Alliance Financial Announces Second Quarter Earnings

             Alliance Financial Announces Second Quarter Earnings

PR Newswire

SYRACUSE, N.Y., July 17, 2012

SYRACUSE, N.Y., July 17, 2012 /PRNewswire/ --Alliance Financial Corporation
("Alliance" or the "Company") (NasdaqGM: ALNC), the holding company for
Alliance Bank, N.A., announced today net income for the quarter ended June 30,
2012 of $2.9 million or $0.61 per diluted common share, compared with $3.5
million or $0.73 per diluted common share in the year-ago quarter and $2.6
million or $0.55 per diluted common share in the first quarter of 2012.

Net income for the six months ended June 30, 2012 was $5.6 million or $1.16
per diluted share, compared with $6.8 million or $1.43 per diluted share in
the first half of 2011.

Net interest income decreased $1.3 million and $2.4 million in the three and
six month periods ended June 30, 2012, respectively, compared with the
year-ago periods due to the continuing pressure on our net interest margin
caused by the exceptionally low interest rate environment, which was partially
mitigated by strong loan growth.

Jack H. Webb, President and CEO of Alliance said, "Our loan portfolio grew at
an annualized rate of 13% in the second quarter with broad-based loan growth
in each of our commercial, residential, and indirect portfolios as we continue
to capture market share. Loan originations across all our business lines
totaled more than $106 million in the second quarter, which was an increase of
98% from the second quarter of 2011, and was up 47% from the first quarter of
this year."

Webb added, "While we grew our loan portfolio, we also continued to improve on
our already low levels of non-performing and delinquent loans. Our
non-performing loans dropped 25% in the second quarter as a direct result of
successful workouts and payoffs of non-performing loans. Total loan
delinquencies were also down 12% in the second quarter."

Balance Sheet Highlights

Total assets were $1.4 billion at June 30, 2012, which was an increase of $7.2
million from March 31, 2012. Total loans and leases (net of unearned income)
increased $28.6 million from the previous quarter to $898.5 million at June
30, 2012.

Loan origination volumes in the second quarter increased $52.5 million, or
97.5%, to $106.4 million, compared with $53.8 million in the year-ago quarter
and $72.5 million in the first quarter of 2012 on strong origination growth in
each of our commercial, residential mortgage and indirect lending businesses.


Commercial loans and mortgages increased $9.3 million in the second quarter
and totaled $283.1 million at June 30, 2012. Originations of commercial loans
and mortgages in the second quarter (excluding lines of credit) totaled $21.6
million, compared with $8.3 million in the first quarter of 2012 and $17.7
million in the year-ago quarter. The $13.3 million increase in commercial
originations during the second quarter resulted from the capture of additional
market share through a sustained sales effort.

Residential mortgages outstanding increased $7.1 million in the second quarter
to $320.9 million. Originations of residential mortgages totaled $44.2
million in the second quarter of 2012, compared with $30.0 million in the
first quarter of 2012 and $18.0 million in the year-ago quarter. Alliance
retained in portfolio approximately $22.0 million of the second quarter
originations that were bi-weekly payment mortgages or monthly payment
mortgages with maturities of 15 years or less.

Indirect auto loan balances were $188.8 million at the end of the second
quarter, which was an increase of $16.9 million from the end of the first
quarter of 2012. Alliance originated $39.8 million of indirect auto loans in
the second quarter, compared with $33.2 million in the first quarter of 2012
and $17.3 million in the year-ago quarter. The increase in originations this
year is attributable to a change in the Company's rate structure designed to
increase its market share without lowering its underwriting standards, along
with the implementation of an electronic application system. 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.

The Company's investment securities portfolio totaled $341.8 million at June
30, 2012, compared with $346.4 million at March 31, 2012. The Company's
portfolio is comprised entirely of investment grade securities, the majority
of which are rated "AAA" by one or more of the nationally recognized rating
agencies. The breakdown of the securities portfolio at June 30, 2012 was 77.0%
government-sponsored entity-guaranteed mortgage-backed securities, 21.6%
municipal securities and 0.5% obligations of U.S. government-sponsored
corporations. Mortgage-backed securities, which totaled $263.4 million at
June 30, 2012, are comprised primarily 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 U.S. government. The Company's
municipal securities portfolio, which totaled $73.7 million at the end of the
second quarter, is primarily comprised of highly rated general obligation
bonds issued by local municipalities in New York State. Net unrealized gains
on our securities portfolio totaled $11.3 million at the end of the second
quarter.

