Alliance Financial Announces Fourth Quarter and Full Year 2012 Earnings

   Alliance Financial Announces Fourth Quarter and Full Year 2012 Earnings

PR Newswire

SYRACUSE, N.Y., Jan. 28, 2013

SYRACUSE, N.Y., Jan. 28, 2013 /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 December
31, 2012 of $1.3 million or $0.28 per diluted common share, compared with $2.8
million or $0.60 per diluted common share in the year-ago quarter and $2.3
million or $0.48 per diluted common share in the third quarter of 2012.
Expenses related to the pending acquisition of the Company by NBT Bancorp Inc.
("NBT") totaled $1.4 million after tax or $0.31 per share.

Net income for the year ended December 31, 2012 was $9.2 million or $1.92 per
diluted share, compared with $13.3 million or $2.80 per diluted share in
2011. Expenses related to the Company's pending acquisition totaled $2.0
million after tax or $0.43 per share in 2012.

Jack H. Webb, President and CEO of Alliance said, "Our fourth quarter loan
originations increased 6.6% over the fourth quarter of 2011, capping off a
strong year of originations in 2012. Our core business units continue to
effectively execute our business strategy of growing organically through
meeting the credit needs of qualified borrowers in Central New York. In 2012,
we supported the Central New York economy by providing approximately $362
million in loans to consumers and businesses in our markets."

Balance Sheet Highlights
Total assets were $1.4 billion at December 31, 2012. Loans and leases (net of
unearned income) were $928.1 million at the end of 2012, representing growth
of $21.7 million from September 30, 2012 and $55.4 million from the end of
2011. The growth in our loan portfolio was funded primarily through cash
generated from amortization and maturities of investment securities.

Loan origination volumes in the fourth quarter increased $6.0 million, or
6.6%, to $97.0 million, compared with $91.0 million in the year-ago quarter on
increased demand in each of our commercial and indirect lending businesses.
Loan originations in 2012 totaled $361.9 million, compared with $255.3 million
in 2011. 

Commercial loans and mortgages increased $22.8 million in the fourth quarter
and totaled $297.3 million at December 31, 2012. Originations of commercial
loans and mortgages in the fourth quarter (excluding lines of credit) totaled
$34.7 million, compared with $31.3 million in the year-ago quarter and $12.5
million in the third quarter of 2012. Originations in 2012 totaled $76.5
million compared with $75.9 million in 2011. 

Residential mortgages outstanding totaled $329.0 million at December 31,
2012. Originations of residential mortgages totaled $38.2 million in the
fourth quarter of 2012, compared with $40.8 million in the year-ago quarter.
Originations in 2012 totaled $151.2 million compared with $107.5 million in
2011.

Indirect auto loan balances were $199.3 million at the end of the fourth
quarter. Alliance originated $22.9 million of indirect auto loans in the
fourth quarter, compared with $17.9 million in the year-ago quarter.
Originations in 2012 totaled $129.6 million compared with $68.8 million in
2011. 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 $336.5 million at
December 31, 2012. The securities portfolio decreased $37.8 million in 2012 as
the Company reinvested cash flows from the portfolio in new loan originations,
which provided higher yields than those on securities in which the Company
typically invests. Net unrealized gains on our securities portfolio totaled
$10.4 million at the end of the fourth quarter.

Deposits totaled $1.1 billion at December 31, 2012 and were relatively
unchanged throughout 2012. Low-cost transaction accounts comprised 78.4% of
total deposits at the end of the fourth quarter, compared with 77.1% at
September 30, 2012 and 71.0% at December 31, 2011. Alliance's liability mix
remained favorably weighted toward transaction accounts in the fourth quarter
as retail and municipal depositors continue to prefer transaction accounts
over time accounts in the low interest rate environment, and also because of
the buildup of cash on commercial customers' balance sheets.

Shareholders' equity was $146.9 million at December 31, 2012, compared with
$148.4 million at the end of the third quarter. Net income for the quarter
increased shareholders' equity by $1.3 million and was offset by common stock
dividends declared of $1.5 million or $0.32 per common share.

The Company's Tier 1 leverage ratio was 9.37% and its total risk-based capital
ratio was 15.27% at the end of the fourth quarter. The Company's tangible
common equity capital ratio (a non-GAAP financial measure) was 7.98% at
December 31, 2012.

