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 June 30, 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 August 11,
1999: Common Stock, $1.00 Par Value -- 3,570,711 shares.
<PAGE>
CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Condition as of June 30, 1999 and
December 31, 1998
Consolidated Statements of Income for the Three Months Ended
June 30, 1999 and 1998 and Six Months Ended June 30, 1999 and
1998
Consolidated Statements of Comprehensive Income for the Three
Months Ended June 30, 1999 and 1998 and Six Months Ended June
30, 1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity for
June 30, 1999
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of the Results of Operations
and Financial Condition
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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 Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ALLIANCE FINANCIAL CORPORATION
Consolidated Statements of Condition
(Dollars in Thousands)
June 30, 1999 December 31, 1998
(Unaudited) (Note)
ASSETS
<S> <C> <C>
Cash and due from banks $ 17,448 $ 23,431
Federal funds sold --- 10,700
------- ------
Total cash and cash equivalents 17,448 34,131
Held-to-maturity investment securities 10,633 13,436
Available-for-sale investment securities 189,438 158,801
------- -------
Total investment securities (fair value
$200,071 & $172,288, respectively) 200,071 172,237
Total loans 263,261 255,508
Unearned income (1,718) (2,212)
Allowance for possible loan losses (3,260) (3,001)
------- -------
Net loans 258,283 250,295
Bank premises, furniture, and equipment 8,960 8,289
Other assets 6,844 6,753
------- -------
Total Assets 491,606 471,705
======= =======
LIABILITIES
Non-interest bearing deposits 55,668 60,534
Interest bearing deposits 371,493 353,060
------- -------
Total deposits 427,161 413,594
Borrowings 9,200 752
Other liabilities 4,707 6,191
------- -------
Total Liabilities 441,068 420,537
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 45,228 43,864
Accumulated other comprehensive income (906) 1,088
Treasury stock, at cost: 46,224 shares (1,066) (1,066)
------- -------
Total Shareholders' Equity 50,538 51,168
Total Liabilities & Shareholders' Equity $491,606 $471,705
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE FINANCIAL CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
(Dollars in Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest Income:
Interest & fees on loans $5,634 $5,349 $11,024 $10,860
Interest on investment securities 2,975 2,513 5,596 4,722
Interest on federal funds sold 175 195 325 333
----- ----- ------ ------
Total Interest Income 8,784 8,057 16,945 15,915
Interest Expense:
Interest on deposits 3,298 3,359 6,616 6,642
Interest on borrowings 174 23 186 59
----- ----- ------ ------
Total Interest Expense 3,472 3,382 6,802 6,701
Net Interest Income 5,312 4,675 10,143 9,214
Provision for loan losses 250 149 475 323
----- ----- ------ ------
Net Interest Income After Provision for Losses 5,062 4,526 9,668 8,891
Other Income 1,016 922 2,127 1,915
----- ----- ------ ------
Total Operating Income 6,078 5,448 11,795 10,806
Other Expenses 4,199 3,934 8,146 7,771
----- ----- ------ ------
Income Before Income Taxes 1,879 1,514 3,649 3,035
Provision for income taxes 506 412 1,027 847
----- ----- ------ ------
Net Income $1,373 $1,102 $ 2,622 $ 2,188
====== ====== ======= =======
Net Income per Common Share/Basic and Diluted $ .38 $ .31 $ .73 $ .61
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE FINANCIAL CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net Income $ 1,373 $1,102 $ 2,622 $ 2,188
Other Comprehensive Income, net of taxes:
Unrealized net gain on securities:
Unrealized holding losses arising during the period (2,662) (130) (3,451) (79)
Less: Reclassification adjustment for (gains) losses
included in net income (34) 4 (127) 9
----- ----- ----- -----
(2,628) (134) (3,324) (88)
Income tax benefit 1,052 54 1,330 35
----- ----- ----- -----
Other Comprehensive losses, net of tax (1,576) (80) (1,994) (53)
----- ----- ----- -----
Comprehensive (Loss) Income $ (203) $1,022 $ 628 $ 2,135
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE FINANCIAL CORPORATION
Consolidated Statements of Changes in Shareholders' Equity
(Dollars in Thousands)
Issued Additional
Common Common Paid In Retained
Shares Stock Capital Earnings
<S> <C> <C> <C> <C>
Balance at December 31, 1998 3,641,178 $3,641 $3,641 $43,864
Net Income 2,622
Cash Dividend, $.35 per share (1,258)
Change in unrealized net
(loss) on investment securities
Shares retired in lieu of fractional shares (143)
Balance at June 30, 1999 3,641,035 $3,641 $3,641 $45,228
====== ====== =======
Accumulated
Other
Comprehensive Treasury
Income Stock Total
Balance at December 31, 1998 $1,088 $(1,066) $51,168
Net Income 2,622
Cash Dividend, $.35 per share (1,258)
Change in unrealized net
(loss) on investment securities (1,994) (1,994)
Shares retired in lieu of fractional shares
Balance at June 30, 1999 $ (906) $(1,066) $50,538
======= ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Thousands)
Six Months Ended
June 30,
OPERATING ACTIVITIES 1999 1998
<S> <C> <C>
Net Income $ 2,622 $ 2,188
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 475 323
Provision for depreciation 537 450