Deposits increased $5.6 million in the second quarter, and were $1.1 billion
at June 30, 2012. Low-cost transaction accounts comprised 75.6% of total
deposits at the end of the second quarter, compared with 75.7% at March 31,
2012 and 69.7% at June 30, 2011. Alliance's liability mix remained favorably
weighted towards transaction accounts in the second quarter as retail and
municipal depositors continue to refrain from locking up funds in time
accounts in the low interest rate environment, and also because of the buildup
of cash on commercial customers' balance sheets.

Shareholders' equity was $146.8 million at June 30, 2012, compared with $145.0
million at the end of the first quarter. Net income for the quarter increased
shareholders' equity by $2.9 million and was partially offset by common stock
dividends declared of $1.5 million or $0.31 per common share.

The Company's Tier 1 leverage ratio was 9.38% and its total risk-based capital
ratio was 15.75% at the end of the second quarter. The Company's tangible
common equity capital ratio (a non-GAAP financial measure) was 7.85% at June
30, 2012.

Asset Quality and the Provision for Credit Losses

Delinquent loans and leases (including non-performing) totaled $12.6 million
at June 30, 2012, compared with $14.4 million at March 31, 2012 and $17.0
million at December 31, 2011. The largest decline in delinquent loans in the
second quarter occurred in loans delinquent 90 days or more or on non-accrual
status, which declined $2.3 million or 25.3%. 

Non-performing assets were $6.7 million or 0.47% of total assets at June 30,
2012, compared with $9.2 million or 0.65% of total assets at March 31, 2012
and $11.7 million or 0.83% of total assets at December 31, 2011. The decline
in non-performing assets in the second quarter resulted primarily from
non-accrual loans returning to accrual status as a result of satisfactory
payment performance and to pay-offs of non-performing loans. Included in
non-performing assets at the end of the second quarter are non-performing
loans and leases totaling $6.7 million, compared with $8.9 million at March
31, 2012 and $11.3 million at December 31, 2011. 

Conventional residential mortgages comprised $2.5 million (39 loans) or 38.3%
of non-performing loans and leases, and commercial loans and mortgages totaled
$3.3 million (25 loans) or 50.2% of non-performing loans and leases at the end
of the second quarter.

Net charge-offs were $166,000 and $1.6 million in the three and six months
ended June 30, 2012, respectively, compared with $155,000 and $360,000 in the
year-ago periods. Net charge-offs annualized equaled 0.08% and 0.36%,
respectively, of average loans and leases during the three months and six
months ended June 30, 2012, compared with 0.07% and 0.08% in the year-ago
periods, respectively. Gross charge-offs were $460,000 and recoveries were
$294,000 in the second quarter of 2012. 

A negative provision expense resulted in $300,000 of income being recorded in
the second quarter, compared with provision expense of $160,000 in the
year-ago quarter and no provision expense in the first quarter of 2012.
Alliance assesses a number of quantitative and qualitative factors at the
individual portfolio level in determining the adequacy of the allowance for
credit losses and the required provision expense each quarter. In addition,
Alliance analyzes certain broader, non-portfolio specific factors in assessing
the adequacy of the allowance for credit losses, such as the allowance as a
percentage of total loans and leases, the allowance as a percentage of
non-performing loans and leases and the provision expense as a percentage of
net charge-offs. As the Company's asset quality metrics and net charge-off
levels have improved in recent quarters (excluding the charge-offs related to
a $3.6 million commercial relationship previously discussed in the Company's
Form 10-Q for the first quarter of 2012), an increasing portion of the
allowance for credit losses has been considered "unallocated," which means it
is not based on either quantitative or qualitative factors, but on the
broader, non-portfolio specific factors. At June 30, 2012, $1.3 million or
14% of the allowance for credit losses was considered to be "unallocated,"
compared to $991,000 or 9% at December 31, 2011. Absent any material
deterioration in credit quality or material growth in the loan and lease
portfolio, some portion of this "unallocated" allowance may be reduced by
future credit losses and/or negative credit loss provisions, which would have
the effect of lowering the amount of provision expense relative to net
charge-offs compared with past quarters (i.e. provision expense being less
than net charge-offs), or a negative provision expense, which was the case in
the second quarter of 2012.

