UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Commission file number 0-15366
ALLIANCE FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
New York 16-1276885
(State or other jurisdiction of (IRS Employer I.D. #)
incorporation or organization)
65 Main Street, Cortland, New York 13045
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (607) 756-2831
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
The number of shares outstanding of the registrant's common stock on May 10,
1999: Common Stock, $1.00 Par Value -- 3,594,811 shares.
<PAGE>
CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Condition as of March 31, 1999 and December
31, 1998 (unaudited)
Consolidated Statements of Income for the Three Months Ended March 31,
1999 and 1998 (unaudited)
Consolidated Statements of Comprehensive Income for the Months Ended
March 31, 1999 and 1998 (unaudited)
Consolidated Statements of Changes in Shareholders' Equity for March
31, 1999
Consolidated Statements of Cash Flows for the Three Months Ended March
31, 1999 and 1998 (unaudited)
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of the Results of Operations and
Financial Conditions
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holder
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLIANCE FINANCIAL CORPORATION
Consolidated Statements of Condition
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
(Unaudited) (Note)
ASSETS
<S> <C> <C>
Cash and due from banks $ 21,281 $ 23,431
Federal funds sold -- 10,700
------ ------
Total cash and cash equivalents 21,281 34,131
Held-to-maturity investment securities 2,130 2,630
Available-for-sale investment securities 190,861 158,801
------- -------
Total investment securities (fair value
$193,036 & $161,482, respectively) 192,991 161,431
Total loans 265,415 266,314
Unearned income (2,040) (2,212)
Allowance for possible loan losses (3,106) (3,001)
------- -------
Net loans 260,269 261,101
Bank premises, furniture, and equipment 8,889 8,289
Other assets 8,038 6,753
----- -----
Total Assets 491,468 471,705
======= =======
LIABILITIES
Non-interest bearing deposits 56,938 60,534
Interest bearing deposits 373,594 353,060
------- -------
Total deposits 430,532 413,594
Borrowings 2,399 752
Other liabilities 7,167 6,191
----- -----
Total Liabilities 440,098 420,537
SHAREHOLDERS' EQUITY
Preferred stock (par value $25.00)
1,000,000 shares authorized, none issued
Common stock (par value $1.00)
10,000,000 shares authorized
3,641,035 and 3,641,178 shares issued;
3,594,811 and 3,594,954 shares outstanding,
respectively 3,641 3,641
Surplus 3,641 3,641
Undivided profits 44,484 43,864
Accumulated comprehensive income 670 1,088
Treasury stock, at cost; 46,224 shares (1,066) (1,066)
------- -------
Total Shareholders' Equity 51,370 51,168
Total Liabilities & Shareholders' Equity $491,468 $471,705
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ALLIANCE FINANCIAL CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Interest Income:
Interest & fees on loans $5,390 $5,511
Interest on investment securities 2,621 2,209
Interest on federal funds sold 150 138
----- -----
Total Interest Income 8,161 7,858
Interest Expense:
Interest on deposits 3,318 3,283
Interest on borrowings 12 36
----- -----
Total Interest Expense 3,330 3,319
Net Interest Income 4,831 4,539
Provision for loan losses 225 174
----- -----
Net Interest Income After Provision for Losses 4,606 4,365
Other Income 1,111 993
----- -----
Total Operating Income 5,717 5,358
Other Expenses 3,947 3,837
----- -----
Income Before Income Taxes 1,770 1,521
Provision for income taxes 521 435
----- -----
Net Income $1,249 $1,086
====== ======
Net Income per Common Share/Basic and Diluted
(3,594,811 and 3,599,278 weighted average shares
outstanding, respectively) $ .35 $ .30
===== =====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ALLIANCE FINANCIAL CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Net Income $1,249 $1,086
Other Comprehensive Income net of taxes:
Unrealized net gain on securities:
Unrealized holding gains (losses) arising
during the period (603) 37
Less: Reclassification adjustment for
(gains) losses included in net income (93) 5
----- -----
(696) 42
Income tax benefit (provision) 278 (15)
----- -----
Other Comprehensive (losses) gains, net of tax (418) 27
----- -----
Comprehensive Income $831 $1,113
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ALLIANCE FINANCIAL CORPORATION
Consolidated Statements of Changes in Shareholders' Equity
(Dollars in Thousands)
<TABLE>
<CAPTION>
Additional Accumulated Other
Issued Common Paid In Retained Comprehensive Treasury
Shares Common Stock Capital Earnings Income Stock Total
------ ------------ ------- -------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 3,641,178 $3,641 $3,641 $43,864 $1,088 $(1,066) $51,168
Net Income 1,249 1,249
Cash Dividend, $.175 per share (629) (629)
Change in net unrealized net
(loss) on investment securities (418) (418)
Shares retired in lieu of fractional shares (143)
Balance at March 31, 1999 3,641,035 $3,641 $3,641 $44,484 $ 670 $(1,066) $51,370
========= ====== ====== ======= ====== ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
ALLIANCE FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,249 $ 1,086
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 225 174
Provision for depreciation 263 225
Provision (Benefit) for deferred income taxes 279 (17)
Amortization of investment security premiums, net 156 74
Realized investment security (gains) losses (93) 5
Change in other assets and liabilities (309) 564
------ ------
Net Cash Provided by Operating Activities 1,770 2,111
INVESTMENT ACTIVITIES
Proceeds from maturities of investment securities,
available-for-sale 19,871 14,297
Proceeds from maturities of investment securities,
held-to-maturity 500 1,105
Purchase of investment securities, available-for-sale (54,672) (14,045)
Purchase of investment securities, held-to-maturity -- (108)
Proceeds from the sale of investment securities 1,981 1,450
Net decrease (increase) in loans 607 (2,360)
Purchase of premises and equipment, net (863) (105)
------ ------
Net Cash (Used) Provided by Investing Activities (32,576) 234
FINANCING ACTIVITIES
Net increase in demand deposits, NOW &
savings accounts 11,629 12,935
Net increase in time deposits 5,309 3,650
Net increase (decrease) in borrowings 1,647 (1,981)