Realized investment security (gains) losses (127) 9
Amortization of investment security premiums, net 305 143
Change in other assets and liabilities (245) 419
------- -------
Net Cash Provided by Operating Activities 3,567 3,532
INVESTMENT ACTIVITIES
Proceeds from maturities of investment securities, 31,939 27,120
available-for-sale
Proceeds from maturities of investment securities, 500 1,380
held-to-maturity
Purchase of investment securities, available-for-sale (72,241) (31,680)
Purchase of investment securities, held-to-maturity --- (505)
Proceeds from the sale of investment securities 8,466 3,355
Net increase in loans (8,463) (6,011)
Purchase of premises and equipment, net (1,208) (183)
------- -------
Net Cash Used by Investing Activities (41,007) (6,524)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW & savings accounts 14,061 23,965
Net (decrease) increase in time deposits (494) 7,298
Net increase (decrease) in borrowings 8,448 (1,940)
Purchase of Treasury Stock --- (86)
Cash dividends (1,258) (1,185)
------- -------
Net Cash Provided by Financing Activities 20,757 28,052
(Decrease) Increase in Cash and Cash Equivalents (16,683) 25,060
Cash and cash equivalents at beginning of year 34,131 20,989
------- -------
Cash and Cash Equivalents at End of Period $17,448 $46,049
------- -------
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest on deposits and short-term borrowings $6,810 $6,579
Income taxes 851 939
Non-Cash Investing Activities:
Change in net unrealized (gains) losses on 3,324 88
available-for-sale securities
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 10Q 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 latest
audited financial statements and notes thereto of the Company (as
defined below), 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
materially changes in the results of operations and financial condition
are discussed in the remainder of Part 1.
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 and six months ended June 30, 1999 and
1998. Certain reclassifications were made to the prior year's financial
statements to conform to the Company's presentation.
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
three months and six months ended June 30, 1999 and 1998, using
3,594,811 and 3,595,666 weighted average common shares outstanding for
the three months ended, and 3,594,811 and 3,597,892 weighted average
common shares outstanding for the six months ended, 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 six months ended June 30, 1999, the
assumed exercise of options would be antidilutive.
ITEM 2. Management's Discussion and Analysis of the Results of Operations and
Financial Condition
General
Throughout this analysis, the term "the Company" refers to the consolidated
entity of Alliance Financial Corporation and its wholly-owned banking
subsidiary, Alliance Bank, N.A. Effective at the close of business on April 16,
1999, the Company merged its two banking subsidiaries, First National Bank of
Cortland and Oneida Valley National Bank under the name of Alliance Bank, N.A.
The following discussion presents material changes in the Company's results of
operations and financial condition during the three and six months ended June
30, 1999, which are not otherwise apparent from the consolidated financial
statements included in this report.
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 subsidiary. 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 merged operations 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 and Oneida Valley 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; (9) changes occur in the securities
markets; and (10) costs or difficulties related to the century date change
conversion (Y2K) impacting bank operations or the financial services industry
are greater than expected.
Operating results for the three and six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
Results of Operations for the Three Months Ended June 30, 1999
Net income was $1,373,000, or $.38 per share, for the second quarter of 1999
compared to $1,102,000, or $.31 per share, for the same period in 1998. The
$271,000 increase in net income represents a 24.6% increase over the prior year
period while the earnings per share increase of $.07 represents a 22.6%
increase. The return on average assets and return on average shareholder's
equity were 1.12% and 10.75%, respectively, for the three months ended June 30,
1999, compared to 0.98% and 8.92%, respectively, for the second quarter of 1998.
Continuing a trend from the first quarter of 1999, a higher level of earning
assets and a lower cost on interest-bearing liabilities contributed to a
$637,000, or 13.6%, increase in net interest income when comparing the second
quarter ended 1999 to the same period in 1998. Interest and fees on loans was up
$285,000, while interest on investment securities was up $462,000 when comparing
the quarter ended June 30, 1999 to the quarter ended June 30, 1998. Average
total loans for the 1999 second quarter were $262.5 million compared to $243.3
million in 1998. Average investment securities for the quarter ended June 30,
1999 were $26.8 million greater than the comparable 1998 period. Yields on
average earning assets declined from 7.58% as of June 30, 1998, to 7.47% as of
June 30, 1999.
