facility primarily for the use of member institutions. The
Federal Housing Finance Board oversees the FHLBanks. ALBANK, FSB is a member of
the FHLB-NY and, as such, is required to acquire and hold shares of capital
stock in the FHLB-NY in an amount at least equal to 1% of the aggregate
principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year (assuming for such purposes that at
least 30% of its assets were home mortgage loans), or 5% of its advances
(borrowings) from the FHLB-NY, whichever is greater. ALBANK, FSB is in
compliance with this requirement, with an investment in FHLB-NY stock at
December 31, 1997, of $21.4 million. FHLB-NY advances must be secured by
specified types of collateral, and long-term advances may be obtained only for
the purpose of enabling a member to purchase or fund new or existing 
residential housing finance assets.

         ALBANK, FSB recorded dividend income of $1.3 million on its FHLB-NY
stock in the year ended December 31, 1997. Since 1989, each of the FHLBanks has
been required to transfer a certain amount of its reserves and undivided profits
to the Resolution Funding Corporation ("REFCORP"), the government entity
established to raise funds to resolve failed savings association cases, to fund
the principal and a portion of the interest on REFCORP bonds and certain other
obligations. In addition, each of the FHLBanks has been required to transfer a
percentage of its annual net earnings to an Affordable Housing Program.

         Federal Reserve Board regulations require depository institutions,
including ALBANK, FSB and ALBANK Commercial to maintain noninterest-earning
reserves against certain of their transaction accounts and deposits. For the
calculation period including December 31, 1997, ALBANK, FSB and ALBANK
Commercial were in compliance with the requirement that they maintain $19.1
million in noninterest-earning reserves. The balances maintained to meet the
reserve requirements imposed by the Federal Reserve Board may also be used to
satisfy long-term liquidity requirements imposed by the OTS on savings
associations.

     Legislative and Regulatory Proposals. Any changes in the extensive
regulatory structure, whether by the OTS, the FDIC, the Federal Reserve Board,
the Superintendent or Congress, could have a material effect on the Company. The
Company cannot predict what, if any, future actions may be taken by legislative
or regulatory authorities or what impact such actions may have on the Company.
        

         The Funds Act provided for the merger of the BIF and the SAIF on
January 3, 1999, but only if no depository institution was a savings
association by that date. Thus the merger of the two deposit insurance funds was
conditioned upon the conversion of savings associations to bank charters, but
the Funds Act did not provide for the manner of such conversion.

         Tax legislation enacted in 1996 repealed the reserve method of
accounting for bad debts by most thrift institutions, such as ALBANK, FSB, and
requires such thrift institutions to recapture their post-1987 additions to
their bad debt reserves ratably over a six-year period. Because ALBANK, FSB
meets certain lending requirements, this recapture did not begin in 1996 or
1997. The recapture began in 1998. The enactment of such tax recapture
legislation should not have a material effect on either the financial condition
or the results of operations of the Company.

         The Clinton Administration and Congressional leaders have been
considering measures to restructure elements of the regulation of banks and
savings associations. Legislation pending in the House of Representatives, H.R.
10, would, if ultimately enacted into law, be a sweeping proposal for financial
modernization of the banking system. The stated purposes of H.R. 10 are to
enhance consumer choice in the financial services marketplace, level the playing
field among providers of financial services, and increase competition. H.R. 10
would remove restrictions contained in the Glass-Steagall Act of 1933 and the
BHC Act, thereby allowing qualified financial holding companies to control
banks, securities firms, insurance companies and other financial firms.
Conversely, securities firms, insurance companies and financial firms would be
allowed to own or affiliate with commercial banks. H.R. 10 would also provide
that subsidiaries of national banks may engage in agency activities that are
financial in nature, but only if such bank and all of its depository institution
affiliates are well capitalized and well managed and have a "satisfactory" CRA
rating. Under the new framework, the Federal Reserve Board would serve as an
umbrella regulator to oversee the new financial holding company structure.
Securities affiliates would be required to comply with all applicable federal
securities laws, including registration and other requirements applicable to
broker-dealers. H.R. 10 would also provide that insurance affiliates of banks be
subject to applicable state insurance regulation and supervision. With respect
to the thrift industry, H.R. 10 would, among other things, restrict the
interstate branching authority of federal savings associations to that
applicable to banks, but institutions could keep existing branches. In addition,
the act would merge the OTS and the Office of the Comptroller of the Currency
(the current regulator of national banks) and would also merge the SAIF and the
BIF, effective January 1, 2000. If the bill passes the House, the Senate would
need to approve the bill before it could be sent to the President for his
signature. There can be no assurance of when or if legislation will be enacted
to modernize the financial services industry, or if enacted, what form such
legislation might take.

Statistical Information and Analysis

         Reference is made to the "Five Year Selected Financial Data" section on
page 2 of the Company's 1997 Summary Annual Report and the "Management's
Discussion and Analysis" section on pages 1 through 13 of the Company's 1997
Annual Report Supplement (collectively, the "1997 Annual Report") for a
presentation and discussion of certain statistical data relating to ALBANK which
information is incorporated by reference. The information with respect to such
data should not be construed to imply any conclusions on the part of the
management of ALBANK that the results, causes or trends indicated therein will
continue in the future. The nature and effects of governmental monetary policy,
supervision, regulation, future legislation, inflation and other economic
conditions and many other factors which affect interest rates, investments,
loans, deposits and other aspects of ALBANK's operations are extremely complex
and could make historical operations, earnings, assets and liabilities not
indicative of what may occur in the future.

Statistical Data

     I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest
        Rates and Interest Differential

        The information set forth on pages 2 and 3 of the 1997 Annual Report
Supplement is incorporated herein by reference.

<PAGE>
    
II.      Investment Portfolio

         Securities

         The investment policy of the Company, which is established by 
senior management and approved by the Board of Directors, is based upon 
its asset/liability management goals and is designed primarily to provide
a portfolio of high quality, diversified investments while seeking to 
optimize interest income within acceptable limits of safety and liquidity.


         ALBANK, FSB and ALBANK Commercial invest in various types of liquid
assets, including U.S. Treasury and state and municipal government obligations,
securities of various federal agencies, federal funds and repurchase agreements.
Subject to various regulatory restrictions, applicable to ALBANK, FSB and ALBANK
Commercial, the Company also invests in investment grade corporate debt
securities, asset-backed securities (which are securities collateralized by
automobile loans, credit card receivables and marine vehicle loans which have
been originated by other financial institutions), mortgage-backed securities,
collateralized mortgage obligations and real estate mortgage investment conduit
securities.

         ALBANK, FSB, which until 1982 was a New York State chartered savings
bank, also has grandfathered leeway authority to invest in certain equity and
other securities, although ALBANK, FSB's ability to use such authority has
been restricted since it became a subsidiary of a bank holding company. (See
Regulation and Supervision - "Regulation of Bank Holding Companies").

<PAGE>


         The following table sets forth certain information regarding the
amortized cost and market value of the Company's investment securities and
securities available for sale portfolios at the dates indicated.

<TABLE>
<CAPTION>

                                                                   At December 31,
                                         1997                            1996                             1995
                              Amortized        Market         Amortized         Market          Amortized       Market
                              Cost             Value          Cost              Value           Cost            Value
                                                                    (in thousands)
<S>                           <C>              <C>            <C>               <C>             <C>             <C>
Investment securities
 U.S. Government obligations  $  1,845            1,852         1,744             1,747           1,592           1,627
 U.S. Government agency 
  obligations                   55,000           55,221        25,140            25,269          20,393          20,567
 Other tax-exempt bonds          7,000            7,034         7,978             8,013           8,916           8,964
 Mortgage-backed 
  securities                    19,815           21,163        25,082            26,533          31,030          32,987
 Corporate bonds                   219              219           219               219              --              --
 Collateralized mortgage 
  obligation and real estate 
   mortgage  investment 
    conduit securities           7,472            7,390        34,587            34,360          55,446          55,346
 Asset-backed securities         3,580            3,562        21,532            21,625          43,540          43,548
 Other bonds                        40               40            40                40              40              40

Total investment securities   $ 94,971           96,481       116,322           117,806         160,957         163,079


Securities available for sale
U.S. Government obligations   $ 45,305           46,057        75,910            76,262         120,980         122,486
U.S. Government agency 
  obligations                    3,028            3,004         6,032             6,014              --              --
Mortgage-backed securities     460,939          462,157       200,870           200,042         122,952         122,442
Corporate bonds                193,333          195,103       282,867           283,860         352,727         356,479
Collateralized mortgage 
  obligation and real 
  estate mortgage investment 
  conduit securities            13,385           13,132        19,443            19,051          25,322          25,094
Asset-backed securities         34,689           34,759        23,093            23,156          24,043          24,201
Equity securities                6,832           14,305         6,832             9,558           4,766           6,082

Total securities available 
  for sale                    $757,511          768,517       615,047           617,943         650,790         656,784
</TABLE>

At December 31, 1997, the aggregate securities of any single issuer
(other than the U.S. Government and U.S. Government agencies and 
corporations) did not exceed 10% of the Company's
stockholders' equity.

<PAGE>

The following table sets forth certain information regarding the amortized 
cost, annual weighted-average yields (which have not been calculated on a 
tax-equivalent basis) and contractual maturities of the Company's investment 
securities and securities available for sale at December 31, 1997.

<TABLE>
<CAPTION>

                                            Within                 After One Year         After Five Years
                                            One Year               Through Five Years     Through Ten Years
                                                 Annualized                  Annualized                  Annualized
                                                 Weighted-                   Weighted-                   Weighted-
                                     Amortized   Average          Amortized  Average      Amortized      Average
                                     Cost        Yield            Cost       Yield        Cost           Yield
                                                                  (dollars in thousands)
<S>                                  <C>         <C>              <C>        <C>          <C>            <C>   
Investment securities:
  U.S. Government obligations        $    900     5.82%           $    945   6.33%        $    --          --%     
  U.S. Government agency
    obligations                            --       --              55,000   6.85              --          --
  Other tax-exempt bonds                   --       --               6,900   6.04             100        5.64
  Mortgage- backed 
    securities<F1>                         43    10.00               1,889   6.91           4,624        7.91
  Corporate bonds                          --       --                 219   5.54              --          --
  Collateralized mortgage 
    obligation and real 
    estate mortgage 
    investment conduit 
    securities<F1>                         --       --                  48   5.00           1,734        5.10
  Asset-backed 
    securities<F1>                        435     5.05               3,145   4.87               --         --
  Other bonds                              --       --                  10   5.31               30       5.62

Total investment securities          $  1,378     5.71%           $ 68,156   6.67%        $  6,488       7.11%

Securities available for sale:<F2>
  U.S. Government obligations        $ 24,991     6.12%           $ 19,919   6.69%        $     --         --%
  U.S. Government agency 
    obligations                            --       --                  --     --            3,028       6.51
  Mortgage-backed securities<F1>       32,339     5.07              43,628   6.27          161,012       6.85
  Corporate bonds                      75,013     5.76             117,820   6.91              300       6.44
  Collateralized mortgage 
    obligation and real estate 
    mortgage investment conduit
    securities<F1>                         --       --               5,137   4.75            4,887       6.01
  Asset-backed securities<F1>             228     5.11              29,464   6.11            4,997       6.20

Total securities available for sale  $132,571     5.66%           $215,968   6.60%        $174,224       6.80%

<FN>
<F1>  Maturities of securities in these categories reflect their stated 
      contractual maturities, that is, the last possible date for repayment
      of principal, rather than their shorter expected average lives, which
      would be impacted by scheduled amortization and prepayment activity.
<F2>  Does not include equity securities.
</FN>
</TABLE>

<TABLE>
<CAPTION>

                                           After
                                           Ten Years                Total Securities
                                                 Annualized                    Annualized
                                                 Weighted-                     Weighted-
                                     Amortized   Average          Amortized    Average
                                     Cost        Yield            Cost         Yield
<S>                                  <C>         <C>              <C>          <C>
Investment securities:
  U.S. Government
    obligations                      $     --       --%            $  1,845    6.08%
  U.S. Government 
    agency obligations                     --       --               55,000    6.85
  Other tax-exempt 
    bonds                                  --       --                7,000    6.03
  Mortgage- backed 
    securities                         13,259     9.19               19,815    8.68
  Corporate bonds                          --       --                  219    5.54
  Collateralized mortgage 
    obligation and real 
    estate mortgage 
    investment conduit 
    securities<F1>                      5,690     4.73                7,472    4.82
  Asset-backed 
    securities<F1>                         --       --                3,580    4.89
  Other bonds                              --       --                   40    5.54


  Total investment securities        $ 18,949     7.85%            $ 94,971    6.92%


Securities available for sale:<F2>
  U.S. Government obligations        $    395    10.88%            $ 45,305    6.41%
  U.S. Government agency 
    obligations                            --       --                3,028    6.51
  Mortgage-backed securities<F1>      223,960     6.83              460,939    6.66

  Corporate bonds                         200     7.37              193,333    6.46

  Collateralized mortgage obligation
    and real estate mortgage
    investment conduit securities<F1>   3,361     6.17               13,385    5.57

  Asset-backed securities<F1>              --       --               34,689    6.12

  Total securities available 
    for sale                         $227,916     6.83%            $750,679    6.55%

<FN>
<F1>  Maturities of securities in these categories reflect their stated 
      contractual maturities, that is, the last possible date for repayment
      of principal, rather than their shorter expected average lives, which 
      would be impacted by scheduled amortization and prepayment activity.
<F2>  Does not include equity securities.
</FN>
</TABLE>

III.     Lending Activities

         Portfolio Composition

         One- to Four-Family and Home Equity Loans. The Company offers both
fixed- and adjustable-rate first mortgage loans secured by one- to four-family
dwellings, including townhouses and condominium units, throughout its lending
area. Loan originations are generated through the Company's network of 109
branches generally by a team of mortgage loan consultants who operate in the
Company's primary market area. As of December 31, 1997, approximately 87% of
the Company's residential mortgage loan portfolio related to properties located
in New York State (primarily upstate), and the states of Massachusetts, Vermont
and New Hampshire. Substantially all of the residential mortgage originations
during the twelve months ended December 31, 1997, were for owner-occupied
residences. At December 31, 1997, $2.0 billion, or 70% of the Company's total
loan portfolio, consisted of one- to four-family residential mortgage loans, of
which 75% were ARMs. Adjustable-rate products are typically generated for the
Company's own portfolio, while originated fixed-rate loans are either sold with
servicing retained by the Company or booked for its own portfolio. Total fixed-
rate loans generated in 1997 amounted to $87.6 million; $81.2 million were
originated for the Company's own portfolio and $6.4 million were sold with
servicing retained.

ALBANK, FSB also "buys" mortgage loans from mortgage brokers and mortgage 
bankers; most of these loans are on properties located within ALBANK, FSB's
market area, although ALBANK, FSB does buy a certain amount of loans on 
properties that are located in selected nonmarket areas including Ohio, 
Kentucky, and Connecticut. Mortgage loans acquired from mortgage brokers 
and mortgage bankers are underwritten and approved using the same guidelines
as those applicable to ALBANK, FSB's own originations. Purchased loans are 
secured by one- to four- family owner-occupied properties, and have been 
acquired on a servicing released basis (that is, the loans are serviced 
by ALBANK, FSB, not the originator/seller). The origination of loans 
through mortgage brokers and mortgage bankers under contract with ALBANK,
FSB was limited to ARMs. During 1997, ALBANK, FSB purchased of $312.1 million
of adjustable-rate, one- to four- family residential mortgages. In recent
years, ther have been no bulk purchases of residential mortgage loans.

         Generally, ARM loans pose credit risks different from the risks
inherent in fixed-rate loans, primarily because if interest rates rise, the
underlying payments of the borrower rise, thereby increasing the potential for
default. In addition, the marketability of the underlying property may be
adversely affected by higher interest rates. The Company offers some ARMs at an
initial "teaser" rate, which is an interest rate lower than the fully-indexed
rate or the interest rates that are anticipated to follow the initial "teaser"
rate. To better assess underwriting risks, however, the Company qualifies ARM
borrowers at the maximum second-year rate or 7%, whichever is higher.

         Fixed-rate mortgages are available throughout the Company's
lending area on one- to four- family residential properties, and generally are
underwritten according to the secondary market guidelines of FHLMC and FNMA.
State of New York Mortgage Agency and Vermont Housing Finance Agency loans are
also available to New York and Vermont borrowers within the Company's
lending area. These agencies offer special programs, such as loans for 
first-time home buyers and loans for properties in federally designated 
areas, to qualified borrowers at advantageous rates and terms.

         The Company originates two types of home equity loans -- revolving
credit line and single disbursement -- which may be secured by a first or second
mortgage on a one- to four-family primary residence. The Company limits the
loan-to-value ratio for these loans (including the first mortgage) to a maximum
of 75%.

         Commercial Real Estate and Multi-Family Loans. The Company originates
commercial real estate loans secured by mortgages on income-producing property
in its market area, but does not originate, or plan to originate, such loans
out-of-market. The Company's market is defined as the states of New York and
Vermont, and the western portions of Massachusetts and New Hampshire. The
Company's underwriting guidelines require these properties to produce sufficient
income to satisfy operating expenses and principal and interest payments on the
loan, and to provide a reasonable return to the owners on their investment.
Generally, the Company's commercial real estate loans are collateralized by
office buildings, strip shopping centers and office/warehouse buildings. For 
such loans, the Company limits the loan-to-value ratio to a maximum of 75% and
requires borrowers to have demonstrated background experience which would
indicate a high probability of success in managing the property. On
income-producing properties, the Company requires a minimum occupancy rate of
80% and a minimum debt service coverage ratio of 1:1 for construction loans and
1.3:1 for permanent loans.

      The following table sets forth the composition of the Company's mortgage
and other loan portfolios in dollar amounts and in percentages at the dates
indicated.

