ONBANCORP INC, 10-K405, 1997-03-31

ONBANCORP INC
10-K405, 1997-03-31
STATE COMMERCIAL BANKS

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

For the fiscal year ended: December 31, 1996 Commission File No.: 0-18011

ONBANCorp, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 16-1345830
-------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)

101 South Salina Street, Syracuse, New York 13202 (315) 424-4400
- ------------------------------------------------- --------------
(Address of principal executive office and (Registrant's telephone
Zip Code) number)

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $1.00 par value
Series B 6.75% Cumulative Convertible Preferred Stock, $1.00 par value
----------------------------------------------------------------------
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports
required by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months 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 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 [ X ]

As of February 28, 1997, the aggregate market value of the 13,452,582 shares
of Common Stock of the Registrant outstanding on such date, excluding the
294,835 shares held by all directors and executive officers of the Registrant as
a group, was $600,321,472. This figure is based on the last sale price of
$44.625 per share of the Registrant's Common Stock on February 28, 1997.

Number of shares of Common Stock outstanding as of February 28, 1997:
13,747,417.

- -------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
- -------------------------------------------------------------------------------

(1) Portions of the Annual Report to Shareholders for the year ended
December 31, 1996 are incorporated by reference into Part II, Items 5, 6, 7 and
8 of this Form 10-K.

(2) Portions of the definitive Proxy Statement for the
Annual Meeting of Shareholders to be held in April 1997 are incorporated by
reference into Part III, Items 10-13 of this Form 10-K.
- -------------------------------------------------------------------------------

<PAGE>

TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT 1996
ONBANCorp, INC.

PART I PAGE #
- ------ ------
Item 1. Business............................................. 3

Item 2. Properties........................................... 22

Item 3. Legal Proceedings.................................... 22

Item 4. Submission of Matters to Vote of Security Holders.... 22

PART II

Item 5. Market for Registrant's Common Stock and Related
Shareholder Matters.................................. 22

Item 6. Selected Financial Data.............................. 22

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation................... 22

Item 8. Financial Statements and Supplementary Data.......... 22

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. 23

PART III

Item 10. Directors and Executive Officers of the Registrant... 23

Item 11. Executive Compensation............................... 23

Item 12. Security Ownership of Certain Beneficial Owners and
Management........................................... 23

Item 13. Certain Relationships and Related Transactions....... 23

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.......................................... 23

<PAGE>

PART I

ITEM 1. BUSINESS

General. ONBANCorp, Inc. (the "Company" or "ONBANCorp") is a Delaware
chartered bank holding company which operated three wholly owned subsidiaries
during 1996, OnBank, OnBank & Trust Co. and Franklin First Savings Bank ("the
Banks"). On January 1, 1997 OnBank and OnBank & Trust Co. merged, thereby
creating a single banking entity in New York State.

ONBANCorp completed a purchase transaction on December 31, 1992 for the
Merchants National Bank & Trust Company of Syracuse and Union National Bank,
Albany, New York (the "Combined Banks") previously owned by MidLantic
Corporation. The Combined Banks had assets of $1 billion, deposits of $.9
billion and 40 locations in metropolitan Syracuse and Albany. Since the Combined
Banks were purchased on the last day of the fiscal year, their assets are
included in the Company's consolidated 1992 year-end balance sheet.

On January 1, 1993, the Combined Banks were converted from national banks to
New York State trust companies. On January 15, 1993 OnBank and the acquired
banks were reorganized, resulting in the creation of OnBank & Trust Co., a New
York trust company, having total assets of approximately $3.1 billion and 61
locations, and the reduction in size of OnBank, a New York State savings bank,
to total assets of approximately $.4 billion and 9 locations.

On August 31, 1993 the Company merged with Franklin First Financial Corp.,
and Franklin First Savings Bank ("Franklin") a $1.3 billion Pennsylvania thrift
with deposits of $.8 billion and 22 locations and Franklin became a subsidiary
of the Company. This merger has been accounted for using the pooling of
interests method and, therefore, prior period results have been restated.

During June of 1994 OnBank & Trust Co. acquired nine branches with $.3
billion in deposits in the Rochester metropolitan area and accounted for the
acquisition using the purchase method.

Diversified financial services are offered through 120 locations in the
upstate New York communities of Syracuse, Auburn, Rome, Utica, Buffalo,
Rochester, and Albany, and Scranton/Wilkes-Barre, Pennsylvania. Management
believes that ONBANCorp has the largest share of retail deposits in Onondaga
County, New York and is currently the County's leading residential mortgage
lender, in addition to having a significant market presence in adjacent Oneida
and Cayuga Counties. As of December 31, 1996, ONBANCorp had total consolidated
assets of $5.4 billion, deposits of $3.8 billion and shareholders' equity of
$360.1 million. At December 31, 1996, 62% of the Company's earning assets were
guaranteed by various government instrumentalities or were secured by
residential mortgages, and the remainder consisted primarily of other loans and
investment grade securities.

<PAGE>

The principal business of the Banks is to accept deposits from the general
public and to invest those deposits, together with funds from borrowings and
ongoing operations, in business, consumer, and residential mortgage loans.
ONBANCorp has concentrated its efforts in the retail, municipal and commercial
banking business, expanding the types of financial products and services,
including trust offered to its customers. The Banks offer a variety of deposit
and loan products designed to meet the needs of residents and businesses of its
market area, as well as discount brokerage services through TradeStar
Investments, Inc. and non-insured mutual funds and annuities through Liberty
Securities Corporation. The Company does not believe that any potential
obligations and/or exposures to loss exist as a result of these activities with
TradeStar Investments, Inc. and Liberty Securities Corporation.

ONBANCorp's current business strategy is to (i) continue its focus on
retail and business banking relationships through selective expansion in its
market areas, (ii) improve core earnings from loans and investments,
(iii) maintain adequate leverage and risk-based capital for regulatory
purposes and business operations, (iv) manage assets and liabilities to
minimize the negative effects of changing interest rate environments,
(v) maintain its emphasis on asset quality controls, (vi) achieve greater
operating revenues while continuing to be efficient and (vii) continue to
broaden management depth.

ONBANCorp is building upon its traditional business of gathering consumer
deposits and making mortgage loans by developing its commercial lending and
business relationships and increasing its portfolio of commercial loans and
deposits from small and medium-sized companies located in the Company's market
areas. To direct that growth, management has assembled a team of bankers with
extensive commercial banking experience.

Since 1993, capital has been leveraged in the form of financing
transactions. These transactions have generally involved short-term market rate
borrowings, such as repurchase agreements, funding assets such as Treasuries and
mortgage-backed securities. The intended short term nature of the financing
transactions along with the minimal credit risk associated with these assets
(generally U.S. Government or mortgage-backed securities) which were classified
as available for sale, would have provided the opportunity to increase return on
equity ("ROE") and earnings per share ("EPS") as well as adjust the balance
sheet as more traditional banking relationships were added. However, rapidly
rising interest rates in 1994 had an adverse effect on this strategy. Corporate
strategy was revised in 1995 to further accelerate the focus on core banking and
to significantly diminish investments in securities.

At December 31, 1996 total assets were $5.4 billion, earning assets were
$5.1 billion, deposits were $3.8 billion and shareholders' equity was $360.1
million, net of $20.2 million of net unrealized holding loss on securities. The
unrealized holding loss of $22.9 million relating to the held to maturity
securities will be amortized into capital as the related securities are repaid.

<PAGE>

The following table sets forth the amortization, maturity and repricing
schedule of the Company's interest earning assets and interest bearing
liabilities for all future time periods as of December 31, 1996. Most of the
Company's adjustable rate mortgages and adjustable rate mortgage-backed
securities provide for limitations on the interest rate adjustments that may
occur during any one adjustment period, as well as during the life of the
loan. Such limitations could have the effect of reducing the interest rate
sensitivity of these loans if interest rates were to significantly increase
for prolonged periods. In periods of high interest rates, prepayment levels
of fixed rate mortgage loans and mortgage-backed securities would be expected
to decrease and conversely they would be expected to increase if interest
rates were to decline. The principal amount for each asset and liability is
shown in the first period in which it is expected to be repaid or the rate
thereon is scheduled to be reset.

<TABLE>
<CAPTION>
LESS THAN THREE GREATER
THREE MONTHS TO 1 TO 5 THAN
(DOLLARS IN THOUSANDS) MONTHS 1 YEAR YEARS 5 YEARS TOTAL
- ----------------------------------------------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Mortgage loans................................. $ 482,923 308,916 340,387 243,725 1,375,951
Other loans.................................... 474,196 167,984 295,322 97,181 1,034,683
Loans available for sale....................... 38,759 38,759
------------ ----------- ---------- ---------- ----------
Total loans.................................. 995,878 476,900 635,709 340,906 2,449,393
Securities..................................... 515,579 291,646 877,925 925,825 2,610,975
Federal funds sold and other................... 12,253 12,253
------------ ----------- ---------- ---------- ----------
------------ ----------- ---------- ---------- ----------
Total interest earning assets................ $ 1,523,710 768,546 1,513,634 1,266,731 5,072,621
------------ ----------- ---------- ---------- ----------
------------ ----------- ---------- ---------- ----------
INTEREST BEARING LIABILITIES
Savings deposits............................... 692,821 692,821
Time deposits.................................. 691,491 968,326 561,585 29,510 2,250,912
Money market accounts, NOW accounts, and escrow
deposits..................................... 522,002 522,002
Total deposits............................... 1,906,314 968,326 561,585 29,510 3,465,735
Repurchase agreements.......................... 18,982 161,338 73,196 955 254,471
Other borrowings............................... 244,100 372,000 225,495 33,322 874,917
------------ ----------- ---------- ---------- ----------
Total interest bearing liabilities........... $ 2,169,396 1,501,664 860,276 63,787 4,595,123
------------ ----------- ---------- ---------- ----------
------------ ----------- ---------- ---------- ----------
Period excess (deficiency)..................... $ (645,686) (733,118) 653,358 1,202,944 477,498
As a percent of total earning assets........... -12.7% -14.5% 12.9% 23.7% 9.4%
Cummulative excess (deficiency)................ $ (645,686) (1,378,804) (725,446) 477,498
As a percent of total earning assets........... -12.7% -27.2% -14.3% 9.4%
</TABLE>

<PAGE>

The following major asssumptions are reflected in the table on page 5:

1. Fixed rate mortgages and fixed rate mortgage-backed securities
prepayment assumptions are based on dealer long-term prepayment
estimates for similar coupons.

2. Adjustable rate assets whose yield is not limited by periodic caps use
actual weighted average repricing dates.

3. Adjustable rate assets whose yield is affected by periodic caps are
allocated in periods when full indexing is estimated to occur.

4. Other non-amortizing fixed rate assets use actual maturity date.

5. Deposits without contractual maturity (i.e. savings deposits and
interest bearing transaction accounts) are included in the less than
three months category.

The single most important component of the earnings stream of the Banks is
net interest income which is directly correlated to net interest margin. It is
the intent of the Banks to minimize the sensitivity of the net interest margin
to changes in interest rates. The overriding philosophy of management is to
establish and maintain a reasonable balance between interest rate sensitive
assets ("ISAs") and interest rate sensitive liabilities ("ISLs"). GAP, duration
and simulation are the techniques which are used to monitor interest rate risk
exposure. Realizing that a perfectly matched balance sheet is a nearly
impossible task to maintain, the following parameters are used as guidelines for
operations.

GAP Analysis: This measure utilizes a system of measuring the volumes of
assets and liabilities which will mature, reprice or otherwise become available
for reinvestment within certain time periods. The goal is to have no more than a
plus or minus ten percent mismatch within the one year time frame when dividing
the difference between ISAs and ISLs by earning assets.

Duration Analysis: This technique analyzes the cash flows of assets and
liabilities discounted by current interest rates. The net dollar duration for
the one year time frame represents the present value of expected cash flows to
be received or paid out for assets or liabilities over the next year and is
considered an important duration measure as it relates to the extent of near
term interest rate risk in the balance sheet. The goal for this measure shall be
to maintain the one year net dollar duration divided by average earning assets
between plus or minus ten percent.

Both of these analysis techniques require that certain assumptions be made
regarding flows of deposits and loan payments that are different than those in
the preceding table. Estimates regarding loan prepayments and conversion of
deposit accounts are based upon assumptions which have considered historical
data and anticipated interest rates. Duration analysis is considered more
comprehensive, therefore, more emphasis is generally placed upon keeping within
that guideline. At December 31, 1996 the Company was 5.6% liability sensitive on
a GAP basis and 0.6% asset sensitive on a duration basis. The different
assumptions used in calculating this GAP percentage are those recommended by the
Banking Agencies (i.e.: FDIC, Federal Reserve and OCC) in their proposed
interest rate risk requirements and are as follows: fifty percent of Savings,
NOW and MMDA accounts are allocated on a straight-line basis for 1-119 months
and fifty percent in the 120th month. The difference in allocation of these
types of deposit accounts for the difference between the one year GAP of (27.2)%
in the preceding table and the (5.6)% above. Based upon the results of the GAP
and duration analysis at December 31, 1996 it appears that the Company is
minimally exposed to interest rate changes over a one year period.

The Company also monitors interest rate risk with the aid of a computer
model which considers the impact of lending, deposit gathering activities, the
repricing of variable rate assets and liabilities, and the effect of changing
interest rates on expected prepayments and maturities. At December 31, 1996
utilizing the

<PAGE>

model described above, the Company's assessment is that the variability of
net interest income would be largely unaffected by changes in interest rates
over the next year, but large, sustained increases or decreases in interest
rates or a significant flattening in the yield curve would likely have a
negative impact on net interest income in later years.

Management closely monitors the Company's exposure to changing interest
rates and spreads and stands ready to take action to mitigate such exposure.
Possible actions include, but are not limited to, changes in the pricing of loan
and deposit products, changing the composition of interest earning assets and
interest bearing liabilities, and the use of off-balance sheet instruments.

Lending Activities

Loan Portfolio. ONBANCorp's net loan portfolio totaled $2.4 billion at
December 31, 1996, representing 45.2% of its total assets. Its mortgage loan
portfolio is comprised principally of loans secured by first mortgages on
one-to-four family residences and generally underwritten in conformity with
secondary market standards. These loans are either conventional or insured by
the Federal Housing Administration (the "FHA") or partially guaranteed by the
Veterans Administration (the "VA"). In addition, the loan portfolio includes
mortgage loans secured by income producing commercial real estate or
multi-family dwellings, commercial, and other loans, such as home improvement,
automobile, manufactured home, guaranteed student loans, secured and unsecured
personal loans and home equity lines of credit.

The following schedule sets forth the composition of ONBANCorp's total
portfolio of loans (including residential and other consumer loans available for
sale) by type and percentage of gross loans at December 31:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
------------------------ ---------------------- ----------------------- ----------------------- ----------
(DOLLARS IN THOUSANDS)
- ---------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------ ---------- ---------- ---------- ---------- --------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgageloans:
Residential
1-4 family.... $ 1,057,200 42.4% 1,132,947 48.6% 1,002,434 50.1% 963,803 50.7% 1,075,907 51.5%
Multi family and
commercial.... 290,121 11.7% 248,325 10.7% 193,150 9.7% 191,683 10.1% 195,872 9.4%
Construction... 53,998 2.2% 53,624 2.3% 31,642 1.6% 31,111 1.6% 34,111 1.6%
----------- ---------- ---------- ---------- ---------- ----- ---------- ----- ---------- -------
Total mortgage
loans........ 1,401,319 56.3% 1,434,896 61.6% 1,227,226 61.4% 1,186,597 62.4% 1,305,890 62.5%
----------- ---------- ---------- ---------- ---------- ----- ---------- ----- ---------- -------
Commercial
loans........ 333,073 13.4% 278,688 12.0% 226,538 11.3% 187,250 9.8% 197,752 9.5%
Other loans:
Home equity.... 114,928 4.6% 115,641 5.0% 120,888 6.0% 135,292 7.1% 174,900 8.4%
Auto leases.... 110,905 4.5% 42,636 1.8% 4,794 0.2% - 0.0% - 0.0%
Other
consumer..... 528,231 21.2% 455,081 19.6% 422,027 21.1% 394,707 20.7% 408,908 19.6%
----------- ---------- ---------- ---------- ---------- ----- ---------- ----- ---------- -------
Total other
loans........ 754,064 30.3% 613,358 26.4% 547,709 27.3% 529,999 27.8% 583,808 28.0%
----------- ---------- ---------- ---------- ---------- ----- ---------- ----- ---------- -------
Gross loans.... 2,488,456 100.0% 2,326,942 100.0% 2,001,473 100.0% 1,903,846 100.0% 2,087,450 100.0%
Net deferred
fees......... (1,223) 2,185 5,186 (6,036) (13,534)
Allowance for
loan......... (37,840) (34,583) (33,775) (32,717) (31,722)
----------- ---------- ---------- ---------- ---------- ----- ---------- ----- ----------
Net loans...... $ 2,449,393 2,294,544 1,972,884 1,865,093 2,042,194
----------- ---------- ---------- ---------- ---------- ----- ---------- ----- ----------
</TABLE>

The cash flow from these loans, the preponderance of which are amortizing,
provides liquidity for both funding new loans and/or general corporate purposes.

7
<PAGE>

The following table sets forth scheduled maturities of ONBANCorp's
commercial and construction loan portfolio as of December 31, 1996 based on
contract terms:

<TABLE>
<CAPTION>
IN 1 YEAR MATURING:
OR 1 TO 5 AFTER TOTAL
(IN THOUSANDS) LESS YEARS 5 YEARS LOANS
- ------------------------------------------------------------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Construction....................................................... $ 44,318 8,062 1,618 53,998
Commercial (1)..................................................... 157,643 191,858 273,693 623,194
----------- ----------- --------- ---------
Total commercial and construction................................ $ 201,961 199,920 275,311 677,192
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Predetermined interest rates....................................... 89,238 40,580
Adjustable interest rates.......................................... 110,682 234,731
----------- ----------- --------- ---------
Total............................................................ $ 199,920 275,311
----------- ----------- --------- ---------
----------- ----------- --------- ---------
</TABLE>

- ------------------------

(1) Includes commercial real estate loans.

The following table shows the gross loan origination activity of the Company
during the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS) 1996 1995 1994
- ------------------------------------------------------------------------------- ---------- --------- ---------
Loans originated:
Mortgage:
Residential 1-4 family....................................................... $ 195,486 $ 253,760 389,480
Multi-family, commercial and construction.................................... 156,985 117,592 47,929
---------- ---------- ---------
Total mortgage loans......................................................... $ 352,471 $ 371,352 437,409
Commercial..................................................................... 159,427 153,334 156,556
Other.......................................................................... 411,031 296,193 258,581
---------- ---------- ---------
Total loans originated....................................................... $ 922,929 $ 820,879 852,546
---------- ---------- ---------
---------- ---------- ---------
</TABLE>

Residential Real Estate Lending. Management believes that ONBANCorp is
among the leading originators of residential real estate mortgage loans in
Onondaga County. During the year ended December 31, 1996, the Company was the
number one residential real estate lender in Onondaga County, originating
approximately 10.1% of the total mortgage loans made in the County during the
period. Most of the residential mortgage loans originated by the Company are
secured by first mortgages on real estate located in the Banks' upstate New York
and northeastern Pennsylvania market area. Most residential loan originations

<PAGE>

are attributable to bank-employed solicitors who are paid on a incentive basis
and referrals from real estate brokers and builders, depositors and walk-in
customers.

In order to meet consumer demand for fixed rate mortgage loans, ONBANCorp
has continued to originate conventional fixed rate mortgage loans for terms up
to 30 years at current market rates. Based upon the absolute level of interest
rates along with other considerations, the Banks either sell fixed rate mortgage
loans in the secondary market or they may retain them in portfolio. Loans
designated as available for sale are accounted for on a lower of cost or market
(LOCOM) basis pursuant to FAS No. 65, ACCOUNTING FOR CERTAIN MORTGAGE BANKING
ACTIVITIES.

Based on market conditions and other competitive factors, ONBANCorp
supplemented its mortgage loan originations during 1995 with the purchase of
$58 million of adjustable rate mortgage loans for its portfolio. Purchases of
these adjustable rate mortgage loans which were primarily located in Upstate
New York but outside the Syracuse area also provides a means for the Company
to geographically diversify its residential mortgage loan portfolio. The
purchase of loans further outside of the Company's primary market area may
involve certain risks, including adverse conditions in the general economy,
economic conditions in the particular geographic region where the property
securing the loan is located and risks associated with lending in a market
area in which a lender may have limited knowledge and experience.

At December 31, 1996, as a result of the ongoing process of loan
securitization and sales, loans serviced for others were $1.1 billion, from
which the Company will continue to derive future servicing income. When loans
are sold in the secondary market ONBANCorp generally retains responsibility for
collecting and remitting loan payments, inspecting the properties, making
certain insurance and tax payments on behalf of the borrowers and otherwise
servicing the loans. ONBANCorp receives a fee for performing such services and
is also entitled to the interest income earned on escrow accounts and loan
payments held by it before being remitted to the investor.

During 1994, the Company sold servicing rights to approximately $250 million
of loans and recorded a gain of $3.4 million. This sale of servicing rights was
the result of an economic opportunity and not a planned strategy to liquidate
the servicing portfolio.

Commercial Lending. ONBANCorp, Inc., through its subsidiaries, OnBank &
Trust Co., OnBank and Franklin First Savings Bank provides commercial and
industrial loans, commercial real estate loans, construction loans, agricultural
loans, and loans to individuals, usually for investment purposes.

Commercial and industrial loans are offered to businesses in the trade areas
serviced by the full service branches of the subsidiary banks. Such loans are
available to borrowers for seasonal working capital purposes, to acquire plant
and equipment, or to finance a business acquisition or expansion. Loans of this
type are customarily collateralized by the assets of the borrowers. Repayment of
these loans is dependent primarily upon the continued profitable operation of
the borrower's business, hence the borrower's historical financial results, the
characteristics of the industry, the character and ability of management,
current financial position, and financial forecasts and business plans are all
carefully scrutinized during the loan approval process.

The Banks are active in developing loans which can be guaranteed by the
Small Business Administration, and New York State and Pennsylvania agencies who
offer loan guarantees. OnBank & Trust Co. is a Small Business Administration
Certified Lender, and Franklin is pursuing that designation also. This should
enhance the continued development of the guaranteed loan portfolio.

<PAGE>

Commercial real estate and construction loans are offered by the Banks only
in the trade areas serviced by full service branches. The Banks emphasize
relationship banking thus real estate and construction loans are normally
available only to borrowers whose primary deposit relationships are maintained
with the Banks.

Real estate loans are customarily collateralized by owner occupied
properties and the Banks usually require recourse to the owner. Professional
offices, manufacturing, and distribution facilities are the most common types of
real estate financed. The Banks also make available, for well established local
entities, financing for multi-family housing primarily in the low to moderate
income neighborhoods served by the Banks. Construction loans offered by the
Banks are available when a permanent take out also exists. Loan amounts for
commercial real estate loans are normally seventy-five percent (75%) of cost or
appraised value (whichever is less). The primary source of repayment is expected
to be the continuing profitable operation of the owner/occupant's business. Thus
underwriting for these loans is little different than the requirements for
commercial and industrial loans.

Occasionally the Banks will provide loans to individuals needing liquidity.
These loans usually require the pledge of negotiable collateral.

Other Consumer Lending. New York State and Pennsylvania Banking Laws
permit the Banks to engage in virtually all types of consumer lending. At
December 31, 1996, the Banks' gross consumer loan portfolio of $754 million
consisted of guaranteed student loans, conventional home improvement loans,
home equity lines of credit, loans on manufactured homes, loans and leases on
automobiles, loans collateralized by savings accounts, lines of credit and
other secured and unsecured loans.

Borrowers pay a variable rate of interest on home equity lines of credit,
which ranges from 0% to 2.50% over the prime rate, and are permitted under the
Banks' policy to borrow up to 75% of the appraised value of their homes, less
any outstanding mortgage loans on such premises. Interest paid on home equity
loans is deductible by the borrower for federal income tax purposes within
prescribed limits. The Banks' gross portfolio of home equity lines of credit
totaled $115 million at December 31, 1996.

Delinquencies. When a borrower fails to make a scheduled payment on a loan,
the Banks take steps to have the borrower cure the delinquency. Such steps
include written notices of delinquency and contact by telephone by the Banks'
collection staff. All income producing property loans are reviewed monthly by
management. If the delinquency exceeds 90 days and is not cured through the
Banks' normal collection procedures, the Banks routinely place the loan on a
nonaccrual status, charge off any accrued interest, review it with the Executive
Committee of the Board quarterly, and institute measures to enforce its rights,
including, in the case of mortgage loans, commencing foreclosure action. In
certain cases, the Banks also consider accepting from the mortgagor a voluntary
deed to the mortgage premises in lieu of foreclosure.

Other loan delinquencies are remedied in a similar fashion. For secured
loans, the collateral is repossessed and sold to pay off the loan balance. In
the case of unsecured loans, the Banks either commence legal action to collect
the balance or negotiate a "work out" payment schedule over a period which may
exceed the original term of the loan.

Nonaccruing loans decreased to $20.2 million at December 31, 1996 from $23.6
million at December 31, 1995. Accrual of interest is discontinued when a loan
becomes 90 days delinquent unless management

<PAGE>

believes, after considering economic and business conditions, collateral
value and collection efforts, that continued accrual is warranted.

For the nonaccruing loans shown on page 12, the amount of interest income
that would have been recorded if these loans had been paid in accordance with
their original terms as well as the amount of interest income that was recorded
in each of the years was immaterial.

Delinquencies in the Company's portfolio of conventional residential
mortgage loans in its primary market area accounted for $10.7 million or 91.7%
of the $11.7 million of conventional residential mortgage loans over 90 days
delinquent at December 31, 1996. Delinquencies in the Company's portfolio of
purchased adjustable rate mortgage loans serviced by others accounted for the
remaining $1.0 million or 8.3% of the conventional residential mortgage loans
over 90 days delinquent at December 31, 1996. Additionally, almost all other
delinquent loans were located in New York State and Pennsylvania.

