Item 1 -- Description of the Business
General Alliance Financial Corporation ("Company") is a New York registered bank holding company formed on November 25, 1998 as a result of the merger of Cortland First Financial Corporation and Oneida Valley Bancshares, Inc., which were incorporated in May 30, 1986 and October 31, 1984, respectively. The Company is the parent holding company of Alliance Bank, N.A. (the "Bank"), which was formed as the result of a merger of First National Bank of Cortland and Oneida Valley National Bank as of the close of business, April 16, 1999. Unless the context otherwise provides, references herein to the "Company" mean Alliance Financial Corporation and the Bank. The Company provides banking services through dual headquarter offices located at 65 Main Street, Cortland, NY and 160 Main Street, Oneida, NY, as well as through 16 customer service facilities located in Cortland, Madison, Onondaga, northern Broome, and western Oneida counties. At December 31, 1999, the Company had 238 full-time employees and 27 part-time employees. The Bank is a member of the Federal Reserve System and the Federal Home Loan Bank System, and deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") up to applicable limits.
Services The Company offers full service banking with a broad range of financial products to meet the needs of its commercial, retail, government, and trust customers. Depository account services include interest and non-interest bearing checking accounts, money market accounts, savings accounts, time deposit accounts, and individual retirement accounts. The Company's lending activities include the making of residential and commercial mortgage loans, business lines of credit and business term loans, working capital facilities and accounts receivable financing programs, as well as installment loans, student loans, and personal lines of credit to individuals. Trust and investment department services include personal trust, employee benefit trust, investment management, custodial, financial planning and brokerage services. The Company also offers safe deposit boxes, travelers checks, money orders, wire transfers, collection services, drive-in facilities, automatic teller machines, 24-hour telephone banking, and 24-hour night depositories.
Competition The Company's business is extremely competitive. The Company competes not only with other commercial banks but also with other financial institutions such as thrifts, credit unions, money market and mutual funds, insurance companies, brokerage firms, and a variety of other companies offering financial services. Supervision and Regulation The Company is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended ("BHCA") and as such is subject to regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). As a bank holding company, the Company's activities and those of its subsidiaries are limited to the business of banking and activities closely related or incidental to banking. The BHCA requires the prior approval of the Federal Reserve Board in any case where a bank holding company proposes to acquire direct or indirect ownership or control of more than 5% of any class of the voting shares of, or substantially all of the assets of, any bank (unless it owns a majority of such bank's voting shares) or otherwise to control a bank or to merge or consolidate with any other bank holding company. The BHCA also prohibits a bank holding company, with certain exceptions, from acquiring more than 5% of the voting shares of any company that is not a bank. The Company is a legal entity separate and distinct from its bank subsidiary. The principal source of the Company's income is earnings from the Company's subsidiary bank. Federal laws impose limitations on the ability of subsidiary banks to pay dividends as discussed in the Notes to Consolidated Financial Statements. Federal Reserve Board policy requires bank holding companies to serve as a source of financial strength to their subsidiary banks by standing ready to use available resources to provide adequate capital funds to their subsidiary banks during periods of financial stress or adversity. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") substantially revised the depository institution regulatory and funding provisions of the Federal Deposit Insurance Act and made revisions to several other federal banking statures. Among other things, federal banking regulators are required to take prompt corrective action in respect of depository institutions that do not meet minimum capital requirements. FDICIA identifies the following capital categories for financial institutions: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Rules adopted by the federal banking agencies under FDICIA provide that an institution is deemed to be well capitalized if the institution has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based ratio of 6.0% or greater, and a leverage ratio of 5.0% or greater, and the institution is not subject to an order, written agreement, capital directive, or prompt corrective action directive to meet and maintain a specific level for any capital measure. FDICIA imposes progressively more restrictive constraints on operation, management, and capital distributions, depending on the capital category in which an institution is classified. At December 31, 1999, the Company and its subsidiary bank were in the well-capitalized category based on the ratios and guidelines noted above. The Company's subsidiary bank is supervised and regularly examined by the Office of the Comptroller of the Currency (OCC). The various laws and regulations administered by the OCC affect corporate practices such as payment of dividends, incurrence of debt, and acquisition of financial institutions, and affect business practices, such as payment of interest on deposits, the charging of interest on loans, the types of business conducted, and location of offices. The Company's regulators have broad authority to initiate proceedings designed to prohibit its subsidiary bank from engaging in unsafe and unsound banking practices. On November 12, 1999, the Gramm-Leach-Bliley Act ("Gramm-Leach") was signed into law that concluded a decade of debate in the Congress regarding a fundamental reformation of the nation's financial system. As discussed above, the activities of bank holding companies have traditionally been limited to the business of banking and activities closely related or incidental to banking. Effective March 11, 2000, Gramm-Leach will permit bank holding companies to engage in a broader range of financial activities by electing to become financial holding companies, which may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. Among the activities that will be deemed "financial in nature", in addition to the traditional lending activities, securities underwriting, dealing in or making a market in securities, are the sponsoring of mutual funds and investment companies, insurance underwriting and agency activities, merchant banking activities, and activities which the Federal Reserve Board considers to be closely related to banking. A bank holding company may become a financial holding company under the new statute only if each of its subsidiary banks is well capitalized, is well managed and has at least a satisfactory rating under the Community Reinvestment Act. A bank holding company that does not comply with such requirement may be required to cease engaging in certain activities. Any bank holding company that does not elect to become a financial holding company remains subject to the current restrictions of the BHCA . Under the new legislation, the Federal Reserve Board serves as the primary "umbrella" regulator of financial holding companies with supervisory authority over each parent company and limited authority over its subsidiaries. The primary regulator of each subsidiary of a financial holding company will depend on the type of activity conducted by the subsidiary. At this time, the Company has not determined whether it will become a financial holding company.
Item 2
Item 2 -- Properties
The Registrant operates the following branches:
Name of Office Location County Date Established
Home Office 65 Main Street Cortland March 1, 1869 Cortland, NY
Canastota Stroud Street & Route 5 Madison December 7, 1974 Canastota, NY
Cincinnatus 2743 NYS Route 26 Cortland January 1, 1943 Cincinnatus, NY
Groton Avenue 1125 Groton Avenue Cortland June 22, 1987 Cortland, NY
Hamilton 1 Madison Street Madison December 7, 1949 Hamilton, NY
Hamilton 38-40 Utica Street Madison January 26, 1976 Drive-Up Hamilton, NY
Manlius 201 Fayette Street Onondaga October 19, 1994 Manlius, NY
Marathon 14 E. Main Street Cortland August 15, 1957 Marathon, NY
McGraw 30 Main Street Cortland May 1, 1967 McGraw, NY
North Main North Main Street Madison September 9, 1966 Oneida, NY
One Park Place 300 South State Street Onondaga July 19, 1999 Syracuse, NY
Oneida 160 Main Street Madison December 12, 1851 Oneida, NY
Sherrill 628 Sherrill Road Oneida April 2, 1954 Sherrill, NY
TOPS Plaza Route 5 and Route 46 Madison January 7, 1988 Oneida, NY
Tully Route 80 at I-81 Onondaga January 26, 1989 Tully, NY
Whitney Point 2950 NYS Route 11 Broome April 7, 1994 Whitney Point, NY
Wal-Mart 872 NYS Route 13 Cortland March 10, 1997 (Cortland) Cortland, NY
Wal-Mart 1294 Lenox Avenue Madison July 17, 1996 (Oneida) Oneida, NY
The offices in One Park Place, TOPS Plaza, Tully, Whitney Point, and both Wal-Mart stores are leased. The other banking premises are owned.
Item 3
Item 3 -- Legal Proceedings
In December 1998, the Oneida Indian Nation ("The Nation") and the U.S. Justice Department filed motions to amend a long outstanding claim against the State of New York to include a class of 20,000 unnamed defendants who own real property in Madison and Oneida Counties. If the motion is granted to amend the claim, litigation could involve assets of the Company. On March 26, 1999, the United States District Court heard arguments on the matter and has reserved its decision pending a negotiated settlement of the matter by the State of New York and the Nation. As of December 31, 1999, the matter is still in the process of settlement. The Nation has publicly stated that the purpose of the legal action currently being undertaken is to force the State of New York to negotiate an equitable settlement of their original claim which was ruled on by the United States Supreme Court in favor of The Nation over 13 years ago. Management believes that ultimately the State of New York will be held responsible for these claims, and this matter will be settled without adversely impacting the Company. There are no other pending legal proceedings, other than routine litigation incidental to the business of the subsidiary bank, to which the Company or its subsidiary bank is a party or to which their property is the subject. In management's opinion, no pending action, if adversely decided, would materially affect the bank or the Company's financial condition.