Cash dividends (629) (683)
------ ------
Net Cash Provided by Financing Activities 17,956 13,921
(Decrease) Increase in Cash and Cash Equivalents (12,850) 16,266
Cash and cash equivalents at beginning of year 34,131 20,989
------ ------
Cash and Cash Equivalents at End of Period $21,281 $37,255
====== ======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and short-term borrowings $3,301 $3,251
Income taxes 101 153
Non Cash Investing Activities:
Change in net unrealized gains (losses) on
available-for-sale securities 696 (42)
Transfer to other real estate owned 5 --
Non Cash Financing Activities:
Dividend declared and unpaid 629 226
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ALLIANCE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation
The accompanying unaudited financial statements were prepared in accordance
with the instructions for Form 10-Q and Regulation S-X and, therefore, do
not include information for footnotes necessary for a complete presentation
of financial condition, results of operations, and cash flows in conformity
with generally accepted accounting principles. The following material under
the heading "Management's Discussion and Analysis of Results of Operations
and Financial Condition" is written with the presumption that the users of
the interim financial statements have read, or have access to, the
Company's latest audited financial statements and notes thereto, together
with Management's Discussion and Analysis of the Results of Operations and
Financial Condition as of December 31, 1998 and for the three-year period
then ended. Accordingly, only material changes in the results of operations
and financial condition are discussed in the remainder of Part I.
All adjustments (consisting of only normal recurring accruals) which, in
the opinion of management, are necessary for a fair presentation of the
financial statements have been included in the results of operations for
the three months ended March 31, 1999 and 1998.
B. Earnings Per Share
Basic earnings per share has been computed by dividing net income by the
weighted average number of common shares outstanding throughout the
quarters ended March 31, 1999 and 1998, using 3,594,811 and 3,599,278
weighted average common shares outstanding, 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. For the quarter ended March 31, 1999, the exercise of options would
be antidilutive.
PART 1.
ITEM 2. Management's Discussion and Analysis of the Results of Operations and
Financial Conditions
General
Throughout this analysis, the term "the Company" refers to the consolidated
entity of Alliance Financial Corporation and its wholly-owned banking
subsidiaries, First National Bank of Cortland and Oneida Valley National Bank.
As of March 31, 1999, Alliance Financial Corporation's business was conducted
through the two banking subsidiaries. Effective at the close of business April
16, 1999, and with the approval of the Office of the Comptroller of the
Currency, the two banking subsidiaries merged under the name "Alliance Bank,
N.A."
The following discussion presents material changes in the Company's results of
operations and financial condition during the three months ended March 31, 1999,
which are not otherwise apparent from the consolidated financial statements
included in these reports.
This discussion and analysis contains certain forward-looking statements with
respect to the financial condition, results of operations and business of
Alliance Financial Corporation and its subsidiaries. These forward-looking
statements involve certain risks and uncertainties. Factors that may cause
actual results to differ materially from those contemplated by such
forward-looking statements include, among others, the following possibilities:
(1) expected cost savings from the merger described herein cannot be fully
realized or cannot be realized as quickly as anticipated; (2) the planned
expansion into the Syracuse market is not completed on schedule or on budget or
the new branches do not attract the expected loan and deposit customers; (3)
competitive pressure in the banking industry increases significantly; (4) costs
or difficulties related to the integration of the businesses of Cortland First
Financial Corporation and Oneida Valley Bancshares, Inc. are greater than
expected; (5) changes in the interest rate environment reduce margins; (6)
general economic conditions, either nationally or regionally, are less favorable
than expected, resulting in, among other things, a deterioration in credit
quality; (7) changes occur in the regulatory environment; (8) changes occur in
business conditions and inflation; and (9) changes occur in the securities
markets.
Operating results for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999.
Results of Operations
Net income was $1,249,000, or $.35 per share for the first quarter of 1999
compared to $1,086,000, or $.30 per share for the same period in 1998. The
$163,000 increase in net income represents a 15% increase over the previous year
while the earnings per share increase of $.05 represents a 16.7% increase. The
return on average assets and return on average shareholders equity was 1.03% and
9.62%, respectively, for the three months ended March 31, 1999, compared to
0.99% and 8.59% for the first quarter of 1998.
The primary reason for the improved earnings was the growth in average earning
assets which increased net interest income. Net interest income of $4,831,000
for the quarter ended March 31, 1999 was up $292,000, or 6.4%, compared to the
comparable period in 1998. The growth in average earning assets increased
interest income $303,000 over the prior year first quarter with income from
investment securities increasing $412,000, which more than offset a $121,000
decline in loan income. The increase in investment income was due to a
$31,371,000 increase in average investment securities when comparing first
quarter 1999 to the comparable period in 1998. Although average total loans for
the first quarter of 1999 were $10,541,000 greater than the first quarter of
1998, lower yields on mortgage and commercial loans offset nearly all of the
positive effect on the portfolio's growth. Yields on average earning assets
declined from 7.99% in the 1998 first quarter to 7.50% in the 1999 first
quarter.