<PAGE>

The following table sets forth information with respect to loans delinquent
for 90 days or more, nonaccrual and restructured loans at December 31:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS) 1996 1995 1994 1993 1992
- ---------------------- ---------------------- ---------------------- ---------------------- --------- ---------
Delinquent mortgage
loans:
Conventional.......... $11,743 12,340 12,691 11,436 13,275
FHA and VA............ 775 705 612 905 1,155
Multi family and
commercial.......... 7,891 9,063 8,591 7,546 7,864
---------------------- ---------------------- ---------------------- --------- ---------
Total delinquent
mortgage loans...... 20,409 22,108 21,894 19,887 22,294
---------------------- ---------------------- ---------------------- --------- ---------
As a percentage of
gross mortgage
loans............... 1.5% 1.5% 1.8% 1.7% 1.7%
---------------------- ---------------------- ---------------------- --------- ---------
Delinquent commercial
loans:.............. $4,245 4,387 5,593 6,655 9,782
---------------------- ---------------------- ---------------------- --------- ---------
As a percentage of
gross commercial
loans............... 1.3% 1.6% 2.5% 3.6% 4.9%
---------------------- ---------------------- ---------------------- --------- ---------
Delinquent other
loans:
Home equity........... $599 738 720 414 528
Guaranteed student.... 222 183 157 97 902
Loans to
individuals......... 1,602 1,542 1,396 1,651 1,815
---------------------- ---------------------- ---------------------- --------- ---------
Total delinquent other
loans............... $2,423 2,463 2,273 2,162 3,245
---------------------- ---------------------- ---------------------- --------- ---------
As a percentage of
gross other loans... 0.3% 0.4% 0.4% 0.4% 0.6%
---------------------- ---------------------- ---------------------- --------- ---------
Delinquent loans as a
percentage of gross
loans............... 1.1% 1.2% 1.5% 1.5% 1.7%
---------------------- ---------------------- ---------------------- --------- ---------
---------------------- ---------------------- ---------------------- --------- ---------
Nonperforming loans:
Nonaccrual loans...... $20,172 23,580 22,525 25,381 30,236
Accruing loans
delinquent 90 days
or more............. 2,464 2,586 2,386 3,323 5,085
Restructured loans.... 4,441 2,792 4,849 5,559 4,053
---------------------- ---------------------- ---------------------- --------- ---------
Total nonperforming
loans............... 27,077 28,958 29,760 34,263 39,374
Other
nonperforming
assets:
Other real estate
owned............... 4,054 4,019 5,431 10,719 17,332
Repossessed assets.... 732 441 335 666 327
---------------------- ---------------------- ---------------------- --------- ---------
Total nonperforming
assets.............. $31,863 33,418 35,526 45,648 57,033
---------------------- ---------------------- ---------------------- --------- ---------
---------------------- ---------------------- ---------------------- --------- ---------
Allowance for loan
losses as a
percentage of
non-performing
loans............... 139.75% 119.42% 113.49% 95.49% 80.57%
Nonperforming assets
as a percentage of
total assets........ 0.59% 0.60% 0.53% 0.79% 1.21%
---------------------- ---------------------- ---------------------- --------- ---------
</TABLE>

"Potential problem loans" at December 31, 1996 amounted to $20,833,000
compared with $23,985,000 at December 31, 1995. These problem loans are
defined as loans and commitments not included as non-performing loans
discussed above, but about which management, through normal internal credit
review procedures, has developed information regarding possible credit
problems which may cause the borrowers future difficulties in complying with
present loan repayment terms. There were no loans classified for regulatory
purposes as loss, doubtful or substandard that are not included above or which
caused management to have serious doubts as to the ability of the borrower to
comply with repayment terms. In

<PAGE>

addition, there were no material commitments to lend additional funds to
borrowers whose loans were classified as non-performing.

Allowance for Loan Losses. The allowance for loan losses is increased by
provisions for loan losses charged to operations and decreased by charge-offs
of loans, net of recoveries. Management's quarterly evaluation of the
adequacy of the allowance takes into consideration the Company's past loan
loss experience, known and inherent risks in the portfolio, adverse
situations which may affect the borrower's ability to repay, overall
portfolio quality, and current and prospective economic conditions.

In considering the changing nature of the overall loan portfolio and the
potential for charge-offs, ONBANCorp increased its provision for loan losses
to $7.8 in 1996 from $6.8 million in 1995. The allowance, when expressed as a
percentage of loans, remianed relatively stable at 1.52% at December 31, 1996
and 1.51% at year end 1995. Management believes the allowance for loan
losses is adequate.

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

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------- --------- --------- --------- --------- ---------
Beginning balance............................................... $ 34,583 33,775 32,717 31,722 13,064
Charge-offs
Mortgage loans................................................ 2,804 3,749 3,706 748 1,623
Commercial loans.............................................. 1,136 1,437 1,746 7,303 8
Other loans................................................... 2,698 2,405 2,686 3,684 639
--------- --------- --------- --------- ---------
Total charge-offs............................................... 6,638 7,591 8,138 11,735 2,270
--------- --------- --------- --------- ---------
Recoveries
Mortgage loans................................................ 1,073 630 236 1 30
Commercial loans.............................................. 514 352 598 1,341 9
Other loans................................................... 495 627 724 1,091 93
--------- --------- --------- --------- ---------
Total recoveries................................................ 2,082 1,609 1,558 2,433 132
--------- --------- --------- --------- ---------
Net charge-offs................................................. 4,556 5,982 6,580 9,302 2,138
--------- --------- --------- --------- ---------
Provision for loan losses....................................... 7,813 6,790 7,638 10,297 5,900
Allowance of combined banks..................................... -- -- -- -- 14,896
--------- --------- --------- --------- ---------
Ending balance.................................................. $ 37,840 34,583 33,775 32,717 31,722
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio of net charge-offs to average loans outstanding......... 0.19% 0.28% 0.35% 0.47% 0.14%
--------- --------- --------- --------- ---------
</TABLE>

The majority of the chargeoffs in 1993 and 1994 were related to
non-performing loans of the Combined Banks including commercial real estate
loans which were resolved during 1994. The Banks have reduced the level of
non-performing assets from $57.0 million to $45.6 million to $35.5 million to
$33.4 million to $31.9 million at December 31, 1992, 1993, 1994, 1995 and 1996,
respectively. In each of the last five years the provision for loan losses has
exceeded net charge offs and the allowance for loan losses has increased from
$31.7 million to $32.7 million to $33.8 million to $34.6 million to $37.8
million at December 31, 1992, 1993, 1994, 1995 and 1996, respectively. The
combination of the decreasing non-performing loans and the increasing allowance
for loan losses has resulted in the coverage ratio increasing to 139.7% at
December 31, 1996. The significant increase in the provision for loan losses for
1993 relates to the

<PAGE>

continuing deterioration of certain loans of the Combined Banks along with
the increased emphasis on commercial lending within the overall Company and
the inherently higher risk factors associated with this type of lending.
Commercial loans as a percentage of gross loans receivable have increased
from $197.8 million or 9.5% at December 31, 1992 to $333.1 million or 13.4%
at December 31, 1996.

The loan loss allowance is considered by management to be a general
allowance available to cover loan losses within the entire portfolio. The
following table has been prepared to comply with requirements of the Securities
Exchange Commission. The classifications within the table are based on
management's current assessment of the loss potential associated with specific
loans and elements of the portfolio. Allocation is especially problematical
because of the difficulties inherent in predicting and evaluating with any
degree of accuracy the impact of economic events. Management cautions that the
loan loss allowance allocation provided does not necessarily represent the total
amount which may or may not be available for actual future losses in any one or
more of the categories. Management is of the opinion that the loan loss
allowance as of December 31, 1996 is adequate as a general allowance.

The following table sets forth the allocation of the allowance for loan
losses and the percentage of each type of loan to total loans at December 31:

Securities Activities. The Company has authority to purchase a wide range
of securities deemed prudent by management, subject to various regulatory
restrictions. The Board of Directors establishes the investment policy of the
Company based upon the recommendations of the executive asset/liability team and
the Board reviews transactions and activities in the securities portfolio on a
monthly basis. Total securities have declined to $2.61 billion at December 31,
1996 from $2.74 billion at December 31, 1995 and $3.89 billion at December 31,
1994 and on a percentage basis represent 48%, 49% and 58% of total assets on
those respective dates. The Company's long-term strategy is to decrease the
percentage of securities to assets and to increase the percentage of loans to
assets.

In connection with the implementation of Statement of Financial Accounting
Standards No. 115 (SFAS 115), ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES at December 31, 1993, securities, principally mortgage-backed,
with an amortized cost of $2.3 billion were transferred to the available for
sale portfolio. In 1994, the regulatory policy was revised to require transfer
of securities to available for sale only in cases where the safety and soundness
of an institution is an issue. In view of the policy revision, in 1994, the
Company transferred securities with a fair value of $1.27 billion from available
for sale to held to maturity. These transfers had the practical effect of
limiting the potential capital erosion which could have occurred if interest
rates rose dramatically and these securities had remained classified as
available for sale.

<PAGE>

As of November 15, 1995, all companies subject to FAS 115 were permitted a
one-time opportunity to reallocate securities previously classified as held to
maturity into the available for sale category without calling into question the
Company's intent to hold the remaining securities to maturity. ONBANCorp availed
itself of this opportunity and transferred approximately $1.54 billion in
securities from held to maturity to available for sale. Following this move the
Company sold approximately $1.2 billion of its available for sale securities and
used the proceeds to pay down borrowings and fund future loan growth. This sale
enabled the Company to shrink the absolute levels of securities and borrowings.
The yield on assets sold was approximately the same as the cost of the
borrowings repaid, therefore, net interest income was not adversely affected.
Prepayment fees related to the prepayment of borrowings were more than offset by
gains on securities sold. The future implications of these actions were that net
interest income would remain approximately the same, however, net interest
margin would improve because net interest income (the numerator) would remain
approximately the same while the average earning assets (the denominator) would
significantly diminish by approximately $1 billion.

The following table sets forth ONBANCorp's investment portfolio at carrying
value at the dates indicated. For information relating to the estimated fair
value of the Company's investment portfolio at December 31, 1996 and 1995, see
"Notes to Consolidated Financial Statements-Note 3".

<TABLE>
<CAPTION>
(IN THOUSANDS) 1996 1995 1994
- ------------------------------------------------------------------------- ------------ ------------ ----------
<S> <C> <C> <C>
Debt securities:
U.S. Government obligations.............................................. $ 33,961 $ 29,716 140,832
U.S. Government agencies................................................. 200,416 199,206 507,395
State and municipal...................................................... 61,668 74,351 98,372
Corporate and other...................................................... 329 424 505
------------ ------------ ----------
Total debt secutities.................................................... 296,374 303,697 747,104
------------ ------------ ----------
Mortgage-backed securities:
GNMA..................................................................... 137,594 189,692 419,563
FNMA..................................................................... 233,968 253,659 468,916
FHLMC.................................................................... 410,325 395,442 580,920
SBA...................................................................... 22,748 27,028 --
Non-agency (AA rated).................................................... -- -- 58,419
Collateralized mortgage obligations:
Agency................................................................... 786,008 878,056 1,043,764
Non-agency............................................................... 676,177 627,982 496,178
------------ ------------ ----------
Total mortgage-backed securities......................................... 2,266,820 2,371,859 3,067,760
------------ ------------ ----------
Equity securities:
Preferred stock.......................................................... 1,022 1,040 1,030
Common stock............................................................. 718 764 14,982
Federal Home Loan Bank stock............................................. 46,041 64,484 59,811
------------ ------------ ----------
Total equity securities.................................................. 47,781 66,288 75,823
------------ ------------ ----------
Total securities......................................................... $ 2,610,975 $ 2,741,844 3,890,687
------------ ------------ ----------
------------ ------------ ----------
</TABLE>

<PAGE>

The following table presents the carrying value and weighted average book
yield on debt and mortgage-backed securities at December 31, 1996 based on
scheduled maturities. Actual maturities can be expected to differ from scheduled
maturities due to prepayment or early call privileges of the issuer.

<TABLE>
<CAPTION>
DUE AFTER
ONE YEAR DUE AFTER
DUE IN WEIGHTED THROUGH WEIGHTED FIVE YEARS WEIGHTED WEIGHTED WEIGHTED
ONE YEAR AVERAGE FIVE AVERAGE THROUGH AVERAGE DUE AFTER AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) OR LESS YIELD YEARS YIELD TEN YEARS YIELD TEN YEARS YIELD TOTAL YIELD
- ---------------------- -------- ----- ------- ----- --------- ----- --------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held to maturity:
Obligations of U.S. Government and
U.S. Government agencies $19,518 5.1% 91,150 5.2% 35,788 5.5% - - 146,456 5.3%
State and municipal 29,635 4.1% 25,275 5.2% 5,858 5.1% 900 5.4% 61,668 4.7%
Mortgage-backed and other 370 5.8% 55,972 6.6% 132,177 6.5% 1,287,265 7.0% 1,475,784 6.9%
-------- ----- ------- ----- --------- ----- --------- ----- -------- ------
$49,523 4.5% 172,397 5.6% 173,823 6.3% 1,288,165 7.0% 1,683,908 6.7%
-------- ----- ------- ----- --------- ----- --------- ----- -------- ------
-------- ----- ------- ----- --------- ----- --------- ----- -------- ------
Available for sale:
Obligations of U.S. Government and
U.S. Government agencies $ 30 5.9% 28,855 6.4% 25,236 7.3% 33,800 7.4% 87,921 7.0%
Mortgage-backed and other - - - - 6,167 7.4% 785,198 7.0% 791,365 7.0%
-------- ----- ------- ----- --------- ----- --------- ----- -------- ------
$ 30 5.9% 28,855 6.4% 31,403 7.3% 818,998 7.0% 879,286 7.0%
-------- ----- ------- ----- --------- ----- --------- ----- -------- ------
-------- ----- ------- ----- --------- ----- --------- ----- -------- ------
</TABLE>

The Company does not anticipate any losses from principal payment
deficiencies based upon the overall credit quality of the portfolio. None of the
principal of the combined debt and mortgage-backed securities portfolio of $2.6
billion is classified as non-investment grade. Securities are classified as
either trading, available for sale or held to maturity at the time of purchase.
The overall asset/liability position of the Banks taken together with general
financial market conditions are the principal determinants affecting the
classification. As a result, similar securities with identical risks and
characteristics can be classified as either available for sale or held to
maturity depending upon the existing economic environment and asset/ liability
considerations. Collateralized mortgage obligations which the Banks have
purchased are short-term in nature with a weighted average duration of between
three and four years. Structured notes which the Banks have purchased do not
have characteristics which put principal at risk if they are held to maturity.
The fair value fluctuations which may occur are the result of changes in
interest rates including the shape of the yield curve.

Deposits. ONBANCorp has a number of programs designed to attract both
short-term and long-term savings of the general public at interest rates
consistent with market conditions. Included among these programs are savings
accounts, NOW accounts, money market accounts, fixed rate certificates of
deposit, fixed rate and variable rate IRA's, and negotiable rate certificates of
deposit. During 1994, the Banks began issuing brokered deposits. Brokered time
deposits were $319 million at December 31, 1996, down from the $381 million at
December 31, 1995. The Company controls deposit flows primarily by the pricing
of deposits and, to a lesser extent, by promotional activities. Management
believes rates offered on deposit accounts are generally competitive with other
financial institutions in the area; however, from time to time, market
conditions may temporarily make more or less aggressive pricing strategies
advantageous.

<PAGE>

The following table sets forth deposits by type of account at December 31:

<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
(DOLLARS IN THOUSANDS) AMOUNT DEPOSITS
- -------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Savings............................................................. $ 692,821 18.1%
Time deposits....................................................... 1,931,520 50.5%
NOW accounts (1).................................................... 255,438 6.7%
Money market accounts (2)........................................... 266,564 7.0%
Non-interest bearing demand accounts................................ 356,171 9.3%
Brokered time deposits.............................................. 319,392 8.4%
------------ ------
Total deposits.................................................... $ 3,821,906 100.0%
------------ ------
------------ ------
</TABLE>

- ------------------------

(1) Includes NOW and IMMC accounts

(2) Includes MMDA and escrow accounts

The following table sets forth ONBANCorp's deposit flows and the effects of
credited interest on the net change in deposits for the periods ended December
31:

<TABLE>
<CAPTION>
(IN THOUSANDS) 1996 1995 1994
- -------------- ------------- ---------- ----------
<S> <C> <C> <C>
Deposits at beginning of year............................................. $ 3,808,273 3,793,343 3,005,999
Increase (decrease) in:
Savings................................................................... (64,916) (86,757) 96,409
Time deposits........................................................... 128,916 203,949 199,085
NOW accounts............................................................ (8,526) (18,969) (152,963)
Money market accounts................................................... 17,436 (51,225) (69,200)
Non-interest bearing demand accounts.................................... 36,031 17,124 10,857
Brokered time deposits.................................................. (61,625) (49,192) 430,209
Deposits acquired in branch purchases................................... -- -- 272,947
Deposits of branches sold............................................... (33,683) -- --
------------- ---------- ----------
Net increase (decrease) in deposits during the year....................... 13,633 14,930 787,344
------------- ---------- ----------
Deposits at end of year................................................... $ 3,821,906 3,808,273 3,793,343
------------- ---------- ----------
------------- ---------- ----------
Net increase (decrease) before interest credit and acquisition............ $ (107,017) (142,154) 674,677
Interest credited......................................................... 154,333 157,084 112,667
Deposits purchased........................................................ -- -- 272,947
Deposits sold............................................................. (33,683) -- --
------------- ---------- ----------
Net increase in deposits during the year.................................. $ 13,633 14,930 787,344
------------- ---------- ----------
------------- ---------- ----------
</TABLE>

<PAGE>

The remaining maturity on certificates of deposit of $100,000 and over at
December 31, 1996 is presented below:

<TABLE>
<CAPTION>
AMOUNT
MATURITY (IN THOUSANDS)
- ------------------------------------------------------------------------------ --------------
<S> <C>
Three months or less.......................................................... $ 403,246
Over three through six months................................................. 104,391
Over six through twelve months................................................ 55,523
Over tweve months............................................................. 41,176
--------------
$ 604,336
--------------
--------------
</TABLE>

The Company generally offers negotiable rate certificates of deposits in
excess of $100,000 with terms of one year or less, however, any term is
available. Management believes that based upon the historical renewals of these
certificates of deposit that the total balances are relatively stable.

Borrowings. The Company's primary source of long-term borrowings has been
Federal Home Loan Bank ("FHLB") advances. As a member of the FHLB, the Company
is required to own capital stock in the FHLB and is authorized to apply for
advances secured by such stock and by certain of its home mortgage loans and
other assets, provided standards related to credit worthiness have been met.

See "Notes to Consolidated Financial Statements-Notes 8 and 9" for details
of borrowings for 1996 and 1995. At December 31, 1994 , repurchase agreements
amounted to $1,058,316,000 with a weighted average interest rate of 5.64%.
During 1994 the maximum month-end balance was $1,505,624,000 and the average
balance was $1,403,327,000 with a 4.18% weighted average interest rate.

Liquidity. ONBANCorp's main source of funds is savings and time deposits
from the general public. Deposit inflows and outflows are significantly
influenced by interest rates, money market conditions, the rate of consumer
savings and other economic and competitive factors. In addition to deposits,
ONBANCorp derives funds from interest and principal payments on loans and other
investments, sales of securities and borrowings. Interest and principal payments
on loans are a relatively stable source of funds. The Company's liquidity should
be sufficient to meet normal transaction requirements and flexible enough to
take advantage of market opportunities and to react to other liquidity needs.

Return on Equity and Assets. The following table shows operating and
capital ratios of the Company for each of the last three years:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Return on average assets.................................................................. 0.81% 0.71% 0.04%
Return on average equity.................................................................. 11.42% 11.75% 0.68%
Dividend payout ratio..................................................................... 41.61% 40.14% NM
Average equity to average assets ratio.................................................... 7.05% 6.02% 6.17%
--------- --------- ----
NM--not meaningful
</TABLE>

<PAGE>

Personnel. As of December 31, 1996, ONBANCorp has approximately 1,346
full-time equivalent employees. The employees are not represented by any
collective bargaining unit, and the Company considers its relationship with its
employees to be good.

Supervision and Regulation. The banking industry is subject to extensive
state and federal regulation and in undergoing significant change. In 1991, the
Federal Deposit Insurance Corporation Improvement Act ("FDICIA") was enacted.
FDICIA substantially amended the Federal Deposit Insurance Act ("FDI Act") and
certain other statutes. Since FDICIA's enactment, the federal bank regulatory
agencies have been adopting regulations to implement its statutory provisions.

The following discussion summarizes certain aspects of the banking laws and
regulations that affect the Company. Proposals to change the laws and
regulations governing the banking industry are frequently raised in Congress, in
the state legislature, and before the various bank regulatory agencies. The
likelihood and timing of any changes, and the impact such changes might have on
the Company are impossible to determine with any certainty. A change in
applicable laws or regulations, or a change in the way such laws or regulations
are interpreted by regulatory agencies or courts, may have a material impact on
the business, operations and earnings of the Company. To the extent that the
following information describes statutory or regulatory provisions, it is
qualified entirely by reference to the particular statutory or regulatory
provision.

Bank Holding Company Regulation. As a registered bank holding company,
the Registrant and its subsidiaries are subject to supervision and regulation
under the Bank Holding Company Act of 1956, as amended (" the BHCA") by the
Board of Governors of the Federal Reserve System ("Federal Reserve Board")
and the New York State Banking Superintendent ("Banking Superintendent"). The
Federal Reserve Board requires regular reports from the Registrant and is
authorized by the BHCA to make regular examinations of the Registrant and its
subsidiaries.

On September 29, 1994, President Clinton signed into law the Riegle-Neal
Interstate Banking Efficiency Act of 1994 (the "Interstate Banking Act").
Generally, the Interstate Banking Act permits, beginning September 29, 1995,
bank holding companies to acquire banks in any state; permits, prior to June 1,
1997, a bank to merge with an out-of-state bank and convert any offices into
branches of the resulting bank if the home states of both banks expressly permit
interstate bank mergers; permits, beginning June 1, 1997, a bank to merge with
an out-of-state bank and convert any offices into branches of the resulting bank
if both states have not opted out of interstate branching; permits a bank to
acquire branches from an out-of-state bank, beginning June 1, 1997, if the law
of the state where the branches are located permits the interstate branch
acquisition; and permits banks to establish and operate de novo interstate
branches whenever the host state opts-in to de novo branching. Bank holding
companies and banks seeking to engage in transactions authorized by the
Interstate Banking Act must be adequately capitalized and managed.

Banking holding companies and their subsidiary banks are also subject to the
provisions of the Community Reinvestment Act of 1977 ("CRA"). Under the terms of
the CRA, the Federal Deposit Insurance Corporation (or other appropriate bank
regulatory agency) is required, in connection with its examination of a bank, to
assess such bank's record in meeting the credit needs of the community served by
that bank, including low and moderate income neighborhoods. Furthermore, such
assessment is also required of the bank that has applied, among other things, to
merge or consolidate with or acquire the assets or assume the liabilities of a
federally-regulated financial institution, or to open or relocate a branch
office. In the case of a bank holding company applying for approval to acquire a
bank or bank holding company, the Federal Reserve Board will assess the record
of each subsidiary bank of the applicant bank holding company

<PAGE>

in considering the application. The Banking Law contains provisions similar
to the CRA which are applicable to state chartered banks.

Supervision and Regulation of Bank Subsidiaries. The Registrant's banking
subsidiaries are subject to regulation, and are examined regularly, by various
bank regulatory agencies: OnBank & Trust and OnBank by the FDIC and the Banking
Department of New York; and Franklin by the FDIC and Banking Superintendent of
Pennsylvania. The Registrant and its direct subsidiaries are affiliates, within
the meaning of the Federal Reserve Act, of the Registrant's subsidiary banks and
their subsidiaries. As a result, the Registrant's subsidiary banks and their
subsidiaries are subject to restrictions on loans or extensions of credit to,
purchases of assets from, investments in, and transactions with the Registrant
and its direct subsidiaries and on certain other transactions with them or
involving their securities.

FDIC Deposit Insurance. Currently, certain deposits of financial
institutions are separately insured under two deposit insurance funds, both
administered by the FDIC. They are the Bank Insurance Fund (BIF) for the
deposits originated by the banks and the Savings Association Insurance Fund
(SAIF) for the deposits originated by savings associations. The targeteted
designated reserve ratio (DRR) is 1.25%. Through deposit insurance
assessments made by the FDIC, BIF's DRR was restored to 1.25% of insured
deposits in 1995; however, at September 30, 1996, approximately $4.5 billion
was required to restore SAIF's DRR to that level. On that date the Deposit
Insurance Funds Act of 1996 (the Funds Act) became law. The Funds Act
required the FDIC to impose a one-time assessment of 65.7 basis points on
SAIF assessable deposits (including 80% of those which had beens acquired by
the banks) sufficient to capitalize the SAIF at its targeted 1.25% DRR. Since
certain of its banking subsidiaries held SAIF assessable deposits, the Banks
incurred a SAIF assessment expense of $7.3 million at September 30, 1996.
Since the recapitalization of BIF and SAIF has increased their DRR's to 1.25%
and since financial institution failures have dramatically decreased, in the
near future financial institutions are expected to have significantly lower
insurance assessments than have been imposed in the recent past. Moreover,
the FDIC establishes deposit insurance assessment rates based primarily upon
an institution's risk to the deposit insurance funds such that the Company's
banking subsidiaries, all of which are deemed to be "well capitalized" for
regulatory purposes, should enjoy favorable rates in the event that further
assessments should be necessary.

Under the Funds Act, BIF and SAIF would be merged on date as of which the
last savings association shall cease to exist. SAIF was initially funded by
issuance of Financing Corporation bonds (FICO Bonds). The Funds Act provides
that 20% of the interest payable on the FICO Bonds shall be assessed against BIF
assessable deposits and the remaining 80% against SAIF assessable deposits prior
to the merger of BIF and SAIF to form the Deposit Insurance Fund (DIF). After
the merger, DIF assessable deposits would be assessed 100% of the FICO Bond
interest, since the separate existence of SAIF and BIF would have ceased.

Dividends from Bank Subsidiaries. The subsidiary banks are subject, under
one or more of the banking laws, to restrictions on the amount and frequency (no
more often that quarterly) of dividend declarations. Future dividend payments to
the Registrant by its subsidiary banks will be dependent on a number of factors,
including the earnings and financial condition of each such bank, and are
subject to the limitations referred to in Note 16 of Notes to consolidated
Financial Statements and to other statutory powers of bank regulatory agencies.

Capital Adequacy. See "Notes to Consolidated Financial Statements--Note 15"
for details of Shareholder's Equity.

<PAGE>

Governmental Policies. The earnings of the Company are significantly
affected by the monetary and fiscal policies of governmental authorities,
including the Federal Reserve Board. Among the instruments of monetary policy
used by the Federal Reserve Board to implement these objectives are open-market
operations in U.S. Government securities and Federal funds, changes in the
discount rate on member bank borrowings and changes in reserve requirements
against member bank deposits. These instruments of monetary policy are used in
varying combinations to influence the overall level of bank loans, investments
and deposits, and the interest rates charged on loans and paid for deposits. The
Federal Reserve Board frequently uses these instruments of monetary policy,
especially its open-market operation and the discount rate, to influence the
level of interest rates and to affect the strength of the economy, the level of
inflation or the price of the dollar in foreign exchange markets. The monetary
policies of the Federal Reserve Board have had a significant effect on the
operating results of banking institutions in the past and are expected to
continue to do so in the future. It is not possible to predict the nature of
future changes in the monetary and fiscal policies, or the effect which they may
have on the Company's business and earnings.

Competition. The Company competes in offering commercial and personal
financial services with other banking institutions and with firms in a number of
other industries, such as personal loan companies, sales finance companies,
leasing companies, securities brokers and dealers, insurance companies, credit
unions and retail merchandising organizations. Furthermore, diversified
financial services companies are able to offer a combination of these services
to their customers on a nationwide basis. Compared to less extensively regulated
financial services companies, the Company's operations are significantly
impacted by state and federal regulations applicable to the banking industry.

Other Legislative Initiatives. From time to time, various proposals are
introduced in the United States Congress and in the New York and Pennsylvania
Legislatures and before various bank regulatory authorities which would alter
the powers of, and restrictions on, different types of banking organizations and
which would restructure part or all of the existing regulatory framework for
banks, bank holding companies and other financial institutions.

A number of bills have been introduced in Congress which would further
regulate, deregulate or restructure the financial services industry. It is
not possible to predict whether these or any other proposals will be enacted
into law or, even if enacted, the effect which they may have on the Company's
business and earnings.

<PAGE>

ITEM 2. PROPERTIES

ONBANCorp's executive offices are located at 101 South Salina Street,
Syracuse, New York 13202. At December 31, 1996, ONBANCorp operated from 120
locations including 77 full service branches, 1 public accommodation office, 8
specialized lending offices and 34 freestanding proprietary automated teller
machines. The Company owned the building and land for 32 of its locations and
leased space for 88 locations. The aggregate net book value of premises owned by
ONBANCorp and leasehold improvements of leased offices (net of accumulated
depreciation and amortization) at December 31, 1996, was $54,986,000.

