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 SEPTEMBER 30, 2000
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 (IRS Employer I.D. #)
of 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 November
10, 2000: COMMON STOCK, $1.00 PAR VALUE - 3,621,590 SHARES.
<PAGE>
CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Condition as of September 30, 2000
(unaudited) and December 31, 1999
Condensed Consolidated Statements of Income for the Three
Months Ended September 30, 2000 and 1999 and Nine Months Ended
September 30, 2000 and 1999 (unaudited)
Consolidated Statements of Comprehensive Income for the Three
Months Ended September 30, 2000 and 1999 and Nine Months Ended
September 30, 2000 and 1999 (unaudited)
Consolidated Statements of Changes in Shareholders' Equity for
the Nine Months Ended September 30, 2000 (unaudited)
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999 (unaudited)
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of the Results of Operations
and Financial Conditions
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
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
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ALLIANCE FINANCIAL CORPORATION
Consolidated Statements of Condition
(Dollars in Thousands)
SEPTEMBER 30, 2000 DECEMBER 31, 1999
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Cash and due from banks $ 18,954 $ 20,231
Federal funds sold -- --
-------- --------
Total cash and cash equivalents 18,954 20,231
Held-to-maturity investment securities 10,307 12,449
Available-for-sale investment securities 203,520 181,933
-------- --------
Total investment securities (fair value
$213,973 & $194,382, respectively) 213,827 194,382
Total loans 311,893 286,497
Unearned income (483) (1,060)
Allowance for possible loan losses (3,522) (3,412)
------- ---------
Net loans 307,888 282,025
Bank premises, furniture, and equipment 10,795 8,888
Other assets 15,069 13,671
-------- ---------
Total Assets $566,533 $519,197
======== ========
LIABILITIES
Non-interest-bearing deposits $ 58,798 $ 56,562
Interest-bearing deposits 405,560 378,512
-------- ---------
Total deposits 464,358 435,074
Borrowings 45,438 31,225
Other liabilities 5,640 3,653
-------- ---------
Total Liabilities 515,436 469,952
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
3,815,305 and 3,641,035 shares issued;
3,640,190 and 3,526,011 shares
outstanding, respectively 3,815 3,641
Surplus 7,096 3,641
Undivided profits 45,353 46,768
Accumulated other comprehensive loss (1,184) (2,086)
Treasury stock, at cost; 175,115 shares
and 115,024 shares, respectively (3,983) (2,719)
-------- ---------
Total Shareholders' Equity 51,097 49,245
Total Liabilities & Shareholders' Equity $566,533 $519,197
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE FINANCIAL CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
(Dollars in Thousands)
Three Months Nine Months
Ended Ended
September 30, September 30,
2000 1999 2000 1999
------ ------ ------- -------
<S> <C> <C> <C> <C>
Interest Income:
Interest & fees on loans $6,929 $5,740 $19,495 $16,764
Interest on investment securities 3,264 2,803 9,661 8,399
Interest on federal funds sold 20 20 253 345
------ ------ ------- -------
Total Interest Income 10,213 8,563 29,409 25,508
Interest Expense:
Interest on deposits 4,226 3,304 12,147 9,920
Interest on borrowings 912 201 1,794 387
------ ------ ------- -------
Total Interest Expense 5,138 3,505 13,941 10,307
Net Interest Income 5,075 5,058 15,468 15,201
Provision for loan losses 300 250 850 725
------ ------ ------- -------
Net Interest Income After Provision
for Losses 4,775 4,808 14,618 14,476
Other Income 2,105 1,260 4,857 3,387
------ ------ ------- -------
Total Operating Income 6,880 6,068 19,475 17,863
Other Expenses 4,871 4,074 13,738 12,220
------ ------ ------- -------
Income Before Income Taxes 2,009 1,994 5,737 5,643
Provision for income taxes 669 542 1,657 1,569
------ ------ ------- -------
Net Income $1,340 $1,452 $4,080 $ 4,074
====== ====== ======= =======
Net Income per Common Share - Basic $ .37 $ .41 $ 1.15 $ 1.14
====== ====== ======= =======
Net Income per Common Share - Diluted $ .37 $ .41 $ 1.14 $ 1.14
====== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE FINANCIAL CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in Thousands)
Three Months Nine Months
Ended Ended
September 30, September 30,
2000 1999 2000 1999
------ ------ ------- -------