Item 4
Item 4 -- Submission of Matters to a Vote of Security Holders None
PART II
Item 5
Item 5 -- Market for Registrant's Common Stock and Related Shareholders Matters
Common Stock Data: The common stock of Alliance Financial Corporation (Symbol: ALNC) is listed for quoting in the Nasdaq National Market. Market makers for the stock are Ryan, Beck & Company (800-342-2325), Tucker Anthony (800-343-3036), and First Albany Corporation (800-336-3245). There were 902 shareholders of record as of December 31, 1999. The following table presents stock prices for the common stock of Alliance Financial Corporation for all of 1999 and the fourth quarter of 1998 (after the merger of Cortland First Financial Corporation ("Cortland") and Oneida Valley Bancshares, Inc. ("Oneida") in November 1998), and for Cortland for the first three quarters of 1998 and the fourth quarter of 1998 (until such merger). Dividends paid in 1998 have been restated to reflect the combined dividends of Cortland and Oneida. Stock prices below are based on high and low closing prices for the quarter, as reported on the Nasdaq National Market. These over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.
1999 High Low Dividend Paid - ---- ------- ------- ------------- 1st Quarter $ 25.50 $ 20.00 $ .175 2nd Quarter 21.75 19.50 .175 3rd Quarter 29.50 18.25 .175 4th Quarter 27.63 22.50 .175
1998 High Low Dividend Paid - ---- ------- ------- ------------- 1st Quarter $ 29.25 $ 27.00 $ .14 2nd Quarter 29.25 29.25 .14 3rd Quarter 30.50 25.00 .14 4th Quarter 31.25 25.00 .25
The transfer agent for the stock is American Stock Transfer & Trust Company ("ASTC"). They can be contacted at the following address:
Registrar and Transfer Agent American Stock Transfer & Trust Company 40 Wall Street - 46th Floor New York, NY 10005
Automatic Dividend Reinvestment Plan This plan is administered by ASTC, as agent. It offers a convenient way for shareholders to increase their investment in the Company. The plan enables certain shareholders to reinvest cash dividends on all or part of their common stock in additional shares of the Company's common stock without paying brokerage commissions or service charges. Shareholders who are interested in this program may receive a Plan Prospectus and enrollment card by writing or calling ASTC Dividend Reinvestment at 1-800-278-4353.
Item 6
Item 6 -- Selected Financial Data (Dollars In Thousands, except per-share data) - --------------------------------- Five Year Comparative Summary
Item 7
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operation
MANAGEMENT'S DISCUSSION & ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
INTRODUCTION Alliance Financial Corporation (the Company) is a New York Corporation which was formed in November 1998 as a result of the merger of Cortland First Financial Corporation (Cortland) and Oneida Valley Bancshares, Inc. (Oneida). The Company is a bank holding company that merged its two subsidiary banks, First National Bank of Cortland and Oneida Valley National Bank, forming a new wholly owned subsidiary, Alliance Bank, N.A. as of the close of business on April 16, 1999. Pursuant to the terms of the 1998 merger, each share of Cortland stock was exchanged for one share of the Company's stock and each share of Oneida stock was exchanged for 1.8 shares of the Company's stock. The merger constituted a tax-free reorganization and has been accounted for as a pooling of interests under Accounting Principals Board Opinion No. 16. The following discussion and analysis reviews the Company's business, and provides information that has been restated to include the combined results of operations and financial condition of Cortland, Oneida, and the subsidiary banks for the year 1999 and all prior periods presented. Certain reclassifications were made to Cortland's and Oneida's prior years financial statements to conform to the Company's presentation. This discussion should be read in conjunction with the consolidated financial statements and accompanying notes, and other statistical information included elsewhere in this Annual Report on Form 10-K.
RESULTS OF OPERATIONS Net income for 1999 was $5.402 million, or $1.51 per share, compared to $3.433 million, or $0.95 per share, in 1998. The Company's 1999 net income increased $1.969 million, or 57.4%, and earnings per share increased $0.56, or 58.9%, compared to 1998 results. In connection with the 1998 merger of the holding company, a non-recurring charge to 1998 operating expenses of $1.701 million was recorded, which had the effect of reducing net income after tax by $1.022 million and earnings per share by $0.28. Excluding the nonrecurring merger-related expenses from the Company's 1998 results, 1999 net income increased $947 thousand, or 21.3% and earnings per share increased $0.28, or 22.8%. The success of 1999 earnings results is attributable to strong balance sheet growth generating increases in net interest income, a double-digit increase in non-interest income led by trust department earnings at a record level, and a lower rate of increase in operating expenses reflecting positive results of the merger.
Selected Performance Measures
Return on average assets, return on average equity, dividend payout and equity to asset ratios for the years indicated are as follows:
1999 1998 1997 ---- ---- ---- Percentage of net income to average total assets 1.09% 0.74% 1.17% Percentage of net income to average shareholders' equity 10.56% 6.91% 10.25% Percentage of dividends declared to net income 46.24% 70.20% 62.32% Percentage of average shareholders' equity to average total assets 10.29% 10.95% 11.50%
NET INTEREST INCOME Net interest income is the Company's principal source of operating income for payment of overhead and providing for possible loan losses. It is the amount that interest and fees on loans, investments, and other earning assets exceeds the cost of deposits and other interest-bearing liabilities. Net interest income on a tax equivalent basis increased $1.520 million, to $21.501 million in 1999. The growth in net interest income resulted from increases in 1999's average earning assets which offset a declining net interest margin. Loans represented the majority of the Company's interest earning assets and have remained stable at 57% of earning assets over the past two years. Although average loans increased $19.312 million in 1999, yields declined 30 basis points to 8.68%, with lower yields in commercial, consumer, and residential mortgage loans. Interest income on loans in 1999 was up $959 thousand, or 4.4%, compared to 1998. Average loans in 1998 increased $7.806 million compared to 1997, while average loan yields declined 19 basis points primarily due to the decline in the real estate mortgage loan portfolio yields. Interest income on loans was up $235 thousand in 1998 compared to 1997. Average investments in 1999 increased by $27.588 million, with tax equivalent interest income from investments up $1.702 million compared to 1998. In comparison, average investment securities increased $4.431 million in 1998 compared to 1997, with tax equivalent interest income up just $87 thousand. Interest income in 1999 from the sale of federal funds in the amount of $433 thousand declined $319 thousand compared to 1998, as the Company reduced its average federal funds sold balances throughout the year. Tax equivalent interest income for 1999 at $35.721 million, was $2.342 million more than 1998, although the 1999 tax equivalent yield on average earning assets was 7.67%, 19 basis points less than 1998. Average earning assets for 1999 were $465.581 million, up $41.155 million compared to 1998, and represented 93.6% of total average assets in 1999. Average earning assets in 1998 were 93.5% of total average assets. Asset yields showed improvement at year-end 1999 following three successive 25 basis point increases in the federal funds rate, the result of Federal Reserve Board action beginning at mid-year. During 1999, average interest-bearing liabilities increased by $41.800 million, or 12.12%, to $386.700 million. The cost of interest-bearing liabilities declined 20 basis points from 3.88% in 1998 to 3.68% in 1999. The Company's interest expense, which is a function of the volume of, and rates paid for interest bearing liabilities, increased $822 thousand, or 6.14% in 1999. The increase was primarily a result of volume increases in time deposits, along with increased borrowings primarily through the Federal Home Loan Bank. By comparison, interest expense increased $414 thousand, or 3.19% in 1998 as a result of smaller percentage increases in interest-bearing demand and time deposit balances. Average interest-bearing liabilities increased $14.190 million, or 4.29%, in 1998 compared to 1997. The Company's net interest margin (federal tax equivalent net interest income divided by average earning assets) declined 9 basis points, from 4.71% in 1998, to 4.62% in 1999.
The following table sets forth information concerning average interest-earning assets and interest-bearing liabilities and the yields and rates thereon. Interest income and yield information is adjusted for items exempt from federal income taxes and assumes a 34% tax rate. Non-accrual loans have been included in the average balances. Securities are shown at average amortized cost.
Average Balances and Net Interest Income
The following table sets forth the dollar volume of increase (decrease) in interest income and interest expense resulting from changes in the volume of earning assets and interest-bearing liabilities, and from changes in rates. Volume changes are computed by multiplying the volume difference by the prior year's rate. Rate changes are computed by multiplying the rate difference by the prior year's balance. The change in interest due to both rate and volume has been allocated equally between the volume and rate variances.
Volume and Rate Variances
NON-INTEREST INCOME Non-interest income for 1999 was $4.558 million, which was up 14.3%, or $569 thousand, compared to 1998. Non-interest income increased 3.2%, or $123 thousand in 1998. The Company's non-interest income is composed of recurring fees from normal banking operations, trust and data processing department fees, and net gains/losses from sales of investment securities. Income from service charges on deposits at $1.939 million, up 13.7% from the prior year following a 10.1% increase in 1998, was the principal source of the bank's non-interest income. Trust department income increased 43.7% in 1999 to $1.134 million compared to $789 thousand in 1998. The growth in trust revenue is a reflection of both an increase in the market value of trust department assets as well as growth in the departments' customer base resulting from strong new business development efforts in 1999. Trust department income represents 25% of total non-interest income. Trust department income increased 1.8% in 1998 compared to 1997. The Company took minimal gains from the sale of investment securities in 1999. Gains on sales of securities in 1999 of $136 thousand compared to $26 thousand in 1998. Significant contributions to the Company's non-interest income were derived from electronic banking service fees, data processing service contracts with other financial institutions, and dividends received from the credit insurance programs offered through the Company's subsidiary bank.
