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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-15366
ALLIANCE FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
State of incorporation: New York
I.R.S. Employer Identification No.: 16-1276885
Address of principal executive offices: 65 Main Street, Cortland, NY 13045
Registrant's telephone number including area code: (607) 756-2831
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00
par value.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on March 28, 2001 was $64,175,372.
The number of outstanding shares of the Registrant's common stock on March 28,
2001: 3,591,326 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be held
May 1, 2001 (the "Proxy Statement"), are incorporated by reference in Part III.
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 2000
ALLIANCE FINANCIAL CORPORATION
Page
PART I
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for the Registrant's Common Stock and
Related Shareholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 25
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 53
PART III
Item 10. Directors and Executive Officers of the Registrant 53
Item 11. Executive Compensation 53
Item 12. Security Ownership of Certain Beneficial Owners and
Management 53
Item 13. Certain Relationships and Related Transactions 53
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 53
2
PART I
This Annual Report on Form 10-K contains certain forward-looking statements
with respect to the financial condition, results of operations and business of
Alliance Financial Corporation and its subsidiary. These forward-looking
statements involve certain risks and uncertainties. Factors that may cause
actual results to differ materially from those contemplated by such
forward-looking statements include, among others, the following possibilities:
(1) an increase in competitive pressure in the banking industry; (2) changes in
the interest rate environment reduce margins; (3) changes in the regulatory
environment; (4) general economic conditions, either nationally or regionally,
are less favorable than expected, resulting in, among other things, a
deterioration in credit quality; (5) changes in business conditions and
inflation; and (6) changes in the securities markets; (7) changes occur in
technology used in the banking business; (8) the new Syracuse area branches do
not attract the expected loan and deposit customers; (9) the ability to maintain
and increase market share and control expenses; and (10) other factors detailed
from time to time in the Company's SEC filings.
Item 1 -- Description of the Business
General
Alliance Financial Corporation ("Company") is a New York registered bank
holding company formed on November 25, 1998 as a result of the merger of
Cortland First Financial Corporation and Oneida Valley Bancshares, Inc., which
were incorporated in May 30, 1986 and October 31, 1984, respectively. The
Company is the parent holding company of Alliance Bank, N.A. (the "Bank"), which
was formed as the result of a merger of First National Bank of Cortland and
Oneida Valley National Bank as of the close of business, April 16, 1999. Unless
the context otherwise provides, references herein to the "Company" mean Alliance
Financial Corporation and the Bank.
The Company provides banking services through dual headquarter offices
located at 65 Main Street, Cortland, NY and 160 Main Street, Oneida, NY, as well
as through 19 customer service facilities located in Cortland, Madison,
Onondaga, northern Broome, and western Oneida counties.
At December 31, 2000, the Company had 266 full-time employees and 22
part-time employees.
The Bank is a member of the Federal Reserve System and the Federal Home
Loan Bank System, and deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") up to applicable limits.
Services
The Company offers full service banking with a broad range of financial
products to meet the needs of its commercial, retail, government, and trust
customers. Depository account services include interest and non-interest bearing
checking accounts, money market accounts, savings accounts, time deposit
accounts, and individual retirement accounts. The Company's lending activities
include the making of residential and commercial mortgage loans, business lines
of credit and business term loans, working capital facilities and accounts
receivable financing programs, as well as installment loans, home equity loans,
student loans, and personal lines of credit to individuals. Trust and investment
department services include personal trust, employee benefit trust, investment
management, custodial, financial planning and brokerage services. The Company
also offers safe deposit boxes, travelers checks, money orders, wire transfers,
collection services, internet banking, drive-up banking facilities, automated
teller machines, 24-hour telephone banking, and 24-hour night depositories.
Competition
The Company's business is extremely competitive. The Company competes not
only with other commercial banks but also with other financial institutions such
as thrifts, credit unions, money market and mutual funds, insurance companies,
brokerage firms, and a variety of other companies offering financial services.
3
Supervision and Regulation
The Company is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended ("BHCA") and as such is subject to regulation by
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"). As a bank holding company, the Company's activities and those of its
subsidiaries are limited to the business of banking and activities closely
related or incidental to banking. The BHCA requires the prior approval of the
Federal Reserve Board in any case where a bank holding company proposes to
acquire direct or indirect ownership or control of more than 5% of any class of
the voting shares of, or substantially all of the assets of, any bank (unless it
owns a majority of such bank's voting shares) or otherwise to control a bank or
to merge or consolidate with any other bank holding company. The BHCA also
prohibits a bank holding company, with certain exceptions, from acquiring more
than 5% of the voting shares of any company that is not a bank. The Company is a
legal entity separate and distinct from its bank subsidiary. The principal
source of the Company's income is earnings from the Company's subsidiary bank.
Federal laws impose limitations on the ability of subsidiary banks to pay
dividends as discussed in the Notes to Consolidated Financial Statements.
Federal Reserve Board policy requires bank holding companies to serve as a
source of financial strength to their subsidiary banks by standing ready to use
available resources to provide adequate capital funds to their subsidiary banks
during periods of financial stress or adversity. The Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") substantially revised the
depository institution regulatory and funding provisions of the Federal Deposit
Insurance Act and made revisions to several other federal banking statures.
Among other things, federal banking regulators are required to take prompt
corrective action in respect of depository institutions that do not meet minimum
capital requirements. FDICIA identifies the following capital categories for
financial institutions: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. Rules adopted by the federal banking agencies under FDICIA
provide that an institution is deemed to be well capitalized if the institution
has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based
ratio of 6.0% or greater, and a leverage ratio of 5.0% or greater, and the
institution is not subject to an order, written agreement, capital directive, or
prompt corrective action directive to meet and maintain a specific level for any
capital measure. FDICIA imposes progressively more restrictive constraints on
operation, management, and capital distributions, depending on the capital
category in which an institution is classified. At December 31, 2000, the
Company and its subsidiary bank were in the well-capitalized category based on
the ratios and guidelines noted above.
As a national bank, the Company's subsidiary bank is supervised and
regularly examined by the Office of the Comptroller of the Currency the ("OCC").
The various laws and regulations administered by the OCC affect corporate
practices such as payment of dividends, incurrence of debt, and acquisition of
financial institutions, and affect business practices, such as payment of
interest on deposits, the charging of interest on loans, the types of business
conducted, and location of offices. The Company's regulators have broad
authority to initiate proceedings designed to prohibit its subsidiary bank from
engaging in unsafe and unsound banking practices.
On November 12, 1999, the Gramm-Leach-Bliley Act ("Gramm-Leach") was signed
into law that concluded a decade of debate in the Congress regarding a
fundamental reformation of the nation's financial system. As discussed above,
the activities of bank holding companies have traditionally been limited to the
business of banking and activities closely related or incidental to banking.
Gramm-Leach now permits bank holding companies to engage in a broader range of
financial activities by electing to become financial holding companies, which
may affiliate with securities firms and insurance companies and engage in other
activities that are financial in nature. Among the activities that will be
deemed "financial in nature", in addition to the traditional lending activities,
securities underwriting, dealing in or making a market in securities, are the
sponsoring of mutual funds and investment companies, insurance underwriting and
agency activities, merchant banking activities, and activities which the Federal
Reserve Board considers to be closely related to banking. A bank holding company
may become a financial holding company under Gramm-Leach only if each of its
subsidiary banks is well capitalized, is well managed and has at least a
satisfactory rating under the Community Reinvestment Act. A bank holding company
that does not comply with such requirement may be required to cease engaging in
certain activities. Any bank holding company that does not elect to become a
financial holding company remains subject to the current restrictions of the
BHCA. Under Gramm-Leach, the Federal Reserve Board serves as the primary
"umbrella" regulator of financial holding companies with supervisory authority
over each parent company and limited authority over its subsidiaries. The
primary regulator of each subsidiary of a financial holding company will depend
on the type of activity conducted by the subsidiary. At this time, the Company
has not elected to become a financial holding company.
4
Item 2 -- Properties
The Company operates the following branches:
Name of Office Location County Date Established
- -------------- -------- ------ ----------------
Home Office 65 Main Street Cortland March 1, 1869
Cortland, NY
Canastota Stroud Street & Route 5 Madison December 7, 1974
Canastota, NY
Cincinnatus 2743 NYS Route 26 Cortland January 1, 1943
Cincinnatus, NY
Fairmount West Genesee St. Onondaga October 30, 2000
Syracuse, NY
Groton Avenue 1125 Groton Avenue Cortland June 22, 1987
Cortland, NY
Hamilton 1 Madison Street Madison December 7, 1949
Hamilton, NY
Hamilton 38-40 Utica Street Madison January 26, 1976
Drive-Up Hamilton, NY
Lyndon Corners 6930 E. Genesee St. Onondaga July 20, 2000
Fayetteville, NY
Manlius 201 Fayette Street Onondaga October 19, 1994
Manlius, NY
Marathon 14 E. Main Street Cortland August 15, 1957
Marathon, NY
McGraw 30 Main Street Cortland May 1, 1967
McGraw, NY
North Main North Main Street Madison September 9, 1966
Oneida, NY
One Park Place 300 South State Street Onondaga July 19, 1999
Syracuse, NY
Oneida 160 Main Street Madison December 12, 1851
Oneida, NY
5
Name of Office Location County Date Established
- -------------- -------- ------ ----------------
Radisson Route 31 & Willet Pkwy. Onondaga August 28, 2000
Baldwinsville, Ny
Sherrill 628 Sherrill Road Oneida April 2, 1954
Sherrill, NY
TOPS Plaza Route 5 and Route 46 Madison January 7, 1988
Oneida, NY
Tully Route 80 at I-81 Onondaga January 26, 1989
Tully, NY
Whitney Point 2950 NYS Route 11 Broome April 7, 1994
Whitney Point, NY
Wal-Mart 872 NYS Route 13 Cortland March 10, 1997
(Cortland) Cortland, NY
Wal-Mart 1294 Lenox Avenue Madison July 17, 1996
(Oneida) Oneida, NY
The offices at Fairmount, Lyndon Corners, One Park Place, TOPS Plaza, Tully,
Whitney Point, and both Wal-Mart stores are leased. The other banking premises
are owned.
Item 3 -- Legal Proceedings
In December of 1998, the Oneida Indian Nation ("The Nation") and the U.S.
Justice Department filed a motion to amend a long-standing land claim against
the State of New York to include a class of 20,000 unnamed defendants who own
real property in Madison County and Oneida County. An additional motion sought
to include the Company as a representative of a class of landowners. On
September 25, 2000, the United States District Court of Northern New York
rendered a decision denying the motion to include the landowners as a group, and
thus, excluding the Company and many of its borrowers from the litigation. The
State of New York, the County of Madison and the County of Oneida remain as
defendants in the litigation. This ruling may be appealed by The Nation, and
does not prevent The Nation from suing landowners individually, in which case
the litigation could involve assets of the Company. Management believes that,
ultimately, the State of New York will be held responsible for these claims and
this matter will be settled without adversely impacting the Company.
There are no other pending legal proceedings, other than routine litigation
incidental to the business of the subsidiary bank, to which the Company or its
subsidiary bank is a party or to which their property is the subject. In
management's opinion, no pending action, if adversely decided, would materially
affect the bank or the Company"s financial condition.
Item 4 -- Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the Company's security holders during
the fourth quarter of the year ended December 31, 2000.
6
PART II
Item 5 -- Market for Registrant's Common Stock and Related Shareholders Matters
Common Stock Data:
The common stock of Alliance Financial Corporation is listed for quoting in the
Nasdaq National Market under the symbol "ALNC". Market makers for the stock are
Ryan, Beck & Company (800-342-2325), McConnell, Budd & Downes, Inc.
(973-538-7800), Monroe Securities, Inc. (716-546-5560) and First Union
Securities (800-336-3245). There were 858 shareholders of record as of December
31, 2000. The following table presents stock prices and cash dividend
information for Alliance Financial Corporation for all 2000 and 1999. Stock
prices below are based on daily high and low closing prices for the quarter, as
reported on the Nasdaq National Market. These over-the-counter market quotations
reflect inter-dealer prices, without retail mark-up, mark-down, or commission
and may not necessarily represent actual transactions.