Interest expense of $3,330,000 for the period ended March 31, 1999 compared to
$3,319,000 for the prior year period and was essentially unchanged. The average
cost of interest bearing liabilities for the first quarter of 1999 at 3.62% was
down 39 basis points compared to a 4.01% cost in 1998, while at the same time
the average interest bearing liabilities over the comparable period increased by
$39,294,000. Growth in non-interest bearing liabilities favorably impacted the
Company's overall cost of funds.
The provision for loan loss expense for the first quarter of 1999 was $225,000,
an increase of $51,000 compared to the first quarter of 1998. When compared to
the fourth quarter of 1998, the most current quarter's provision expense was
$89,000 less, the result of an improvement in asset quality and a substantial
decline in net charge-offs. Net charge-offs of $120,000 for the period ended
March 31, 1999 compared to $302,000 in the fourth quarter of 1998, and $238,000
for the period ended March 31, 1998. Nonperforming loans at 0.43% of total loans
at March 31, 1999 compared to 0.68% a year earlier. The allowance for possible
loan losses balance as of March 31, 1999 in the amount of $3,106,000 represents
1.17% of total loans compared to 1.13% a year earlier and 1.14% at December 31,
1998.
Non-interest income of $1,111,000 for the first quarter in 1999 was up $118,000,
or 11.9% compared to the comparable quarter of 1998, and up $102,000, or 10.1%
compared to the fourth quarter of 1998. Continued growth in trust department
income and service charges on deposit accounts offset a decline in income from
the Company's sale of its credit card and merchant processing businesses. The
businesses had unacceptable profit margins, and the elimination of costs
associated with the programs reduced operating expenses. During the first
quarter of 1999, the Company took gains on the sale of securities in the amount
of $93,000.
Non-interest expense increased $110,000, or 2.9%, for the three months ended
March 31, 1999 compared to the same period in 1998. This increase was primarily
due to an increase in salary and benefits expense which was up $66,000, or 3.1%.
As of March 31, 1999, employees electing early retirement in connection with the
merger completed their service with the Company. As a result, in future periods
the reduction in staff levels is expected to have a positive effect on both
salary and benefits expense.
Just prior to the end of the first quarter, the Company's subsidiary banks
established Alliance Preferred Funding Corp., a real estate investment trust
(REIT). The REIT was formed to provide an additional means of future access to
capital markets and improves liquidity for the Company. Approximately
$75,000,000 in mortgage loans owned by the banks was transferred to the REIT in
March. Oneida Valley National Bank also acquired shares of 10% Noncumulative
Series A Preferred Stock ("Preferred Stock") for $57,500 in cash. The subsidiary
banks will act as custodians and managers and will continue to service the
mortgage loans under the terms of certain custodial, servicing, and management
agreements, and will be compensated by the REIT for such services. In March,
Oneida Valley National Bank sold an aggregate of 100 shares of 10% Noncumulative
Series A Preferred Stock ("Preferred Stock") to officers and directors of the
Company's subsidiary banks for $500 per share, which is the stated value of each
share of Preferred Stock. Each share of the Preferred Stock entitles the holder
to a non-cumulative dividend of 10% per annum of the $500 stated value, or $50
per year, when, if and as declared by the Board of Directors of the REIT. The
dividend on the Preferred Stock must be paid before the subsidiary banks, as
holders of the REIT's common stock, receive any dividend from the REIT. Upon
liquidation or dissolution of the REIT, holders of Preferred Stock will be
entitled to receive from assets available therefor a preferential distribution
of $500 per share plus any accrued but unpaid dividend. The Preferred Stock is
not convertible into the REIT's common stock.
Financial Condition
Total assets increased $19,763,000, or 4.2%, to $491,468,000 at March 31, 1999
from $471,705,000 at December 31, 1998. For the three months ended March 31,
1999, total loans net of unearned discount declined $727,000, or 0.3%, to
$263,375,000. In addition to the weak loan demand the Company typically
experiences in the first quarter of each year, the 1999 first quarter saw
further contraction in installment loan generation, reflecting a continuation of
the tightening of consumer loan underwriting standards. With the completion of
the merger and merger-related activities, which required a significant
commitment of management time and energy in the first quarter, the Company's
management will increase its focus on new business development and loan growth.
Investment securities, including the sale of federal funds, as of March 31, 1999
in the amount of $192,991,000 were up $20,860,000, or 12.1% since December 31,
1998 as deposit growth was invested in the portfolio in anticipation of future
loan demand. Deposits as of March 31, 1999 increased $16,938,000, or 4.1%, to
$430,532,000 as a result of the Company continuing its practice of more
aggressive bidding on larger certificates of deposit.
Market Risk
The Company's market risk arises principally from interest rate risk in its
lending, deposit, and borrowing activities. Management actively monitors and
manages its interest rate risk exposure using a computer simulation model which
measures the impact of changes in interest rates in its interest income. As of
March 31, 1999, an instantaneous 200 basis point increase in market interest
rates was estimated to have a negative impact of 6.2% 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 2.6% on the bank's net
interest income. 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 and mix changes, and
should not be relied upon as indicative of actual results.
Other Information
The Company has received approval from the Office of the Comptroller of the
Currency to open a branch in the City of Syracuse. As of March 31, 1999, the
Company has executed a lease and expects the branch to be open for business on
or before June 30, 1999. The Company is presently negotiating the purchase or
lease of three other Syracuse area locations suitable for additional branch
expansion by year-end 1999.
In December 1998, the Oneida Indian Nation ("The Nation") and the U.S. Justice
Department filed motions to amend a longstanding 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 reserved its decision.
The Nation has represented 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 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.