The following table sets forth certain information on non-interest income for the years indicated.
Non-Interest Income
Years ended December 31, (In Thousands) 1999 1998 1997 ---- ---- ----
Trust department services $1,134 $ 789 $ 775 Service charges on deposit accounts 1,939 1,706 1,550 Data processing services 268 257 244 Investment securities gains 136 26 115 Other operating income 1,081 1,211 1,182 ------ ------ ------
Total non-interest income $4,558 $3,989 $3,866
NON-INTEREST EXPENSE Operating expense in 1999 declined $872 thousand, or 5%, compared to an increase of $2.802 million, or 19.1% in 1998 over the 1997 operating expense. In 1998, the merger of Cortland First Financial Corporation and Oneida Valley Bancshares, Inc. resulted in expenses of $1.701 million being charged against the Company's earnings. Excluding these 1998 nonrecurring merger-related expenses, non-interest expense in 1999 was up $829 thousand, or 5.2%, compared to 1998. On the same basis, operating expense in 1998 was up $1.101 million, or 7.5% compared to 1997. Salaries and associated benefit expenses in 1999 were up $400 thousand, or 4.6%, compared to a 6.2% increase in 1998 over 1997, and represented the majority of the increase in operating expenses. Salary and benefits expense was favorably impacted during the year as a result of certain employees electing to participate in an early retirement program relating to the merger. Increases in salary and benefits during the year were associated with staffing a new Syracuse, New York office that opened in July, and new business development and account officers employed in the growing commercial loan and trust departments. In connection with the merger of the banks in 1999, the Company consolidated various benefit programs and elected to terminate the former Oneida Valley National Bank defined benefit pension plan. As a result of the termination, the Company charged $75 thousand against pension expense in 1999 and expects to charge approximately $460 thousand in additional pension expense in 2000, both of which will be nonrecurring. A gain on the termination of the plan is expected to more than offset all of the expense in 2000. The Company's occupancy and equipment expense received benefits from the merger and declined approximately 1% in 1999 compared to 1998. In the prior year, occupancy and equipment expense increased $195 thousand, or 8.1%, compared to 1997. Excluding 1998 merger related expenses, other operating expense in 1999 increased $449 thousand, or 10%, compared to 1998. The 1999 increases were primarily related to the reordering of stationery, forms, and supplies associated with the April merger of the subsidiary banks along with higher advertising costs to promote the Company's new name and image. Communication expense increased as the Company improved the speed at which it could communicate throughout its 18 branch system.
Non-Interest Expense
Years ended December 31, (In Thousands) 1999 1998 1997 ---- ---- ----
Salaries, wages, and employee benefits $ 9,112 $ 8,712 $ 8,206 Building, occupancy and equipment 2,587 2,607 2,412 Merger related expenses -- 1,701 -- Other operating expense 4,926 4,477 4,077 ------- ------- -------
Total non-interest expense $16,625 $17,497 $14,695
ANALYSIS OF FINANCIAL CONDITION
INVESTMENT SECURITIES The investment portfolio is designed to meet the Company's liquidity needs when loans expand or deposits contract while, at the same time, generating a favorable return on low-risk, high-quality investments. In connection with its merger, the Company elected in 1998 to reclassify the majority of its held-to-maturity investment securities to available-for-sale, and to maintain the majority of its portfolio as available-for-sale to support and maintain the Company's interest risk objectives. The Company does not engage in securities trading or derivatives activities in carrying out its investment strategies. Based on amortized cost, the Company classified 94% of its investment portfolio as available-for-sale at year-end 1999. The Company's book value of investment debt securities increased $26.705 million, or 15.85%, in the 12 months ending December 31, 1999 to a total of $195.138 million, compared to an increase of $8.005 million, or 5%, in 1998 over 1997. The average tax equivalent yield of the portfolio declined four basis points, from 6.43% in 1998 to 6.39% in 1999. The portfolio yield had declined 12 basis points in 1998 compared to 1997. During the year ending December 31, 1999, market interest rates increased significantly, with the yield on three-year U.S. Treasury securities approximately 150 basis points above its December 31, 1998 rate. The increase in rates, which causes a decline in the market value of fixed-rate investment securities, resulted in the Company's available-for-sale investment securities reflecting a market value which was 1.87% less than the portfolios' book value. In compliance with SFAS 115, the Company reflects net unrealized gains and losses on its available-for-sale portfolio in its financial statement investment securities total, as well as the after tax effect of the gains and losses in the accumulated comprehensive income section of its shareholders' equity. The Company's investment portfolio reflects an unrealized loss on available-for-sale securities of $3.476 million, with an after tax effect of $2.086 million being reflected as a reduction in shareholders' equity. Since the Company expects actual future sales of securities to be minimal, as has been its past practice, the losses reflected on the financial statements are not expected to be realized. At December 31,1998, the Company reported unrealized gains in its available-for-sale portfolio of $1.815 million. The composition of the portfolio as of December 31, 1999 consisted of U.S. Treasury and Agency Securities representing 31% of the total, mortgage-backed securities at 35%, tax-exempt investments at 25%, and other securities representing 9% of the total. The composition of the portfolio shows little change when compared to year-end 1998. Gains on sales of investment securities in 1999 were $136 thousand compared to $26 thousand in 1998.
The following table sets forth the amortized cost and market value for the Company's held-to-maturity investment securities portfolio:
The following table sets forth the amortized cost and market value for the Company's available-for-sale debt securities within the investment portfolio:
The following table sets forth as of December 31, 1999 the maturities of investment securities and the weighted-average yields of such securities, which have been calculated on the basis of the cost, weighted for scheduled maturity of each security, and adjusted to a fully tax-equivalent basis:
(1) Weighted average yields on the tax-exempt obligations have been computed on a fully tax-equivalent basis assuming a marginal federal tax rate of 34%. These yields are an arithmetic computation of interest income divided by average balance and may differ from the yield to maturity which considers the time value of money.
LOANS The loan portfolio is the largest component of the Company's earning assets and accounts for the greatest portion of total interest income. The Company provides a full range of loan products delivered through its branch network. Consistent with the focus on providing community banking services, the Company generally does not attempt to diversify geographically by making a significant amount of loans to borrowers outside of the primary service area. Loans are internally generated and lending activity is primarily confined to Cortland, Madison, Onondaga, northern Broome, and western Oneida counties. The Company does not engage in highly leveraged transactions or foreign lending activities.
The following table sets forth the composition of the Company's loan portfolio at the dates indicated.
On December 31, 1999 loans (net of unearned discount) were $285.437 million, increasing $32.141 million, or 12.7%, during the year. Loans increased $13.855 million, or 5.9% in 1998. Although the majority of the Company's loans continue to be residential mortgage loans on our customers' primary residences, increasing emphasis has been placed on growing the commercial loan portfolio. Residential mortgage loans, which represent 40.6% of net loans, increased $880 thousand, or 0.8% during 1999. The mortgage portfolio consists of 85% fixed-rate loans, and 15% with rates that adjust on an annual basis. The Company originated $24.621 million in mortgage loans during 1999. As of December 31, 1999, the Company was servicing mortgage loans sold in the secondary market with balances of $16.612 million. The total of mortgage loans being serviced at December 31, 1998 was $15.133 million. Loans in the commercial category consist primarily of short-term and/or floating rate loans, as well as commercial mortgage loans, made to small and medium-sized companies. Commercial loans in 1999 increased $25.048 million, or 31.3% to $105.169 million over the year-end 1998. A large percentage of the growth in the commercial loan portfolio resulted from new business relationships developed in the Onondaga county market. Consumer loans, net of unearned discount, which include home equity and revolving credit loans, increased 10.4%, or $6.213 million, to $65.818 million as of December 31, 1999. During 1999, the Company increased its focus on indirect auto lending, employing a new business development officer, and centralizing underwriting and loan processing. Indirect auto loans increased $3.865 million, or 23.6%, in 1999 compared to 1998 and represented 76.4% of the 1999 growth in consumer loans.
The following table shows the amount of loans outstanding as of December 31, 1999, which, based on remaining scheduled payments of principal, are due in the periods indicated.