Interest expense of $3,472,000 for the three month period ended June 30, 1999
compared to $3,382,000 for the same period in the prior year, and was up 2.7%.
The average cost of interest bearing liabilities for the second quarter of 1999,
at 3.61%, was down 3 basis points compared to the second quarter of 1998, while
at the same time average interest bearing liabilities over the comparable
periods increased by $42.6 million. Growth in non interest-bearing liabilities
favorably impacted the Company's overall cost of funds.
The provision for loan loss expense for the second quarter of 1999 was $250,000,
an increase of $101,000 compared to the second quarter of 1998 with the increase
supporting the growth in loans. Net charge-offs trended lower, with $96,000 in
charge-offs for the three month period ended June 30, 1999, compared to $120,000
in the first quarter of 1999, and $129,000 for the quarter ended June 30, 1998.
Non-performing loans at 0.58% of total loans at June 30, 1999 were relatively
stable, compared to 0.53% a year earlier. The allowance for possible loan losses
balance as of June 30, 1999, in the amount of $3,260,000, increased to 1.24% of
total loans compared to 1.19% a year earlier, and 1.14% at December 31, 1998.
Non-interest income of $1,016,000 for the second quarter of 1999 was up $94,000,
or 10.2%, compared to the comparable quarter of 1998. Continued growth in trust
department income and service charges on deposit represented the majority of the
increase.
Non-interest expense increased $265,000, or 6.7%, for the three months ended
June 30, 1999 compared to the same period in 1998. The increase was primarily
due to increased advertising costs and the purchase of new forms and supplies in
connection with the merger of the Company's two subsidiary banks in April.
Results of Operations for the Six Months ended June 30, 1999
Net income was $2,622,000, or $.73 per share, for the first six months of 1999
as compared to $2,188,000, or $.61 per share, for the same period in 1998. The
$434,000 increase in net income represents a 19.8% increase over the same period
in the previous year while the earnings per share increase of $.12 represents a
19.7% increase over the comparable period. The return of average assets improved
to 1.07% from 0.99% while return on average equity improved to 10.18% from 8.76%
when comparing the six months ended 1999 to the comparable period in 1998.
Although the net interest margin declined slightly from 4.63% on June 30, 1998
to 4.60% on June 30, 1999, a $52.8 million increase in average earning assets in
the first six months of 1999 as compared to the same period in 1998 contributed
substantially to a $929,000, or 10.1%, increase in net interest income.
The Company increased its provision for loan loss expense by $152,000 in the
first six months of 1999 compared to the comparable period in 1998 in connection
with continued growth of loans. Net loan losses declined $152,000, or 41%, to
$215,000 for the six month period ended June 30, 1999 as compared to the same
period in 1998. Non-performing assets as a percent of total assets were 0.36% at
June 30, 1999, compared to 0.34% on June 30, 1998.
Non-interest income of $2,127,000 for the first half of 1999 was up $212,000, or
11.1%, as compared to the first half of 1998. Trust department revenues
increased 20.7% and service charges on deposit were up 15.7%. During the first
six months of 1999, the Company took gains on the sales of securities in the
amount of $127,000.
Non-interest expense increased $375,000, or 4.8%, for the six months ended June
30, 1999 as compared to the same period in 1998. Advertising, supplies, and
communication expenses increased by $381,000, or 57%, compared to the first half
of 1998 as a result of the merger of the banks. These expenses are expected to
decline significantly in the second half following one time promotions and costs
associated with the merging of the banks.
Financial Condition
Total assets increased $19,910,000, or 4.2%, to $491,606,000 at June 30, 1999
from $471,705,000 at December 31, 1998. For the six months ended June 30, 1999,
total loans net of unearned discount increased $8,247,000, or 3.2%, to
$261,543,000. Substantially all of the loan growth occurred in the second
quarter as management's commitment to merger related activities eased. A focus
on commercial and indirect auto lending during the quarter was responsible for
the loan growth. Investment securities as of June 30, 1999 in the amount of
$200,071,000 were up $27,834,000, or 16%, since December 31, 1998. Deposits as
of June 30, 1999 increased $13,567,000, or 3.3%, compared to year-end. During
the first six months of 1999, the Company moved from a federal funds sold to a
borrowing position with borrowings matched against certain loans and
investments. Shareholders' equity at June 30, 1999 was $50,538,000, or 10.3%, of
assets. During the first six months of 1999 the Company's retained earnings
increased undivided profits by $1,364,000. Rising market interest rates,
resulting from Federal Reserve Board actions, reduced the market value of the
Company's available for sale investment securities, thereby contributing to the
decrease in the Accumulated Other Comprehensive Income component of
shareholders' equity by $1,994,000.