HIGH LOW DIVIDEND PAID
---- --- -------------
2000
----
1st Quarter $23.75 $19.70 $0.175
2nd Quarter 23.25 17.69 0.175*
3rd Quarter 22.25 18.50 0.175
4th Quarter 21.00 17.50 0.185
HIGH LOW DIVIDEND PAID
---- --- -------------
1999
----
1st Quarter $25.50 $20.00 $0.175
2nd Quarter 21.75 19.50 0.175
3rd Quarter 29.50 18.25 0.175
4th Quarter 27.63 22.50 0.175
* In addition to the cash dividend, a 5% stock dividend was paid in the second
quarter of 2000.
The transfer agent for the stock is American Stock Transfer & Trust Company
("ASTC"). They can be contacted at the following address:
Registrar and Transfer Agent
American Stock Transfer & Trust Company
40 Wall Street - 46th Floor
New York, NY 10005
Automatic Dividend Reinvestment Plan
The Company has an automatic dividend reinvestment plan. This plan is
administered by ASTC, as agent. It offers a convenient way for shareholders to
increase their investment in the Company. The plan enables certain shareholders
to reinvest cash dividends on all or part of their common stock in additional
shares of the Company's common stock without paying brokerage commissions or
service charges. Shareholders who are interested in this program may receive a
Plan Prospectus and enrollment card by calling ASTC Dividend Reinvestment at
1-800-278-4353, or writing to the following address:
Dividend Reinvestment
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
7
Item 6 -- Selected Financial Data (Dollars In Thousands, except per-share data)
Five Year Comparative Summary
- --------------------------------------------------------------------------------
FIVE-YEAR COMPARATIVE SUMMARY
- --------------------------------------------------------------------------------
(Dollars in thousands except
per-share data) At or For Year Ended December 31,
Assets and Deposits 2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Loans $312,378 $282,025 $250,295 $236,484 $231,134
Investment securities 223,078 194,382 172,237 163,338 154,724
Deposits 474,899 435,074 413,594 377,927 372,588
Total Assets 580,787 519,197 471,705 436,430 428,310
Trust Department Assets
(not included in Total Assets) 236,496 185,972 147,244 145,487 125,833
SHAREHOLDERS' EQUITY
Capital Surplus, and Undivided Profits 53,035 49,245 51,168 49,750 50,177
OPERATING INCOME AND EXPENSES:
Total Interest Income 40,062 34,508 32,213 31,791 31,016
Total Interest Expense 19,467 14,220 13,398 12,984 12,194
-------- -------- -------- -------- --------
Net Interest Income 20,595 20,288 18,815 18,807 18,822
Provision for Possible Loan Losses 1,150 975 770 625 633
-------- -------- -------- -------- --------
Net Interest Income after
Provision for Possible Loan
Losses 19,445 19,313 18,045 18,182 18,189
Other Operating Income 6,649 4,558 3,989 3,866 3,387
-------- -------- -------- -------- --------
Total Operating Income 26,094 23,871 22,034 22,048 21,576
Salaries and Related Expense 10,414 9,112 8,712 8,206 7,695
Occupancy and Equipment Expense 2,861 2,587 2,607 2,412 2,265
Other Operating Expense 5,362 4,926 6,178 4,077 3,828
-------- -------- -------- -------- --------
Total Operating Expense 18,637 16,625 17,497 14,695 13,788
Income Before Taxes 7,457 7,246 4,537 7,353 7,788
Provision for Income Taxes 2,032 1,844 1,104 2,220 2,434
-------- -------- -------- -------- --------
Net Income $ 5,425 $ 5,402 $ 3,433 $ 5,133 $ 5,354
Per-Share Statistics
Net Income $ 1.52 $ 1.51 $ 0.95 $ 1.40 $ 1.43
Book Value at Year End 14.70 13.97 14.23 13.82 13.47
Cash Dividends Declared $ 0.71 $ 0.70 $ 0.67 $ 0.88 $ 0.56
8
Item 7 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
INTRODUCTION
The Company is a New York Corporation, which was formed in November
1998 as a result of the merger of Cortland First Financial Corporation
("Cortland") and Oneida Valley Bancshares, Inc. ("Oneida"). The Company is a
bank holding company that operates one wholly owned subsidiary, Alliance Bank,
N.A., which provides a full range of financial services in the Central New York
marketplace.
The following discussion and analysis reviews the Company's business,
and provides information that is intended to provide the reader with a further
understanding of the consolidated financial condition and results of operations
of the Company and its operating subsidiary. This discussion should be read in
conjunction with the consolidated financial statements and accompanying notes,
and other information included elsewhere in this 2000 Annual Report on Form
10-K.
9
RESULTS OF OPERATIONS
Net income for 2000 was $5,425,000, or $1.52 per share, compared to
$5,402,000 or $1.51 per share, in 1999. The Company's 2000 net income increased
$23,000 and earnings per share increased $0.01, compared to 1999 results. Growth
in average earning assets in excess of 11% during 2000, that resulted from the
Company's expanding branch network and growing business lines, generated
increased revenues that more than offset a significant increase in the Company's
cost of funds caused by higher market interest rates throughout the year.
Increased net interest income, combined with substantial increases in
non-interest income, offset higher operating expenses and income taxes, and
resulted in an increase in net income over the prior year. Although the return
on average assets declined from 1.09% in 1999 to 0.98% in 2000, the return on
average equity increased over the comparable periods from 10.56% to 10.86%.
- --------------------------------------------------------------------------------
SELECTED PERFORMANCE MEASURES
- --------------------------------------------------------------------------------
Return on average assets, return on average equity, dividend payout, and
equity to asset ratios for the years indicated are as follows:
2000 1999 1998
------ ------ ------
Percentage of net income to average total assets 0.98% 1.09% 0.74%
Percentage of net income to average shareholders' equity 10.86% 10.56% 6.91%
Percentage of dividends declared to net income 46.70% 46.24% 70.20%
Percentage of average shareholders' equity to average total assets 9.03% 10.29% 10.95%
NET INTEREST INCOME
Net interest income is the Company's principal source of operating income
for payment of overhead and providing for possible loan losses. It is the amount
that interest and fees on loans, investments, and other earning assets exceeds
the cost of deposits and other interest-bearing liabilities.
Net interest income on a tax-equivalent basis increased $253,000, to
$21,754,000 in 2000 following an increase of $1,520,000 in 1999 when compared to
the prior year. The growth in net interest income resulted from increases in
average earning assets during the year 2000, which offset a declining net
interest margin.
Loans represented the majority of the Company's interest earning assets and
have remained stable at 58% of earning assets over the past three years. Average
loans increased $34,560,000 in 2000 with yields increasing 26 basis points to
8.94%. The Company reported higher yields on commercial and consumer loans but
lower yields on its residential mortgage loans. Commercial loans were most
favorably impacted by the rise in short-term market rates since the majority of
the portfolio is indexed to the Wall Street Journal Prime or other similar
short-term market rates. The average yield on commercial loans in 2000 increased
85 basis points compared to 1999. The average yield on consumer loans,
particularly indirect auto loans, increased 13 basis points, as the Company's
10
growth in the business was influenced by very competitive pricing. The average
yield on the residential mortgage portfolio declined 27 basis points in 2000 as
longer term interest rates moved in a more narrow range during the year, and
most of the new business was originated in a lower yielding adjustable rate
product. Interest income on loans in 2000 was up $3,778,000, or 16.5%, compared
to 1999. Average loans in 1999 increased $19,312,000 compared to 1998 while
average loan yields declined 30 basis points. Interest income on loans was up
$959,000 in 1999 compared to 1998.
Average investments in 2000 increased by $22,504,000, with tax-equivalent
interest income from investments up $1,869,000 compared to 1999. In comparison,
average investment securities increased $27,588,000 in 1999 compared to 1998,
with tax-equivalent interest income up $1,702,000. The average tax-equivalent
yield of the portfolio increased 18 basis points, from 6.41% in 1999 to 6.59% in
2000. Interest income in 2000 from the sale of federal funds in the amount of
$286,000 declined $147,000 compared to 1999 as the Company reduced its average
federal funds sold balances throughout the year.
Tax-equivalent interest income for 2000 at $41,221,000, was $5,500,000 more
than 1999, with the 2000 tax-equivalent yield on average earning assets at
7.94%, an increase of 27 basis points over 1999. Average earning assets for 2000
were $518,899,000, up $53,318,000 compared to 1999, and represented 93.8% of
total average assets in 2000. Asset yields showed steady improvement throughout
the year following repeated Federal Reserve Board actions that increased the
federal funds rate. Tax equivalent interest income for 1999 at $35,721,000, was
$2,342,000 more than 1998, although the 1999 tax equivalent yield on average
earning assets was 7.67%, 19 basis points less than 1998. Average earning assets
for 1999 were $465,581,000, up $41,155,000 compared to 1998. Average earning
assets in 1999 were 93.6% of total average assets.
During 2000, average interest-bearing liabilities increased by $57,491,000,
or 14.9%, to $444,191,000. The cost of interest-bearing liabilities increased 70
basis points from 3.68% in 1999 to 4.38% in 2000. The Company's interest
expense, which is a function of the volume of and rates paid for interest
bearing liabilities, increased $5,247,000, or 36.9%, in 2000. The increase was
primarily a result of volume and rate increases on time deposits, along with
higher rates paid on increased borrowings primarily through the Federal Home
Loan Bank. By comparison, interest expense increased $822,000, or 6.1%, in 1999
compared to 1998 as a result of volume increases in time deposit balances and
Federal Home Loan Bank borrowings. During 1999, average interest-bearing
liabilities increased by $41,800,000, or 12.12%, to $386,700,000. The cost of
interest-bearing liabilities declined 20 basis points from 3.88% in 1998 to
3.68% in 1999.
The Company's net interest margin (federal tax-equivalent net interest
income divided by average earning assets) declined 43 basis points, from 4.62%
in 1999, to 4.19% in 2000, following a 9 basis point decline the prior year.
The following table sets forth information concerning average
interest-earning assets and interest-bearing liabilities and the yields and
rates thereon. Interest income and yield information is adjusted for items
exempt from federal income taxes and assumes a 34% tax rate. Non-accrual loans
have been included in the average balances. Securities are shown at average
amortized cost.
11
- --------------------------------------------------------------------------------
AVERAGE BALANCES AND NET INTEREST INCOME
- --------------------------------------------------------------------------------
Years ended December 31,
-----------------------------------------------------------------------
2000 1999
--------------------------------- ----------------------------------
Avg. Amt of Avg. Yield/ Avg. Amt of Avg. Yield/
Balance Interest Rate Paid Balance Interest Rate Paid
------- -------- ----------- -------- -------- -----------
(Dollars In Thousands)
Assets:
Interest-earning assets:
Federal funds sold $4,514 $286 6.34% $8,260 $433 5.24%
Taxable investment securities 168,581 $10,826 6.42% 143,671 $8,798 6.12%
Nontaxable investment securities 47,283 $3,408 7.21% 49,689 $3,567 7.18%
Loans (net of unearned discount) 298,521 $26,701 8.94% 263,961 $22,923 8.68%
-------- -------- ---- -------- -------- ----
Total interest-earning assets 518,899 41,221 7.94% 465,581 $35,721 7.67%
Noninterest-earning assets:
Other assets 41,275 35,486
Less: Allowance for loan losses (3,587) (3,240)
Net unrealized gains/(losses)
on available-for-sale portfolio (3,441) (560)
-------- --------
Total $553,146 $497,267
======== ========
Liabilities and Shareholders' Equity:
Interest bearing liabilities:
Demand deposits $62,928 $960 1.53% $64,480 $1,042 1.62%
Saving deposits 152,573 5,176 3.39% 148,895 4,632 3.11%
Time deposits 189,535 10,841 5.72% 163,115 7,947 4.87%
Short-term borrowings 39,155 2,490 6.36% 10,210 599 5.87%
-------- -------- ---- -------- -------- ----
Total interest bearing liabilities 444,191 19,467 4.38% 386,700 14,220 3.68%
======== ======== ==== ======== ======== ====
Noninterest bearing liabilities:
Demand deposits 54,800 54,590
Other liabilities 4,220 4,803
Shareholders' equity 49,935 51,174
-------- --------
Total $553,146 $497,267
======== ========
Net interest earnings $21,754 $21,501
======= =======
Net yield on interest-earning assets 4.19% 4.62%
Years ended December 31, 1998
---------------------------------------
Avg. Amt of Avg.
