Alliance Financial Announces Third Quarter Earnings

Oct 14, 2010, 16:00 ET from Alliance Financial Corporation

SYRACUSE, N.Y., Oct. 14 /PRNewswire-FirstCall/ -- Alliance Financial Corporation ("Alliance", or the "Company") (Nasdaq: ALNC), the holding company for Alliance Bank, N.A., announced today its net income for the quarter ended September 30, 2010 was $3.1 million or $0.66 per diluted share, compared to $3.0 million or $0.64 per diluted share in the year-ago quarter.  

Net income for the nine months ended September 30, 2010 was $8.8 million, compared to $8.0 million in the year-ago period.

Net income available to common shareholders for the nine months ended September 30, 2010 was $8.8 million or $1.89 per diluted share, compared with $6.9 million or $1.49 per diluted share in the year-ago period.  Preferred dividends and the accretion of the discount on preferred stock issued under the Treasury Department's Capital Purchase Program was $1.1 million or $0.24 per diluted share for the nine months ended September 30, 2009.  The Company redeemed the preferred stock in May 2009.  

Jack H. Webb, President and CEO of Alliance said, "We continue to demonstrate the ability to produce solid financial performance in spite of the weak economy within a highly competitive marketplace. Our local community banking model is recognized as a preferred alternative to individuals, businesses and municipalities, which have become increasingly disenchanted by the lack of personal attention from larger financial institutions."

Webb added, "In the first quarter of this year, we enhanced our commercial banking team. Through their efforts we have attracted several new significant relationships and have a strong pipeline of additional opportunities going into the fourth quarter. Our core deposit levels continue to increase providing the funding necessary for us to continue lending to credit worthy borrowers throughout Central New York."

Balance Sheet Highlights

Total assets were $1.4 billion at September 30, 2010, which was a decrease of $9.9 million from the end of the second quarter.  Total loans and leases (net of unearned income) decreased $13.3 million during the quarter, and were $901.9 million at September 30, 2010. The decrease in loan balances resulted from the continued amortization of our lease portfolio combined with lower commercial line-of-credit utilization and the sale of most residential mortgage originations in the third quarter. Loan origination volumes increased $11.3 million or 16.9% in the third quarter compared with the second quarter, with residential mortgage and commercial loan originations increasing 28% and 47%, respectively, compared to the second quarter.  

Commercial loans and mortgages decreased $1.1 million in the third quarter and totaled $226.8 million at September 30, 2010.  Originations of commercial loans and mortgages in the third quarter (excluding lines of credit) totaled $19.6 million, compared with $13.3 million in the second quarter of 2010 and $10.5 million in the year-ago quarter.        

Residential mortgages outstanding decreased $6.1 million in the third quarter primarily as a result of our plan to sell most of our residential originations on the secondary market because of low interest rates.  Originations of residential mortgages totaled $34.7 million in the third quarter of 2010, compared with $27.1 million in the second quarter of 2010 and $37.1 million in the year-ago quarter.  

Indirect auto loan balances were $183.6 million at the end of the third quarter, which was essentially unchanged from the end of the second quarter.  The Company originated $22.5 million of indirect auto loans in the third quarter, compared with $25.3 million in the second quarter of 2010 and $25.0 million in the year-ago quarter.  Alliance originates auto loans through a network of reputable, well established automobile dealers located in Central and Western New York.  Applications received through the Company's indirect lending program are subject to the same comprehensive underwriting criteria and procedures as employed in its direct lending programs.  

Leases (net of unearned income) decreased $7.0 million in the third quarter as a result of the Company's previously announced decision to cease new lease originations.  The remaining balance of the lease portfolio of $47.5 million is expected to continue to run off at the rate of approximately $6.0 million per quarter over the next twelve months.  

The Company's investment securities portfolio decreased $11.0 million in the third quarter and totaled $395.8 million at September 30, 2010.  The Company's portfolio is comprised entirely of investment grade securities, of which 84% are rated "AAA" by one or more of the nationally recognized rating agencies. The breakdown of the securities portfolio at September 30, 2010 was 78% guaranteed mortgage-backed securities, 19% municipal securities and 1% obligations of U.S. Government-sponsored corporations.  Mortgage-backed securities, which totaled $307.2 million at September 30, 2010, are primarily comprised of pass-through securities backed by conventional residential mortgages and guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae, which in turn are backed by the full faith and credit of the federal government. The Company's municipal securities portfolio, which totaled $77.1 million at the end of the third quarter, is primarily comprised of highly rated general obligation bonds issued by local municipalities in New York State.