Other Information
On July 19, 1999, the Company opened a downtown Syracuse, New York branch office
which is designed as a business banking center to provide banking, trust, and
investment services to business customers. The branch will also have limited
hours for consumer banking transactions. The Company is presently negotiating
the purchase or lease of three other Syracuse area locations suitable for
additional branch expansion scheduled for 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 has reserved its
decision pending a negotiated settlement of the matter by the State of New York
and The Nation. The Nation has indicated 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
The Company has completed its testing and implementation phases of its Y2K
program and believes that it has placed into service all of the systems and
equipment necessary to reduce the Y2K risk to a minimum. In certain situations,
the Company has relied on third party information which may be inaccurate
because it is unverifiable by the Company. During the quarter ended June 30,
1999, the Company completed the development of its Business Resumption
Contingency Plan which has established contingencies for all its mission
critical systems, and procedures for all of the bank's operating and customer
service departments in the event of Y2K related system failures. A Liquidity
Contingency Plan, which includes consideration of customers year-end cash needs,
has been completed and approved by the Board of Directors. The Company continues
to monitor its commercial loan portfolio and evaluates its new commercial loan
business to insure that customer's exposure to Y2K risks will not adversely
affect the quality of the loan portfolio. The current portfolio Y2K related risk
is considered to be low. The Company is continuing a customer Y2K awareness
program throughout the balance of the year, to build and maintain confidence in
the bank's state of readiness and ability to provide service through the date
change period. The Company's Y2K plans are under continual review by its
internal auditors and regulators.
Total costs for the Y2K renovation project are expected to be approximately
$150,000. Costs have been expensed throughout 1998 and 1999 and the Company
plans to continue to expense any remaining Y2K related costs as they are
incurred.
Subsequent Events
On July 21, 1999, the Company announced that its Board of Directors authorized
the repurchase of up to 300,000 shares of its common stock, or approximately 8.3
percent of the Company's outstanding common stock. The shares may be repurchased
from time-to-time, in accordance with applicable securities laws, in open-market
transactions or privately negotiated transactions over the course of the next 12
months. The shares will be purchased at prevailing market prices from
time-to-time during the repurchase period depending upon market conditions.
Repurchased shares will become treasury shares and may be reissued as
appropriate in the future in connection with the Company's dividend reinvestment
plan, stock option plan, or other corporate purposes such as acquisitions.
ITEM 3. Quantitative and Qualitative Disclosures About 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 that
measures the impact of changes in interest rates on its interest income. As of
June 30, 1999, an instantaneous 200 basis point increase in market interest
rates was estimated to have a negative impact of 4.6% 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 negative impact of 1.3% on the bank's net
interest income. Computation of the 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.
PART II. 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
The Company held its Annual Meeting of Shareholders on April 28,
1999 (the "Meeting"). At the Meeting, each of the following
persons were elected as Class I director whose term will expire at
the 2002 Annual Meeting of Shareholders:
FOR WITHHELD NON-VOTES
David R. Alvord 3,027,581 28,626 676,417
Donald S. Ames 3,027,861 28,346 676,417
John W. Bailey 3,027,861 28,346 676,417
Peter M. Dunn 3,027,581 28,626 676,417
David P. Kershaw 3,027,581 28,626 676,417
Garrison A. Marsted 3,027,095 29,112 676,417
David J. Taylor 3,027,861 28,346 676,417
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 Directors Compensation Deferral Plan of the Company (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 on August 31, 1998, as
amended.
(2) Filed herewith.
b) Reports on Form 8-K
Not Applicable.
<PAGE>
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 August 13, 1999 /s/ David R. Alvord
----------------------- -----------------------------------
David R. Alvord, President & Co-CEO
DATE August 13, 1999 /s/ David P. Kershaw
----------------------- -----------------------------------
David P. Kershaw, Treasurer & CFO
<PAGE>
EXHIBIT 10.1
Alliance Financial Corporation
Directors Compensation Deferral Plan
April 20, 1999
1. Purpose
The purpose of this plan is to provide the option to each Director to
defer all or any portion of his/her Director's fees received from
Alliance Financial Corporation(the Company) and its subsidiaries or
affiliates on the terms, and subject to the conditions set forth
herein.
2. Definitions
The following terms shall have the meanings set forth below for
purposes of this Plan;
A. Beneficiary - The person or entity designated by a Director to
receive payment of such Director's Reserve Account in the event
of such Director's death prior to the payment to the Director of
all amounts credited to such Reserve Account.