Balance Interest Rate Paid
Assets:
Interest-earning assets:
Federal funds sold $14,005 $752 5.38%
Taxable investment securities 114,545 7,075 6.18%
Nontaxable investment securities 51,227 3,588 7.00%
Loans (net of unearned discount) 244,649 21,964 8.98%
-------- ------- ----
Total interest-earning assets 424,426 33,379 7.86%
Noninterest-earning assets:
Other assets 31,078
Less: Allowance for loan losses (2,933)
Net unrealized gains/(losses)
on available-for-sale portfolio 1,229
--------
Total $453,800
========
Liabilities and Shareholders' Equity:
Interest bearing liabilities:
Demand deposits $61,228 $1,191 1.95%
Saving deposits 141,285 4,763 3.37%
Time deposits 140,639 7,346 5.22%
Short-term borrowings 1,748 98 5.60%
-------- ------- ----
Total interest bearing liabilities 344,900 13,398 3.88%
======== ======= ====
Noninterest bearing liabilities:
Demand deposits 53,675
Other liabilities 5,553
Shareholders' equity 49,672
--------
Total $453,800
========
Net interest earnings $19,981
=======
Net yield on interest-earning assets 4.71%
12
The following table sets forth the dollar volume of increase (decrease) in
interest income and interest expense resulting from changes in the volume of
earning assets and interest-bearing liabilities, and from changes in rates.
Volume changes are computed by multiplying the volume difference by the prior
year's rate. Rate changes are computed by multiplying the rate difference by the
prior year's balance. The change in interest due to both rate and volume has
been allocated equally between the volume and rate variances.
- --------------------------------------------------------------------------------
VOLUME AND RATE VARIANCES
- --------------------------------------------------------------------------------
2000 Compared to 1999 1999 Compared to 1998
--------------------- ---------------------
Increase (Decrease) Due to Increase (Decrease) Due to
Volume Rate Net Change Volume Rate Net Change
------ ---- ---------- ------ ---- ----------
(Dollars In Thousands)
Interest earned on:
Federal funds sold and
time deposits in
other banks (217) $ 70 $ (147) $ (305) $ (14) $ (319)
Taxable investment
securities 1,560 468 2,028 1,796 (73) 1,723
Nontaxable investment
securities (173) 14 (159) (111) 90 (21)
Loans (net of
unearned discount) 3,046 732 3,778 1,714 (755) 959
------- ------- ------- ------- -------- -------
Total interest-earning
assets $ 4,216 $ 1,284 $ 5,500 $ 3,094 $ (752) $ 2,342
======= ======= ======= ======= ======== =======
Interest paid on:
Interest-bearing demand
deposits $ (24) $ (58) $ (82) $ 58 $ (207) $ (149)
Savings deposits 121 423 544 246 (377) (131)
Time deposits 1,397 1,497 2,894 1,133 (532) 601
Borrowings 1,770 121 1,891 485 16 501
------- ------- ------- ------- -------- -------
Total interest-bearing
liabilities $ 3,264 $ 1,983 $ 5,247 $ 1,922 $(1,100) $ 822
======= ======= ======= ======= ======== =======
Net interest
earnings (FTE) $ 952 $ (699) $ 253 $ 1,172 $ 348 $ 1,520
13
NON-INTEREST INCOME
Non-interest income for 2000 was $6,649,000, which was up 45.9%, or
$2,091,000, compared to 1999. Non-interest income increased 14.3%, or $569,000,
in 1999. The Company's non-interest income is composed of recurring fees from
normal banking operations, trust and data processing department fees, and net
gains/losses from sales of investment securities. Income from service charges on
deposits at $1,993,000, up 2.8% from the prior year following a 13.7% increase
in 1999 over 1998, was the principal source of the bank's non-interest income.
Trust department income increased 22.8% in 2000 to $1,393,000, compared to
$1,134,000 in 1999. The growth in trust revenue is a reflection of both an
increase in the market value of trust department assets as well as growth in the
departments' customer base resulting from strong new business development
efforts over the past two years. Trust department income represents 21% of total
non-interest income. Trust department income increased 43.7% in 1999 compared to
1998. Significant contributions to the Company's non-interest income were
derived from electronic banking service fees, data processing service contracts
with other financial institutions, and dividends received from the credit
insurance programs offered through the Company's subsidiary bank. During 2000,
the Company took gains from the sale of both equity and fixed income investment
securities. Gains on sales of securities in 2000 of $711,000 compared to
$136,000 in 1999 and $26,000 in 1998. A purchase of company owned life insurance
in the fourth quarter of 1999, generated other income in 2000 in the form of
increases in its cash value of $469,000, compared to $80,000 in 1999. In the
third quarter of the year, the Company booked a $532,000 gain on the termination
of the former Oneida Valley National Bank defined benefit pension plan. The
Company approved termination of the plan in 1999 in connection with the merger
of the banks and the subsequent consolidation and creation of a uniform plan of
employee benefits.
The following table sets forth certain information on non-interest income for
the years indicated.
- --------------------------------------------------------------------------------
NON-INTEREST INCOME
- --------------------------------------------------------------------------------
Years ended December 31,
------------------------------------
(In Thousands) 2000 1999 1998
---- ---- ----
Service charges on deposit accounts $1,993 $1,939 $1,706
Trust department services 1,393 1,134 789
Data processing services 280 268 257
Investment securities gains 711 136 26
Other operating income 2,272 1,081 1,211
------ ------ ------
Total non-interest income $6,649 $4,558 $3,989
14
NON-INTEREST EXPENSE
Operating expense in 2000 increased $2,012,000, or 12.1%, compared to 1999.
Excluding 1998 nonrecurring merger-related expenses, non-interest expense in
1999 was up $829,000, or 5.2%, compared to 1998. Salaries and associated benefit
expenses in 2000 were up $1,302,000, or 14.3%, compared to a 4.6% increase in
1999, and represented the majority of the increase. Increases in salary and
benefit expenses were associated with the staffing of three new Syracuse area
branches that opened during the year, the addition of new business development
and account officers employed in the growing commercial loan, indirect loan,
municipal, and trust departments, along with the addition of several key
administrative personnel including a new bank president. The Company's occupancy
and equipment expense increased $274,000, or 10.6%, in 2000 compared to 1999.
The opening of the three new branches during the year contributed significantly
to the increase. Increased costs associated with the purchase and development of
technology systems designed to provide customers account access through the
internet also contributed to the increase. Occupancy and equipment expense
declined approximately 1% in 1999 compared to 1998. Other non-interest expense
increased $436,000, or 8.9% compared to last year. In 2000, higher expenses were
associated with the Company's loan origination and servicing areas relating
specifically to credit analysis and legal collection services. Fees paid for
trust accounting services were up, as were other expense categories including
FDIC insurance, telephone expense, and contributions. Excluding 1998 merger
related expenses, other operating expense in 1999 increased $449,000, or 10%,
compared to 1998.
- --------------------------------------------------------------------------------
NON-INTEREST EXPENSE
- --------------------------------------------------------------------------------
Years ended December 31,
-----------------------------------
(In Thousands) 2000 1999 1998
---- ---- ----
Salaries, wages, and employee benefits $10,414 $ 9,112 $ 8,712
Building, occupancy, and equipment 2,861 2,587 2,607
Merger related expenses -- -- 1,701
Other operating expense 5,362 4,926 4,477
------- ------- ---------
Total non-interest expense $18,637 $16,625 $17,497
15
ANALYSIS OF FINANCIAL CONDITION
INVESTMENT SECURITIES
The investment portfolio is designed to meet the Company's liquidity needs
when loans expand or deposits contract while, at the same time, generating a
favorable return on low-risk, high-quality investments. The Company classifies
the majority of its investment securities as available-for-sale to support and
maintain the Company's interest risk objectives. The Company does not engage in
securities trading or derivatives activities in carrying out its investment
strategies. Based on amortized cost, the Company classified 95% of its
investment portfolio as available-for-sale at year-end 2000. The Company's book
value of investment debt securities increased $22,649,000, or 11.6%, in the 12
months ended December 31, 2000 to a total of $217,787,000, compared to an
increase of $26,705,000, or 15.9%, in 1999 over 1998. The average tax-equivalent
yield of the portfolio increased 18 basis points, from 6.41% in 1999 to 6.59% in
2000. The portfolio yield increased 13 basis points in 1999 compared to 1998.
During the year ended December 31, 2000, market interest rates declined
significantly, with the yield on three year U.S. Treasury securities
approximately 125 basis points below its December 31, 1999 rate. The decline in
rates, which causes an increase in the market value of fixed rate investment
securities, resulted in the Company's available-for-sale investment securities
reflecting a market value which was 0.56% greater than the portfolios' book
value. In compliance with SFAS 115, the Company reflects net unrealized gains
and losses on its available-for-sale portfolio in its financial statement
investment securities total, as well as the after tax effect of the gains and
losses in the accumulated other comprehensive income section of its
shareholders' equity. The Company's investment portfolio reflects an unrealized
gain on available-for-sale securities of $1,171,000, with an after tax effect of
$702,000 being reflected as an increase in shareholders equity. At December 31,
1999, the Company reported unrealized losses in its available-for-sale portfolio
of $3,476,000 and a decrease in shareholders' equity of $2,086,000.
The composition of the portfolio as of December 31, 2000 consisted of U.S.
Treasury and Agency securities representing 23% of the total, mortgage-backed
securities at 42%, tax-exempt investments at 24%, and other securities
representing 11% of the total. Changes in the composition of the portfolio
during 2000 reflected an increase in mortgage-backed securities with a reduction
in U.S. Treasury and Agency securities. Gains on sales of investment securities
in 2000 were $711,000 compared to $136,000 in 1999 and $26,000 in 1998.
The following table sets forth the amortized cost and market value for the
Company's held-to-maturity investment securities portfolio:
Years ended December 31,
-----------------------------------------------------------------------------------
2000 1999 1998
----------------------- ---------------------- ------------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- ------- --------- -------- --------- -------
(In thousands)
U.S. Treasury and other
U.S. government agencies $ -- $ -- $ -- $ -- $ 500 $ 501
Mortgage-backed securities -- -- -- -- -- --
Obligations of states and
political subdivisions 10,223 10,365 12,449 12,449 12,936 12,986
Other securities -- -- -- -- -- --
--------- ------- --------- -------- --------- -------
Total $10,223 $10,365 $12,449 $12,449 $13,436 $13,487
========= ======= ========= ======== ========= =======
The following table sets forth the amortized cost and market value for the
Company's available-for-sale debt securities within the investment protfolio:
Years ended December 31,
-------------------------------------------------------------------------------------
2000 1999 1998
------------------------ ----------------------- ------------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- ------- --------- ------- --------- -------
(In thousands)
U.S. Treasury and other
U.S. government agencies $ 50,911 $ 51,538 $ 61,871 $ 61,225 $ 49,461 $ 49,870
Mortgage-backed securities 93,447 93,413 68,227 66,178 56,169 56,402
Obligations of states and
political subdivisions 44,289 44,996 37,516 37,196 39,168 40,315
Other securities 18,917 18,788 15,075 14,614 10,199 10,225
--------- --------- --------- -------- --------- --------
Total $207,564 $ 208,735 $182,689 $179,213 $154,997 $156,812
========= ========= ========= ======== ========= ========
Net unrealized gains/(losses)
on available-for-sale
debt securities $ 1,171 $ (3,476) $ 1,815
--------- --------- --------
Total Carrying Value $208,735 $ 179,213 $156,812
========= ========= ========
16
The following table sets forth as of December 31, 2000, the maturities of
investment securities and the weighted-average yields of such securities, which
have been calculated on the basis of the cost, weighted for scheduled maturity
of each security, and adjusted to a fully tax-equivalent basis:
At December 31, 2000
---------------------------------------------------------------------
Amount Amount Amount
Maturing Maturing After Maturing After Amount
Within One Year Five Years but Maturing
One Year but Within Within After Total
or Less Five Years Ten Years Ten Years Cost
-------- -------------- -------------- --------- ---------
(Dollars In Thousands)
Held-To-Maturity Portfolio
Obligations of states and political subdivisions $ 5,920 $ 1,947 $ 1,825 $ 531 $ 10,223
--------- --------- --------- --------- ---------
Total held-to-maturity portfolio value $ 5,920 $ 1,947 $ 1,825 $ 531 $ 10,223
========= ========= ========= ========= =========
Weighted average yield at year end (1) 7.16% 8.30% 8.79% 7.52% 7.69%
Available-For-Sale Portfolio
U.S. Treasury and other
U.S. government agencies $ 16,824 $ 12,259 $ 8,360 $ 13,468 $ 50,911
Mortgage-backed securities 3,994 71,259 11,512 6,682 93,447
Obligations of states and
political subdivisions 4,126 12,259 17,458 10,446 44,289
Other securities 1,003 17,914 -- -- 18,917
--------- --------- --------- --------- ---------
Total available-for-sale portfolio value $ 25,947 $113,691 $ 37,330 $ 30,596 $207,564
========= ========= ========= ========= =========
Weighted average yield at year end (1) 6.10% 6.52% 7.03% 7.55% 6.76%
(1) Weighted average yields on the tax-exempt obligations have been computed on
a fully tax equivalent basis assuming a marginal federal tax rate of 34%.