<TABLE>
<CAPTION>

                                                                      At December 31,
                                  1997                  1996                  1995               1994               1993
                                      Percent               Percent              Percent              Percent             Percent
                                      of                    of                   of                   of                  of
                          Amount      Total     Amount      Total    Amount      Total    Amount      Total   Amount      Total
                                                                 (dollars in thousands)
<S>                       <C>         <C>       <C>         <C>      <C>         <C>      <C>         <C>     <C>         <C>
Mortgage loans:
   One- to four-family    $1,984,783  69.76%    $1,730,059  67.74%   $1,362,277  70.31%   $1,234,250  69.18%  $1,057,274  68.56%
   Home equity               164,991   5.80        169,214   6.63       147,136   7.59       152,869   8.57      143,378   9.30
   Commercial real estate    111,989   3.94        135,284   5.30        81,448   4.20        77,593   4.35       60,994   3.96
   Multi-family               32,968   1.16         31,792   1.24        28,313   1.46        31,574   1.77       35,075   2.27
   Construction               16,393   0.57         13,338   0.52        11,577   0.60        10,975   0.61       13,436   0.87

Total mortgage loans       2,311,124  81.23      2,079,687  81.43     1,630,751  84.16     1,507,261  84.48    1,310,157  84.96

Other loans:
   Commercial                285,266  10.03        241,002   9.44       108,412   5.60        83,474   4.68       62,052   4.02
   Consumer:
     Student                  96,884   3.40         94,478   3.70        93,816   4.84        89,246   5.00       80,314   5.21
     Automobile               68,316   2.40         64,864   2.54        47,556   2.45        35,003   1.96       26,574   1.73
     Home improvement         24,737   0.87         23,593   0.92        22,800   1.18        22,230   1.25       18,184   1.18
     Personal, secured 
      and unsecured           23,731   0.83         19,444   0.76         5,071   0.26        17,664   0.99       14,668   0.95
     Credit cards             13,428   0.47         14,754   0.58        17,233   0.89        16,920   0.95       18,864   1.22
     Overdraft and other      21,799   0.77         16,222   0.63        12,065   0.62        12,362   0.69       11,272   0.73

    Total consumer loans     248,895   8.74        233,355   9.13       198,541  10.24       193,425  10.84      169,876  11.02

Total other loans            543,161  18.77        474,357  18.57       306,953  15,84       276,899  15.52      231,928  15.04

Total mortgage and 
 other loans               2,845,285 100.00%     2,554,044 100.00%    1,937,704 100.00%    1,784,160 100.00%   1,542,085 100.00%
Net discounts, premiums 
 and deferred loan 
  fees and costs              10,764                 5,605                1,680                 (363)             (1,621)
Loans receivable           2,856,049             2,559,649            1,939,384            1,783,797           1,540,464
Allowance for loan losses    (29,117)              (24,114)             (15,949)             (15,510)            (12,984)
Loans receivable, net     $2,826,932            $2,535,535           $1,923,435           $1,768,287          $1,527,480
</TABLE>

         The Company originates multi-family mortgage loans secured by
properties located in its market area, but does not originate, or plan to
originate, such loans out-of-market. These mortgage loans are generally written
for five-year terms with interest rates tied to either the three-year or the
five-year U.S. Treasury Constant Maturity Index or they may float based on the
prime rate of interest. Amortization periods generally average from fifteen to
twenty years (maximum amortization term is twenty-five years) and vary depending
on property type and other considerations. The Company currently limits the
loan-to-value ratio for these loans to a maximum of 75% and generally requires
the execution of personal guarantees extending for the full term of the loan.

     The commercial real estate portfolio declined $2.0 million to $112.0
million during 1997, after excluding a $21.3 million loan reclassification from
commercial real estate to commercial loans during the first quarter.
The multi-family portfolio gained $1.2 million during the year and totaled 
$33.0 million at December 31, 1997, as new loan volume was more than 
sufficient to offset loan prepayment and scheduled amortization.

         At December 31, 1997, the Company had approximately $2.8 million, or
2%, of its commercial real estate portfolio and $3.7 million, or 11%, of its
multi-family mortgage loan portfolio, in out-of-market loans. Most of these
out-of-market loans were purchased from mortgage bankers in the 1970's with the
last such purchase in 1979 (other than purchases which were effected through the
acquisition of loans resulting from the Company's merger and acquisition
activity since 1979).

         Construction Loans. The Company originates loans to finance the
construction of one- to four-family homes in its lending area, but does not
originate, or plan to originate, such loans out-of-market. On occasion, the
Company has also financed construction of multi-family residences and commercial
real estate in its lending area. The Company does not currently provide land
acquisition and development financing or construction loans for speculation.
With rare exception, construction loans are made to a builder or to a buyer
under a purchase contract. Construction loans must ordinarily be combined with a
permanent mortgage from the Company, and the maximum loan-to-value ratio the
Company generally allows is 80%. At December 31, 1997, $16.4 million, or less
than 1% of the Company's total loan portfolio, consisted of construction loans.

     Other Loans. The Company's other lending activities include commercial and
consumer lending. The Company expects to devote additional resources to the
expansion of these operations in order to further diversify its lending base and
further supplement its mortgage activities.

         The Company concentrates its commercial lending efforts on companies
that have the capacity to borrow $100,000 or more, although smaller loans are
considered and encouraged. Loan pricing and terms are set according to the
individual needs and characteristics of each borrower. At December 31, 1997, the
Company's commercial loans outstanding, unused lines of credit and
commitments aggregated $392.1 million. Actual commercial loans outstanding
totaled $285.3 million, or 10% of total loans at December 31, 1997.

         The Company offers a variety of consumer loan products to the
communities it serves. These loans include student loans, automobile loans, 
personal loans, home improvement loans, credit card loans and overdraft loans. 
At December 31, 1997, consumer loans totaled $248.9 million, or just under 9% 
of the Company's total loan portfolio.

     Loan Participations.

From time to time, on a selective basis, the Company also purchases a
participation interest in multi-family, commercial real estate and commercial
loans; at December 31, 1997, these loan participations represented less than 1%
of the Company's loan portfolio.

<PAGE>

         The following table sets forth the Company's loan originations and loan
purchases, sales, principal repayments, transfers of loans to real estate owned
("REO") and repossessed property and reclassification activity for the years 
indicated.

<PAGE>


<TABLE>
<CAPTION>
                                                           Years ended December 31,
                                           1997                  1996                  1995
<S>                                        <C>                   <C>                   <C>
Mortgage loans:
    At beginning of year                   $2,079,687            1,630,751             1,507,261
    Mortgage loans originated:
        One- to four-family<F1>               217,012              251,369               191,204
        Commercial real estate<F2>             33,672               25,354                12,052
        Construction                           27,673               28,978                27,560

    Total mortgage loans originated           278,357              305,701               230,816

    Mortgage loans purchased:
        One- to four-family                   312,095              416,914<F4>           125,894
        Commercial real estate                  4,382<F3>           55,677<F5>                --

    Total mortgage loans originated 
     and purchased                            594,834              778,292               356,710

    Sale of loans                             (11,353)             (34,024)              (17,577)
    Principal repayments                     (325,814)            (291,338)             (209,933)
    Transfer of mortgage loans to REO, 
     net of writedowns                         (4,908)              (5,346)               (5,710)
    Reclassification of mortgage loans
     to other loans                           (21,322)                  --                    --
    Reclassification of other loans 
     to mortgage loans                             --                1,352                    --

Mortgage loans, at end of year             $2,311,124            2,079,687             1,630,751

Other loans:
    At beginning of year                   $  474,357              306,953               276,899

    Commercial loans originated                17,874               24,114                28,137
    Consumer loans originated                  73,882               79,267                74,351
    Total other loans originated               91,756              103,381               102,488
    Other loans purchase                       47,171<F6>          143,418<F7>                --

Total other loans originated and purchased    138,927              246,799               102,488

    Sale of loans                                  --                   --               (13,802)
    Principal repayments.                    (100,418)             (77,448)              (58,632)
    Transfer of other loans to REO                 --                 (595)                   --
    Transfer of other loans to
     repossessed property                         (27)                  --                    --
    Reclassification of mortgage loans 
     to other loans                            21,322                   --                    --
    Reclassification of other loans 
     to mortgage loans                             --               (1,352)                   --

Other loans, at end of year                $  534,161              474,357               306,953

<FN>
<F1>  Includes home equity loans.
<F2>  Includes multi-family loans.
<F3>  Includes $4,382 in loans acquired from KeyBank. 
<F4>  Includes $187,573 in loans acquired from Marble and Green Mountain Banks.
<F5>  Represents $55,677 in loans acquired from Marble Bank.
<F6>  Represents $47,171 in loans acquired from KeyBank.
<F7>  Represents $143,418 in loans acquired from Marble and Green Mountain Banks.
</FN>
</TABLE

     Loan Maturity Repricing. The following table shows the maturity or period
to repricing of ALBANK, FSB's loan portfolio at December 31, 1997. Loans that
have adjustable rates are shown as being due in the period during which the
interest rates are next subject to change. The table does not include
anticipated prepayments.


</TABLE>
<TABLE>
<CAPTION>
                                                                At December 31, 1997
                         One- to                                                                                   Total
                         Four-         Home         Commercial                                                     Loans
                         Family        Equity       Real Estate<F1>    Construction   Commercial     Consumer      Receivable
                                                                    (in thousands)
<S>                      <C>           <C>          <C>                <C>            <C>            <C>           <C>
Amount due:
    Within one year      $  887,648    107,821       43,579            16,393         185,876         78,812        1,320,129
    After one year: 
      One to five years     708,530     27,312       90,054                --          72,476        105,991        1,004,363
      Over five years       388,605     29,858       11,324                --          26,914         64,092          520,793

    Total due after 
     one year             1,097,135     57,170      101,378                --          99,390        170,083        1,525,156

Total amount due         $1,984,783    164,991      144,957            16,393         285,266        248,895        2,845,285

Net discounts, premiums
 and deferred loan 
 fees and costs                                                                                                        10,764
Allowance for loan losses                                                                                             (29,117)

Loans receivable, net                                                                                              $2,826,932

<FN>
<F1>  Includes multi-family loans.
</FN>
</TABLE>


<PAGE>

         The following table sets forth at December 31, 1997, the dollar amount
of fixed- and adjustable-interest rate loans due after December 31, 1998,
(excludes $1.320 billion of loans that mature or reprice within one year).

<PAGE>


<TABLE>
<CAPTION>
                                                Due after December 31, 1998
                                          Fixed           Adjustable           Total
                                                        (in thousands)
<S>                                       <C>             <C>                  <C>
Mortgage loans:
    One- to four-family                   $479,107        618,028              1,097,135
    Home equity                             56,911            259                 57,170
    Commercial real estate<F1>              45,828         55,550                101,378

Other loans:
    Commercial loans                        99,390             --                 99,390
    Consumer loans                         170,083             --                170,083

Total mortgage loans and other loans      $851,319        673,837              1,525,156

<FN>
<F1>  Includes multi-family loans.
</FN>
</TABLE>

         Nonperforming Loans and Assets

         Loans are placed on a nonaccrual status for the recording of interest
when considered doubtful of collection by management. With respect to
residential mortgage loans, this ordinarily occurs when they become 120 days
delinquent. 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. Credit card and other retail consumer loans are
evaluated for collectibility on a monthly basis, at which time (and prior to
their being 150 days delinquent) all accounts (including related accrued
interest) deemed uncollectible are charged off. Delinquent interest on FHA and
VA loans and student loans continues to accrue since these loans are backed by a
government agency guarantee and all interest and principal is ultimately
expected to be received. Once management reaches a decision to place a loan on
nonaccrual status, all previously accrued interest earned but not collected
during the current year on such a loan is reversed against interest income.

         The Company periodically reviews its loan portfolio and classifies
loans it considers to be of lesser quality as "substandard," "doubtful," or
"loss." A loan is considered "substandard" if the borrower's current paying
capacity and/or net worth is impaired or weakened, or the underlying collateral,
if any, has been devalued, such that the continuation of sufficient future cash
flow for full repayment of principal and interest on the asset is questionable.
The notion of substandard also includes the distinct possibility that the
Company will sustain some loss if the deficiencies are not corrected. Loans
classified as "doubtful" have all the weaknesses inherent in those classified
substandard, with the added characteristic that the weaknesses present make
collection in full highly questionable in light of existing facts, conditions
and values. Loans classified as "loss" are charged off. Management designates a
loan which does not currently have the deficiencies necessary to warrant
classification, but does exhibit some potential weaknesses, as a "special
mention" loan.

         On December 31, 1997, criticized loans (including special mention
loans) of the Company, totaled $94.1 million, or approximately 3% of total
loans. These loans were comprised of $3.9 million in the doubtful category,
$60.9 million in the substandard category and $29.3 million in the special
mention category. Of the Company's criticized loans at December 31, 1997,
33% were residential mortgage loans, 49% were commercial loans, 16% were
commercial mortgage loans and 2% were consumer loans. This compared with an
aggregate of $84.2 million of criticized loans, or approximately 3% of total
loans, as of December 31, 1996, of which $4.6 million were in the doubtful
category, $56.4 million were in the substandard category and $23.2 million were
in the special mention category. As of that date, 34% of the Company's
criticized loans were residential mortgages, 34% were commercial loans, 30% were
commercial mortgage loans and 2% were consumer loans.



<PAGE>

         The following table sets forth information regarding nonaccrual loans
(including loans restructured as a result of the financial deterioration of the 
borrower), and accruing loans delinquent more than 90 days (collectively, 
"nonperforming loans") and REO owned by the Company along with repossessed 
property (together with nonperforming loans, "nonperforming assets") at the 
dates indicated.

<TABLE>
<CAPTION>
                                                         Years ended December 31,
                                         1997         1996         1995           1994           1993
                                                          (dollars in thousands)

<S>                                      <C>          <C>          <C>            <C>            <C>
Nonaccrual mortage loans                 $18,477      15,298       12,571         10,231         14,337
Accruing mortgage loans delinquent 
 more than 90 days                         2,871       7,367        5,567          5,104          4,933

Total nonperforming mortgage loans        21,348      22,665       18,138         15,335         19,270

Nonaccrual other loans                     6,074       3,933          372            424            152
Accruing other loans delinquent 
 more than 90 days                         4,392       3,218        4,646          4,544          3,492

Total nonperforming other loans           10,466       7,151        5,018          4,968          3,644

Total nonpreforming loans                 31,814      29,816       23,156         20,303         22,914

Total REO                                  3,966       4,012        3,899          3,822          4,418

Total repossessed  property                   20          --           --             --             --

Total nonperforming assets               $35,800      33,828       27,055         24,125         27,332

Total nonperforming loans to 
 loans receivable                           1.11%       1.16%        1.19%          1.14%          1.49%
Total nonperforming assets to 
 total assets                               0.88        0.96         0.91           0.81           0.99

</TABLE>

         Over the last five years, the Company's nonperforming loans and assets
have been maintained at average levels that were below industry group averages.
At December 31, 1997, 56% of the Company's repossessed assets consisted of
residential (one- to four-family) properties, 43% resulted from foreclosures
on commercial properties and 1% resulted from consumer loans.

<PAGE>

IV.      Summary of Loan Loss Experience

         The Company maintains a total valuation allowance for losses on loans
representing allowances with respect to categories of loans which the Company
believes represent risk of loss and an unallocated allowance for future losses
generally. The allowance for loan losses is established and maintained through a
provision for loan losses at a level deemed appropriate by management to provide
adequately for known and inherent risks in the portfolio. The determination of
the amount of the allowance for loan losses includes estimates that are
susceptible to significant modifications due to changes in appraised values of
collateral and general economic conditions. In connection with the determination
of an adequate allowance for loan losses, management periodically obtains
independent appraisals for significant properties. While management uses
available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. Such agencies may
require the Company to recognize additions to the allowance for loan losses.

         Management's evaluation of the risk inherent in its loan portfolio
includes a review of all loans on which full collectibility may not be
reasonably assured considering, among other matters, the estimated net
realizable value of the underlying collateral (if any), economic conditions,
historical loan loss experience and other factors that warrant recognition in
providing for an adequate loan loss allowance. Other factors considered by
management include the size and risk exposure of each segment of the loan
portfolio, present indicators such as delinquency rates and the borrower's
current financial condition and the potential for losses in future periods. In
evaluating the adequacy of the allowance for loan losses, management recognizes
the risk associated with each type of loan and the current outstanding balance.
The primary risk element considered by management with respect to each consumer,
home equity and one- to four-family real estate mortgage loan is any current
delinquency on the loan. The primary risk elements considered by management with
respect to commercial, commercial real estate and real estate construction loans
are the financial condition of the borrowers, the sufficiency of collateral
(including changes in the appraised value of collateral) and the record of
payment. In general, all properties securing loans delinquent more than 90 days
are physically inspected. A subjective review of all substantial nonperforming
loans, other problem loans and over-all delinquent loans is also made prior to
the end of each calendar quarter to determine the adequacy of the allowance for
loan losses. Additionally, current year charge-offs, charge-off trends, new loan
production and current balances by particular loan categories are factored into
the determination of reserve levels.

<PAGE>

         The following table sets forth the Company's allowance for loan losses
at the dates indicated.