B. Board - The Board of Directors of the Company, its subsidiaries
or affiliates.
C. Book Value - Book value per share is defined as the addition of
the Capital, Surplus, and Undivided Profits components of the
Company's Shareholder's Equity divided by the Company's total
shares outstanding less Treasury Stock.
D. Committee - The Executive Committee of the Board.
E. Director - A member of the Board, active or emeritus.
F. Director's Fees - Any compensation payable to a Director for
services rendered to the Company, its subsidiaries or affiliates,
including fees payable for services as a member of any committee
of the Board, and any fees paid for services in other capacities
as approved by the Board.
G. Plan - This Alliance Financial Corporation Directors Compensation
Deferral Plan, as herein set forth.
H. Reserve Account - An account established and maintained by the
Company in the name of a Director who has elected to participate
in this Plan on the terms and subject to the conditions set forth
herein.
3. Administration of the Plan
This Plan shall be administered by the Committee. Each member of the
Committee shall be eligible to participate in the Plan. Subject to the
provisions of this Plan, the Committee shall have sole and complete
authority to (a) determine all questions of fact that may arise under
this Plan; (b) interpret this Plan; (c) establish and revise rules and
regulations relating to this Plan; (d) employ attorneys, consultants,
accountants or other persons (upon the advice, opinions or valuations
of whom the Committee shall be entitled to rely); (e) take such other
actions and make such other determinations as the Committee may deem to
be necessary or advisable for the administration of the Plan or as may
be otherwise provided for or permitted hereunder.
Decisions and determinations by the Committee shall be final, binding
and conclusive upon all persons, including, but not limited to, the
Company and its Directors. Except as otherwise required by applicable
law, no member of the Committee shall be liable personally for any act
or failure to act in connection with any of the Committee's
responsibilities under this Plan. To the extent not prohibited by
applicable law, the Company shall indemnify and hold harmless each
member of the Committee from all claims for liability, loss or damage
(including the payment of expenses in connection with the defense of
any such claim) which result from any act or failure to act in
connection with any of the Committee's responsibilities under this Plan
The expenses of administering this Plan shall be borne by the Company.
4. Effective Date; Merger of Existing Plans.
A. This Plan shall become effective April 20,1999, (Effective Date")
and shall apply to Director's Fees earned by any Director on or
after the Effective Date subject to the election requirements
described in Paragraph 5.
B. This Plan shall be the Successor to both First National Bank of
Cortland Directors Compensation Deferral Plan and Oneida Valley
Bancshares, Inc. Directors Compensation Deferral Plan
(collectively, the ("Predecessor Plans"), both of which shall
merge into this Plan as of April 20, 1999. The amounts credited
to the Directors accounts in each respective Predecessor Plan
shall be credited to the Director's Reserve Account established
hereunder, and the Director's rights with respect to such amounts
shall be determined solely under the terms of this Plan.
C. The amount credited to the Director's Reserve Account as
described in Paragraph 4B above shall be deemed invested in as
many shares and fractions thereof of the Company's stock as could
have been purchased with the amount credited if the sales price
per share of common stock had been the Book Value (as defined in
this Plan) as of March 31, 1999.
5. Operation of This Plan
A. Election of Directors to Participate:
Each nominee for election as a Director and any present Director
may elect, by notice to the Company, to defer receipt of all or a
portion of his/her Director's Fees payable subsequent to such
election. Each nominee for election as a Director shall make an
election to defer and shall complete the Deferral Election Form
within 30 days following his/her election to the Board. (See
Exhibit A Deferral Election Form)
B. Continuation of Election:
Once a Director has made an election to participate in the Plan
and has given instructions with respect to the matters referred
to herein, such election shall remain in effect for all
Director's Fees received by such Director subsequent to the time
such Director's initial election is made, unless such Director
amends or terminates such election or instruction by a notice to
the Company. A Director may amend his/her election to participate
in this Plan on an annual basis only by providing to the Company
a completed Deferral Election Form between January 1 and January
31 each year. Any such amendment or termination shall be
applicable only prospectively to Director's Fees earned following
the time such notice is given to the Company, and (except as
expressly permitted herein) shall not affect such election or
instructions insofar as they relate to Director's Fees
theretofore earned, and shall not affect amounts previously
credited to such Director's Reserve Account.
No Director may amend or terminate his/her instructions with
respect to the method or time of payment of amounts credited to
his/her Reserve Account, except that a Director may change
his/her Beneficiary at any time prior to the Director's death.
C. Establishment of the Reserve Account
The Company shall establish and maintain a Reserve Account in the
name of each Director who elects to participate in this Plan.
Upon a Director's election to defer receipt of all or any portion
of his/her Director's Fees, the Company shall credit such
deferred amounts to such Director's Reserve Account on the day on
which such Director's Fees would otherwise be payable to such
Director.