<S> <C> <C> <C> <C>
Net Income $1,340 $1,452 $4,080 $4,074
Other Comprehensive Income, net of taxes:
Unrealized net gain on securities:
Unrealized holding gains (losses) arising
during the period 2,143 (857) 1,844 (4,044)
Reclassification adjustment for (gains) losses
included in net income (154) -- (341) (136)
------ ------ ------- -------
1,989 (857) 1,503 (4,180)
Income tax (provision) benefit (796) 343 (601) 1,672
------ ------ ------- -------
Other Comprehensive income (losses), net of 1,193 (514) 902 (2,508)
------ ------ ------- -------
tax
Comprehensive Income $2,533 $ 938 $4,982 $1,566
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE FINANCIAL CORPORATION
Consolidated Statements of Changes in Shareholders' Equity
for the Nine Months Ended September 30, 2000
(Unaudited)
(Dollars in Thousands)
ACCUMULATED
ISSUED OTHER
COMMON COMMON UNDIVIDED COMPREHENSIVE TREASURY
SHARES STOCK SURPLUS PROFITS LOSS STOCK TOTAL
---------- -------- ------- --------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 3,641,035 $3,641 $3,641 $46,768 $(2,086) $(2,719) $49,245
Net Income 4,080 4,080
Cash Dividend, $.525 per share (1,866) (1,866)
5% Stock Dividend 174,270 174 3,455 (3,629) --
Change in unrealized net loss on
investment securities 902 902
Treasury stock purchased (1,264) (1,264)
Balance at September 30, 2000 3,815,305 $3,815 $7,096 $45,353 $(1,184) $(3,983) $51,097
====== ====== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Thousands)
Nine Months Ended
September 30,
-------------------------
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 4,080 $ 4,074
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 850 725
Provision for depreciation 882 822
Realized investment security gains (341) (136)
Amortization of investment security premiums, net 118 843
Change in other assets and liabilities 320 (337)
-------- -------
Net Cash Provided by Operating Activities 5,909 5,991
INVESTMENT ACTIVITIES
Proceeds from maturities of investment securities,
available-for-sale 16,751 39,465
Proceeds from maturities of investment securities,
held-to-maturity 5,617 500
Purchase of investment securities, available-for-sale (47,612) (75,291)
Purchase of investment securities, held-to-maturity (3,476) -
Proceeds from the sale of investment securities 11,001 12,793
Increase in surrender value of life insurance (352) -
Net increase in loans (26,713) (24,305)
Purchase of premises and equipment, net (2,789) (1,407)
-------- -------
Net Cash Used by Investing Activities (47,573) (48,245)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW & savings accounts 222 5,667
Net increase in time deposits 29,062 3,159
Net increase in borrowings 14,213 25,548
Treasury Stock purchased (1,264) (780)
Cash dividends (1,846) (1,887)
-------- -------
Net Cash Provided by Financing Activities 40,387 31,707
Decrease in Cash and Cash Equivalents (1,277) (10,547)
Cash and cash equivalents at beginning of year 20,231 34,131
-------- -------
Cash and Cash Equivalents at End of Period $ 18,954 $ 23,584
-------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and short-term borrowings $ 13,580 $ 10,284
Income taxes 1,672 1,027
Non-Cash Investing Activities:
Decrease (Increase) in net unrealized gains/losses on
available-for-sale securities (1,503) 4,180
Non-Cash Financing Activities:
Dividend declared and unpaid 637 623
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
7
<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 latest
audited financial statements and notes thereto of the Company, together
with Management's Discussion and Analysis of the Results of Operations
and Financial Condition as of December 31, 1999 and for the three-year
period then ended, included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1999. 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 and nine months ended September 30,
2000 and 1999.
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 nine months ended September 30, 2000 and 1999,
using 3,641,181 and 3,572,444 weighted average common shares
outstanding for the three months then ended, and 3,550,943 and
3,587,355 weighted average common shares outstanding for the nine
months then 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. Weighted
average shares outstanding used in the calculation of diluted earnings
per share for the three months and nine months ended September 30, 2000
were 3,666,504 and 3,574,406, respectively.