Impact of the Year 2000
During the quarter ended March 31, 1999, in connection with the merger of
Cortland First Financial Corporation and Oneida Valley Bancshares, Inc., the
Company purchased, installed, and successfully Year 2000 tested a new mainframe
Unisys computer system. With the completion of the system purchase and testing,
the Company completed its Year 2000 program testing and implementation phases.
The Company had established contingency plans for all of its mission critical
systems as of year-end 1998, and will continue to evaluate the implementation of
such plans during the remainder of 1999. Throughout the remainder of 1999, the
Company will also continue to monitor its commercial loan portfolio and evaluate
its new commercial loan business to insure that our customers' exposure to Year
2000 risks will not adversely affect the quality of the loan portfolio. Total
costs for the Year 2000 renovation project, excluding ATMs purchased in 1998 and
the new Unisys computer system purchased in 1999, are expected to be
approximately $100,000. The majority of the costs were expensed in 1998. The
Company has funded, and plans to fund, its Year 2000 related expenditures out of
general operating sources and expense them as incurred.
PART 2. OTHER INFORMATION
ITEM 1. Legal Proceedings
Not applicable.
ITEM 2. Changes in Securities
Not applicable.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Securities Holders
Not applicable.
ITEM 5. Other Information
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits required by Item 601 of Regulation S-K:
Exhibit No. Description
3.1 Amended and Restated Certificate of Incorporation of the
Company (1)
3.2 Amended and Restated Bylaws of the Company (1)
10.1 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 (2)
10.2 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 (2)
27 Financial Data Schedule (2)
(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) Filed herewith.
b) Reports on Form 8-K
The Company filed with the Commission on December 1, 1998 a Current
Report on Form 8-K to report the consummation of the merger between
Cortland First Financial Corporation and Oneida Valley Bancshares,
Inc. An amendment to such Current Report was filed with the Commission
on February 8, 1999 to include the required financial statements of
Cortland First Financial Corporation and Oneida Valley Bancshares,
Inc.
SIGNATURES
Pursuant to the requirements 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
DATE May 14, 1999 /s/ David R. Alvord
--------------------------- -------------------------------------
David R. Alvord, President & Co-CEO
DATE May 14, 1999 /s/ David P. Kershaw
--------------------------- -------------------------------------
David P. Kershaw, Treasurer & CFO
<PAGE>
EXHIBIT 10.1
CHANGE OF CONTROL AGREEMENT
THIS AGREEMENT is made as of February 16, 1999 by and between (i)
Alliance Financial Corporation, a New York corporation and registered bank
holding company ("Corporation") and First National Bank of Cortland and Oneida
Valley National Bank, both of which are wholly-owned subsidiaries of the
Corporation and which will be merged and known as Alliance Bank, N.A.
(collectively, referred to as "Bank"), having offices in Oneida and Cortland,
New York (the Corporation and the Bank are referred to collectively in this
Agreement as the "Employer"), and (ii) David P. Kershaw currently residing in
Hamilton, New York ("Executive").
WITNESSETH:
WHEREAS, the Board of Directors (the "Board") of the Employer has
approved the Bank entering into a severance agreement with certain key
executives to encourage the continued dedication of the Executive to the Bank
and to promote the stability of Bank management by providing certain protections
for the Executive in the event a change of control occurs with the Bank; and
WHEREAS, should the Corporation receive any proposal from a third
person concerning any possible business combination with, or acquisition of
equity securities of, the Corporation, the Board believes it imperative that the
Corporation be able to rely upon the Executive to continue in his position, and
that the Corporation be able to receive and rely upon his advice, if it requests
it, as to the best interests of the Corporation and its shareholders without
concern that he might be distracted by the personal uncertainties and risks
created by such a proposal; and
WHEREAS, should the Corporation receive any such proposals, in addition
to the Executive's regular duties, he may be called upon to assist in the
assessment of such proposals, to advise management and the Board as to whether
such proposals would be in the best interests of the Corporation and its
shareholders, and to take such other actions as the Board might determine to be
appropriate; and
WHEREAS, the Board also desires to encourage the continued dedication
of the Executive to the Corporation and to the Bank and to promote the stability
of the Bank's management by providing certain protections for the Executive in
the event that a Change in Control (as hereinafter defined) occurs with respect
to the Corporation;
NOW, THEREFORE, to assure the Employer will have the continued
dedication of the Executive and the availability of his advice and service
notwithstanding the possibility, threat or occurrence of a bid to take over
control of the Corporation, and to induce the Executive to remain in the employ
of the Bank, and for other good and valuable consideration, the Employer and the
Executive agree as follows:
1. Services During Certain Events. In the event a "person" or
"group" (as such quoted terms are defined in Section 4(a)(i)
below) begins a tender or exchange offer, circulates a proxy to
shareholders, or takes other steps seeking to effect a Change of
Control (as defined in Section 4(a) below), the Executive agrees
that he will not voluntarily leave the employ of the Bank and
will render the services contemplated in the recitals to this
Agreement consistent with his then current employment terms until
the such person or group has abandoned or terminated his or its
efforts to effect a Change of Control or until three (3) months
after a Change of Control has occurred, but in no event shall
such period exceed six months.