The Company recorded net unrealized gains of approximately $11.6 million in its securities portfolio at September 30, 2010.

Deposits increased $7.0 million in the third quarter, and were $1.1 billion at September 30, 2010.  Transaction account balances (checking, savings, and money market) increased $32.1 million in the third quarter as the result of growth in commercial and municipal deposits.  Since the end of 2009 transaction accounts are up $83.4 million with growth in each of our retail, commercial and municipal lines of business.  Time accounts decreased $25.1 million in the third quarter as growth in transaction accounts was used to reduce wholesale brokered deposits.  Low cost transaction accounts comprised 69.7% of total deposits at the end of the third quarter, compared with 65.2% at December 31, 2009 and 64.0% at September 30, 2009.

Shareholders' equity was $134.5 million at September 30, 2010, compared with $132.7 million at the end of the second quarter.  Net income for the quarter increased shareholders' equity by $3.1 million and was partially offset by common stock dividends declared of $1.4 million or $0.30 per common share.  

The Company's Tier 1 leverage ratio was 8.07% and its total risk-based capital ratio was 14.27% at the end of the third quarter, both of which exceeded the regulatory thresholds required to be classified as a well-capitalized institution, which are 5.0% and 10.0%, respectively.  The Company's tangible common equity capital ratio was 6.63% at September 30, 2010.

Asset Quality and the Provision for Credit Losses

The Company's level of nonperforming assets declined in the third quarter through a combination of collection activities, charge-offs and fewer loans and leases moving into nonperforming status.  Nonperforming assets were $8.5 million or 0.59% of total assets at September 30, 2010, compared with $10.3 million or 0.71% of total assets at June 30, 2010, and $9.0 million or 0.64% of total assets at December 31, 2009. Nonperforming assets at the end of the third quarter included nonperforming loans and leases totaling $7.8 million and foreclosed and repossessed collateral totaling $694,000.  Conventional residential mortgages comprised $3.1 million (37 loans) or 40.0% of nonperforming loans and leases at September 30, 2010.  Commercial loans and mortgages on nonperforming status totaled $3.1 million (29 loans) or 39.9% of nonperforming loans and leases at the end of the third quarter.  Leases on nonperforming status totaled $802,000 (23 leases) or 10.3% of nonperforming loans and leases at the end of the third quarter.  

Loans and leases past due 30 days or more (including nonperforming) totaled $17.6 million or 1.96% of total loans and leases at September 30, 2010, compared with $16.8 million or 1.84% of total loans and leases at June 30, 2010, and $18.7 million or 2.06% of total loans and leases at December 31, 2009.  

The provision for credit losses was $1.1 million and $3.3 million in the quarter and nine months ended September 30, 2010, respectively, compared with $1.1 million and $4.7 million in the year-ago periods, respectively.

Net charge-offs were $922,000 and $2.2 million in the three months and nine months ended September 30, 2010, respectively, compared with $978,000 and $3.8 million in the year-ago periods, respectively.  Annualized net charge-offs equaled 0.41% and 0.33%, respectively, of average loans and leases during the three months and nine months ended September 30, 2010, compared with 0.42% and 0.55%, respectively, in the year-ago periods.  The provision for credit losses as a percentage of net charge-offs was 119% and 147%, respectively, in the quarter and nine months ended September 30, 2010, compared with 115% and 122%, respectively, in the year-ago periods.  

The allowance for credit losses was $10.5 million at September 30, 2010, compared with $10.3 million at June 30, 2010 and $9.4 million at December 31, 2009.  The ratio of the allowance for credit losses to total loans and leases was 1.16% at September 30, 2010, compared with 1.12% at June 30, 2010 and 1.03% at December 31, 2009.  The ratio of the allowance for credit losses to nonperforming loans and leases was 134.3% at September 30, 2010, compared with 106.3% at June 30, 2010 and 109.7% at December 31, 2009.

Net Interest Income

Net interest income totaled $11.2 million in the three months ended September 30, 2010, which was approximately equal to the third quarter of 2009 and the second quarter of 2010 as the Company's average earning assets and the tax-equivalent net interest margin remained relatively stable in each of the three quarterly periods.  Average interest earning assets were approximately $1.3 billion in the third quarter, and the tax-equivalent net interest margin was 3.57%.  The net interest margin was 3.56% in the second quarter of 2010 and 3.62% in the third quarter of 2009.  