The provision for credit losses as a percentage of net charge-offs was not
meaningful in the second quarter due to the negative provision that was
recorded. The provision for credit losses as a percentage of net charge-offs
was 103% in the year-ago quarter and 0% in the first quarter of 2012. 

The allowance for credit losses was $8.9 million at June 30, 2012, compared
with $9.4 million at March 31, 2012 and $10.8 million at December 31, 2011.
The ratio of the allowance for credit losses to total loans and leases was
0.99% at June 30, 2012, compared with 1.08% at March 31, 2012 and 1.24% at
December 31, 2011. The ratio of the allowance for credit losses to
non-performing loans and leases was 134% at June 30, 2012, compared with 105%
at March 31, 2012 and 96% at December 31, 2011.

Net Interest Income

Net interest income totaled $10.0 million in the three months ended June 30,
2012, compared with $11.3 million in the year-ago quarter, and $9.8 million in
the first quarter of 2012. The tax-equivalent net interest margin decreased
27 basis points in the second quarter compared with the year-ago quarter due
to the effect of persistently low interest rates on the Company's
interest-earning assets. The rate of margin decline slowed considerably in the
first quarter of 2012 in large part due to a slowing in prepayments on our
mortgage-backed securities portfolio. The net interest margin increased 4
basis points from the first to the second quarter of 2012 with most of the
increase attributable to the accrual of $133,000 of interest on non-accrual
loans which were returned to performing status in the second quarter. 

The net interest margin on a tax-equivalent basis was 3.26% in the second
quarter of 2012, compared with 3.53% in the year-ago quarter of 2011 and 3.22%
in the first quarter of 2012. The net interest margin in the second quarter
adjusted for the accrual of non-accrual interest was 3.22%. The decrease in
the net interest margin compared with the second quarter of 2011 was the
result of a decrease in the tax-equivalent earning asset yield of 54 basis
points in the second quarter compared with the year-ago quarter, which was
partially offset by a decrease in the cost of interest-bearing liabilities of
29 basis points over the same period. On a linked-quarter basis, the decline
in our earning-assets yield was 9 basis points in the second quarter, which
was offset by a 15 basis-point drop in the cost of our interest-bearing
liabilities. Adjusted for the recovery of non-accrual interest in the second
quarter, our tax-equivalent earning asset yield declined 58 basis points and
13 basis points, compared with the year-ago quarter and the first quarter of
2012, respectively. 

Average interest-earning assets were $1.3 billion in the second quarter, which
was a decrease of 4.0% from the year-ago quarter but was unchanged from the
first quarter of 2012. Most of the decline from the year-ago quarter occurred
in our securities portfolio, with the average balance down 25% due to our
decision to temporarily shrink the portfolio in the second half of 2011 due to
the very low yields available on the types of securities in which we invest.
Average loans and leases was roughly equal in the second quarter compared with
the year-ago quarter as growth in our average commercial loan and consumer
loan portfolios offset lower average lease balances. Total average loans and
leases were 68.4% of total interest-earning assets in the second quarter of
2012, compared with 65.6% in the year-ago quarter and 67.1% in the first
quarter of 2012. 

Net interest income for the six months ended June 30, 2012 totaled $19.8
million, which was down $2.4 million or 11.0% compared with the year-ago
period. The tax equivalent net interest margin was 3.24% for the six months
ended June 30, 2012, compared to 3.49% for the first half of 2011. The
tax-equivalent earning asset yield decreased 46 basis points in the first half
of 2012 compared with the year-ago period, which was partially offset by a
decrease of 22 basis points in the cost of interest-bearing liabilities
ofbasis points over the same period.