These yields are an arithmetic computation of interest income divided by
average balance and may differ from the yield to maturity which considers
the time value of money.
17
LOANS
The loan portfolio is the largest component of the Company's earning assets
and accounts for the greatest portion of total interest income. The Company
provides a full range of loan products delivered through its branch network.
Consistent with the focus on providing community banking services, the Company
generally does not attempt to diversify geographically by making a significant
amount of loans to borrowers outside of the primary service area. Loans are
internally generated and lending activity is primarily confined to Cortland,
Madison, Onondaga, northern Broome, and Western Oneida counties. The Company
does not engage in highly leveraged transactions or foreign lending activities.
The following table sets forth the composition of the Company's loan
portfolio at the dates indicated.
- --------------------------------------------------------------------------------
COMPOSITION OF THE LOAN PORTFOLIO
- --------------------------------------------------------------------------------
Years ended December 31,
-------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------- ------------------- ------------------- ------------------ --------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
--------- ------- --------- ------- --------- ------- --------- ------- --------- -------
(Dollars in thousands)
Commercial and agricultural $ 108,447 34.7% $ 105,169 37.3% $ 80,121 32.0% $ 66,422 28.1% $ 59,911 25.9%
Real estate mortgage 119,948 38.4% 114,450 40.6% 113,570 45.4% 105,937 44.8% 107,462 46.5%
Consumer 87,717 28.1% 66,878 23.7% 61,817 24.7% 70,169 29.7% 70,595 30.5%
--------- ------- --------- ------- --------- ------- --------- ------- --------- -------
Gross Loans 316,112 101.2% 286,497 101.6% 255,508 102.1% 242,528 102.6% 237,968 102.9%
Less:
Unearned Discount (364) (0.1%) (1,060) (0.4%) (2,212) (0.9%) (3,087) (1.3%) (3,809) (1.6%)
Allowance for Loan Losses (3,370) (1.1%) (3,412) (1.2%) (3,001) (1.2%) (2,957) (1.3%) (3,025) (1.3%)
--------- ------- --------- ------- --------- ------- --------- ------- --------- -------
Net Loans $ 312,378 100.0% $ 282,025 100.0% $ 250,295 100.0% $ 236,484 100.0% $ 231,134 100.0%
18
On December 31, 2000, loans (net of unearned discount) were $315,748,000,
increasing $30,311,000, or 10.6%, during the year. Loans increased $32,141,000,
or 12.7%, in 1999. Although the majority of the Company's loans continue to be
residential mortgage loans on our customers' primary residences, increasing
emphasis has been placed on growing the commercial and consumer loan portfolios.
Residential mortgage loans, which represented 38.4% of net loans at December 31,
2000, increased $5,498,000, or 4.8%, during 2000 following an increase of
$880,000, or approximately 1%, in 1999 compared to 1998. The mortgage portfolio
consists of 77% in fixed-rate loans, and 23% in loans that have adjustable rate
features. The Company originated $16,961,000 in mortgage loans during 2000. As
of December 31, 2000, the Company was servicing mortgage loans sold in the
secondary market with balances of $15,766,000. The total of mortgage loans being
serviced at December 31, 1999 was $16,612,000.
Loans in the commercial category consist primarily of short-term and/or
floating rate loans, lines of credit, as well as commercial mortgage loans, made
to small and medium-sized companies. Commercial loans in 2000 increased
$3,278,000, or 3.1%, to $108,447,000, following an increase of $25,048,000, or
31.3%, in 1999 when compared to 1998. Growth in commercial relationships, and
increased use of approved lines of credit throughout the year, resulted in
average commercial loans during 2000 being $18,502,000, or 20.9%, greater than
1999.
Consumer loans, net of unearned discount, which include indirect auto, home
equity, and revolving credit loans, increased 32.7%, or $21,535,000, to
$87,353,000 as of December 31, 2000 compared to year-end 1999. During 2000, the
Company continued its focus on indirect auto lending and significantly increased
the number of dealers that it has relationships with. Indirect auto loans
increased $21,820,000, or 108%, in 2000 compared to 1999, following an increase
of $3,865,000, or 23.6%, in 1999 compared to 1998.
The following table shows the amount of loans outstanding as of December
31, 2000, which, based on remaining scheduled payments of principal, are due in
the periods indicated.
Maturing Maturing Maturing
In After One After Five Maturing
One Year But Within But Within After
or Less Five Years Ten Years Ten Years Total
-------- ---------- --------- ---------- --------
(Dollars in thousands)
Commercial and agricultural $35,936 $ 29,590 $21,051 $21,870 $108,447
Real estate mortgage 8,128 31,569 33,611 46,640 119,948
Consumer, net of unearned discount 22,172 52,872 10,537 1,772 87,353
-------- ---------- --------- ---------- --------
Total loans net of unearned discount $66,236 $114,031 $65,199 $70,282 $315,748
======== ========== ========= ========== ========
The following table sets forth the sensitivity of the loan amounts due
after one year to changes in interest rates:
At December 31, 2000 (In thousands) Fixed Rate Variable Rate
---------- -------------
Due after one year, but within five years $83,394 $30,637
Due after five years $83,506 $51,975
19
LOAN QUALITY AND THE ALLOWANCE FOR LOAN LOSSES
The following table represents information concerning the aggregate amount
of nonperforming assets:
Years ended December 31,
-------------------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ -------
(Dollars In Thousands)
Loans accounted for on a nonaccrual basis $ 686 $ 682 $ 552 $ 525 $ 819
Accruing loans which are contractually past
due 90 days or more as to prinicipal or interest payments 781 409 298 1,204 597
Other real estate owned and other repossessed assets 354 269 257 363 --
------ ------ ------ ------ -------
Total nonperforming loans and assets $1,821 $1,360 $1,107 $2,092 $1,416
====== ====== ====== ====== =======
Ratio of allowance for loan losses to
period-end nonperforming loans 229.72% 312.74% 353.06% 171.02% 213.63%
Ratio of nonperforming assets to period-end
total loans, other real estate owned and repossessed assets 0.58% 0.48% 0.44% 0.87% 0.60%
Non-performing assets, defined as non-accruing loans plus loans 90 days or
more past due, along with other real estate owned and other repossessed assets
as of December 31,2000 were $1,821,000, increasing $461,000, or 33.9%, compared
to year-end 1999. The ratio of non-performing assets to year-end loans, other
real estate owned, and other repossessed assets increased 20.8% during 2000,
from 0.48% at December 31, 1999 to 0.58% at December 31, 2000. The ratio had
increased 4 basis points, or 1%, during 1999, as compared to 1998.
The Company's policy is to place a loan on non-accrual status and recognize
income on a cash basis when it is more than ninety days past due, unless in the
opinion of management, the loan is well secured and in the process of
collection. The impact of interest not recognized on non-accrual loans was
immaterial in 2000. The Company considers a loan impaired when, based on current
information and events, it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. The measurement of impaired loans
is generally based upon the present value of future cash flows discounted at the
historical effective interest rate, except that all collateral-dependent loans
are measured for impairment based on fair value of the collateral. As of
December 31, 2000, there were no impaired loans for which specific valuation
allowances had been recorded.
The Company has a loan review program that it believes takes a conservative
approach to evaluating non-performing loans and the loan portfolio in general.
The loan review program continually audits the loan portfolio to confirm
management's loan risk rating system and track problem loans, to insure
compliance with loan policy underwriting guidelines, and to evaluate the
adequacy of the allowance for loan losses.
Management determines the allowance for loan losses based on a number of
factors including reviewing and evaluating the bank's loan portfolio in order to
identify potential problem loans, concentrations of credit, and risk factors
connected to the portfolio, as well as current local and national economic
conditions. The allowance for loan losses represents management's estimate of an
amount that is adequate to provide for potential losses inherent in the loan
portfolio. Loans are charged against the allowance for loan losses, in
accordance with the Company's loan policy, when they are determined by
management to be uncollectible. Recoveries on loans previously charged-off are
credited to the allowance for loan losses when they are received. When
management determines that the allowance for loan losses is less than adequate
to provide for potential losses, a direct charge is made to operating income.
20
The allowance for loan losses account at December 31, 2000 was $3,370,000,
or 1.07% of loans outstanding (net of unearned discount), compared to
$3,412,000, or 1.20% of loans outstanding (net of unearned discount), at
December 31, 1999.
The provision expense in 2000 of $1,150,000 approximated the net charge-off
amount of $1,192,000. The ratio of net charge-offs to average loans outstanding
increased to 0.40% in 2000 compared to 0.21% in 1999. Significant losses on two
commercial loans in 2000 increased gross commercial loan charge-offs to $780,000
compared to $73,000 in 1999. Loan losses in the Company's residential mortgage
loan portfolio continue to be negligible, while net consumer loan losses in 2000
of $431,000, representing 0.57% of average net consumer loans outstanding,
declined from $475,000, or 0.75% of average net consumer loans outstanding in
1999.
The ratio of non-performing loans to total loans at December 31, 2000 at
0.46% increased from 0.38% at December 31, 1999, but continues to compare
favorably to the most recent peer bank data contained in the Uniform Bank
Performance Report for all banks with assets between $500,000,000 and
$1,000,000,000 in total assets as published by the Federal Reserve Board's
Division of Banking Supervision and Regulation, which as of September 30, 2000
reported a peer average of 0.63%. The adequacy of the allowance to provide
coverage for non-performing loans was 230% at year-end 2000 compared to 313% at
year-end 1999.
The following table summarizes loan balances at the end of each period
indicated and the daily average amount of loans. Also summarized are changes in
the allowance for possible losses arising from loans charged-off and recoveries
on loans previously charged-off and additions to the allowance, which have been
charged to expense.
- --------------------------------------------------------------------------------
SUMMARY OF LOAN LOSS ALLOWANCE
- --------------------------------------------------------------------------------
Years ended December 31,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- ---------
(Dollars In Thousands)
Amount of loans outstanding at end of
period (gross loans less unearned discount) $315,748 $285,437 $253,296 $239,441 $234,159
Daily average amount of loans
(net of unearned discount) $298,521 $263,961 $244,649 $236,843 $230,007
Balance of allowance for possible loan
losses at beginning of period $ 3,412 $ 3,001 $ 2,957 $ 3,025 $ 2,867
Loans charged-off:
Commercial and agricultural 780 73 218 148 218
Real estate mortgage 56 38 29 57 --
Consumer 621 637 693 602 385
-------- -------- -------- -------- ---------
Total loans charged-off 1,457 748 940 807 603
Recoveries of loans previously charged-off:
Commercial and agricultural 74 21 111 17 36
Real estate mortgage 1 1 -- -- --
Consumer 190 162 103 97 92
-------- -------- -------- -------- ---------
Total recoveries 265 184 214 114 128
Net loans charged-off 1,192 564 726 693 475
-------- -------- -------- -------- ---------
Additions to allowance charged to expense 1,150 975 770 625 633
-------- -------- -------- -------- ---------
Balance at end of period $ 3,370 $ 3,412 $ 3,001 $ 2,957 $ 3,025
-------- -------- -------- -------- ---------
Ratio of allowance for loan losses to
period-end loans 1.07% 1.20% 1.18% 1.23% 1.29%
Ratio of net charge-offs to average
loans outstanding 0.40% 0.21% 0.30% 0.29% 0.21%
21
The allowance for possible loan losses has been allocated according to the
amount deemed to be reasonably necessary to provide for the possibility of
losses being incurred within the following categories of loans at the dates
indicated.