The Company's yield on earning-assets was 4.78% in the third quarter, compared with 5.12% in the year-ago quarter and 4.83% in the second quarter of 2010.  The Company's earning assets yield has gradually declined over the past year as the result of reinvestment of cash flows at lower rates, particularly in the securities portfolio, which comprised a larger share of total earning assets in 2010.

The cost of funds was 1.40% in the third quarter, compared to 1.72% in the year-ago quarter and 1.46% in the second quarter of 2010.  The cost of funds declined over the past year due to lower interest-bearing deposit rates and wholesale funding costs and a favorable change in the Company's deposit mix as the result of growth in lower cost transaction accounts.  Average transaction account balances increased $83.8 million or 12.3% in the third quarter compared with the third quarter of 2009.  Total average transaction accounts were $766.9 million or 68.1% of total average deposits in the third quarter compared with $683.1 million or 62.8% in the year-ago quarter.      

Net interest income for the nine months ended September 30, 2010 totaled $33.5 million, an increase of $1.6 million or 4.9% compared with $31.9 million in the year-ago period.  Average earning assets increased $23.5 million in the first nine months of 2010 compared with the year-ago period, while the tax-equivalent net interest margin increased 7 basis points to 3.58% in the first nine months of 2010.  A decrease of 32 basis points in the Company's tax-equivalent earning-assets yield in the first nine months of 2010 compared with the same period in 2009 was offset by a decrease of 46 basis points in the cost of funds.

Non-Interest Income and Non-Interest Expenses

Non-interest income was $5.1 million in the third quarter of 2010, compared with $4.8 million in the third quarter of 2009 and $4.9 million in the second quarter of 2010.  Non-interest income, excluding gains on security sales, comprised 30.2% of total revenue in the third quarter of 2010 compared with 29.8% in the year-ago quarter and 30.3% in the second quarter of 2010.  

Non-interest income totaled $14.6 million in the first nine months of 2010 compared with $14.9 million in the year-ago period.  The Company recognized $308,000 in pre-tax securities gains in the third quarter of 2010, down from $1.0 million in 2009.  Adjusted for the effect of these gains, non-interest income increased $378,000 primarily due to increases in investment management income, electronic customer transaction fees and gains on sales of loans.  Excluding the effect of securities gains, non-interest income comprised 29.9% of total revenue in the first nine months of 2010 compared with 30.3% in the year-ago period.  

Non-interest expenses were $11.2 million in the quarter ended September 30, 2010, compared with $10.9 million in the third quarter of 2009 and $11.0 million the second quarter of 2010.    

Non-interest expenses were $33.1 million in the nine months ended September 30, 2010 compared with $31.9 million in the first nine months of 2009.  Salaries and benefits expense increased $1.8 million or 12.1% compared with the first nine months of 2009.  Approximately $975,000 or 55% of this increase represents incremental recurring expense from a combination of new customer service and business development positions, normal salary increases and lower incentive compensation expense in 2009.  As required under generally accepted accounting principles, the deferral of salaries and benefits expense in connection with successfully originated loans comprised approximately $386,000 or 22% of the increase in salaries and benefits in 2010 compared with the same period in 2009, due to the substantially higher residential mortgage origination volume in 2009.  

FDIC insurance expense decreased $625,000 or 34.3% compared with the first nine-months of 2009 due to a special assessment required of all FDIC-insured banks in 2009.  The assessment for Alliance was $676,000 in the second quarter of 2009.

The Company's efficiency ratio was 70.1% in the third quarter of 2010 compared with 68.2% in the year-ago quarter and 68.3% in the second quarter of 2010.  The Company's efficiency ratio was 69.4% in the nine months ended September 30, 2010 compared with 69.6% in the year-ago period.

The Company's effective tax rate was 22.6% and 23.9% for the three months and nine months ended September 30, 2010, respectively, compared with 25.4% and 22.4% in the year-ago periods, respectively.  

About Alliance Financial Corporation    

Alliance Financial Corporation is an independent financial holding company with Alliance Bank, N.A. as its principal subsidiary that provides retail, commercial and municipal banking, and trust and investment services through 29 offices in Cortland, Madison, Oneida, Onondaga and Oswego counties.  Alliance also operates an investment management administration center in Buffalo, N.Y., an equipment lease financing company, Alliance Leasing, Inc., and a multi-line insurance agency, Ladd's Agency, Inc.  