Average interest-earning assets were $1.3 billion in the first half of 2012,
which was a decrease of 3.9% from the first half of 2011. The changes in the
average balances of securities and loans for the first half of 2012 compared
with the year-ago period were similar to that as discussed above for the
second quarter. Total average loans and leases were 67.7% of total
interest-earning assets in the first half of 2012, compared with 65.7% in the
year-ago period.

Net interest margin is expected to remain under pressure in coming quarters as
the persistently low interest rate environment continues to negatively affect
the return on loan and investment portfolios, while the ability to further
reduce funding costs is limited.

Non-Interest Income and Non-Interest Expenses

Non-interest income was $4.5 million in the second quarter of 2012, compared
with $4.4 million in the second quarter of 2011 and $4.5 million in the first
quarter of 2012. Gains on the sale of loans increased $259,000 compared with
the second quarter of 2011 due to higher volumes of mortgages originated and
sold in 2012.

Non-interest income totaled $9.0 million in the first six months of 2012 and
2011. Gains on the sale of loans increased $330,000, compared with the first
half of 2011 and were partially offset by a $243,000 decrease in other
non-interest income.

Non-interest income accounted for 31.1% of total revenue in the second quarter
of 2012, compared with 28.2% in the year-ago quarter. Non-interest income
accounted for 31.2% of total revenue in the first half of 2012, compared
with 28.8% in the year-ago period.

Non-interest expenses were $11.0 million in the quarter ended June 30, 2012,
compared with $10.8 million in the year-ago quarter and $10.9 million in the
first quarter of 2012. Non-interest expenses were $21.9 million in the six
months ended June 30, 2012, compared with $21.8 million in the first half of
2011.

The Company's efficiency ratio was 75.8% in the second quarter of 2012,
compared with 68.8% in the year-ago quarter. The Company's efficiency ratio
was 75.9% in the six months ended June 30, 2012, compared with 69.6% in the
year-ago period.

The Company's effective tax rate was 23.5% and 23.3% for the three and six
months ended June 30, 2012, respectively, compared with 26.9% and 25.8% in the
year-ago periods, respectively. The decrease in our effective tax rate from
2011 was due to a higher level of tax-exempt income as a percentage to total
taxable income.

About Alliance Financial Corporation

Alliance Financial Corporation is a 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. and
an equipment lease financing company, Alliance Leasing, 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,
2011, 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 June 30,  Six months ended June 30,
                        2012            2011         2012           2011
                        (Dollars in thousands, except share and per share
                        data)
Interest income:
Loans, including fees   $9,718          $10,621      $19,543        $21,283
Federal funds sold and
interest bearing        41              1            75             5
deposits
Securities              2,458           3,872        5,062          7,468
Total interest income   12,217          14,494       24,680         28,756
Interest expense:
Deposits:
 Savings accounts      24              55           55             113
 Money market          252             447          530            894
accounts
 Time accounts         891             1,446        2,032          2,933
 NOW accounts          28              61           66             129
Total                   1,195           2,009        2,683          4,069
Borrowings:
 Repurchase            202             203          405            410
agreements
 FHLB advances         645             818          1,403          1,673
 Junior subordinated   170             158          343            315
obligations
Total interest expense  2,212           3,188        4,834          6,467
Net interest income     10,005          11,306       19,846         22,289
Provision for credit    (300)           160          (300)          360
losses
Net interest income
after provision for     10,305          11,146       20,146         21,929
credit losses
Non-interest income:
Investment management   1,949           1,986        3,804          3,902
income
Service charges on      1,050           1,096        2,093          2,106
deposit accounts
Card-related fees       720             699          1,371          1,352
Income from bank-owned  246             255          493            509
life insurance
Gain on the sale of     347             88           706            376
loans
Other non-interest      212             311          533            776
income
Total non-interest      4,524           4,435        9,000          9,021
income
Non-interest expense:
Salaries and employee   5,651           5,305        11,342         10,835
benefits
Occupancy and           1,694           1,816        3,595          3,646
equipment expense
Communication expense   157             173          316            323
Office supplies and    325             301          607            585
postage expense
Marketing expense       262             217          499            480
Amortization of         222             241          444            482
intangible asset
Professional fees       828             860          1605           1,684
FDIC insurance premium  211             401          426            794
Other operating         1,666           1,509        3,070          2,973
expense
Total non-interest      11,016          10,823       21,904         21,802
expense
Income before income    3,813           4,758        7,242          9,148
tax expense
Income tax expense      895             1,279        1,684          2,363
Net income              $2,918          $3,479       $5,558         $6,785
Share and Per Share
Data
Basic average common    4,700,992       4,662,752    4,699,780      4,662,400
shares outstanding
Diluted average common  4,700,992       4,670,530    4,699,780      4,670,611
shares outstanding
Basic earnings per      $ 0.61         $ 0.73      $ 1.16        $ 1.43
common share
Diluted earnings per    $ 0.61         $ 0.73      $ 1.16        $ 1.43
common share
Cash dividends          $ 0.31         $ 0.30      $ 0.62        $ 0.60
declared