ITEM 3. LEGAL PROCEEDINGS

There are no material pending legal proceedings to which ONBANCorp or its
subsidiaries are a party or to which any of their property is subject. In the
opinion of management, after consultation with counsel, the aggregate amount
involved in such proceedings is not material to the financial condition or
results of operations of ONBANCorp.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS

The information required herein is incorporated by reference from the
section captioned "Description of Business" of the Company's 1996 Annual Report.

ITEM 6. SELECTED FINANCIAL DATA

The information required herein is incorporated by reference from the table
captioned "Selected Financial Data" on page 20 of the Company's 1996 Annual
Report.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The information required herein is incorporated by reference from the
section captioned "Management's Discussion and Analysis" on pages 21 to 30 of
the Company's 1996 Annual Report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required herein is
incorporated by reference from pages 31 to 51 of the Company's 1996 Annual
Report.

<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not Applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required herein is incorporated by reference from pages 3 to
11 of the Company's definitive Proxy Statement filed with the Securities and
Exchange Commission ("SEC") on March 18, 1997.

ITEM 11. EXECUTIVE COMPENSATION

The information required herein is incorporated by reference from pages 11
to 22 of the Company's definitive Proxy Statement filed with the SEC on March
18, 1997.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required herein is incorporated by reference from pages 2
and 7 of the Company's definitive Proxy Statement filed with the SEC on March
18, 1997.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required herein is incorporated by reference from page 23 of
the Company's definitive Proxy Statement filed with the SEC on March 18, 1997.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) The following financial statements are incorporated by reference from
Part II Item 8 hereof: (Annual Report to Shareholders included as Exhibit 13).

Independent Auditors' Report

Consolidated Balance Sheets at December 31, 1996 and 1995

Consolidated Statements of Income for Each of the Years in the Three Year
Period Ended December 31, 1996

Consolidated Statements of Changes in Shareholders' Equity for Each of the
Years in the Three Year Period Ended December 31, 1996

Consolidated Statements of Cash Flows for Each of the Years in the Three
Year Period Ended December 31, 1996

<PAGE>

Notes to Consolidated Financial Statements

(a)(2) There are no financial statement schedules which are required to be
filed as part of this form since they are not applicable.

(a)(3) See (c) below for all exhibits filed herewith and the Exhibit Index.

(b) There are no Reports on Form 8-K required to be filed as part of this
form.

(c) Exhibits. The following exhibits are either filed as part of this annual
report on Form 10-K, or are incorporated herein by reference.

NO. EXHIBIT
- ----- -------

2.1 Plan of Reorganization, dated as of January 15, 1993, between
OnBank & Trust Co. and OnBank, incorporated by reference to Exhibit 2.1
to the registrant's Form 10-K filed with the Commission on March 31,
1994.

3.1 The registrant's Certificate of Incorporation, as amended as of
January 25, 1993, incorporated by reference to Exhibit 3.1 to the
registrant's Form 10-K filed with the Commission on March 31, 1994.

3.2 The registrant's Bylaws, as currently in effect, incorporated by
reference to Exhibit 3.2 to the registrant's Registration Statement on
Form S-1 filed with the Commission on January 16, 1990.

4.1 Certificate of Stock Designation of Series A Participating
Preferred Stock, incorporated by reference to Exhibit 10.1 to the
registrant's Registration Statement on Form S-1 filed with the
Commission on January 16, 1990.

4.2 Rights Agreement, dated as of September 25, 1989, incorporated by
reference to Exhibit 10.2 to the registrant's Registration Statement on
Form S-1 filed with the Commission on January 16, 1990.

10.1 Employment Agreement, dated as of September 30, 1990 between
ONBANCorp, Inc., OnBank and Robert J. Bennett, incorporated by
reference to Exhibit 10.3 to the registrant's Form 10-K filed with the
Commission on March 29, 1991.

10.2 Severance Agreement, dated as of July 30, 1990 between ONBANCorp,
Inc., OnBank and five executive officers of registrant, incorporated by
reference to Exhibit 10.4 to the registrant's Form 10-K filed with the
Commission on March 29, 1991.

10.3 Supplemental Employee Retirement Agreement, dated as of January
1, 1991 between ONBANCorp, Inc. and Robert J. Bennett, incorporated by
reference to Exhibit 10.5 to the registrant's Form 10-K filed with the
Commission on March 29, 1991.

10.4 1991 Long-Term Incentive Plan, dated as of January 28, 1992,
incorporated by reference to Exhibit 10.6 to the registrant's Form 10-K
filed with the Commission on March 29, 1991.

<PAGE>

10.5 Restated 1987 Stock Option and Appreciation Rights Plan,
incorporated by reference to Exhibit 10.7 to the registrant's Form 10-K
filed with the Commission on March 31, 1993, as amended.

10.6 1992 Director's Stock Option Plan, incorporated by reference to
Exhibit 10.8 to the registrant's Form 10-K filed with the Commission on
March 31, 1993, as amended.

10.7 Employment Agreement, dated as of November 17, 1992 between
ONBANCorp, Inc., Franklin First Savings Bank and Thomas H. van Arsdale,
incorporated by reference to Exhibit 10.7 to the registrant's Form 10-K
filed with the commission on March 31, 1994.

10.8 Stock Option Agreement, dated as of November 17, 1992 between
ONBANCorp, Inc. Franklin First Financial Corp., incorporated by
reference to Exhibit 10.1 to the registrant's Form S-4 filed with the
commission on April 14, 1993.

10.9 Employment Agreement, dated as of January 15, 1993 between
ONBANCorp Inc., OnBank & Trust Co., OnBank and Robert J. Bennett,
incorporated by reference to Exhibit 10.9 to the registrant's Form 10-K
filed with the commission on March 31, 1994.

10.10 Assumption Agreement to the Severence Agreement, dated as of
January 15, 1993, between ONBANCorp Inc., OnBank & Trust Co., OnBank
and five executive officers, incorporated by reference to Exhibit 10.10
to the registrant's Form 10-K filed with the commission on March 31,
1994.

10.11 Assumption Agreement to the Supplemental Employee Retirement
Agreement, dated as of January 15, 1993, between ONBANCorp, Inc.,
OnBank & Trust Co., OnBank and Robert J. Bennett, incorporated by
reference to Exhibit 10.11 to the registrant's Form 10-K filed with the
commission on March 31, 1994.

11 Earnings per Share Computations

13 Annual Report to Shareholders for the Year ended December 31, 1996.

21 List of Registrant's Subsidiaries.

23 Consent of Independent Auditors

27 Financial Data Schedule

(d) There are no other financial statements and financial statement
schedules which were excluded from the Annual Report which are required to be
included herein.

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized on March 24, 1997.

ONBANCorp, Inc.

By: /s/ Robert J. Bennett
---------------------------
Robert J. Bennett
Chairman of the Board,
President and Chief Executive Officer

Pursuant to the requirements of the Securities 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 dates indicated.

Signature Title
--------- ------
/s/ Robert J. Bennett
- ---------------------------- Chairman of the Board, President,
Robert J. Bennett Chief Executive Officer and Director

/s/ David M. Dembowski
- ---------------------------- Executive Vice President and Secretary
David M. Dembowski

/s/ Robert J. Berger
- ---------------------------- Senior Vice President, Treasurer, Chief
Robert J. Berger Financial Officer

/s/ William F. Allyn
- ---------------------------- Director
William F. Allyn

/s/ Chester D. Amond
- ---------------------------- Director
Chester D. Amond

/s/ William J. Donlon
- ---------------------------- Director
William J. Donlon

- ---------------------------- Director
Russell A. King

/s/ Henry G. Lavarnway, Jr.
- ---------------------------- Director
Henry G. Lavarnway, Jr.

<PAGE>

/s/ John D. Marsellus
- ---------------------------- Director
John D. Marsellus

/s/ J. Kemper Matt
- ---------------------------- Director
J. Kemper Matt

/s/ Peter J. Meier
- ---------------------------- Director
Peter J. Meier

/s/ Peter J. O'Donnell, Jr.
- ---------------------------- Director
Peter J. O'Donnell, Jr.

/s/ T. David Stapleton, Jr.
- ---------------------------- Director
T. David Stapleton, Jr.

- ---------------------------- Director
William J. Umphred

/s/ Thomas H. van Arsdale
- ---------------------------- Director
Thomas H. van Arsdale

/s/ John L. Vensel
- ---------------------------- Director
John L. Vensel

/s/ Joseph N. Walsh, Jr.
- ---------------------------- Director
Joseph N. Walsh, Jr.

<PAGE>

EXHIBIT 11

EARNINGS PER SHARE COMPUTATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE
Earnings available for common shares and common stock equivalent shares
deemed to have a dilutive effect:
Earnings from operations.............................................. $ 42,964 44,677 2,704
Provision for cash dividends on preferred stock (Series B)............ (4,155) (4,522) (4,755)
------------ ------------ ------------
Net earnings (loss) available for common shares and common stock
equivalent shares deemed to have a dilutive effect.................... $ 38,809 40,155 (2,051)
------------ ------------ ------------
------------ ------------ ------------
Primary earnings (loss) per share....................................... $ 2.98 2.84 (0.15)
------------ ------------ ------------
------------ ------------ ------------
SHARES USED IN COMPUTATION
Weighted average common shares outstanding (net of treasury shares)..... 12,855,072 13,966,682 14,017,097
Common stock equivalents................................................ 182,043 156,950 --
------------ ------------ ------------
Total common shares and common stock equivalent shares deemed to have a
dilutive effect....................................................... 13,037,115 14,123,632 14,017,097
------------ ------------ ------------
------------ ------------ ------------
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Net earnings (loss) available for common shares and common stock
equivalent shares deemed to have a dilutive effect.................... $ 42,964 44,677 2,704
------------ ------------ ------------
------------ ------------ ------------
Fully diluted earnings (loss) per share................................. $ 2.86 2.75 (0.15)
------------ ------------ ------------
------------ ------------ ------------
SHARES USED IN COMPUTATION
Total common shares and common stock equivalent shares deemed to have a
dilutive effect....................................................... 13,037,115 14,123,632 14,017,097
Additional potentially dilutive securities (equivalent in common stock):
Convertible preferred stock (Series B)................................ 1,945,314 2,116,875 --
Stock options......................................................... 30,089 28,502 --
------------ ------------ ------------
Total................................................................. 15,012,518 16,269,009 14,017,097
------------ ------------ ------------
------------ ------------ ------------
SUMMARY OF CASH DIVIDENDS DECLARED PER SHARE
Preferred-Series B...................................................... $ 1.69 1.69 1.69
Common.................................................................. $ 1.24 1.14 1.03
</TABLE>

<PAGE>

1996 ANNUAL REPORT

COMMERCIAL BUSINESS BANKING SERVICES

TRUST & INVESTMENT SERVICES

CONSUMER BANKING SERVICES

RESIDENTIAL REAL ESTATE LENDING

EDP SYSTEMS & OPERATIONS

[LOGO]

<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Year Ended December 31
- ---------------------------------------------------------------------------------------------------------------------
($ In Millions Except Share Data) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Income.......................................... $ 43.0 44.7 2.7 61.4 41.2
Return on Equity.................................... 11.4% 11.7% .7% 16.4% 13.9%
Return on Assets.................................... .81% .71% .04% 1.19% 1.21%
- ---------------------------------------------------------------------------------------------------------------------
Per Common Share Data:
Net Income (Loss) Fully Diluted..................... $ 2.86 2.75 (.15) 3.93 2.86
Dividends Declared.................................. 1.24 1.14 1.03 .69 .45
Book Value.......................................... 24.82 24.11 20.82 25.77 20.87
- ---------------------------------------------------------------------------------------------------------------------
Results Excluding Certain One-time Items (A):
Net Income.......................................... $ 48.1 44.7 2.7 58.0 41.2
Return on Equity.................................... 12.8% 11.7% .7% 15.5% 13.9%
Return on Assets.................................... .90% .71% .04% 1.12% 1.21%
Net Income (Loss) Per Share Fully Diluted........... $ 3.20 2.75 (.15) 3.71 2.86
- ---------------------------------------------------------------------------------------------------------------------
Commercial Loans.................................... $ 667 568 428 386 398
Consumer Loans...................................... 728 589 524 517 567
Residential Real Estate Loans....................... 1,054 1,130 1,026 816 991
Allowance for Loan Losses........................... (38) (35) (34) (33) (32)
Loans, Net.......................................... 2,411 2,254 1,949 1,681 1,910
Securities.......................................... 2,611 2,742 3,891 3,628 2,283
Total Earning Assets................................ 5,073 5,171 5,902 5,514 4,416
Total Assets........................................ 5,418 5,567 6,723 5,772 4,724
Deposits............................................ 3,822 3,808 3,793 3,006 3,024
Shareholders Equity................................. 360 389 363 431 334
- ---------------------------------------------------------------------------------------------------------------------
Equity to Assets Ratio.............................. 6.6% 7.0% 5.4% 7.5% 7.1%
Total Capital to Risk Assets........................ 13.8% 15.1% 13.4% 18.3% 15.8%
Common Shares Outstanding (000)..................... 12,145.3 13,517.6 14,050.3 13,979.9 12,649.0
Loan Quality Ratios:
% Net Loans Charged Off to Average Loans........ .19% .28% .35% .47% .14%
% Non-performing Assets to Total Assets......... .59% .60% .53% .79% 1.21%
% Loan Loss Allowance to Non-performing Loans... 139.7% 119.4% 113.5% 95.5% 80.6%
Efficiency Ratio (B)................................ 56.5% 58.7% 52.5% 52.5% 44.5%
</TABLE>

- ------------------------

(A) Excludes after tax effect of $4.5 million government mandated special SAIF
deposit insurance premiums and other net banking industry charges relating
to the thrift industry of $.6 million in 1996; excludes $3.4 million
cumulative effect of accounting change in 1993.

(B) Excludes net gain (loss) on securities transactions; and 1996 special SAIF
deposit insurance premium of $7.3 million.

DESCRIPTION OF BUSINESS
- --------------------------------------------------------------------------------
ONBANCorp Inc. is a Delaware chartered bank holding company headquartered in
Syracuse, New York. It operates two wholly owned subsidiaries, OnBank & Trust
Co. in Upstate New York, and Franklin First Savings Bank in Wilkes-Barre,
Pennsylvania. Financial services are offered through 120 locations, including
8 specialized lending offices and 27 electronic ATM locations at the rest
stops on the New York State Thruway. Bank subsidiaries provide investment and
insurance services. Mutual funds and annuities are also available through
Liberty Securities Corporation.

ONBANCorp Common Stock is traded Over The Counter and is listed by NASDAQ-NMS
using the symbol "ONBK". At year end, 1996, there were approximately 11,300
holders of record of ONBANCorp common stock.

QUARTERLY CLOSING SALES PRICES
- --------------------------------------------------------------------------------
1996 1995
QUARTER HIGH LOW CLOSE High Low Close
Fourth......... $ 38.75 34.00 37.13 33.63 29.13 33.38
Third.......... 34.63 28.88 34.63 34.13 28.00 32.50
Second......... 35.50 30.75 32.75 28.63 25.00 28.38
First.......... 35.00 30.25 35.00 26.50 21.63 25.50

<PAGE>

TABLE OF CONTENTS

MANAGEMENT MESSAGE..................................................... 2
First Quarter........................................................ 3
Second Quarter....................................................... 4
Third Quarter........................................................ 5
Fourth Quarter....................................................... 6
COMMERCIAL BUSINESS BANKING SERVICES................................... 8
TRUST & INVESTMENT SERVICES............................................ 10
CONSUMER BANKING SERVICES.............................................. 12
RESIDENTIAL REAL ESTATE LENDING........................................ 14
EDP SYSTEMS & OPERATIONS............................................... 16
COMMUNITY & CIVIC SUPPORT.............................................. 18
FINANCIAL REPORTS...................................................... 19
DIRECTORS & SENIOR OFFICERS............................................ 52

<PAGE>

MANAGEMENT MESSAGE

TO OUR SHAREHOLDERS, CUSTOMERS AND FRIENDS:

ONBANCorp 1996 annual performance showed continued improvements from core
services. Reported results, however, were masked by certain one-time
Government mandated third quarter banking industry charges related to the
thrift industry including the special SAIF deposit insurance premium. Fully
diluted earnings per share as reported were $2.86. When adjusted to exclude
these non-recurring charges, earnings per common share were $3.20--which
represents an increase of 16% or $.45 per share over the prior year. Net
income for the year before these non-recurring items was $48.1 million, the
second highest in your Company's history, and was $43.0 million after these
mandated charges. Comparative previous year earnings were $2.75 per common
share and $44.7 million.

Improved operating results reflect continued momentum toward the Company's
transformation from a specialized services thrift into a diversified
full-service banking organization. Strong year over year performance
improvements were achieved in fundamental service areas, including commercial
banking with business and municipal clients, trust and investment activities,
consumer banking and electronically assisted banking and fee income.
Residential lending remained flat, reflecting somewhat soft demand in the
local economy. Controllable non-interest expenses remained efficient. Loan
and asset quality levels remained very strong with net charge-offs
representing only 0.19% of average loans, and year end non-performing assets
a meager 0.59% of total assets. Net interest margin improved to 3.03% for the
year, up nearly 19% from the prior year, due primarily to increased business
generation and planned securities reductions. The total investment securities
portfolio comprised primarily of Government, Agency and guaranteed
mortgage-backed securities ended the year at $2.6 billion--a reduction of
$2.0 billion from their $4.6 billion peak in late 1994.

2
<PAGE>

DIVIDENDS PER COMMON SHARE WERE INCREASED FOR THE EIGHTH SUCCESSIVE YEAR.

To improve shareholders earnings per share, your Board of Directors
continued a planned repurchase of ONBANCorp common stock equivalent shares in
1996. Also, the Board authorized redemption of the Company's Series B Cumulative
Convertible Preferred Stock. Capital levels remain well above highly capitalized
requirements of bank regulators. Dividends per common share were increased for
the eighth successive year, including every year since your holding company was
formed in 1989.

A brief summary of progress and highlights for each quarter of 1996 follows.

FIRST QUARTER

Performance plans for 1996 were implemented starting in the first quarter,
which called for accelerated emphasis on developing core banking relationships
with the regions' businesses, consumers and households. Our local banking
professionals began by expanding customer solicitation efforts and also by
adding focus to additional fee income. The quarterly dividend payment increased
seven percent to $.30 per common share. To further increase earnings per common
share (EPS), the Board of Directors announced a continuing plan for the Company
to repurchase 10% of fully diluted shares of common stock or common stock
equivalent shares of ONBANCorp convertible preferred stock.

By first quarter ended March 31,1996, the consolidated portfolio of loans
had increased 13% from March 31 of the previous year, with the largest growth
components coming from a 25% increase in loans to businesses followed by a 16%
increase in consumer lending. Fee revenues began increasing from trust services
and from electronically assisted banking services associated with banking cards.
First quarter 1996 profits saw Net Income increase 17% to $11.6
million--compared to $9.9 million for the prior year first quarter, and 1996
first quarter fully diluted EPS of $.74 improved 21% over the comparable prior
year period.

3
<PAGE>

MANAGEMENT MESSAGE

SECOND QUARTER

By the end of the first half 1996, ONBANCorp six-months earnings had
increased 16% to $23.2 million, compared to $20.1 million for the first six
months of 1995; and, EPS had improved to $1.50--up 23% from $1.22 EPS for the
first half of the previous year. Loan portfolio growth was again led by
double digit percentage increases in both commercial and consumer lending,
while residential lending demand remained sluggish in local markets. Trust
and investment business solicitation accelerated during the second quarter,
as the market value of trust assets reached $695 million from combined trust
efforts in Central New York and Northeastern Pennsylvania.

Following the Annual Meeting Of Shareholders, your elected Board of Directors
carefully considered voting results on all shareholder proposals included in
the proxy statement for the April 23,1996 Annual Meeting. Published studies
supported the view that the type of shareholder protections included in the
ONBANCorp Charter and Bylaws tended to enhance a company's value in merger or
sale transactions. With the assistance of legal and financial advisers, as
well as careful consideration of the published studies, your Board reported
it continues to believe that amendments to the Company's Charter and Bylaws
are not in the best interest of shareholders. These amendments contemplated
by a small group of shareholders were opposed by the Directors for reasons
set forth in the ONBANCorp proxy statement. In its normal course, your Board
continues close scrutiny of the strategic options available to your Company.

Selected operations were consolidated and efficiencies created through the
sale of four small volume or under-utilized offices in the 1996 second
quarter; and, certain regional residential lending offices which were unable
to achieve minimal lending quotas were downsized or closed. The net interest
margin for the 1996 second quarter increased to the 3.00% level from 2.51% in
the comparable previous year quarter.

4
<PAGE>

THIRD QUARTER

Our bankers continued to improve your Company's performance in the third
quarter of 1996, in spite of significant one-time charges upon the U.S.
banking system and our banks as mandated by the Federal Government in its
effort to bail out the savings and loan industry. Most severely affected of
our banks was the Franklin First subsidiary whose third quarter earnings were
nearly eliminated. The non-recurring charges related to a special SAIF
deposit insurance premium and a tax on thrift bad debt reserves resulted in
a net ONBANCorp earnings reduction of $.35 per share. Future earnings are
anticipated to modestly improve, since lower deposit insurance charges are
envisioned. Third quarter net income reached $12.4 million before the one-time
charges and $7.3 million after the charges. Similarly, quarterly net income
per share or EPS was $.84 before the one-time charges and $.49 after the
one-time charges.

By September 30, 1996 the commercial and construction loans in portfolio
increased to $646 million and represented 26% of the total loan portfolio.
Consumer loans and leases increased to more than $688 million, an increase of
18% over the consumer lending portfolio a year earlier at September 30th.
Investment securities assets, comprised predominantly of guaranteed
mortgage-backed securities, together with liabilities for borrowed or retail
brokered deposits continued to be reduced during the first nine months of
1996.

Trust performance improvements accelerated through September 1996. Trust
assets at market value increased 19% from a year earlier and reached $748
million. Trust and investment services fee revenue increased 19% nine months
to date to $2.4 million. Largest trust services gains continued from
administration of employee benefits plans, trusts under agreement, estates
and investment management for clients.

5
<PAGE>

MANAGEMENT MESSAGE

FOURTH QUARTER

The fourth and final quarter of 1996 saw a 16% increase in quarterly earnings
per common share, as well as a 21% increase in the return on assets over the
similar prior year quarterly earnings measures. EPS reached $.87 for the
final 1996 quarter compared to $.75 on comparative fourth quarter results.
Return On Assets improved to .92% from .76%. Operating efficiency and asset
quality measures remained very sound. Net interest margin improved. The Board
of Directors declared a 13% increase in the quarterly cash dividend per
common share to $.34--equivalent to $1.36 annually, which marked the eighth
consecutive year of improved dividends for ONBANCorp Shareholders.

Capital plans witnessed a fourth quarter completion of the stock repurchase
program for 10% or 1,550,000 of the Company's common equivalent shares. Also,
more than 98% of the Company's 2,342,052 outstanding shares of Series "B"
Cumulative Convertible Preferred Stock as of December 31, 1996 were converted
to common stock in early January. As more fully described in the following
sections of this report, significant year over year performance improvements
were achieved by your bank professionals in commercial banking, trust and
investment services, consumer banking services, and technical information
delivery support systems. Residential lending, while operating in a regional
market of less than robust demand for mortgage loans, still maintained a
first place ranking for residential mortgages originated in our headquarters
county. Thanks to the hard work of your banking professionals at all levels
of the organization, we concluded 1996 as a premier local banking competitor
for small and mid-size businesses, trust clients, consumers and homeowners
among our local peers.

6
<PAGE>

WE REMAIN COMMITTED TO BUILDING A HIGH PERFORMANCE FINANCIAL ORGANIZATION
WHICH IMPROVES SHAREHOLDER VALUE.

ONBANCORP DIRECTOR Chester D. Amond has served your Corporation and its
banks in numerous and distinguished ways. When Chet Amond first joined the
bank board in 1982, he brought not only world class professionalism from the
many years he led Syracuse China Corp., but a warmth and genuineness that has
endured.

In spite of the numerous community, charitable and civic organizations with
which he is associated, Mr. Amond has always made time to assist the bank-
notably as a Member of the Company's Compensation Committee. Many associates
and friends are customers today because Chet introduced them. His corporate
commitment, community contributions, integrity and firm, but kind guidance
will be greatly missed. Chet has achieved retirement age and is scheduled to
be succeeded on the Board by Lee H. Flanagan, President of B.G.Sulzle Co.,
one of the world's leading manufacturers of surgical needles. In this annual
report we discuss the progress made in transforming your organization in
recent years from a limited services thrift institution into a diversified
community banking organization. We also highlight the efforts of the talented
and dedicated people within ONBANCorp who, in the final analysis, are
responsible for the progress of your Company. We remain committed to building
a high performance regional financial organization which improves shareholder
value and is worthy of your continued support.

Sincerely,

/s/ Robert J. Bennett

Robert J. Bennett
Chairman, President &
Chief Executive Officer

7
<PAGE>

COMMERCIAL BUSINESS BANKING SERVICES

ONBANCORP BANKS ACCOMPLISH THE GOAL OF BEING REGIONAL BUSINESS BANKING LEADER
IN CORE MARKET.

Since first embarking on a course in 1990 to become the local bank of choice
for businesses in our trade area, the business banking staff has propelled
ONBANCorp from a non-competitive position to the regional business banking
leader in our core market surrounding Syracuse and Central New York.
Significant inroads in banking for small and mid-size businesses are also
being made in key metropolitan regions we have entered since 1993--including
Wilkes-Barre/Scranton, Pennsylvania and Rochester and Albany, New York. Our
focus is to be the primary relationship banker to local small and mid-size
companies. This course was established immediately following formation of the
bank holding company in late 1989. ONBANCorp began implementing an ambitious
plan to diversify a long-standing thrift institution and transform it into a
full service commercial banking enterprise. The achievements of your business
bankers are very noteworthy, considering the organization started six years
ago without a commercial banking staff, without commercial banking services or
commercial banking systems, and the primary competitors were established
banking giants. For 1996, the commercial lending portfolio increased
approximately $100 million, an increase of 18% from December 31,1995.
Commercial loans and leases exceed $667 million and now comprise more than
27% of the loan mix. Commercial loan quality has remained strong and
delinquent or written-off loans have been very nominal.

ONBANCorp has systematically developed an experienced corps of top quality
business banking professionals who came to us from our regions' major
competitors who consolidated their decision processes into offices distant
from the local market. Among our competitive advantages are:
a) Experienced local talent who live, work and provide considerable personal
support in our communities,
b) Faster banking decisions for business clients, and
c) Advanced commercial customer information and telecommunications processing
systems.

8
<PAGE>

HIGH CALIBER BUSINESS BANKERS MAKE THE DIFFERENCE BY GAINING LOCAL & NATIONAL
RECOGNITION.

Rapid changes in systems technology prompted a complete revamp of our
customer information delivery systems over the recent five years. We now use
one of the Nation's premier banking technology outsourcing organizations,
whose regional operations are housed in our Syracuse customer support center.
Key benefits are--significant efficiencies, nationwide backup processing
sites, ease of keeping technologically current, access to thousands of
banking systems support talent as needed to rapidly convert or integrate
acquisitions or mergers, and customer systems that are kept at a competitive
forefront. Most importantly, our customer delivery technology supports a full
range of business financial services that did not exist at our banks just a
few years ago.

Fee income from commercial banking services jumped to nearly $5.2 million
annually. The wide range of financial services to businesses include:
business loans, leasing, lines of credit, international letters of credit,
electronically assisted cash management and collection services, direct
deposit and wire transfer services, special services for small businesses,
cash concentration services, an array of depository and account analysis
services, credit card payment processing, high balance business deposit
accounts that can electronically transfer to investment funds, and a
selection of Keogh, 401(k) and retirement accounts.