Asset Quality and the Provision for Credit Losses
Delinquent loans and leases (including non-performing) totaled $12.2 million
at December 31, 2012, compared with $10.1 million at September 30, 2012 and
$17.0 million at December 31, 2011. 

Non-performing assets were $5.5 million or 0.39% of total assets at December
31, 2012, compared with $5.1 million or 0.35% of total assets at September 30,
2012 and $11.7 million or 0.83% of total assets at December 31, 2011. The
decline in non-performing assets in 2012 resulted primarily from non-accrual
loans returning to accrual status as a result of satisfactory payment
performance, charge-offs and pay-offs of non-performing loans. Included in
non-performing assets at the end of the fourth quarter are non-performing
loans and leases totaling $4.8 million, compared with $4.1 million at
September 30, 2012 and $11.3 million at December 31, 2011.

Conventional residential mortgages comprised $2.5 million (43 loans) or 52.7%
of non-performing loans and leases, and commercial loans and mortgages totaled
$938,000 (16 loans) or 19.5% of non-performing loans and leases at the end of
the fourth quarter.

There were $88,000 in net recoveries of loans previously charged-off in the
fourth quarter of 2012 and net charge-offs were $1.9 million in the year ended
December 31, 2012, compared with net charge-offs of $1.3 million and $1.8 in
the year-ago periods, respectively. As was previously disclosed in the
Company's 2012 quarterly reports on Form 10-Q, the Company recorded
write-downs totaling $2.7 million on one commercial relationship between the
fourth quarter of 2011 and the third quarter of 2012. Approximately $1.7
million or 51% of the gross charge-offs recognized in 2012 were on this one
relationship, which was transferred to real estate owned at a net amount of
$898,000 in the third quarter of 2012. Net charge-offs annualized equaled
(0.04)% and 0.21%, respectively, of average loans and leases during the
quarter and year ended December 31, 2012, compared with 0.61% and 0.21% in the
year-ago periods, respectively. 

No provision for credit losses was recorded in the fourth quarter of 2012,
compared to provision expense of $800,000 in the year-ago quarter. A negative
provision expense of $300,000 was recorded in 2012, compared to provision
expense of $1.9 million in 2011. 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. In doing so, a portion of the allowance
has been considered "unallocated", which means it is not based on either
quantitative or qualitative factors, but on the broader, non-portfolio
specific factors mentioned above. At December 31, 2012, $279,000 or 3% of the
allowance for credit losses was considered to be "unallocated," compared to
$698,000 or 8% at September 30, 2012 and $991,000 or 9% at December 31, 2011.
Consistent with the improvement in the Company's asset quality metrics and net
charge-off levels in recent quarters (excluding the charge-offs related to the
one commercial relationship discussed above), the relative level of
unallocated allowance to the total allowance has trended downward in 2012.
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 probable credit losses, which would have the effect of
lowering the amount of provision expense relative to net charge-offs compared
with past quarters, which was the case in the fourth quarter of 2012.

The provision for credit losses as a percentage of net charge-offs was 0% in
the fourth quarter compared with 60% in the year-ago quarter. The provision
for credit losses as a percentage of net charge-offs was not meaningful in the
year-ended December 31, 2012 due to the negative provision that was recorded
for the year. The provision for credit losses as a percentage of net
charge-offs was 105% in 2011.

The allowance for credit losses was $8.6 million at December 31, 2012 compared
with $8.5 million at September 30, 2012 and $10.8 million at December 31,
2011. The ratio of the allowance for credit losses to total loans and leases
was 0.93% at December 31, 2012, compared with 0.94% at September 30, 2012 and
1.24% at December 31, 2011. The ratio of the allowance for credit losses to
non-performing loans and leases was 178% at December 31, 2012, compared with
207% at September 30, 2012 and 96% at December 31, 2011.

Net Interest Income
Net interest income totaled $9.6 million in the three months ended December
30, 2012, compared with $10.0 million in the year-ago quarter and in the third
quarter of 2012. The tax-equivalent net interest margin decreased 12 basis
points in the fourth quarter compared with the year-ago quarter, and decreased
11 basis points from the third quarter of 2012 due to the effect of
persistently low interest rates on the Company's interest-earning assets.