The following table sets forth the sensitivity of the loan amounts due after one year to changes in interest rates:
At December 31, 1999 (In Thousands) Fixed Rate Variable Rate
Due after one year, but within five years $69,564 $32,945 Due after five years $80,005 $33,919
LOAN QUALITY AND THE ALLOWANCE FOR LOAN LOSSES
The following table represents information concerning the aggregate amount of nonperforming assets:
Nonperforming assets, defined as nonaccruing loans plus loans 90 days or more past due along with other real estate owned and other repossessed assets as of December 31,1999 were $1.360 million, increasing $253 thousand, or 22.85%, compared to year-end 1998. The ratio of nonperforming assets to year-end loans, other real estate owned, and other repossessed assets increased from 0.44% at December 31, 1998 to 0.48% at December 31, 1999. The ratio of nonperforming loans to total loans also increased slightly from 0.32% at December 31, 1998 to 0.38% at December 31, 1999. The Company's policy is to place a loan on nonaccrual status and recognize income on a cash basis when it is more than ninety days past due, unless in the opinion of management, the loan is well secured and in the process of collection. The impact of interest not recognized on nonaccrual loans was immaterial in 1999. The Company considers a loan impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. The measurement of impaired loans is generally based upon the present value of future cash flows discounted at the historical effective interest rate, except that all collateral-dependent loans are measured for impairment based on fair value of the collateral. As of December 31, 1999, there were no impaired loans for which specific valuation allowances had been recorded. The Company has a loan review program that it believes takes a conservative approach to evaluating nonperforming loans and the loan portfolio in general. The loan review program continually audits the loan portfolio to confirm management's loan risk rating system and track problem loans, to insure compliance with loan policy underwriting guidelines, and to evaluate the adequacy of the allowance for loan losses. Management determines the allowance for loan losses based on a number of factors including reviewing and evaluating the bank's loan portfolio in order to identify potential problem loans, concentrations of credit, and risk factors connected to the portfolio, as well as current local and national economic conditions. The allowance for loan losses represents management's estimate of an amount that is adequate to provide for potential losses inherent in the loan portfolio. Loans are charged against the allowance for loan losses, in accordance with the Company's loan policy, when they are determined by management to be uncollectible. Recoveries on loans previously charged-off are credited to the allowance for loan losses when they are received. When management determines that the allowance for loan losses is less than adequate to provide for potential losses, a direct charge is made to operating income. The Allowance for Loan Losses account at December 31, 1999 was $3.412 million, or 1.20% of loans (net of unearned discount) outstanding compared to $3.001 million, or 1.18% of loans outstanding at December 31, 1998. The adequacy of the allowance to provide coverage for nonperforming loans was 313% at year-end 1999 compared to 353% at year-end 1998. The provision expense in 1999 of $975 thousand provided coverage in excess of the $564 thousand in net loans charged off. The ratio of net charge-offs to average loans outstanding declined to 0.21% in 1999 compared to 0.30% in 1998. Loan losses in the Company's residential mortgage loan portfolio continue to be negligible, with commercial loan portfolio net loan losses in 1999 of $51 thousand, representing 0.07% of average commercial loans outstanding in 1999. Over the past two years, 79% of total loans charged-off have been consumer loans, with the majority being installment loans. Net consumer loan losses in 1999 in the amount of $475 thousand were 0.73% of average consumer loans outstanding for 1999. A relatively low level of nonperforming loans combined with a stable and low level of net charge-offs, continues to allow the Company to carry a reserve for loan losses below peers.
The following table summarizes loan balances at the end of each period indicated and the daily average amount of loans. Also summarized are changes in the allowance for possible losses arising from loans charged-off and recoveries on loans previously charged-off and additions to the allowance, which have been charged to expenses.
The allowance for possible loan losses has been allocated according to the amount deemed to be reasonably necessary to provide for the possibility of losses being incurred within the following categories of loans at the dates indicated.
OTHER ASSETS During the fourth quarter of 1999, the Company purchased $7.5 million of insurance, insuring the lives of a number of the Company's key executives and managers. The Company views the purchase as protection against the loss of its key personnel. The bank-owned life insurance is carried on the books at its current cash surrender value. Increases in cash surrender value are based on market rates paid by the two insurance companies that have issued the policies, and are credited to other income.
DEPOSITS AND OTHER BORROWINGS The Company's deposit accounts represent its primary source of funds. The deposit base is comprised of demand deposit, savings and money market accounts, and other time deposits which are provided by individuals, businesses, and local governments within the communities served. The Company continuously monitors market pricing, competitors' rates, and internal interest rate spreads to maintain and promote growth and profitability. Average deposits for 1999 increased $34.253 million, or 8.6%, to $431.080 million, compared to an $17.949 million, or 4.7%, increase in 1998 over 1997. Compared to December 31, 1998, deposits as of December 31, 1999 of $435.074 million were up $21.480 million. The Company's deposit mix has been relatively stable over the past three years, with changes reflecting a slight shift from regular savings to money market savings accounts, on which the Company pays higher interest rates. The Company's demand deposits, including both interest-bearing and non-interest-bearing accounts, reflected an increase in average outstanding balances of $4.167 million, or 3.6%, during 1999 following a 10.3% increase when comparing 1998 to 1997. These core transactional accounts continue to provide the company with an important low-cost source of funds. With a relatively low rate of inflation during 1999, low savings rates encouraged depositors to transfer balances to time deposits. Average time deposits in 1999 increased $22.476 million, or 16%, compared to 1998, following an increase of $5.929 million, or 4.4%, when comparing 1998 to 1997. Depositors continued to favor time deposits with maturities of 18 months or less. Time deposits in excess of $100 thousand, which are more volatile and sensitive to interest rates, totaled $72.457 million at year-end 1999, 43.2% of time deposits and 16.7% of total deposits, compared to 38.7%, and 14%, respectively, at year-end 1998. The Company has been more aggressive in acquiring large balance time deposits in the past two years, matching the liabilities with assets that have similar interest rate risk characteristics. The Company's total municipal deposits of $110.819 million on December 31, 1999 represented 25.5% of total deposits compared to $82.086 million, or 19.89%, on December 31, 1998.
The average daily amount of deposits, the average rate paid, and the percentage of deposits on each of the following deposit categories is summarized below for the years indicated.
The following table indicates the amount of the Company's time deposits of $100,000 or more by time remaining until maturity as of December 31, 1999.
(In Thousands) Less than three months $41,336 Three months to six months 22,415 Six months to one year 4,921 Over one year 3,785 ----- Total $72,457 =======
In the fourth quarter of 1999, the Company began offering retail repurchase agreements primarily to its larger business customers. Under the terms of the agreement, the Company sells investment portfolio securities to the customer agreeing to repurchase the securities at a specified later date. The Company views the borrowing as a deposit alternative for its business customers. As of December 31, 1999, repurchase agreements amounted to $7.225 million. During 1999, the Company increased borrowings from the Federal Home Loan Bank by $24 million. Borrowings at December 31, 1999 were all scheduled to mature in 90 days or less and are considered as an alternative to purchasing large time deposits from corporate or municipal customers based on cost and timing issues.
CAPITAL In 1999, the Company added $5.402 million into equity through net income and returned $2.498 million to its shareholders in the form of dividends, retaining $2.904 million in undivided profits. During the year, the Company repurchased 68,800 shares of its common stock at a cost of $1.653 million in connection with a stock repurchase program that was announced early in the third quarter. The Board of Directors believes that the 1999 repurchases of stock have been an excellent investment opportunity for the Company and its shareholders, based on the Company's strong capital position and growth potential. Total shareholders' equity also reflects an adjustment for the SFAS 115 required change in market value of the Company's available-for-sale investment securities. As previously discussed in the Investment Securities section, the after tax effect of the net unrealized gains and losses is reported as the Accumulated Other Comprehensive Income component of shareholders' equity, and reflects a reduction in total shareholders' equity of $2.086 million as of December 31, 1999. The Company's ratio of shareholders' equity to assets of 9.49% at December 31, 1999 compares to 10.85% at December 31, 1998. The Company's goal is to maintain a strong capital position, consistent with the risk profile of its subsidiary bank, that supports growth and expansion activities while at the same time exceeding regulatory standards. Capital adequacy in the banking industry is evaluated primarily by the use of ratios which measure capital against total assets, as well as against total assets that are weighted based on defined risk characteristics. At December 31, 1999, the Company exceeded all regulatory required minimum capital ratios and met the regulatory definition of a "well capitalized institution". A more comprehensive analysis of regulatory capital requirements, including ratios for the Company and its subsidiary bank, is included in Note 16 in the Consolidated Financial Statements section of the Annual Report. The Company paid cash dividends equal to $0.70 per share in 1999 compared to $0.67 in 1998. The 1999 dividend pay-out ratio was 46%.
LIQUIDITY Liquidity is the ability of the Company to generate and maintain sufficient cash flows to fund its operations and to meet customer's loan demands or deposit withdrawals. Maintaining a stable core deposit base is one of the fundamentals in the Company's liquidity management policy. It is the Company's goal to raise cash when needed, at the most reasonable cost, with a minimum of loss. Management carefully monitors its liquidity position and seeks to maintain adequate liquidity to meet its needs. The Company meets its liquidity needs by balancing levels of cash flow from the sale or maturity of available-for-sale investment securities and loan amortizing payments and maturities, as well as with the availability of dependable borrowing sources which can be accessed when needed. Lines of credit with the bank's primary correspondents and the Federal Home Loan Bank as of year-end 1999 were $64.273 million of which $55.273 million remained available.