Alliance Financial Corporation
Consolidated Balance Sheets (Unaudited)
                                    June 30, 2012      December 31, 2011
                                   (Dollars in thousands, except share and per
                                   share data)
Assets
Cash and due from banks            $   70,908            $   52,802
Securities available-for-sale      341,849                  374,306
Federal Home Loan Bank of NY
("FHLB") Stock and
                                   7,974                    8,478
 Federal Reserve Bank ("FRB")
Stock
Loans and leases held for sale     1,149                    1,217
Total loans and leases, net of     898,452                  872,721
unearned income
Less allowance for credit losses   (8,892)                  (10,769)
Net loans and leases               889,560                  861,952
Premises and equipment, net        17,094                   17,541
Accrued interest receivable        3,733                    3,960
Bank-owned life insurance          29,923                   29,430
Goodwill                           30,844                   30,844
Intangible assets, net             7,250                    7,694
Other assets                       22,554                   20,866
Total assets                       $1,422,838               $1,409,090
Liabilities and shareholders'
equity
Liabilities:
Deposits:
 Non-interest bearing           $  203,885              $  185,736
 Interest bearing               902,687                  897,329
Total deposits                     1,106,572                1,083,065
Borrowings                         125,318                  136,310
Accrued interest payable           874                      1,578
Other liabilities                  17,456                   18,366
Junior subordinated obligations
issued to
                                   25,774                   25,774
 unconsolidated subsidiary
trusts
Total liabilities                  1,275,994                1,265,093
Shareholders' equity:
Common stock                       5,107                    5,092
Surplus                            47,517                   47,147
Undivided profits                  102,471                  99,879
Accumulated other comprehensive    4,096                    3,951
income
Directors' stock-based deferred    (3,691)                  (3,416)
compensation plan
Treasury stock                     (8,656)                  (8,656)
Total shareholders' equity         146,844                  143,997
Total liabilities and              $1,422,838               $1,409,090
shareholders' equity
Common shares outstanding          4,784,698                4,769,241
Book value per common share        $30.69                   $30.19
Tangible book value per common     $22.73                   $22.11
share





Alliance Financial Corporation
Consolidated Average Balances (Unaudited)
                        Three months ended June 30,  Six months ended June 30,
                        2012           2011          2012           2011
                        (Dollars in thousands)
Earning assets:
Federal funds sold and
interest bearing        $  60,602    $   2,590   $  62,117    $  9,243
deposits
Securities^(1)          344,608        457,076       351,499        449,123
Loans and leases
receivable:
 Residential real     319,128        330,713       316,761        331,601
estate loans^(2)
 Commercial loans     273,100        252,950       272,521        246,404
 Leases, net of       15,663         35,427        19,110         37,422
unearned income^(2)
 Indirect loans       181,277        167,679       171,338        170,297
 Other consumer       88,124         89,923        88,651         90,347
loans
Loans and leases
receivable, net of      877,292        876,692       868,381        876,071
unearned income
Total earning assets    1,282,502      1,336,358     1,281,997      1,334,437
Non-earning assets      136,538        130,353       136,209        130,009
Total assets            $1,419,040     $1,466,711    $1,418,206     $1,464,446
Interest bearing
liabilities:
Interest bearing        $ 151,199     $  148,821   $ 151,446     $ 153,228
checking accounts
Savings accounts        114,261        107,897       111,022        105,286
Money market accounts   371,722        380,558       365,279        379,797
Time deposits           271,898        339,578       283,258        340,238
Borrowings              127,020        139,863       129,633        138,246
Junior subordinated
obligations issued to
unconsolidated          25,774         25,774        25,774         25,774