Credit to the Reserve Account shall be deemed to be invested in
as many shares and fractions thereof of the Company's common
stock as could have been purchased with the amount deferred, if
the sales price of a share of common stock had been the Book
Value (as defined in this agreement) of such share for the year
end preceding the date of the deferral. The Company shall
maintain records for each Director's Reserve Account and shall
record the number of shares that could have been purchased with
each amount deferred.
The Company shall also credit the Director's Reserve Account
additional amounts equivalent to the number of whole shares and
fractions thereof which could be purchased at Book Value with
dividends declared and paid on the Company's common stock.
Dividend credits shall continue to accrue to a Director's Reserve
Account until the date selected by the Director for full payment,
the commencement of installment payments, or the Director's
death, whichever event first occurs.
No provision of this Plan, including the credity of shares to a
Director's Reserve Account, shall entitle the Director to any
shares of Company common stock nor to any voting, pre-emptive, or
other rights of a shareholder of Company common stock.
On the date selected by the Director for payment pursuant to
Section 5E of the Plan or upon his/her sooner death, the Reserve
Account shall be valued by multiplying the number of the
Company's common shares and fractions thereof in such account by
the Book Value of the Company's common stock as of the
immediately preceding year end, and the amount, so calculated,
shall represent the Directors entitlement, provided however, that
in no event shall the Director's entitlement be less than the
aggregate of his/her Director's Fees actually deferred from time
to time. Coincident with the foregoing event, the dividend credit
to the Director's Reserve Account shall cease and the account
will receive a monthly interest credit based on the bank's one
year certificate of deposit rate, in effect as of the first day
of each year, until the final payment from the account is made.
D. Instructions With Respect to Deferral:
A Director who elects to participate in this Plan shall have the
right to give instructions to the Company with respect to the
following matters:
1. The percentage of Director's Fees to be deferred. ( See
Exhibit A Deferral Election Form)
2. The dates and terms on which amounts credited to the Reserve
Account shall be paid. (See Exhibit B Payment Election Form)
3. The identity of the Beneficiary and the terms and dates on
which the Beneficiary shall be paid. (See Exhibit C
Beneficiary Designation Form)
E. Payments Under This Plan:
Upon the Director's retirement or other termination of his/her
status as a member of the Board , the Director shall be entitled
to receive payment of his/her Reserve Account as follows:
i. Upon the Director's termination as a member of the Board,
the Director shall be paid over a period of ten (10 ) years
in substantially equal annual amounts. Payments shall be
made on the first day of the second month following the
Director's termination of status as a member of the Board
and on each ensuing anniversary of such initial payment date
during the ten year term. The amount to be paid on each
payment date shall be determined by multiplying the balance
credited to the Director's Reserve Account as of such date
by a fraction, the numerator of which is one (1) and the
denominator of which is the number of years left in the ten
year term.
ii. At the election of the Director, to be made and delivered to
the Company no later than the end of the calendar year prior
to the Director's termination as a member of the Board, all
of the Director's Reserve Account shall be payable in a lump
sum within thirty (30) days after termination of the
Director's status as a member of the Board, and, if paid
later, shall continue to earn interest as provided in this
Plan until the date of actual payment.
iii. The Director shall have the option to defer payment for a
period of up to five (5) years after termination as a member
of the Board by an election made in writing no later than
December 31 of the calendar year prior to termination. Such
election may be made only with the written consent of the
Committee. The election shall state the specific date on
which payment shall commence, and whether death prior to
such date will cause the payment of the deferred payments to
earlier commence. In the event of any deferral made pursuant
to this subparagraph, interest shall continue to accrue on
the unpaid balance as provided in Paragraph 5C of this Plan.
iv. If a Director shall die before any or all amounts credited
to the Reserve Account shall have been paid, the Director's
Beneficiary designated in Exhibit "C" to this Plan or, if no
Beneficiary is designated or if none survives the Director,
the Director's estate, shall receive the amounts credited to
the Director's Reserve Account in accordance with Paragraph
5Ei of this Plan; however, at the election of the
Beneficiary with the consent of the Committee, the amount
credited to the Director's Reserve Account shall be paid to
the Beneficiary in one lump sum.
If any person who becomes entitled to payment under this
Plan is a minor, or is, in the sole discretion of the
Committee, unable to care for his or her affairs, then any
payment due to be paid to such person shall be paid to a
duly appointed guardian, committee or other legal
representative. If no such representative has been
appointed, then payment may be made, in the sole discretion
of the Committee, to a spouse, child, parent, brother or
sister, or any other person incurring expenses for the care
of, or on behalf of, the person otherwise entitled to such
payment. Any payment under this paragraph shall, to the
extent of such payment, be a complete discharge of the
liabilities of the Company under this Plan.
v. No Director shall have any right to commute, encumber,
pledge, sell, assign, hypothecate, transfer or otherwise
dispose of the right to receive payments under this Plan
except by will or by the laws of descent and distribution.