PART I
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.
8
<PAGE>
The following discussion presents material changes in the Company's results of
operations and financial condition during the three and nine months ended
September 30, 2000, which are not otherwise apparent from the consolidated
financial statements included in this report.
This discussion and analysis contains certain forward-looking statements (within
the meaning of the Private Securities Litigation Reform Act of 1995) 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) an increase in competitive pressures in the banking industry; (2) changes in
the interest rate environment; (3) changes in the regulatory environment; (4)
general economic conditions, either nationally or regionally, that are less
favorable than expected, resulting in, among other things, a deterioration in
credit quality; (5) changes occur in business conditions and inflation; (6)
changes occur in the securities markets; (7) changes occur in technology used in
the banking business; (8) the new Syracuse branches do not attract the expected
loan and deposit customers; (9) the ability to maintain and increase market
share and control expenses; and (10) other factors detailed from time to time in
the Company's SEC filings.
Operating results for the three and nine months ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
Net income was $1,340,000, or $.37 per share, for the third quarter of 2000
compared to $1,452,000, or $.41 per share, for the same period in 1999. Net
income declined $112,000, or 7.7%, while earnings per share declined $.04, or
9.8%, over the comparable period. The return on average assets and return on
average shareholder's equity were 0.96% and 10.62%, respectively, for the three
months ended September 30, 2000, compared to 1.17% and 11.44%, respectively, for
the third quarter of 1999.
Net interest income for the quarter ended September 30, 2000 in the amount of
$5,075,000 reflected a light increase over the reported $5,058,000 in net
interest income for the quarter ended September 30, 1999. Strong growth in
average earning assets, which increased $58,598,000, or 12.6%, when comparing
the recent quarter-end to the prior year's comparable quarter-end, generated
earnings that offset the increase in the Company's interest expense resulting
from rising cost of funds. Average loans, net of unearned discount, for the
third quarter of 2000 were $305,901,000 compared to $267,758,000 for the third
quarter of 1999, an increase of $38,143,000, or 14.2%. Growth in average loans
was significant both in commercial loans, which were up $19,725,000, or 21.8%,
and indirect auto loans that were up $15,953,000, or 24.9%. Average investment
securities for the quarter ended September 30, 2000 were $19,109,000 greater
than the comparable 1999 period. The growth in average earning assets resulted
in an increase in interest income of $1,650,000, or 19.3%, with increases
reflected in interest and fees on loans, which were up $1,189,000, and interest
on investment securities and federal funds sold, which were up $461,000, when
comparing the quarter ended September 30, 2000 to the quarter ended September
30, 1999. Yields on average earning assets increased from 7.62% for the quarter
ended September 30, 1999, to 8.00% for the quarter ended September 30, 2000. The
Company's loan portfolio yield increased from 8.57% to 9.06% over the comparable
periods, while the tax equivalent yield on the investment portfolio increased 17
basis points to 6.51% when comparing the quarter ended September 30, 2000 to the
prior year's comparable quarter-end.
9
<PAGE>
Interest expense of $5,138,000 for the three month period ended September 30,
2000 compared to $3,505,000 for the same period in the prior year, an increase
of $1,633,000, or 46.6%. The average cost of interest bearing liabilities for
the third quarter of 2000, at 4.57%, was up 93 basis points compared to the
third quarter of 1999, while at the same time average interest bearing
liabilities over the comparable periods increased by $64,359,000, or 16.7%.
Rising market interest rates over the past 12 months resulted in the Company
increasing deposit rates throughout the period. As a result, interest expense on
deposits for the quarter ended September 30, 2000 was up $922,000, or 27.9%,
over the prior year third quarter with the average cost of interest bearing
deposits increasing 71 basis points to 4.28%. The Company's interest expense in
the quarter ended September 30, 2000 also increased as interest rates on its
borrowings, primarily short-term borrowings through the Federal Home Loan Bank,
increased from an average rate of 5.13% for the quarter ended September 30, 1999
to 6.59% for the quarter ended September 30, 2000. Interest expense on the
borrowings increased $711,000 as a result of both an increase in rates and an
increase of $39,547,000 in average borrowings outstanding when comparing the
third quarter in 2000 to the comparable quarter in 1999.