IMPACT OF THE YEAR 2000 Prior to year-end 1999, the Company had completed the assessment of its Y2K risk, had implemented all necessary system enhancements, and had tested all systems and equipment to ensure customer service and minimize its business risks in the year 2000. A Business Resumption Contingency Plan along with a Liquidity Contingency Plan were in place to provide for problems should they occur. As a result of strong customer communications and marketing efforts by both the Company and the banking industry, consumer confidence in the banking industry's ability to resolve Y2K problems increased as January 1, 2000 approached. The increase in consumer confidence resulted in the Company experiencing no significant Y2K related deposit declines or cash withdrawals in December of 1999. The month of January 2000 reflected a successful transition to the year 2000 of all of the Company's systems and equipment. In particular, the Company's on-premise computer processing system continued to perform as the Y2K testing program had indicated that it would. All year-end processing was completed as scheduled and daily processing since year-end has been performed without any Y2K related incidents. By the end of the first week of business in January, the Company's contingency cash was reinvested. The Company estimates that interest income was negatively impacted in the fourth quarter of 1999 by $100 thousand as a result of the uninvested cash being reserved for Y2K customer contingencies. Total costs incurred and income lost by the Company in connection with remediation and contingency planning for Y2K are estimated at $250 thousand, with $60 thousand expensed in 1998, and $190 thousand of expense and lost income in 1999. Early indications from the Company's commercial loan department reflect that the quality of the Company's loan portfolio has had no negative Y2K related impact. The Company believes that its business risks to Y2K related problems have been significantly reduced with the successful operation of its systems during the early part of the year 2000. By the end of the first quarter of 2000, the Company expects that a sufficient level of business activity with all of its third party vendors will indicate if any risk remains. Until such time, the Company will continue to maintain its Y2K Business Resumption Contingency Plan to manage such risk.
Item 7A
Item 7A - Quantitative and Qualitative Disclosures About Market Risk Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates or prices such as interest rates, foreign currency exchange rates, commodity prices, and equity prices. The Company's market risk arises principally from interest rate risk in its lending, deposit, and borrowing activities. Other types of market risks generally do not arise in the normal course of the Company's business activities. Management actively monitors and manages its interest rate risk exposure. Although the Company manages other risks, such as credit quality and liquidity risks, in the normal course of business, management considers interest rate risk to be its most significant market risk and could potentially have the largest material effect on the Company's financial condition and results of operations. The Company's profitability is affected by fluctuations in interest rates. Management's goal is to maintain a reasonable balance between exposure to interest rate fluctuations and earnings. A sudden and substantial change in interest rates may adversely impact the Company's earnings to the extent that the interest rates on interest-earning assets and interest-bearing liabilities do not change at the same speed, to the same extent, or on the same basis. The Company monitors the impact of changes in interest rates on its net interest income using a computer simulation model. The model measures the change in net interest income which results when market interest rates change. As of December 31, 1999, an instantaneous 200 basis point increase in market interest rates was estimated to have a negative impact of 5.19% on net interest income over the next twelve-month period, while a 200 basis point decrease in market interest rates was estimated to have a positive impact of 3.63% on the Company's net interest income. By comparison, at December 31, 1998 the Company estimated an instantaneous 200 basis point rise in rates would have a negative impact of 4.46% on net interest income during 1999 while a 200 basis point decline in rates would have a positive impact of 2.55% on net interest income during 1999. The Company took on slightly more risk to changing interest rates during 1999 as it continued to grow its municipal and large certificate of deposit base along with increased borrowings from the Federal Home Loan Bank. Both funding sources have short-term repricing characteristics or maturities. Although a considerable amount of the funding was utilized in the making of variable rate commercial loans, the Company also increased other loan and investment assets with three to five year repricing characteristics or maturities. The Company believes that the increase in yield for the extended maturities warrants the small increase in its overall interest rate risk. The potential change in net interest income resulting from this analysis falls within the Company's interest rate risk policy guidelines. Computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments, and deposit rate changes, and should not be relied upon as indicative of actual results.
The following table shows the Company's financial instruments that are sensitive to changes in interest rates, categorized by expected maturity, and the instruments' fair values at December 31, 1999.
Expected maturities are contractual maturities adjusted for prepayments of principal. The Company uses certain assumptions to estimate fair values and expected maturities. For assets, expected maturities are based upon contractual maturity, projected repayments and prepayment of principal. The prepayment experience reflected herein is based on the Company's historical experience. The actual maturities and run-off of loans could vary substantially if future prepayments differ from the Company's historical experience. For liabilities, regular savings and NOW accounts of individuals, partnerships, and corporations (IPC) are considered to be 90% core (maturing in over five years), with 10% assumed to mature in one year. IPC money market savings are considered to be 75% core. Savings and NOW accounts of municipalities are considered 75% core (maturing in over five years), with 25% assumed to mature in one year. Money market savings accounts of public entities are considered to be 50% core.
Item 8
Item 8 -- Financial Statements and Supplementary Data
CONSOLIDATED STATEMENTS OF CONDITION (Dollars In Thousands)
ASSETS Dec. 31, 1999 Dec. 31, 1998 - ------ ------------- ------------- Cash and due from banks $ 20,231 $ 23,431 Federal funds sold -- 10,700 Total Cash and Cash Equivalents 20,231 34,131
Held-to-maturity investment securities 12,449 13,436 Available-for-sale investment securities 181,933 158,801 Total Investment Securities 194,382 172,237 (fair value - $194,382 for 1999 and $172,288 for 1998)
Total Loans 286,497 255,508
Less: Unearned income 1,060 2,212 Less: Allowance for possible loan losses 3,412 3,001 Net Loans 282,025 250,295 Bank premises, furniture and equipment 8,888 8,289 Accrued interest receivable 3,402 2,884 Other assets 10,269 3,869 Total Assets $ 519,197 $ 471,705
LIABILITIES AND SHAREHOLDERS' EQUITY Non-interest-bearing deposits $ 56,562 $ 60,534 Interest-bearing deposits 378,512 353,060 Total Deposits 435,074 413,594
Short-term borrowings 31,225 752 Other liabilities 3,653 6,191 Total Liabilities 469,952 420,537
Shareholders' equity: Preferred stock - par value $25.00 a share; 1,000,000 shares authorized, none issued Common stock - par value $1.00 a share; 10,000,000 shares authorized, 3,641,035 and 3,641,178 shares issued, and 3,526,011 and 3,594,954 shares outstanding for 1999 and 1998, respectively 3,641 3,641 Surplus 3,641 3,641 Undivided profits 46,768 43,864 Accumulated other comprehensive (loss) income (2,086) 1,088 Treasury stock, at cost; 115,024 shares and 46,224 shares, respectively (2,719) (1,066) Total Shareholders' Equity 49,245 51,168
Total Liabilities and Shareholders' Equity $ 519,197 $ 471,705
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME (Dollars In Thousands, except per share data)
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME: (Dollars In Thousands)
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY: (Dollars In Thousands)
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS: INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (Dollars In Thousands)
The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: Alliance Financial Corporation (the Company) is a bank holding company, which owns and operates Alliance Bank, N.A. The Company provides financial services primarily to individuals, small- to medium-sized businesses, and government customers from eighteen branches in Broome, Cortland, Madison, Oneida, and Onondaga counties in New York State. The bank has a substantially wholly owned subsidiary, Alliance Preferred Funding Corp., which is engaged in residential real estate activity.
Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary after elimination of intercompany accounts and transactions.
Use of Estimates in the Preparation of Financial Statements: The preparation of 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 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.
Business Combination: In November 1998, Cortland First Financial Corporation (Cortland) completed a merger with Oneida Valley Bancshares, Inc. (Oneida) and commenced operations under the name Alliance Financial Corporation (the Company). Pursuant to the terms of the merger, each share of Cortland stock was exchanged for one share of the Company's stock and each share of Oneida stock was exchanged for 1.8 shares of the Company's stock. The merger constituted a tax-free reorganization and has been accounted for as a pooling of interests under Accounting Principles Board Opinion No. 16. Accordingly, the consolidated financial statements for the periods presented have been restated to include the combined results of operations, financial position and cash flows of Cortland and Oneida. There were no transactions between Cortland and Oneida prior to the merger. Certain reclassifications were made to Cortland's and Oneida's prior year financial statements to conform to the Company's presentation. In conjunction with the merger, the Company recorded a 1998 charge to operating expenses of $1,701 ($1,022 after taxes, or $0.28 per common share) for direct merger and restructuring costs relating to the merger. Restructuring costs primarily relate to the consolidation of administration and operational functions.
Reclassification: Certain amounts from 1998 and 1997 have been reclassified to conform to the current year presentation. These reclassifications had no effect on net income as previously reported.
Cash and Cash Equivalents: For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold. Generally, federal funds are purchased and sold for one-day periods.
Investment Securities: The Company classifies investment securities as held-to-maturity or available-for-sale. Held-to-maturity securities are those which the Company has the positive intent and ability to hold to maturity, and are reported at cost, adjusted for amortization of premiums and accretion of discounts. Investment securities not classified as held-to-maturity are classified as available-for-sale and are reported at fair value, with net unrealized holding gains and losses reflected as a separate component of stockholders' equity, net of the applicable income tax effect. None of the Company's investment securities have been classified as trading securities. Gains and losses on the sale of investment securities are based on the specific identification method. Premiums and discounts on securities are amortized and accreted into income using the interest method over the life of the security.