Forward-Looking Statements

This press release contains certain forward-looking statements with respect to the financial condition, results of operations and business of Alliance Financial Corporation.  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: an increase in competitive pressure in the banking industry; changes in the interest rate environment which may affect the net interest margin; changes in the regulatory environment; general economic conditions, either nationally or regionally, resulting, among other things, in a deterioration in credit quality; changes in business conditions and inflation; changes in the securities markets; changes in technology used in the banking business; our ability to maintain and increase market share and control expenses; increases in FDIC insurance premiums may cause earnings to decrease; and other risks set forth under the caption "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and in subsequent filings with the Securities and Exchange Commission.

Contact:

Alliance Financial Corporation

J. Daniel Mohr, Executive Vice President and CFO

(315) 475-4478

Alliance Financial Corporation

Consolidated Statements of Income (Unaudited)

Three months ended

September 30,

Nine months ended

September 30,

2010

2009

2010

2009

(Dollars in thousands, except share and per share data)

Interest income:

Loans, including fees

$11,549

$12,417

$35,002

$37,605

Federal funds sold and interest bearing deposits

1

1

4

15

Securities

3,552

3,711

10,930

10,273

Total interest income

15,102

16,129

45,936

47,893

Interest expense:

Deposits:

 Savings accounts

95

105

298

339

 Money market accounts

645

766

2,147

2,573

 Time accounts

1,739

2,347

5,633

7,523

 NOW accounts

127

120

399

404

Total

2,606

3,338

8,477

10,839

Borrowings:

 Repurchase agreements

206

233

607

691

 FHLB advances

959

1,149

2,897

3,819

 Junior subordinated obligations

171

179

484

647

Total interest expense

3,942

4,899

12,465

15,996

Net interest income

11,160

11,230

33,471

31,897

Provision for credit losses

1,095

1,125

3,285

4,675

Net interest income after provision for credit losses

10,065

10,105

30,186

27,222

Non-interest income:

Investment management income

1,804

1,743

5,439

5,289

Service charges on deposit accounts

1,178

1,297

3,374

3,758

Card-related fees

649

566

1,892

1,654

Insurance agency income

328

338

1,093

1,027

Income from bank-owned life insurance

260

255

795

753

Gain on the sale of loans

323

230

738

505

Gain on sale of securities available-for-sale

308

308

1,015

Other non-interest income

289

333

920

887

Total non-interest income

5,139

4,762

14,559

14,888

Non-interest expense:

Salaries and employee benefits

5,576

5,307

16,515

14,728

Occupancy and equipment expense

1,771

1,728

5,451

5,279

Communication expense

158

207

491

594

Office  supplies and postage expense

305

359

874

971

Marketing expense

207

228

892

727

Amortization of intangible asset

289

388

869

1,163

Professional fees

762

734

2,330

2,165

FDIC insurance premium

389

434

1,195

1,820

Other operating expense

1,753

1,515

4,517

4,419

Total non-interest expense

11,210

10,900

33,134

31,866

Income before income tax expense

3,994

3,967

11,611

10,244

Income tax expense

904

1,009

2,780

2,293

Net income

$3,090

$2,958

$8,831

$7,951

Dividend and accretion of discount on preferred stock

(1,084)

Net income available to common shareholders

$3,090

$2,958

$8,831

$6,867

Share and Per Share Data

Basic average common shares outstanding

4,624,819

4,521,331

4,610,546

4,503,298

Diluted average common shares outstanding

4,646,889

4,563,168

4,635,454

4,524,057

Basic earnings per common share

$0.66

$0.64

$1.90

$1.50

Diluted earnings per common share

$0.66

$0.64

$1.89

$1.49

Cash dividends declared

$0.30

$0.28

$0.86

$0.80

Alliance Financial Corporation

Consolidated Balance Sheets (Unaudited)

September 30, 2010

December 31, 2009

Assets

(Dollars in thousands, except share and per share data)