2. Termination After Change in Control.
(a) Change of Control Payment. In the event of a Termination (as
defined in Section 4(b) below) of the Executive's employment
with the Bank in anticipation of, or within 24 months after,
a Change of Control, the Bank shall be obligated, subject to
the limitation contained in Section 2(d) below, to pay the
Executive an amount equal to two times the Executive's
Average Annual Taxable Compensation (as defined in Section
4(e) below). Such amount shall be payable to the Executive
in eight (8) equal quarterly installments (subject to any
applicable payroll or other taxes required to be withheld),
over a two (2) year period, without interest, with the first
such payment made not later than 30 days after the
Executive's last day of employment with the Bank and each
succeeding payment being due on the same day of every third
calendar month thereafter. In the event the Executive dies
at any time during the two years following his Termination,
any remaining unpaid installments provided for by this
Section 2(a) shall be paid to his estate. Notwithstanding
the foregoing, at the sole election of the Bank, the entire
amount payable to the Executive pursuant to this Section
2(a) may be paid in a lump sum, not later than the 30th day
following the Executive's last day of employment with the
Bank.
(b) Employee Benefits. In the event a Change of Control occurs
and the Executive is entitled to the Change of Control
payment set forth in Section 2(a), Executive shall also be
provided with the same level of standard employee benefits
he was receiving on the date of Termination, or the cash
equivalent of such benefits, for a period of 24 months
following Executive's termination.
(c) Stock Options. In the event a Change of Control occurs and
the Executive is entitled to the Change of Control payment
set forth in Section 2(a), all forms of equity based
compensation previously granted to Executive, including any
stock options or other awards under the Corporation's Long
Term Incentive Compensation Plan, shall become immediately
vested and exercisable. In such event, the Corporation shall
take all necessary and appropriate action to effect such
treatment, and such benefits shall otherwise be governed by
the terms of the plan and related grant document under which
such benefit was granted.
(d) Limitation. Notwithstanding anything in this Agreement to
the contrary, in the event that the amount payable to the
Executive pursuant to Section 2(a) above, when added to all
other amounts paid or to be paid to, and the value of all
property received or to be received by the Executive in
anticipation of or following a Change of Control, whether
paid or received pursuant to this Agreement or otherwise
(such other amounts and property being referred to herein as
"Other Change in Control Payments"), would constitute an
excess parachute payment within the meaning of Section 280G
of the Internal Revenue Code of 1986, as amended (or any
successor or renumbered section), then the amount payable
pursuant to Section 2(a) of this Agreement shall be reduced
to the maximum amount which, when added to such Other Change
in Control Payments, does not constitute an excess parachute
payment.
3. Employment "at Will". Notwithstanding any provisions of this
Agreement, this Agreement shall not confer upon the Executive the
right to be retained in the service of the Bank nor limit the
right of the Bank to discharge or otherwise change the terms of
employment, except to the extent expressly provided herein. It is
the express understanding of the parties hereto that the
Executive's employment shall at all times be "at will",
notwithstanding any provisions of this Agreement. Accordingly,
the Executive or the Bank may terminate the Executive's
employment with the Bank at any time with or without cause,
except as otherwise provided by law.
4. Definitions. For purposes of this Agreement, the following terms
shall have the following respective meanings:
(a) A "Change of Control" shall be deemed to have occurred if either:
(i) any "person," including a "group," as determined in
accordance with Section 13(d)(3) of the Securities Exchange
Act of 1934 ("Exchange Act"), is or becomes the beneficial
owner, directly or indirectly, of securities of the
Corporation representing 30% or more of the combined voting
power of the Corporation's then outstanding securities;
(ii) as a result of, or in connection with, any tender offer or
exchange offer, merger or other business combination (each a
"Transaction"), the persons who were directors of Employer
before the Transaction shall cease to constitute a majority
of the Board of Directors of the Corporation or any
successor to the Corporation;
(iii)the Corporation is merged or consolidated with another
corporation and, as a result of the merger or consolidation,
less than 70% of the outstanding voting securities of the
surviving or resulting corporation shall then be owned in
the aggregate by the former shareholders of the Corporation,
other than (A) affiliates within the meaning of the Exchange
Act, or (B) any party to the merger or consolidation;
(iv) a tender offer or exchange offer is made and consummated for
the ownership of securities of the Corporation representing
30% or more of the combined voting power of the
Corporation's then outstanding voting securities; or (v) the
Corporation transfers all or substantially all of its assets
to another corporation or entity which is not controlled by
the Corporation.
(b) "Termination" shall mean (1) termination by the Employer (or
successor entity) of the employment of the Executive for any
reason other than death, Disability (as defined in Section 4(d))
or Termination for Cause (as defined in Section 4(c)), or (2)
resignation of the Executive upon the occurrence of the following
events:
(i) A significant change in the nature or scope of the
Executive's authority from that prior to a Change of
Control, (ii) a reduction in the Executive's total
compensation (including all earned bonuses and benefits)
from that prior to a Change of Control, or (iii) a change in
the general location where the Executive is required to
perform services from that prior to a Change of Control.
(c) "Termination for Cause" shall mean (i) conduct involving fraud,
misappropriation or intentional material damage to the property
or business of the Employer, or commission of a misdemeanor or
felony, (ii) failure or breach to perform Executive's designated
duties consistent with his position after receiving written
notice from the Employer specifying the nature of the alleged
failure or breach and failing to correct the failure or breach
within 15 days of such notice, or (iii) Executive's intentional
violation of the Employer's written policies, Executive's
fiduciary duties, or any law or regulation which results in
material damage or cost to the Employer.
(d) "Disability" shall mean the Executive's absence from his duties
with the Employer on a full time basis for six (6) successive
months, or for shorter periods aggregating seven (7) months or
more in any year, as a result of the Executive's incapacity due
to physical or mental illness, unless within 30 days after the
Employer gives written notice of termination following such
absence the Executive shall have returned to the full time
performance of his duties.