Loans: Loans are stated at unpaid principal balances less the allowance for loan losses, unearned interest income and net deferred loan origination fees and costs. Unearned income on certain installment loans is taken into income on the actuarial method. Interest on all other loans is based upon the principal amount outstanding. Interest on loans is accrued except when in management's opinion the collectibility of interest is doubtful, at which time the accrual of interest on the loan is discontinued. Loan origination fees and certain direct loan origination costs are deferred and the net amount is amortized as a yield adjustment. The Company is generally amortizing these amounts over the contractual life of the related loans. However, for certain fixed-rate mortgage loans that are generally made for a 20-year term, the Company has anticipated prepayments and used an estimated life of 7.5 years.
Allowance for Credit Losses: The adequacy for the allowance for possible loan losses is periodically evaluated by the Company in order to maintain the allowance at a level that is sufficient to absorb probable credit losses. Management's evaluation of the adequacy of the allowance is based on a review of the Company's historical loss experience, known and inherent risks in the loan portfolio, including adverse circumstances that may affect the ability of the borrower to repay interest and/or principal, the estimated value of collateral, and an analysis of the levels and trends of delinquencies, charge-offs, and the risk ratings of the various loan categories. Such factors as the level and trend of interest rates and the condition of the national and local economies are also considered. A loan is considered impaired, based on current information and events, if it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. The measurement of impaired loans is generally based upon the present value of future cash flows discounted at the historical effective interest rate, except that all collateral-dependent loans are measured for impairment based on fair value of the collateral.
Income Recognition on Impaired and Nonaccrual Loans: Loans, including impaired loans, are generally classified as nonaccrual if they are past due as to maturity of payment of principal or interest for a period of more than 90 days unless they are well secured and are in the process of collection. While a loan is classified as nonaccrual and the future collectibility of the recorded loan balance is doubtful, collections of interest and principal are generally applied as a reduction to principal outstanding and there is no amortization of deferred fees.
Bank Premises, Furniture and Equipment: Bank premises, furniture and equipment are stated at cost less accumulated depreciation computed principally using the straight-line method over the estimated useful lives of the assets. Maintenance and repairs are charged to operating expenses as incurred. The asset cost and accumulated depreciation are removed from the accounts for assets sold or retired and any resulting gain or loss is included in the determination of the income.
Income Taxes: Provision for income taxes is based on taxes currently payable or refundable and deferred income taxes on temporary differences between the tax basis of assets and liabilities and their reported amount in the financial statements. Deferred tax assets and liabilities are reported in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled.
Trust Department Assets: Assets held in fiduciary or agency capacities for customers are not included in the accompanying consolidated statements of condition, since such items are not assets of the Company. Fees associated with providing trust management services are recorded on a cash basis of income recognition and are included in Other Income.
Earnings Per Share: Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding throughout each year; 3,576,728, 3,596,548 and 3,660,914 for 1999, 1998 and 1997, respectively. Diluted earnings per share gives effect to weighted average shares which would be outstanding assuming the exercise of options using the treasury stock method. Weighted average shares outstanding adjusted for the dilutive effect of the assumed exercise of stock options, were 3,577,109 and 3,596,548 for the years 1999 and 1998, respectively. There were no stock options outstanding during the year 1997. For the years ending December 31, 1999 and 1998, both basic and diluted earnings per share were $1.51 and $0.95, respectively. Options to purchase 100,000 shares of common stock at $29.125 per share were outstanding during the years 1999 and 1998, but were not included in the computation of diluted earnings per share because the options exercise price was greater than the average market price of the common shares. These options expire on November 25, 2008.
INVESTMENT SECURITIES (Dollars In Thousands) The amortized cost and approximate fair value of investment securities at December 31 are as follows:
The carrying value and estimated market value of debt securities at December 31, 1999 by contractual maturity, are shown below. The maturities of mortgage-backed securities are based on the average life of the security. All other expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
At December 31, 1999 and 1998, investment securities with a carrying value of $152,986 and $100,398, respectively, were pledged as collateral for certain deposits and other purposes as required or permitted by law.
LOANS (Dollars In Thousands) Major classifications of loans at December 31 are as follows:
1999 1998 ---- ---- Commercial and agricultural $105,169 $ 80,121 Real estate loans 114,450 113,570 Consumer loans 66,878 61,817 Total 286,497 255,508 -------- -------- Less: Unearned income 1,060 2,212 Less: Allowance for possible loan losses 3,412 3,001 -------- -------- Net loans $282,025 $250,295
Mortgage loans serviced for others are not included in the accompanying consolidated statements of financial condition. The unpaid balances of mortgage loans serviced for others was $16,612, $15,133 and $7,637 at December 31, 1999, 1998, and 1997, respectively.
ALLOWANCE FOR POSSIBLE LOAN LOSSES (Dollars In Thousands) Changes in the allowance for possible loan losses for the years ended December 31, are summarized as follows:
1999 1998 1997 ---- ---- ---- Balance at January 1 $3,001 $2,957 $3,025 Provision for possible loan losses 975 770 625 Recoveries credited 184 214 114 Subtotal 4,160 3,941 3,764 Less: Loans charged-off 748 940 807 Balance at December 31 $3,412 $3,001 $2,957
The average recorded investment in impaired loans was zero for the year ended December 31, 1999 and approximated $200 for the year ended December 31, 1998. None of these loans had a specific valuation allowance recorded. The Company recognized no interest income on impaired loans during 1999 and 1998. The amount of nonaccrual loans for the years ended December 31, 1999 and 1998 were $682 and $552 respectively, and the income not recognized from these loans was immaterial for the years ended December 31, 1999, 1998, and 1997.
RELATED PARTY TRANSACTIONS (Dollars In Thousands) Directors and executive officers of the Company and their affiliated companies were customers of, and had other transactions with, the Company in the ordinary course of business during 1999. It is the Company's policy that all loans and commitments included in such transactions are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and do not involve more than the normal risk of collectibility or present other unfavorable features. Loan transactions with related parties are summarized as follows:
1999 1998 ---- ---- Balance at beginning of year $ 5,703 $ 3,403 New loans and advances 3,445 4,152 Loan payments (1,273) (1,852) ------- ------- Balance at end of year $ 7,875 $ 5,703
BANK PREMISES, FURNITURE AND EQUIPMENT (Dollars In Thousands) Bank premises, furniture and equipment at December 31, consist of the following:
1999 1998 ---- ---- Land $ 913 $ 913 Bank premises 8,644 8,470 Furniture and equipment 10,415 9,033 Subtotal 19,972 18,416 Less: Accumulated depreciation 11,084 10,127 ------- ------- Balance at end of year $ 8,888 $ 8,289
DEPOSITS (Dollars In Thousands)
The carrying amounts of deposits consisted of the following at December 31:
1999 1998 ---- ----
Non-interest-bearing checking $ 56,562 $ 60,534 Interest-bearing checking 64,442 68,081 Savings accounts 78,066 78,692 Money market accounts 68,226 56,624 Time deposits 167,778 149,663 -------- -------- Total deposits $435,074 $413,594
The following table indicates the maturities of the Company's time deposits at December 31:
1999 1998 ---- ---- Due in one year $139,293 $115,337 Due in two years 16,291 20,271 Due in three years 5,764 6,074 Due in four years 3,234 7,378 Due in five years or more 3,196 603 -------- -------- Total deposits $167,778 $149,663
Total time deposits in excess of $100 as of December 31, 1999 and 1998 were $72,457 and $57,922, respectively.
BORROWINGS (Dollars In Thousands) The following is a summary of borrowings at December 31:
Information related to short-term borrowings at December 31 is as follows:
1999 1998 ---- ---- Maximum outstanding at any month end $31,225 $1,712 Average amount outstanding during the year $10,210 $1,748 Average interest rate during the year 5.87% 5.60%
Average amounts outstanding and average interest rates are computed using monthly averages.
At December 31, 1999 and 1998, the Company had available a line of credit with the Federal Home Loan Bank of New York (FHLB) of $49,273 and $43,100, respectively, of which $9,000 and $0 was outstanding as of December 31, 1999 and 1998, respectively. The Company also has access to the FHLB's Term Advance Program under which it can borrow at various terms and interest rates. Residential mortgage loans in the amount of $113,930 have been pledged by the Company under a blanket collateral agreement to secure the Company's line of credit and term borrowings. At December 31, 1999, the Company's total borrowings potential with the FHLB was $82,858. At December 31, 1999 and 1998, the Company also had available $15,000 and $2,500, respectively, lines of credit with other financial institutions which were unused.