The provision for loan loss expense for the third quarter of 2000 was $300,000,
an increase of $50,000 compared to the third quarter of 1999 with the increase
supporting growth in loans.
Non-interest income for the quarter ended September 30, 2000 increased $845,000
to $2,105,000 when compared to $1,260,000 for the quarter ended September 30,
1999. The most significant item impacting the increase in non-interest income
was a $532,000 gain on the termination of the former Oneida Valley National Bank
defined benefit pension plan. The Company approved termination of the plan in
1999 in connection with the merger of the First National Bank of Cortland and
Oneida Valley National Bank and the subsequent consolidation and creation of a
uniform plan of employee benefits. Other non-interest income for the comparable
periods was up $313,000, or 24.8%, and resulted principally from increases in
the cash value of company owned life insurance and gains on the sales of
securities. Security gains increased $145,000 to $154,000 in the third quarter
of 2000 compared to the third quarter of 1999.
Non-interest expense for the three months ended September 30, 2000 increased
$797,000, or 19.6%, when compared to the quarter ended September 30, 1999. The
increase was most significantly attributed to costs associated with staffing,
occupancy, and marketing of the new branches. Salary and benefits expense
increased $460,000, or 20.4%, occupancy expense was up $42,000, or 6.4%, and
marketing expenses including advertising and postage was up $118,000, or 67.8%.
During the third quarter of 2000, the Company also had increased costs
associated with the purchase and development of technology systems designed to
provide customers account access through the internet, as well as the relocation
and expansion of its customer service call center. The Company's provision for
income taxes also increased during the quarter as a result of the termination of
the pension plan.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
Net income was $4,080,000, or $1.15 per share, for the first nine months of 2000
as compared to $4,074,000, or $1.14 per share, for the same period in 1999. Both
net income and earnings per share for the first nine months of the current year
were approximately equal to the prior year results for the comparable period.
The 1.00% return on average assets and the 10.99% return on average equity for
the first nine months of 2000 compared to a 1.10% return on average assets and a
10.53% return on average equity for the first nine months of 1999. Although the
net interest margin declined from 4.65% for the nine months ended September 30,
1999 to 4.24% for the nine months ended September 30, 2000, a $49,960,000
increase in average earning assets in the first nine months of 2000 compared to
the same period in 1999 contributed to a $267,000, or 1.8%, increase in net
interest income.
10
<PAGE>
Average loans increased $34,241,000, or 13.2%, with average yields up 27 basis
points to 8.87%, and average investments and federal funds sold were up
$15,719,000, or 7.7%, with average yields up 9 basis points to 6.53%, when
comparing the nine months ended September 30, 2000 to the comparable period in
1999.
The Company increased its provision for loan loss expense by $125,000 to
$850,000 in the first nine months of 2000 compared to the comparable period in
1999 in connection with a loan portfolio that increased by $33,329,000 and
slightly higher loan losses.
Non-interest income of $4,857,000 for the first nine months of 2000 was up
$1,470,000, or 43.4%, as compared to the first nine months of 1999. Excluding
the $532,000 gain on the termination of the former Oneida Valley National Bank
pension plan that occurred in the third quarter of 2000, non-interest income
increased $938,000, or 27.7%, when comparing the nine months ended September 30,
2000 to the comparable period in 1999. Significant increases in trust department
revenues, increases in the cash value of company owned life insurance, and other
fee income contributed to the growth. During the first nine months of 2000, the
Company took gains on the sales of securities in the amount of $341,000, which
exceeded gains on the sales of securities for the comparable period of 1999 by
$205,000.
Non-interest expense increased $1,518,000, or 12.4%, for the nine months ended
September 30, 2000 as compared to the same period in 1999. Salary and benefits
expenses rose $1,062,000, or 15.9%, for the first nine months of 2000 compared
to the same period of 1999 as the Company increased staff in its growing
commercial and indirect loan departments, trust and investment services area,
and new branches. Occupancy and equipment expense, also associated with the
growing departments and new branches, increased $165,000, or 8.6%, and other
operating expenses were up $291,000, or 8%.