OnBank & Trust Co. was recognized both locally and nationally in 1996 for
special community lending to small businesses in central city projects. In
May 1996, your Bank was recognized at a ceremony in Washington, D.C. by the
Federal Financing Board, the Federal Home Loan Bank System and Members of the
United States Congress for "Excellence In Community Lending." In July, we
were honored by the Mayor of Rochester, New York together with the Chair of
the Federal Financing Board and the President of the Federal Home Loan Bank
of New York for introducing a "first in the Nation" funding program to
assist fledgling inner-city businesses. These exemplify the high caliber of
business bankers we are fortunate to employ.

9
<PAGE>

TRUST & INVESTMENT SERVICES

SIGNIFICANT CLIENTS WERE WON BY ONBANCORP'S TRUST PROFESSIONALS.

The market value of trust assets increased to more than $876 million, up more
than $196 million or 29% from December last year. Trust and investment fee
revenues for the year grew by 17%, to exceed $3.1 million. Through diligent
efforts of our capable trust and investment professionals, the largest
revenue gains came from trusteeships for employee retirement and benefit
plans, administration of trusts under agreement, and estates and investment
management.

Our trust and investment professionals have accomplished much since trust
services were first introduced within ONBANCorp in early 1993 as the result
of an acquisition. At that time, the market value of trust assets under
management was $551 million. All trust and administrative information systems
were completely upgraded in the first year following that acquisition.
Significant new trust clients have been added within local Upstate New York,
Rochester and Northeastern Pennsylvania regions from individuals, businesses
and community organization clients.

Through previous ownership, the trust operations trace a history of more than
seventy years of providing completely confidential and customized trust and
investment management to families, individuals and organizations. With the
aid of sophisticated on-line telecomputing, we have recently added direct
access to extensive investment and economic research to our existing history
of client service. We also added numerous high quality investment vehicles,
including--pooled investment funds, equity growth funds, short-term fixed
income funds, intermediate and long-term bond funds, and asset allocation
models that have performed very competitively for trust and investment
clients.

10
<PAGE>

ONBANCORP PROVIDES COMPLETELY CONFIDENTIAL AND CUSTOMIZED TRUST & INVESTMENT
MANAGEMENT.

Our trust professionals are not sales commissioned agents. They avoid the
bias for managing client assets or investing in funds that might be
prescribed by a parent investment brokerage or similar firm. In addition to
their capacity of discreetly managing multimillion dollar value accounts,
trust and investment officials take great pride in using carefully selected
tools, including "Pathway To Prosperity" for investment funds asset
allocation--thereby providing ongoing investment planning for individuals
whose net worth may be $50,000 or more. This program has provided electronic
access to numerous rofessionally managed investment funds, including global
funds and small cap funds.

The ONBANCorp trust professional enjoys a unique position in our competitive
market. Most trust operations competitors concentrate only on the very large
accounts and are headquartered in distant cities, thus incurring expensive
overhead costs. These factors discourage the active serving of those trust
customers whose net worth is less than millions of dollars. Key fundamentals
of ONBANCorp trust operations are: local trust professionals, up to date
trust services and direct response to customers.

11
<PAGE>

CONSUMER BANKING SERVICES

CONSUMER BANKERS EXPAND PERSONAL LOANS AND LEASES PORTFOLIO.

Aggressive selling and customer solicitation by our bankers throughout the
regional network of branches in New York and Pennsylvania, as well as,
advances in electronic technology employed to assist customer banking
convenience have helped to significantly increase both service volume and fee
revenue. Consumer banking personnel increased the portfolio of personal loans
and leases by nearly 24% for the year ended December 31, 1996, to a new high
of $728 million. Fee revenues for services such as agent credit card
processing, MasterMoney interchange transactions, ATM service for
non-customers who use our banks' network of ATMs, processing consumer credit
card payments made to merchants and similar electronically assisted services
exceeded $4.7 million in 1996--up from $3.4 million the previous year.

The Baldwinsville, New York branch team from the Northern Syracuse suburb won
"Branch Of The Year" honors through sustained customer selling efforts. They
achieved an enviable record for capturing "Branch-of the-Month" for five out
of the twelve months in 1996. This branch team and its management have
indicated they are particularly focused on developing more loans for the year
ahead. High loan goals challenge the remaining branches to a friendly
competition to attain this prestigious branch award.

The consumer lending portfolio increased by more like more than $139 million.
Noticeably strong performance for generating nearly half the growth came from
the Pennsylvania subsidiary. Primary growth areas were financing automobile
leases and financing of manufactured homes. Personal loans and credit lines
secured by home equity allowed OnBank & Trust to maintain a first place
competitive ranking in its home county. Strong consumer credit quality
prevailed throughout the Company, which concluded the year with less than a
1.3% delinquency rate on consumer loans.

There has been a revolution in the development of electronic systems
technology specifically aimed at increasing banking convenience for
individuals. Our banks have embraced these developments ever mindful

12
<PAGE>

ONBANCORP HELPS MAKE BANKING MORE CONVENIENT FOR INDIVIDUALS WITH THE LATEST
TECHNOLOGY.

that customer privacy must not be sacrificed. The following list highlights
some of the many electronically-assisted, routine and convenient daily
financial transactions made practical for ONBANCorp customers:

- - DIRECT DEPOSIT of payroll, social security and retirement checks

- - ANSWERLINE PLUS direct dial telephone access to personal bank account
details, new and existing loan information, and interest rates

- - MASTERMONEY -TM- card access to personal deposit accounts for retail
purchases or 24-Hour ATM transactions

- - MASTERCARD-Registered Trademark- AND VISA-Registered Trademark- bank credit
cards which are acceptable internationally and at major ATM networks
throughout the USA and Canada--including the CIRRUS, PLUS, NYCE, MAC and
JEANIE Networks

- - FREE ATM USAGE by our customers at our internal network of bank ATMs and
OnBank ATMs located at all the rest stops on the New York State Thru-way

- - ELECTRONICALLY LINKED BRANCHES throughout ONBANCorp will allow customers
quick and efficient loan and deposit transactions at any branch anywhere
within ONBANCorp when interstate banking is allowed in the summer of 1997

- - CLIENT STATEMENT which can provide customers with information on all their
personal bank accounts conveniently combined on one monthly bank statement

- - TDD (TELECOMMUNICATION DEVICE FOR THE DEAF) service to assist banking for the
hearing impaired

- - COMPUTER FACILITATED CONSUMER LOAN APPLICATION and loan underwriting
systems allow fast decisions on personal loans and laser printed documents
at branches

- - INTERNET access to our banks' services which selectively allows on-line
loan applications and a host of consumer banking services on the World
Wide Web via personal computer at http:// www.onbank.com

As we employ electronic technology to assist customers, we are mindful that
it only helps make banking more convenient for individuals. The advanced
tools do not replace "local people-to-people banking" which is the foundation
of our service.

13
<PAGE>

RESIDENTIAL REAL ESTATE LENDING

ONBANCORP'S NEW YORK BANK MAINTAINED FIRST PLACE IN MARKET SHARE.

In line with softness in the local mortgage market, residential mortgages
originated throughout our banks approached $200 million in fiscal 1996.
Residential mortgage loans held in portfolio decreased a modest $76 million
at December 31, 1996 from the prior year end. A total of $1.05 billion
residential loans represent 43 percent of the loan mix on the balance sheet.
An additional $1.1 billion residential mortgages are serviced for other
investors "off balance sheet" from which servicing fee revenues are received.
The New York bank maintained its first-place market share by a wide margin of
residential mortgages originated in its core headquarters county. Mortgage
delinquency and default rates at ONBANCorp continue exceptionally favorable
compared to industry standards.

Less regulated non-bank mortgage companies continued to make competitive
inroads into the mortgage origination business. Mortgage banking has become a
wholesale commodity-like product line where success demands rapid turnaround
of customer applications, combined with efficient processes for mortgage
underwriting, servicing and collection of customer payments. Profit margins
on mortgage lending are narrow. Pricing terms for most mortgage loans are
established and controlled in the market by two large organizations, the
Federal National Mortgage Association or "FANNIE MAE" and the Federal Home
Loan Mortgage Corporation known as "FREDDIE MAC." Recognized underwriting
standards are also primarily established by these organizations. In this
environment, information system technology designed both to assist the
borrower and provide significant cost efficiencies plays a major competitive
role.

We are fortunate that very talented residential banking staff, whose skills
range from selling and customer service to more technical systems and

14
<PAGE>

ADDED CONVENIENCES FOR MORTGAGE LOAN CUSTOMERS INCLUDE TECHNOLOGY BASED AND
PERSONAL SERVICES.

operations support, have prepared your organization's delivery systems for
the competitive future. Among many improvements to our mortgage delivery
processes are the following:

- - All banks within ONBANCorp share common mortgage systems.

- - Prospective borrowers who might be considering the possibility of a
mortgage can call up a menu of our services on the Internet at either
http://www.onbank.com or http://www.franklinfirst.com

- - Prospects using a touch tone telephone can call our computerized
"Mortgage Connection" system at (800) 683-7926 and privately pre-qualify
themselves for a mortgage, and then initiate a sales lead to our mortgage
originators.

- - Mortgage originators use laptop computers at meetings with potential
mortgage loan customers and quickly show alternatives for types of
mortgages with detailed payment schedules.

- - Should customers decide they wish to expedite a mortgage application, the
bank's mortgage originator can, using the laptop computer's Interlinq
software, bypass what historically were a series of handwritten steps and
directly enter the customer's mortgage application into the central CPI
mortgage processing and accounting system.

- - Mortgage applications that meet prescribed standards can be directly input
into the Freddie Mac "Loan Prospector" system and, through automation, be
underwritten by Freddie Mac within a few hours instead of a few days.

We take pride in the added conveniences for mortgage loan customers and the
competitive cost efficiencies that have been delivered by our residential
staff. These improvements have helped maintain market share and have added
value to your Company.

<PAGE>

EDP SYSTEMS & OPERATIONS

SIGNIFICANT EFFICIENCIES AND TECHNOLOGICAL ADVANCEMENTS KEEP ONBANCORP BANKS
AT THE COMPETITIVE FOREFRONT.

The talented people in New York and Pennsylvania who are behind ONBANCorp's
information systems and operations continued in 1996 to greatly improve
processes that help clients manage their finances and banking relationships.
Advanced technology and information systems provide considerable convenience and
benefits to our banks and our clients, and help us maintain very competitive
advantages in the delivery of service to customers. It is understood that highly
automated customer information delivery is a must to effectively compete for
today's financial services customer.

In the previous year, our systems team successfully coordinated the entire
base of approximately three quarters of a million customer deposit and loan
accounts and rendered our banking operations ready in advance of interstate
banking. We enjoy shared, common systems throughout our offices. When the
Federal interstate banking laws become effective in July 1997, our clients
will finally be allowed to make deposits or loan payments at any of the
branch offices within the Company. In 1996, our systems and operations
professionals were successful in substantially improving customer service
levels in three key areas:

a) More efficiently answering customer questions about their accounts
b) Increasing the speed of processing loan applications for individuals and
homeowners
c) Expanding the capacity and speed that allows business clients to collect and
use their funds.

An upgraded voice response unit (VRU) system was installed, which quickly
accommodates automated responses to thousands of customer inquiries about
deposit account transactions or balances each day. Our Internet web site
added the capability to accept selected consumer loans, and the utilization
of laptop computers was expanded, as discussed previously, to allow quick
response to mortgage applicants.

16
<PAGE>

OUR ATM NETWORK CONTINUES TO EXPAND, PROVIDING ADDED CONVENIENCE FOR
CUSTOMERS.

Fee income increased from expanded usage by customers and non-customers of
the many electronically assisted services made available through our banks
such as turnpike ATMs, MasterMoney card and other similar online cash and
related services.

Particularly noteworthy are commercial customer systems improvements made in
1996 which have the multiple benefits of helping business clients, improving
bank efficiency and increasing fee revenue. The automated lock box system
used for collecting funds for business firms was streamlined. This delivery
system is especially helpful to firms which routinely collect large volumes
of payments. For example, one cable television client uses our advanced lock
box system to rapidly receive approximately 300,000 customer payments each
month.

Our electronic cash management system was made more versatile by making it
compatible for businesses that use Windows -TM- software. The capacity of our
wire transfer system was substantially upgraded and can readily process
hundreds of thousands of commercial wires each month. An improved Electronic
Data Interchange (EDI) system was implemented which is used by business
clients to electronically receive payments of customer invoices, and,
thereby, accelerate a firm's available funds.

The year concluded with the smooth integration of all customer,
administrative, services delivery and accounting information systems
associated with the merger of OnBank with and into OnBank & Trust Co.
Transaction volume levels have increased with increased banking business.
ONBANCorp information systems, which are managed through a cooperative
outsourcing agreement with Alltel Information Systems (resident within our
central service center), have witnessed processing volume increases to a
level of eighteen million transactions per month.

17
<PAGE>

COMMUNITY & CIVIC SUPPORT

AN ACTIVE MEMBER OF THE COMMUNITIES WE SERVE, ONBANCORP HELPS IMPROVE THE
QUALITY OF LIFE.

Strong community banks traditionally take pride in being integral to their
communities. It is more than coincidental that strong communities help make
for strong financial institutions. Conversely, the people who are the Bank
readily accept responsibility for supporting the development and well being
of their communities. Employees and Directors throughout ONBANCorp and its
subsidiary organizations have long understood the value of volunteering and
otherwise demonstrating commitment to trying to help improve the quality of
living in the communities we serve. It is with a strong sense of appreciation
to note that most employees routinely volunteer their personal time and
resources. Through volunteer efforts, preschoolers have become more prepared
for learning and living, and a significant number of disadvantaged youth have
completed their educational requirements with the help of mentors from our
banks. Inner-city schools have been "adopted," and countless efforts have
been devoted to: improving housing, health care, needs of the elderly, small
business, and activities aimed at improving the well being of our civic and
community fabric.

Big Brother/Big Sister, the Red Cross, "Success By Six," and the United Way
Campaigns are among the more visible beneficiaries. There are also numerous
community support activities and programs that quietly benefit from our
voluntary involvement, including--hospital boards, performing and fine arts
organizations, scouting, the Boys & Girls Club, the March Of Dimes, the Urban
League, various Chambers of Commerce, economic development organizations,
neighborhood centers and affordable housing programs. Additionally, lending
programs for small businesses, training and employment assistance programs
for the economically disadvantaged and many others favorably affect our
community. More important than what is said about these endeavors, is what is
actually accomplished.

18
<PAGE>

FINANCIAL REPORTS

Selected Financial Data................................................ 20
Management's Discussion and Analysis................................... 21
Management's Statement of Responsibility............................... 31
Independent Auditors' Report............................................ 31
Consolidated Balance Sheets............................................ 32
Consolidated Statements of Income...................................... 33
Consolidated Statements of Changes in
Shareholders' Equity................................................. 34
Consolidated Statements of Cash Flows.................................. 35
Notes to Consolidated Financial Statements............................. 37
Selected Quarterly Financial Data...................................... 51

ONBANCORP BANKING SUBSIDIARIES
On January 1, 1997 ONBANCorp's two New York State Bank subsidiaries were merged.
The resultant two banks were ($ in thousands):

<TABLE>
<CAPTION>
Mortgage- Short-Term
Net Backed & Other
Assets Loans Securities Investments Deposits Equity
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OnBank & Trust Co................................. $4,084,428 1,559,483 1,900,134 288,929 2,918,573 262,867

Franklin First SB................................. 1,404,771 851,151 366,686 65,752 904,855 88,973
</TABLE>

19
<PAGE>

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(In Thousands Except Share Data) Year Ended December 31,

1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA AT PERIOD END

Securities...................................... $ 2,610,975 2,741,843 3,890,687 3,627,804
Net loans....................................... 2,410,634 2,254,407 1,949,197 1,680,721
Total assets.................................... 5,417,877 5,567,059 6,723,305 5,772,280
Deposits........................................ 3,821,906 3,808,273 3,793,343 3,005,999
Repurchase agreements........................... 254,471 361,617 1,058,316 1,251,050
Other borrowings................................ 874,917 903,370 1,158,772 1,022,947
Shareholders' equity............................. 360,051 388,766 362,936 430,638

- ---------------------------------------------------------------------------------------------------
OPERATIONS DATA

Interest income................................. $ 374,845 431,459 388,275 327,622
Interest expense................................ 222,098 278,944 224,646 171,055
Net interest income............................. 152,747 152,515 163,629 156,567
Provision for loan losses....................... 7,813 6,790 7,638 10,297
Other operating income (loss)................... 36,262 29,301 (52,689) 46,066
Other operating expenses........................ 110,614 103,462 99,890 98,666
Income taxes.................................... 27,618 26,887 708 35,707
Cumulative effect of accounting change(1)....... -- -- -- 3,400
Net income...................................... 42,964 44,677 2,704 61,363

- ---------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA

Net income (loss) fully diluted................. $ 2.86 2.75 (.15) 3.93
Dividends declared.............................. 1.24 1.14 1.03 .69
Book value...................................... 24.82 24.11 20.82 25.77
- ---------------------------------------------------------------------------------------------------
</TABLE>

(1) Reflects the effect of the adoption of the provisions of Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES.

20
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

OVERVIEW
ONBANCorp, Inc.'s ("ONBANCorp" or "the Company") results of operations have been
dependent upon the results of operations of its three wholly owned subsidiaries;
OnBank & Trust Co., OnBank and Franklin First Savings Bank ("Franklin"),
collectively (the "Banks"). On January 1, 1997 OnBank and OnBank & Trust Co.
merged, thereby creating a single banking entity in New York State.

ONBANCorp's major market areas serve metropolitan populations across New York
State and Northeastern Pennsylvania. The Upstate New York Region from
Westchester County to the Great Lakes of Ontario and Erie, has a population
approximating seven million. This exceeds the populations of forty individual
states including the neighboring states of Connecticut and Massachusetts. The
Wilkes-Barre/Scranton area of Northeastern Pennsylvania has strikingly similar
characteristics to Syracuse, Rochester, Albany and Buffalo, namely, large
populations, a wide variety of industries, good transportation, many colleges
and numerous small businesses. The size and diversity of the markets served
tend to inhibit any radical changes in economic growth, unemployment or real
estate values. The economy of the area, therefore, tends to follow the national
trends. These large target markets offer considerable potential in the small
business and household sectors to broaden ONBANCorp's base of banking services
and thus enhance its ability to complete the transformation to a full service
regional banking company.

At December 31, 1996 total assets were $5.4 billion, earning assets were $5.1
billion, deposits were $3.8 billion and shareholders' equity was $360.1 million,
net of $20.2 million of net unrealized holding loss on securities. The
unrealized holding loss relating to the held to maturity securities will be
amortized into capital as the related securities are repaid.

Net income for 1996 was $43.0 million or $2.86 per common share on a fully
diluted basis ("EPS"). However, when certain one-time government mandated third
quarter charges related to the special SAIF deposit insurance premium and other
net banking industry charges related to the thrift industry are added back net
income would have been $48.1 million or $3.20 EPS. Net interest income in 1996
of $152.7 million is slightly higher than the $152.5 million for the prior year
despite average earning assets declining by $957 million. The 1996 net interest
margin increased by .48% to 3.03% from 2.55% in 1995 and is expected to
increase in 1997 as a result of the increasing percentage of total assets which
are expected to be represented by loans which tend to earn higher yields than
the securities which they are replacing. Full year 1996 operating expenses
increased by $7.2 million, however, when adjusted for the $7.3 million in
one-time special SAIF charges in the third quarter of 1996, operating expenses
would have declined slightly from 1995 to 1996. The efficiency ratio of 56.5%,
which excludes the one-time special SAIF charges and $6.0 million of net gains
on securities transactions, is considered to be within good banking industry
performance standards.

Asset quality remains very sound as measured by the 0.59% ratio of
non-performing loans ($27.1 million) plus other non-performing assets ($4.8
million) to total assets ($5.418 billion) at December 31, 1996. The coverage
ratio of the allowance for loan losses to non-performing loans was 140% at year
end.

At December 31, 1996 the book value per common share of $24.82 represented a
2.9% increase from the $24.11 at December 31, 1995. This increase was the
combined result of net income per common share less dividends and the change in
the unrealized holding loss on securities as well as share repurchases and
preferred stock conversions. As a continuing part of its capital management
plan, the Company repurchased 37,000 shares of Cumulative Convertible Preferred
Stock and 1,522,000 shares of common stock during 1996. The company converted
137,000 shares of Cumulative Convertible Preferred Stock into common stock
during the fourth quarter of 1996 as part of the mandatory redemption of
Cumulative Convertible Preferred Stock. This redemption was completed on
January 8, 1997 with approximately 98% of the Cumulative Convertible Preferred
Stock outstanding being converted to approximately 1.8 million shares of common
stock which were issued from treasury stock with the difference being redeemed
for cash of $26.013 per Cumulative Convertible share. The conversion factor for
each share of preferred stock was .78 shares of common stock. During 1995 the
Company repurchased 301,800 shares of Cumulative Convertible Preferred Stock and
577,900 shares of common stock. Repurchases generally have the effect of
improving EPS and return on equity ("ROE") while reducing slightly return on
assets ("ROA").

During January 1997 the Company, through a subsidiary Trust formed for the sole
purpose of issuing capital securities, authorized and issued $60,000,000 OnBank
Capital Trust I, 9.25% Capital Securities and

<PAGE>

also announced that the primary use of the proceeds of the issuance would be to
fund the acquisition of up to 1,400,000 or approximately 10% of the outstanding
shares of common stock as a continuation of the Company's capital management
program. In October of 1996 the Federal Reserve Board approved Tier I capital
treatment for this type of capital securities which provides the Company with a
method of funding Tier I capital that is tax deductible. The proceeds to the
Trust are lent to the holding company as long-term junior subordinated
debentures that are subordinated to all holding company debt but senior to all
preferred and common stock. The securities may be called at a premium, in whole
or in part, on or after February 1, 2007 and provisions are included which
provide for the temporary deferral of interest payments for a period of up to
five years. The Federal Reserve Board limits the amount of capital securities
outstanding in a company's capital base, together with all its cumulative
preferred, to 25% of its Tier I capital base.

Corporate strategy in 1996 continued to emphasize the focus on increasing core
banking activities to replace the transitional investments in securities.
ONBANCorp is in the midst of transitioning from its 1990 thrift profile to a
regional banking company. During the intervening years capital has been
leveraged in the form of financing transactions albeit to a much lesser extent
during 1995 and 1996. These transactions have generally involved short-term
market rate borrowings, such as repurchase agreements, funding assets such as
Treasuries, adjustable-rate and other mortgage-backed securities. The intended
short term nature of the financing transactions along with the minimal credit
risk associated with these assets (generally US Government or mortgage-backed
securities) which were classified as available for sale, provided the
opportunity to increase ROE and EPS as well as to adjust the balance sheet as
more traditional banking relationships were added. However, rapidly rising
interest rates in 1994 had an adverse effect on this strategy.

In connection with the implementation of Statement of Financial Accounting
Standards (SFAS) No. 115 at December 31, 1993, securities, principally
mortgage-backed, with an amortized cost of $2.3 billion were transferred to the
available for sale portfolio. In 1994 regulatory policy was revised to require
transfer of securities to available for sale only in cases where the safety and
soundness of an institution is an issue. In view of the policy revision, the
Company transferred securities with a fair value of $1.27 billion and a net
unrealized holding loss of $71.6 million at date of transfer from available for
sale to held to maturity. These transfers had the practical effect of limiting
the potential capital erosion which could have occurred if interest rates rose
dramatically and these securities had remained classified as available for sale.

As of November 15, 1995, all companies subject to SFAS No.115 were permitted a
one-time opportunity to reallocate securities previously classified as held to
maturity into the available for sale category without calling into question the
company's intent to hold the remaining securities to maturity. ONBANCorp
availed itself of this opportunity and transferred approximately $1.54 billion
in securities from held to maturity to available for sale. Following this
transfer the Company sold approximately $1.2 billion of its available for sale
securities and used the proceeds to pay down borrowings and to fund loan growth,
enabling the Company to shrink the absolute levels of securities and borrowings.
The yield on assets sold was approximately the same as the cost of the
borrowings repaid, therefore, net interest income was not adversely affected.
Prepayment fees related to the prepayment of borrowings were more than offset by
gains on securities sold. The future implications of these actions were that
net interest income would remain approximately the same while net interest
margin would improve because net interest income (the numerator) would remain
approximately the same while the average earning assets (the denominator) would
significantly diminish by approximately $1 billion. Total securities have
declined to $2.61 billion at December 31, 1996 from $2.74 billion at December
31, 1995 and from $3.89 billion at December 31, 1994 and on a percentage basis
represent 48%, 49% and 58% of total assets on those respective dates.

NET INTEREST INCOME
The most significant impact on the Company's net income between periods is
derived from the interaction of changes in the volume of and rates earned or
paid on interest earning assets and interest bearing liabilities. The volume of
interest earning assets represented by loans and securities, compared to the
volume of interest bearing liabilities represented by deposits and borrowings,
combined with the spread between the two, produces the changes in the net
interest income between periods. The accompanying tables on pages 23 and 24
show the relative contribution of changes in average volume and average interest
rates on changes in net interest income for the periods indicated.

22
<PAGE>

This table sets forth for the indicated years ended December 31, the average
daily balances of the Company's major asset and liablity items and the
interest earned or paid thereon expressed in dollars and weighted average
rates.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
(DOLLARS IN AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
THOUSANDS) BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS (1)
Securities........................ $ 2,611,400 170,003 6.51% 3,819,923 244,078 6.39% 4,237,331 233,530 5.51%
Loans............................. 2,365,244 201,394 8.51% 2,129,445 184,591 8.67% 1,824,207 153,247 8.40%
Federal funds sold and other...... 58,740 3,448 5.87% 42,801 2,790 6.52% 33,434 1,498 4.48%
- ------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets.. 5,035,384 374,845 7.44% 5,992,169 431,459 7.20% 6,094,972 388,275 6.37%
Non-interest earning assets....... 300,003 327,291 302,981
- ------------------------------------------------------------------------------------------------------------------------------
Total assets................... $ 5,335,387 6,319,460 6,397,953
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------

INTEREST BEARING LIABILITIES
Savings deposits.................. 734,793 19,145 2.61% 804,737 22,931 2.85% 691,470 18,044 2.61%
Time deposits..................... 2,209,632 122,862 5.56% 2,170,492 121,124 5.58% 1,723,534 76,415 4.43%
Money market accounts, NOW
accounts,and escrow deposits..... 531,888 12,740 2.40% 552,626 13,360 2.42% 782,802 18,208 2.33%
- ------------------------------------------------------------------------------------------------------------------------------
Total interest bearing
deposits...................... 3,476,313 154,747 4.45% 3,527,855 157,415 4.46% 3,197,806 112,667 3.52%
Repurchase agreements............. 300,706 18,866 6.27% 856,327 51,306 5.99% 1,403,327 58,720 4.18%
Other borrowings.................. 798,313 48,485 6.07% 1,189,981 70,223 5.90% 1,061,655 53,259 5.02%
- ------------------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities................... 4,575,332 222,098 4.85% 5,574,163 278,944 5.00% 5,662,788 224,646 3.97%
Non-interest bearing deposits..... 321,978 298,464 284,797
Non-interest bearing liabilities.. 61,935 66,447 55,308
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities.............. 4,959,245 5,939,074 6,002,893
Shareholders equity............... 376,142 380,386 395,060
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders equity........... $ 5,335,387 6,319,460 6,397,953
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income................. $ 152,747 152,515 163,629
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Interest rate spread........... 2.59% 2.20% 2.40%
Net interest margin (2)........ 3.03% 2.55% 2.68%
Average interest earning assets to
average interest bearing
liabilities........................ 1.10X 1.07X 1.08X
Average equity to average
assets ratio....................... 7.05% 6.02% 6.17%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Nonaccruing loans, which are immaterial, have been included in interest
earning assets.