Cash and due from banks

$     26,521

$      26,696

Federal Funds sold

11,400

Securities available-for-sale

395,756

362,158

Federal Home Loan Bank of NY ("FHLB") Stock and

 Federal Reserve Bank ("FRB") Stock

8,787

10,074

Loans and leases held for sale

1,351

1,023

Total loans and leases, net of unearned income

901,891

914,162

Less allowance for credit losses

10,466

9,414

Net loans and leases

891,425

904,748

Premises and equipment, net

19,138

20,086

Accrued interest receivable

4,788

4,167

Bank-owned life insurance

28,149

27,354

Goodwill

32,073

32,073

Intangible assets, net

9,206

10,075

Other assets

18,245

18,790

Total assets

$1,446,839

$1,417,244

Liabilities and shareholders' equity

Liabilities:

Deposits:

   Non-interest bearing

175,272

159,149

   Interest bearing

949,851

916,522

Total deposits

1,125,123

1,075,671

Borrowings

142,934

172,707

Accrued interest payable

1,066

1,745

Other liabilities

17,439

17,412

Junior subordinated obligations issued to

  unconsolidated subsidiary trusts

25,774

25,774

Total liabilities

1,312,336

1,293,309

Shareholders' equity:

Common stock

5,021

4,937

Surplus

44,673

43,013

Undivided profits

91,006

86,194

Accumulated other comprehensive income

5,354

946

Directors' stock-based deferred compensation plan

(2,895)

(2,499)

Treasury stock

(8,656)

(8,656)

Total shareholders' equity

134,503

123,935

Total liabilities and shareholders' equity

$1,446,839

$1,417,244

Common shares outstanding

4,698,737

4,614,921

Book value per common share

$       28.63

$      26.86

Tangible book value per common share

$       19.84

$      17.72

Alliance Financial Corporation

Consolidated Average Balances (Unaudited)

Three months ended

September 30,

Nine months ended

September 30,

2010

2009

2010

2009

(Dollars in thousands)

Earning assets:

Federal funds sold and interest bearing deposits

$2,587

$            —

$5,360

$     17,176

Securities(1)

404,654

374,718

396,546

339,467

Loans and leases receivable:

  Residential real estate loans(2)

353,289

350,798

354,823

340,632

  Commercial loans

218,217

210,629

213,854

213,077

  Leases, net of unearned income(2)

50,127

79,529

57,100

89,313

  Indirect loans

183,242

195,244

182,741

187,415

  Other consumer loans

91,210

92,109

91,047

90,939

Loans and leases receivable, net of unearned income

896,085

928,309

899,565

921,376

Total earning assets

1,303,326

1,303,027

1,301,471

1,278,019

Non-earning assets

137,574

131,669

136,180

132,904

Total assets

$1,440,900

$1,434,696

$1,437,651

$1,410,923

Interest bearing liabilities:

Interest bearing checking accounts

$145,045

$  116,665

$137,536

$  116,097

Savings accounts

102,523

95,048

99,248

91,671

Money market accounts

347,016

311,788

354,059

295,551

Time deposits

359,165

404,397

367,647

381,566

Borrowings

143,729

182,905

146,927

194,950

Junior subordinated obligations issued to

 unconsolidated trusts

25,774

25,774

25,774

25,774

Total interest bearing liabilities

1,123,252

1,136,577

1,131,191

1,105,609

Non-interest bearing deposits

172,341

159,617

164,397

154,561

Other non-interest bearing liabilities

16,192

16,214

16,492

16,833

Total liabilities

1,311,785

1,312,408

1,312,080

1,277,003

Shareholders' equity

129,115

122,288

125,571

133,920

Total liabilities and shareholders' equity

$1,440,900

$1,434,696

$1,437,651

$1,410,923

(1) The amounts shown are amortized cost and include FHLB and FRB stock

(2) Includes loans and leases held for sale

Alliance Financial Corporation

Investments, Loans and Leases, and Deposits (Unaudited)

The following table sets forth the amortized cost and fair value of the Company's available-for-sale securities portfolio:

September 30, 2010

June 30, 2010

December 31, 2009

Amortized Cost

Fair Value

Amortized Cost

Fair Value

Amortized Cost

Fair Value

Securities available-for-sale

(Dollars in thousands)

Debt securities:

U.S. Treasury obligations

$    3,350

$    3,350

$         100

$       100

$        100

$       101

Obligations of U.S. government- sponsored corporations

4,765

5,008

5,139

5,400

5,864

6,129

Obligations of states and political subdivisions

73,612

77,106

69,238

71,586

75,104

77,147

Mortgage-backed securities(1)