The net interest margin on a tax-equivalent basis was 3.12% in the fourth
quarter of 2012, compared with 3.24% in the year-ago quarter and 3.23% in the
third quarter of 2012. The decrease in the net interest margin compared with
the fourth quarter of 2011 was the result of a decrease in the tax-equivalent
earning asset yield of 43 basis points in the fourth quarter compared with the
year-ago quarter, which was partially offset by a decrease in the cost of
interest-bearing liabilities of 34 basis points over the same period. On a
linked-quarter basis, the decline in our earning-assets yield was 14 basis
points in the fourth quarter, which was offset by a 3 basis point drop in the
cost of our interest-bearing liabilities.

Average interest-earning assets were $1.3 billion in the fourth quarter, which
was relatively unchanged from the year-ago quarter and from the third quarter
of 2012. The average balance of our securities portfolio decreased $43.4
million compared with the year-ago quarter, and was offset by a $40.5 million
increase in the average balance of loans and leases as we reinvested cash
flows from our securities portfolio in higher yielding loans. Total average
loans and leases were 70.2% of total interest-earning assets in the fourth
quarter of 2012, compared with 66.9% in the year-ago quarter and 69.8% in the
third quarter of 2012. 

Net interest income for the year ended December 31, 2012 totaled $39.4
million, which was down $3.9 million or 8.9% compared with 2011. The tax
equivalent net interest margin was 3.21% in 2012, compared with 3.43% in
2011. The tax-equivalent earning asset yield decreased 48 basis points in
2012 compared with 2011, which was partially offset by a decrease of 28 basis
points in the cost of interest-bearing liabilities over the same period.

Average interest-earning assets were $1.3 billion in 2012, which was a
decrease of 2.6% from 2011. The changes in the average balances of securities
and loans in 2012 compared with 2011 were similar to that as discussed above
for the fourth quarter. Total average loans and leases were 68.9% of total
interest-earning assets in 2012, compared with 66.1% in 2011.

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 $5.3 million in the fourth quarter of 2012, compared
with $5.1 million in the fourth quarter of 2011 and $4.6 million in the third
quarter of 2012. The increase resulted from proceeds from the settlement of a
bank-owned life insurance contract during the fourth quarter of 2012.

Non-interest income totaled $18.9 million in 2012, compared with $20.0 million
in 2011. The $1.2 million decrease from the prior year period resulted largely
from $1.3 million in gains on sales of securities recognized in 2011, which
were partly offset by a $526,000 increase in gains on the sale of loans during
2012.

Non-interest income (excluding gains on securities sales) accounted for 35.3%
of total revenue in the fourth quarter of 2012, compared with 33.6% in the
year-ago quarter. Non-interest income (excluding gains on securities sales)
accounted for 32.3% of total revenue in 2012, compared with 30.1% in the
year-ago period.

Non-interest expenses were $12.8 million in the fourth quarter of 2012,
compared with $10.6 million in the year-ago quarter and $11.7 million in the
third quarter of 2012. Merger related expenses (pre-tax) of $2.4 million and
$991,000 were accrued in the fourth and third quarters of 2012, respectively.
Non-interest expenses were $46.4 million in 2012, compared with $43.6 million
in 2011. Merger related expenses totaled $3.4 million in 2012, and included
$2.7 million for professional fees and $676,000 for employee related accruals
for estimated severance payments, retention awards and merger related bonuses.

The Company's efficiency ratio was 86.0% in the fourth quarter of 2012,
compared with 70.6% in the year-ago quarter. The Company's efficiency ratio
was 79.7% in 2012, compared with 70.4% in 2011. Excluding merger related
expenses and other non-recurring items, the efficiency ratio was 70.1% and
73.9%, respectively, for the quarter and year ended December 31, 2012.

The Company's effective tax rate was 35.5% and 24.4% for the quarter and year
ended December 31, 2012, respectively, compared with 21.7% and 25.3% 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            Twelve months ended