(2) Computed by dividing net interest income by total average interest earning
assets.

<PAGE>

The following table presents changes in interest income and interest
expense attributable to: changes in volume (change in average balance or
volume multiplied by prior year rate), changes in rate (change in rate
multiplied by prior year volume), and the net change in net interest income.
The net change attributable to the combined impact of volume and rate has
been allocated proportionately to the absolute dollar amounts of the change
in each.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1996 COMPARED TO 1995 1995 COMPARED TO 1994
INCREASE (DECREASE) INCREASE (DECREASE)
(DOLLARS IN THOUSANDS) VOLUME RATE NET VOLUME RATE NET
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Securities................................... $ (78,579) 4,504 (74,075) (24,426) 34,974 10,548
Loans........................................ 20,243 (3,440) 16,803 26,293 5,051 31,344
Federal funds sold and other................. 958 (300) 658 492 800 1,292
- -------------------------------------------------------------------------------------------------------------------
Total change in income from interest
earning assets......................... (57,378) 764 (56,614) 2,359 40,825 43,184
- -------------------------------------------------------------------------------------------------------------------

INTEREST BEARING LIABILITIES
Savings deposits............................. (1,923) (1,863) (3,786) 3,130 1,757 4,887
Time deposits................................ 2,174 (436) 1,738 22,343 22,366 44,709
Money market accounts, NOW accounts,
and escrow deposits....................... (508) (112) (620) (5,531) 683 (4,848)
- -------------------------------------------------------------------------------------------------------------------
Total deposits........................... (257) (2,411) (2,668) 19,942 24,806 44,748
Borrowings:
Repurchase agreements...................... (34,733) 2,293 (32,440) (27,578) 20,164 (7,414)
Other borrowings........................... (23,708) 1,970 (21,738) 6,923 10,041 16,964
- -------------------------------------------------------------------------------------------------------------------
Total change in expense of interest
bearing liabilities.................... (58,698) 1,852 (56,846) (713) 55,011 54,298
- -------------------------------------------------------------------------------------------------------------------
Change in net interest income............ $ 1,320 (1,088) 232 3,072 (14,186) (11,114)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

Average interest earning assets decreased to $5.04 billion in 1996 from $5.99
billion in 1995 from $6.09 billion in 1994. Average interest bearing
liabilities decreased to $4.58 billion in 1996 from $5.57 million in 1995 from
$5.66 million in 1994. The yield on average earning assets was 7.44% in 1996 up
from 7.20% in 1995 which was up from 6.37% in 1994. The increase in yield from
1995 to 1996 primarily related to the proportion of total earning assets which
were represented by loans even though the average yield on the loans was .16%
less in 1996. The increase in yield from 1994 to 1995 primarily related to the
increased volume of average loans at a 0.27% higher yield than in 1994 as well
as the reinvestment in late 1994 and early 1995 of the net proceeds of the
securities repositioning which occurred in December of 1994 at approximately 175
basis point improvement in yield. A combination of managed reductions, decreased
prepayment rates on mortgage-backed securities and the direction and speed with
which the interest rate environment has changed during the past three years
directly affected the yields on securities. The changing interest rate
environment of the past three years has had a similar effect on various
components of interest bearing liabilities. Deposit costs for savings deposits
and interest bearing transaction accounts have remained relatively stable,
however, the cost of time deposits had increased substantially from 4.43% in
1994 to 5.58% for 1995. These increased costs are primarily a function of
increased competition from money market funds and others as well as the change
in time deposit mix which includes increasing and more expensive deposits from
municipalities and retail brokers. The cost of repurchase agreements is
directly related to their maturity and market interest rates which increased in
1996. The increase in cost to 6.27% in

<PAGE>

1996 from 5.99% in 1995 from 4.18% in 1994 relates primarily to the selective
lengthening in maturities of these liabilities to the one and two year category
in order to maintain a reasonable duration balance between interest earning
assets and interest bearing liabilities. The cost of other borrowings increased
to 6.07% in 1996 from 5.90% in 1995 and from 5.02% in 1994 for the same reasons
as repurchase agreements.

The sale of securities in late 1995 enabled the Company to shrink the absolute
levels of securities and borrowings. Average securities declined by $1.2
billion from 1995 to 1996 while the yield on the securities portfolio increased
slightly by .12% to 6.51% for 1996 due to slightly higher market interest rates
as well as continued slower prepayments on mortgage-backed securities and the
associated decline in the rate of amortization of premium. The average balance
of loans increased by $235.8 million from 1995 to 1996 while the yield on the
portfolio declined by .16% for the same periods. The newer loans were
predominantly commercial and consumer which are shorter term than many of the
fixed rate mortgages which they replaced as they paid down or were sold. A
decline in interest rates is primarily responsible for the slight decline in
loan yield, however, when taken together with the increase in proportions of
loans to total earning assets, the yield on total interest earning assets
increased by .24% to 7.44% from 1995 to 1996. The cost of total deposits
remained relatively constant within .01% from 1995 to 1996 while the cost of
repurchase agreements and other borrowings increased .28% and .17%,
respectively, from 1995 to 1996. The increased cost of borrowings was more than
offset by the decline in average volumes of $555.6 million and $391.7 million,
respectively from 1995 to 1996 as the proceeds from the securities sales were
used to pay down these borrowings thereby shrinking the average balance sheet
and reducing the proportions of both securities and borrowings in the process.
The combined effect of increasing the yield on interest earning assets by .24%
and decreasing the cost of interest bearing liabilities by .15% from 1995 to
1996 along with an increase in non-interest bearing deposits of $23.5 million
was an increase in net interest margin of .48% to 3.03% in 1996 from 2.55% in
1995. Net interest income of $152.7 million in 1996 was up slightly from $152.5
million despite the substantial shrinkage in the average balance sheet. The
increase in yield from the reinvestment of the late 1994 repositioning of
securities and the decline in the rate of amortization of mortgage-backed
securities premiums related to slower prepayments in 1995 combined to increase
interest income on securities and loans to $431.5 million in 1995 from $388.3
million in 1994. Despite a drop in average interest bearing liabilities to $5.57
billion in 1995 from $5.66 billion in 1994 the cost of funds and interest
expense has increased to 5.00% and $278.9 million from 3.97% and $224.6 million
for 1995 and 1994, respectively. The combined effects of the changes in average
balances and yield/rates is that net interest income decreased by $11.1 million
in 1995 from 1994. The result of interest income increasing more than interest
expense as a function of volume was $3.1 million while the increase in yields on
earning assets and the greater increase in rates on average interest bearing
liabilities had a $14.2 million negative impact.

Market rates of interest have fluctuated significantly during the past three
years. Rates rose precipitously during 1994 and the yield curve flattened.
Rates declined dramatically during 1995, however, the yield curve remained
essentially flat. During 1996 rates were less volatile, however the yield curve
steepened slightly. During the first two years of this period as the Company
was continuing its transition to a commercial bank, the volume of short term
financing transactions was significant and, therefore, the net interest margin
declined from 2.68% in 1994 to 2.55% in 1995 and then increased to 3.03% in
1996. As short term financing transactions are being replaced by more
traditional retail and commercial banking assets and liabilities, both currently
and in the future, it is reasonable to expect that the net interest margin will
increase from the levels of both 1994 and 1995. The flattening of the yield
curve, especially in the shorter zero to five year sector and the speed with
which overall interest rates increased during 1994 are the factors which most
affected the Company's interest rate risk profile during that fourth quarter.
The Company had absorbed the effects of increasing rates during the first nine
months of 1994 and, in fact, had record net interest income of $42.6 million in
the third quarter of 1994. Rising interest rates in October, November and early
December of 1994 had a negative impact on both net interest margin and net
interest income, but more significantly a negative impact on the mark-to-market
valuation of the available for sale securities portfolio and, therefore,
capital. This combination of events created a situation wherein if interest
rates, and especially short-term interest rates, were to continue to increase
from their mid-December levels, the net interest margin, net interest income and
mark-to-market capital reductions all would have worsened. Given this rapidly
changing situation, the Company made the decision to reduce its exposure by
incurring approximately $80 million in pretax losses related to the available
for sale portfolio.

<PAGE>

As a combined result of the significant decline in rates from December 31, 1994
to December 31, 1995, the late 1995 transfer of securities and scheduled
amortization, the net unrealized holding loss on available for sale securities,
net of deferred taxes, decreased by $26.9 million which had the effect of
increasing shareholders' equity by that amount. By contrast the net unrealized
depreciation related to held to maturity securities improved by $154.2 million
to a positive $35.6 million and had no impact on shareholders' equity. Future
price volatility of both the available for sale portfolio and the held to
maturity portfolio will be a function of their relative effective durations
which were 1.95 years and 3.27 years, respectively at December 31, 1996. From a
credit quality perspective the portfolios are comprised of primarily government
sponsored agencies and/or AAA rated securities. At December 31, 1996 the net
unrealized holding loss on securities, net of deferred taxes had slightly
increased to $20.2 million from $19.0 million at December 31, 1995 as a result
of slightly higher interest rates.

The Asset-Liability Committee, which includes members of senior management,
monitors the Company's exposures to changing interest rates. Interest rate risk
is measured by the variability of projected net interest income under various
interest rate scenarios. Management's goal is to position the Company as to
limit the variability of net interest income under those scenarios.

The Company monitors interest rate risk with the aid of a computer model which
considers the impact of lending, deposit gathering activities, the repricing of
variable rate assets and liabilities, and the effect of changing interest rates
on expected prepayments and maturities. At December 31, 1996 utilizing the
model described above, the Company's assessment is that the variability of net
interest income would be largely unaffected by changes in interest rates over
the next year, but large, sustained increases or decreases in interest rates or
a significant flattening in the yield curve would likely have a negative impact
on net interest income in later years.

Management closely monitors the Company's exposure to changing interest rates
and spreads and stand ready to take action to mitigate such exposure.
Possible actions include, but are not limited to, changes in the pricing of loan
and deposit products, changing the composition of interest earning assets and
interest bearing liabilities, and the use of off-balance sheet instruments.

PROVISION FOR LOAN LOSSES AND ASSET QUALITY

The provision for loan losses increased to $7.8 million in 1996 from $6.8
million in 1995 which had decreased from $7.6 million in 1994. Net chargeoffs
declined to $4.6 million in 1996 from $6.0 million in 1995 down from $6.6
million in 1994. The increased provision in 1996 over 1995 reflects the
increased overall lending activity which has occurred even though non-performing
loans have not increased. The lower provision for loan losses in 1995 from 1994
reflects the decreased volume of non-performing loans in, however, the
provisions were sufficient to provide for a simultaneous increase in the ratio
of the allowance for loan losses to non-performing loans to 113.5%, 119.4% and
139.7% at December 31, 1994, 1995 and 1996, respectively. This increased
coverage ratio also reflects the increased emphasis on commercial lending and
the inherently higher risk factors associated with this type of lending.

The adequacy of the allowance for loan losses is assessed based upon
management's periodic evaluation considering past loan loss experience, known
and inherent risks in the portfolio, adverse situations which may affect the
borrowers' ability to repay, the estimated value of underlying collateral, if
any, and current and prospective economic conditions. The allowance to ending
loans of 1.52% at December 31, 1996 was up from 1.51% at December 31, 1995
which was down from 1.71% at December 31, 1994. While the allowance for loan
losses has increased to $37.8 million at year end 1996 from $34.6 million and
from $33.8 million, respectively, for year end 1995 and 1994, non-performing
loans have decreased over the same periods to 1.09% of total loans at December
31, 1996 from 1.24% and 1.48% at year end 1995 and 1994, respectively. The
provision over the past three years has accommodated the net chargeoffs while at
the same time gradually increasing the overall allowance for loan losses and the
coverage ratio of non-performing loans to the extent that ratio has exceeded
100% or total coverage as of December 31, 1996, 1995 and 1994.

Other real estate owned ("OREO") has increased to $4.1 million at December 31,
1996 from $4.0 million at December 31, 1995 which had decreased from $5.4
million at December 31, 1994. This year end 1996 balance reflects the results
of management's ongoing effort to reduce and maintain these non-earning assets
to a minimal level. In evaluating the overall credit risk in the balance sheet,
the ratio of non-performing assets (non-performing loans plus OREO and repos-

<PAGE>

sessed assets) to total assets was down slightly to .59% at December 31, 1996
from .60% at December 31, 1995 which was up slightly as a result of the lower
overall asset base from .53% at year end 1994. These percentages imply a
relatively low credit risk profile for the Company.

OTHER OPERATING INCOME

Other operating income, which is generated by service charges, mortgage banking
activities, net gain (loss) on securities transactions and other sources,
increased by $7.0 million to $36.3 million in 1996 and by $82.0 million to
$29.3 million in 1995 from a loss of $52.7 million in 1994. Service charges
increased by $3.2 million to $18.8 million in 1996 from $15.6 million in 1995
which was up $.9 million from $14.7 million in 1994. These increases reflect
the expansion of commercial banking services in conjunction with the Company's
longer term strategy which is to continue to increase commercial banking
activities in the Central New York State market along with the Albany, Rochester
and the Scranton/Wilkes Barre markets which the Company currently serves.
Electronic banking fees derived from merchant card processing as well as lock
box processing and other consumer transaction related activities are becoming a
more significant portion of this component of income and are expected to
continue to increase in the future as the Banks obtain more business.

The Company's mortgage banking revenue consists of servicing income, gains and
losses on the sale of loans originated for sale and the amortization of loan
servicing rights. Gains and losses on the sale of mortgage-backed securities
created from loans originated by the Company are considered a mortgage banking
activity as distinguished from the gains or losses arising from the sale of such
securities purchased and available for sale. Residential mortgage loans are
originated to meet consumer demand which has predominantly been for long-term
fixed rate mortgage loans in the Banks' New York and Pennsylvania market areas.
Following the rapid rise in interest rates which occurred in 1994 the market for
residential mortgage loans diminished substantially as a result of the higher
rates and the associated decline in refinancings. Residential mortgage loan
originations decreased to $195 million in 1996 from $254 million in 1995 from
$389 million in 1994. The mix in 1996 and in 1995 was predominantly fixed
rate, however, because of the absolute level of rates and the overall duration
characteristics of the balance sheet the Company retained most of the loans
originated in portfolio. In 1994 a change in consumer preference, influenced
mainly by the rising interest rate scenario, occurred to the extent that
approximately 37% of the residential real estate loans originated were ARMS.
Based upon this change in mix, and the overall interest rate risk in the balance
sheet at the time, the Banks retained almost all of the last three quarters of
1994's production in the portfolio.

From time to time the Company sells loans in the secondary market to help manage
interest rate sensitivity. Such sales generate income (or loss) at the time of
sale, produce future servicing income and provide funds for additional lending
and other purposes. Typically, loans are sold with the Banks retaining
responsibility for collecting and remitting loan payments, inspecting
properties, making certain insurance and tax payments on behalf of borrowers and
otherwise servicing the loans, and receiving a fee for performing these
services.

Mortgage banking income increased $1.2 million in 1996 from the $3.1 million in
1995 which had declined $2.7 million from $5.9 million in 1994. The serviced
for others loan portfolio has decreased over the past three years to $1,091
million, from $1,147 million and $1,223 million at December 31, 1996, 1995 and
1994, respectively. During this period, loan originations and sales of new
loans have decreased to a point where amortization and prepayments, which reduce
the portfolio, have been greater than the increases created by the sale of new
loans which are additions to the portfolio. The loan servicing fee component
has decreased in line with the portfolio decreases to $4.7 million from $5.1
million and $6.1 million in 1996, 1995 and 1994, respectively. Gains or losses
on the sale of loans fluctuates and is generally related to interest rate risk
management activity. Gains on the sale of loans were $1.8 million in 1996 and
immaterial in 1995 and in 1994. A gain of $3.5 million related to the sale of
mortgage servicing rights was recognized in 1994.

The Company capitalized mortgage servicing rights of $2.8 million in 1996, $.7
million in 1995 and $1.8 million in 1994. The Company recognized amortization
of these assets of $2.2 million in 1996, $1.9 million in 1995 and $3.2 million
in 1994. As a result of the sale of servicing rights during 1994 the Company
reduced the asset by $1.7 million and recognized income amounting to $3.5
million. The combined capitalized mortgage servicing rights and purchased
mortgage servicing rights at December 31 were $7.7 million in 1996, $7.1 million
in 1995 and $8.4 million

<PAGE>

in 1994. When expressed as a percentage of the serviced loan portfolio these
balances are .7%, .6% and .7%, respectively.

Income from other sources, including trust income, increased $2.0 million in
1996 to $7.2 million primarily as the net result of a $2.9 million gain related
to the sale of branches offset by $1.3 million loss on the sale of a building.
This income component decreased $1.1 million in 1995 to $5.1 million from $6.2
million in 1994.

OTHER OPERATING EXPENSES

Total operating expenses increased $7.2 million or 6.9% to $110.6 million for
1996 over 1995 and $3.6 million or 3.6% to $103.5 million for 1995 over 1994.
Included in 1996 is a one-time, $7.3 million government mandated charge relating
to the recapitalization of the SAIF insurance fund. Salaries and employee
benefits increased $1.1 million to $41.5 million in 1996 from 1995 which had
declined $.4 million to $40.4 million from $40.8 million in 1994. The 2.8%
increase in 1996 was primarily related to merit increases. The 1995 decline
represented primarily continued efficiencies associated with the significant
decline in 1994 related to the decision to enter into a data processing
facilities management contract under which many OnBank employees were hired by
the vendor. The average full time equivalent employee (FTE) level has declined
3.6% during 1996.

Building, occupancy and equipment expense increased slightly to $18.3 million in
1996 from the relatively constant levels of $17.9 million in 1995 and $17.7
million in 1994. Additional technology related equipment expenses along with
increased real estate taxes and rents account for the majority of the 1996
increase. The 1995 increase is primarily related to increased real estate taxes
and utility costs.

FDIC deposit insurance premiums increased $3.5 million in 1996 to $9.3 million.
Of the total premium, $7.3 million related to the government mandated one-time
assessment related to the recapitalization of the SAIF insurance fund. Absent
any major dislocations in the banking industry, future FDIC insurance premiums
are expected to be substantially less than those incurred in recent years. FDIC
deposit insurance premiums decreased $1.4 million in 1995 as the result of the
decrease in deposit insurance rates on that portion of the Company's deposits
which were BIF insured. These deposits did not incur an insurance expense for
the last seven months of 1995. However, those deposits which remained SAIF
insured, including all of the Franklin First deposits and approximately $217
million in deposits related to the June 1994 acquisition of nine branches in the
Rochester area continued to accrue insurance assessments at the rate of $.23
per hundred dollars of deposits until the SAIF recapitalization was resolved.

Contracted data processing expense increased $1.1 million to $10.8 million in
1996 over 1995 resulting from increased business activity along with the
assumption of additional responsibilities by our external vendor. The increase
of $2.8 million in 1995 to $9.7 million represents the first full year of
expense related to the data processing facilities management contract with
Alltel Services, Inc. Contracted data processing of $6.9 million in 1994
represents the one half year expense related to the Alltel contract combined
with the costs associated with the Rochester acquisition. The majority of major
systems conversions were completed during 1995 and the Company is now operating
under similar systems for all of its operations. This situation should provide
for future efficiencies in almost all aspects of the Company's operations.

Legal and financial services expenses increased by $1.1 million to $4.4 million
in 1996 from $3.3 million in 1995 which was $.1 million more than the $3.2
million in 1994. The levels of expense in all three years varies somewhat and
are directly related to increased commercial banking activities and increased
other professional fees generally related to increased regulatory compliance
mandates such as FDICIA ("Federal Deposit Insurance Corporation Improvement
Act"), HMDA ("Home Mortgage Disclosure Act"), and BSA ("Bank Secrecy Act") as
well as the associated cost of in excess of twenty regulatory examinations
(i.e.; FDIC, New York State Banking Department, Pennsylvania Banking Department,
Internal Revenue Service, New York State Department of Taxation and Finance,
Federal Reserve Bank of New York).

Intangible expenses of $4.4 million in 1996, and 1995 and $3.0 million in 1994
are related almost totally to the amortization of deposit premium associated
with the acquisition of the nine Rochester branches in June of 1994 with the
1994 amount reflecting the partial year expense. The deposit premium is being
amortized over a seven year period.

<PAGE>

Other expenses have remained constant at $21.9 million for 1996 and 1995 and
increased by $.9 million from 1994's level of $20.9 million. These expenses
have remained under good control.

When measured as a ratio of other operating expenses to average assets the
ratios of 1.9% (adjusted for the one-time SAIF charge of $7.3 million) 1.6% and
1.6% for 1996, 1995 and 1994, respectively, are all under our 2.0% high
performance target.

INCOME TAXES

The provision for income taxes as a percentage of pre-tax income was 39.1%,
37.6% and 20.8% for 1996, 1995 and 1994, respectively. The significantly
lower effective tax rate in 1994 is due to a substantial increase in the
proportion of tax exempt income to total pre-tax income in 1994. Under more
normal operating income levels such as those of 1995 and 1996 a tax rate of
between 35% and 40% would be anticipated. Additional discussion of income taxes
is presented in footnote (10) of notes to consolidated financial statements.

DIVIDENDS

Payment of dividends by ONBANCorp on its common and preferred stock is subject
to various regulatory and tax restrictions. ONBANCorp is regulated by the
Federal Reserve Board and as such is subject to its regulations and guidelines
with respect to payment of dividends, including its Policy Statement of Cash
Dividends Not Fully Covered by Earnings. Since substantially all of the funds
available for the payment of dividends were derived from OnBank, OnBank & Trust
Co. and Franklin, future dividends will depend upon the earnings of the Banks,
their financial condition, their need for funds, applicable governmental
policies and regulations and such other matters as the Board of Directors of the
respective Banks deem appropriate. Under New York State Banking Law, dividends
may be declared and paid out of the net profits of the Banks. The approval of
the Superintendent of the New York State Banking Department of Banking is
required if the total of all dividends declared in any calendar year will exceed
net profits for that year plus the retained net profits of the preceding two
years. At December 31, 1996, the New York banks could not have paid additional
dividends to the Company without prior regulatory approval because they had
fully utilized their discretionary dividend-paying capacity in 1996 to help fund
the Company's recently completed share repurchase program. Under federal law, no
insured depository institution may make any capital distribution, including the
payment of a dividend, that would result in the institution failing to meet its
minimum capital requirements.

LIQUIDITY

The objective of liquidity management at ONBANCorp is to ensure the ability to
access funding which enables each Bank to efficiently satisfy the cash flow
requirements of depositors and borrowers and to allow ONBANCorp to meet its cash
needs. Liquidity is managed at ONBANCorp by monitoring funds availability from
a number of primary sources.

The first, largest and most reliable source of short term balance sheet
liquidity is represented by the $.9 billion in securities which have been
classified as trading or available for sale. The securities are carried at fair
value and could be liquidated very quickly as evidenced by the sales in both
late 1994 and 1995 of in excess of $1.0 billion in available for sale securities
either to reduce the duration and increase the yield of the portfolio or to
shrink the Company as part of the overall interest rate risk management
activities. Other sources of funds consist of deposits, cash flows from ongoing
operations and borrowings.

ONBANCorp's growth and overall profitability and financial strength have made
available numerous external funding sources. The Company enters into financing
transactions using repurchase agreements, which are collateralized by U.S.
Treasury and mortgage-backed securities, as an additional funding source.
Transactions are generally less than two years in maturity and at year end 1996
these repurchase agreements amounted to $254 million compared to $362 million
and $1,058 million at year end 1995 and 1994, respectively. The significant and
continuing decrease reflects the Company's downsizing at year end 1995 and the
currently low relative net interest margin on these transactions associated with
the current yield curve environment.

At year end 1996 the Banks' approved commitments to extend credit amounted to
$82.0 million. Further information is in notes (17) and (18) of notes to
consolidated financial statements. ONBANCorp's liquidity should be sufficient
to meet normal transaction requirements and flexible enough to ta1ke advantage
of market opportunities and to react to other liquidity needs.

<PAGE>

SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY

ONBANCorp's ratio of shareholders' equity of $360.1 million to total assets of
$5.4 billion at December 31, 1996 was 6.6%. The ratio decreased from 7.0% at
December 31, 1995 when shareholders' equity was $388.8 million and total assets
were $5.6 billion. The decrease in shareholders' equity primarily represents the
net income less dividends declared and the effect of the repurchase of common
and preferred stock during 1996 which amounted to $51.7 million. Stock
repurchase programs have been and will continue to be an important capital
management tool of the Company.

Total capital to risk adjusted assets was 13.8% and 15.1% as of December 31,
1996 and 1995, respectively. The Company and Banks are considered well
capitalized and in compliance with Federal Reserve Board and FDIC capital
requirements as of both of the above dates.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1996, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 125, ACCOUNTING FOR TRANSFERS AND
SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. SFAS No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities occurring after December 31,
1996 and is based on consistent application of a "financial components approach"
that focuses on control. The Statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. In December 1996, FASB deferred for one year the
effective date of SFAS No. 125 as it relates to transfers of financial assets
and secured borrowings and collateral. Management does not believe that the
adoption of SFAS No. 125 will have a material impact on its financial condition
or results of operations.

<PAGE>

MANAGEMENT'S STATEMENT OF RESPONSIBILITY

Management is responsible for preparation of the consolidated financial
statements and related financial information contained in all sections of this
annual report, including the determination of amounts that must necessarily be
based on judgments and estimates. It is the belief of management that the
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and that the financial information
appearing throughout this annual report is consistent with the consolidated
financial statements.

Management depends upon the Company's system of internal accounting controls
in meeting its responsibility for reliable financial statements. This system is
designed to provide reasonable assurance that assets are safeguarded and that
transactions are executed in accordance with management's authorization and are
properly recorded.

The audit committee of the Board of Directors, composed solely of outside
directors, meets periodically and privately with ONBANCorp, Inc.'s management,
internal auditors and independent auditors, KPMG Peat Marwick LLP, to review
matters relating to the quality of financial reporting, internal accounting
control, and the nature, extent and results of audit efforts. The independent
auditors and internal auditors have unlimited access to the audit committee to
discuss all such matters. The financial statements have been audited by the
Company's independent auditors for the purpose of expressing an opinion on the
Company's consolidated financial statements.

/s/ Robert J. Bennett /s/ Robert J. Berger

Robert J. Bennett Robert J. Berger
Chairman, President & CEO Senior Vice President, Treasurer & CFO

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
ONBANCorp, Inc.:

We have audited the accompanying consolidated balance sheets of ONBANCorp,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ONBANCorp,
Inc. and subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.