 trusts
Total interest bearing  1,061,874      1,142,491     1,066,412      1,142,569
liabilities
Non-interest bearing    198,538        175,565       193,583        175,179
deposits
Other non-interest      16,393         15,490        16,777         15,741
bearing liabilities
Total liabilities       1,276,805      1,333,546     1,276,772      1,333,489
Shareholders' equity    142,235        133,165       141,434        130,957
Total liabilities and   $1,419,040     $1,466,711    $1,418,206     $1,464,446
shareholders' equity
(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:
                    June 30, 2012         March 31, 2012        December 31, 2011
                    Amortized   Fair      Amortized   Fair      Amortized   Fair
                    Cost        Value
                                          Cost        Value     Cost        Value
Securities          (Dollars in thousands)
available-for-sale
Debt securities:
Obligations of
U.S. government-    $  1,614  $        $  1,794  $        $  3,134  $ 
sponsored                       1,636                1,835                 3,190
corporations
Obligations of
states and          69,067      73,692    76,776      80,919    77,541      82,299
political
subdivisions
Mortgage-backed     256,882     263,376   253,728     260,546   279,393     285,706
securities^(1)
Total debt          327,563     338,704   332,298     343,300   360,068     371,195
securities
Stock investments:
Mutual funds        3,000       3,145     3,000       3,105     3,000       3,111
Total stock         3,000       3,145     3,000       3,105     3,000       3,111
investments
Total               $330,563    $341,849  $335,298    $346,405  $363,068    $374,306
available-for-sale
(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 United States
government.
The following table sets forth the composition of the Company's loan and lease
portfolio at the dates indicated:
                    June 30, 2012         March 31, 2012        December 31, 2011
                    Amount      Percent   Amount      Percent   Amount      Percent
Loan portfolio      (Dollars in thousands)
composition
Residential real    $320,899    35.9%     $313,803    36.2%     $316,823    36.4%
estate loans
Commercial loans    153,542     17.2%     147,334     17.0%     151,420     17.4%
Commercial real     129,508     14.5%     126,456     14.6%     126,863     14.6%
estate
Leases, net of      13,563      1.5%      18,339      2.1%      25,636      3.0%
unearned income
Indirect loans      188,765     21.1%     171,822     19.9%     158,813     18.3%
Other consumer      88,092      9.8%      88,607      10.2%     89,776      10.3%
loans
Total loans and     894,369     100.0%    866,361     100.0%    869,331     100.0%
leases
Net deferred loan   4,083                 3,532                 3,390
costs
Allowance for       (8,892)               (9,358)               (10,769)
credit losses
Net loans and       $889,560              $860,535              $861,952
leases
The following table sets forth the composition of the Company's deposits at the
dates indicated:
                    June 30, 2012         March 31, 2012        December 31, 2011
                    Amount      Percent   Amount      Percent   Amount      Percent
Deposit             (Dollars in thousands)
composition
Non-interest        $203,885    18.5%     $          17.3%     $          17.1%
bearing checking                          190,566               185,736
Interest bearing    158,701     14.3%     148,850     13.5%     145,885     13.5%
checking
Total checking      362,586     32.8%     339,416     30.8%     331,621     30.6%
Savings             116,664     10.5%     110,667     10.1%     107,311     9.9%
Money market        358,025     32.4%     383,167     34.8%     330,000     30.5%
Time deposits       269,297     24.3%     267,674     24.3%     314,133     29.0%
Total deposits      $1,106,572  100.0%    $1,100,924  100.0%    $1,083,065  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       June 30, 2012       March 31, 2012   December 31,
leases                                                          2011
                           $          %(1)     $         %(1)   $        %(1)
                           (Dollars in thousands)
30 days past due           $  5,220  0.58%    $ 4,481  0.52%  $ 5,202 0.60%
60 days past due           732        0.08%    966       0.11%  584      0.06%
90 days past due and       —          —        12        —      —        —
still accruing
Non-accrual                6,660      0.75%    8,904     1.03%  11,261   1.30%
Total                      $12,612    1.41%    $14,363   1.66%  $17,047  1.96%
(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               June 30, 2012    March 31,   December 31,
                                                     2012        2011
                                    (Dollars in thousands)
Non-accruing loans and leases
 Residential real estate loans    $2,549           $2,649      $ 3,062
 Commercial loans                 1,464            1,787       3,375
 Commercial real estate           1,879            3,847       4,051
 Leases                           74               83          107
 Indirect loans                   288              270         293
 Other consumer loans             406              268         373
Total non-accruing loans and        6,660            8,904       11,261
leases
Accruing loans and leases           —                12          —
delinquent 90 days or more
Total non-performing loans and      6,660            8,916       11,261
leases
Other real estate and repossessed   51               317         485
assets
Total non-performing assets         $6,711           $9,233      $11,746
Troubled debt restructurings not    $2,133           $1,949      $ 1,653
included in above