                       December 31,                  December 31,
                       2012           2011           2012           2011
                       (Dollars in thousands, except share and per share data)
Interest income:
Loans, including fees  $ 9,501        $10,144        $38,772        $41,877
Federal funds sold
and interest bearing   33             18             136            22
deposits
Securities             2,058          2,780          9,343          13,860
Total interest income  11,592         12,942         48,251         55,759
Interest expense:
Deposits:
 Savings accounts     38             43             123            210
 Money market         260            338            1,038          1,609
accounts
 Time accounts        720            1,335          3,564          5,673
 NOW accounts         31             49             127            225
Total                  1,049          1,765          4,852          7,717
Borrowings:
 Repurchase           210            206            831            825
agreements
 FHLB advances        523            791            2,445          3,279
 Junior subordinated  164            166            677            638
obligations
Total interest         1,946          2,928          8,805          12,459
expense
Net interest income    9,646          10,014         39,446         43,300
Provision for credit   —              800            (300)          1,910
losses
Net interest income
after provision for    9,646          9,214          39,746         41,390
credit losses
Non-interest income:
Investment management  1,967          1,895          7,603          7,746
income
Service charges on     1,110          1,164          4,277          4,463
deposit accounts
Card-related fees      713            664            2,772          2,701
Income from
bank-owned life        515            250            1,258          1,018
insurance
Gain on the sale of    595            661            1,809          1,283
loans
Gain on the sale of    —              —              —              1,325
securities
Other non-interest     367            428            1,132          1,466
income
Total non-interest     5,267          5,062          18,851         20,002
income
Non-interest expense:
Salaries and employee  6,528          5,494          23,631         21,902
benefits
Occupancy and          1,701          1,804          7,066          7,283
equipment expense
Communication expense  154            151            623            599
Office supplies and   277            275            1,182          1,142
postage expense
Marketing expense      121            225            772            898
Amortization of        203            222            867            944
intangible asset
Professional fees      2,152          667            5,372          3,087
FDIC insurance         224            217            866            1,061
premium
Other operating        1,465          1,585          6,063          6,665
expense
Total non-interest     12,825         10,640         46,442         43,581
expense
Income before income   2,088          3,636          12,155         17,811
tax expense
Income tax expense     742            791            2,967          4,514
Net income             $1,346         $2,845         $9,188         $13,297
Share and Per Share
Data
Basic average common   4,704,855      4,687,802      4,701,687      4,670,052
shares outstanding
Diluted average
common shares          4,704,855      4,689,427      4,701,687      4,675,212
outstanding
Basic earnings per     $0.28          $0.60          $1.92          $2.80
common share
Diluted earnings per   $0.28          $0.60          $1.92          $2.80
common share
Cash dividends         $0.32          $0.31          $1.26          $1.22
declared





Alliance Financial Corporation
Consolidated Balance Sheets (Unaudited)
                                   December 31, 2012       December 31, 2011
                                   (Dollars in thousands, except share and per
                                   share data)
Assets
Cash and due from banks            $   33,673            $   52,802
Securities available-for-sale      336,493                 374,306
Federal Home Loan Bank of NY
("FHLB") Stock and
                                   7,987                   8,478
 Federal Reserve Bank ("FRB")
Stock
Loans and leases held for sale     2,133                   1,217
Total loans and leases, net of     928,094                 872,721
unearned income
Less allowance for credit losses   (8,571)                 (10,769)
Net loans and leases               919,523                 861,952
Premises and equipment, net        16,438                  17,541
Accrued interest receivable        3,467                   3,960
Bank-owned life insurance          30,175                  29,430
Goodwill                           30,844                  30,844
Intangible assets, net             6,827                   7,694
Other assets                       18,797                  20,866
Total assets                       $1,406,357              $1,409,090
Liabilities and shareholders'
equity
Liabilities:
Deposits:
 Non-interest bearing           $ 230,555              $  185,736
 Interest bearing               864,438                 897,329
Total deposits                     1,094,993               1,083,065
Borrowings                         121,169                 136,310
Accrued interest payable           754                     1,578
Other liabilities                  16,722                  18,366
Junior subordinated obligations
issued to
                                   25,774                  25,774
 unconsolidated subsidiary
trusts
Total liabilities                  1,259,412               1,265,093
Shareholders' equity:
Common stock                       5,104                   5,092
Surplus                            47,932                  47,147
Undivided profits                  103,041                 99,879
Accumulated other comprehensive    3,418                   3,951
income
Directors' stock-based deferred    (3,894)                 (3,416)
compensation plan
Treasury stock                     (8,656)                 (8,656)
Total shareholders' equity         146,945                 143,997
Total liabilities and              $1,406,357              $1,409,090
shareholders' equity
Common shares outstanding          4,782,185               4,769,241
Book value per common share        $30.73                  $30.19
Tangible book value per common     $22.85                  $22.11
share