/s/ KPMG Peat Marwick LLP

Syracuse, New York
January 22, 1997

31
<PAGE>
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
(IN THOUSANDS, EXCEPT SHARE DATA) 1996 1995
- ---------------------------------------------------------------------------- ------------ ----------
<S> <C> <C>

ASSETS
Cash and due from banks..................................................... $ 169,740 150,621
Federal funds sold and other................................................ 12,253 134,623
Securities:
Trading, at fair value.................................................... 1,727 1,790
Available for sale, at fair value......................................... 925,340 978,361
Held to maturity, fair value of $1,702,201 in 1996
and $1,797,286 in 1995................................................... 1,683,908 1,761,692
- ------------------------------------------------------------------------------------------------------
Total securities................................................... 2,610,975 2,741,843
- ------------------------------------------------------------------------------------------------------
Loans, net of premium and discount.......................................... 2,448,474 2,288,990
Allowance for loan losses................................................... (37,840) (34,583)
- ------------------------------------------------------------------------------------------------------
Net loans.......................................................... 2,410,634 2,254,407
- ------------------------------------------------------------------------------------------------------
Loans available for sale.................................................... 38,759 40,137
Premises and equipment, net................................................. 62,557 66,549
Due from brokers............................................................ -- 65,205
Other assets................................................................ 112,959 113,674
- ------------------------------------------------------------------------------------------------------
TOTAL ASSETS....................................................... $ 5,417,877 5,567,059
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing.................................................... 356,171 320,140
Interest bearing:
Savings, NOW and money market......................................... 1,214,823 1,291,952
Time deposits less than $100,000...................................... 1,646,576 1,671,027
Time deposits $100,000 and greater.................................... 604,336 525,154
- ------------------------------------------------------------------------------------------------------
Total deposits...................................................... 3,821,906 3,808,273
- ------------------------------------------------------------------------------------------------------
Repurchase agreements..................................................... 254,471 361,617
Other borrowings.......................................................... 874,917 903,370
Due to brokers............................................................ 40,724 43,951
Other liabilities......................................................... 65,808 61,082
- ------------------------------------------------------------------------------------------------------
Total liabilities.................................................. 5,057,826 5,178,293
- ------------------------------------------------------------------------------------------------------

Shareholders' equity:
Preferred stock, Series B 6.75% Cumulative Convertible,
par value $1.00 per share; 10,000,000 shares authorized;
shares issued and outstanding: 1996--2,342,052; 1995--2,515,700;
aggregate liquidation value $58,551 at December 31, 1996................. 2,342 2,516
Common stock, par value $1.00 per share; 56,000,000 shares authorized;
shares issued: 1996--14,139,475; 1995--14,095,499....................... 14,139 14,095
Additional paid-in capital................................................ 152,465 155,748
Retained earnings......................................................... 276,767 253,727
Net unrealized holding loss on securities, net of taxes................... (20,169) (18,952)
Treasury stock, at cost, shares 1996--1,994,143; 1995--577,900............ (65,343) (18,068)
Guarantee of ESOP indebtedness............................................ (150) (300)
- ------------------------------------------------------------------------------------------------------
Total shareholders' equity......................................... 360,051 388,766
- ------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......................... $ 5,417,877 5,567,059
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------

</TABLE>

See accompanying notes to consolidated financial statements.

32
<PAGE>

CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS EXCEPT PER SHARE DATA) YEARS ENDED DECEMBER 31,
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>

INTEREST INCOME:
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 170,003 244,078 233,530
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201,394 184,591 153,247
Federal funds sold and other . . . . . . . . . . . . . . . . . . . . 3,448 2,790 1,498
- -----------------------------------------------------------------------------------------------------------------------------
Total interest income. . . . . . . . . . . . . . . . . . . . . 374,845 431,459 388,275
- -----------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,747 157,415 112,667
Borrowings:
Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . 18,866 51,306 58,720
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,485 70,223 53,259
- -----------------------------------------------------------------------------------------------------------------------------
Total interest expense . . . . . . . . . . . . . . . . . . . . 222,098 278,944 224,646
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income . . . . . . . . . . . . . . . . . . . . 152,747 152,515 163,629

PROVISION FOR LOAN LOSSES. . . . . . . . . . . . . . . . . . . . . . . 7,813 6,790 7,638
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses . . . . 144,934 145,725 155,991
- -----------------------------------------------------------------------------------------------------------------------------

OTHER OPERATING INCOME (LOSS):
Service charges. . . . . . . . . . . . . . . . . . . . . . . . . . . 18,807 15,596 14,717
Mortgage banking . . . . . . . . . . . . . . . . . . . . . . . . . . 4,287 3,135 5,881
Net gain (loss) on securities transactions . . . . . . . . . . . . . 6,018 5,457 (79,496)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,150 5,113 6,209
- -----------------------------------------------------------------------------------------------------------------------------
Total other operating income (loss). . . . . . . . . . . . . . 36,262 29,301 (52,689)
- -----------------------------------------------------------------------------------------------------------------------------

OTHER OPERATING EXPENSES:
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . 41,507 40,383 40,789
Building, occupancy and equipment. . . . . . . . . . . . . . . . . . 18,268 17,907 17,739
Deposit insurance premiums . . . . . . . . . . . . . . . . . . . . . 9,343 5,867 7,268
Contracted data processing . . . . . . . . . . . . . . . . . . . . . 10,828 9,682 6,927
Legal and financial services . . . . . . . . . . . . . . . . . . . . 4,393 3,326 3,199
Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,361 4,435 3,027
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,914 21,862 20,941
- -----------------------------------------------------------------------------------------------------------------------------
Total other operating expenses . . . . . . . . . . . . . . . . 110,614 103,462 99,890
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes. . . . . . . . . . . . . . . . . 70,582 71,564 3,412

INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,618 26,887 708
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 42,964 44,677 2,704

Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . 4,155 4,522 4,755
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) attributable to common shares . . . . . . $ 38,809 40,155 (2,051)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------

EARNINGS (LOSS) PER COMMON SHARE:
Primary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.98 2.84 (.15)
Fully diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.86 2.75 (.15)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------

</TABLE>

See accompanying notes to consolidated financial statements.

33
<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED
(IN THOUSANDS EXCEPT PER SHARE DATA) STOCK STOCK CAPITAL EARNINGS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

Balance at December 31, 1993 . . . . . . . . . . . . . . . . . . $ 2,818 13,980 161,633 245,872
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- 2,704
Stock issued under:
Stock option plans . . . . . . . . . . . . . . . . . . . . . . -- 50 468 --
Tax benefit related to stock options . . . . . . . . . . . . . -- -- 374 --
Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . -- 20 485 --
Cash dividends declared:
Preferred ($1.69 per share). . . . . . . . . . . . . . . . . . -- -- -- (4,755)
Common ($1.03 per share) . . . . . . . . . . . . . . . . . . . -- -- -- (14,447)
Employee Stock Ownership Plan:
loan repayment . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- --
Unrealized holding loss on securities,
net of taxes of ($35,721). . . . . . . . . . . . . . . . . . . -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1994 . . . . . . . . . . . . . . . . . . $ 2,818 14,050 162,960 229,374
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- 44,677
Stock issued under:
Stock option plans . . . . . . . . . . . . . . . . . . . . . . -- 23 220 --
Tax benefit related to stock options . . . . . . . . . . . . . -- -- 148 --
Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . -- 22 478 --
Cash dividends declared:
Preferred ($1.69 per share). . . . . . . . . . . . . . . . . . -- -- -- (4,522)
Common ($1.14 per share) . . . . . . . . . . . . . . . . . . . -- -- -- (15,802)
Preferred stock repurchase . . . . . . . . . . . . . . . . . . . (302) -- (8,058) --
Treasury stock purchase. . . . . . . . . . . . . . . . . . . . . -- -- -- --
Employee Stock Ownership Plan:
loan repayment . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- --
Unrealized holding gain on securities,
net of taxes of $17,909. . . . . . . . . . . . . . . . . . . . -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1995 . . . . . . . . . . . . . . . . . . $ 2,516 14,095 155,748 253,727
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- 42,964
Stock issued under:
Stock option plans . . . . . . . . . . . . . . . . . . . . . . -- 26 190 --
Tax benefit related to stock options . . . . . . . . . . . . . -- -- 246 --
Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . -- 18 516 --
Cash dividends declared:
Preferred ($1.69 per share). . . . . . . . . . . . . . . . . . -- -- -- (4,155)
Common ($1.24 per share) . . . . . . . . . . . . . . . . . . . -- -- -- (15,769)
Treasury stock purchase. . . . . . . . . . . . . . . . . . . . . -- -- -- --
Preferred stock repurchase . . . . . . . . . . . . . . . . . . . (37) -- (926) --
Preferred stock conversion . . . . . . . . . . . . . . . . . . . (137) -- (3,309) --
Employee Stock Ownership Plan:
loan repayment . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- --
Unrealized holding loss on securities,
net of taxes of ($860) . . . . . . . . . . . . . . . . . . . . -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1996 . . . . . . . . . . . . . . . . . . $ 2,342 14,139 152,465 276,767
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------

NET
UNREALIZED GUARANTEE
HOLDING OF
GAIN (LOSS) TREASURY ESOP
(IN THOUSANDS EXCEPT PER SHARE DATA) ON SECURITIES STOCK INDEBTEDNESS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

Balance at December 31, 1993 . . . . . . . . . . . . . . . . . . 6,935 -- (600) 430,638
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- 2,704
Stock issued under:
Stock option plans . . . . . . . . . . . . . . . . . . . . . . -- -- -- 518
Tax benefit related to stock options . . . . . . . . . . . . . -- -- -- 374
Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . -- -- -- 505
Cash dividends declared:
Preferred ($1.69 per share). . . . . . . . . . . . . . . . . . -- -- -- (4,755)
Common ($1.03 per share) . . . . . . . . . . . . . . . . . . . -- -- -- (14,447)
Employee Stock Ownership Plan:
loan repayment . . . . . . . . . . . . . . . . . . . . . . . . -- -- 150 150
Unrealized holding loss on securities,
net of taxes of ($35,721). . . . . . . . . . . . . . . . . . . (52,751) -- -- (52,751)
- -----------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1994 . . . . . . . . . . . . . . . . . . (45,816) -- (450) 362,936
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- 44,677
Stock issued under:
Stock option plans . . . . . . . . . . . . . . . . . . . . . . -- -- -- 243
Tax benefit related to stock options . . . . . . . . . . . . . -- -- -- 148
Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . -- -- -- 500
Cash dividends declared:
Preferred ($1.69 per share). . . . . . . . . . . . . . . . . . -- -- -- (4,522)
Common ($1.14 per share) . . . . . . . . . . . . . . . . . . . -- -- -- (15,802)
Preferred stock repurchase . . . . . . . . . . . . . . . . . . . -- -- -- (8,360)
Treasury stock purchase. . . . . . . . . . . . . . . . . . . . . -- (18,068) -- (18,068)
Employee Stock Ownership Plan:
loan repayment . . . . . . . . . . . . . . . . . . . . . . . . -- -- 150 150
Unrealized holding gain on securities,
net of taxes of $17,909. . . . . . . . . . . . . . . . . . . . 26,864 -- -- 26,864
- -----------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1995 . . . . . . . . . . . . . . . . . . (18,952) (18,068) (300) 388,766
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- 42,964
Stock issued under:
Stock option plans . . . . . . . . . . . . . . . . . . . . . . -- -- -- 216
Tax benefit related to stock options . . . . . . . . . . . . . -- -- -- 246
Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . -- -- -- 534
Cash dividends declared:
Preferred ($1.69 per share). . . . . . . . . . . . . . . . . . -- -- -- (4,155)
Common ($1.24 per share) . . . . . . . . . . . . . . . . . . . -- -- -- (15,769)
Treasury stock purchase. . . . . . . . . . . . . . . . . . . . . -- (50,721) -- (50,721)
Preferred stock repurchase . . . . . . . . . . . . . . . . . . . -- -- -- (963)
Preferred stock conversion . . . . . . . . . . . . . . . . . . . -- 3,446 -- --
Employee Stock Ownership Plan:
loan repayment . . . . . . . . . . . . . . . . . . . . . . . . -- -- 150 150
Unrealized holding loss on securities,
net of taxes of ($860) . . . . . . . . . . . . . . . . . . . . (1,217) -- -- (1,217)
- -----------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1996 . . . . . . . . . . . . . . . . . . (20,169) (65,343) (150) 360,051
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------

</TABLE>

See accompanying notes to consolidated financial statements.

34
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,964 44,677 2,704
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization and accretion of premiums, discounts and net deferred fees. . . . 4,455 (323) (11,627)
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . 13,052 12,891 12,366
Provision for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . 7,813 6,790 7,638
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,272 (862) (4,700)
Net gain on sale of loan servicing rights. . . . . . . . . . . . . . . . . . . -- -- (3,451)
Gain on sale of branches . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,939) -- --
Loss on sale of building . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,258 -- --
Net losses (gains) on sale of securities . . . . . . . . . . . . . . . . . . . (5,469) (2,113) 81,544
Net decrease in trading securities . . . . . . . . . . . . . . . . . . . . . . 89,608 53,419 275,227
Net increase in loans available for sale . . . . . . . . . . . . . . . . . . . (88,167) (55,660) (71,342)
Decrease (increase) in other assets . . . . . . . . . . . . . . . . . . . . . (11,905) 39,729 (32,650)
Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . . . . 5,619 (1,482) 4,461
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . . . . . . . . . . . . . . 62,561 97,066 260,170
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale . . . . . . . . . . . . . 589,176 2,095,113 990,734
Proceeds from sales of securities held to maturity . . . . . . . . . . . . . . 4,089 -- --
Proceeds from maturities of and principal collected on securities
available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,371 229,948 226,474
Proceeds from maturities of and principal collected on securities
held to maturity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 677,244 640,609 703,036
Purchases of securities available for sale . . . . . . . . . . . . . . . . . . (652,668) (669,896) (418,658)
Purchases of securities held to maturity . . . . . . . . . . . . . . . . . . . (627,336) (865,026) (2,236,073)
Loans made to customers, net of principal repayments . . . . . . . . . . . . . (182,331) (319,994) (272,509)
Net payment for sale of branches . . . . . . . . . . . . . . . . . . . . . . . (19,820) -- --
Purchases of premises and equipment. . . . . . . . . . . . . . . . . . . . . . (4,502) (11,578) (9,496)
Proceeds from sale of building . . . . . . . . . . . . . . . . . . . . . . . . 250 -- --
Premium paid for deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- (24,884)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,945 6,393 7,367
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES . . . . . . . . . . . . . . . . $(6,582) 1,105,569 (1,034,009)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------

</TABLE>

See accompanying notes to consolidated financial statements.

35
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>

CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposit accounts excluding time deposits . . . . . . . . . . . $ (19,975) (139,827) (114,749)
Net increase in time deposits. . . . . . . . . . . . . . . . . . . . . . . . . 67,291 154,757 629,146
Deposits of acquired branches. . . . . . . . . . . . . . . . . . . . . . . . . -- -- 272,947
Net decrease in repurchase agreements. . . . . . . . . . . . . . . . . . . . . (107,146) (800,812) (88,621)
Net decrease in other borrowings . . . . . . . . . . . . . . . . . . . . . . . (225) -- --
Advances from Federal Home Loan Bank . . . . . . . . . . . . . . . . . . . . . 415,816 964,886 617,619
Repayment of advances from Federal Home Loan Bank. . . . . . . . . . . . . . . (441,509) (1,217,684) (473,157)
Repayments of collateralized mortgage obligations. . . . . . . . . . . . . . . (2,535) (2,604) (8,637)
Net proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . 750 743 1,023
Treasury stock purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . (50,721) (18,068) --
Preferred stock repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . (963) (8,360) --
Cash dividends paid on common stock. . . . . . . . . . . . . . . . . . . . . . (15,784) (19,737) (13,890)
Cash dividends paid on preferred stock . . . . . . . . . . . . . . . . . . . . (4,229) (4,649) (4,755)
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . . (159,230) (1,091,355) 816,926
- -----------------------------------------------------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . (103,251) 111,280 43,087

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . . 285,244 173,964 130,877
- -----------------------------------------------------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . . . . . . $ 181,993 285,244 173,964
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURE OF CASH-FLOW INFORMATION:

Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 222,681 278,710 218,901
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,370 4,601 32,058
Non-cash investing and financing activities:
Securitization of mortgage loans . . . . . . . . . . . . . . . . . . . . . . 89,545 39,210 232,027
Transfer to other real estate owned. . . . . . . . . . . . . . . . . . . . . 4,815 4,682 4,124
Change in net unrealized holding gain (loss) on securities . . . . . . . . . (1,217) 26,864 (52,751)
Change in securities purchased not settled . . . . . . . . . . . . . . . . . (3,227) (240,281) 284,232
Change in securities sold not settled. . . . . . . . . . . . . . . . . . . . (65,156) (485,824) 551,029
Repurchase agreement transactions not settled. . . . . . . . . . . . . . . . -- -- 104,113
Transfers of securities to held to maturity. . . . . . . . . . . . . . . . . . -- -- 1,265,441
Transfer of securities to trading. . . . . . . . . . . . . . . . . . . . . . . -- -- 12,621
Transfer of securities to available for sale . . . . . . . . . . . . . . . . . -- 1,543,160 --
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------

</TABLE>

See accompanying notes to consolidated financial statements.

36
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS
ONBANCorp, Inc. (the Company) is a financial services company primarily in the
business of commercial and retail banking providing a wide range of banking,
fiduciary and other financial services to corporate, institutional, municipal
and individual customers. The Company is subject to the regulations of certain
Federal and state agencies and undergoes periodic examinations by those
regulatory agencies.

The following summarizes the significant accounting policies of ONBANCorp, Inc.
and subsidiaries:

BASIS OF PRESENTATION
The consolidated financial statements include the accounts of ONBANCorp,
Inc. and its wholly-owned subsidiaries, OnBank, OnBank & Trust Co. and Franklin
First Savings Bank (the Banks). On January 1, 1997 OnBank and OnBank & Trust Co.
merged, thereby creating a single banking entity in New York State. All
significant intercompany balances and transactions are eliminated in
consolidation.

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

SECURITIES
The Company classifies its debt securities in one of three categories:
trading, available for sale, or held to maturity. Equity securities are
classified as either trading or available for sale. Trading securities are
bought and held principally for the purpose of selling them in the near term.
Held to maturity securities are those debt securities which the Company has the
ability and intent to hold until maturity. All other securities not included in
trading or held to maturity are classified as available for sale.

Trading and available for sale securities are recorded at fair value. Held
to maturity securities are recorded at amortized cost. Unrealized holding gains
and losses on trading securities are included in earnings. Unrealized holding
gains and losses, net of the related tax effect, on available for sale
securities are excluded from earnings and are reported as a separate component
of shareholders' equity until realized. Realized gains and losses are included
in earnings and are derived using the specific identification method for
determining the cost of securities sold. Transfers of securities between
categories are recorded at fair value at the date of transfer. Unrealized
holding gains and losses are recognized in earnings for transfers into trading
securities. The unrealized holding gains or losses included in the separate
component of equity for securities transferred from available for sale to held
to maturity are maintained and amortized into earnings over the remaining life
of the security as an adjustment to yield in a manner consistent with the
amortization or accretion of premium or discount on the associated security.

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

Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the interest method. Dividend
and interest income are recognized when earned.

LOANS
Loans are stated at the amount of unpaid principal plus unamortized
premiums, less net unamortized deferred fees and unearned discounts.

Loans available for sale generally include both mortgage and student loans
originated with the intent to sell and each is carried at the lower of aggregate
cost or fair value.

Loan fees and certain direct loan costs are deferred. Premiums, discounts
and deferred fees on loans are accrued to income using the interest method.

Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts, that
the borrowers' financial condition precludes accrual (generally when payments
are 90 days past due). Subsequent recognition of income occurs only to the
extent payment is received. Loans are returned to an accrual status when both
principal and interest are current, and the loan is determined to be performing
in accordance with the applicable loan terms.

ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by provisions charged to
operations and decreased by charge-offs of loans, net of recoveries. Loans are
charged off when, following reasonable and prudent collections efforts,
management determines that ultimate success of the loan's collectibility is
remote. Management's periodic evaluation of the adequacy of the allowance
considers the Bank's past loan loss experience, known and inherent risks in the
portfolio, adverse situations which may affect the borrowers' ability to repay,
estimated value of underlying collateral, if any, and current and prospective
economic conditions.

A substantial portion of the Banks' loans are secured by real estate in New
York and Pennsylvania. Accordingly, the ultimate collectibility of a substantial
portion of the Banks' loan portfolio is susceptible to changes in market
conditions in these areas.

While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in economic
conditions, particularly in New York and Pennsylvania. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Banks' allowances for loan

37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

losses. Such agencies may require the Banks to recognize additions to the
allowances based on their judgment of information available to them at the time
of their examination.

Management considers a loan impaired when, based on current information and
events, it is probable that the Company will be unable to collect all amounts of
principal and interest under the original terms of the loan agreement.
Significant factors impacting management's judgement in determining when a loan
is impaired include an evaluation of compliance with repayment program,
condition of collateral, deterioration in financial strength of borrower or any
case when the expected future cash payments may be less than the recorded
amount. Accordingly, the Company measures impaired loans based on the present
value of expected future cash flows, discounted at the loan's effective interest
rate, or at the loan's observable market price or fair value of collateral if
the loan is collateral dependent. Management excludes large groups of smaller
balance homogeneous loans such as residential mortgages and consumer loans which
are collectively evaluated.

Impairment losses are included in the allowance for loan losses through a
charge to the provision for loan losses. The Company recognizes interest income
on impaired loans using the cash basis of income recognition.

PREMISES AND EQUIPMENT
Land is carried at cost and premises and equipment are carried at cost less
accumulated depreciation and amortization. Depreciation is calculated by the
straight-line method based on the estimated service lives of the respective
assets (one to forty years for buildings and one to ten years for furniture,
fixtures and equipment). Leasehold improvements are amortized by the
straight-line method based on the lesser of estimated useful life or term of the
lease (seven to twenty years).

OTHER REAL ESTATE OWNED
Real estate acquired through foreclosure or deed in lieu of foreclosure is
recorded at the lower of the unpaid loan balance on the property at the date of
transfer, or fair value less estimated costs to sell. Adjustments to the
carrying value of such properties that result from subsequent declines in value
are charged to operations in the period in which the declines occur. Operating
costs associated with the properties are charged to expense as incurred. Gains
on the sale of other real estate are included in income when title has passed
and the sale has met the minimum down payment and other requirements prescribed
by generally accepted accounting principles.

INTANGIBLE ASSETS
Included in other assets at December 31, 1996 is approximately $15,701,000
of unamortized premium on deposits acquired in 1994. The premium is being
amortized over the expected useful life of seven years on a straight-line basis.
The amortization periods are monitored to determine if events and circumstances
require the estimated useful lives to be reduced. Periodically, the Company
reviews the premium for events or changes in circumstances that may indicate the
carrying amounts of the assets are impaired.

MORTGAGE BANKING ACTIVITIES
Mortgage banking income includes gains and losses on the sale of loans
originated for sale, including mortgage-backed securities created with those
loans, gains on the sale of loan servicing rights, servicing income and
amortization of loan servicing rights.

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 122, ACCOUNTING FOR MORTGAGE SERVICING RIGHTS
which requires that the cost of mortgage loans originated or purchased with a
definite plan to sell the loans and retain the servicing assets be allocated
between the loans and the servicing assets based on their relative fair values
at the time of purchase or origination. Mortgage servicing assets are
capitalized separately and are subsequently amortized as a reduction of future
servicing income. Prior to adoption of SFAS No. 122, the entire cost of
originated mortgage loans was attributed to the loans.

SFAS No. 122 also requires mortgage servicing rights to be stratified based
on predominant risk characteristics of underlying loans for the purpose of
evaluating impairment. An allowance is then established in the event the
recorded value of an individual stratum exceeds fair value. Adoption of this
statement did not have a material effect on the Company's 1996 consolidated
financial statements.

Mortgage servicing assets are amortized over the estimated lives of the
loans serviced using the interest method adjusted for prepayments.

TRUST DEPARTMENT
Assets held in a fiduciary or agency capacity for customers are not included
in the accompanying consolidated balance sheets, since such assets are not
assets of the Company.

REPURCHASE AGREEMENTS
The Banks enter into sales of mortgage-backed securities under agreements to
repurchase certificates of the same agency bearing the identical contract
interest rate and similar remaining weighted average maturities as the original
certificates that result in approximately the same market yield (fixed coupon
dollar repurchase agreements). Fixed coupon dollar repurchase agreements are
treated as financings, and the obligations to repurchase securities sold are
reflected as a liability in the consolidated balance sheets. The dollar amount
of certificates underlying the agreements remains in the asset accounts. During
the period of the agreement, the certificates are delivered into the
counterparties' accounts maintained at the securities dealer. The dealer may
have sold, loaned, or otherwise disposed of such securities to other parties in
the normal course of their operations, and have agreed to return to the Banks
substantially identical securities at the maturities of the agreements.

The Banks also enter into sales of U.S. Treasury and mortgage-backed
securities under agreements to repurchase the same securities (fixed coupon
repurchase agreements). These agreements are also treated as financings and
involve the delivery of U.S. Treasury and mortgage-backed securities to the
dealer.

38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FINANCIAL INSTRUMENTS
The Company holds derivative financial instruments such as put and call
options and interest rate swaps. The Company is not an issuer of any other
financial instrument derivatives.

In conjunction with its trading activities, the Banks issue financial call
and put options, generally with contractual maturities of one month. Call
options are issued on the Banks' available for sale or trading securities and
are contracts allowing, but not requiring, the holder to buy a financial
instrument from the Banks at a specified price during a specified time period.
Put options are contracts allowing, but not requiring, the holder to sell a
financial instrument to the Banks at a specified price during a specified time
period. As the issuers of options, the Banks receive a premium, and then bear
the risk of an unfavorable change in the price of the financial instrument
underlying the option. When a call option is exercised, the fee collected is
recorded as income. When a put option is exercised, the fee collected is treated
as an adjustment to the basis of the underlying security. If fair value of the
security is less than the option's strike price minus the premium, a loss is
recognized. If an option expires unexercised, the fee is recognized as income.

Interest rate swaps used in asset liability management activities to hedge
exposure to fluctuating interest rates are accounted for using the accrual
method.

EMPLOYEE BENEFIT PLANS
The Company's pension plan is a noncontributory defined benefit plan which
covers eligible employees who have completed 1,000 hours of service, attained 21
years of age, and have one year of service. The projected unit credit method is
utilized for measuring net periodic pension costs over the employees' service
lives. The Company's funding policy is to contribute annually at least the
minimum required to meet the funding standards set forth under provisions of the
Employee Retirement Income Security Act of 1974.

The Company maintains an Employee Stock Purchase Plan which allows, subject
to certain limitations, eligible Company employees to purchase shares of
ONBANCorp common stock for 85% of the market value of such stock through payroll
deductions.

Prior to January 1, 1996, the Company accounted for its stock option plans in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1,1996, the Company adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of the grant.
Alternatively, SFAS No. 123 also allows the Company to continue to apply the
provisions of APB Opinion No. 25 and provide proforma net income and proforma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair value based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.

FEDERAL INCOME TAXES
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

PER SHARE DATA
Primary net income per share is based on the weighted average number of
shares outstanding and common stock equivalents assumed outstanding during the
year. Fully diluted shares outstanding includes the maximum dilutive effect of
stock issuable upon conversion of convertible preferred stock. Conversion was
not assumed for 1994 due to its anti-dilutive effect on the calculation of fully
diluted earnings per share.

STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents includes
cash, amounts due from banks, federal funds sold and other short-term
investments.

RECLASSIFICATIONS
Certain reclassifications have been made to prior period amounts to conform
to current year presentation.

(2) FEDERAL RESERVE BOARD RESERVE REQUIREMENT

The Banks are subject to Federal Reserve Board regulations that require them
to maintain average cash reserves against their deposits (primarily demand and
NOW accounts). The regulations currently require that average reserves be
maintained against transactions accounts in the amount of 3% of the aggregate of
such accounts exceeding $4.4 million, plus 10% of the total in excess of $44.9
million. The reserve requirement at December 31, 1996 amounted to $28,321,000.