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:
                          Three months ended           Six months ended

Allowance for credit       June 30,                     June 30,
losses
                           2012           2011          2012         2011
                           (Dollars in thousands)
Allowance for credit
losses, beginning of       $9,358         $10,678       $10,769      $10,683
period
Loans and leases           (460)          (571)         (2,357)      (1,053)
charged-off
Recoveries of loans
and leases previously      294            416           780          693
charged-off
Net loans and leases       (166)          (155)         (1,577)      (360)
charged-off
Provision for credit       (300)          160           (300)        360
losses
Allowance for credit       $8,892         $10,683       $8,892       $10,683
losses, end of period





Alliance Financial Corporation
Consolidated Financial Information (Unaudited)
                            At or for the three months   At or for the six
                                                          months
Key Ratios                   ended June 30,
                                                          ended June 30,
                             2012             2011        2012         2011
Return on average assets     0.82%            0.95%       0.78%        0.93%
Return on average equity     8.21%            10.45%      7.86%        10.36%
Return on average            11.22%           14.80%      10.78%       14.79%
tangible equity
Yield on earning assets      3.95%            4.49%       4.00%        4.46%
Cost of funds                0.83%            1.12%       0.91%        1.13%
Net interest margin (tax     3.26%            3.53%       3.24%        3.49%
equivalent) ^(1)
Non-interest income to       31.14%           28.17%      31.20%       28.81%
total income ^(2)
Efficiency ratio ^(3)        75.82%           68.76%      75.93%       69.63%
Common dividend payout       50.82%           41.10%      53.45%       41.96%
ratio ^(4)
Net loans and leases
charged-off to average
loans                        0.08%            0.07%       0.36%        0.08%

 and leases, annualized
Provision for credit
losses to average loans
and                          (0.14)%          0.07%       (0.07)%      0.08%

 leases, annualized
Allowance for credit
losses to total loans        0.99%            1.21%       0.99%        1.21%
and leases
Allowance for credit
losses to non-performing
loans                        133.5%           128.1%      133.5%       128.1%

 and leases
Non-performing loans and
leases to total loans
and                          0.74%            0.95%       0.74%        0.95%