INCOME TAXES (Dollars In Thousands) The provision for income taxes for the years ended December 31 is summarized as follows: 1999 1998 1997 ---- ---- ---- Current tax expense $ 2,184 $ 1,732 $ 2,228 Deferred tax benefit (340) (628) (8) Total provision for income taxes $ 1,844 $ 1,104 $ 2,220
The provision for income taxes includes the following:
1999 1998 1997 ---- ---- ---- Federal income tax $ 1,628 $ 780 $ 1,693 New York State franchise tax 216 324 527 Total $ 1,844 $ 1,104 $ 2,220
The components of deferred income taxes, included in other assets, at December 31 are as follows:
1999 1998 ---- ---- Assets: Allowance for possible loan losses $1,002 $ 755 Postretirement benefits 941 822 Deferred compensation 753 583 Merger costs 274 261 Other 48 8 Total Assets $3,018 $2,429
Liabilities: Investment securities $1,391 $ 727 Accretion 44 40 Prepaid pension 183 197 Depreciation 174 113 Other 43 19 Total Liabilities $1,835 $1,096 Net deferred tax asset $1,183 $1,333
A reconciliation between the statutory federal income tax rate and the effective income tax rate for 1999, 1998, and 1997 is as follows:
1999 1998 1997 ---- ---- ---- Statutory federal income tax rate 34.0% 34.0% 34.0% State franchise tax, net of federal tax benefit 1.5% 4.7% 4.8% Tax exempt income (10.3%) (16.4%) (8.7%) Other, net 0.3% 2.0% 0.1% Total 25.5% 24.3% 30.2%
RETIREMENT PLANS AND POSTRETIREMENT BENEFITS (Dollars In Thousands) As of the close of business April 16, 1999, the Company merged its two subsidiary banks, First National Bank of Cortland (Cortland) and Oneida Valley National Bank (Oneida), taking the new name Alliance Bank, N.A. During the remainder of the year, the Company evaluated its various retirement and employee benefit plans, approving changes that would provide a uniform plan of benefits for all employees. Effective June 30, 1999, the Company terminated the former Oneida Valley National Bank noncontributory defined benefit pension plan which had covered substantially all of its employees. As of the termination date, plan participants accrued no additional benefits. The Company expects to complete the process of distributing the benefit obligation along with a percentage of the excess assets to the plan participants before June 30, 2000. During the fourth quarter of 1999, the Company amended and merged the postretirement medical and life insurance benefit plans that were available to the employees of Cortland and Oneida, to present a uniform plan of benefits for all employees. Benefits are available to full-time employees who have worked 15 years and attained age 55. Retirees and certain active employees with more than 20 years of service to the Company will continue to receive benefits under the former plans.
The following tables set forth the changes in the plan's benefit obligation, fair value of plan assets, and prepaid (accrued) benefit cost as of December 31, 1999 and 1998:
Plan assets at December 31, 1999 are invested in short-term money market accounts.
Significant assumptions used in determining the benefit obligation as of December 31, 1999 and 1998 are as follows:
For measurement purposes, with respect to the postretirement benefit plans, a 7.0 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 2000. The rate was assumed to decrease gradually to 4.5 percent by the year 2005 and remain at that level thereafter.
The composition of the net periodic pension cost for the years ended December 31 is as follows:
Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one percentage point change in assumed health care cost trend rates would have the following effects:
One percentage One percentage point increase point decrease Effect on total service and interest cost components 25 (20) Effect on postretirement plan obligations 262 (218)
The Company offers a defined contribution 401(k) plan covering substantially all of its employees. Contributions to the plan are determined by the board of directors and are based on percentages of compensation for eligible employees. Contributions are funded following the end of the plan year. Company contributions to the plan were $440, $425, and $440 in 1999, 1998, and 1997, respectively.
DEFERRED COMPENSATION AND SUPPLEMENTAL RETIREMENT PLANS (Dollars In Thousands) The Company maintains optional deferred compensation plans for its directors, whereby fees normally received are deferred and paid by the Company upon the retirement of the director. At December 31, 1999 and 1998, other liabilities included approximately $980 and $789, respectively, relating to deferred compensation. Deferred compensation expense for the years ended December 31, 1999, 1998, and 1997 approximated $191, $157, and $139, respectively. The Company has supplemental executive retirement plans for certain employees. The Company has segregated assets of $875 and $826 at December 31, 1999 and 1998, respectively, to fund the estimated benefit obligation. These assets are included in other assets. At December 31, 1999 and 1998, other liabilities included approximately $904 and $811 accrued under these plans. Compensation expense includes approximately $65, $87, and $99 relating to these plans at December 31, 1999, 1998, and 1997, respectively.
STOCK OPTION PLAN (Options are stated in whole numbers) During November 1998, shareholders approved the 1998 long-term incentive compensation plan. This plan authorized grants of options of up to 400,000 shares of authorized but unissued common stock of the Company. Under the plan, the board of directors may grant incentive stock options, non-qualified stock options, and restricted stock awards to officers, employees, and certain other individuals. All options have a 10-year term and vest and become exercisable ratably over a 3-year period. At December 31, 1999, there were 290,000 shares available for grant. The Company has elected to account for its stock-based compensation plan in accordance with Accounting Principles Board Opinion No. 25 and accordingly, no compensation cost has been recognized for stock options in the accompanying consolidated financial statements. Had the Company determined compensation cost based on the fair value of its stock options at the grant date under SFAS No. 123, the Company's net income and earnings per share would have been reduced to pro forma amounts indicated in the following table:
1999 1998 ---- ---- Net Income (In Thousands): As reported $5,402 $3,433 Pro forma $5,226 $3,415 Earnings per share (basic and diluted): As reported $1.51 $0.95 Pro forma $1.46 $0.95
The per share weighted average fair value of stock options granted during 1999 and 1998 was $6.15 and $6.66, respectively. Fair values were arrived at using the Black-Scholes option pricing model with the following assumptions:
1999 1998 ---- ---- Risk-free interest rate 5.32% 4.63% Expected dividend yield 2.00% 2.00% Volatility 28.50% 22.50% Expected life (years) 5 5
Activity in the plan for 1999 and 1998 was as follows:
As of December 31, 1999, 33,334 of the 100,000 options issued in 1998 were exercisable at an exercise price of $29.125. The options have a remaining life of 8.90 years. As of December 31, 1999, none of the 10,000 options issued in 1999 were exercisable. These options have a remaining life of 9.25 years.
COMMITMENTS AND CONTINGENT LIABILITIES (Dollars In Thousands) The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist primarily of commitments to extend credit and letters of credit which involve, to varying degrees, elements of credit risk in excess of amounts recognized in the consolidated statements of condition. The contract amount of those commitments and letters of credit reflects the extent of involvement the Company has in those particular classes of financial instruments. The Company's exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of the instruments. The Company uses the same credit policies in making commitments and letters of credit as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit risk:
Contract Amount 1999 1998 ---- ---- Commitments to extend credit $38,351 $38,201 Standby letters of credit $ 1,443 $ 1,505
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 some of the commitment amounts are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Since the letters of credit are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. For both commitments to extend credit and letters of credit, the amount of collateral obtained, if deemed necessary by the Company upon the extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies, but includes residential and commercial real estate. Principal operating leases are for bank premises. At December 31, 1999, aggregate future minimum lease payments under noncancelable operating leases with initial or remaining terms equal to or exceeding one year consist of the following: 2000 - $222; 2001 - $201; 2002 - $185; 2003 - $179; 2004 - $128; and $1,144 thereafter. Total rental expense amounted to $147 in 1999; $146 in 1998; and $146 in 1997. The Company is required to maintain a reserve balance as established by the Federal Reserve Bank of New York. The required average total reserve for the 14-day maintenance period ended December 31, 1999 was $600.
DIVIDENDS The primary source of cash to pay dividends to the Company's shareholders is through dividends from its banking subsidiary. Banking regulations limit the amount of dividends that a bank may pay to its parent company. At December 31, 1999, approximately $2,900 was available for the declaration of dividends by the Bank. There were no loans or advances from the subsidiary bank to the Company at December 31, 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standard No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value information of financial instruments, whether or not recognized in the statement of condition, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
The carrying amounts and estimated fair values of financial instruments are as follows:
The fair value of commitments to extend credit and standby letters of credit is not significant.
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the consolidated statement of condition for cash and short-term instruments approximate those assets' fair value.
Investment securities: Fair values for investment securities are based on quoted market prices or dealer quotes.
Loans: Fair values for loans are estimated using discounted cash flow analysis, based on interest rates approximating those currently being offered for loans with similar terms and credit quality. The fair value of accrued interest approximates carrying value.
Deposits: The fair values disclosed for non-interest-bearing accounts and accounts with no stated maturity are, by definition, equal to the amount payable on demand at the reporting date. The fair value of time deposits was estimated by discounting expected monthly maturities at interest rates approximating those currently being offered on time deposits of similar terms. The fair value of accrued interest approximates carrying value.
Short-term borrowings: The carrying amounts of short-term borrowings approximate their fair value.
Off-balance-sheet instruments: Off-balance-sheet financial instruments consist of commitments to extend credit and standby letters of credit, with fair value based on fees currently charged to enter into agreements with similar terms and credit quality.