(3) SECURITIES

Securities held to maturity at December 31, 1996 are summarized as follows:

GROSS UNREALIZED
AMORTIZED --------------------- FAIR
(IN THOUSANDS) COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

Debt securities:
U.S. Government obligations. . . . . . . . . . . . . . . . . . $ 29,554 331 23 29,862
U.S. Government agencies . . . . . . . . . . . . . . . . . . . 125,486 -- 7,796 117,690
State and municipal. . . . . . . . . . . . . . . . . . . . . . 61,668 1,280 16 62,932
Corporate and other. . . . . . . . . . . . . . . . . . . . . . 329 7 -- 336
Mortgage-backed securities . . . . . . . . . . . . . . . . . . 1,505,006 6,021 19,646 1,491,381
- -----------------------------------------------------------------------------------------------------------------------------
Total debt securities. . . . . . . . . . . . . . . . . . . . 1,722,043 7,639 27,481 1,702,201
- -----------------------------------------------------------------------------------------------------------------------------
Unamortized holding loss on securities transferred . . . . . . (38,135)
$1,683,908
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------

</TABLE>

39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994

(3) SECURITIES (CONTINUED)
In view of a regulatory policy revision in 1994, the Company transferred
securities with a fair value of $1.265 billion and a net unrealized holding loss
of $71.6 million at date of transfer from available for sale to held to
maturity. At December 31, 1996, the remaining net unamortized loss on US
Government agency securities was $8,584,000 and mortgage-backed securities was
$29,551,000.

Securities available for sale at December 31, 1996 are summarized as follows:

Debt securities:
U.S. Government obligations. . . . . . . . . . . . . . . . . . $ 4,444 14 51 4,407
U.S. Government agencies . . . . . . . . . . . . . . . . . . . 84,992 -- 1,478 83,514
Mortgage-backed securities . . . . . . . . . . . . . . . . . . 785,380 6,905 920 791,365
- -----------------------------------------------------------------------------------------------------------------------------
Total debt securities. . . . . . . . . . . . . . . . . . . . 874,816 6,919 2,449 879,286
- -----------------------------------------------------------------------------------------------------------------------------
Equity securities:
Common . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 -- -- 13
Federal Home Loan Bank Stock . . . . . . . . . . . . . . . . . 46,041 -- -- 46,041
- -----------------------------------------------------------------------------------------------------------------------------
Total equity securities. . . . . . . . . . . . . . . . . . . 46,054 -- -- 46,054
- -----------------------------------------------------------------------------------------------------------------------------
$ 920,870 6,919 2,449 925,340
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------

</TABLE>

Securities in the trading account at December 31, 1996 and 1995 were equity
securities. The change in net unrealized holding gain (loss) on trading
securities included in net gain (loss) on securities transactions is a loss of
$63,000 in 1996, a gain of $2,434,000 in 1995 and a loss of $302,000 in 1994.
Included in net gain (loss) on securities transactions for the year ended
December 31, 1994 are $2,712,000 of gross gains associated with the transfer of
equity securities from securities available for sale to trading securities.

The following table presents the carrying value and fair value of debt
securities at December 31, 1996, based on scheduled maturities. Actual
maturities can be expected to differ from scheduled maturities due to prepayment
or early call privileges of the issuer.

HELD TO MATURITY AVAILABLE FOR SALE
------------------------- ------------------------
CARRYING FAIR AMORTIZED FAIR
(IN THOUSANDS) VALUE VALUE COST VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

1 year or less . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,357 50,089 59 59
1 year through 5 years . . . . . . . . . . . . . . . . . . . . . 116,549 118,129 28,901 28,855
5 years through 10 years . . . . . . . . . . . . . . . . . . . . 41,647 41,684 25,476 25,236
After 10 years . . . . . . . . . . . . . . . . . . . . . . . . . 900 917 35,000 33,771
- -----------------------------------------------------------------------------------------------------------------------------
208,453 210,819 89,436 87,921
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . 1,475,455 1,491,382 785,380 791,365
- -----------------------------------------------------------------------------------------------------------------------------
$1,683,908 1,702,201 874,816 879,286
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------

</TABLE>

Securities carried at $618,374,000 at December 31, 1996 were pledged on
municipal deposits.

Securities held to maturity at December 31, 1995 are summarized as follows:

Debt securities:
U.S. Government obligations. . . . . . . . . . . . . . . . . . $ 25,051 97 73 25,075
U.S. Government agencies . . . . . . . . . . . . . . . . . . . 209,539 13 7,589 201,963
State and municipal. . . . . . . . . . . . . . . . . . . . . . 74,351 1,570 23 75,898
Corporate and other. . . . . . . . . . . . . . . . . . . . . . 130 -- -- 130
Mortgage-backed securities . . . . . . . . . . . . . . . . . . 1,498,733 8,365 12,878 1,494,220
- -----------------------------------------------------------------------------------------------------------------------------
Total debt securities. . . . . . . . . . . . . . . . . . . . 1,807,804 10,045 20,563 1,797,286
Unamortized holding loss on securities transferred . . . . . . . (46,112)
- -----------------------------------------------------------------------------------------------------------------------------
$1,761,692
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------

</TABLE>

Securities available for sale at December 31, 1995 are summarized as follows:

Debt securities:
U.S. Government obligations. . . . . . . . . . . . . . . . . . $ 4,628 51 14 4,665
Corporate and other. . . . . . . . . . . . . . . . . . . . . . 294 -- -- 294
Mortgage-backed securities . . . . . . . . . . . . . . . . . . 894,418 15,497 1,010 908,905
- -----------------------------------------------------------------------------------------------------------------------------
Total debt securities. . . . . . . . . . . . . . . . . . . . 899,340 15,548 1,024 913,864
- -----------------------------------------------------------------------------------------------------------------------------
Equity securities:
Common . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 -- -- 13
Federal Home Loan Bank Stock . . . . . . . . . . . . . . . . . 64,484 -- -- 64,484
- -----------------------------------------------------------------------------------------------------------------------------
Total equity securities. . . . . . . . . . . . . . . . . . . 64,497 -- -- 64,497
- -----------------------------------------------------------------------------------------------------------------------------
$ 963,837 15,548 1,024 978,361
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------

</TABLE>

In November 1995, the Financial Accounting Standards Board (FASB) published A
GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR CERTAIN INVESTMENTS
IN DEBT AND EQUITY SECURITIES (the Guide). Concurrent with the initial adoption
of the Guide, but no later than December 31, 1995, the Company was permitted to
reassess the appropriateness of the classifications of all securities held at
that time and implement reclassifications without calling into question the
intent of the Company to hold other debt securities to maturity in the future.
In November 1995, the Company transferred securities with a carrying value of
$1.543 billion and a fair value of $1.564 billion from the held to maturity
portfolio to the available for sale portfolio.

40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994

(3) SECURITIES (CONTINUED)
The following table summarizes proceeds, gains and losses realized on the
sale of securities available for sale for the years ended December 31, 1996,
1995 and 1994:

CHANGE IN
SECURITIES
CASH SOLD NET REALIZED REALIZED
(IN THOUSANDS) PROCEEDS NOT SETTLED PROCEEDS GAINS LOSSES
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>

1996 . . . . . . . . . . $ 589,176 (65,156) 524,020 6,451 982
1995 . . . . . . . . . . 2,095,113 (485,824) 1,609,289 13,700 10,662
1994 . . . . . . . . . . 990,734 551,029 1,541,763 2,921 82,223
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------

</TABLE>

(4) LOANS

The composition of the loan portfolio at December 31 is summarized as follows:

(IN THOUSANDS) 1996 1995
- --------------------------------------------------------------------------------

Commercial . . . . . . . . . . . . . . . . . . . $ 333,073 278,688
Commercial real estate . . . . . . . . . . . . . 290,121 248,325
Commercial real estate construction. . . . . . . 44,201 40,655
Residential real estate construction . . . . . . 9,797 12,969
Residential real estate. . . . . . . . . . . . . 1,044,444 1,117,406
Consumer loans . . . . . . . . . . . . . . . . . 728,061 588,762
- --------------------------------------------------------------------------------
2,449,697 2,286,805
Net deferred fees, discounts and premiums. . . . (1,223) 2,185
- --------------------------------------------------------------------------------
$ 2,448,474 2,288,990
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

The principal balances of loans not accruing interest amounted to
approximately $20,172,000 and $23,580,000 at December 31, 1996 and 1995,
respectively. The difference between the amount of interest income that would
have been recorded if these loans had been paid in accordance with their
original terms and the amount of interest income that was recorded in each of
the years in the three-year period ended December 31, 1996 was immaterial.

The Banks have entered into transactions with the Company's directors,
significant shareholders and their affiliates (related parties). Such
transactions were made in the ordinary course of business on substantially the
same terms and conditions, including interest rates and collateral, as those
prevailing at the same time for comparable transactions with other customers,
and did not, in the opinion of management, involve more than normal credit risk
or present other unfavorable features. The aggregate amount of loans to such
related parties at December 31, 1996 was $5,431,000. Changes in the allowance
for loan losses for the years ended December 31 were as follows:

(IN THOUSANDS) 1996 1995 1994
- --------------------------------------------------------------------------------

Balance, beginning of year . . . . . . . . . . . $34,583 33,775 32,717
Provision charged to operations. . . . . . . . . 7,813 6,790 7,638
Loans charged-off. . . . . . . . . . . . . . . . (6,638) (7,591) (8,138)
Recoveries . . . . . . . . . . . . . . . . . . . 2,082 1,609 1,558
- --------------------------------------------------------------------------------
Balance, end of year . . . . . . . . . . . . . . $37,840 34,583 33,775
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Impaired loans were $6,944,000 and $8,270,000 at December 31, 1996 and 1995
respectively. Included in these amounts are $1,820,000 and $5,824,000 of
impaired loans for which the related allowance for loan losses is $436,000 and
$2,362,000 at December 31, 1996 and 1995 respectively. In addition, included in
the total impaired loans is $5,124,000 and $2,446,000 of impaired loans that, as
a result of the adequacy of collateral values and cash flow analysis do not have
a specific impairment reserve at December 31, 1996 and 1995 respectively. The
average impaired loans for the years ended December 31, 1996 and 1995 was
approximately $8,941,000 and $9,634,000, respectively. The effect on interest
income of impaired loans was not material to the consolidated financial
statements in 1996 and 1995.

The following table summarizes gross proceeds, gains and losses realized for
loans available for sale for the years ended December 31, 1996, 1995 and 1994:

GROSS REALIZED REALIZED
(IN THOUSANDS) PROCEEDS GAINS LOSSES
- --------------------------------------------------------------------------------

1996 . . . . . . . . . . . . . . . . . . . . . . $ 32,990 851 441
1995 . . . . . . . . . . . . . . . . . . . . . . 35,370 301 117
1994 . . . . . . . . . . . . . . . . . . . . . . 39,777 12 1,866
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

(5) MORTGAGE BANKING ACTIVITIES

Loans serviced for others totaled approximately $1,091,477,000,
$1,146,989,000, and $1,222,840,000 at December 31, 1996, 1995 and 1994,
respectively.

Changes in the combined capitalized mortgage servicing rights and purchased
mortgage servicing rights are as follows:

YEARS ENDED DECEMBER 31
(IN THOUSANDS) 1996 1995 1994
- --------------------------------------------------------------------------------

Balance, beginning of year . . . . . . . . . . . $ 7,107 8,350 11,545
Capitalized mortgage servicing rights. . . . . . 2,847 671 1,765
Amortization . . . . . . . . . . . . . . . . . . (2,247) (1,914) (3,213)
Sale of servicing rights . . . . . . . . . . . . -- -- (1,747)
- --------------------------------------------------------------------------------
Balance, end of year . . . . . . . . . . . . . . $ 7,707 7,107 8,350
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>

(5) MORTGAGE BANKING ACTIVITIES (CONTINUED)

Mortgage banking income is summarized as follows:

- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Years ended December 31
-----------------------------
(In Thousands) 1996 1995 1994
- -------------------------------------------------------------------------

Loan servicing fees received.............. $ 4,728 5,062 6,087
Servicing rights amortization............. (2,247) (1,914) (3,213)
Gain (loss) on sale:
Servicing.............................. -- -- 3,451
Loans.................................. 410 184 (1,854)
Mortgage-backed securities............. 1,396 (197) 1,410
- -------------------------------------------------------------------------
$ 4,287 3,135 5,881
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------

(6) PREMISES AND EQUIPMENT

A summary of premises and equipment at December 31 is as follows:

- -----------------------------------------------------------
- -----------------------------------------------------------
(In Thousands) 1996 1995
- -----------------------------------------------------------
Land...................................$ 8,134 9,063
Buildings.............................. 61,775 61,504
Furniture, fixtures and equipment...... 29,311 27,481
Leasehold improvements................. 10,863 10,729
Construction in progress............... 1,024 673
- -----------------------------------------------------------
111,107 109,450
Less accumulated depreciation
and amortization..................... 48,550 42,901
- -----------------------------------------------------------
$ 62,557 66,549
- -----------------------------------------------------------
- -----------------------------------------------------------

Depreciation and amortization of premises and equipment included in building,
occupancy and equipment expense amounted to $6,746,000, $6,271,000 and
$5,767,000, for the years ended December 31, 1996, 1995, and 1994,
respectively.

7) DEPOSITS

Contractual maturities of time deposits at December 31, 1996 were as follows
(in thousands):

- ------------------------------------------------------
- ------------------------------------------------------
Maturing Amount
- ------------------------------------------------------
1997 $ 1,684,731
1998 272,922
1999 103,478
2000 101,930
2001 58,731
Thereafter 29,120
- ------------------------------------------------------
$ 2,250,912
- ------------------------------------------------------
- ------------------------------------------------------

(8) REPURCHASE AGREEMENTS

Repurchase agreements, including accrued interest of $954,000, at December
31, 1996 are as follows:

- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
SECURITIES SOLD WEIGHTED
CARRYING MARKET REPURCHASE AVERAGE
(Dollars In Thousands) VALUES VALUES LIABILITY RATE
- -----------------------------------------------------------------------------
31-90 days............ $ 18,990 18,995 19,010 5.93%
Over 90 days.......... 245,862 248,230 235,461 6.35%
- -----------------------------------------------------------------------------
$264,852 267,225 254,471 6.32%
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------

Information concerning borrowings under repurchase agreements for the years
ended December 31 is as follows:

- -------------------------------------------------------------
- -------------------------------------------------------------
(Dollars In Thousands) 1996 1995
- -------------------------------------------------------------
Maximum month-end balance............ $ 351,174 929,332
Average balance...................... 300,706 856,327
Weighted average interest rate....... 6.27% 5.99%
- -------------------------------------------------------------
- -------------------------------------------------------------

Repurchase agreements amounted to $361,617,000, including accrued interest of
$2,340,000, at December 31, 1995. These agreements, with a weighted average
interest rate of 6.35%, were collateralized by securities with carrying
values aggregating $378,840,000 and fair values aggregating $386,658,000 at
December 31, 1995. All repurchase agreements were over 90 days to maturity.

(9) OTHER BORROWINGS

Other borrowings at December 31 are summarized as follows:

- -------------------------------------------------------------
- -------------------------------------------------------------
(In Thousands) 1996 1995
- -------------------------------------------------------------
Federal Home Loan Bank............... $ 852,028 877,721
Collateralized mortgage obligations.. 11,114 13,649
Industrial Development Agency bond... 11,775 12,000
- -------------------------------------------------------------
$ 874,917 903,370
- -------------------------------------------------------------
- -------------------------------------------------------------

Borrowings from the Federal Home Loan Bank (FHLB) as of December 31, are due
as follows:

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1996 1995

(Dollars In Thousands) AMOUNT RATE Amount Rate
- --------------------------------------------------------------------------------
1996 $ - - % 390,057 4.56 to 8.51%
1997 591,100 5.23 to 7.95% 382,000 5.23 to 7.95%
1998 250,000 5.48 to 7.72% 95,000 5.48 to 7.72%
2001 495 5.86 to 7.02% -
Thereafter 10,433 4.05 to 7.97% 10,664 4.05 to 7.97%
- --------------------------------------------------------------------------------
$ 852,028 877,721
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>

(9) OTHER BORROWINGS (CONTINUED)

At December 31, 1996 and 1995, FHLB borrowings, substantially all at fixed
rates, are collateralized by Federal Home Loan Bank stock of $46,041,000 and
$64,484,000, respectively, and U.S. Government and mortgage-backed securities
and mortgage loans with carrying values approximating $1,211,981,000 and
$1,174,772,000, respectively.

The Banks may borrow up to $150,000,000 from the Federal Home Loan Bank of
New York (FHLB) during any calendar month without FHLB Board approval. The
aggregate limit available without FHLB Board approval is 30% of assets.

In June, 1989, collateralized mortgage obligations (CMOs) of $51,600,000,
were issued. Net proceeds were used to reduce existing short-term borrowings
and to fund mortgage commitments. In conjunction with the debt, $55,800,000
in mortgage loans were securitized and converted into mortgage-backed
securities as collateral for the CMOs.

CMOs are summarized as follows:

- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
(In Thousands) 1996 1995
- --------------------------------------------------------------------------
Class A-3, 9.05% interest rate, maturing in 2015.... $ 10,651 13,186
Class A-4, 7.80% interest rate, maturing in 2018.... 463 463
- --------------------------------------------------------------------------
$ 11,114 13,649
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------

The anticipated aggregate principal payments on the CMOs during each of the
five years subsequent to December 31, 1996 are: 1997--$2,064,000;
1998--$2,064,000; 1999--$1,032,000; 2000--$1,032,000; 2001--$1,032,000. Since
the rate of payment of principal of each class will depend on the rate of
repayment (including prepayments) of collateral, the actual maturity of any
class could be significantly earlier than its stated maturity.

The Company financed the expansion of its parking facility with the proceeds
of $12,000,000 of City of Syracuse Industrial Development Agency Civil
Facility Bonds. The obligation bears interest at a weekly variable rate,
4.35% at December 31, 1996, and is payable in monthly installments. The bonds
are subject to a mandatory sinking fund redemption beginning in 1996 of
$225,000 with a final maturity of April 1, 2018. The bonds are secured by a
letter of credit which is collateralized by mortgage-backed securities having
carrying value of $17,302,000 and a fair value of $17,380,000 at December 31,
1996.

The Company enters into interest rate swaps which involve the exchange of
fixed and floating rate interest payment obligations without the exchange of
underlying principal obligations. These agreements have been utilized by the
Company to effectively convert variable-rate liabilities into fixed-rate
liabilities to more closely match the interest rate sensitivity of assets and
liabilities. Entering into interest rate swaps involves not only the risk of
default by the other party but also interest rate risk if positions are not
matched. The Company has swaps outstanding on $50,000,000 of FHLB borrowings
at December 31, 1996. The original terms to maturity of swaps ranged from one
to three years and the weighted average remaining term of the agreements was
.8 years. Under the agreements, the Company pays interest at a fixed rate and
receives interest at rates that vary according to the London Interbank
Offered Rate. Interest payments are exchanged at three or six month
intervals. The weighted average fixed interest rate the Company was paying
was 5.55%, and the weighted average variable interest rate the Company was
receiving was 5.63% and 5.91% at December 31, 1996 and 1995, respectively.
The fair value was $108,700 and ($188,000) at December 31, 1996 and 1995.

(10) INCOME TAXES

Total income tax expense (benefit) was allocated as follows:

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(In Thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Income before income taxes...................... $ 27,618 26,887 708
Paid-in capital, for stock options exercised.... (246) (148) (374)
Shareholders' equity, for unrealized gain
(loss) on securities.......................... (860) 17,909 (35,721)
- --------------------------------------------------------------------------------
$ 26,512 44,648 (35,387)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Income tax expense (benefit) attributable to income from operations:

- ---------------------------------------------------------
- ---------------------------------------------------------
(In Thousands) 1996 1995 1994
- ---------------------------------------------------------
Current:
Federal.............. $ 15,208 21,461 3,690
State................ 6,138 6,288 1,718
- ---------------------------------------------------------
21,346 27,749 5,408
- ---------------------------------------------------------
Deferred:
Federal.............. 5,526 (273) (3,329)
State................ 746 (589) (1,371)
- ---------------------------------------------------------
6,272 (862) (4,700)
- ---------------------------------------------------------
Total.................. $ 27,618 26,887 708
- ---------------------------------------------------------
- ---------------------------------------------------------

Income tax expense attributable to income before income taxes differed from
the amounts computed by applying the U.S. Federal statutory income tax rate
to pre-tax income as follows:

- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
(In Thousands) 1996 1995 1994
- -----------------------------------------------------------------------
Federal statutory rate............... 35% 35% 34%
Computed "expected" tax expense...... $ 24,704 25,047 1,160
State taxes, net of Federal benefit.. 4,475 3,704 229
Tax exempt income.................... (945) (1,037) (969)
Other................................ (616) (827) 288
- -----------------------------------------------------------------------
Actual income tax expense............ $ 27,618 26,887 708
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------

<PAGE>

(10) INCOME TAXES (CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1996 and 1995 follow:

- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
(In Thousands) 1996 1995
- ---------------------------------------------------------------------
Deferred tax assets:
Net unrealized holding loss on securities...... $ 13,495 12,635
Non-accrual interest........................... 847 638
Deferred loan origination fees and expenses.... 2,227 2,405
Deferred compensation.......................... 976 934
Financial statement allowance for loan losses.. 14,556 13,080
Core deposit intangible assets................. 4,483 4,643
Other.......................................... 2,046 2,146
- ---------------------------------------------------------------------
Total deferred tax assets...................... 38,630 36,481
- ---------------------------------------------------------------------

Deferred tax liabilities:
Leasing transactions........................... 9,692 2,512
Loan servicing rights.......................... 829 1,293
Tax loan loss reserve in excess of base
year reserve................................. 3,861 2,863
Acquired loans................................. 1,026 2,108
Other.......................................... 2,250 1,321
- ---------------------------------------------------------------------
Total deferred tax liabilities................. 17,658 10,097
- ---------------------------------------------------------------------
Net deferred tax assets........................ $ 20,972 26,384
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------

Realization of deferred tax assets is dependent upon the generation of future
taxable income or the existence of sufficient taxable income within the
carryback period. A valuation allowance is provided when it is more likely
than not that some portion of the deferred tax assets will not be realized.
In assessing the need for a valuation allowance, management considers the
scheduled reversal of the deferred tax liabilities, the level of historical
taxable income and projected future taxable income over the periods in which
the temporary differences comprising the deferred tax assets will be
deductible. Based on its assessment, management determined that no valuation
allowance is necessary.

Included in retained earnings at December 31, 1996 is approximately
$27,300,000 representing aggregate provisions for loan losses taken under the
Internal Revenue Code. Use of these reserves to pay dividends in excess of
earnings and profits or to redeem stock, or if the Banks fail to qualify as
banks for Federal income tax purposes would result in taxable income to the
Company.

(11) PENSION PLAN

The following table sets forth the Plan's funded status and amounts
recognized in the Company's consolidated financial statements at December 31:

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
(In Thousands) 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations: Accumulated
benefit obligation, including vested benefits of $10,795
and $9,915 at 1996 and 1995, respectively.................. $ 11,957 11,003
- -----------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date.... 15,882 14,887
Plan assets at fair value, primarily listed stocks and fixed
income securities.......................................... 18,276 16,477
- -----------------------------------------------------------------------------------
Plan assets in excess of the projected benefit obligation.... 2,394 1,590
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions......... (1,722) 6
Unrecognized past service liability.......................... (1,358) (1,447)
Unrecognized net asset being amortized over 12.5 years....... (288) (359)
- -----------------------------------------------------------------------------------
Accrued pension cost included in other liabilities........... $(974) (210)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>

Net periodic pension expense included the following components at December 31:

The weighted-average discount rate and expected long-term rate of return on
pension plan assets were 8.0% and 8.5%, respectively, for 1996 and 7.5% and
8.5%, respectively, for 1995. The rate of increase of future compensation
levels used in determining the actuarial present value of the projected
benefit obligation was 5.5% for 1996 and 1995.

<PAGE>

(12) INCENTIVE SAVINGS PLAN

The Company maintains an incentive savings 401(k) plan which is a defined
contribution plan providing for contributions to several trust funds by both
the Banks and their employees. All salaried and hourly (over 1,000 hours)
employees of the Banks are eligible upon attaining age 21 and completing a
year of service. Participants may contribute 1% to 15% of their compensation
subject to IRS limitations. The Banks make matching contributions equal to
50% of participant contributions up to a limit of 3% of the participant's
base pay. Participants vest immediately in their own contributions and over a
period of five years in the Banks' contributions. Plan expense was
approximately $639,000, $578,000 and $564,000, for the years ended December
31, 1996, 1995 and 1994, respectively.

(13) EMPLOYEE STOCK OWNERSHIP PLAN

All salaried and hourly employees of the Banks are eligible to participate in
an Employee Stock Ownership Plan (ESOP) upon attaining age 21 and completing
a year of service. Participants vest in the shares allocated to their
accounts depending on their length of service, with 100% vesting occurring
after 6 years of service. The ESOP is designed to invest in the Company's
common stock and has the authority to borrow funds from a third party to
acquire such stock.

The ESOP has a term loan from a third party lender which bears interest at
89% of the prime rate. The prime rate was 8.25% at December 31, 1996. The
remaining balance of the loan was $150,000 at December 31, 1996, which is due
September 30, 1997.

As of December 31, 1996, the note is collateralized by mortgage-backed
securities with carrying values aggregating $372,000 with an aggregate fair
value of $382,000 and by 18,861 shares of the Company's common stock owned by
the ESOP, which has a fair value of $700,000 and represents 100% of the
unallocated shares.

The Company has guaranteed the loan of the ESOP. Therefore, the loan balance
is reflected as a liability included in other liabilities with a
corresponding reduction in shareholders' equity.

ESOP expense approximates $150,000 in each of the years in the three year
period ending December 31, 1996.

(14) STOCK OPTION PLANS

Under the terms of the Stock Option and Appreciation Rights Plan (the Option
Plan), options to purchase up to 700,000 shares of common stock may be
granted to officers and employees of the Company and its subsidiaries.
Options granted may be nonqualified stock options or qualified stock options,
which afford favorable tax treatment to recipients upon compliance with
certain restrictions and do not normally result in tax deductions to the
Company. The Option Plan initially permitted the granting of tandem stock
appreciation rights (SARS) in respect to options which enable the recipient
on exercise to elect payment in cash based upon increases in market value of
the stock from the date of grant. Options granted are exercisable as
determined by the Option Committee of the Board of Directors, may have a term
of up to ten years and are exercisable at a price at least equal to the fair
market value of the Company s common stock at the date of grant.

Under the terms of the Directors Stock Option Plan, as of the date of each
annual meeting, options to purchase 3,000 shares of the Company's common
stock are granted to non-employee directors who continue as a member of the
Board and have not previously been granted such options. The Directors Stock
Option Plan requires that options be granted at an exercise price at not less
than fair market value on the date of the grant of the Company's common
stock. Options vest over three years and are exercisable over a ten year
period. Under the terms of the plan, 100,000 shares of common stock were
reserved for issuance upon the exercise of options granted.

Under Franklin First Savings Bank's Incentive Plan, non-qualified and
qualified stock options were granted to directors, officers and employees of
Franklin. All options are vested and exercisable over a six to ten year
period.

The following is a summary of the changes in options outstanding:

- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Number Number Weighted
of of Average
Shares SARS Price
- --------------------------------------------------------------------------
Balance at December 31, 1993........... 460,303 79,100 $ 16.99
Granted................................ 111,500 -- 34.51
Exercised.............................. (50,177) -- 10.34
Forfeited.............................. (6,000) (7,100) 34.50
- --------------------------------------------------------------------------
December 31, 1994...................... 515,626 72,000 21.22
- --------------------------------------------------------------------------
Options exercisable, December 31, 1994. 329,789 72,000 14.83
- --------------------------------------------------------------------------

Granted................................ 16,100 -- 22.88
Exercised.............................. (23,540) -- 10.54
Forfeited.............................. (16,994) (4,500) 29.68
- --------------------------------------------------------------------------
December 31, 1995...................... 491,192 67,500 21.50
- --------------------------------------------------------------------------
Options exercisable, December 31, 1995. 387,525 67,500 18.38
- --------------------------------------------------------------------------

Granted................................ 80,600 -- 33.28
Exercised.............................. (24,994) -- 8.58
Forfeited.............................. (5,400) (6,500) 32.96
- --------------------------------------------------------------------------
December 31, 1996...................... 541,398 61,000 23.73
- --------------------------------------------------------------------------
Options exercisable, December 31, 1996. 420,065 61,000 $ 21.06
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------

<PAGE>

(14) STOCK OPTION PLANS (CONTINUED)

The following summarizes outstanding and exercisable options at December 31,
1996:

The Company applies APB Opinion No. 25 in accounting for its stock option
plans, and, accordingly no compensation cost has been recognized for its
stock options in the accompanying consolidated financial statements.