<TABLE>
<CAPTION>
                                                             Years ended December 31,
                                         1997          1996            1995            1994          1993
                                                             (dollars in thousands)
<S>                                      <C>           <C>             <C>             <C>           <C>
Balance at beginning of period           $24,114       15,949          15,510          12,984        11,885
Allowance recorded/acquired from
  acquisition activity                     2,000       11,310              --             151            --
Provision for loan losses                  7,200        5,775           4,500           4,500         4,200
Charge-offs:
    Mortgage loans<F1>                    (1,971)      (7,013)         (2,685)         (1,980)       (2,267)
    Other loans                           (3,301)      (2,635)         (1,736)         (1,031)       (1,146)
Recoveries:
    Mortgage loans                           579          223              83             647            --
    Other loans                              496          505             277             239           312

Balance at end of period                 $29,117       24,114          15,949          15,510        12,984


Allocation of allowance for specfic 
  loan types at end of period:
    Residential mortgage loans           $ 7,281        7,360           7,233           5,724         5,745
    Commercial real estate loans<F2>       1,659        2,623           1,502           1,455         1,599
    Commercial loans                       6,386        4,065           1,714           1,016           896
    Consumer loans                         5,798        5,000           3,523           2,263         2,225
    Unallocated                            7,993        5,066           1,977           5,052         2,519

Balance at end of period                 $29,117       24,114          15,949          15,510        12,984


Ratio of net charge-offs during 
  the period
  to average loans outstanding 
    during the period                       0.16%        0.38%           0.22%           0.13%         0.20%

Ratio of allowance for loan losses
  to loans receivable at end of period      1.02         0.94            0.82            0.87          0.84

Ratio of allowance for loan losses
  to nonperforming loans at end 
    of period                              91.52        80.88           68.88           76.39         56.67

<FN>
<F1>  Of the total loans charged-off in 1996, $4.1 million was related to a 
      sale of nonperforming loans consummated during the fourth quarter 
      of 1996.
<F2>  Includes multi-family loans.
</FN>
</TABLE>

<PAGE>

V.       Deposits and Source of Funds

         The Company's primary sources of funds are deposits and proceeds from
principal and interest payments on loans and on its investments in securities.

         The Company offers a variety of deposit accounts having a range of
interest rates and terms. The Company's deposits principally consist of
passbook and statement savings accounts ("Savings accounts") and NOW accounts,
Super NOW accounts, money market accounts, interest-bearing and
noninterest-bearing demand deposit accounts (collectively, "Transaction
accounts") and fixed-term certificate accounts. The flow of deposits is
influenced significantly by general economic conditions, changes in prevailing
interest rates and competition. The Company's deposits are obtained primarily
from the areas in which its branches are located, and the Company relies
principally on customer service and long-standing relationships with customers
to attract and retain these deposits. The Company does not solicit or accept
brokered deposits.

     The following table sets forth the distribution of the Company's deposit
accounts and the respective weighted average nominal interest rates at the dates
indicated. Average balances of certificates by maturity category are not readily
available. Management believes that the use of the year-end balances does not
significantly affect the analysis.


<TABLE>
<CAPTION
                                                                    At December 31,

                                      1997                               1996                                 1995
                                               Weighted                           Weighted                              Weighted
                                     Percent   Average                  Percent   Average                     Percent   Average
                                     of Total  Nominal                  of Total  Nominal                     of Total  Nominal
                         Amount      Deposits  Rate         Amount      Deposits  Rate            Amount      Deposits  Rate
                                                            (dollars in thousands)

<S>                      <C>         <C>       <C>          <C>         <C>       <C>             <C>         <C>       <C>
Saving accounts          $  809,546  23.24%    2.84%        $  824,151  27.35%    2.94%           $  826,875  32.32%    2.96%
Transaction accounts        824,005  23.65     1.96            605,053  20.08     1.80               422,555  16.52     1.48

Total                     1,633,551  46.89                   1,429,204  47.43                      1,249,430  48.84


Certificate accounts:
    Within one year       1,310,987  37.63                   1,114,101  36.98                        955,218  37.34
    One year to 
     three years            498,071  14.30                     417,300  13.85                        232,161   9.07
    Over three years         41,182   1.18                      52,524   1.74                        121,479   4.75

Total                     1,850,240  53.11     5.52          1,583,925  52.57     5.37             1,308,858  51.16     5.64

Total deposits           $3,483,791 100.00%    4.05%        $3,013,129 100.00%    3.99%           $2,558,288 100.00%    4.09%
</TABLE>

         At December 31, 1997, the following maturities applied to certificate
accounts in amounts of $100,000 or more.

<TABLE>
<CAPTION>
                                               Amount
                                           (in thousands)
<S>                                            <C>
Three months or less                           $ 65,481
Over three through six months                    63,032
Over six through twelve months                   51,083
Over twelve months                               52,681

Total                                          $232,277
</TABLE>

<PAGE>

VI.      Return on Equity and Assets

         Information regarding returns on equity and assets appears on page 2 of
the 1997 Summary Annual Report under the caption "Five Year Selected Financial
Data" and is incorporated herein by reference.

VII.     Short-Term Borrowings

         Although deposits are the Company's primary source of funds, the
Company's policy has been to utilize borrowings where appropriate as an
alternative or less costly source of funds. ALBANK, FSB obtains advances from
the FHLB-NY which are collateralized by certain of ALBANK, FSB's mortgage
loans. Such advances are made pursuant to several different credit programs,
each of which has its own interest rate and range of maturities.

         The Company may enter into sales of securities under agreements to
repurchase ("repurchase agreements") with nationally recognized primary
securities dealers. Repurchase agreements are accounted for as borrowings by the
Company and are secured by designated securities. The proceeds of these
transactions are used to meet cash flow or asset/liability needs.



<PAGE>

         The following table sets forth certain information regarding the
Company's short-term borrowed funds at or for the periods ended on the dates
indicated.

<TABLE>
<CAPTION>
                                                          At or For the Years ended December 31,
                                                           1997             1996           1995
                                                                   (dollars in thousands)
<S>                                                        <C>              <C>            <C>
FHLB-NY advances:
    Average balance outstanding                            $ 57,789         20,838          1,884
    Maximum amount outstanding at any month-end during
      the period                                            172,600         73,000         18,000
    Balance outstanding at end of period                     47,000         36,000             --
    Weighted average interest rate at end of period            6.17%          7.17%            --%
    Weighted average interest rate during the period<F1>       5.68           5.47           6.60

Repurchase agreements:
    Average balance outstanding                            $ 44,532          3,563             --
    Maximum amount outstanding at any month-end during
      the period                                            156,294          4,796             --
    Balance outstanding at end of period                     21,097          4,796             --
    Weighted average interest rate at end of period            4.57%          4.00%            --%
    Weighted average interest rate during the period<F1>       5.47           4.16             --

Other short-term borrowings:
    Average balance outstanding                            $    985            936             14
    Maximum amount outstanding at any month-end during
      the period                                              1,780          1,550          1,290
    Balance outstanding at end of period                        650          1,550          1,290
    Weighted average interest rate at end of period            5.88%          6.00%          4.75%
    Weighted average interest rate during the period<F1>       5.41           5.30           5.48

Total short-term borrowings and repurchase agreements:
    Average balance outstanding                            $103,306         25,337          1,898
    Maximum amount outstanding at any month-end during
      the period                                            330,674         77,971         18,000
    Balance outstanding at end of period                     68,747         42,346          1,290
    Weighted average interest rate at end of period            5.68%          6.77%          4.75%
    Weighted average interest rate during the period<F1>       5.59           5.28           6.59

<FN>
<F1>  Computed on the basis of average daily balances.
</FN>
</TABLE>

<PAGE>

Executive Officers of the Registrant

         The following table sets forth certain information regarding the
executive officers of the Company, all of whom held substantially identical
positions with ALBANK, FSB, as of December 31, 1997.

<TABLE>
<CAPTION>

Name                          Age              Position Held with the Company
<S>                           <C>              <C>
Herbert G. Chorbajian         59               Chairman of the Board, 
                                               President and Chief
                                               Executive Officer

Richard J. Heller             51               Executive Vice President and
                                               Chief Financial Officer

Barry G. Blenis               54               Executive Vice President,
                                               Operations and Strategic Planning

Freling H. Smith              56               Senior Vice President,
                                               Secretary and General Counsel

</TABLE>

         None of the individuals named in the above table was selected to his
position as an officer of the Company pursuant to any arrangement or
understanding with any other person nor are there any family relationships
between them. Each of the above officers has held the same or another executive
position with the Company for the past five years.

         None of the individuals named above holds a directorship with a company
(except for the Company) registered pursuant to Section 12 of the Securities
Exchange Act of 1934, or subject to the requirements of Section 15 (d) of that
Act, or with a company which is registered as an investment company under the
Investment Company Act of 1940.

         Herbert G. Chorbajian has served as Chairman, President and Chief
Executive Officer since 1990.

         Richard J. Heller joined the Company in 1991 and since that time has
served as Executive Vice President and Chief Financial Officer.

         Barry G. Blenis assumed his current position of Executive Vice
President, Operations and Strategic Planning in 1990.

     Freling H. Smith became Senior Vice President, Secretary and General
Counsel to ALBANK, FSB in 1991. Mr. Smith became Secretary to ALBANK Commercial
in September 1997.

ITEM 2            Properties

         ALBANK, FSB conducts business through its home office in Albany, New
York, 71 other full service branches and a merchant banking branch at an Albany
area shopping mall; 34 of ALBANK, FSB's branch offices are owned and 39 are
leased. Four other office locations which are owned by ALBANK, FSB are also used
to conduct business; two are located in Albany, New York (a data processing
center which also houses the main office of ALBANK Commercial and an operations
center), one is located in Plattsburgh, New York (a financial center) and a
fourth is located in Rutland, Vermont (an administrative office for ALBANK,
FSB's Marble Division). In addition, ALBANK, FSB leases an office in
Bennington, Vermont through which its investment functions are performed. ALBANK
Commercial conducts business through its home office in Albany, New York and 35
other full service branches in New York, 28 of which are owned and 7 of which
are leased.

ITEM  3            Legal  Proceedings

         The Company is involved in a number of pending legal proceedings, most
of which represent routine matters occurring in the ordinary course of business.
In the aggregate, all of the Company's pending legal proceedings involve amounts
which are believed by management not to be material to the financial condition
of the Company.

ITEM 4            Submission of Matters to a Vote of Security Holders


         None.
                                                      PART II

ITEM 5            Market for Registrant's Common Equity and Related Stockholder
                  Matters

         The information set forth inside the back cover under the captions
"Stock Listing" and "Stock Price" of the 1997 Summary Annual Report is
incorporated herein by reference.

         As of March 25, 1998, the Company had approximately 5,007 stockholders
of record, not including the number of persons or entities whose stock is held
in nominee or "street" name through various brokerage firms or other financial
institutions.

         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 paid on January
2, 1997. The Company further increased its quarterly dividend 20% on August 26,
1997, when its Board declared an $0.18 per share cash dividend, which was paid
on October 1, 1997. Declarations of subsequent dividends by the Board will
depend upon a number of factors, including, among other things, investment
opportunities available to the Company or its subsidiaries, capital
requirements, regulatory limitations, the Company and its subsidiaries financial
condition and results of operations, tax considerations and general economic
conditions.

         Reference is also made to the "Liquidity and Capital Resources" section
set forth on page 1 of the Annual Report Supplement, which is incorporated
herein by reference. Additional reference is made to Part 1, Item 1.
"Business--Regulation and Supervision--Capital Requirements" and "--Restrictions
on Dividends and Other Capital Distributions" in this Form 10-K for a
description of regulatory restrictions with regard to the future payment of
dividends by the Company's subsidiaries to the Company.

<PAGE>

ITEM 6            Selected Financial Data

     The information set forth on page 2 under the caption "Five-Year Selected
Financial Data" of the 1997 Summary Annual Report is incorporated herein by
reference.

ITEM 7            Management's Discussion and Analysis of Financial Condition 
                  and Results of Operations 

Financial Condition

         Total assets at December 31, 1997, totaled $4.083 billion, an increase
of $577.0 million (16%) over year-end 1996. The primary reason for the increase
was the Key Branch acquisition on November 10, 1997, which included $540.9 
million in deposits.

         Cash and due from banks increased $28.5 million (41%) from year-end
1996 levels to $97.4 million at December 31, 1997. Year-end 1997 balances of the
cash and due from bank accounts of ALBANK Commercial of $47.4 million more than
offset a decrease in ALBANK, FSB balances of $18.9 million (28%). The decrease
in ALBANK, FSB's balances primarily reflects lower levels of required reserves
with the Federal Reserve Bank of New York as compared with the previous
year-end.

         Securities available for sale increased between year-end 1996 and 1997
by $150.6 million (24%) to $768.5 million. The increase was the result of
purchases of securities for ALBANK Commercial including the Company's effort to
prefund such purchases in anticipation of the November 10, 1997, closing date.

         Investment securities totaled $95.0 million at December 31, 1997, a
decrease of $21.4 million (18%) from 1996. Maturing funds not reinvested were
used primarily to fund loan growth.

         Loans receivable grew to $2.856 billion at December 31, 1997, an
increase of $296.4 million (12%) over the previous year. An increase of $254.7
million (15%) in one- to four-family mortgage loans comprised most of the
growth. Other loans increased $59.8 million (13%) between 1996 and 1997
primarily as a result of loans acquired in the Key Branch acquisition with a net
book value of $52.2 million. The aforementioned increases were reduced by a net
decrease in commercial real estate loans of $23.3 million (17%).

         A provision for loan losses of $7.2 million for the year ended December
31, 1997, and acquired allowances of $2.0 million for ALBANK Commercial more 
than offset net charge-offs of $4.2 million, resulting in an increase in 
the allowance for loan losses of $5.0 million (21%) to $29.1 million at 
December 31, 1997. The increase helped to strengthen the coverage of the 
allowance for loan losses to nonperforming loans to 92% at year-end 1997 
compared with 81% at year-end 1996.

         Goodwill increased $36.7 million (85%) as accounting goodwill generated
from the Key Branch acquisition of $40.6 million was reduced by goodwill
amortization of $3.9 million.

         Total deposits at December 31, 1997, of $3.484 billion represent a 
$470.7 million (16%) increase over the prior year end. The increase is 
reflective of the November 10, 1997, Key Branch acquisition for ALBANK 
Commercial of $540.9 million in deposits as reduced by net deposit outflows. 
Total certificate accounts increased $266.3 million (17%) from year-end 
1996 to $1.850 billion at December 31, 1997, and included $234.6 million 
in ALBANK Commercial year-end balances which were augmented 
by time deposit growth in ALBANK, FSB. Transaction
accounts including NOW, Super NOW, money market and demand deposit accounts
increased $219.0 million (36%) from year-end 1996 to 1997 reflecting ALBANK
Commercial year-end balances of $222.5 million slightly reduced by net outflow.
Savings accounts decreased $14.6 million (2%) from year-end 1996 levels despite
ALBANK Commercial December 31, 1997, balances of $55.7 million as the result of
net savings deposit outflows. Escrow account balances declined $5.4 million
(20%) from $26.6 million at year-end 1996 to $21.2 million at year-end 1997
primarily as a result of a change in the required method of maintaining escrow
balances for borrowers resulting in lower individual escrow account balances.

         Short-term borrowed funds increased $26.4 million (62%) from year-end
1996 to $68.7 million at December 31, 1997, as funding needs outpaced other
funding sources including deposits, capital securities and operating cash flow.
Corporation-obligated manditorily redeemable capital securities (more fully 
described in footnote 14 of the Annual Report Supplement) issued in June 1997 
totaled $50.0 million at December 31, 1997, and provided funds which were used 
for general corporate purposes.

         Long-term debt decreased $10.0 million (33%) to 20.0 million at
December 31, 1997, as the result of the repayment of Federal Home Loan Bank
advances maturing in 1997.

         The increase in total stockholders' equity of $40.5 million (13%) from
year-end 1996 to $359.6 million at December 31, 1997, was primarily the result
of an increase in retained earnings of $34.1 million (16%). The increase in
retained earnings was the combined net effect of net income of $43.4 million, 
cash dividends declared of $8.5 million, and reductions relating to stock 
option exercises totaling $0.8 million. Most of the remaining net increase in
stockholders' equity was attributable to a $4.8 million (269%) increase in net
unrealized gains on securities available for sale. At December 31, 1997, the
ratio of stockholders' equity to total assets was 8.81%, a 29 basis point
reduction from 9.10% at December 31, 1996.

         Book value per common share increased $3.14 per share from December 31,
1996, to $27.86 at year-end 1997. The increase is primarily the result of
additional stockholders' equity of $40.5 million as treasury share repurchases
for 1997 were nearly matched by treasury share issuance for stock option
exercises with a net result of 3,918 additional shares outstanding compared with
the previous year-end. The Company repurchased 154,468 shares of its common
stock during 1997 at a total cost of $5.1 million. At December 31, 1997, the
Company held 2,790,655 of its common stock as treasury stock. Tangible book
value increased $0.29 per share to $21.64 per share at December 31, 1997, as
goodwill generated by the Key Branch acquisition countered the effect of
increased stockholders' equity on this calculation.

Results of Operations

         The information set forth on pages 3 through 13 of the 1997 Annual
Report Supplement is incorporated herein by reference.

ITEM 8            Financial Statements and Supplementary Data

         The information set forth on pages 14 through 40 of the 1997 Annual
Report Supplement is incorporated herein by reference.

ITEM 9            Changes in and Disagreements with Accountants on Accounting 
                  and Financial Disclosure    
    
         None.
                                                     PART III

         The information required by the items in this part has been omitted
since it will be contained in the definitive proxy statement to be filed
pursuant to Regulation 14-A

<PAGE>

                                                      PART IV

ITEM 14     Exhibits, Financial Statement Schedules, and Reports on Form 8-K


(a)(1).  Financial Statements

         The following consolidated financial statements of the Company and its
subsidiaries, together with the report thereon of KPMG Peat Marwick LLP, dated
January 30, 1998, set out at pages 14 through 40 of the 1997 Annual Report
Supplement, are incorporated herein by reference.

     Independent Auditors' Report.

     Consolidated Statements of Earnings for each of the years in the three-year
     period ended December 31, 1997.

     Consolidated Statements of Financial Condition as of December 31, 1997 and
     1996.

     Consolidated Statements of Changes in Stockholders' Equity for each of the
     years in the three-year period ended December 31, 1997.

     Consolidated Statements of Cash Flows for each of the years in the
     three-year period ended December 31, 1997.

     Notes to Consolidated Financial Statements.

     The remaining information appearing in the 1997 Annual Report is not deemed
     to be filed as part of this Report, except as expressly provided herein.