FINANCIAL CONDITION
Total assets increased $47,336,000, or 9.1%, to $566,533,000 at September 30,
2000 from $519,197,000 at December 31, 1999. For the nine months ended September
30, 2000, total loans net of unearned discount increased $25,973,000, or 9.1%,
to $311,410,000. A focus on commercial and indirect auto lending during the year
has been responsible for the loan growth. The quality of the loan portfolio
continued to remain strong as non-performing loans as a percent of total loans
declined from 0.45% on September 30, 1999 to 0.41% at September 30, 2000, and
the coverage ratio of the allowance for loan losses to non-performing loans
improved from 2.65 times to 2.77 times for the same periods. Net charge-offs for
the nine month period ended September 30, 2000 in the amount of $740,000
increased $351,000 compared to the same period in 1999 and related to two
commercial loan losses. The allowance for possible loan losses balance as of
September 30, 2000, in the amount of $3,522,000 represented 1.13% of total loans
compared to 1.20% a year earlier. Investment securities as of September 30, 2000
in the amount of $213,827,000 were up $19,445,000, or 10% since December 31,
1999. Deposits as of September 30, 2000 increased $29,284,000, or 6.7%, to
$464,358,000 compared to the prior year-end. The Company's borrowings,
consisting primarily of advances from the Federal Home Loan Bank, increased
45.5%, to $45,438,000 in the first nine months of 2000. Shareholders' equity at
September 30, 2000 was $51,097,000, or 9% of assets. During the first nine
months of 2000 the Company's shareholder's equity increased by $1,852,000
through the addition of retained earnings, and $902,000 as a result of
appreciation in the Company's investment portfolio which was reflected in
accumulated other comprehensive loss component of equity. Purchases of Treasury
Stock during the first nine months of 2000, reduced equity by $1,264,000.
11
<PAGE>
OTHER INFORMATION
In December of 1998, the Oneida Indian Nation ("The Nation") and the U.S.
Justice Department filed a motion to amend a long-standing land claim against
the State of New York to include a class of 20,000 unnamed defendants who own
real property in Madison County and Oneida County. An additional motion sought
to include the Company as a representative of a class of landowners. On
September 25, 2000, the United States District Court of Northern New York
rendered a decision denying the motion to include the landowners as a group, and
thus, excluding the Company and many of its borrowers from the litigation. The
State of New York, the County of Madison and the County of Oneida remain as
defendants in the litigation. This ruling may be appealed by The Nation, and
does not prevent The Nation from suing landowners individually, in which case
the litigation could involve assets of the Company. 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.
SUBSEQUENT EVENTS
On October 30, 2000, the Company opened an in-store office in the Town of
Camillus, N.Y. at the P & C Market on West Genesee St.
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
September 30, 2000, an instantaneous 200 basis point increase in market interest
rates was estimated to have a negative impact of 6.4% on net interest income
over the next twelve month period, while a 200 basis point decrease in market
interest rates was estimated to have a positive impact of 3.9% on the Company's
net interest income. By comparison, at June 30, 2000 the Company estimated an
instantaneous 200 basis point rise in rates would have a negative impact of 9.9%
on net interest income during the following twelve month period while a 200
basis point decline in rates would have a positive impact of 5.8% on net
interest income during the following twelve month period. The Company reduced
its interest rate risk during the third quarter of 2000 as it reduced its
short-term borrowings and increased retail certificates of deposit with a
slightly longer term. The potential change in net interest income resulting from
this analysis falls within the Company's interest rate risk policy guidelines.
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.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits required by Item 601 of Regulation S-K:
EX. NO. DESCRIPTION
3.1 Amended and Restated Certificate of Incorporation of
the Company(1)
3.2 Amended and Restated Bylaws of the Company(1)
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
The Company filed a Current Report on Form 8-K, dated July 25,
2000, to report that its Board of Directors authorized the
repurchase of up to 300,000 shares of the Company's common
stock during the following 12 month period.
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 NOVEMBER 10, 2000 /S/ DAVID R. ALVORD
-------------------------------- ------------------------------------
David R. Alvord, President
DATE NOVEMBER 10, 2000 /S/ DAVID P. KERSHAW
-------------------------------- ------------------------------------
David P. Kershaw, Treasurer & CFO
13