REGULATORY MATTERS The Company and its banking subsidiary are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly 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 Company must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's capital amounts and classifications 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 its subsidiary bank to maintain minimum amounts and ratios (set forth in the tables below) of total and Tier I Capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I Capital (as defined) to average assets (as defined). Management believes, as of December 31, 1999, that the Company and its subsidiary bank meet all capital adequacy requirements to which they are subject. As of July 26, 1999, the most recent notification from the Office of the Comptroller of the Currency categorized the Bank as "well-capitalized," under the regulatory framework for prompt corrective action. To be categorized as "well-capitalized," the Bank must maintain total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the tables below. There are no conditions or events since that notification that management believes have changed the bank's category.
The Company's actual capital amounts and ratios are presented in the following table (Dollars In Thousands).
PARENT COMPANY FINANCIAL INFORMATION (Dollars In Thousands) Condensed financial statement information of Alliance Financial Corporation is as follows:
BALANCE SHEETS Dec. 31, 1999 Dec. 31, 1998 ------------- ------------- Assets: Investment in subsidiary bank $ 47,225 $ 47,382 Cash 2,369 4,633 Investment securities 268 28 Total Assets $ 49,862 $ 52,043
Liabilities: Accounts payable -- 246 Dividends payable 617 629 Total Liabilities 617 875 Shareholders' Equity: Common stock 3,641 3,641 Surplus 3,641 3,641 Undivided profits 46,768 43,864 Accumulated other comprehensive income (2,086) 1,088 Treasury stock (2,719) (1,066) Total Shareholders' Equity $ 49,245 $ 51,168 Total Liabilities and Shareholders' Equity $ 49,862 $ 52,043
REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Alliance Financial Corporation
In our opinion, the accompanying consolidated statements of condition and the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows present fairly, in all material respects, the financial position of Alliance Financial Corporation at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP Syracuse, New York January 14, 2000
REPORT OF MANAGEMENT'S RESPONSIBILITY Management is responsible for preparation of the consolidated financial statements and related financial information contained in all sections of this Annual Report on Form 10-K, 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, in all material respects, with generally accepted accounting principles appropriate in the circumstances and that the financial information appearing throughout this annual report is consistent, in all material respects, 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 with the Company's management, internal auditors and independent auditors, PricewaterhouseCoopers LLP, to review matters relating to the quality of financial reporting, internal accounting control, and the nature, extent and results of audit efforts. The internal auditors and independent auditors have unlimited access to the Audit Committee to discuss all such matters.
David R. Alvord John C. Mott David P. Kershaw President & Co-Chief Executive Officer Treasurer & Co-Chief Executive Officer Chief Financial Officer
Item 9
Item 9 -- Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None.
PART III
Item 10
Item 10 -- Directors and Executive Officers of the Registrant The information required by this Item 10 is incorporated herein by reference to the section entitled "Information Concerning Nominees for Directors and Other Directors" in the Company's Proxy Statement.
Item 11
Item 11 -- Executive Compensation The information required by this Item 11 is incorporated herein by reference to the section entitled "Executive Compensation" in the Company's Proxy Statement.
Item 12
Item 12 -- Security Ownership of Certain Beneficial Owners and Management The information required by this Item 12 is incorporated herein by reference to the sections entitled "Voting Securities and Principal Holders Thereof" and "Information Concerning Nominees for Directors and Other Directors" in the Company's Proxy Statement.
Item 13
Item 13 -- Certain Relationships and Related Transactions The information required by this Item 13 is incorporated herein by reference to the section entitled "Transactions with Management" in the Company's Proxy Statement.
PART IV
Item 14
Item 14 -- Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this report:
(1) The following financial statements are included in Item 8:
Consolidated Statements of Condition at December 31, 1999 and 1998.
Consolidated Statements of Income For Each of the Three Years in the Period Ended December 31, 1999.
Consolidated Statements of Shareholders' Equity For Each of the Three Years in the Period Ended December 31, 1999.
Consolidated Statements of Cash Flows For Each of the Three Years in the Period Ended December 31, 1999.
Notes to Consolidated Financial Statements. Independent Accountants' Report.
(2) Financial statement schedules are omitted from this Form 10-K since the required information is not applicable to the Company.
(3) Listing of Exhibits:
The following documents are attached as Exhibits to this Form 10-K or are incorporated by reference to the prior filings of the Company with the Securities and Exchange Commission.
FORM 10-K Exhibit Number Exhibit
3.1 Amended and Restated Certificate of Incorporation of the Company(1)
3.2 Amended and Restated Bylaws of the Company(1)
10.1 Stock Option Agreement, dated as of July 10, 1998, between Cortland First (as the issuer) and Oneida Valley (as the grantee)(2)
10.2 Stock Option Agreement, dated as of July 10, 1998, between Oneida Valley (as the issuer) and Cortland First (as the grantee)(2)
10.3 Form of Voting Agreement, dated as of July 10, 1998, between Cortland First Directors and Oneida Valley(2)
10.4 Form of Voting Agreement, dated as of July 10, 1998, between Oneida Valley Directors and Cortland First(2)
10.5 Employment Agreement, dated as of November 25, 1998, between the Company and David R. Alvord(1)
10.6 Employment Agreement, dated as of November 25, 1998, between the Company and John C. Mott(1)
10.7 Alliance Financial Corporation 1998 Long Term Incentive Compensation Plan(1)
10.8 Change of Control Agreement, dated as of February 16, 1999, by and among the Company, First National Bank of Cortland, Oneida Valley National Bank, and David P. Kershaw(3)
10.9 Change of Control Agreement, dated as of February 16, 1999, by and among the Company, First National Bank of Cortland, Oneida Valley National Bank, and James W. Getman(3)
10.10 Directors Compensation Deferral Plan of the Company(4)
21 List of the Company's Subsidiaries(5)
23 Consent of PricewaterhouseCoopers LLP(5)
27 Financial Data Schedule(5)
(1) Incorporated herein by reference to the exhibit with the same number to the Registration Statement on Form S-4 (Registration No. 333-62623) of the Company previously filed with the Securities and Exchange Commission (the "Commission") on August 31, 1998, as amended.
(2) Incorporated herein by reference to the exhibit with the same number to the Current Report on Form 8-K of the Company (File No. 0-15366) filed with the Commission on July 22, 1998.
(3) Incorporated herein by reference to the exhibit numbers 10.1 and 10.2 to quarterly reports on Form 10-Q of the Company (File No. 0-15366) filed with the Commission on May 14, 1999.
(4) Incorporated herein by reference to the exhibit number 10.1 to quarterly reports on Form 10-Q of the Company (File No. 0-15366) filed with the Commission on August 13, 1999.
(5) Filed herewith.
Item 14 (b) -- Reports on Form 8-K None
Item 14 (c) See Item 14 (a) (3) above.
Item 14 (d) See Item 14 (a) (2) above.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ALLIANCE FINANCIAL CORPORATION ------------------------------ (Registrant)
Date March 21, 2000 By /s/ David R. Alvord ------------------------------ -------------------------------------- David R. Alvord, President & Co-CEO
Date March 21, 2000 By /s/ David P. Kershaw ------------------------------ -------------------------------------- David P. Kershaw, Treasurer & CFO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant, and in the capacities and on the dates indicated.
/s/ David R. Alvord Date March 21, 2000 - ---------------------------------- -------------------------- David R. Alvord, President, Co-CEO, and Director
/s/ Donald S. Ames Date March 21, 2000 - ---------------------------------- -------------------------- Donald S. Ames, Director
/s/ Donald H. Dew Date March 21, 2000 - ---------------------------------- -------------------------- Donald H. Dew, Director
/s/ Peter M. Dunn Date March 21, 2000 - ---------------------------------- -------------------------- Peter M. Dunn, Director
Date - ---------------------------------- -------------------------- Robert H. Fearon, Jr., Director
/s/ Samuel J. Lanzafame Date March 21, 2000 - ---------------------------------- -------------------------- Samuel J. Lanzafame, Director
Date - ---------------------------------- -------------------------- Harry D. Newcomb, Director
/s/ John C. Mott Date March 21, 2000 - ---------------------------------- -------------------------- John C. Mott, Co-CEO and Director
Date - ---------------------------------- -------------------------- Charles E. Shafer, Director
/s/ Charles H. Spaulding Date March 21, 2000 - ---------------------------------- -------------------------- Charles H. Spaulding, Director
/s/ David J. Taylor Date March 21, 2000 - ---------------------------------- -------------------------- David J. Taylor, Director
/s/ Edward W. Thoma Date March 21, 2000 - ---------------------------------- -------------------------- Edward W. Thoma, Director
Exhibit 21 -- Subsidiaries
Subsidiaries of the Registrant
Alliance Bank, N.A. is a wholly owned subsidiary of Alliance Financial Corporation and is a national banking association organized under the laws of the United States.
Alliance Preferred Funding Corp. is a substantially wholly owned subsidiary of Alliance Bank, N.A. and is organized under the laws of the State of Delaware.
Exhibit 23 -- Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (File No. 33-65417) and on form S-8 (File No. 333-95343) of our report dated January 14, 2000, relating to the consolidated financial statements of Alliance Financial Corporation, which appears in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP Syracuse, New York March 27, 2000