(a)(2).  Financial Statement Schedules

         All schedules for the Registrant and its subsidiaries are omitted
because they are not required or are not applicable or the required information
is shown in the Consolidated Financial Statements or Notes thereto.

(a)(3).  Exhibits

         The following exhibits are either filed as part of this report or are
incorporated herein by reference:

Regulation S-K Exhibit
Reference Number                       Description

3   3.01  Certificate of Incorporation of ALBANK (incorporated herein by
          reference to Exhibit 3.1 to ALBANK's Registration Statement on 
          Form S-1, as amended, filed on December 23, 1991, Registration 
          No. 33-44721).

<PAGE>

                                    Exhibits, continued
Regulation S-K Exhibit
Reference Number                       Description

    3.02   Bylaws of ALBANK, as amended (incorporated herein by reference to
           Exhibit 3.02 to ALBANK's Annual Report on Form 10-K for the year 
           ended December 31, 1993, filed on March 31, 1994).

10  10.01  Employment Agreement dated April 1, 1992, between ALBANK and
           Herbert G. Chorbajian (incorporated herein by reference to Exhibit 
           10.1 to ALBANK's Annual Report on Form 10-K for the year ended 
           June 30, 1992, filed on September 28, 1992, SEC File No. 0-19843).

    10.02  Employment Agreement dated April 1, 1992, between ALBANK and 
           Richard J. Heller (incorporated herein by reference to Exhibit 10.2
           to ALBANK's Annual Report on Form 10-K for the year ended June 30, 
           1992, filed on September 28, 1992, SEC File No. 0-19843).

    10.03  Employment Agreement dated April 1, 1992, between ALBANK and 
           Freling H. Smith (incorporated herein by reference to Exhibit 10.3 
           to ALBANK's Annual Report on Form 10-K for the year ended June 30, 
           1992, filed on September 28, 1992, SEC File No. 0-19843).

    10.04  Employment Agreement dated April 1, 1992, between ALBANK and Barry 
           G. Blenis (incorporated herein by reference to Exhibit 10.4 to 
           ALBANK's Annual Report on Form 10-K for the year ended June 30, 
           1992, filed on September 28, 1992, SEC File No. 0-19843).

    10.05  Employment Agreement dated April 1, 1992, between ALBANK, FSB and
           Herbert G. Chorbajian (incorporated herein by reference to Exhibit 
           10.5 to ALBANK's Annual Report on Form 10-K for the year ended 
           June 30, 1992, filed on September 28, 1992, SEC File No. 
           0-19843)

    10.06  Employment Agreement dated April 1, 1992, between ALBANK, FSB and
           Richard J. Heller (incorporated herein by reference to Exhibit 
           10.6 to ALBANK's Annual Report on Form 10-K for the year 
           ended June 30, 1992, filed on September 28, 1992, 
           SEC File No. 0-19843). 

                               Exhibits, continued

Regulation S-K Exhibit
Reference Number                       Description

    10.07  Employment Agreement dated April 1, 1992, between ALBANK, FSB and
           Freling H. Smith (incorporated herein by reference to Exhibit 10.7 
           to ALBANK's Annual Report on Form 10-K for the year ended June 30, 
           1992, filed on September 28, 1992, SEC File No. 0-19843).

    10.08  Employment Agreement dated April 1, 1992, between ALBANK, FSB and
           Barry G. Blenis (incorporated herein by reference to Exhibit 10.8 
           to ALBANK's Annual Report on Form 10-K for the year ended June 30, 
           1992, filed on September 28, 1992, SEC File No. 0-19843).

    10.09  Employment Agreement dated April 1, 1992, between ALBANK, FSB and
           Clifford M. Apgar (incorporated herein by reference to Exhibit 
           10.9 to ALBANK's Annual Report on Form 10-K for the year ended 
           June 30, 1992, filed on September 28, 1992, 
           SEC File No. 0-19843).

    10.10  Employment Agreement dated April 1, 1992, between ALBANK, FSB and
           Frank J. Vaselewski (incorporated herein by reference to Exhibit 
           10.10 to ALBANK's Annual Report on Form 10-K for the year ended 
           June 30, 1992, filed on September 28, 1992, SEC File No. 0-19843).

    10.11  ALBANK Financial Corporation 1992 Stock Incentive Plan for Key
           Employees, as Amended and Restated as of December 18, 1995 
           (incorporated herein by reference to Exhibit 10.11 to ALBANK's 
           Annual Report on Form 10-K for the year ended December 31, 1995, 
           filed on March 29, 1996).

    10.12  ALBANK Financial Corporation 1992 Stock Incentive Plan for Outside
           Directors (incorporated herein by reference to the Proxy Statement 
           for the 1992 Annual Meeting of the Stockholders of ALBANK held on 
           October 26, 1992, SEC File No. 0-19843).

  10.12.1  ALBANK Financial Corporation 1995 Stock Incentive Plan for Outside
           Directors (incorporated herein by reference to Exhibit 10.12.1 to 
           ALBANK's Annual Report on Form 10-K for the year ended December 
           31, 1995, filed on March 29, 1996).

<PAGE>

                                    Exhibits, continued
Regulation S-K Exhibit
Reference Number                       Description

    10.13  Albany Savings Bank, FSB Recognition and Retention Plan and Trust
           Agreement for Senior Executive Officers (incorporated herein by 
           reference to Exhibit 10.13 to ALBANK's Annual Report on Form 10-K 
           for the year ended June 30, 1992, filed on September 28, 1992, 
           SEC File No. 0-19843).

    10.14  Albany Savings Bank, FSB Recognition and Retention Plan and Trust
           Agreement for Officers (incorporated herein by reference to 
           Exhibit 10.14 to ALBANK's Annual Report on Form 10-K 
           for the year ended June 30, 1992, filed on September 28, 
           1992, SEC File No. 0-19843).

    10.15  Albany Savings Bank, FSB Recognition and Retention Plan and Trust
           Agreement for Outside Directors (incorporated herein by reference 
           to the Proxy Statement for the 1992 Annual Meeting of the 
           Stockholders of ALBANK held on October 26, 1992, 
           SEC File No. 0-19843).

    10.16  Albany Savings Bank, FSB Incentive Savings and Employee Stock
           Ownership Plan, as amended (incorporated herein by reference to 
           Exhibit 10.16 to ALBANK's Annual Report on Form 10-K for the year 
           ended December 31, 1994, filed on March 31, 1995).

    10.17  Agreement dated June 17, 1985, between ALBANK, FSB and Herbert G.
           Chorbajian (Life Insurance Contract) (incorporated herein by 
           reference to Exhibit 10.10 to ALBANK's Registration Statement on 
           Form S-1, as amended, filed on December 23, 1991, 
           Registration No. 33-44721).

    10.18  Agreement dated December 22, 1997, between ALBANK, FSB and 
           Herbert G. Chorbajian (Supplemental Employment Retirement Plan).

    10.19  Agreement dated June 17, 1985, between ALBANK, FSB and Herbert G.
           Chorbajian (Incentive Savings Contract) (incorporated herein by 
           reference to Exhibit 10.12 to ALBANK's Registration Statement on 
           Form S-1, as amended, filed on December 23, 1991, 
           Registration No. 33-44721).

    10.20  Albany Savings Bank Management Incentive Plan for 1997. 10.21
           Retirement Restoration Plan of Albany Savings Bank, FSB 
           (incorporated herein by reference to Exhibit 10.21 to ALBANK's 
           Registration Statement on Form S-1, as amended, filed on December 
           23, 1991, Registration No. 33-44721). 

                                    Exhibits, continued
Regulation S-K Exhibit
Reference Number                       Description

    10.22  Albany Savings Bank, FSB Supplemental Deferred Compensation Plan, as
           amended (incorporated herein by reference to Exhibit 10.22 to 
           ALBANK's Annual Report on Form 10-K for 
           the year ended December 31, 1993, filed 
           on March 31, 1994).

    10.23  Albany Savings Bank, FSB Deferred Compensation Plan for Directors, as
           amended (incorporated herein by reference to Exhibit 10.23 to 
           ALBANK's Annual Report on Form 10-K for the year ended 
           December 31, 1993, filed on March 31, 1994).

    10.24  Directors Retirement Plan of Albany Savings Bank, FSB , as amended
           (incorporated herein by reference to Exhibit 10.25 to Amendment No. 
           1 to ALBANK's Registration Statement on Form S-1, as amended, filed 
           on February 5, 1992, Registration No. 33-44721).

  10.24.1  Amendment to Directors Retirement Plan of Albany Savings Bank, 
           FSB, as amended (incorporated herein by reference to Exhibit 
           10.24.1 to ALBANK's Annual Report on Form 10-K for the year ended 
           December 31, 1994, filed on March 31, 1995).

    10.25  Loan Agreement between ALBANK and The First National Bank of 
           Boston, successor trustee to Nationar, as Trustee of Albany Savings 
           Bank, FSB Employee Stock Ownership Plan (incorporated herein by 
           reference to Exhibit 10.25 to ALBANK's Annual Report on Form 10-K 
           for the year ende June 30, 1992, filed on September 28, 1992, SEC 
           File No. 0-19843).

    10.26  Pledge Agreement between ALBANK and The First National Bank of
           Boston, successor trustee to Nationar, as Trustee of the Albany 
           Savings Bank, FSB Employee Stock Ownership Plan (incorporated 
           herein by reference to Exhibit 10.26 to ALBANK's Annual Report 
           on Form 10-K for the year ended June 30, 1992, filed on September 
           28, 1992, SEC File No. 0-19843).

    10.27  Trust Agreement "A" between Albany Savings Bank, FSB and The First
           National Bank of Boston, successor trustee to Nationar, for the 
           Albany Savings Bank, FSB, Incentive Savings and Employee Stock 
           Ownership Plan (incorporated herein by reference to Exhibit 10.27 
           to ALBANK's Annual Report on Form 10-K for the year ended June 30, 
           1992, filed on September 28, 1992, SEC File No. 0-19843).

                                    Exhibits,continued

Regulation S-K Exhibit
Reference Number                       Description

  10.27.1  First Instrument of Amendment to Trust Agreement "A" between Albany
           Savings Bank, FSB and The First National Bank of Boston, successor 
           trustee to Nationar, for the Albany Savings Bank, FSB Incentive 
           Savings and Employee Stock Ownership Plan (incorporated herein by 
           reference to Exhibit 10.27.1 to ALBANK's Annual Report on Form 10-K 
           for the year ended December 31, 1994, filed on March 31, 1995).

    10.28  Trust Agreement "B" between Albany Savings Bank, FSB and The First
           National Bank of Boston, successor trustee to Nationar, for the 
           Albany Savings Bank, FSB Incentive Savings and Employee Stock 
           Ownership Plan (incorporated herein by reference to Exhibit 10.28 
           to ALBANK's Annual Report on Form 10-K for the year ended June 30, 
           1992, filed on September 28, 1992, SEC File No. 0-19843).

  10.28.1  First Instrument of Amendment to Trust Agreement "B" between Albany
           Savings Bank, FSB and The First National Bank of Boston, successor 
           trustee to Nationar, for the Albany Savings Bank, FSB Incentive 
           Savings and Employee Stock Ownership Plan (incorporated herein by 
           reference to Exhibit 10.28.1 to ALBANK's Annual Report on Form 10-K 
           for the year ended December 31, 1994, filed on March 31, 1995).

    10.29  Indenture, dated as of June 6, 1997, between ALBANK and The Chase
           Manhattan Bank, as Trustee, in respect of ALBANK's 9.27% Junior 
           Subordinated Debentures due 2027 (incorporated herein by reference 
           to Exhibit 4.1 of ALBANK's Registration Statement on Form S-4, 
           filed on October 29, 1997, Registration Nos. 333-39017 and 
           333-39017-01).

    10.30  Form of ALBANK's 9.27% Junior Subordinated Debentures due 2027
           (included in Exhibit 10.29 hereof).

    10.31  Amended and Restated Declaration of Trust of ALBANK Capital 
           Trust I, dated as of June 6, 1997, among ALBANK, as sponsor, the 
           Administrators thereof, Chase Manhattan Bank Delaware, as Delaware 
           Trustee, The Chase Manhattan Bank, as Property Trustee, and the 
           holders from time to time of undivided interests in the assets of 
           ALBANK Capital Trust I (incorporated herein by reference to Exhibit 
           4.4 of ALBANK's Registration Statement on Form S-4, filed on October
           29, 1997, Registration Nos. 333-39017 and 333-39017-01).

                                    Exhibits,continued
Regulation S-K Exhibit
Reference Number                       Description

    10.32  Series B Capital Securities Guarantee Agreement, dated as of 
           December 29, 1997, between ALBANK and the Chase Manhattan Bank, 
           as Guarantee Trustee.

    10.33  Registration Rights Agreement, dated as of June 6, 1997 among 
           ALBANK, ALBANK Capital Trust I and Merrill Lynch, Pierce, Fenner & 
           Smith Incorporated, as Representative of the Initial Purchasers 
           (incorporated herein by reference to Exhibit 4.8 of ALBANK's 
           Registration Statement of Form S-4, filed on October 29, 1997, 
           Registration Nos. 333-39017 and 333-39017-01).

  13 13.01 Annual Report to Security Holders. Portions of ALBANK's December
           31, 1997 Annual Report to Stockholders have been incorporated by 
           reference into this Form 10-K. The accountant's certificate in such 
           Annual Report attached as Exhibit 23.01 has been manually signed.

  21 21.01 Subsidiaries of the Registrant and Related Subsidiaries.

  23 23.01 Consent of KPMG Peat Marwick LLP.

  99 99.01 Albany Savings Bank, FSB Recognition and Retention Plan and Trust
           Agreement for Other Employees (incorporated herein by reference to 
           Exhibit 28.1 to ALBANK's Annual Report on Form 10-K for the year 
           ended June 30, 1992, filed on September 28, 1992, SEC File No. 
           0-19843).

    99.02  Albany Savings Bank, FSB Branch Management Incentive Plan
           (incorporated herein by reference to Exhibit 28.7 of ALBANK's 
           Registration Statement on Form S-1, as amended, filed on December 
           23, 1991, Registration No. 33-44721).

<PAGE>

         ALBANK agrees to file with the Securities and Exchange Commission a
copy of every instrument with respect to long-term debt of ALBANK and its
subsidiaries when the total amount of securities authorized does not exceed 10%
of the total assets of ALBANK and its subsidiaries on a consolidated basis, upon
the request of the Securities and Exchange Commission.

(b).     Reports on Form 8-K

         The Company did not file any Report on Form 8-K during the fourth
         quarter of 1997.

<PAGE>

Signatures

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 the Registrant has duly caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized.

                                             ALBANK Financial Corporation 
                                                    (Registrant)

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

Dated: March 31, 1998

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.


<TABLE>
<CAPTION>

Signature                        Title                        Date
<S>                              <C>                          <C>
                                 Chairman of the Board,       March 31, 1998
Herbert G. Chorbajian            President and Chief
(principal executive officer)    Executive Officer


/s/ Richard J. Heller            Executive Vice President     March 31, 1998
Richard J. Heller                and Chief Financial Officer
(principal accounting officer)
(principal financial officer)


/s/ William J. Barr              Director                     March 31, 1998
William J. Barr


/s/ Karen R. Hitchcock, Ph.D     Director                     March 31, 1998
Karen R. Hitchcock, Ph.D


/s/ John E. Maloy, Sr.           Director                     March 31, 1998
John E. Maloy, Sr.


/s/ Francis L. McKone            Director                     March 31, 1998
Francis L. McKone


/s/ John J. Nigro                Director                     March 31, 1998
John J. Nigro


/s/ Susan J. Stabile, Esq.       Director                     March 31, 1998
Susan J. Stabile, Esq.


/s/ Anthony P. Tartaglia, M.D.   Director                     March 31, 1998
Anthony P. Tartaglia, M.D.

</TABLE>

<PAGE>

                     SUPPLEMENTAL EMPLOYMENT RETIREMENT PLAN

                              HERBERT G. CHORBAJIAN


                  THIS AGREEMENT made this 22nd day of December, 1997, by and
between ALBANK, FSB, a stock savings bank, having its principal office at the
corner of State and North Pearl Streets, in the City and County of Albany and
State of New York (hereinafter called the "Bank"), ALBANK FINANCIAL CORPORATION,
a Delaware corporation and the parent corporation of the Bank ("ALBANK") and
HERBERT G. CHORBAJIAN (hereinafter called ("Executive");

                                   WITNESSETH:

                  WHEREAS, HERBERT G. CHORBAJIAN is the Chairman of the
Board,  President  and Chief  Executive Officer of the Bank and ALBANK
and has been an  executive  officer  of the Bank since June 1, 1984 and of
ALBANK since its incorporation; and

                  WHEREAS the Executive participates in the Retirement Plan of
ALBANK, FSB in RSI Retirement Trust as amended from time to time (the
"Retirement Plan"); and

                  WHEREAS, pursuant to the terms of the Retirement Plan, the
Executive shall be entitled to receive benefit payments upon his retirement from
the Bank and ALBANK (the "Retirement Plan Benefits"); and

                  WHEREAS, the Board of Directors of ALBANK and the Bank have
determined that it is in the best interests of ALBANK and the Bank to provide
the Executive with supplemental retirement benefit payments (the "Supplemental
Payments") in addition to the Retirement Plan Benefits in order to provide the
Executive with an appropriate level of retirement income and to enable the
Executive to avoid the loss of retirement benefits due to his termination of
employment with Norstar Bancorp Inc. ("Norstar Bancorp") and his employment by
the Bank by granting the Executive credit for his service with Norstar Bancorp
prior to his employment with the Bank; and

                  WHEREAS, the Executive and the Bank previously executed an
agreement, dated June 17, 1985 (the "Prior Supplemental Agreement"), regarding
certain supplemental payments to be made to the Executive upon his retirement in
order to make up for any reduction in Retirement Plan Benefits by reason of the
receipt by the Executive of Social Security benefits or by reason of any
changes in the formula for computation of the Retirement Plan Benefits adopted
subsequent to the date of the Prior Supplemental Agreement and the Executive,
the Bank and ALBANK previously executed and agreement dated May 8, 1996 (the
"May 8, 1996 Agreement"), which provided for certain of the Supplemental
Payments to be made and which superseded and replaced the Prior Supplemental
Agreement; and

                  WHEREAS, the Board of Directors of ALBANK and the Bank have
determined that it is in the best interests of ALBANK and the Bank to provide
certain Supplemental Payments; and

                  WHEREAS, the Executive, ALBANK and the Bank agree that the 
May 8, 1996  Agreement  should be superseded and replaced by this Agreement.