(e) "Average Annual Taxable Compensation" means the average annual
compensation of the Executive from the Bank over the three most
recent taxable years (or shorter time of Executive's employment
on an annualized basis) preceding the year in which the Change of
Control occurs, which is includable in gross income for federal
income tax purposes, including base salary and bonus
compensation, but excluding any contributions made for the
Executive's benefit to any qualified pension or profit sharing
plan (including a 401(k) plan), amounts payable to or deferred at
the election of the Executive under any other deferred
compensation plan which are not taxable to the Executive prior to
the date of the Executive's Termination, and any other
non-taxable fringe benefits. For purpose of determining the
Executive's Average Annual Taxable Compensation, pursuant to
Section 2(a) above, compensation paid during less than all of a
taxable year shall be annualized based on the intent that
Executive shall be entitled to the benefits of this Agreement
immediately upon the date of this Agreement.
5. Trade Secrets. It is recognized that the Bank has acquired and
developed and will continue to acquire and develop techniques,
plans, processes, computer programs, and lists of customers and
their particular requirements which may pertain to Bank related
services and equipment, and related trade secrets, know-how,
which are proprietary and confidential in nature and are and will
continue to be of unique value to the Bank and its business (all
hereinafter referred to as "Confidential Information"). All
Confidential Information known or in the possession of Executive
shall be kept and maintained by him as confidential and
proprietary to the Bank. The Executive shall not disclose any
Confidential Information at any time directly or indirectly, in
any manner to any person or firm, except to other employees of
the Bank on a "need to know" basis. Upon termination of his
employment for any reason, the Executive shall without demand
therefore deliver to the Bank all Confidential Information in his
possession. The obligations of this Section shall survive the
termination of this Agreement indefinitely.
6. Successors. This Agreement shall be binding upon and inure to the
benefit of the Executive and his estate, and the Employer and any
successors of the Employer, but neither this Agreement nor any
rights arising hereunder may be assigned or pledged by the
Executive.
7. Entire Agreement. This Agreement represents the entire agreement
between the parties with respect to the subject matter of this
Agreement and specifically supersedes any and all oral or written
agreements on its subject matter previously agreed to by the
parties.
8. Severability. Any provision in this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating or affecting
the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not be invalidated or
rendered unenforceable such provision in any other jurisdiction.
9. Controlling Law. This Agreement shall in all respects be governed
by, and construed in accordance with, the laws of the State of
New York. The Employer shall be entitled to deduct and withhold
from compensation and benefits hereunder all income and
employment taxes and any other similar taxes or sums required by
law to be withheld.
10. Term of Agreement; Initial Term and Renewal. The Initial term of
this Agreement shall commence as of February 16, 1999 and shall
continue through December 31, 1999, unless earlier terminated as
provided herein. Thereafter, this Agreement shall be renewed for
additional one year periods, unless either party gives written
notice of non-renewal of this Agreement to the other party at
least thirty (30) days prior to the expiration of the initial
term or any renewal term; provided, however, that in no case
shall this Agreement terminate: (i) within 12 months after the
occurrence of a Change of Control, or (ii) during any period of
time when the Employer has knowledge that any person or group
(such terms are defined in Section 4(a)(i) above) has taken steps
reasonably calculated to effect a Change in Control until, in the
opinion of the Board, such person or group has abandoned or
terminated his or its efforts to effect a Change of Control. Any
determination by the Board that such person or group has
abandoned or terminated his or its efforts to effect a Change of
Control shall be conclusive and binding as the Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date specified in the first paragraph of this Agreement.
ALLIANCE FINANCIAL CORPORATION
By: /s/ John C. Mott
----------------------------
John C. Mott
Co-Executive Officer
FIRST NATIONAL BANK OF CORTLAND
By: /s/ David R. Alvord
----------------------------
David R. Alvord
President and Chief Executive Officer
ONEIDA VALLEY NATIONAL BANK
By: /s/ John C. Mott
----------------------------
John C. Mott
President and Chief Executive Officer
EXECUTIVE:
/s/ David P. Kershaw
----------------------------
David P. Kershaw
<PAGE>
EXHIBIT 10.2
CHANGE OF CONTROL AGREEMENT
THIS AGREEMENT is made as of February 16, 1999 by and between (i)
Alliance Financial Corporation, a New York corporation and registered bank
holding company ("Corporation") and First National Bank of Cortland and Oneida
Valley National Bank, both of which are wholly-owned subsidiaries of the
Corporation and which will be merged and known as Alliance Bank, N.A.
(collectively, referred to as "Bank"), having offices in Oneida and Cortland,
New York (the Corporation and the Bank are referred to collectively in this
Agreement as the "Employer"), and (ii) James W. Getman currently residing at Box
A-81CC, Rockefeller Road, Moravia, New York ("Executive").