All payments hereunder and rights thereto are expressly
declared to be non-assignable.
6. Amendment or Termination of the Plan
The Board may amend, suspend or terminate this Plan at any time;
provided, however, that no amendment, suspension or termination of
this Plan shall adversely affect the rights of a Director with respect
to 1) the amounts then credited to his/her Reserve Account, nor 2) an
election or instruction previously made or given by the Director
hereunder with respect to such amounts, unless such Director consents
in writing thereto, or unless such amendment, suspension or
termination is required by applicable law.
7. Nonalienation of Benefits
No right or benefit under this Plan shall be subject to anticipation,
alienation, sale, assignment, pledge, encumbrance, or charge and any
attempt to anticipate, alienate, sell, assign, pledge, encumber, or
charge the same shall be void. No right or benefit hereunder shall in
any manner be subject to the debts, contracts, and/or liabilities of
the Director, his/her beneficiary, or the estate of either. If the
Director hereunder shall become bankrupt or attempt to anticipate,
alienate, sell, assign, pledge, encumber, or charge any right or
benefit hereunder, then such right or benefit shall cease and
determine, and the Company shall have no further liability hereunder.
8. Unsecured Creditor
Nothing contained in this Plan and no action taken pursuant to the
provisions of this Plan shall create or be construed to create a
fiduciary relationship between the Company and the Director, his/her
designated Beneficiary, or any other person, nor shall the Director or
any designated Beneficiary have any preferred claim on, any title to,
or any beneficial interest in, the assets of the Company or the
payments deferred hereunder prior to the time such payments are
actually paid to the Director pursuant to the terms hereof. This Plan
constitutes a mere promise by the Company to pay benefits in the
future. To the extent that the Director, his/her designated
Beneficiary, or any person acquires a right to receive payments from
the Company under this Plan, such right shall be no greater than the
right of any unsecured general creditor of the Company.
9. No Employment Contract
This Plan shall not be deemed to constitute a contract of employment
between the parties hereto.
10. Binding Effect
This Plan shall be binding upon and inure to the benefit of the Company
and any successor of the Company, including any person, firm,
corporation, or other business entity which at any time, by merger,
consolidation, purchase, or otherwise, acquires all or substantially
all of the stock, assets, or business of the Company, and shall be
binding upon the Director and the Director's heirs, executors,
administrators, successors, and assigns.
11. Governing Law
This Plan shall be governed by and construed in accordance with the
laws of the State of New York, except to the extent superceded by
federal law.
12. Severability
In the event the Plan is determined by the Internal Revenue Service to
be ineffective with regard to the deferral of the Director's income,
and such determination is administratively finalized, those amounts
which would be treated as taxable income at the time of such final
determination shall be paid to the Director. All other benefits
deferred hereunder, and such amounts as may be subsequently credited
thereto, shall be paid pursuant to Paragraph 5E hereof.
13. Withholding
The Company shall be entitled to reduce any payment to be made pursuant
to this Plan by an amount which the Company deems necessary to comply
with any federal or state withholding requirements.
14. Nature of Benefits
It is the specific intent of the parties to the Plan that benefits
provided under this Plan are pursuant to a plan which is unfunded and
is exempt from the participation, vesting, funding and fiduciary
responsibilities of Title I of ERISA and that this Plan shall be
construed accordingly.
15. Capitalization Changes
In the event that:
i. the number of outstanding shares of the Company's common
stock shall be changed by reason of split-ups, combinations
of shares, recapitalizations, stock dividends or otherwise,
or,
ii The Company's common stock shall be converted into or
exchanged for other shares as a result of any merger,
consolidation, sale of assets or other recapitalization, the
number of the Company's shares and fractions thereof then
credited to the Reserve Account of any Director shall be
adjusted appropriately so as to reflect such change.
In the event that on or after April 20,1999, 20 percent or more
of the Company's common stock is acquired by a single entity or
person, or a group of related entities or persons, the number of
share equivalents held in a Director's Reserve Account shall be
valued by multiplying the number of the Company's shares and
fractions thereof by the market value of such shares and
fractions as of the date of which such acquisition is
consummated.
The value, as thus computed using the market value approach,
shall be compared with the value, calculated as of the same time,
using the book value (as of the immediately preceding year end)
approach as described in Section 5, and with the dollar amounts
actually deferred by the Director, and payment based on the
highest of such values shall be made as soon as practicable
thereafter in cash, notwithstanding any other provision of this
agreement.