                  NOW, THEREFORE, it is agreed as follows:

                  1. The Bank agrees to make the Supplemental Payments to the
Executive as hereinafter described in Paragraph 2.

                  2. The Supplemental Payments shall be equal to (a) the amount
of benefits which would have been payable to the Executive under the Retirement
Plan if his 14.67 years of service with Norstar Bancorp were taken into account
as "Credited Service" (as defined in the Retirement Plan) and, for purposes of
Section 7.4 of the Retirement Plan, as "Vested Service" (as defined in the
Retirement Plan) under the Retirement Plan in the calculation of such amount,
minus (b) the actual amount of Retirement Plan Benefits payable to the Executive
under the Retirement Plan, and minus (c) the amount of the deferred vested
pension payable to the Executive by Norstar Bancorp under the Norstar Bankcorp's
Employees' Retirement Plan (and any successor plan thereto), as set forth in the
October 15, 1986 letter from Norstar Bancorp to the Executive, attached hereto
as Appendix A. All calculations in the previous sentence shall be made as if
each amount were payable in the form of a "Straight Life Annuity" (as defined in
the Retirement Plan) commencing at Normal Retirement Age (as defined in the
Retirement Plan). The Supplemental Payments paid hereunder shall be made in the
same form of benefit as the form in which the Executive receives his benefits
under the Retirement Plan and the amount of such Supplemental Payments actually
payable to the Executive hereunder shall be adjusted to the applicable
"Actuarial Equivalent" (as defined in the Retirement Plan and determined using
the actuarial assumptions specified in the Retirement Plan) of the amount of the
Straight Life Annuity determined in accordance with the first sentence of this
Paragraph 2. The Supplemental Payments will be made to the Executive or, in the
event of his death, to his beneficiary, from time to time as benefits under the
Retirement Plan become payable.

                  In no event shall the Supplemental Payments be less than the
payments that the Executive would have received under the Prior Supplemental
Agreement, provided such payments were calculated only with respect to changes
in the formula for computation of retirement benefits (as set forth in the Prior
Supplemental Agreement) made prior to the date of this Agreement.

                  For purposes of this paragraph, the Executive's beneficiary
shall be the same person, if any, entitled to receive benefits under the
Retirement Plan in the event of the Executive's death.

                  3. The Executive's rights under this Agreement shall be
limited to those of an unsecured general creditor of the Bank and ALBANK, and
neither the Bank nor ALBANK shall have any obligation to fund the payments
provided for hereunder.

                  4. The right of the Executive or any person to the payment
provided for under this Agreement shall not be assigned, transferred, pledged or
encumbered except by will or by the laws of descent and distribution.

                  5. The terms, provisions and conditions of the Agreement shall
be binding upon any successor to the Bank or ALBANK, as the case may be, by
merger or otherwise. This Agreement may be amended only by a writing signed by
each party hereto.

                  6. Nothing contained herein shall be construed as conferring
upon the Executive the right to continue in the employ of the Bank or ALBANK as
an executive or in any other capacity.

                  7. This Agreement is made and shall be construed, interpreted
and enforced in acordance with the laws of the State of New York.

                  8. Any dispute between the Bank and ALBANK, on the one hand,
and the Executive, his designated beneficiary or his estate, on the other hand,
as to the proper interpretation or application of any provisions of the
Agreement shall be settled by arbitration as follows: One arbitrator shall be
selected by each of the disputants and the third by the two so selected, and the
decision of a majority of the persons so selected shall be final and binding
upon all parties to such dispute upon compliance with the then applicable
statute, if any, relating to an agreement ot arbitrate disputes.

                  9. The Bank or ALBANK shall withhold from the Supplemental
Payments or otherwise all federal, state, city and other taxes and withholdings
that the Bank or ALBANK determines may be required to be withheld pursuant to
any applicable law or regulation.

                  10. This Agreement supersedes any and all other oral or
written agreements heretofore made relating to the subject matter hereof,
including without limitation the Prior Supplemental Agreement and the May 8,
1996 Agreement, and constitutes the entire agreement of the parties relating to
the subject matter hereof.

                  11. All payments provided for in this Agreement shall be
timely paid from the general funds of the Bank. ALBANK, however, guarantees
payment and provision of all amounts due hereunder to the Executive and, if such
amounts due for the Bank are not timely paid or provided by the Bank, such
amounts shall be paid or provided by ALBANK.

                  12. This Agreement shall be effective as of December 22, 1997.

                      IN WITNESS WHEREOF, the parties have executed this
Agreement under seal, in duplicate, each of which shall be deemed to be an 
original for all purposes, all as of the day and year first above written.

ALBANK, FSB                              ALBANK FINANCIAL CORPORATION



By: /s/ HG Chorbajian                    By: /s/ HG Chorbajian
   Title:                                   Title:


JOHN E. MALOY, SR.                       HERBERT G. CHORBAJIAN


/s/ John E. Maloy                        /s/ HG Chorbajian
Chairman, Human Resources Committee      Chairman, President and CEO
         ALBANK, FSB



Joseph F. Pelgrin, Jr.                                    EXHIBIT A
Assistant Vice President

One Norstar Plaza                                         NORSTAR
Albany, NY 12207-2796                                     BANKCORP
518-447-4489

                                                  October 15, 1986

Mr. Herbert G. Chorbajian
18 Sandlewood Drive
Loudonville, New York 12211

            Re:   Notice of Vested Pension Benefit Under
                  Norstar Bankcorp's Employees' Retirement Plan

Dear Herb:

    In accordance with the plan formula and other provisions in effect on
June 13, 1984, the date of your termination of employment, you are eligible to 
receive a deferred vested benefit of $1,390.87 per month.  Payment of this 
benefit will begin on October 1, 2003 the first of the month following your 
65th birthday, and will continue monthly thereafter for as long as you live.

    Our records indicate that you had at least ten years of service when you 
left.  Therefore, you may elect to have your deferred benefit commence as early
as age 55.  In this case, your benefit will be reduced to reflect the longer 
period of time benefits are expected to be paid due to the fact that payment of
benefits would commence before your normal retirement date.  The reduction is 
1/2 of 1% for each month of early start.

    You should contact the Plan's Retirement Committee three months before 
payment of your deferred vested pension is to start, at the address shown 
below, to obtain an application for benefit payment.  Benefits will not 
commence until you complete such application.

    If you have any questions, either now or in the future, about how your
deferred vested pension is computed, or paid, please write to the Retirement
Committee for the Norstar Bancorp's Employees' Retirement Plan, One Norstar 
Plaza, Albany, New York 12207. 

                                    Very truly yours,
                                    /s/ Joseph Pelgrin
                                    Joseph F. Pelgrin, Jr.
                                    Assistant Vice President


EXHIBIT 10.20

ALBANK, FSB

1997 MANAGEMENT INCENTIVE PLAN

<TABLE>
TABLE OF CONTENTS
<CAPTION>

Section                    Item                                            Page
<S>                        <C>                                             <C>
     1                     Plan Objectives and Eligibility                  1

     2                     Definitions                                      2

     3                     Description of the Plan                          4
                           Fund Generation                                  4

     4                     Allocation and Payment of Awards                 5
                                Allocation                                  5
                                Payment of Incentives                       5
                                If Participant Retires or Becomes                                      
                                        Disabled                            5
                                If a Participant Dies                       6
                                Beneficiary Designation                     6

     5                          Administration                              7

     6                          Rights and Interest Under the Plan         10


</TABLE>

                           Exhibit I        1996 Plan Goals
                           Exhibit II       1996 Target Incentive Table
                           Exhibit III      Modification Factor - 
                                              Performance vs. Payout


SECTION 1

PLAN OBJECTIVES AND ELIGIBILITY

The executive compensation program at ALBANK, FSB provides rewards that maintain
a balance of focus on both annual executive performance increases in long-term
shareholder value. The major components of the program are a base salary, an
annual incentive plan and a long-term


<PAGE>


stock-based incentive plan.  This document describes the annual incentive plan 
which is designed to:

                  Create a direct incentive for key officers to continue to 
                  deliver superior returns to the shareholders and to 
                  continually improve key aspects of the business


                  Provide compensation opportunities which are competitive and 
                  support efforts to recruit and retain outstanding top 
                  executives.


The annual management incentive plan will be based upon those measures of annual
bank performance which ultimately lead to the enhancement of shareholder value,
and be leveraged in such a manner to reward executives competitively only for
competitively superior results.

Eligibility

Selected key executives are eligible to participate in the plan. Participation
will be authorized by the Committee and approved by the Board.

SECTION 2

DEFINITIONS

The following are definitions of terms used throughout this document to describe
key components of the Management Incentive Plan.

(a)      "Approved Incentive": The incentive which has been approved by the 
         chief executive officer and the Human Resources Committee of the Board 
         of Directors to be paid by ALBANK, FSB to the individual.

(b)      "Award Date": The last day of each fiscal year.

(c)      "Board": The full Board of Directors of ALBANK, FSB.  In cases which 
         require approval of matters relating to this Incentive Plan, the 
         "Board" will mean and constitute those members of the Board of 
         Directors who are classified as disinterested persons pursuant to 
         SEC Rule 16b-3(c)(2)(i).

(d)      "Committee": The Human Resource Committee of the Board, which will be 
         composed of two or more Directors, each of whom is a disinterested 
         person.

(e)      "Company": ALBANK, FSB, its subsidiaries and divisions.

(f)      "Formula Incentive": The individual standard award modified by 
         organizational performance.

(g)      "Maximum Incentive": the award for any award year that is 200% of the 
         standard incentive.  In no event may an award to any participant for 
         an award year exceed the maximum.

(h)      "Normal Retirement Date": The first day of the month following a 
         participant having attained age 65 and, for participants hired after 
         10/1/88, the later of attaining age 65 or the fifth anniversary of 
         participant's initial participation in the retirement plan.

(i)      "Participant": Any officer who is selected by the Committee to receive 
         an award under this plan.

(j)      "Plan": ALBANK, FSB Management Incentive Plan.

(k)      "Recommended Incentive Award": The individual incentive awards 
         recommended by the chief executive officer.

(l)      "Standard Incentive": The award that has been established for each
         executive level category (see Exhibit II).  Standard incentives are 
         expressed as a percentage of salary.  By design, these are the award
         levels that plan participants can expect to earn when ALBANK, FSB 
         achieves its goals.

(m)      "Threshold Incentive": The minimum award to be paid, if any award is
         indicated.  This amount is 75% less than the standard incentive.

(n)      "Salary": Salary shall be defined as the weighted base salary of the 
         executive over the plan year in which the incentive award is 
         designated.



SECTION 3

DESCRIPTION OF THE PLAN

The annual management incentive plan will provide compensation based on the
achievement of performance goals that will be defined each year by the Committee
and approved by the Board.

The goals for the current year are shown in Exhibit I.

Standard Incentive Awards will be defined for each salary grade.  If the Bank 
achieves its target performance goals, participants will receive the Standard 
Incentive for their salary grade.  Standard Incentives for the current year are 
shown in Exhibit II.

If the Bank does not achieve its performance target but some award is 
indicated, payouts may be prorated with a minimum (Threshold Incentive) 
equal to 25% of the Standard Incentive.  If the Bank exceeds 
its target, awards may be increased up to 200% of the 
Standard Incentive (Maximum Incentives).  Threshold and Maximum 
Incentives are shown in Exhibit III.

FUND GENERATION


An "Incentive Fund" will be created and accrued during the year for payment of 
awards to officers participating in the Plan.  This fund will be the sum of the 
target award percentages multiplied by aggregate weighted base salary of all 
eligible executives for the year.  The accrual may be adjusted during the year 
with the approval of the Committee as the bank's performance versus goals 
becomes known.

SECTION 4

ALLOCATION AND PAYMENT OF AWARDS


Allocation

Allocation of the award will be recommended by the chief executive officer with 
the approval of the Human Resources Committee of the Board of Directors.  
Individual executives' awards may vary based upon their contribution to the 
overall performance of the Bank.  However, the total of the actual individual
awards will not exceed the fund generated by the performance of the Bank.

Payment of Incentives

When payable, incentives will be awarded as near to the close of the Company's 
fiscal year as may be feasible.  Participants in the Plan must be employed at
the end of the incentive (fiscal) year in order to be eligible to receive 
bonus payments, except as provided in other Sections of the Plan.

If Participant Retires or Becomes Disabled

An eligible participant who retires or becomes disabled during the year will 
receive payment from the plan, as follows.  If the participant retires or
becomes disabled:

              After the close of the plan year, but prior to the actual 
              distribution of awards for such year, a full allotment for the 
              plan year will be paid;

              After the beginning, but prior to the end of the plan year, the 
              allotment will be prorated based on the actual period of their
              employment with the Company within the year.

If a Participant Dies

If a participant dies during the year, payment will be made to a beneficiary as
follows. If the participant dies:

                 After the close of the plan year, but prior to the actual 
                 distribution of awards for such year, a full allotment for the 
                 plan year will be paid to the beneficiary;
                 After the beginning, but prior to the end of the plan year, 
                 the allotment will be prorated based on the actual period of 
                 their employment with the Company within the year.  Payment 
                 will be made to the beneficiary.  No awards will be paid for 
                 any period less than six months participation in the plan 
                 year.

Beneficiary Designation

Each Participant will file with the Committee a written designation of one or
more people who will be entitled to receive the amount, if any, payable under 
the Plan upon the Participant's death.  The Participant may revoke or change a
beneficiary designation without the knowledge or consent of any prior 
beneficiary by filing a new designation with the Committee.  The last such 
designation actually received by the Committee will be controlling; provided, 
however, that it is received prior to the Participant's death.  Absent a valid 
designation, or if the original beneficiary has predeceased the Participant, 
then the Participant's estate will receive any benefit payable under the Plan.

SECTION 5

ADMINISTRATION

(a)      The Committee will determine who will participate in the Plan.  The 
         Committee will also determine whether a given participant will earn 
         awards based on ALBANK'S performance objectives, or specified 
         divisional performance objectives.

(b)      The Committee will have full power and authority to construe, 
         interpret, and administer the Plan.  All decisions, actions or 
         interpretations of the Committee will be final, conclusive, and 
         binding upon all Participants.

(c)      The Committee may employ attorneys, consultants, accountants, or other 
         persons to render services in connection with the Plan, and the 
         Company, the Board, the Committee and members of the Board and the 
         Committee will be entitled to rely upon the advice, opinions, or 
         valuations of such persons.

(d)      Neither the Company, the Board, the Committee, nor any member of the 
         Board or the Committee will be personally liable for any actions, 
         determinations, or interpretations taken or made in good faith.  The 
         Company will indemnify and hold harmless, to the fullest extent
         permitted by the Company's bylaws or governing law, each member of the
         Committee and each director of the Company to whom any duty or power 
         relating to the administration or interpretation of the Plan may be 
         delegated, against any cost, expense or liability arising out of an act
         or failure to act in connection with the Plan.

(e)      Nothing contained in the Plan will give any Participant the right to 
         be retained in the employment of the Company or affect the right of 
         the Company to dismiss any Participant.

(f)      This Plan will not constitute a contract between the Company and any
         Participant and may be revoked at any time by the affirmative vote of 
         the majority of the Board of Directors, except that rights accrued 
         prior to such termination will be enforceable by the Participants.

(g)      If the Committee will find that any person to whom any amount is 
         payable under the Plan is unable to care for his affairs because of 
         illness or accidents, or is a minor, or has died, then any payment due 
         him or his estate (unless a prior claim for payment has been made by
         a duly appointed legal representative of such person) may, if the
         Committee so directs the Company, be paid to his spouse, a child, a 
         relative, an institution maintaining or having custody of such person, 
         or any other person deemed by the Committee to be a proper recipient 
         on behalf of such person otherwise entitled to payment.  Any such 
         payment will be a complete discharge of the 
         liability of the Plan, the Board, 
         the Committee, and the Company.

(h)      Except insofar as may otherwise be required by law, no amount payable 
         at any time under the Plan will be subject in any manner to alienation 
         by anticipation, sale, transfer, assignment, bankruptcy, pledge, 
         attachment, charge, or encumbrance of any kind, nor in any manner be 
         subject to the debts or liabilities of any person and any attempt to so
         alienate or subject any such amount, whether presently or thereafter 
         payable, will be void. If any person will attempt to, or will, 
         alienate,sell, transfer, assign, pledge, attach, charge, or otherwise 
         encumber any amount payable under the Plan, or any part thereof, or if
         by reason of this bankruptcy or other event happening at any such time 
         such amount would be made subject to his debts or liabilities or would 
         otherwise not be enjoyed by him, then the Committee, if it so elects, 
         may direct that such amount be withheld and that the same or any part 
         thereof be paid or applied to or for the benefit of such person, his
         spouse, children or other dependents, or any of them in such manner 
         and proportion as the Committee may deem proper, subject, however, 
         to such limitations as may be imposed by law, or by a court of 
         competent jurisdiction.

(i)      Nothing contained in the Plan, and no action taken pursuant to its
         provisions, will create or be construed to create a trust of any kind, 
         or a fiduciary relationship between the Company and any eligible 
         Participant or any other to receive payments from the Company under 
         this Plan.  Such right will be no greater than the right of an 
         unsecured general creditor of the Company.  All payments to be paid 
         hereunder will be paid from the general funds of the Company and no 
         special or separate fund will be established and no segregaton of 
         assets will be made to assure payment of such amounts except as 
         expressly set forth in the Plan.