WITNESSETH:
WHEREAS, the Board of Directors (the "Board") of the Employer has
approved the Bank entering into a severance agreement with certain key
executives to encourage the continued dedication of the Executive to the Bank
and to promote the stability of Bank management by providing certain protections
for the Executive in the event a change of control occurs with the Bank; and
WHEREAS, should the Corporation receive any proposal from a third
person concerning any possible business combination with, or acquisition of
equity securities of, the Corporation, the Board believes it imperative that the
Corporation be able to rely upon the Executive to continue in his position, and
that the Corporation be able to receive and rely upon his advice, if it requests
it, as to the best interests of the Corporation and its shareholders without
concern that he might be distracted by the personal uncertainties and risks
created by such a proposal; and
WHEREAS, should the Corporation receive any such proposals, in addition
to the Executive's regular duties, he may be called upon to assist in the
assessment of such proposals, to advise management and the Board as to whether
such proposals would be in the best interests of the Corporation and its
shareholders, and to take such other actions as the Board might determine to be
appropriate; and
WHEREAS, the Board also desires to encourage the continued dedication
of the Executive to the Corporation and to the Bank and to promote the stability
of the Bank's management by providing certain protections for the Executive in
the event that a Change in Control (as hereinafter defined) occurs with respect
to the Corporation;
NOW, THEREFORE, to assure the Employer will have the continued
dedication of the Executive and the availability of his advice and service
notwithstanding the possibility, threat or occurrence of a bid to take over
control of the Corporation, and to induce the Executive to remain in the employ
of the Bank, and for other good and valuable consideration, the Employer and the
Executive agree as follows:
1. Services During Certain Events. In the event a "person" or
"group" (as such quoted terms are defined in Section 4(a)(i)
below) begins a tender or exchange offer, circulates a proxy to
shareholders, or takes other steps seeking to effect a Change of
Control (as defined in Section 4(a) below), the Executive agrees
that he will not voluntarily leave the employ of the Bank and
will render the services contemplated in the recitals to this
Agreement consistent with his then current employment terms until
the such person or group has abandoned or terminated his or its
efforts to effect a Change of Control or until three (3) months
after a Change of Control has occurred, but in no event shall
such period exceed six months.
2. Termination After Change in Control.
(a) Change of Control Payment. In the event of a Termination (as
defined in Section 4(b) below) of the Executive's employment
with the Bank in anticipation of, or within 24 months after,
a Change of Control, the Bank shall be obligated, subject to
the limitation contained in Section 2(d) below, to pay the
Executive an amount equal to two times the Executive's
Average Annual Taxable Compensation (as defined in Section
4(e) below). Such amount shall be payable to the Executive
in eight (8) equal quarterly installments (subject to any
applicable payroll or other taxes required to be withheld),
over a two (2) year period, without interest, with the first
such payment made not later than 30 days after the
Executive's last day of employment with the Bank and each
succeeding payment being due on the same day of every third
calendar month thereafter. In the event the Executive dies
at any time during the two years following his Termination,
any remaining unpaid installments provided for by this
Section 2(a) shall be paid to his estate. Notwithstanding
the foregoing, at the sole election of the Bank, the entire
amount payable to the Executive pursuant to this Section
2(a) may be paid in a lump sum, not later than the 30th day
following the Executive's last day of employment with the
Bank.
(b) Employee Benefits. In the event a Change of Control occurs
and the Executive is entitled to the Change of Control
payment set forth in Section 2(a), Executive shall also be
provided with the same level of standard employee benefits
he was receiving on the date of Termination, or the cash
equivalent of such benefits, for a period of 24 months
following Executive's termination.
(c) Stock Options. In the event a Change of Control occurs and
the Executive is entitled to the Change of Control payment
set forth in Section 2(a), all forms of equity based
compensation previously granted to Executive, including any
stock options or other awards under the Corporation's Long
Term Incentive Compensation Plan, shall become immediately
vested and exercisable. In such event, the Corporation shall
take all necessary and appropriate action to effect such
treatment, and such benefits shall otherwise be governed by
the terms of the plan and related grant document under which
such benefit was granted.
(d) Limitation. Notwithstanding anything in this Agreement to
the contrary, in the event that the amount payable to the
Executive pursuant to Section 2(a) above, when added to all
other amounts paid or to be paid to, and the value of all
property received or to be received by the Executive in
anticipation of or following a Change of Control, whether
paid or received pursuant to this Agreement or otherwise
(such other amounts and property being referred to herein as
"Other Change in Control Payments"), would constitute an
excess parachute payment within the meaning of Section 280G
of the Internal Revenue Code of 1986, as amended (or any
successor or renumbered section), then the amount payable
pursuant to Section 2(a) of this Agreement shall be reduced
to the maximum amount which, when added to such Other Change
in Control Payments, does not constitute an excess parachute
payment.
3. Employment "at Will". Notwithstanding any provisions of this
Agreement, this Agreement shall not confer upon the Executive the
right to be retained in the service of the Bank nor limit the
right of the Bank to discharge or otherwise change the terms of
employment, except to the extent expressly provided herein. It is
the express understanding of the parties hereto that the
Executive's employment shall at all times be "at will",
notwithstanding any provisions of this Agreement. Accordingly,
the Executive or the Bank may terminate the Executive's
employment with the Bank at any time with or without cause,
except as otherwise provided by law.
4. Definitions. For purposes of this Agreement, the following terms
shall have the following respective meanings:
(a) A "Change of Control" shall be deemed to have occurred if either:
(i) any "person," including a "group," as determined in
accordance with Section 13(d)(3) of the Securities Exchange
Act of 1934 ("Exchange Act"), is or becomes the beneficial
owner, directly or indirectly, of securities of the
Corporation representing 30% or more of the combined voting
power of the Corporation's then outstanding securities;
(ii) as a result of, or in connection with, any tender offer or
exchange offer, merger or other business combination (each a
"Transaction"), the persons who were directors of Employer
before the Transaction shall cease to constitute a majority
of the Board of Directors of the Corporation or any
successor to the Corporation;
(iii)the Corporation is merged or consolidated with another
corporation and, as a result of the merger or consolidation,
less than 70% of the outstanding voting securities of the
surviving or resulting corporation shall then be owned in
the aggregate by the former shareholders of the Corporation,
other than (A) affiliates within the meaning of the Exchange
Act, or (B) any party to the merger or consolidation;
(iv) a tender offer or exchange offer is made and consummated for
the ownership of securities of the Corporation representing
30% or more of the combined voting power of the
Corporation's then outstanding voting securities; or (v) the
Corporation transfers all or substantially all of its assets
to another corporation or entity which is not controlled by
the Corporation.