- --------------------------------------------------------------------------------
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------------------------------
Years ended December 31,
2000 1999 1998 1997 1996
------------------- ------------------- -------------------- ------------------- ----------------------
Amt. Of Amt. Of Amt. Of Amt. Of Amt. Of
Allowance Percent Allowance Percent Allowance Percent Allowance Percent Allowance Percent
--------- ------- --------- ------- --------- ------- --------- ------- --------- -------
(Dollars In Thousands)
Commercial and
agricultural $ 1,625 48.22% $ 1,857 54.43% $ 1,159 38.62% $ 948 32.05% $ 859 28.39%
Real estate mortgage 276 8.19% 391 11.46% 482 16.06% 541 18.30% 546 18.05%
Consumer 1,469 43.59% 1,164 34.11% 698 23.26% 906 30.64% 849 28.07%
Unallocated -- -- -- -- 662 22.06% 562 19.01% 771 25.49%
--------- ------- --------- ------- --------- ------- --------- ------- --------- -------
Total $ 3,370 100.00% $ 3,412 100.00% $ 3,001 100.00% $ 2,957 100.00% $ 3,025 100.00%
22
DEPOSITS AND OTHER BORROWINGS
The Company's deposit accounts represent its primary source of funds. The
deposit base is comprised of demand deposit, savings and money market accounts,
and other time deposits which are provided by individuals, businesses, and local
governments within the communities served. The Company continuously monitors
market pricing, competitors' rates, and internal interest rate spreads to
maintain and promote growth and profitability.
Average deposits for 2000 increased $28,756,000, or 6.7%, to $459,836,000,
compared to a $34,253,000, or 8.6%, increase in 1999 over 1998. Compared to
December 31, 1999, deposits as of December 31, 2000 in the amount of
$474,899,000 were up $39,825,000, or 9.2%. The Company opened three new branches
in the second half of 2000, which contributed $10,000,000, or 25% of the
increase. Over the past three years, as a result of rising interest rates and
competitive markets, the Company's deposit mix has reflected a slight shift from
lower cost demand deposit, savings, and money market accounts, to higher cost
time deposit accounts. The Company's average demand deposits, including both
interest-bearing and non interest-bearing accounts, declined 2% as a percentage
of total average deposits, to 25.6% during 2000, following a 1.3% decline the
prior year. These core transactional accounts continue to represent a
significant percentage of total deposits and provide the Company with an
important low cost source of funds. With a higher level of market interest rates
during 2000, average time deposits increased $26,420,000, or 16.2%, compared to
1999, following an increase of $22,476,000, or 16%, when comparing 1999 to 1998.
Depositors continued to favor time deposits with maturities of 18 months or
less. Time deposits in excess of $100 thousand, which are more volatile and
sensitive to interest rates, totaled $94,728,000 at year-end 2000, 44.3% of
total time deposits and 19.9% of total deposits, compared to 43.2%, and 16.7%,
respectively, at year-end 1999. The Company has been more aggressive in
acquiring large balance time deposits in the past two years, matching the
liabilities with assets that have similar interest rate risk characteristics.
The Company's total municipal deposits of $118,286,000 on December 31, 2000
represented 24.9% of total deposits compared to $110,819,000, or 25.5%, on
December 31, 1999.
The average daily amount of deposits, the average rate paid, and the
percentage of deposits on each of the following deposit categories are
summarized below for the years indicated.
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------- ------------------------------- ------------------------------
Avg. Avg. Percent of Avg. Avg. Percent of Avg. Avg. Percent of
Balance Rate Paid Deposits Balance Rate Paid Deposits Balance Rate Paid Deposits
-------- --------- ---------- -------- --------- ---------- -------- --------- ----------
(Dollars In Thousands)
Noninterest-bearing-demand deposits $ 54,800 0.00% 11.92% $ 54,590 0.00% 12.66% $ 53,675 0.00% 13.53%
Interest-bearing demand deposits 62,928 1.53% 13.68% 64,480 1.62% 14.96% 61,228 1.95% 15.43%
Savings accounts 152,573 3.39% 33.18% 148,895 3.11% 34.54% 141,285 3.37% 35.60%
Time deposits 189,535 5.72% 41.22% 163,115 4.87% 37.84% 140,639 5.22% 35.44%
-------- --------- ---------- -------- --------- ---------- -------- --------- ----------
Total average daily
amount of domestic deposits $459,836 3.69% 100.00% $431,080 3.16% 100.00% $396,827 3.35% 100.00%
23
The following table indicates the amount of the Company's time deposits of
$100,000 or more by time remaining until maturity as of December 31, 2000.
(In Thousands)
Less than three months $58,985
Three months to six months 23,364
Six months to one year 5,870
Over one year 6,509
-------
Total $94,728
The Company offers retail repurchase agreements primarily to its larger
business customers. Under the terms of the agreement, the Company sells
investment portfolio securities to the customer and agrees to repurchase the
securities at a specified later date. The Company views the arrangement as a
deposit alternative for its business customers. As of December 31, 2000,
repurchase agreements amounted to $6,936,000 compared to balances of $7,225,000
at December 31, 1999. During 2000, the Company continued to utilize advances
from the Federal Home Loan Bank of New York as a liability management practice
and as an alternative source of funding to deposits. At December 31, 2000, term
advances in the amount of $36,750,000 compared to $15,000,000 at December 31,
1999. These borrowings, which have various terms and maturities, are considered
an alternative to purchasing large time deposits from corporate or municipal
customers based on cost and timing issues. Borrowings are frequently maturity
matched against specific or pooled loans. At December 31, 2000, the Company had
overnight advances outstanding of $2,400,000 compared to $9,000,000 at December
31, 1999.
OTHER LIABILITIES
Other liabilities increased $3,114,000, or 85.2%, when comparing December
31, 2000 to December 31, 1999. The primary reason for the change was a
$1,859,000 increase in income tax payable as a result of a $4,647,000
appreciation in the Company's investment portfolio. During the year ended
December 31, 1999, a $5,291,000 decline in the value of the Company's
available-for-sale investment securities reduced the tax liability by $2,117,000
as total liabilities declined by $2,538,000 compared to 1998. Other liabilities
increasing during 2000 were interest payable, up $477,000 due to higher interest
rates paid on deposits and borrowings, increased dealer reserves payable
associated with the growth in indirect loans, along with increases in
post-retirement plans, deferred compensation, and supplemental executive
retirement plans.
CAPITAL
In 2000, the Company added $5,425,000 into equity through net income and
returned $2,534,000 to its shareholders in the form of cash dividends, retaining
$2,891,000 in undivided profits. During the year, the Company repurchased 91,441
shares of its common stock at a cost of $1,889,000 in connection with a stock
repurchase program. The board of directors believes that the 2000 repurchases of
stock have been an excellent investment opportunity for the Company and its
shareholders, based on the Company's strong capital position and growth
potential. Total shareholders' equity also reflects an adjustment for the SFAS
115 required change in market value of the Company's available-for-sale
investment securities. As previously discussed in the Investment Securities
section, the after-tax effect of the net unrealized gains and losses is reported
as the Accumulated Other Comprehensive Income component of shareholders' equity,
and reflects an increase in total shareholders' equity of $702,000 as of
December 31, 2000. The Company's ratio of shareholders' equity to total assets
of 9.13% at December 31, 2000 compares to 9.48% at December 31, 1999. The
Company's goal is to maintain a strong capital position, consistent with the
risk profile of its subsidiary bank, that supports growth and expansion
activities while at the same time exceeding regulatory standards. Capital
adequacy in the banking industry is evaluated primarily by the use of ratios
which measure capital against total assets, as well as against total assets,
that are weighted based on defined risk characteristics. At December 31, 2000,
the Company exceeded all regulatory required minimum capital ratios and met the
regulatory definition of a "well capitalized institution". A more comprehensive
analysis of regulatory capital requirements, including ratios for the Company
and its subsidiary bank, is included in Note 16 in the Consolidated Financial
Statements section of this Annual Report.
24
The Company paid cash dividends equal to $0.71 per share in 2000 compared
to $0.70 in 1999. During the second quarter of the year, the Company paid a 5%
stock dividend and in the fourth quarter of the year, the quarterly dividend
rate was increased from $0.175 per share to $0.185 per share. The 2000 dividend
pay-out ratio was 47%.
LIQUIDITY
Liquidity is the ability of the Company to generate and maintain sufficient
cash flows to fund its operations and to meet customer's loan demands or deposit
withdrawals. Maintaining a stable core deposit base is one of the fundamentals
in the Company's liquidity management policy. It is the Company's goal to raise
cash when needed, at the most reasonable cost, with a minimum of loss.
Management carefully monitors its liquidity position and seeks to maintain
adequate liquidity to meet its needs. The Company meets its liquidity needs by
balancing levels of cash flow from the sale or maturity of available-for-sale
investment securities and loan amortizing payments and maturities, as well as
with the availability of dependable borrowing sources which can be accessed when
needed. Lines of credit with the bank's primary correspondents and the Federal
Home Loan Bank as of year-end 2000 were $97,209,000, of which $58,059,000
remained available.
Item 7A -- Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss in a financial instrument arising from
adverse changes in market rates or prices such as interest rates, foreign
currency exchange rates, commodity prices, and equity prices. The Company's
market risk arises principally from interest rate risk in its lending, deposit
and borrowing activities. Other types of market risks do not arise in the normal
course of the Company's business activities. Management actively monitors and
manages its interest rate risk exposure. Although the Company manages other
risks, as in credit quality and liquidity risk, in the normal course of
business, management considers interest rate risk to be its most significant
market risk and could potentially have the largest material effect on the
Company's financial condition and results of operations. The Company's
profitability is affected by fluctuations in interest rates. Management's goal
is to maintain a reasonable balance between exposure to interest rate
fluctuations and earnings. A sudden and substantial change in interest rates may
adversely impact the Company's earnings to the extent that the interest rates on
interest-earning assets and interest-bearing liabilities do not change at the
same speed, to the same extent, or on the same basis. The Company monitors the
impact of changes in interest rates on its net interest income using a computer
simulation model.
The model measures the change in net interest income which results when
market interest rates change. As of December 31, 2000, an instantaneous 200
basis point increase in market interest rates was estimated to have a negative
impact of 11.90% on net interest income over the next twelve-month period, while
a 200 basis point decrease in market interest rates was estimated to have a
positive impact of 6.73% on the Company's net interest income. By comparison, at
December 31, 1999 the Company estimated an instantaneous 200 basis point rise in
rates would have a negative impact of 5.19% on net interest income during 2000
while a 200 basis point decline in rates would have a positive impact of 3.63%
on net interest income during 2000. The Company aligned its asset/liability mix
during 2000 on expectations that the economy would slow in 2001, and as a result
the Federal Reserve Bank Board would begin to lower interest rates. The Company
increased its short-term liabilities through increased municipal certificates of
deposits and Federal Home Loan Bank advances while at the same time investing in
longer term investment securities. The Company expects both an improvement in
its net interest margin and the potential for gains on the sale of securities
with lower interest rates. The potential change in net interest income resulting
from this analysis falls within the Company's interest rate risk policy
guidelines.
25
Computation of prospective effects of hypothetical interest rate changes
are based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposit rate changes, and should not be relied upon
as indicative of actual results.
The following table shows the Company's financial instruments that are
sensitive to changes in interest rates, categorized by expected maturity, and
the instruments' fair values at December 31, 2000.
- --------------------------------------------------------------------------------
EXPECTED MATURITY/PRINCIPAL REPAYMENTS AT DECEMBER 31, 2000
- --------------------------------------------------------------------------------
Avg.