SECTION 6

RIGHTS AND INTEREST UNDER THE PLAN


(a)      The establishment of the Plan will not give any Participant or 
         beneficiary any right, title or interest in and to any specific assets 
         of the Company.

(b)      The Board reserves the right at any time and for any reason to amend, 
         suspend, or terminate the Plan in whole or in part without the consent 
         of any Participant or beneficiary.

EXHIBIT I

<TABLE>

1997 PLAN GOALS

<CAPTION>
                              THRESHOLD                    BUDGET       TARGET       SUPERIOR     OUTSTANDING
Performance Rating   1           2            2.5          2.75         3            4            5
<S>                  <C>         <C>          <C>          <C>          <C>          <C>          <C>   
  % of Budget EPS           (89%)       (90%)        (95%)       (100%)       (105%)       (115%)       (132%)
    % of 1996 EPS          (110%)      (110%)       (117%)       (123%)       (129%)       (136%)       (144%)
  % of Target Bonus          (0%)       (25%)        (50%)        (75%)       (100%)       (150%)       (200%)
ROAE<F1>                  10.66       10.67        11.26        11.85        12.44        13.51        14.58
NPA/AA                     1.31        1.30         1.19         1.08         0.97         0.86         0.75
OpExp/AA                   2.34        2.33         2.23         2.12         2.01         1.95         1.88
Growth EPS                $2.51       $2.52        $2.66        $2.80        $2.94         3.11        $3.28
Expected Earnings    33,862,499  33,862,500   35,743,750   37,625,000   39,506,250   43,326,645   47,147,040
Bonus Pool              167,346     350,200      533,054      715,908      898,762    1,264,470    1,630.178
After Tax Bonus/
       Earnings              .3%         .6%          .9%         1.1%         1.4%         1.8%         2.1%
(Aggregate Sharing 
       Percentage)
Marginal After 
       Tax Bonus/            --          --          5.8%         5.8%         5.8%         5.7%         5.7%
(Marginal Sharing Percentage)

<FN>
<F1>EPS based on estimated fully diluted shares outstanding at 12/31/97 of
    13,449,426. 
<F2>Calculation excludes amortization of goodwill, ORE expense,
    losses-fixed assets, and ORE losses and writedowns. 
<F3>Includes unrealized
    gain(loss) on securities available for sale, net of tax. 
<F4>With regard to NPA/AA, performance ratings 1,2,2.5,2.75 and 3 equal 79%, 
    80%, 90%, 100% and 110% of budget performance respectively
</FN>
</TABLE>

EXHIBIT II

<TABLE>

1997 TARGET INCENTIVE TABLE

<CAPTION>
 
                               Corporate     Individual
                               Performance   Performance
                               Level         Incentive
                               (Percent of   (Percent of
Position     Grade    Level    Salary)       Salary)
<S>          <C>      <C>      <C>           <C>
CEO            N/A      I      50%            0%
EVP             20     II      32             8
SVP(Top
Mgmt Group)     19    III      28             7
SVP/VP       18/19     IV      24             6
VP           16/17      V      16             4
Divisional
President       18     VI      15            15
</TABLE>

EXHIBIT III

MODIFICATION FACTOR

<TABLE>

PERFORMANCE VS.  PAYOUT

<CAPTION>


Goal Achievement                Percent of Target Payout
<S>                             <C>

0-1.99                            0
     2                           25<F1>
   2.5                           50
  2.75                           75
     3                          100
     4                          150
     5                          200
<FN>
<F1>Theshold
</FN>
</TABLE>




<PAGE>

                                                        19








                       ====================================


                 SERIES B CAPITAL SECURITIES GUARANTEE AGREEMENT


                          ALBANK FINANCIAL CORPORATION


                          Dated as of December 29, 1997


                       ====================================



<PAGE>



                                       iii





                                TABLE OF CONTENTS


                                    ARTICLE I

                         DEFINITIONS AND INTERPRETATION

SECTION 1.1  Definitions and Interpretation....................................2

                                   ARTICLE II

                               TRUST INDENTURE ACT

SECTION 2.1  Trust Indenture Act; Application..................................6

SECTION 2.2  Lists of Holders of Securities....................................6

SECTION 2.3  Reports by the Capital Securities Guarantee Trustee...............6

SECTION 2.4  Periodic Reports to Capital Securities Guarantee Trustee..........6

SECTION 2.5  Evidence of Compliance with Conditions Precedent..................7

SECTION 2.6  Events of Default; Waiver.........................................7

SECTION 2.7  Event of Default; Notice..........................................7

SECTION 2.8  Conflicting Interests.............................................8
                                   
                                      ARTICLE III

          POWERS, DUTIES AND RIGHTS OF CAPITAL SECURITIES GUARANTEE TRUSTEE

SECTION 3.1  Powers and Duties of the Capital Securities Guarantee Trustee.....8

SECTION 3.2  Certain Rights of Capital Securities Guarantee Trustee...........10

SECTION 3.3  Not Responsible for Recitals or Issuance of Series B Capital 
             Securities Guarantee.............................................12

                                   ARTICLE IV

                      CAPITAL SECURITIES GUARANTEE TRUSTEE

SECTION 4.1  Capital Securities Guarantee Trustee; Eligibility................12

SECTION 4.2 Appointment, Removal and Resignation of Capital Securities 
            Guarantee Trustee.................................................13

                                    ARTICLE V

                                    GUARANTEE

SECTION 5.1  Guarantee........................................................14

SECTION 5.2  Waiver of Notice and Demand......................................14

SECTION 5.3  Obligations Not Affected.........................................14

SECTION 5.4  Rights of Holders................................................15

SECTION 5.5  Guarantee of Payment.............................................15

SECTION 5.6  Subrogation......................................................16

SECTION 5.7  Independent Obligations..........................................16

                                   ARTICLE VI

                    LIMITATION OF TRANSACTIONS; SUBORDINATION

SECTION 6.1  Limitation of Transactions.......................................16

SECTION 6.2  Ranking..........................................................17

                                   ARTICLE VII

                                   TERMINATION

SECTION 7.1  Termination......................................................17

                                  ARTICLE VIII

         COMPENSATION AND EXPENSES OF CAPITAL SECURITIES GUARANTEE TRUSTEE

SECTION 8.1  Compensation and Expenses of Capital Securities Guarantee 
             Trustee..........................................................18

                                   ARTICLE IX

                                 INDEMNIFICATION

SECTION 9.1  Exculpation......................................................18

SECTION 9.2  Indemnification..................................................19

                                    ARTICLE X

                                  MISCELLANEOUS

SECTION 10.1 Successors and Assigns...........................................19

SECTION 10.2 Amendments.......................................................19

SECTION 10.3 Notices..........................................................19

SECTION 10.4 Benefit..........................................................21

SECTION 10.5 Governing Law....................................................21





<PAGE>


                 SERIES B CAPITAL SECURITIES GUARANTEE AGREEMENT


                  This GUARANTEE AGREEMENT (the "Series B Capital Securities
Guarantee"), dated as of December 29, 1997, is executed and delivered by ALBANK
Financial Corporation, a Delaware corporation (the "Guarantor"), and The Chase
Manhattan Bank, a New York banking corporation, as indenture trustee (the
"Capital Securities Guarantee Trustee"), for the benefit of the Holders (as
defined herein) from time to time of the Series B Capital Securities (as defined
herein) of ALBANK Capital Trust I, a Delaware statutory business trust (the
"Issuer").

                  WHEREAS, pursuant to an Amended and Restated Declaration of
Trust (the "Declaration," which expression includes Annex I and Exhibits A-1,
A-2, B and C thereto), dated as of June 6, 1997 among the trustees of the
Issuer, the Administrators, the Guarantor, as sponsor, and the holders from time
to time of undivided beneficial interests in the assets of the Issuer, the
Issuer issued on June 6, 1997, 50,000 capital securities, having an aggregate
liquidation amount of $50,000,000, such capital securities being designated the
9.27% Series A Capital Securities (collectively the "Series A Capital
Securities").

                  WHEREAS, as incentive for the holders of the Series A Capital
Securities to purchase the Series A Capital Securities, the Guarantor
irrevocably and unconditionally agreed, to the extent set forth in the Series A
Capital Securities Guarantee, dated as of June 6, 1997 (the "Series A Capital
Securities Guarantee"), to pay to the holders of the Series A Capital Securities
the Guarantee Payments (as defined in the Series A Capital Securities Guarantee)
and to make certain other payments on the terms and conditions set forth
therein.

                  WHEREAS, the Guarantor also executed and delivered a guarantee
agreement (the "Common Securities Guarantee"), with substantially identical
terms to the Series A Capital Securities Guarantee, for the benefit of the
holders of the Common Securities (as defined herein), except that if an Event of
Default (as defined in the Declaration) has occurred and is continuing, the
rights of holders of the Common Securities to receive Guarantee Payments under
the Common Securities Guarantee are subordinated, to the extent and in the
manner set forth in the Common Securities Guarantee, to the rights of holders of
Series A Capital Securities to receive Guarantee Payments (as defined in the
Series A Capital Securities Guarantee) and the rights of holders of Series B
Capital Securities to receive Guarantee Payments under this Series B Capital
Securities Guarantee.

                  WHEREAS, pursuant to the Registration Rights Agreement (as
defined in the Declaration), the Trust has offered to exchange up to $50,000,000
aggregate liquidation amount of its 9.27% Series B Capital Securities (the
"Series B Capital Securities" and, together with the Series A Capital
Securities, the "Capital Securities"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act") for a like liquidation
amount of its outstanding Series A Capital Securities (the "Exchange Offer").

                  WHEREAS, pursuant to the Exchange Offer, the Guarantor and the
Capital Securities Guarantee Trustee wish to exchange the Series A Capital
Securities Guarantee with respect to any and all Series A Capital Securities
validly tendered to the Issuer pursuant to the Exchange Offer for this Series B
Capital Securities Guarantee, which is substantially the same as the Series A
Capital Securities Guarantee, except that it has been registered under the
Securities Act and qualified under the Trust Indenture Act, and which is for the
benefit of the Holders of the Series B Capital Securities.

                  WHEREAS, as incentive for the holders of Series A Capital
Securities to participate in the Exchange Offer (which exchange the Guarantor
acknowledges shall benefit the Guarantor), the Guarantor desires irrevocably and
unconditionally to agree, to the extent set forth in this Series B Capital
Securities Guarantee, to pay to the holders of the Series B Capital Securities
the Guarantee Payments (as defined below) and to make certain other payments on
the terms and conditions set forth therein.

                  NOW, THEREFORE, in consideration of the premises, the
Guarantor executes and delivers this Series B Capital Securities Guarantee for
the benefit of the Holders.


                                    ARTICLE I
                         DEFINITIONS AND INTERPRETATION

SECTION 1.1                Definitions and Interpretation

                  In this Series B Capital Securities Guarantee, unless the
context otherwise requires:

                  (a) capitalized terms used in this Series B Capital Securities
Guarantee but not defined in the preamble above have the respective meanings
assigned to them in this Section 1.1;

                  (b) terms defined in the Declaration as at the date of
execution of this Series B Capital Securities Guarantee have the same meaning
when used in this Series B Capital Securities Guarantee unless otherwise defined
in this Series B Capital Securities Guarantee;

                  (c) a term defined anywhere in this Series B Capital
Securities Guarantee has the same meaning throughout;

                  (d) all references to "the Series B Capital Securities
Guarantee" or "this Series B Capital Securities Guarantee" are to this Series B
Capital Securities Guarantee as modified, supplemented or amended from time to
time;

                  (e) all references in this Series B Capital Securities
Guarantee to Articles and Sections are to Articles and Sections of this Series B
Capital Securities Guarantee, unless otherwise specified;

                  (f) a term defined in the Trust Indenture Act has the same
meaning when used in this Series B Capital Securities Guarantee, unless
otherwise defined in this Series B Capital Securities Guarantee or unless the
context otherwise requires; and

                  (g) a reference to the singular includes the plural and vice
versa.

                  "Affiliate" has the same meaning as given to that term in Rule
405 under the Securities Act of 1933, as amended, or any successor rule
thereunder.

                  "Business Day" means any day other than a Saturday or a
Sunday, or a day on which banking institutions in The City of New York or
Wilmington, Delaware are authorized or required by law or executive order to
close.

                  "Capital Securities Guarantee Trustee" means The Chase
Manhattan Bank, a New York banking corporation, until a Successor Capital
Securities Guarantee Trustee has been appointed and has accepted such
appointment pursuant to the terms of this Series B Capital Securities Guarantee
and thereafter means each such Successor Capital Securities Guarantee Trustee.

                  "Common Securities" means the securities representing common
undivided beneficial interests in the assets of the Issuer.

                  "Corporate Trust Office" means the office of the Capital
Securities Guarantee Trustee at which the corporate trust business of the
Capital Securities Guarantee Trustee shall, at any particular time, be
principally administered, which office at the date of execution of this
Agreement is located at 450 West 33rd Street, New York, New York 10001.

                  "Covered Person" means any Holder of Series B Capital 
Securities.

                  "Debentures" means the series of subordinated debt securities
of the Guarantor designated the 9.27% Series B Junior Subordinated Deferrable
Interest Debentures due June 6, 2027 held by the Property Trustee.

                  "Event of Default" means a default by the Guarantor on any of
its payment or other obligations under this Series B Capital Securities
Guarantee.

                  "Guarantee Payments" means the following payments or
distributions, without duplication, with respect to the Series B Capital
Securities, to the extent not paid or made by the Issuer: (i) any accumulated
and unpaid Distributions required to be paid on such Series B Capital
Securities, to the extent that the Issuer has funds on hand legally available
therefor, (ii) the applicable redemption price, including all accumulated and
unpaid Distributions to the date of redemption (the "Redemption Price") with
respect to any Series B Capital Securities called for redemption by the Issuer,
to the extent that the Issuer has funds on hand legally available therefor, and
(iii) upon a voluntary or involuntary termination and liquidation of the Issuer
(other than in connection with the distribution of Debentures to the Holders in
exchange for Series B Capital Securities as provided in the Declaration), the
lesser of (a) the aggregate of the Liquidation Amount and all accumulated and
unpaid Distributions on the Series B Capital Securities to the date of payment,
to the extent the Issuer has funds on hand legally available therefor, and (b)
the amount of assets of the Issuer remaining available for distribution to
Holders in liquidation of the Issuer (in either case, the "Liquidation
Distribution"). If an Event of Default has occurred and is continuing, no
Guarantee Payments under the Common Securities Guarantee with respect to the
Common Securities or any guarantee payment under any Other Common Securities
Guarantees shall be made until the Holders shall be paid in full the Guarantee
Payments to which they are entitled under this Series B Capital Securities
Guarantee.

                  "Holder" shall mean any holder, as registered on the books and
records of the Issuer, of any Series B Capital Securities; provided, however,
that, in determining whether the holders of the requisite percentage of Series B
Capital Securities have given any request, notice, consent or waiver hereunder,
"Holder" shall not include the Guarantor or any Affiliate of the Guarantor.

                  "Indemnified Person" means the Capital Securities Guarantee
Trustee, any Affiliate of the Capital Securities Guarantee Trustee, or any
officers, directors, shareholders, members, partners, employees,
representatives, nominees, custodians or agents of the Capital Securities
Guarantee Trustee.

                  "Indenture" means the Indenture dated as of June 6, 1997,
among the Guarantor (the "Debenture Issuer") and The Chase Manhattan Bank, as
trustee, pursuant to which the Debentures are to be issued to the Property
Trustee of the Issuer.

                  "Majority in Liquidation Amount of the Series B Capital
Securities" means, except as provided by the Trust Indenture Act, a vote by
Holder(s) of Series B Capital Securities, voting separately as a class, of more
than 50% of the aggregate Liquidation Amount (including the stated amount that
would be paid on redemption, liquidation or otherwise, plus accumulated and
unpaid Distributions to the date upon which the voting percentages are
determined) of all Series B Capital Securities.

                  "Officers' Certificate" means, with respect to any person, a
certificate signed by two of the following: the Chairman, a Vice Chairman, the
Chief Executive Officer, the President, a Vice President (whether or not
designated by a number or a word or words added before or after such title), the
Comptroller, the Secretary or an Assistant Secretary of the Guarantor. Any
Officers' Certificate delivered with respect to compliance with a condition or
covenant provided for in this Series B Capital Securities Guarantee (other than
pursuant to Section 314(a)(4) of the Trust Indenture Act) shall include:

                  (a) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the definitions relating
thereto;

                  (b) a statement that each such officer has made such
examination or investigation as, in such officer's opinion, is necessary to
enable such officer to express an informed opinion as to whether or not such
covenant or condition has been complied with; and

                  (c) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.

                  "Other Common Securities Guarantees" shall have the same
meaning as "Other Guarantees" in the Common Securities Guarantee.

                  "Other Debentures" means all junior subordinated debentures
issued by the Guarantor from time to time and sold to trusts to be established
by the Guarantor (if any), in each case similar to the Issuer.

                  "Other Guarantees" means all guarantees issued by the
Guarantor with respect to capital securities (if any) similar to the Series B
Capital Securities issued by other trusts to be established by the Guarantor (if
any), in each case similar to the Issuer.

                  "Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.

                  "Registration Rights Agreement" means the Registration Rights
Agreement, dated as of June 6, 1997, by and among the Guarantor, the Issuer and
the Initial Purchaser named therein as such agreement may be amended, modified
or supplemented from time to time.

                  "Responsible Officer" means, with respect to the Capital
Securities Guarantee Trustee, any officer within the Corporate Trust Office of
the Capital Securities Guarantee Trustee, including any vice president, any
assistant vice president, any secretary, any assistant secretary, the treasurer,
any assistant treasurer, any trust officer, any senior trust officer or other
officer in the Corporate Trust Office of the Capital Securities Guarantee
Trustee customarily performing functions similar to those performed by any of
the above designated officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of that officer's knowledge of and familiarity with the particular
subject.

