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

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.

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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.
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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

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.

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.

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.

LESS THAN THREE GREATER
THREE MONTHS TO 1 TO 5 THAN
(DOLLARS IN THOUSANDS) MONTHS 1 YEAR YEARS 5 YEARS TOTAL
- ----------------------------------------------- ------------ ----------- ---------- ---------- ----------

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%

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

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:

DECEMBER 31,
-------------------------------------------------------------------------

1996 1995 1994 1993 1992
------------------------ ---------------------- ----------------------- ----------------------- ----------
(DOLLARS IN THOUSANDS)
- ---------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------ ---------- ---------- ---------- ---------- --------- ---------- --------- ---------- --------

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

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

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

IN 1 YEAR MATURING:
OR 1 TO 5 AFTER TOTAL
(IN THOUSANDS) LESS YEARS 5 YEARS LOANS
- ------------------------------------------------------------------- ----------- ----------- --------- ---------

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

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

(1) Includes commercial real estate loans.

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

YEAR ENDED DECEMBER
31,
---------------------

(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
---------- ---------- ---------
---------- ---------- ---------

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

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.

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

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.

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

DECEMBER 31,
--------------------------------------------------------------------------------------------

(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%
---------------------- ---------------------- ---------------------- --------- ---------

"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

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:

DECEMBER 31,
-----------------------------------------------------

(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%
--------- --------- --------- --------- ---------

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

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:

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.

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".

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

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

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.

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

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%
-------- ----- ------- ----- --------- ----- --------- ----- -------- ------
-------- ----- ------- ----- --------- ----- --------- ----- -------- ------

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.

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

PERCENTAGE
OF TOTAL
(DOLLARS IN THOUSANDS) AMOUNT DEPOSITS
- -------------------------------------------------------------------- ------------ -----------

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%
------------ ------
------------ ------

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

(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:

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

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

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

AMOUNT
MATURITY (IN THOUSANDS)
- ------------------------------------------------------------------------------ --------------

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

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:

1996 1995 1994
--------- --------- ---------

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

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

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.

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.

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.

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

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.

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.

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.

/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.