Interest
2001 2002 2003 2004 2005 Thereafter Total Rate Fair Value
--------- --------- --------- --------- --------- ---------- --------- -------- ----------
(In Thousands)
Rate Sensitive Assets
Loans $ 84,448 $ 52,539 $ 36,530 $ 23,298 $ 19,708 $ 95,855 $312,378 8.84% $310,186
Investments 76,982 38,408 36,784 19,674 13,388 37,842 223,078 5.96% 223,220
--------- --------- --------- --------- --------- ---------- --------- -------- ----------
Total Rate Sensitive Assets $161,430 $ 90,947 $ 73,314 $ 42,972 $ 33,096 $133,697 $535,456 $533,406
========= ========= ========= ========= ========= ========== ========= ==========
Rate Sensitive Liabilities
Savings, Money Market
and NOW accounts $ 46,174 $ -- $ -- $ -- $ -- $162,735 $208,909 2.70% $208,909
Time Deposits 184,865 21,842 3,768 2,191 1,129 -- 213,795 6.25% 213,468
Borrowings 21,750 5,000 -- -- -- 10,000 36,750 6.46% 36,750
--------- --------- --------- --------- --------- ---------- --------- -------- ----------
Total Rate Sensitive Liabilities $252,789 $ 26,842 $ 3,768 $ 2,191 $ 1,129 $172,735 $459,454 $459,127
========= ========= ========= ========= ========= ========== ========= ==========
Expected maturities are contractual maturities adjusted for prepayments of
principal. The Company uses certain assumptions to estimate fair values and
expected maturities. For assets, expected maturities are based upon contractual
maturity, projected repayments and prepayment of principal. The prepayment
experience reflected herein is based on the Company's historical experience. The
actual maturities and run-off of loans could vary substantially if future
prepayments differ from the Company's historical experience. For liabilities,
Regular Savings and Now Accounts of individuals, partnerships and corporations
(IPC) are considered to be 90% core (maturing in over five years), with 10%
assumed to mature in one year. IPC Money Market Savings are considered to be 75%
core. Savings and Now Accounts of municipalities are considered 75% core
(maturing in over five years), with 25% assumed to mature in one year. Money
Market Savings accounts of public entities are considered to be 50% core.
26
Item 8 -- Financial Statements and Supplementary Data
Consolidated Statements of Condition
ASSETS Dec. 31, 2000 Dec. 31, 1999
------------- -------------
(Dollars In Thousands)
Cash and due from banks $ 19,274 $ 20,231
Federal funds sold -- --
-------- --------
Total Cash and Cash Equivalents 19,274 20,231
Held-to-maturity investment securities 10,223 12,449
Available-for-sale investment securities 212,855 181,933
-------- --------
Total Investment Securities 223,078 194,382
(fair value-$223,220 for 2000 and $194,382 for 1999
Total Loans 316,112 286,497
Less: Unearned income 364 1,060
Less: Allowance for possible loan losses 3,370 3,412
-------- --------
Net Loans 312,378 282,025
Bank premises, furniture and equipment 10,671 8,888
Accrued interest receivable 4,160 3,402
Other assets 11,226 10,269
-------- --------
Total Assets $580,787 $519,197
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest-bearing deposits $ 52,195 $ 56,562
Interest-bearing deposits 422,704 378,512
---------- ----------
Total Deposits 474,899 435,074
Borrowings 46,086 31,225
Other liabilities 6,767 3,653
---------- ----------
Total Liabilities 527,752 469,952
========== ==========
Shareholders' equity:
Preferred stock-par value $25.00 a share;
1,000,000 shares authorized, none issued;
Common stock-par value $1.00 a share;
10,000,000 shares authorized, 3,815,305 and
3,641,035 shares issued, and 3,608,840 and 3,526,011
shares outstanding for 2000 and 1999, respectively 3,815 3,641
Surplus 7,096 3,641
Undivided profits 46,030 46,768
Accumulated other comprehensive income 702 (2,086)
Treasury stock, at cost; 206,465 and 115,024 shares, respectively (4,608) (2,719)
---------- ----------
Total Shareholders' Equity 53,035 49,245
---------- ----------
Total Liabilities and Shareholders' Equity $ 580,787 $ 519,197
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
27
Consolidated Statements of Income
Years ended Dec. 31,
---------------------------------------------
INTEREST INCOME 2000 1999 1998
---- ---- ----
(Dollars In Thousands)
Interest and fees on loans $26,701 $22,923 $21,964
Interest on investment securities:
U.S. Government and
Agency obligations 9,261 7,542 6,370
Obligations of states and
political subdivisions 2,411 2,636 2,550
Other 1,403 974 577
Interest on federal funds sold 286 433 752
------- ------- -------
Total Interest Income 40,062 34,508 32,213
INTEREST EXPENSE
Interest on deposits 16,977 13,621 13,300
Interest on borrowings 2,490 599 98
------- ------- -------
Total Interest Expense 19,467 14,220 13,398
------- ------- -------
Net Interest Income 20,595 20,288 18,815
Provision for possible loan losses 1,150 975 770
------- ------- -------
Net Interest Income After Provision
For Loan Losses 19,445 19,313 18,045
OTHER INCOME
Trust department services 1,393 1,134 789
Service charges on deposit accounts 1,993 1,939 1,706
Data processing services 280 268 257
Investment securities gains 711 136 26
Other operating income 2,272 1,081 1,211
------- ------- -------
Total Other Income 6,649 4,558 3,989
------- ------- -------
Total Operating Income 26,094 23,871 22,034
OTHER EXPENSES
Salaries, wages, and employee benefits 10,414 9,112 8,712
Building occupancy, and equipment 2,861 2,587 2,607
Supplies, advertising, and communication expense 1,587 1,623 1,424
Merger related expense -- -- 1,701
Other operating expense 3,775 3,303 3,053
------- ------- -------
Total Other Expenses 18,637 16,625 17,497
------- ------- -------
Income Before Income Taxes 7,457 7,246 4,537
Provision for income taxes 2,032 1,844 1,104
------- ------- -------
Net Income $ 5,425 $ 5,402 $ 3,433
======= ======= =======
Net Income Per Common Share-Basic and Diluted $ 1.52 $ 1.51 $ 0.95
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
28
Consolidated Statements of
Comprehensive Income
(Dollars in thousands)
Years ended December 31,
------------------------------------------------
2000 1999 1998
------- ------- -------
Net Income $ 5,425 $ 5,402 $ 3,433
Other comprehensive income net of taxes:
Unrealized net gains on securities:
Unrealized holding gains (losses)arising during the period 5,358 (5,155) 839
Less: Reclassification adjustment for gains included in net income (711) (136) (26)
------- ------- -------
4,647 (5,291) 813
Income tax (provision) benefit (1,859) 2,117 (332)
------- ------- -------
Other comprehensive income (loss), net of tax 2,788 (3,174) 481
------- ------- -------
Comprehensive Income $ 8,213 $ 2,228 $ 3,914
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
29
Consolidated Statements of
Changes in Shareholders' Equity
(Dollars in thousands)
ACCUMULATED
ISSUED OTHER
FOR THE YEARS ENDED COMMON COMMON UNDIVIDED COMPREHENSIVE TREASURY
DEC. 31, 2000, 1999, 1998 SHARES STOCK SURPLUS PROFITS INCOME STOCK TOTAL
--------- -------- -------- --------- ------------- ---------- ---------
Balance at January 1, 1998 3,645,502 $ 3,646 $ 3,646 $ 42,917 $ 607 $ (1,066) $ 49,750
========= ======== ======== ========= ============= ========== =========
Net income for the year 3,433 3,433
Change in unrealized net gain
on investment securities 481
481
Cash dividends, $.67 per share (2,410) (2,410)
Purchase and retirement of
common shares (4,324)
(5) (5) (76) (86)
--------- -------- -------- --------- ------------- ---------- ---------
Balance at December 31, 1998 3,641,178 3,641 3,641 43,864 1,088 (1,066) 51,168
========= ======== ======== ========= ============= ========== =========
Net income for the year 5,402 5,402
Change in unrealized net gain
on investment securities (3,174) (3,174)
Cash dividends, $.70 per share (2,498) (2,498)
Treasury stock purchased (1,653) (1,653)
Shares returned in lieu of
fractional shares (143)
--------- -------- -------- --------- ------------- ---------- ---------
Balance at December 31, 1999 3,641,035 3,641 3,641 46,768 (2,086) (2,719) 49,245
========= ======== ======== ========= ============= ========== =========
Net income for the year 5,425 5,425
Change in unrealized net gain
on investment securities 2,788 2,788
Cash dividends, $.71 per share (2,534) (2,534)
5% stock dividend 174,270 174 3,455 (3,629)
--
Treasury stock purchased (1,889) (1,889)
--------- -------- -------- --------- ------------- ---------- ---------
Balance at December 31, 2000 3,815,305 $ 3,815 $ 7,096 $ 46,030 $ 702 $ (4,608) $ 53,035
========= ======== ======== ========= ============= ========== =========
The accompanying notes are an integral part of the consolidated financial
statements.
30
Consolidated Statements of
Cash Flows
(Dollars in thousands)
Years ended December 31,
----------------------------------
2000 1999 1998
-------- -------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES
Net income $ 5,425 $ 5,402 $ 3,433
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses 1,150 975 770
Provision for depreciation 1,208 1,108 1,376
Benefit for deferred income taxes (225) (340) (628)
Amortization of investment security premiums, net 168 929 520
Realized investment security gains (711) (136) (26)
Change in other assets and liabilities 183 593 1,501
-------- -------- ---------
Net Cash Provided by Operating Activities 7,198 8,531 6,946
======== ======== =========
INVESTING ACTIVITIES
Proceeds from maturities of investment securities, available-for-sale 29,667 44,572 48,943
Proceeds from maturities of investment securities, held-to-maturity 6,697 1,751 6,674
Proceeds from sales of investment securities 33,668 12,793 5,374
Purchase of investment securities, available-for-sale (89,067) (84,451) (68,055)
Purchase of investment securities, held-to-maturity (4,471) (2,894) (2,047)
Purchase of life insurance -- (7,500) --
Increase in surrender value of life insurance (469) (80) --
Net increase in loans (31,503) (32,705) (14,120)
Purchases of premises and equipment (2,991) (1,707) (710)
-------- -------- ---------
Net Cash Used by Investing Activities (58,469) (70,221) (23,941)
======== ======== =========
FINANCING ACTIVITIES
Net (decrease) increase in demand deposits, NOW accounts, and savings accounts (5,930) 3,365 20,169
Net increase in time deposits 45,755 18,115 15,498
Net increase (decrease) in borrowings 14,861 30,473 (3,256)
Treasury stock purchased (1,889) (1,653) --
Retirement of common shares -- -- (86)
Cash dividends (2,483) (2,510) (2,188)
-------- -------- ---------
Net Cash Provided by Financing Activities 50,314 47,790 30,137
-------- -------- ---------
(Decrease) Increase in Cash and Cash Equivalents (957) (13,900) 13,142
Cash and cash equivalents at beginning of year 20,231 34,131 20,989
-------- -------- ---------
Cash and Cash Equivalents at End of Year $ 19,274 $ 20,231 $ 34,131
======== ======== =========
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest on deposits and borrowings $ 18,990 $ 13,855 $ 13,435
Income taxes 2,362 2,322 1,663
Non-cash investing activities:
Decrease (increase) in net unrealized gain/losses on available-for-sale securities (4,647) 5,291 (813)
Non-cash financing activities:
Dividend declared and unpaid 668 617 629
======== ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: Alliance Financial Corporation (the Company) is a bank
holding company, which owns and operates Alliance Bank, N.A. The Company
provides financial services primarily to individuals, small- to medium-sized
businesses and government customers from 21 office locations in Broome,
Cortland, Madison, Oneida, and Onondaga counties. The Bank has a substantially
wholly owned subsidiary, Alliance Preferred Funding Corp., which is engaged in
residential real estate activity.
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary after elimination of
intercompany accounts and transactions.
Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Business Combination: In November 1998, Cortland First Financial Corporation
(Cortland) completed a merger with Oneida Valley Bancshares, Inc. (Oneida) and
commenced operations under the name Alliance Financial Corporation. Pursuant to
the terms of the merger, each share of Cortland stock was exchanged for one
share of the Company's stock and each share of Oneida stock was exchanged for
1.8 shares of the Company's stock. The merger constituted a tax-free
reorganization and has been accounted for as a pooling of interests under
Accounting Principles Board Opinion No. 16.