Alliance Financial Corporation
Consolidated Average Balances (Unaudited)
                        Three months ended        Twelve months ended December
                                                  31,
                        December 31,
                        2012         2011         2012            2011
                        (Dollars in thousands)
Earning assets:
Federal funds sold and
interest bearing        $  38,882  $  38,935  $  53,325      $15,890
deposits
Securities^(1)          345,828      389,248      346,706         431,407
Loans and leases
receivable:
 Residential real     330,385      323,976      322,438         329,773
estate loans^(2)
 Commercial loans     146,448      142,923      146,107         133,662
 Commercial real      131,068      121,757      128,274         119,407
estate loans
 Leases, net of       11,017       26,863       15,387          33,140
unearned income^(2)
 Indirect loans       200,366      160,633      184,511         165,880
 Other consumer       88,139       90,696       88,490          90,621
loans
Loans and leases
receivable, net of      907,423      866,848      885,207         872,483
unearned income
Total earning assets    1,292,133    1,295,031    1,285,238       1,319,780
Non-earning assets      140,242      134,597      137,717         132,415
Total assets            $1,432,375   $1,429,628   $1,422,955      $1,452,195
Interest bearing
liabilities:
Interest bearing        $ 157,830   $ 143,643   $ 153,960      $ 147,236
checking accounts
Savings accounts        116,006      105,545      113,961         106,279
Money market accounts   375,637      353,317      366,292         364,800
Time deposits           247,604      320,256      269,363         333,138
Borrowings              125,328      136,151      127,941         143,439
Junior subordinated
obligations issued to
unconsolidated          25,774       25,774       25,774          25,774

 trusts
Total interest bearing  1,048,179    1,084,686    1,057,291       1,120,666
liabilities
Non-interest bearing    220,820      189,685      205,532         181,039
deposits
Other non-interest      16,435       16,225       16,517          15,917
bearing liabilities
Total liabilities       1,285,434    1,290,596    1,279,340       1,317,622
Shareholders' equity    146,941      139,032      143,615         134,573
Total liabilities and   $1,432,375   $1,429,628   $1,422,955      $1,452,195
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:
                    December 31, 2012    September 30, 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-    $ 15,147   $ 15,148  $         $        $         $ 
sponsored                                1,489     1,499    3,134     3,190
corporations
Obligations of
states and          66,479     71,230    68,900     73,959    77,541     82,299
political
subdivisions
Mortgage-backed     241,482    246,982   257,435    264,583   279,393    285,706
securities^(1)
Total debt          323,108    333,360   327,824    340,041   360,068    371,195
securities
Stock investments:
Mutual funds        3,000      3,133     3,000      3,170     3,000      3,111
Total stock         3,000      3,133     3,000      3,170     3,000      3,111
investments
Total               $326,108   $336,493  $330,824   $343,211  $363,068   $374,306
available-for-sale

    Comprised of pass-through debt securities collateralized by conventional
(1) 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:
                December 31, 2012    September 30, 2012   December 31, 2011
                Amount      Percent  Amount      Percent  Amount      Percent
Loan portfolio  (Dollars in thousands)
composition
Residential
real estate     $329,009    35.6%    $327,454    36.3%    $316,823    36.4%
loans
Commercial      155,512     16.8%    147,677     16.4%    151,420     17.4%
loans
Commercial      141,760     15.4%    126,783     14.1%    126,863     14.6%
real estate
Leases, net of
unearned        10,247      1.1%     11,811      1.3%     25,636      3.0%
income
Indirect loans  199,284     21.6%    199,419     22.1%    158,813     18.3%
Other consumer  87,572      9.5%     88,739      9.8%     89,776      10.3%
loans
Total loans     923,384     100.0%   901,883     100.0%   869,331     100.0%
and leases
Net deferred    4,710                4,500                3,390
loan costs
Allowance for
credit          (8,571)              (8,483)              (10,769)
losses
Net loans and   $919,523             $897,900             $861,952
leases
The following table sets forth the composition of the Company's deposits at
the dates indicated:
                December 31, 2012    September 30, 2012   December 31, 2011
                Amount      Percent  Amount      Percent  Amount      Percent
Deposit         (Dollars in thousands)
composition
Non-interest                         $                   $ 
bearing         $230,555    21.1%    212,437     18.9%    185,736     17.1%
checking
Interest
bearing         157,903     14.4%    159,680     14.2%    145,885     13.5%
checking
Total checking  388,458     35.5%    372,117     33.1%    331,621     30.6%
Savings         117,741     10.8%    115,229     10.2%    107,311     9.9%
Money market    352,320     32.1%    380,623     33.8%    330,000     30.5%
Time deposits   236,474     21.6%    258,434     22.9%    314,133     29.0%
Total deposits  $1,094,993  100.0%   $1,126,403  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       December 31, 2012     September 30,   December 31,
leases                                           2012            2011
                           $          %^(1)      $        %^(1)  $       %^(1)
                           (Dollars in thousands)
30 days past due           $ 6,280    0.68%      $ 4,152  0.46%  $ 5,202 0.60%
60 days past due           1,116      0.12%      1,812    0.20%  584     0.06%
90 days past due and       35         —          —        —      —       —
still accruing
Non-accrual                4,769      0.52%      4,104    0.46%  11,261  1.30%
Total                      $12,200    1.32%      $10,068  1.12%  $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            December 31,    September 30,   December 31,
                                 2012            2012            2011
                                 (Dollars in thousands)
Non-accruing loans and leases
 Residential real estate       $2,533          $2,302          $ 3,062
loans
 Commercial loans              435             579             3,375
 Commercial real estate        503             505             4,051
 Leases                        677             52              107
 Indirect loans                226             220             293
 Other consumer loans          395             446             373
Total non-accruing loans and     4,769           4,104           11,261
leases
Accruing loans and leases        35              —               —
delinquent 90 days or more
Total non-performing loans and   4,804           4,104           11,261
leases
Other real estate and            725             985             485
repossessed assets
Total non-performing assets      $5,529          $5,089          $11,746
Troubled debt restructurings     $2,792          $2,704          $ 1,653
not 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          Twelve months ended