299,458

307,216

317,569

326,405

273,499

275,680

Total debt securities

381,185

392,680

392,046

403,491

354,567

359,057

Stock investments:

Equity securities

1,932

2,046

1,958

2,255

1,958

2,104

Mutual funds

1,000

1,030

1,000

1,023

1,000

997

Total stock investments

2,932

3,076

2,958

3,278

2,958

3,101

Total available-for-sale

$384,117

$395,756

$395,004

$406,769

$357,525

$362,158

(1)  Comprised of pass-through debt securities collateralized by conventional residential mortgages and guaranteed by either Fannie Mae, Freddie Mac or Ginnie Mae, which are, in turn, backed by the full faith and credit of the federal government.

The following table sets forth the composition of the Company's loan and lease portfolio at the dates indicated:

September 30, 2010

June 30, 2010

December 31, 2009

Amount

Percent

Amount

Percent

Amount

Percent

Loan portfolio composition

(Dollars in thousands)

Residential real estate loans

$348,443

38.8%

$354,544

38.9%

$356,906

39.2%

Commercial loans

116,887

13.0%

122,714

13.5%

111,243

12.2%

Commercial real estate

109,876

12.2%

105,157

11.5%

96,753

10.7%

Leases, net of unearned income

47,451

5.3%

54,402

6.0%

68,224

7.5%

Indirect loans

183,594

20.4%

183,410

20.1%

184,947

20.3%

Other consumer loans

91,885

10.3%

91,073

10.0%

92,022

10.1%

Total loans and leases

898,136

100.0%

911,300

100.0%

910,095

100.0%

Net deferred loan costs

3,755

3,851

4,067

Allowance for credit losses    

(10,466)

(10,293)

(9,414)

Net loans and leases

$891,425

$904,858

$904,748

The following table sets forth the composition of the Company's deposits at the dates indicated:

September 30, 2010

June 30, 2010

December 31, 2009

Deposit composition

Amount

Percent

Amount

Percent

Amount

Percent

Non-interest bearing checking

$175,272

15.6%

$162,147

14.5%

$   159,149

14.8%

Interest bearing checking

143,976

12.8%

141,339

12.6%

130,368

12.1%

Total checking

319,248

28.4%

303,486

27.1%

289,517

26.9%

Savings

101,356

9.0%

103,528

9.3%

94,524

8.8%

Money market

363,847

32.3%

345,385

30.9%

317,051

29.5%

Time deposits

340,672

30.3%

365,771

32.7%

374,579

34.8%

Total deposits

$1,125,123

100.0%

$1,118,170

100.0%

$1,075,671

100.0%

Alliance Financial Corporation

Asset Quality (Unaudited)

The following table represents a summary of delinquent loans and leases grouped by the number of days delinquent at the dates indicated:

Delinquent loans and leases

September 30, 2010

June 30, 2010

December 31, 2009

$

%(1)

$

%(1)

$

%(1)

(Dollars in thousands)

30 days past due

$  6,922

0.78%

$  5,864

0.64%

$   7,883

0.87%

60 days past due

2,894

0.32%

1,263

0.14%

2,271

0.25%

90 days past due and still accruing

43

—%

—%

—%

Non-accrual

7,749

0.86%

9,679

1.06%

8,582

0.94%

Total

$17,608

1.96%

$16,806

1.84%

$ 18,736

2.06%

(1)  As a percentage of total loans and leases, excluding deferred costs

The following table represents information concerning the aggregate amount of non-performing assets:

Non-performing assets

September 30, 2010

June 30, 2010

December 31, 2009

(Dollars in thousands)

Non-accruing loans and leases

  Residential real estate loans

$3,116

$ 3,444

$2,843

  Commercial loans

1,225

1,769

2,167

  Commercial real estate

1,888

2,218

1,846

  Leases

802

1,496

1,418

  Indirect loans

157

193

109

  Other consumer loans

561

559

199

Total non-accruing loans and leases

7,749

9,679

8,582

Accruing loans and leases delinquent 90 days or more

43

Total non-performing loans and leases

7,792

9,679

8,582

Other real estate and repossessed assets

694

603

445

Total non-performing assets

$8,486

$10,282

$9,027

The following table summarizes changes in the allowance for credit losses arising from loans and leases charged off, recoveries on loans and leases previously charged off and additions to the allowance which have been charged to expense:

Allowance for credit losses

Three months ended

September 30,

Nine months ended

September 30,

2010

2009

2010

2009

(Dollars in thousands)

Allowance for credit losses, beginning of period

$10,293

$  9,859

$ 9,414

$  9,161

Loans and leases charged-off

(1,119)

(1,292)

(2,834)

(4,991)

Recoveries of loans and leases previously charged-off

197

314

601

1,161

Net loans and leases charged-off

(922)

(978)

(2,233)

(3,830)

Provision for credit losses

1,095

1,125

3,285

4,675

Allowance for credit losses, end of period

$10,466

$10,006

$10,466

$10,006

Alliance Financial Corporation

Consolidated Financial Information (Unaudited)

Key Ratios

At or for the three months

ended September 30,

At or for the nine months

ended September 30,

2010

2009

2010

2009

Return on average assets

0.86%

0.82%

0.82%

0.65%

Return on average equity

9.57%

9.68%

9.38%

6.84%

Return on average common equity

9.57%

9.68%

9.38%

7.55%

Return on average tangible common equity

14.09%

14.85%

14.04%

11.69%

Yield on earning assets

4.78%

5.12%

4.86%

5.18%

Cost of funds

1.40%

1.72%

1.47%

1.93%

Net interest margin (tax equivalent) (1)

3.57%

3.62%

3.58%

3.51%

Non-interest income to total income (2)

30.21%

29.78%

29.86%

30.31%

Efficiency ratio (3)

70.10%

68.17%

69.43%

69.62%

Common dividend payout ratio (4)

45.45%

43.75%

45.50%

53.69%

Net loans and leases charged-off to average loans

 and leases, annualized

0.41%

0.42%

0.33%

0.55%

Provision for credit losses to average loans and

 leases, annualized

0.49%

0.49%

0.49%

0.68%

Allowance for credit losses to total loans and leases

1.17%

1.08%

n/a

n/a

Allowance for credit losses to non-performing loans

 and leases

134.3%

98.0%

n/a

n/a

Non-performing loans and leases to total loans and

 leases

0.87%

1.10%

n/a

n/a

Non-performing assets to total assets

0.59%

0.72%

n/a

n/a

(1) Tax equivalent net interest income divided by average earning assets

(2) Non-interest income (excluding net realized gains and losses on securities and other non-recurring gains and losses) divided by the sum of net interest income and non-interest income (as adjusted)

(3) Non-interest expense divided by the sum of net interest income and non-interest income (as adjusted)

(4) Cash dividends declared per share divided by diluted earnings per share

Alliance Financial Corporation

Selected Quarterly Financial Data (Unaudited)

2010

2009

Third

Second

First

Fourth

Third

(Dollars in thousands, except share and per share data)

Interest income

$   15,102

$   15,378

$   15,456

$   16,069

$  16,129

Interest expense

3,942

4,188

4,335

4,585

4,899

Net interest income

11,160

11,190

11,121

11,484

11,230

Provision for credit losses

1,095

1,095

1,095

1,425

1,125

Net interest income after provision for credit losses

10,065

10,095

10,026

10,059

10,105

Other non-interest income

5,139

4,859

4,561

5,923

4,762

Other non-interest expense

11,210

10,963

10,961

11,342

10,900

Income before income tax expense

3,994

3,991

3,626

4,640

3,967

Income tax expense

904

999

877

1,143

1,009

Net income

$     3,090

$     2,992

$     2,749

$     3,497

$     2,958

Stock and related per share data

Basic earnings per common share

$       0.66

$       0.64

$       0.59

$       0.76

$       0.64

Diluted earnings per common share

$       0.66

$       0.64

$       0.59

$       0.75

$       0.64

Basic weighted average common shares outstanding

4,624,819

4,622,660

4,583,617

4,546,819

4,521,331

Diluted weighted average common shares outstanding

4,646,889

4,643,679

4,614,060

4,585,800

4,563,168

Cash dividends paid per common share

$       0.30

$       0.28

$       0.28

$       0.28

$       0.28

Common dividend payout ratio (1)

45.45%

43.75%

47.46%

37.33%

43.75%

Common book value

$     28.63

$     28.46

$     27.38

$     26.86

$     27.04

Tangible common book value (2)