                  "Successor Capital Securities Guarantee Trustee" means a
successor Capital Securities Guarantee Trustee possessing the qualifications to
act as Capital Securities Guarantee Trustee under Section 4.1.

                  "Trust Indenture Act" means the Trust Indenture Act of 1939, 
as amended.

                  "Trust Securities" means the Common Securities and the 
Capital Securities, collectively.


                                   ARTICLE II
                               TRUST INDENTURE ACT

SECTION 2.1             Trust Indenture Act; Application
                        --------------------------------

                  (a) This Series B Capital Securities Guarantee is subject to
the provisions of the Trust Indenture Act that are required to be part of this
Series B Capital Securities Guarantee in order for this Series B Capital
Securities Guarantee to be a qualified indenture under the Trust Indenture Act
and shall, to the extent applicable, be governed by such provisions;

                  (b) this Series B Capital Securities Guarantee has been
qualified under the Trust Indenture Act; and

                  (c) if and to the extent that any provision of this Series B
Capital Securities Guarantee limits, qualifies or conflicts with the duties
imposed by Section 310 to 317, inclusive, of the Trust Indenture Act, such
imposed duties shall control.

SECTION 2.2             Lists of Holders of Securities
                        ------------------------------

                  (a) The Guarantor shall provide the Capital Securities
Guarantee Trustee (unless the Capital Securities Guarantee Trustee is otherwise
the registrar of the Capital Securities) (i) on a semi-annual basis within 14
days of each regular record date for the Capital Securities, a list, in such
form as the Capital Securities Guarantee Trustee may reasonably require, of the
names and addresses of the Holders of the Series B Capital Securities as of such
record date; and (ii) at such other times as the Capital Securities Guarantee
Trustee may request in writing, within 30 days after the receipt by the
Guarantor of any such request, a list of similar form and content as of a date
not more than 15 days prior to the time such list is furnished, provided, that
the Guarantor shall not be obligated to provide such List of Holders at any time
the List of Holders does not differ from the most recent List of Holders given
to the Capital Securities Guarantee Trustee by the Guarantor. The Capital
Securities Guarantee Trustee may destroy any List of Holders previously given to
it on receipt of a new List of Holders.

                  (b) The Capital Securities Guarantee Trustee shall comply with
its obligations under Sections 311(a), 311(b) and 312(b) of the Trust Indenture
Act.

SECTION 2.3             Reports by the Capital Securities Guarantee Trustee
                        ---------------------------------------------------

                  Within 60 days after May 15 of each year, commencing May 15,
1998, the Capital Securities Guarantee Trustee shall provide to the Holders such
reports as are required by Section 313 of the Trust Indenture Act, if any, in
the form and in the manner provided by Section 313 of the Trust Indenture Act.
The Capital Securities Guarantee Trustee shall also comply with the other
requirements of Section 313 of the Trust Indenture Act.

SECTION 2.4             Periodic Reports to Capital Securities Guarantee Trustee
                        --------------------------------------------------------

                  The Guarantor shall provide to the Capital Securities
Guarantee Trustee such documents, reports and information as required by Section
314 of the Trust Indenture Act (if any) and the compliance certificate required
by Section 314 of the Trust Indenture Act in the form, in the manner and at the
times required by Section 314 of the Trust Indenture Act, provided that such
compliance certificate shall be delivered on or before 120 days after the end of
each fiscal year of the Guarantor. Delivery of such reports, information and
documents to the Capital Securities Guarantee Trustee is for informational
purposes only and the Capital Securities Guarantee Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Guarantor's
compliance with any of its covenants hereunder (as to which the Capital
Securities Guarantee Trustee is entitled to rely exclusively on Officers'
Certificates).

SECTION 2.5             Evidence of Compliance with Conditions Precedent
                        ------------------------------------------------

                  The Guarantor shall provide to the Capital Securities
Guarantee Trustee such evidence of compliance with any conditions precedent, if
any, provided for in this Series B Capital Securities Guarantee that relate to
any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Section
314(c)(1) of the Trust Indenture Act may be given in the form of an Officers'
Certificate.

SECTION 2.6             Events of Default; Waiver
                        -------------------------

                  The Holders of a Majority in Liquidation Amount of Series B
Capital Securities may, by vote, on behalf of all of the Holders, waive any past
Event of Default and its consequences. Upon such waiver, any such Event of
Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured, for every purpose of this Series B Capital
Securities Guarantee, but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon.

SECTION 2.7             Event of Default; Notice
                        ------------------------

                  (a) The Capital Securities Guarantee Trustee shall, within 90
days after the occurrence of a default with respect to this Capital Securities
Guarantee, mail by first class postage prepaid, to all Holders, notices of all
defaults actually known to a Responsible Officer of the Capital Securities
Guarantee Trustee, unless such defaults have been cured before the giving of
such notice, provided, that, except in the case of default in the payment of any
Guarantee Payment, the Capital Securities Guarantee Trustee shall be protected
in withholding such notice if and so long as the board of directors, the
executive committee, or a trust committee of directors and/or Responsible
Officer in good faith determines that the withholding of such notice is in the
interests of the Holders.

                  (b) The Capital Securities Guarantee Trustee shall not be
deemed to have knowledge of any Event of Default unless the Capital Securities
Guarantee Trustee shall have received written notice from the Guarantor or a
Holder, or a Responsible Officer charged with the administration of the
Declaration shall have obtained actual knowledge, of such Event of Default.

SECTION 2.8             Conflicting Interests
                        ---------------------

                  The Declaration shall be deemed to be specifically described
in this Series B Capital Securities Guarantee for the purposes of clause (i) of
the first proviso contained in Section 310(b) of the Trust Indenture Act.


                                   ARTICLE III
                          POWERS, DUTIES AND RIGHTS OF
                      CAPITAL SECURITIES GUARANTEE TRUSTEE

SECTION 3.1        Powers and Duties of the Capital Securities Guarantee Trustee
                   -------------------------------------------------------------

                  (a) This Series B Capital Securities Guarantee shall be held
by the Capital Securities Guarantee Trustee for the benefit of the Holders, and
the Capital Securities Guarantee Trustee shall not transfer this Series B
Capital Securities Guarantee to any Person except a Holder exercising his or her
rights pursuant to Section 5.4(b) or to a Successor Capital Securities Guarantee
Trustee on acceptance by such Successor Capital Securities Guarantee Trustee of
its appointment to act as Successor Capital Securities Guarantee Trustee. The
right, title and interest of the Capital Securities Guarantee Trustee shall
automatically vest in any Successor Capital Securities Guarantee Trustee, and
such vesting and succession of title shall be effective whether or not
conveyancing documents have been executed and delivered pursuant to the
appointment of such Successor Capital Securities Guarantee Trustee.

                  (b) If an Event of Default actually known to a Responsible
Officer of the Capital Securities Guarantee Trustee has occurred and is
continuing, the Capital Securities Guarantee Trustee shall enforce this Series B
Capital Securities Guarantee for the benefit of the Holders.

                  (c) The Capital Securities Guarantee Trustee, before the
occurrence of any Event of Default and after the curing of all Events of Default
that may have occurred, shall undertake to perform only such duties as are
specifically set forth in this Series B Capital Securities Guarantee, and no
implied covenants shall be read into this Series B Capital Securities Guarantee
against the Capital Securities Guarantee Trustee. In case an Event of Default
has occurred (that has not been cured or waived pursuant to Section 2.6) and is
actually known to a Responsible Officer of the Capital Securities Guarantee
Trustee, the Capital Securities Guarantee Trustee shall exercise such of the
rights and powers vested in it by this Series B Capital Securities Guarantee,
and use the same degree of care and skill in its exercise thereof, as a prudent
person would exercise or use under the circumstances in the conduct of his or
her own affairs.

                  (d) No provision of this Series B Capital Securities Guarantee
shall be construed to relieve the Capital Securities Guarantee Trustee from
liability for its own negligent action, its own negligent failure to act, or its
own willful misconduct, except that:

                  (i) prior to the occurrence of any Event of Default and after
         the curing or waiving of all such Events of Default that may have
         occurred:

                           (A) the duties and obligations of the Capital
                  Securities Guarantee Trustee shall be determined solely by the
                  express provisions of this Series B Capital Securities
                  Guarantee, and the Capital Securities Guarantee Trustee shall
                  not be liable except for the performance of such duties and
                  obligations as are specifically set forth in this Series B
                  Capital Securities Guarantee, and no implied covenants or
                  obligations shall be read into this Series B Capital
                  Securities Guarantee against the Capital Securities Guarantee
                  Trustee; and

                           (B) in the absence of bad faith on the part of the
                  Capital Securities Guarantee Trustee, the Capital Securities
                  Guarantee Trustee may conclusively rely, as to the truth of
                  the statements and the correctness of the opinions expressed
                  therein, upon any certificates or opinions furnished to the
                  Capital Securities Guarantee Trustee and conforming to the
                  requirements of this Series B Capital Securities Guarantee;
                  but in the case of any such certificates or opinions that by
                  any provision hereof are specifically required to be furnished
                  to the Capital Securities Guarantee Trustee, the Capital
                  Securities Guarantee Trustee shall be under a duty to examine
                  the same to determine whether or not they conform to the
                  requirements of this Series B Capital Securities Guarantee;

                  (ii) the Capital Securities Guarantee Trustee shall not be
         liable for any error of judgment made in good faith by a Responsible
         Officer thereof, unless it shall be proved that the Capital Securities
         Guarantee Trustee was negligent in ascertaining the pertinent facts
         upon which such judgment was made;

                  (iii) the Capital Securities Guarantee Trustee shall not be
         liable with respect to any action taken or omitted to be taken by it in
         good faith in accordance with the direction of the Holders of a
         Majority in Liquidation Amount of the Series B Capital Securities
         relating to the time, method and place of conducting any proceeding for
         any remedy available to the Capital Securities Guarantee Trustee, or
         exercising any trust or power conferred upon the Capital Securities
         Guarantee Trustee under this Series B Capital Securities Guarantee; and

                  (iv) no provision of this Series B Capital Securities
         Guarantee shall require the Capital Securities Guarantee Trustee to
         expend or risk its own funds or otherwise incur personal financial
         liability in the performance of any of its duties or in the exercise of
         any of its rights or powers, if the Capital Securities Guarantee
         Trustee shall have reasonable grounds for believing that the repayment
         of such funds or liability is not reasonably assured to it under the
         terms of this Series B Capital Securities Guarantee or indemnity,
         reasonably satisfactory to the Capital Securities Guarantee Trustee,
         against such risk or liability is not reasonably assured to it.


SECTION 3.2             Certain Rights of Capital Securities Guarantee Trustee
                        ------------------------------------------------------

                  (a)      Subject to the provisions of Section 3.1:

                  (i) The Capital Securities Guarantee Trustee may conclusively
         rely, and shall be fully protected in acting or refraining from acting,
         upon any resolution, certificate, statement, instrument, opinion,
         report, notice, request, direction, consent, order, bond, debenture,
         note, other evidence of indebtedness or other paper or document
         believed by it to be genuine and to have been signed, sent or presented
         by the proper party or parties.

                  (ii) Any direction or act of the Guarantor contemplated by
         this Series B Capital Securities Guarantee may be sufficiently
         evidenced by an Officers' Certificate.

                  (iii) Whenever, in the administration of this Series B Capital
         Securities Guarantee, the Capital Securities Guarantee Trustee shall
         deem it desirable that a matter be proved or established before taking,
         suffering or omitting any action hereunder, the Capital Securities
         Guarantee Trustee (unless other evidence is herein specifically
         prescribed) may, in the absence of bad faith on its part, request and
         conclusively rely upon an Officers' Certificate which, upon receipt of
         such request, shall be delivered by the Guarantor as soon as
         practicable.

                  (iv) The Capital Securities Guarantee Trustee shall have no
         duty to see to any recording, filing or registration of any instrument
         (or any rerecording, refiling or registration thereof).

                  (v) The Capital Securities Guarantee Trustee may consult with
         counsel of its selection, and the advice or opinion of such counsel
         with respect to legal matters shall be full and complete authorization
         and protection in respect of any action taken, suffered or omitted by
         it hereunder in good faith and in accordance with such advice or
         opinion. Such counsel may be counsel to the Guarantor or any of its
         Affiliates and may include any of its employees. The Capital Securities
         Guarantee Trustee shall have the right at any time to seek instructions
         concerning the administration of this Series B Capital Securities
         Guarantee from any court of competent jurisdiction.

                  (vi) The Capital Securities Guarantee Trustee shall be under
         no obligation to exercise any of the rights or powers vested in it by
         this Series B Capital Securities Guarantee at the request or direction
         of any Holder, unless such Holder shall have provided to the Capital
         Securities Guarantee Trustee such security and indemnity, reasonably
         satisfactory to the Capital Securities Guarantee Trustee, against the
         costs, expenses (including attorneys' fees and expenses and the
         expenses of the Capital Securities Guarantee Trustee's agents, nominees
         or custodians) and liabilities that might be incurred by it in
         complying with such request or direction, including such reasonable
         advances as may be requested by the Capital Securities Guarantee
         Trustee; provided that, nothing contained in this Section 3.2(a)(vi)
         shall be taken to relieve the Capital Securities Guarantee Trustee,
         upon the occurrence of an Event of Default, of its obligation to
         exercise the rights and powers vested in it by this Series B Capital
         Securities Guarantee.

                  (vii) The Capital Securities Guarantee Trustee shall not be
         bound to make any investigation into the facts or matters stated in any
         resolution, certificate, statement, instrument, opinion, report,
         notice, request, direction, consent, order, bond, debenture, note,
         other evidence of indebtedness or other paper or document, but the
         Capital Securities Guarantee Trustee, in its discretion, may make such
         further inquiry or investigation into such facts or matters as it may
         see fit.

                  (viii) The Capital Securities Guarantee Trustee may execute
         any of the trusts or powers hereunder or perform any duties hereunder
         either directly or by or through agents, nominees, custodians or
         attorneys, and the Capital Securities Guarantee Trustee shall not be
         responsible for any misconduct or negligence on the part of any agent
         or attorney appointed with due care by it hereunder.

                  (ix) Any action taken by the Capital Securities Guarantee
         Trustee or its agents hereunder shall bind the Holders, and the
         signature of the Capital Securities Guarantee Trustee or its agents
         alone shall be sufficient and effective to perform any such action. No
         third party shall be required to inquire as to the authority of the
         Capital Securities Guarantee Trustee to so act or as to its compliance
         with any of the terms and provisions of this Series B Capital
         Securities Guarantee, both of which shall be conclusively evidenced by
         the Capital Securities Guarantee Trustee's or its agent's taking such
         action.

                  (x) Whenever in the administration of this Series B Capital
         Securities Guarantee the Capital Securities Guarantee Trustee shall
         deem it desirable to receive instructions with respect to enforcing any
         remedy or right or taking any other action hereunder, the Capital
         Securities Guarantee Trustee (i) may request instructions from the
         Holders of a Majority in Liquidation Amount of the Series B Capital
         Securities, (ii) may refrain from enforcing such remedy or right or
         taking such other action until such instructions are received, and
         (iii) shall be protected in conclusively relying on or acting in
         accordance with such instructions.

                  (xi) The Capital Securities Guarantee Trustee shall not be
         liable for any action taken, suffered, or omitted to be taken by it in
         good faith, without negligence, and reasonably believed by it to be
         authorized or within the discretion or rights or powers conferred upon
         it by this Series B Capital Securities Guarantee.

                  (b) No provision of this Series B Capital Securities Guarantee
shall be deemed to impose any duty or obligation on the Capital Securities
Guarantee Trustee to perform any act or acts or exercise any right, power, duty
or obligation conferred or imposed on it in any jurisdiction in which it shall
be illegal, or in which the Capital Securities Guarantee Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Capital Securities Guarantee
Trustee shall be construed to be a duty.

SECTION 3.3         Not Responsible for Recitals or Issuance of Series B Capital
                    Securities Guarantee
                    ------------------------------------------------------------

                  The recitals contained in this Series B Capital Securities
Guarantee shall be taken as the statements of the Guarantor, and the Capital
Securities Guarantee Trustee does not assume any responsibility for their
correctness. The Capital Securities Guarantee Trustee makes no representation as
to the validity or sufficiency of this Series B Capital Securities Guarantee.


                                   ARTICLE IV
                      CAPITAL SECURITIES GUARANTEE TRUSTEE

SECTION 4.1             Capital Securities Guarantee Trustee; Eligibility
                        -------------------------------------------------

                  (a) There shall at all times be a Capital Securities Guarantee
Trustee which shall:

                  (i)      not be an Affiliate of the Guarantor; and

                  (ii) be a corporation organized and doing business under the
         laws of the United States of America or any State or Territory thereof
         or of the District of Columbia, or a corporation or Person permitted by
         the Securities and Exchange Commission to act as an institutional
         trustee under the Trust Indenture Act, authorized under such laws to
         exercise corporate trust powers, having a combined capital and surplus
         of at least 50 million U.S. dollars ($50,000,000), and subject to
         supervision or examination by Federal, State, Territorial or District
         of Columbia authority. If such corporation publishes reports of
         condition at least annually, pursuant to law or to the requirements of
         the supervising or examining authority referred to above, then, for the
         purposes of this Section 4.1(a)(ii), the combined capital and surplus
         of such corporation shall be deemed to be its combined capital and
         surplus as set forth in its most recent report of condition so
         published.

                  (b) If at any time the Capital Securities Guarantee Trustee
shall cease to be eligible to so act under Section 4.1(a), the Capital
Securities Guarantee Trustee shall immediately resign in the manner and with the
effect set out in Section 4.2(c).

                  (c) If the Capital Securities Guarantee Trustee has or shall
acquire any "conflicting interest" within the meaning of Section 310(b) of the
Trust Indenture Act, the Capital Securities Guarantee Trustee and Guarantor
shall in all respects comply with the provisions of Section 310(b) of the Trust
Indenture Act, subject to the penultimate paragraph thereof.