Allowance for credit     December 31,                December 31,
losses
                         2012          2011          2012           2011
                         (Dollars in thousands)
Allowance for credit
losses, beginning of     $8,483        $11,294       $10,769        $10,683
period
Loans and leases         (286)         (1,608)       (3,264)        (3,171)
charged-off
Recoveries of loans
and leases previously    374           283           1,366          1,347
charged-off
Net loans and leases     88            (1,325)       (1,898)        (1,824)
charged-off
Provision for credit     —             800           (300)          1,910
losses
Allowance for credit     $8,571        $10,769       $8,571         $10,769
losses, end of period



Alliance Financial Corporation
Consolidated Financial Information (Unaudited)
                                   At or for the three  At or for the twelve
                                    months               months
Key Ratios
                                    ended December 31,   ended December 31,
                                    2012        2011     2012         2011
Return on average assets            0.38%       0.80%    0.65%        0.92%
Return on average equity            3.66%       8.19%    6.40%        9.88%
Return on average tangible equity   4.93%       11.34%   8.71%        13.91%
Yield on earning assets             3.72%       4.15%    3.89%        4.37%
Cost of funds                       0.74%       1.08%    0.83%        1.11%
Net interest margin (tax            3.12%       3.24%    3.21%        3.43%
equivalent) ^(1)
Non-interest income to total        35.32%      33.58%   32.34%       30.10%
income ^(2)
Efficiency ratio ^(3)               86.00%      70.58%   79.66%       70.35%
Common dividend payout ratio ^(4)   114.29%     51.67%   65.63%       43.57%
Net loans and leases charged-off
to average loans                    (0.04)%     0.61%    0.21%        0.21%

 and leases, annualized
Provision for credit losses to
average loans and                   —%          0.37%    (0.03)%      0.22%

 leases, annualized
Allowance for credit losses to      0.93%       1.24%    0.93%        1.24%
total loans and leases
Allowance for credit losses to
non-performing loans                178.4%      95.6%    178.4%       95.6%

 and leases
Non-performing loans and leases to
total loans and                     0.52%       1.30%    0.52%        1.30%

 leases
Non-performing assets to total      0.39%       0.83%    0.39%        0.83%
assets