$     19.84

$     19.55

$     18.39

$     17.72

$     17.84

Capital Ratios

Holding Company

Tier 1 leverage ratio

8.07%

7.87%

7.86%

7.55%

7.42%

Tier 1 risk based capital

13.06%

12.69%

12.56%

12.06%

11.53%

Tier 1 risk based common capital (3)

10.17%

9.84%

9.68%

9.22%

8.74%

Total risk based capital

14.27%

13.88%

13.69%

13.13%

12.64%

Tangible common equity to tangible assets(4)

6.63%

6.44%

6.10%

5.95%

5.82%

Bank

Tier 1 leverage ratio

7.67%

7.48%

7.38%

7.14%

6.95%

Tier 1 risk based capital

12.47%

12.12%

11.85%

11.47%

10.84%

Total risk based capital

13.70%

13.32%

12.99%

12.55%

11.97%

Selected ratios

Return on average assets

0.86%

0.83%

0.77%

0.97%

0.82%

Return on average equity

9.57%

9.62%

8.93%

11.13%

9.68%

Return on average tangible common equity

14.09%

14.48%

13.55%

16.76%

14.85%

Yield on earning assets

4.78%

4.83%

4.96%

5.08%

5.12%

Cost of funds

1.40%

1.46%

1.54%

1.61%

1.72%

Net interest margin (tax equivalent) (5)

3.57%

3.56%

3.61%

3.68%

3.62%

Non-interest income to total income (6)

30.21%

30.28%

29.08%

29.35%

29.78%

Efficiency ratio (7)

70.10%

68.31%

69.90%

69.77%

68.17%

Asset quality ratios

Net loans and leases charged off to average loans

 and leases, annualized

0.41%

0.23%

0.35%

0.88%

0.42%

Provision for credit losses to average loans and

 leases, annualized

0.49%

0.49%

0.49%

0.62%

0.49%

Allowance for credit losses to total loans and leases

1.17%

1.12%

1.07%

1.03%

1.08%

Allowance for credit losses to non-performing loans

 and leases

134.3%

106.3%

101.3%

109.7%

98.0%

Non-performing loans and leases to total loans and leases

0.87%

1.06%

1.06%

0.94%

1.10%

Non-performing assets to total assets

0.59%

0.71%

0.69%

0.64%

0.72%

(1) Cash dividends declared per common share divided by diluted earnings per common share

(2) Common shareholders' equity less goodwill and intangible assets divided by common shares outstanding

(3) Tier 1 capital excluding junior subordinated obligations issued to unconsolidated trusts divided by total risk-adjusted assets

(4) The Company uses certain non-GAAP financial measures, such as the Tangible Common Equity to Tangible Assets ratio (TCE), to provide information for investors to effectively analyze financial trends of ongoing business activities, and to enhance comparability with peers across the financial sector.  The Company believes TCE is useful because it is a measure utilized by regulators, market analysts and investors in evaluating a company's financial condition and capital strength.  TCE, as defined by the Company, represents common equity less goodwill and intangible assets.  A reconciliation from the Company's GAAP Total Equity to Total Assets ratio to the Non-GAAP Tangible Common Equity to Tangible Assets ratio is presented below:

(in thousands)

September 30,

2010

June 30,

2010

March 31,

2010

December 31,

2009

September 30,

2009

Total assets

$1,446,839

$1,456,731

$1,445,326

$ 1,417,244

$ 1,456,276

Less:  Goodwill and intangible assets, net

41,279

41,568

41,858

42,148

42,438

Tangible assets (non-GAAP)

$1,405,560

$1,415,163

$1,403,468

$ 1,375,096

$ 1,413,838

Total Common Equity

134,503

132,712

127,487

123,935

124,770

Less:  Goodwill and intangible assets, net

41,279

41,568

41,858

42,148

42,438

Tangible Common Equity (non-GAAP)

93,224

91,144

85,629

81,787

82,332

Total Equity/Total Assets

9.30%

9.11%

8.82%

8.74%

8.57%

Tangible Common Equity/Tangible Assets

 (non-GAAP)  

6.63%

6.44%

6.10%

5.95%

5.82%

(5) Tax equivalent net interest income divided by average earning assets

(6) Non-interest income (net of realized gains and losses on securities and other non-recurring items) divided by the sum of net interest income and non-interest income (as adjusted)

(7) Non-interest expense divided by the sum of net interest income and non-interest income (as adjusted)

SOURCE Alliance Financial Corporation



RELATED LINKS

http://www.alliancebankna.com