SECTION 4.2       Appointment, Removal and Resignation of Capital Securities 
                  Guarantee Trustee
                  ----------------------------------------------------------

                  (a) Subject to Section 4.2(b), the Capital Securities
Guarantee Trustee may be appointed or removed without cause at any time by the
Guarantor except during an Event of Default.

                  (b) The Capital Securities Guarantee Trustee shall not be
removed in accordance with Section 4.2(a) until a Successor Capital Securities
Guarantee Trustee has been appointed and has accepted such appointment by
written instrument executed by such Successor Capital Securities Guarantee
Trustee and delivered to the Guarantor.

                  (c) The Capital Securities Guarantee Trustee shall hold office
until a Successor Capital Securities Guarantee Trustee shall have been appointed
or until its removal or resignation. The Capital Securities Guarantee Trustee
may resign from office (without need for prior or subsequent accounting) by an
instrument in writing executed by the Capital Securities Guarantee Trustee and
delivered to the Guarantor, which resignation shall not take effect until a
Successor Capital Securities Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Capital Securities Guarantee Trustee and delivered to the Guarantor and the
resigning Capital Securities Guarantee Trustee.

                  (d) If no Successor Capital Securities Guarantee Trustee shall
have been appointed and accepted appointment as provided in this Section 4.2
within 60 days after delivery of an instrument of removal or resignation, the
Capital Securities Guarantee Trustee resigning or being removed may petition any
court of competent jurisdiction for appointment of a Successor Capital
Securities Guarantee Trustee. Such court may thereupon, after prescribing such
notice, if any, as it may deem proper, appoint a Successor Capital Securities
Guarantee Trustee.

                  (e) No Capital Securities Guarantee Trustee shall be liable
for the acts or omissions to act of any Successor Capital Securities Guarantee
Trustee.

                  (f) Upon termination of this Series B Capital Securities
Guarantee or removal or resignation of the Capital Securities Guarantee Trustee
pursuant to this Section 4.2, the Guarantor shall pay to the Capital Securities
Guarantee Trustee all amounts due to the Capital Securities Guarantee Trustee
accrued to the date of such termination, removal or resignation.


                                    ARTICLE V
                                    GUARANTEE

SECTION 5.1             Guarantee
                        ---------

                  The Guarantor irrevocably and unconditionally agrees to pay in
full to the Holders the Guarantee Payments (without duplication of amounts
theretofore paid by the Issuer), as and when due, regardless of any defense,
right of set-off or counterclaim that the Issuer may have or assert. The
Guarantor's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holders or by causing
the Issuer to pay such amounts to the Holders.

SECTION 5.2             Waiver of Notice and Demand
                        ---------------------------

                  The Guarantor hereby waives notice of acceptance of this
Series B Capital Securities Guarantee and of any liability to which it applies
or may apply, presentment, demand for payment, any right to require a proceeding
first against the Issuer or any other Person before proceeding against the
Guarantor, protest, notice of nonpayment, notice of dishonor, notice of
redemption and all other notices and demands.

SECTION 5.3             Obligations Not Affected
                        ------------------------

                  The obligations, covenants, agreements and duties of the
Guarantor under this Series B Capital Securities Guarantee shall in no way be
affected or impaired by reason of the happening from time to time of any of the
following:

                  (a) the release or waiver, by operation of law or otherwise,
of the performance or observance by the Issuer of any express or implied
agreement, covenant, term or condition relating to the Series B Capital
Securities to be performed or observed by the Issuer;

                  (b) the extension of time for the payment by the Issuer of all
or any portion of the Distributions, Redemption Price, Liquidation Distribution
or any other sums payable under the terms of the Series B Capital Securities or
the extension of time for the performance of any other obligation under, arising
out of, or in connection with, the Series B Capital Securities (other than an
extension of time for payment of Distributions, Redemption Price, Liquidation
Distribution or other sum payable that results from the extension of any
interest payment period on the Debentures permitted by the Indenture);

                  (c) any failure, omission, delay or lack of diligence on the
part of the Holders to enforce, assert or exercise any right, privilege, power
or remedy conferred on the Holders pursuant to the terms of the Series B Capital
Securities, or any action on the part of the Issuer granting indulgence or
extension of any kind;

                  (d) voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the benefit
of creditors, reorganization, arrangement, composition or readjustment of debt
of, or other similar proceedings affecting, the Issuer or any of the assets of
the Issuer;

                  (e)      any invalidity of, or defect or deficiency in, the 
Series B Capital Securities;

                  (f)      the settlement or compromise of any obligation 
guaranteed hereby or hereby incurred; or

                  (g) any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a guarantor, it being
the intent of this Section 5.3 that the obligations of the Guarantor with
respect to the Guarantee Payments shall be absolute and unconditional under any
and all circumstances.

                  There shall be no obligation of the Holders to give notice to,
or obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.

SECTION 5.4             Rights of Holders
                        -----------------

                  (a) The Holders of a Majority in Liquidation Amount of the
Series B Capital Securities have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Capital Securities
Guarantee Trustee in respect of this Series B Capital Securities Guarantee or
exercising any trust or power conferred upon the Capital Securities Guarantee
Trustee under this Series B Capital Securities Guarantee, provided that, subject
to Section 3.1, the Capital Securities Guarantee Trustee shall have the right to
decline to follow any such direction if the Capital Securities Guarantee Trustee
shall determine that the action so directed would be unjustly prejudicial to the
holders not taking part in such direction or if the Capital Securities Guarantee
Trustee being advised by counsel determines that the action or proceeding so
directed may not lawfully be taken or if the Capital Securities Guarantee
Trustee in good faith by its board of directors or trustees, executive
committee, or a trust committee of directors or trustees and/or Responsible
Officers shall determine that the action or proceeding so directed would involve
the Capital Securities Guarantee Trustee in personal liability.

                  (b) If the Capital Securities Guarantee Trustee fails to
enforce such Series B Capital Securities Guarantee, any Holder may institute a
legal proceeding directly against the Guarantor to enforce the Capital
Securities Guarantee Trustee's rights under this Series B Capital Securities
Guarantee, without first instituting a legal proceeding against the Issuer, the
Capital Securities Guarantee Trustee or any other person or entity. The
Guarantor waives any right or remedy to require that any action be brought first
against the Issuer or any other person or entity before proceeding directly
against the Guarantor.

SECTION 5.5             Guarantee of Payment
                        --------------------

                  This Series B Capital Securities Guarantee creates a guarantee
of payment and not of collection.

SECTION 5.6             Subrogation
                        -----------

                  The Guarantor shall be subrogated to all (if any) rights of
the Holders against the Issuer in respect of any amounts paid to such Holders by
the Guarantor under this Series B Capital Securities Guarantee; provided,
however, that the Guarantor shall not (except to the extent required by
mandatory provisions of law) be entitled to enforce or exercise any right that
it may acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Series B Capital
Securities Guarantee, if, at the time of any such payment, any amounts are due
and unpaid under this Series B Capital Securities Guarantee. If any amount shall
be paid to the Guarantor in violation of the preceding sentence, the Guarantor
agrees to hold such amount in trust for the Holders and to pay over such amount
to the Holders.

SECTION 5.7             Independent Obligations
                        -----------------------

                  The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Series B
Capital Securities, and that the Guarantor shall be liable as principal and as
debtor hereunder to make Guarantee Payments pursuant to the terms of this Series
B Capital Securities Guarantee notwithstanding the occurrence of any event
referred to in subsections (a) through (g), inclusive, of Section 5.3 hereof.


                                   ARTICLE VI
                  LIMITATION OF TRANSACTIONS; SUBORDINATION

SECTION 6.1             Limitation of Transactions
                        --------------------------

                  So long as any Capital Securities remain outstanding, the
Guarantor shall not (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
the Guarantor's capital stock (which includes common and preferred stock), (ii)
make any payment of principal, interest or premium, if any, with respect to or
repay, repurchase or redeem any debt securities of the Guarantor (including any
Other Debentures) that rank pari passu with or junior in right of payment to the
Debentures or (iii) make any guarantee payments with respect to any guarantee by
the Guarantor of the debt securities of any subsidiary of the Guarantor
(including Other Guarantees) if such guarantee ranks pari passu with or junior
in right of payment to the Debentures (other than (a) dividends or distributions
in shares of or options, warrants or rights to subscribe for or purchase shares
of, common stock of the Guarantor, (b) any declaration of a dividend in
connection with the implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the Capital
Securities Guarantee, (d) as a result of a reclassification of the Guarantor's
capital stock or the exchange or the conversion of one class or series of the
Guarantor's capital stock for another class or series of the Guarantor's capital
stock, (e) the purchase of fractional interests in shares of the Guarantor's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, and (f) purchases of common
stock related to the issuance of common stock or rights under any of the
Guarantor's benefit plans for its directors, officers or employees or any of the
Guarantor's dividend reinvestment plans) if at such time (i) there shall have
occurred any event of which the Guarantor has actual knowledge that (a) is, or
with the giving of notice or the lapse of time, or both, would be an Event of
Default and (b) in respect of which the Guarantor shall not have taken
reasonable steps to cure, (ii) if such Debentures are held by the Property
Trustee, the Guarantor shall be in default with respect to its payment of any
obligations under this Series B Capital Securities Guarantee or (iii) the
Guarantor shall have given notice of its election of the exercise of its right
to extend the interest payment period pursuant to Section 16.01 of the Indenture
and any such extension shall be continuing.

SECTION 6.2             Ranking
                        -------

                  This Series B Capital Securities Guarantee will constitute an
unsecured obligation of the Guarantor and will rank (i) subordinate and junior
in right of payment to all Senior Indebtedness (as defined in the Indenture) in
the same manner that the Debentures are subordinated to all Senior Indebtedness
pursuant to the Indenture (except as indicated below), it being understood that
the terms of Article XV of the Indenture shall apply to the obligations of the
Guarantor under this Series B Capital Securities Guarantee as if (x) such
Article XV were set forth herein in full and (y) such obligations were
substituted for the term "Securities" appearing in such Article XV, except that
with respect to Section 15.03 of the Indenture only, the term "Senior
Indebtedness" shall mean all liabilities of the Guarantor, whether or not for
money borrowed (other than obligations in respect of Other Guarantees), (ii)
pari passu with the most senior preferred or preference stock now or hereafter
issued by the Guarantor and with any Other Guarantee (as defined herein) and any
Other Common Securities Guarantee and any guarantee now or hereafter entered
into by the Guarantor in respect of any preferred or preference stock of any
Affiliate of the Guarantor, and (iii) senior to the Guarantor's common stock.


                                   ARTICLE VII
                                   TERMINATION

SECTION 7.1             Termination
                        -----------

                  This Series B Capital Securities Guarantee shall terminate (i)
upon full payment of the Redemption Price (as defined in the Declaration) of all
Series B Capital Securities, or (ii) upon liquidation of the Issuer, the full
payment of the amounts payable in accordance with the Declaration or the
distribution of the Debentures to all of the Holders. Notwithstanding the
foregoing, this Series B Capital Securities Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any Holder
must restore payment of any sums paid under the Series B Capital Securities or
under this Series B Capital Securities Guarantee.


                                  ARTICLE VIII
                          COMPENSATION AND EXPENSES OF
                      CAPITAL SECURITIES GUARANTEE TRUSTEE

SECTION 8.1        Compensation and Expenses of Capital Securities Guarantee 
                   Trustee
                   ---------------------------------------------------------

                  The Guarantor covenants and agrees to pay to the Capital
Securities Guarantee Trustee from time to time, and the Capital Securities
Guarantee Trustee shall be entitled to, such compensation as shall be agreed to
in writing between the Guarantor and the Capital Securities Guarantee Trustee
(which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust), and the Guarantor will pay or
reimburse the Capital Securities Guarantee Trustee upon its request for all
reasonable expenses, disbursements and advances incurred by or made by the
Capital Securities Guarantee Trustee in accordance with any of the provisions of
this Capital Securities Guarantee (including the reasonable compensation and the
expenses and disbursements of its counsel and of all persons not regularly in
its employ) except any such expense, disbursement or advance as may arise from
its negligence or bad faith. The Guarantor also covenants to indemnify each of
the Capital Securities Guarantee Trustee (and its officers, agents, directors
and employees) for, and to hold it harmless against, any and all loss, damage,
claim, liability or expense including taxes (other than taxes based on the
income of the Capital Securities Guarantee Trustee) incurred without negligence
or bad faith on the part of the Capital Securities Guarantee Trustee and arising
out of or in connection with the acceptance or administration of this guarantee,
including the costs and expenses of defending itself against any claim or
liability in the premises. The obligations of the Guarantor under this Article
VIII to compensate and indemnify the Capital Securities Guarantee Trustee and to
pay or reimburse the Capital Securities Guarantee Trustee for expenses,
disbursements and advances shall be secured by a lien prior to that of the
Series B Capital Securities upon all property and funds held or collected by the
Capital Securities Guarantee Trustee as such, except funds held in trust for the
benefit of the holders of particular Series B Capital Securities.

                  The provisions of this Article shall survive the termination
of this Capital Securities Guarantee.


                                   ARTICLE IX
                                 INDEMNIFICATION

SECTION 9.1             Exculpation
                        -----------

                  (a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Guarantor or any Covered Person for
any loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith in accordance with this Series
B Capital Securities Guarantee and in a manner that such Indemnified Person
reasonably believed to be within the scope of the authority conferred on such
Indemnified Person by this Series B Capital Securities Guarantee or by law,
except that an Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's negligence or willful
misconduct with respect to such acts or omissions.

                  (b) An Indemnified Person shall be fully protected in relying
in good faith upon the records of the Guarantor and upon such information,
opinions, reports or statements presented to the Guarantor by any Person as to
matters the Indemnified Person reasonably believes are within such other
Person's professional or expert competence including information, opinions,
reports or statements as to the value and amount of the assets, liabilities,
profits, losses, or any other facts pertinent to the existence and amount of
assets from which Distributions to Holders of Series B Capital Securities might
properly be paid.

SECTION 9.2             Indemnification
                        ---------------

                  The Guarantor agrees to indemnify each Indemnified Person for,
and to hold each Indemnified Person harmless against, any and all loss,
liability, damage, claim or expense incurred without negligence or bad faith on
its part, arising out of or in connection with the acceptance or administration
of the trust or trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against, or
investigating, any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The obligation to
indemnify as set forth in this Section 9.2 shall survive the termination of this
Series B Capital Securities Guarantee.


                                    ARTICLE X
                                  MISCELLANEOUS

SECTION 10.1            Successors and Assigns
                        ----------------------

                  All guarantees and agreements contained in this Series B
Capital Securities Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Guarantor and shall inure to the benefit of
the Holders of the Series B Capital Securities then outstanding.

SECTION 10.2            Amendments
                        ----------

                  Except with respect to any changes that do not materially
adversely affect the rights of Holders (in which case no consent of Holders will
be required), this Series B Capital Securities Guarantee may only be amended
with the prior approval of the Holders of a Majority in Liquidation Amount of
the Series B Capital Securities (including the stated amount that would be paid
on redemption, liquidation or otherwise, plus accrued and unpaid Distributions
to the date upon which the voting percentages are determined). The provisions of
the Declaration with respect to consents to amendments (whether at a meeting or
otherwise) shall apply to the giving of such approval.

SECTION 10.3            Notices
                        -------

                  All notices provided for in this Series B Capital Securities
Guarantee shall be in writing, duly signed by the party giving such notice, and
shall be delivered, telecopied or mailed by first class mail, as follows:

                  (a) If given to the Issuer, in care of the Administrators at
the Issuer's mailing address set forth below (or such other address as the
Issuer may give notice of to the Holders and the Capital Securities Guarantee
Trustee):

                           ALBANK Capital Trust I
                           c/o ALBANK Financial Corporation
                           10 North Pearl Street
                           Albany, NY  12207
                           Attention:  Freling H. Smith
                           Telecopy: (518) 445-2140

                  (b) If given to the Capital Securities Guarantee Trustee, at
the Capital Securities Guarantee Trustee's mailing address set forth below (or
such other address as the Capital Securities Guarantee Trustee may give notice
of to the Holders):

                           The Chase Manhattan Bank
                           450 West 33rd Street
                           New York, NY  10001
                           Attention:       Corporate Trustee
                                            Administration Department
                           Telecopy: (212) 946-8159/8160

                  (c) If given to the Guarantor, at the Guarantor's mailing
address set forth below (or such other address as the Guarantor may give notice
of to the Holders and the Capital Securities Guarantee Trustee):

                           ALBANK Financial Corporation
                           10 North Pearl Street
                           Albany, NY  12207
                           Attention: Freling H. Smith
                           Telecopy: (518) 445-2140

                  (d)      If given to any Holder, at the address set forth 
on the books and records of the Issuer.

                  All such notices shall be deemed to have been given when
received in person, telecopied with receipt confirmed, or mailed by first class
mail, postage prepaid except that if a notice or other document is refused
delivery or cannot be delivered because of a changed address of which no notice
was given, such notice or other document shall be deemed to have been delivered
on the date of such refusal or inability to deliver.

SECTION 10.4      Benefit

                  This Series B Capital Securities Guarantee is solely for the
benefit of the Holders and, subject to Section 3.1(a), is not separately
transferable from the Series B Capital Securities.

SECTION 10.5      Governing Law

                  THIS SERIES B CAPITAL SECURITIES GUARANTEE SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.

<PAGE>


THIS SERIES B CAPITAL SECURITIES GUARANTEE is executed as of the day and year
first above written.

                                    ALBANK FINANCIAL CORPORATION,
                                    as Guarantor


                                    By:      /s/ Richard J. Heller
                                             Name:    Richard J. Heller
                                             Title:   Executive Vice President
                                             and Chief Financial Officer

                                    The Chase Manhattan Bank, as Capital
                                    Securities Guarantee Trustee


                                    By:      /s/ Anne G. Brenner
                                    Name:     Anne G. Brenner
                                    Title:   Vice President




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