(1) Tax equivalent net interest income divided by average earning assets
    Non-interest income (excluding net realized gains and losses on securities
(2) 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
                       Fourth     Third      Second      First       Fourth
                       (Dollars in thousands, except share and per share data)
Interest income        $11,592    $11,979     $12,217    $12,463     $12,942
Interest expense       1,946      2,025       2,212      2,622       2,928
Net interest income    9,646      9,954       10,005     9,841       10,014
Provision for credit   —          —           (300)      ―           800
losses
Net interest income
after provision for    9,646      9,954       10,305     9,841       9,214
credit losses
Other non-interest     5,267      4,584       4,524      4,476       5,062
income
Other non-interest     12,825     11,713      11,016     10,888      10,640
expense
Income before income   2,088      2,825       3,813      3,429       3,636
tax expense
Income tax expense     742        540         895        790         791
Net income             $1,346     $ 2,285     $ 2,918    $ 2,639     $ 2,845
Stock and related per
share data
Basic earnings per     $ 0.28    $  0.48    $  0.61   $  0.55    $  0.60
common share
Diluted earnings per   $ 0.28    $  0.48    $  0.61   $  0.55    $  0.60
common share
Basic weighted
average common shares  4,704,855  4,702,294   4,700,992  4,698,567   4,687,802
outstanding
Diluted weighted
average common shares  4,704,855  4,702,294   4,700,992  4,698,567   4,689,427
outstanding
Cash dividends paid    $ 0.32    $ 0.32     $  0.31   $  0.31    $  0.31
per common share
Common dividend        114.29%    66.67%      50.82%     56.36%      51.67%
payout ratio ^(1)
Common book value      $30.73     $31.03      $ 30.69    $ 30.30     $ 30.19
Tangible common book   $22.85     $23.11      $ 22.73    $ 22.30     $ 22.11
value ^(2)
Capital Ratios
Holding Company
Tier 1 leverage ratio  9.37%      9.43%       9.38%      9.26%       9.09%
Tier 1 risk based      14.32%     14.82%      14.74%     14.99%      14.71%
capital
Tier 1 risk based      11.58%     11.98%      11.89%     12.05%      11.81%
common capital ^(3)
Total risk based       15.27%     15.79%      15.75%     16.09%      15.97%
capital
Tangible common
equity to tangible     7.98%      7.85%       7.85%      7.75%       7.69%
assets^(4)
Bank
Tier 1 leverage ratio  8.91%      8.86%       8.81%      8.68%       8.50%
Tier 1 risk based      13.65%     13.96%      13.86%     14.10%      13.80%
capital
Total risk based       14.60%     14.94%      14.89%     15.21%      15.05%
capital
Selected ratios
Return on average      0.38%      0.64%       0.82%      0.74%       0.80%
assets
Return on average      3.66%      6.32%       8.21%      7.51%       8.19%
equity
Return on average
tangible common        4.93%      8.57%       11.22%     10.33%      11.34%
equity
Yield on earning       3.72%      3.86%       3.95%      4.04%       4.15%
assets
Cost of funds          0.74%      0.77%       0.83%      0.98%       1.08%
Net interest margin    3.12%      3.23%       3.26%      3.22%       3.24%
(tax equivalent) ^(5)
Non-interest income    35.32%     31.54%      31.14%     31.26%      33.58%
to total income ^(6)
Efficiency ratio ^(7)  86.00%     80.56%      75.52%     76.05%      70.58%
Asset quality ratios
Net loans and leases
charged off to
average loans          (0.04)%    0.18%       0.08%      0.66%       0.61%

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

 leases, annualized
Allowance for credit
losses to total loans  0.93%      0.94%       0.99%      1.08%       1.24%
and leases
Allowance for credit
losses to
non-performing loans   178.4%     206.7%      133.5%     105.0%      95.6%

 and leases
Non-performing loans
and leases to total    0.52%      0.46%       0.74%      1.03%       1.30%
loans and leases
Non-performing assets  0.39%      0.35%       0.47%      0.65%       0.83%
to total 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
    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
(4) 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:





                    December    September   June 30,    March 31,   December
                    31,         30,                                 31,
                                            2012        2012
                    2012       2012                               2011
                    (Dollars in thousands)
Total assets        $1,406,357  $1,446,040  $1,422,838  $1,415,594  $1,409,090
Less: Goodwill
and intangible      37,671      37,873      38,094      38,317      38,538
assets, net
Tangible assets     1,368,686   1,408,167   1,384,744   1,377,277   1,370,552
(non-GAAP)
Total Common        146,945     148,378     146,844     144,992     143,997
Equity
Less: Goodwill
and intangible      37,671      37,873      38,094      38,317      38,538
assets, net
Tangible Common     109,274     110,505     108,750     106,675     105,459
Equity (non-GAAP)
Total Equity/Total  10.45%      10.26%      10.32%      10.24%      10.22%
Assets
Tangible Common
Equity/Tangible     7.98%       7.85%       7.85%       7.75%       7.69%
Assets
(non-GAAP)



(5) Tax equivalent net interest income divided by average earning assets
    Non-interest income (net of realized gains and losses on securities and
(6) 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