In conjunction with the merger, the Company recorded a 1998 charge to
operating expenses of $1,701 ($1,022 after taxes, or $0.28 per common share) for
direct merger and restructuring costs relating to the merger. Restructuring
costs primarily relate to the consolidation of administration and operational
functions.
Reclassification: Certain amounts from prior years have been reclassified to
conform to the current year presentation. These reclassifications had no effect
on net income as previously reported.
Cash and Cash Equivalents: For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks, and federal funds
sold. Generally, federal funds are purchased and sold for one-day periods.
Investment Securities: The Company classifies investment securities as
held-to-maturity or available-for-sale. Held-to-maturity securities are those
that the Company has the positive intent and ability to hold to maturity, and
are reported at cost, adjusted for amortization of premiums and accretion of
discounts. Investment securities not classified as held-to-maturity are
classified as available-for-sale and are reported at fair value, with net
unrealized holding gains and losses reflected as a separate component of
stockholders' equity, net of the applicable income tax effect. None of the
Company's investment securities have been classified as trading securities.
Gains and losses on the sale of investment securities are based on the specific
identification method. Premiums and discounts on securities are amortized and
accreted into income using the interest method over the life of the security.
32
Loans: Loans are stated at unpaid principal balances less the allowance for loan
losses, unearned interest income and net deferred loan origination fees and
costs.
Unearned income on certain installment loans is taken into income on the
actuarial method. Interest on all other loans is based upon the principal amount
outstanding. Interest on loans is accrued except when in management's opinion
the collectibility of interest is doubtful, at which time the accrual of
interest on the loan is discontinued.
Loan origination fees and certain direct loan origination costs are
deferred and the net amount is amortized as a yield adjustment over the life of
the loan. The Company is generally amortizing these amounts over the contractual
life of the related loans. However, for certain fixed-rate mortgage loans that
are generally made for a 20-year term, the Company has anticipated prepayments
and used an estimated life of 7.5 years.
Allowance for Credit Losses: The adequacy of the allowance for possible loan
losses is periodically evaluated by the Company in order to maintain the
allowance at a level that is sufficient to absorb probable credit losses.
Management's evaluation of the adequacy of the allowance is based on a review of
the Company's historical loss experience, known and inherent risks in the loan
portfolio, including adverse circumstances that may affect the ability of the
borrower to repay interest and/or principal, the estimated value of collateral,
and an analysis of the levels and trends of delinquencies, charge-offs, and the
risk ratings of the various loan categories. Such factors as the level and trend
of interest rates and the condition of the national and local economies are also
considered.
A loan is considered impaired, based on current information and events, if
it is probable that the Company will be unable to collect the scheduled payments
of principal or interest when due according to the contractual terms of the loan
agreement. The measurement of impaired loans is generally discounted at the
historical effective interest rate, except that all collateral-dependent loans
are measured for impairment based on fair value of the collateral.
33
Income Recognition on Impaired and Nonaccrual Loans: Loans, including impaired
loans, are generally classified as nonaccrual if they are past due as to
maturity of payment of principal or interest for a period of more than 90 days
unless they are well secured and are in the process of collection. While a loan
is classified as nonaccrual and the future collectibility of the recorded loan
balance is doubtful, collections of interest and principal are generally applied
as a reduction to principal outstanding.
Other Real Estate: Other real estate is comprised of real estate acquired
through foreclosure and is recorded at the lower of cost or fair value (net of
estimated costs to sell) at the date of acquisition.
Bank Premises, Furniture, and Equipment: Bank premises, furniture, and equipment
are stated at cost less accumulated depreciation computed principally using the
straight-line method over the estimated useful lives of the assets. Maintenance
and repairs are charged to operating expenses as incurred. The asset cost and
accumulated depreciation are removed from the accounts for assets sold or
retired and any resulting gain or loss is included in the determination of the
income.
Income Taxes: Provision for income taxes is based on taxes currently payable or
refundable and deferred income taxes on temporary differences between the tax
basis of assets and liabilities and their reported amount in the financial
statements. Deferred tax assets and liabilities are reported in the financial
statements at currently enacted income tax rates applicable to the period in
which the deferred tax assets and liabilities are expected to be realized or
settled.
Trust Department Assets: Assets held in fiduciary or agency capacities for
customers are not included in the accompanying consolidated statements of
condition, since such items are not assets of the Company. Fees associated with
providing trust management services are recorded on a cash basis of income
recognition and are included in Other Income.
Earnings Per Share: Basic earnings per share is computed by dividing net income
by the weighted average number of common shares outstanding throughout each
year; 3,569,073, 3,576,728, and 3,596,548 for 2000, 1999, and 1998,
respectively. Diluted earnings per share gives the effect to weighted average
shares which would be outstanding assuming the exercise of options using the
treasury stock method. Weighted average shares outstanding adjusted for the
effect of the assumed exercise of stock options were 3,579,114, 3,577,109, and
3,596,548 for the years 2000, 1999, and 1998, respectively. For the years ending
December 31, 2000, 1999, and 1998 both basic and diluted earnings per share were
$1.52, $1.51, and $0.95, respectively.
34
INVESTMENT SECURITIES
The amortized cost and approximate fair value of investment securities at
December 31 are as follows:
Gross Gross
Amortized Unrealized Unrealized Estimated
Held-to-Maturity-2000 Cost Gains Losses Fair Value
-------- ------ ------ ----------
(Dollars In Thousands)
Obligations of states and political subdivisions $ 10,223 $ 142 $ -- $ 10,365
-------- ------ ------ --------
Total $ 10,223 $ 142 $ -- $ 10,365
======== ====== ====== ========
Available-for-Sale -- 2000
U.S. Treasury and other U.S. government agencies $ 50,911 $ 725 $ 98 $ 51,538
Obligations of states and political subdivisions 44,289 766 59 44,996
Mortgage-backed securities 93,447 367 401 93,413
Other securities 18,917 175 304 18,788
-------- ------ ------ --------
Total $207,564 $2,033 $ 862 $208,735
======== ====== ====== ========
Stock Investments
Federal Home Loan Bank 3,310 -- -- 3,310
Federal Reserve Bank and others 810 -- -- 810
-------- ------ ------ --------
Total stock investment 4,120 -- -- 4,120
-------- ------ ------ --------
Total available-for-sale $211,684 $2,033 $ 862 $212,855
-------- ------ ------ --------
Net unrealized gain on available-for-sale 1,171
--------
Grand total carrying value $223,078
========
Held-to-Maturity -- 1999
Obligations of states and political subdivisions $ 12,449 $ -- $ -- $ 12,449
-------- ------ ------ --------
Total Available-for-Sale -- 1999 $ 12,449 $ -- $ -- $ 12,449
======== ====== ====== ========
U.S. Treasury and other U.S. government agencies $ 61,871 $ 54 $ 700 $ 61,225
Obligations of states and political subdivisions 37,516 214 534 37,196
Mortgage-backed securities 68,227 51 2,100 66,178
Other securities 15,075 -- 461 14,614
-------- ------ ------ --------
Total $182,689 $ 319 $3,795 $179,213
======== ====== ====== ========
Stock Investments
Federal Home Loan Bank 1,664 -- -- 1,664
Federal Reserve Bank and others 1,056 -- -- 1,056
-------- ------ ------ --------
Total stock investment 2,720 -- -- 2,720
-------- ------ ------ --------
Total available-for-sale $185,409 $ 319 $3,795 $181,933
-------- ------ ------ --------
Net unrealized loss on available-for-sale (3,476)
--------
Grand total carrying value $194,382
========
The carrying value and estimated market value of debt securities at
December 31, 2000 by contractural maturity are shown below. The maturities of
mortgage-backed securities are based on average life of the security. All other
expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
Held-to-Maturity Available-for-sale
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
(Dollars In Thousands)
Due in one year or less $ 5,920 $ 6,003 $ 25,947 $ 25,946
Due after one year through five years 1,947 1,974 113,691 113,507
Due after five years through ten years 1,825 1,850 37,330 37,934
Due after ten years 531 538 30,596 31,348
------- ------- -------- --------
Total debt securities $10,223 $10,365 $207,564 $208,735
At December 31, 2000 and 1999, investment securities with a carrying value
of $163,700 and $152,986 respectively, were pledged as collateral for certain
deposits and other purposes as required or permitted by law. The Company
recognized gross gains of $738, $154, and $26 for 2000, 1999, and 1998,
respectively and gross losses of $27 and $18 for 2000 and 1999, respectively.
35
LOANS
Major classifications of loans at December 31 are as follows:
2000 1999
-------- --------
(Dollars In Thousands)
Commercial and agricultural $108,447 $105,169
Real estate loans 119,948 114,450
Consumer loans 87,717 66,878
-------- --------
Total $316,112 $286,497
Less: Unearned income 364 1,060
Less: Allowance for possible loan losses 3,370 3,412
-------- --------
Net Loans $312,378 $282,025
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid balances of mortgage
loans serviced for others were $15,766, $16,612, and $15,133 at December 31,
2000, 1999, and 1998, respectively. Substantially all of the Bank's loans are
granted to borrowers concentrated primarily within Cortland, Madison, Oneida,
and Onondaga Counties.
ALLOWANCE FOR POSSIBLE LOAN LOSSES (Dollars In Thousands)
Changes in the allowance for possible loan losses for the years ended
December 31 are summarized as follows:
2000 1999 1998
------ ------ ------
Balance at January 1 $3,412 $3,001 $2,957
Provision for possible loan losses 1,150 975 770
Recoveries credited 265 184 214
------ ------ ------
Subtotal $4,827 $4,160 $3,941
Less: Loans charged-off 1,457 748 940
------ ------ ------
Balance at December 31 $3,370 $3,412 $3,001
====== ====== ======
The average recorded investment in impaired loans was zero for the years
ended December 31, 2000 and 1999. The amount of nonaccrual loans for the years
ended December 31, 2000 and 1999 was $686 and $682, respectively.
RELATED PARTY TRANSACTIONS (Dollars In Thousands)
Directors and executive officers of the Company and their affiliated
companies were customers of, and had other transactions with, the Company in the
ordinary course of business during 2000. It is the Company's policy that all
loans and commitments included in such transactions are made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons, and do not involve more
than normal risk of collectibility or present other unfavorable features. Loan
transactions with related parties are summarized as follows:
2000 1999
-------- --------
Balance at beginning of year $ 7,875 $ 5,703
New loans and advances 4,281 3,445
Loan payments (2,331) (1,273)
-------- --------
Balance at end of year $ 9,825 $ 7,875
BANK PREMISES, FURNITURE, AND EQUIPMENT (Dollars In Thousands)
Bank premises, furniture, and equipment at December 31 consist of the
following:
2000 1999
------- -------
Land $ 1,238 $ 913
Bank premises 9,774 8,644
Furniture and equipment 11,933 10,415
-------- --------
Subtotal 22,945 19,972
-------- --------
Less: Accumulated depreciation 12,274 11,084
-------- --------
Balance at end of year $10,671 $ 8,888
======== ========
36
DEPOSITS
The carrying amounts of deposits consisted of the following at December 31:
2000 1999
-------- --------
(Dollars In Thousands)
Non-interest-bearing checking $ 52,195 $ 56,562
Interest-bearing checking 71,070 64,442
Savings accounts 65,957 78,066
Money market accounts 71,882 68,226
Time deposits 213,795 167,778
-------- --------
Total deposits $474,899 $435,074
The following table indicates the
maturities of the Company's
time deposits at December 31:
2000 1999
-------- --------
(Dollars In Thousands)
Due in one year $184,865 $139,293
Due in two years 21,842 16,291
Due in three years 3,768 5,764
Due in four years 2,191 3,234
Due in five years or more 1,129 3,196
-------- --------
Total deposits $213,795 $167,778
Total time deposits in excess of $100 as of December 31, 2000 and 1999 were
$94,728 and $72,457, respectively.