 leases
Non-performing assets to     0.47%            0.63%       0.47%        0.63%
total assets
(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)
                  2012                       2011
                  Second         First       Fourth     Third      Second
                  (Dollars in thousands, except share and per share data)
Interest income   $12,217        $12,463     $12,942    $14,061    $14,494
Interest expense  2,212          2,622       2,928      3,064      3,188
Net interest      10,005         9,841       10,014     10,997     11,306
income
Provision for     (300)          --          800        750        160
credit losses
Net interest
income after      10,305         9,841       9,214      10,247     11,146
provision for
credit losses
Other
non-interest      4,524          4,476       5,062      5,919      4,435
income
Other
non-interest      11,016         10,888      10,640     11,139     10,823
expense
Income before
income tax        3,813          3,429       3,636      5,027      4,758
expense
Income tax        895            790         791        1,360      1,279
expense
Net income        $ 2,918        $ 2,639     $ 2,845    $ 3,667    $ 3,479
Stock and related
per share data
Basic earnings    $  0.61       $  0.55    $  0.60   $  0.77   $  0.73
per common share
Diluted earnings  $  0.61       $  0.55    $  0.60   $  0.77   $  0.73
per common share
Basic weighted
average common    4,700,992      4,698,567   4,687,802  4,667,355  4,662,752
shares
outstanding
Diluted weighted
average common    4,700,992      4,698,567   4,689,427  4,673,908  4,670,530
shares
outstanding
Cash dividends
paid per common   $  0.31       $  0.31    $  0.31   $  0.31   $  0.30
share
Common dividend   50.82%         56.36%      51.67%     40.26%     41.10%
payout ratio ^(1)
Common book value $ 30.69        $ 30.30     $ 30.19    $ 30.15    $ 29.53
Tangible common   $ 22.73        $ 22.30     $ 22.11    $ 21.99    $ 21.31
book value ^(2)
Capital Ratios
Holding Company
Tier 1 leverage   9.38%          9.26%       9.09%      8.80%      8.52%
ratio
Tier 1 risk based 14.74%         14.99%      14.71%     14.42%     14.02%
capital
Tier 1 risk based
common capital    11.89%         12.05%      11.81%     11.52%     11.13%
^(3)
Total risk based  15.75%         16.09%      15.97%     15.68%     15.26%
capital
Tangible common
equity to         7.85%          7.75%       7.69%      7.50%      7.04%
tangible
assets^(4)
Bank
Tier 1 leverage   8.81%          8.68%       8.50%      8.25%      7.94%
ratio
Tier 1 risk based 13.86%         14.10%      13.80%     13.58%     13.12%
capital
Total risk based  14.89%         15.21%      15.05%     14.84%     14.37%
capital
Selected ratios
Return on average 0.82%          0.74%       0.80%      1.01%      0.95%
assets
Return on average 8.21%          7.51%       8.19%      10.69%     10.45%
equity
Return on average
tangible common   11.22%         10.33%      11.34%     14.91%     14.80%
equity
Yield on earning  3.95%          4.04%       4.15%      4.41%      4.49%
assets
Cost of funds     0.83%          0.98%       1.08%      1.10%      1.12%
Net interest
margin (tax       3.26%          3.22%       3.24%      3.48%      3.53%
equivalent) ^(5)
Non-interest
income to total   31.14%         31.26%      33.58%     29.47%     28.17%
income ^(6)
Efficiency ratio  75.52%         76.05%      70.58%     71.45%     68.76%
^(7)
Asset quality
ratios
Net loans and
leases charged
off to average
loans             0.08%          0.66%       0.61%      0.06%      0.07%

 and leases,
annualized
Provision for
credit losses to
average loans and (0.14)%        --          0.37%      0.34%      0.07%

 leases,
annualized
Allowance for
credit losses to  0.99%          1.08%       1.24%      1.30%      1.21%
total loans and
leases
Allowance for
credit losses to
non-performing    133.5%         105.0%      95.6%      92.6%      128.1%
loans

 and leases
Non-performing
loans and leases  0.74%          1.03%       1.30%      1.40%      0.95%
to total loans
and leases
Non-performing
assets to total   0.47%          0.65%       0.83%      0.90%      0.63%
assets
(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:



                    June 30,    March 31,   December    September   June 30,
                                            31,         30,
                    2012       2012                               2011
                                            2011        2011
                    (Dollars in thousands)
Total assets        $1,422,838  $1,415,594  $1,409,090  $1,430,783  $1,475,425
Less: Goodwill and
intangible assets,  38,094      38,317      38,538      38,760      39,000
net
Tangible assets     1,384,744   1,377,277   1,370,552   1,392,023   1,436,425
(non-GAAP)
Total Common Equity 146,844     144,992     143,997     143,137     140,134
Less: Goodwill and
intangible assets,  38,094      38,317      38,538      38,760      39,000
net
Tangible Common     108,750     106,675     105,459     104,377     101,134
Equity (non-GAAP)
Total Equity/Total  10.32%      10.24%      10.22%      10.00%      9.50%
Assets
Tangible Common
Equity/Tangible     7.85%       7.75%       7.69%       7.50%       7.04%
Assets
(non-GAAP)
(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

Website: http://www.alliancebankna.com
 
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