Had compensation cost been determined based on the fair value at the grant
dates for awards under the plans, consistent with the method of SFAS No. 123,
the Company's net income and earnings per share would have been reduced to
the pro forma amounts indicated below:

- -----------------------------------------------------------
- -----------------------------------------------------------
1996 1995
- -----------------------------------------------------------
Net Income:
As reported........................ $ 42,964 44,677
Pro forma.......................... 42,835 44,661
Earnings per common share:
As reported........................ $ 2.86 2.75
Pro forma.......................... 2.85 2.75
- -----------------------------------------------------------
- -----------------------------------------------------------

Proforma net income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options
vesting period of 3 years and compensation cost for options granted prior to
January 1, 1995 is not considered.

The per share weighted average fair value and weighted average exercise
price of stock options granted during 1996 at a price equal to the market
price of the stock on the grant date are $8.06 and $31.77, respectively, and
the per share weighted average fair value and weighted average exercise
prices of stock options granted during 1996 at a price in excess of the
market price of the stock on the grant date are $7.18 and $34.925,
respectively. The per share weighted average fair value of stock options
granted during 1995 was $5.54. The fair values were determined using the
Black-Scholes option-pricing model with the following weighted average
assumptions:

- ---------------------------------------------------------
- ---------------------------------------------------------
1996 1995
- ---------------------------------------------------------
Expected dividend yield.............. 3.7% 4.5%
Risk free interest rate.............. 5.5% 7.8%
Expected life........................ 7 years 7 years
Volatility............................. 27.6% 23.2%
- ---------------------------------------------------------
- ---------------------------------------------------------

(15) SHAREHOLDERS' EQUITY

The Company's 6.75% Series B Cumulative Convertible Preferred Stock has a
liquidation preference of $25.00 per share. The stock is convertible at the
option of the holder at any time into approximately .78 shares of common
stock, except that, the shares were called for redemption on January 8, 1997
at $26.013. Subsequent to year end, 35,514 shares were redeemed for cash and
2,306,538 shares were converted to 1,799,100 shares of common stock which
were issued from treasury stock.

The Company and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies which regulate
them. Failure to meet minimum capital requirements can initiate certain
mandatory--and possibly additional discretionary--actions by regulators that,
if undertaken, could have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Banks must meet specific capital guidelines
that involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Banks to maintain minimum amounts and ratios of
8% Total and 4% Tier I Capital (as defined in the regulations) to
risk-weighted assets (as defined) and 4% Tier I capital to average assets (as
defined). Management believes, as of December 31, 1996, that the Company and
the Banks meet all capital adequacy requirements to which they are subject.

As of December 31, 1996 and 1995, the most recent notification from the
Federal Deposit Insurance Corporation categorized the Banks as well
capitalized under the regulatory framework for prompt corrective action.
Current minimum capital ratios for a well-capitalized institution are 10%
Total capital (to Risk Weighted Assets), 6% Tier 1 Capital (to Risk Weighted
Assets) and 5% Tier 1 capital (to Average Assets). There are no conditions or
events since that notification that management believes have changed the
Banks' category.

<PAGE>

(15) SHAREHOLDERS EQUITY (CONTINUED)

The Company's and the Banks' actual capital amounts and ratios as of December
31, 1996 are presented in the following table:

- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ACTUAL
-----------------
($ In Thousands) AMOUNT RATIO
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Total Capital (to Risk Weighted Assets):
Consolidated................................... $ 398,308 13.78%
OnBank......................................... 34,141 15.50%
OnBank &Trust.................................. 256,698 13.69%
Franklin First Savings Bank.................... 99,257 12.30%

Tier I Capital (to Risk Weighted Assets):
Consolidated................................... 362,015 12.52%
OnBank......................................... 31,383 14.25%
OnBank &Trust.................................. 233,255 12.44%
Franklin First Savings Bank.................... 89,166 11.05%

Tier I Capital (to Average Assets):
Consolidated................................... 362,015 6.79%
OnBank......................................... 31,383 6.46%
OnBank & Trust................................. 233,255 6.66%
Franklin First Savings Bank.................... 89,166 6.57%
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------

The Company's and the Bank's actual capital amounts and ratios as of
December 31, 1995 are presented in the following table:

- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Actual
------------------
($ In Thousands) Amount Ratio
- ------------------------------------------------------------------------
Total Capital (to Risk Weighted Assets):
Consolidated................................... $ 419,711 15.10%
OnBank......................................... 35,143 13.12%
OnBank & Trust................................. 251,428 14.19%
Franklin First Savings Bank.................... 117,260 15.16%

Tier I Capital (to Risk Weighted Assets):
Consolidated................................... 385,128 13.85%
OnBank......................................... 31,795 11.87%
OnBank & Trust................................. 229,941 12.98%
Franklin First Savings Bank.................... 108,309 14.00%

Tier I Capital (to Average Assets):
Consolidated................................... 385,128 6.19%
OnBank......................................... 31,795 8.06%
OnBank & Trust................................. 229,941 5.65%
Franklin First Savings Bank.................... 108,309 6.18%
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------

(16) DIVIDENDS

The payment of dividends by the Banks to the Company, which in turn pays
dividends to its shareholders, is subject to the Banks being in compliance
with regulatory capital requirements.

Under New York State Banking law, dividends may be declared and paid only out
of net profits of the Banks. The approval of the Superintendent of the New
York State Department of Banking is required if the total of all dividends
declared in any calendar year will exceed net profits for that year plus the
retained net profits of the preceding two years. At December 31, 1996, the
New York banks could not have paid additional dividends to the Company
without prior regulatory approval because they had fully utilized their
discretionary dividend-paying capacity in 1996 to help fund the Company's
recently completed share repurchase program.

Under Pennsylvania Banking law, no dividend may be paid that would constitute
an unsafe or unsound practice or result in an institution failing to meet its
capital requirements.

(17) COMMITMENTS AND CONTINGENCIES

In the normal course of the Banks' business, there are various outstanding
commitments and contingent liabilities that have not been reflected in the
consolidated financial statements. In addition, in the normal course of
business, there are various outstanding legal proceedings. In the opinion of
management, the aggregate amount involved in such proceedings is not material
to the financial condition or results of operations of the Company.

At December 31, 1996, the Banks were obligated under noncancellable operating
leases. Building, occupancy and equipment expense includes rental expense of
$3,849,000, $3,592,000 and $3,532,000, for the years ended December 31, 1996,
1995 and 1994, respectively. The minimum rentals at December 31, 1996 under
the existing terms of these leases are as follows: $3,014,000 in 1997;
$2,561,000 in 1998; $2,292,000 in 1999; $1,941,000 in 2,000; $1,793,000 in
2,001 and $10,131,000 in later years.

At December 31, 1996 the Company was obligated under a contract with Alltel
Services, Inc. for on-site data processing management services. Future
contractual expenses $8,038,000 in 1997, $7,875,000 in 1998 and $2,795,000 in
1999.

(18) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Banks are a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of their customers
and to reduce exposure to fluctuations in interest rates. Those financial
instruments include commitments to extend credit, the serviced loan
portfolio, options written and forward purchase and sale contracts. Those
instruments involve, to varying degrees, elements of credit and market risk
in excess of the amount recognized in the consolidated statement of financial
position. Credit risk represents the accounting loss that would be recognized
at the reporting date if counterparties failed completely to perform as
contracted. Unless noted otherwise, the Banks do not require collateral or
other security to support off-balance-sheet financial instruments with credit
risk. Market risk represents the accounting loss that would be recognized at
the reporting date if future changes in market prices make a financial
instrument less valuable.

<PAGE>

(18) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)

The Banks exposure to credit loss in the event of nonperformance by the other
parties to the financial instruments for commitments to extend credit,
forward purchase contracts, and put options written is represented by the
contractual notional amount of those instruments. The Banks use the same
credit policies to evaluate the creditworthiness of counterparties to these
transactions as it does for on-balance-sheet instruments.

The Banks control their credit risk through credit approvals, limits, and
monitoring procedures. The Banks credit risk with respect to mortgage
servicing losses results from unrecoverable advances of delinquent principal,
interest and tax payments made on behalf of mortgagors. To date, the Banks
have not suffered significant losses from their loan servicing activities.

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Banks evaluate each
customer s creditworthiness on a case-by-case basis using the same criteria
and credit policies as it does for on-balance-sheet instruments. The credit
risk amounts are equal to the contractual amounts assuming that the amounts
are fully advanced and the collateral or other security is of no value. The
amount of collateral obtained by the Banks upon extension of credit is based
on management's credit evaluation of the counterparty. The type of collateral
varies but is primarily mortgages on real estate. The Banks have experienced
little difficulty in accessing collateral when required.

The Banks enter into forward contract commitments involving the delayed
delivery or purchase of mortgage-backed securities and loans. These forward
contracts are used to reduce the market risk associated with the underlying
securities or loans. Contractual terms of forward commitments specify the
aggregate amount of contract, the interest yield or prices at which
securities or loans are to be delivered, and the period covered. Credit and
market risks arise from the potential inability of counterparties to meet the
terms of their contracts and from movements in security and loan values,
respectively.

Deferred fees from put options outstanding at December 31, 1996 and 1995
amounted to approximately $90,000 and $31,000, respectively, with average
fair values of $74,000 and $91,000 for the years ending December 31, 1996 and
1995, respectively. The fair value of these options approximated the deferred
fees outstanding at December 31, 1996 and 1995. Net trading gains (losses) on
financial options included in gain (loss) on securities transactions totaled
($353,000), $910,000 and $(2,604,000) in 1996, 1995 and 1994, respectively.

A summary of the contract or notional amounts of the Banks' exposure to
off-balance-sheet risk, at December 31, excluding unused lines of credit of
approximately $264,749,000 as of December 31, 1996, follows:

- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Contract or Notional
Amount
(In Thousands) 1996 1995
- ----------------------------------------------------------------------
Financial instruments whose contract
amount represents credit risk:
Commitments to extend credit:
Fixed.................................... $ 30,942 14,335
Variable................................. 51,049 23,689
Standby letters of credit.................. 44,349 42,496
Put options written........................ 36,000 12,000
Financial instruments whose notional or
contract amounts exceed the
amount of credit risk:
Interest rate swaps........................ 50,000 50,000
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------

(19) CONCENTRATIONS OF CREDIT RISK

Concentrations of credit risk (whether on or off balance sheet) arising from
financial instruments exist in relation to certain groups of customers. A
group concentration arises when a number of counterparties have similar
economic characteristics that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic or other
conditions. The Banks do not have a significant exposure to any individual
customer or counterparty. A geographic concentration arises because the Banks
operate only in Upstate New York and Northeastern Pennsylvania.

The credit risk represents the maximum accounting loss that would be
recognized at the reporting date if counterparties failed completely to
perform as contracted and any collateral or security proved to be of no
value. The Banks have experienced little difficulty in accessing collateral
when required.

(20) FAIR VALUES OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:

(a) CASH AND CASH EQUIVALENTS
For these short-term instruments that generally mature in ninety days or
less, the fair value approximates carrying value.

(b) SECURITIES
Fair values for securities and derivative instruments are based on quoted
market prices or dealer quotes, where available. Where quoted market prices
are not available, fair values are based on quoted market prices of
comparable instruments.

<PAGE>

(20) FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

The carrying value of FHLB stock, which is redeemable at par, approximates
fair value.

(c) LOANS
Fair values for residential mortgage loans are based on quoted market prices
of similar loans sold in the secondary market, adjusted for differences in
loan characteristics. The fair values for commercial and consumer loans are
estimated through discounted cash flow analyses using interest rates
currently being offered for loans with similar terms and credit quality.

The fair value of loans available for sale is based on quoted market prices.
Where quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.

Delinquent loans (not in foreclosure) are valued using the methods noted
above. While credit risk is a component of the discount rate used to value
loans, delinquent loans are presumed to possess additional risk. Therefore,
the calculated fair value of loans delinquent more than thirty days are
reduced by an allocated amount of the general allowance for loan losses.

(d) DUE FROM BROKERS
Due to the short term nature, the carrying value approximates fair value.

(e) ACCRUED INTEREST RECEIVABLE AND PAYABLE
For these short-term instruments, the carrying value approximates fair value.

(f) DEPOSITS
The fair values disclosed for demand deposits, savings accounts and money
market accounts are, by definition, equal to the amounts payable on demand at
the reporting date (i.e., their carrying values). The fair value of fixed
maturity time deposits is estimated using a discounted cash flow approach
that applies interest rates currently being offered to a schedule of
aggregated expected monthly maturities on time deposits.

(g) REPURCHASE AGREEMENTS
For these short term instruments that mature in less than six months, the
carrying value approximates fair value. For those with maturities greater
than six months, the fair value is estimated using a discounted cash flow
approach. This approach applies the current incremental rates to such
borrowings.

(h) OTHER BORROWINGS
The fair value of long term debt has been estimated using discounted cash
flow analyses that apply interest rates currently being offered for notes
with similar terms.

(i) DUE TO BROKERS
Due to the short term nature, the carrying value approximates fair value.

(j) COMMITMENTS TO EXTEND CREDIT AND LETTERS OF CREDIT
The fair value of commitments to extend credit are equal to the deferred fees
outstanding, as the contractual rates and fees approximate those currently
charged to originate similar commitments. Deferred fees outstanding at
December 31, 1996 and 1995 were immaterial.

The estimated fair values of the Company s financial instruments as of
December 31, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
1996 1995
CARRYING FAIR Carrying Fair
(In Thousands) AMOUNT VALUE Amount Value
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Securities.................... $ 2,610,975 2,629,268 2,741,843 2,777,437
Net loans (1)................. 2,449,393 2,481,779 2,294,544 2,379,369
- ----------------------------------------------------------------------------------
Financial liabilities:
Deposits...................... $ 3,821,906 3,807,100 3,808,273 3,815,092
Repurchase agreements......... 254,471 255,407 361,617 364,866
Other borrowings.............. 874,917 863,595 903,370 911,034
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
</TABLE>

(1) Includes loans available for sale.

<PAGE>

(21) PARENT COMPANY FINANCIAL INFORMATION

The condensed balance sheets of ONBANCorp. Inc. at December 31 follow:

Liabilities and Shareholders Equity:
Liabilities: Accounts payable,accrued
dividends & other liabilities....... $ 7,589 2,296
Total shareholders' equity............... 360,051 388,766
- -----------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY................... $ 367,640 391,062
- -----------------------------------------------------------------
- -----------------------------------------------------------------

The condensed statements of income for the years ended December 31, follows:

- -----------------------------------------------------------------
- -----------------------------------------------------------------
(In Thousands) 1996 1995 1994
- -----------------------------------------------------------------
Income:
Net interest income........... $ 224 439 961
Gain (loss) on securities
transactions................ (63) 2,318 4,041
Dividends from subsidiary
banks....................... 66,000 43,000 11,000
- -----------------------------------------------------------------
Income before equity in
undistributed earnings
of subsidiary banks......... 66,161 45,757 16,002
Equity in undistributed
earnings of subsidiary banks (20,777) 1,540 (10,283)
- -----------------------------------------------------------------
Total income.............. 45,384 47,297 5,719
Operating expenses.............. 3,778 2,417 1,959
- -----------------------------------------------------------------
Income before income taxes.... 41,606 44,880 3,760
Income taxes (benefit).......... (1,358) 203 1,056
- -----------------------------------------------------------------
Net income................ $ 42,964 44,677 2,704
- -----------------------------------------------------------------
- -----------------------------------------------------------------

The condensed statements of cash flows for the years ended December 31, follow:

- -----------------------------------------------------------------
- -------------------------------------------------------------------------------
(In Thousands) 1996 1995 1994
- -------------------------------------------------------------------------------
Cash flows from operating activities:
Net income.................................. $ 42,964 44,677 2,704
Adjustments to reconcile net income
to net cash provided by
operating activities:
Equity in undistributed earnings of
subsidiary banks...................... 20,777 (1,540) 10,283
Net change in trading securities........ 63 14,209 (3,378)
Other................................... (879) 1,138 (7,233)
- -------------------------------------------------------------------------------
Net cash provided by operating
activities.............................. 62,925 58,484 2,376
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Net sales of securities..................... -- -- 23,000
Investment in subsidiaries.................. -- -- (30,000)
- --------------------------------------------------------------------------------
Net cash used by investing activities..... -- -- (7,000)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock...... 750 743 1,023
Cash dividends paid on common stock......... (15,784) (19,737) (13,980)
Cash dividends paid on preferred stock...... (4,229) (4,649) (4,755)
Purchase of treasury stock.................. (50,721) (18,068) --
Redemption of preferred stock............... (963) (8,360) --
- -------------------------------------------------------------------------------
Net cash used by financing activities..... (70,947) (50,071) (17,712)
- -------------------------------------------------------------------------------
Net increase (decrease) in cash............... (8,022) 8,413 (22,336)
Cash and cash equivalents at beginning
of year..................................... 9,892 1,479 23,815
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of year...... $ 1,870 9,892 1,479
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Supplemental disclosure of non-cash investing activities:

Transfer of securities to trading........... $ -- -- 12,621
Change in net unrealized holding gain
(loss) on securities of subsidiaries...... (1,217) 26,864 (50,963)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

<PAGE>

Summarized quarterly financial data for the years ended December 31, 1996 and
1995 are as follows:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
(IN THOUSANDS EXCEPT PER SHARE DATA) MAR. 31,1996 JUN. 30,1996 SEP. 30,1996 DEC. 31,1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total interest income................................ $ 94,827 91,031 93,251 95,736
Total interest expense............................... 56,945 53,709 54,788 56,656
- -------------------------------------------------------------------------------------------------------------

Net interest income.............................. 37,882 37,322 38,463 39,080

Provision for loan losses............................ 1,950 1,950 1,950 1,963
- -------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan
losses......................................... 35,932 35,372 36,513 37,117

Other operating income............................... 8,514 8,992 10,375 8,381
Other operating expenses............................. 26,213 26,190 32,632(1) 25,579
- -------------------------------------------------------------------------------------------------------------

Income before income taxes....................... 18,233 18,174 14,256 19,919

Income taxes......................................... 6,667 6,513 6,966 7,472
- -------------------------------------------------------------------------------------------------------------

Net income......................................... $ 11,566 11,661 7,290 12,447
- -------------------------------------------------------------------------------------------------------------

Earnings per common share (2):
Primary............................................ $ .77 .80 .49 .93
Fully diluted...................................... $ .74 .76 .49 .87
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Three Months Ended
(In Thousands Except Per Share Data) Mar. 31,1995 Jun. 30,1995 Sep. 30,1995 Dec. 31,1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total interest income................................ $ 102,384 107,237 112,470 109,368
Total interest expense............................... 64,985 69,674 73,656 70,629
- -------------------------------------------------------------------------------------------------------------

Net interest income.............................. 37,399 37,563 38,814 38,739

Provision for loan losses............................ 1,690 1,690 1,610 1,800
- -------------------------------------------------------------------------------------------------------------

Net interest income after provision for loan
losses......................................... 35,709 35,873 37,204 36,939

Other operating income............................... 6,735 7,187 6,539 8,840
Other operating expenses............................. 26,166 26,320 24,018 26,958
- -------------------------------------------------------------------------------------------------------------

Income before income taxes....................... 16,278 16,740 19,725 18,821

Income taxes......................................... 6,353 6,604 7,059 6,871
- -------------------------------------------------------------------------------------------------------------

Net income......................................... $ 9,925 10,136 12,666 11,950
- -------------------------------------------------------------------------------------------------------------

Earnings per common share (2):
Primary............................................ $ .62 .63 .82 .78
Fully diluted...................................... $ .61 .62 .78 .75
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Includes $7,282,000 one-time SAIF deposit insurance assessment.

(2) Summation of the quarterly net income per common share does not necessarily
equal the annual amount due to the averaging effect of the number of shares
throughout the year.

<PAGE>

BOARD OF DIRECTORS
SENIOR OFFICERS

ONBANCORP BOARD OF DIRECTORS

Robert J. Bennett
CHAIRMAN OF THE BOARD,
PRESIDENT & CHIEF EXECUTIVE OFFICER

William F. Allyn
PRESIDENT - WELCH ALLYN, INC.

William J. Donlon
CHAIRMAN & CHIEF EXECUTIVE OFFICER, RETIRED
NIAGARA MOHAWK POWER CORPORATION

Lee H. Flanagan*
PRESIDENT - B.G. SULZLE, INC.

Russell A. King
CONSULTING PARTNER - KING & KING ARCHITECTS, INC.

Henry G. Lavarnway, Jr.
PRIVATE INVESTMENTS

John D. Marsellus
CHAIRMAN - MARSELLUS CASKET COMPANY

J. Kemper Matt
PRESIDENT - DUPLI ENVELOPE & GRAPHICS CORP.

Peter J. Meier
PRESIDENT G.A. BRAUN, INC.

Peter J. O Donnell, Jr.
PRESIDENT - PINE TREE MANAGEMENT CORPORATION

T. David Stapleton, Jr.
ATTORNEY - KARPINSKI, STAPLETON & FANDRICH, P. C.

William J. Umphred, Sr.
SENIOR VICE PRESIDENT, RETIRED - C-TEC CORPORATION

Thomas H. van Arsdale
PRESIDENT & CHIEF EXECUTIVE OFFICER
FRANKLIN FIRST SAVINGS BANK

John L. Vensel
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CRUCIBLE MATERIALS CORP.

Joseph N. Walsh, Jr.
VICE PRESIDENT, RETIRED - NYNEX

* Effective April 22, 1997

ONBANCORP SENIOR OFFICERS

Robert J. Bennett
CHAIRMAN, PRESIDENT & CHIEF EXECUTIVE OFFICER

Howard W. Sharp
SENIOR EXECUTIVE VICE PRESIDENT

David M. Dembowski
EXECUTIVE VICE PRESIDENT & SECRETARY

Robert J. Berger
SENIOR VICE PRESIDENT, TREASURER &
CHIEF FINANCIAL OFFICER

Thomas R. Delduchetto
SENIOR VICE PRESIDENT
HUMAN RESOURCES & ADMINISTRATION

William M. Le Beau
SENIOR VICE PRESIDENT
LOAN & ASSET REVIEW

Sandra L. Yingling
AUDITOR

<PAGE>

INVESTOR RELATIONS

Investor Relations: Transfer Agent & Registrar:

ONBANCorp, Inc. American Stock Transfer & Trust Company
101 South Salina Street 40 Wall Street, 46th Floor
PO Box 4983 New York, NY 10005
Syracuse, NY 13221-4983
(315) 424-5995
(800) 311-5995

ANNUAL REPORT

ONBANCorp, Inc. is required to file an annual report with the SEC on Form
10-K for the year ended December 31, 1996. Shareholders may obtain, free of
charge, a copy of such annual report, excluding exhibits, by writing to:

Mr. Robert J. Berger, Senior Vice President
Treasurer & Chief Financial Officer
ONBANCorp, Inc.
101 South Salina Street
PO Box 4983
Syracuse, NY 13221-4983

MARKET MAKERS (DECEMBER 1996)

A.G. Edwards & Sons, Inc. Keefe, Bruyette & Woods, Inc.

Bear, Stearns & Co. Inc. Merrill Lynch, Pierce, Fenner & Smith, Inc.

Dean Witter Reynolds, Inc. Oppenheimer & Co., Inc.

Donaldson, Lufkin & Jenrette Prudential Securities, Inc.

First Albany Corporation Sandler O'Neill & Partners

Ferris Baker Watts, Inc. Sherwood Securities Corp.

Furman Selz Incorporated Smith Barney Inc.

Herzog, Heine, Geduld, Inc. Tucker Anthony Incorporated

Huntleigh Securities Corp.

<PAGE>

ONBANCORP, INC.

Shareholder Relations
(315) 424-5995
(800) 311-5995

ONBANK & TRUST CO.*

Metro Syracuse Region
Syracuse, New York
(800) 283-4357

Capital Region
Albany, New York
(518) 426-6200

Rochester Region
Rochester, New York
(716) 442-8893

FRANKLIN FIRST
SAVINGS BANK*

Wilkes-Barre, Pennsylvania
(800) 262-1210
http://www.franklinfirst.com

TRUST SERVICES

(315) 442-1731 Syracuse
(518) 432-5580 Albany
(716) 442-8893 Rochester
(717) 821-8600 Wilkes-Barre

INVESTMENT SERVICES

TradeStar Investments, Inc.
Discount Brokerage Service
(315) 424-4095

LIBERTY SECURITIES CORPORATION
MUTUAL FUNDS & ANNUITIES

(315) 424-4095 Syracuse
(518) 432-5580 Albany
(716) 442-4489 Rochester
(800) 223-8793 Wilkes-Barre
http://www.onbank.com

* Member FDIC

<PAGE>

EXHIBIT 21

As of December 31, 1996, the Registrant had three wholly owned subsidiaries,
OnBank & Trust Co., a New York trust company, OnBank, a New York savings bank,
and Franklin First Savings Bank, a Pennsylvania savings bank.

<PAGE>

EXHIBIT 23

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
ONBANCorp, Inc.:

We consent to incorporation by reference in the registration statement Nos.
33-22113, 33-30813, 33-49504, 33-49506, and 33-49508 on Form S-8 of
ONBANCorp, Inc. of our report dated January 22, 1997, relating to the
consolidated balance sheets of ONBANCorp, Inc. and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of
income, changes in shareholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 1996, which report has been
incorporated by reference in the December 31, 1996 annual report on Form 10-K
of ONBANCorp, Inc.

/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG Peat Marwick LLP

Syracuse, New York
March 26, 1997

<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 169,740
<INT-BEARING-DEPOSITS> 12,253
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 1,727
<INVESTMENTS-HELD-FOR-SALE> 925,340
<INVESTMENTS-CARRYING> 1,683,908
<INVESTMENTS-MARKET> 1,702,201
<LOANS> 2,448,474
<ALLOWANCE> (37,840)
<TOTAL-ASSETS> 5,417,877
<DEPOSITS> 3,821,906
<SHORT-TERM> 774,678
<LIABILITIES-OTHER> 106,532
<LONG-TERM> 354,710
14,139
0
<COMMON> 2,342
<OTHER-SE> 343,570
<TOTAL-LIABILITIES-AND-EQUITY> 5,417,877
<INTEREST-LOAN> 201,394
<INTEREST-INVEST> 170,003
<INTEREST-OTHER> 3,448
<INTEREST-TOTAL> 374,845
<INTEREST-DEPOSIT> 154,747
<INTEREST-EXPENSE> 222,098
<INTEREST-INCOME-NET> 152,747
<LOAN-LOSSES> 7,813
<SECURITIES-GAINS> 6,018
<EXPENSE-OTHER> 110,614
<INCOME-PRETAX> 70,582
<INCOME-PRE-EXTRAORDINARY> 42,964
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,964
<EPS-PRIMARY> 2.98
<EPS-DILUTED> 2.86
<YIELD-ACTUAL> 7.44
<LOANS-NON> 20,172
<LOANS-PAST> 2,464
<LOANS-TROUBLED> 4,441
<LOANS-PROBLEM> 20,833
<ALLOWANCE-OPEN> 34,583
<CHARGE-OFFS> 6,638
<RECOVERIES> 2,082
<ALLOWANCE-CLOSE> 37,840
<ALLOWANCE-DOMESTIC> 37,840
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0

</TABLE>