For purposes of this Section, market value shall mean:
i. if the principal market for the Company's stock is a
national securities exchange, the last sale price per
share of common stock on such exchange at the time of
computation;
ii. if the principal market for the Company's stock is
other than on an exchange and bids and offers for the
stock are reported in the National Association of
Securities Dealers Automated Quotations System
(Nasdaq), the mean between the highest current
independent bid price per share and the lowest current
independent asked price per share reported on " Level 2
" of Nasdaq at the time of computation;
iii. if the principal market for the stock is other than on
an exchange and bids and offers for the stock are not
reported in Nasdaq, the mean between the highest
current independent bid price per share and the lowest
current independent asked price per share determined on
the basis of reasonable inquiry at the time of
computation.
<PAGE>
Alliance Financial Corporation
Director's Compensation Deferral Plan
Deferral Election Form
Pursuant to the terms of the Alliance Financial Corporation Director's
Compensation Deferral Plan between the undersigned Director and Alliance
Financial Corporation dated the ________ day of _______,______, I hereby elect
to defer _______% of Director's Fees that are payable to me. This election is to
apply to Director's Fees payable to me until I revoke this election in
accordance with the terms of this Plan.
Please deposit the cash portion of any Director's Fees to my Alliance
Bank,N.A. checking/savings account number _________.
Dated _________________ _________________________
Director
Accepted this _______ day of
- ------------, --------------
Alliance Financial Corporation
By:___________________________
Exhibit A
<PAGE>
Alliance Financial Corporation
Directors Compensation Deferral Plan
Payment Election Form
This election form is to be completed in accordance Paragraph 5E of the
Plan.
The undersigned Director hereby directs that amounts credited to his/her
Reserve Account shall be paid to the Director as set forth in the following
manner:
1. Installments over 10 years in accordance with Paragraph 5Ei.
2. Lump sum in accordance with Paragraph 5Eii.
3. Deferral payment in accordance with Paragraph 5Eiii.
In the event of a Director's death before payment(s) has (have) begun, or
in the event of a Director's death before all payments have been made, the
balance in the Reserve Account shall be paid to the Director's named
primary or contingent beneficiaries in accordance with Paragraph 5Eiv.
Dated _________________ _________________________
Director
Accepted this _______ day of
- ------------, --------------
Alliance Financial Corporation
By:___________________________
Exhibit B
<PAGE>
Alliance Financial Corporation
Directors Compensation Deferral Plan
Beneficiary Designation Form
The undersigned Director, ________________________, hereby designates the
following person(s) as beneficiary to receive all amounts payable following my
death under the terms of the Directors Compensation Deferral Plan between myself
and Alliance Financial Corporation dated the _______ day of _____________,
________.
1. ______________________________________
2. ______________________________________
3. ______________________________________
If the above named beneficiary predeceases me or dies prior to receiving all of
the remaining benefits due from my Reserve Account, the following person(s)
named as contingent beneficiaries shall receive all such remaining benefits.
1. _______________________________________
2. _______________________________________
3. _______________________________________
Dated _________________ _________________________
Director
Accepted this _______ day of
- ------------, --------------
Alliance Financial Corporation
By:___________________________
Exhibit C
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000796317
<NAME> ALLIANCE FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 17,448
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 189,438
<INVESTMENTS-CARRYING> 10,633
<INVESTMENTS-MARKET> 10,633
<LOANS> 261,543
<ALLOWANCE> 3,260
<TOTAL-ASSETS> 491,606
<DEPOSITS> 427,161
<SHORT-TERM> 9,200
<LIABILITIES-OTHER> 4,707
<LONG-TERM> 0
0
0
<COMMON> 7,282
<OTHER-SE> 43,256
<TOTAL-LIABILITIES-AND-EQUITY> 491,606
<INTEREST-LOAN> 11,024
<INTEREST-INVEST> 5,596
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<INTEREST-TOTAL> 16,945
<INTEREST-DEPOSIT> 6,616
<INTEREST-EXPENSE> 6,802
<INTEREST-INCOME-NET> 10,143
<LOAN-LOSSES> 475
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<EXPENSE-OTHER> 8,146
<INCOME-PRETAX> 3,649
<INCOME-PRE-EXTRAORDINARY> 3,649
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,622
<EPS-BASIC> 0.73
<EPS-DILUTED> 0.73
<YIELD-ACTUAL> 4.59
<LOANS-NON> 989
<LOANS-PAST> 531
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,372
<ALLOWANCE-OPEN> 3,001
<CHARGE-OFFS> 304
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<ALLOWANCE-CLOSE> 3,260
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