(b) "Termination" shall mean (1) termination by the Employer (or
successor entity) of the employment of the Executive for any
reason other than death, Disability (as defined in Section 4(d))
or Termination for Cause (as defined in Section 4(c)), or (2)
resignation of the Executive upon the occurrence of the following
events:
(i) A significant change in the nature or scope of the
Executive's authority from that prior to a Change of
Control, (ii) a reduction in the Executive's total
compensation (including all earned bonuses and benefits)
from that prior to a Change of Control, or (iii) a change in
the general location where the Executive is required to
perform services from that prior to a Change of Control.
(c) "Termination for Cause" shall mean (i) conduct involving fraud,
misappropriation or intentional material damage to the property
or business of the Employer, or commission of a misdemeanor or
felony, (ii) failure or breach to perform Executive's designated
duties consistent with his position after receiving written
notice from the Employer specifying the nature of the alleged
failure or breach and failing to correct the failure or breach
within 15 days of such notice, or (iii) Executive's intentional
violation of the Employer's written policies, Executive's
fiduciary duties, or any law or regulation which results in
material damage or cost to the Employer.
(d) "Disability" shall mean the Executive's absence from his duties
with the Employer on a full time basis for six (6) successive
months, or for shorter periods aggregating seven (7) months or
more in any year, as a result of the Executive's incapacity due
to physical or mental illness, unless within 30 days after the
Employer gives written notice of termination following such
absence the Executive shall have returned to the full time
performance of his duties.
(e) "Average Annual Taxable Compensation" means the average annual
compensation of the Executive from the Bank over the three most
recent taxable years (or shorter time of Executive's employment
on an annualized basis) preceding the year in which the Change of
Control occurs, which is includable in gross income for federal
income tax purposes, including base salary and bonus
compensation, but excluding any contributions made for the
Executive's benefit to any qualified pension or profit sharing
plan (including a 401(k) plan), amounts payable to or deferred at
the election of the Executive under any other deferred
compensation plan which are not taxable to the Executive prior to
the date of the Executive's Termination, and any other
non-taxable fringe benefits. For purpose of determining the
Executive's Average Annual Taxable Compensation, pursuant to
Section 2(a) above, compensation paid during less than all of a
taxable year shall be annualized based on the intent that
Executive shall be entitled to the benefits of this Agreement
immediately upon the date of this Agreement.
5. Trade Secrets. It is recognized that the Bank has acquired and
developed and will continue to acquire and develop techniques,
plans, processes, computer programs, and lists of customers and
their particular requirements which may pertain to Bank related
services and equipment, and related trade secrets, know-how,
which are proprietary and confidential in nature and are and will
continue to be of unique value to the Bank and its business (all
hereinafter referred to as "Confidential Information"). All
Confidential Information known or in the possession of Executive
shall be kept and maintained by him as confidential and
proprietary to the Bank. The Executive shall not disclose any
Confidential Information at any time directly or indirectly, in
any manner to any person or firm, except to other employees of
the Bank on a "need to know" basis. Upon termination of his
employment for any reason, the Executive shall without demand
therefore deliver to the Bank all Confidential Information in his
possession. The obligations of this Section shall survive the
termination of this Agreement indefinitely.
6. Successors. This Agreement shall be binding upon and inure to the
benefit of the Executive and his estate, and the Employer and any
successors of the Employer, but neither this Agreement nor any
rights arising hereunder may be assigned or pledged by the
Executive.
7. Entire Agreement. This Agreement represents the entire agreement
between the parties with respect to the subject matter of this
Agreement and specifically supersedes any and all oral or written
agreements on its subject matter previously agreed to by the
parties.
8. Severability. Any provision in this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating or affecting
the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not be invalidated or
rendered unenforceable such provision in any other jurisdiction.
9. Controlling Law. This Agreement shall in all respects be governed
by, and construed in accordance with, the laws of the State of
New York. The Employer shall be entitled to deduct and withhold
from compensation and benefits hereunder all income and
employment taxes and any other similar taxes or sums required by
law to be withheld.
10. Term of Agreement; Initial Term and Renewal. The Initial term of
this Agreement shall commence as of February 16, 1999 and shall
continue through December 31, 1999, unless earlier terminated as
provided herein. Thereafter, this Agreement shall be renewed for
additional one year periods, unless either party gives written
notice of non-renewal of this Agreement to the other party at
least thirty (30) days prior to the expiration of the initial
term or any renewal term; provided, however, that in no case
shall this Agreement terminate: (i) within 12 months after the
occurrence of a Change of Control, or (ii) during any period of
time when the Employer has knowledge that any person or group
(such terms are defined in Section 4(a)(i) above) has taken steps
reasonably calculated to effect a Change in Control until, in the
opinion of the Board, such person or group has abandoned or
terminated his or its efforts to effect a Change of Control. Any
determination by the Board that such person or group has
abandoned or terminated his or its efforts to effect a Change of
Control shall be conclusive and binding as the Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date specified in the first paragraph of this Agreement.
ALLIANCE FINANCIAL CORPORATION
By: /s/ John C. Mott
----------------------------
John C. Mott
Co-Executive Officer
FIRST NATIONAL BANK OF CORTLAND
By: /s/ David R. Alvord
----------------------------
David R. Alvord
President and Chief Executive Officer
ONEIDA VALLEY NATIONAL BANK
By: /s/ John C. Mott
----------------------------
John C. Mott
President and Chief Executive Officer
EXECUTIVE:
/s/ James W. Getman
----------------------------
James W. Getman
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