37
BORROWINGS
The following is a summary of borrowings at December 31:
2000 1999
------------------------------------------------ ---------------------------------------------
Incurred Original Incurred Original
Date Amount Rate Term Date Amount Rate Term
-------- ------ ---- -------- -------- ------ ---- --------
(Dollars In Thousands)
Securities sold under
repurchase agreements 12/29/00 $6,936 6.00% Demand 12/31/99 $7,225 5.57% Demand
Federal Home Loan
Bank term advances:
4/28/00 5,000 6.43% 2 years 11/4/99 2,000 5.64% 90 days
7/20/00 5,000 5.92% 10 years 11/30/99 3,000 5.85% 90 days
7/26/00 5,000 6.30% 10 years 12/29/99 5,000 5.95% 60 days
9/5/00 5,000 6.76% 6 months 12/29/99 5,000 6.04% 90 days
12/1/00 5,000 6.53% 6 months
12/28/00 6,750 6.42% 28 days
12/29/00 5,000 6.89% 6 months
Federal Home Loan
Bank overnight advances 2,400 5.85% Demand 9,000 4.10% Demand
------- ---- ----------- ------- ---- -------
Balance at end of year $46,086 $31,225
Information related to borrowings at December 31 is as follows:
2000 1999
---- ----
Maximum outstanding at
any month end $74,162 $31,225
Average amount outstanding
during the year $39,155 $10,210
Average interest rate
during the year 6.36% 5.87%
Average amounts outstanding and average interest rates are computed using
monthly averages.
The Company offers retail repurchase agreements primarily to its larger
business customers. Under the terms of the agreement, the Company sells
investment portfolio securities to the customer agreeing to repurchase the
securities at a specified later date. The Company views the borrowing as a
deposit alternative for its business customers. The Company at December 31, 2000
had securities with a carrying value of $6,205 pledged as collateral for these
agreements.
At December 31, 2000 and 1999, the Company had available a line of credit
with the Federal Home Loan Bank of New York (FHLB) of $50,551 and $49,273,
respectively, of which $2,400 and $9,000 was outstanding as of December 31, 2000
and 1999, respectively. The Company also has access to the FHLB's Term Advance
Program under which it can borrow at various terms and interest rates.
Residential mortgage loans in the amount of $114,178 have been pledged by the
Company under a blanket collateral agreement to secure the Company's line of
credit and term borrowings. At December 31, 2000, the Company's total available
borrowing capacity with the FHLB was $82,209.
At December 31, 2000 and 1999, the Company had available $15,000 of lines
of credit with other financial institutions which were unused.
38
INCOME TAXES (Dollars In Thousands)
The provision for income taxes for the years ended December 31 is
summarized as follows:
2000 1999 1998
---- ---- ----
Current tax expense $ 2,257 $ 2,184 $ 1,732
Deferred tax benefit (225) (340) (628)
------- ------- -------
Total provision for income taxes $ 2,032 $ 1,844 $ 1,104
The provision for income taxes includes the following:
2000 1999 1998
---- ---- ----
Federal income tax $1,746 $1,628 $ 780
New York State franchise tax 286 216 324
------ ------ ------
Total $2,032 $1,844 $1,104
The components of deferred income taxes, included in other liabilities, at
December 31, are as follows:
2000 1999
---- ----
Assets:
Investment securities $ 0 $1,391
Allowance for possible loan losses 977 1,002
Postretirement benefits 1,047 941
Deferred compensation 859 753
Merger costs 272 274
Other 63 48
------ ------
Total Assets $3,218 $4,409
Liabilities:
Investment securities $ 557 44
Prepaid pension 0 183
Depreciation 256 174
Other 56 43
------ ------
Total Liabilities $ 869 $ 444
------ ------
Net deferred tax asset $2,349 $3,965
====== ======
A reconciliation between the statutory federal income tax rate and the
effective income tax rate for 2000, 1999, and 1998 is as follows:
2000 1999 1998
---- ---- ----
Statutory federal income tax rate 34.0% 34.0% 34.0%
State franchise tax, net of federal tax benefit 1.7% 1.5% 4.7%
Tax emempt income (11.0%) (10.3%) (16.4%)
Other, net 2.6% 0.3% 2.0%
---- ---- ----
Total 27.3% 25.5% 24.3%
39
RETIREMENT PLANS AND POSTRETIREMENT BENEFITS
The Company provides retirement benefits through a defined contribution
401(k) plan that covers substantially all of its employees. Prior to July 1,
1999, a group of employees were covered by a noncontributory defined benefit
pension plan. That plan was terminated effective June 30, 1999 and following a
satisfactory review by the Internal Revenue Service, distributions of plan
participants benefit obligations were completed during the third quarter of
2000. As a result of the settlement, the Company received $1,239 and recognized
a net gain of $532 in other operating income. The pension plan had no assets
remaining at December 31, 2000. The Company also provides postretirement medical
and life insurance benefits to qualifying employees under a plan developed in
the fourth quarter of 1999. Benefits are available to full-time employees who
have worked 15 years and attained age 55. Retirees and certain active employees
with more than 20 years of service to the Company continue to receive benefits
in accordance with the former plans.
The following tables set forth the changes in the plan's benefit
obligation, fair value of plan assets, and prepaid (accrued) benefit cost as of
December 31, 2000 and 1999.
- --------------------------------------------------------------------------------------------------------
PENSION BENEFITS POSTRETIREMENT
BENEFITS
- --------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
Change in benefit obligation:
Benefit obligation at
beginning of year $5,455 $5,252 $3,061 $3,049
Service cost -- 148 54 75
Interest cost 137 308 223 193
Amendments, curtailments,
special termination 686 303 -- --
Actuarial (gain)/loss -- (277) (96) (118)
Benefits paid (6,278) (279) (146) (138)
------ ------ ------ ------
Benefit obligation at end of year $0 $5,455 $3,096 $3,061
- --------------------------------------------------------------------------------------------------------
PENSION BENEFITS POSTRETIREMENT
BENEFITS
- --------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
Change in plan assets:
Fair value of plan assets
at beginning of year $7,098 $6,190 $ 0 $ 0
Actual return on plan assets 419 1,187 -- --
Benefits paid (6,278) (279) -- --
Transfer to plan sponsor (1,239) -- -- --
------ ------ ------ ------
Fair value of plan assets at end of year $0 $7,098 $ 0 $ 0
- --------------------------------------------------------------------------------------------------------
PENSION BENEFITS POSTRETIREMENT
BENEFITS
- --------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
Components of prepaid/accrued
benefit cost:
Funded status $0 $1,643 $(3,096) $(3,061)
Unrecognized transition
obligation -- (216) -- --
Unrecognized prior service cost -- (11) (85) (96)
Unrecognized actuarial
net (gain)/loss -- (958) 668 791
------ ------ ------ ------
Prepaid/(accrued) benefit
obligation at end of year $0 $458 $(2,513) $(2,366)
There were no plan assets
at December 31, 2000
Significant assumptions used in determining the benefit obligation as of
December 31, 2000 and 1999 are as follows:
- --------------------------------------------------------------------------------------------------------
PENSION BENEFITS POSTRETIREMENT
BENEFITS
- --------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
Weighted average discount
rate -- 6.07% 7.50% 7.50%
Expected long-term rate
of return on plan assets -- 4.00% -- --
For measurement purposes, with respect to the postretirement benefit plans, a
6.5 percent annual rate of increase in the per capita cost of covered health
care benefits is assumed for 2001. The rate is assumed to decrease gradually to
4.5 percent by the year 2005 and remain at that level thereafter.
40
The composition of the net periodic pension cost for the years ended
December 31 is as follows:
PENSION POSTRETIREMENT
BENEFITS BENEFITS
2000 1999 1998 2000 1999 1998
Service cost $-- $148 $228 $54 $75 $70
Interest cost 137 308 319 223 193 122
Amortization of transition (44) (44) (74) -- -- --
obligation
Amortization of unrecognized
prior service cost (8) (8) (8) 15 22 (10)
Expected return on plan
assets (156) (513) (511) -- -- --
Special termination
benefits/curtailment 529 260 -- -- -- 274
---- ---- ---- ---- ---- ----
Net periodic cost (benefit) $458 $151 $(46) $292 $290 $456
Assumed health care cost trend rates have a significant effect on the
amounts reported for health care plans. A one percentage point change in assumed
health care cost trend rates would have the following effects:
One Percentage One Percentage
Point Increase Point Decrease
Effect on total service and 25 (21)
interest cost components
Effect on postretirement 271 (227)
plan obligations
Contributions to the Company's 401(k) plan are determined by the Board of
Directors and are based on percentages of compensation for eligible employees.
Contributions are funded following the end of the plan (calendar) year. Company
contributions to the plan were $470, $440, and $425 in 2000, 1999, and 1998,
respectively.
41
DEFERRED COMPENSATION & SUPPLEMENTAL RETIREMENT PLANS
The Company maintains optional deferred compensation plans for its directors,
whereby fees normally received are deferred and paid by the Company upon the
retirement of the director. At December 31, 2000 and 1999 other liabilities
included approximately $1,142 and $980, respectively, relating to deferred
compensation. Deferred compensation expense for the years ended December 31,
2000, 1999, and 1998 approximated $162, $191, and $157, respectively.
The Company has supplemental executive retirement plans for certain employees.
Included in other assets, the Company has segregated assets of $878 and $875 at
December 31, 2000 and 1999, respectively, to fund the estimated benefit
obligation. At December 31, 2000 and 1999, other liabilities included
approximately, $1,026 and $904 accrued under these plans. The benefit
obligation, service cost, and actuarial gain/(loss) were $1,339, $189, and
($272), respectively, at December 31, 2000 and $839, $124, and $58,
respectively, at December 31, 1999. Compensation expense includes approximately
$138, $65, and $87 relating to these plans at December 31, 2000, 1999, and 1998,
respectively.
STOCK OPTION PLAN
During November 1998, shareholders approved the 1998 long-term incentive
compensation plan. This plan authorized grants of options of up to 400,000
shares of authorized but unissued common stock of the Company. Under the plan,
the Board of Directors may grant incentive stock options, non-qualified stock
options, and restricted stock awards to officers, employees, and certain other
individuals. All options have a 10-year term. Of the 306,914 options outstanding
at December 31, 2000, 20,000 options vest and become exercisable ratably over a
three-year period. The remainder of the options vest one year after the issue
date and become exercisable based on the Company achieving specified stock
prices. At December 31, 2000, there were 93,086 shares available for grant.
The Company has elected to account for its stock-based compensation plan in
accordance with Accounting Principles Board Opinion No. 25 and accordingly, no
compensation cost has been recognized for stock options in the accompanying
consolidated financial statements. Had the Company determined compensation cost
based on the fair value of its stock options at the grant date under SFAS No.
123, the Company's net income and earnings per share would have been reduced to
pro forma amounts indicated in the following table:
2000 1999 1998
---- ---- ----
Net Income (in thousands):
As reported $5,425 $5,402 $3,433
Pro forma 5,112 5,226 3,415
Earnings per share (basic and diluted)
As reported $ 1.52 $ 1.51 $ 0.95
Pro forma 1.43 1.46 0.95
42
The per share weighted average fair value of stock options granted during 2000,
1999, and 1998 was $6.45, $6.15, and $6.66, respectively. Fair values were
arrived at using the Black-Scholes option pricing model with the following
assumptions:
2000 1999 1998
---- ---- ----
Risk-free interest rate 6.23% 5.32% 4.63%
Expected dividend yield 3.00% 2.00% 2.00%
Volatility 31.20% 28.50% 22.50%
Expected life (years) 5 5 5
Activity in the plan for 2000, 1999, and 1998 was as follows:
Range of Weighted Average
Options Option Price Shares Exercise Price of
Outstanding Per Share Exercisable Shares Outstanding
----------- --------- ----------- ------------------
1998
- ----
Beginning balance 0 0 0 0
Granted 100,000 $29.125 0 $29.125
Exercised 0 0 0 0
Forfeited 0 0 0 0
Ending balance 100,000 $29.125 0 $29.125
1999
- ----
Granted 10,000 $21.75 0 $ 21.75
Exercised 0 0 0 0
Forfeited 0 0 0 0
Ending balance 110,000 $21.75 - $24.75 33,334 $ 28.45
2000
- ----
Granted 296,914 $17.75 - $24.75 0 $ 22.66
Exercised 0 0 0 0
Forfeited 100,000 0 (33,334) $29.125
Ending balance 306,914 $17.75 - $24.75 3,334 $ 22.63
As of December 31, 2000, 3,334 of the 10,000 options issued in 1999 were
exercisable at an exercise price of $21.75. The options have a remaining life of
8.20 years. As of December 31, 2000, none of the 296,914 options issued in 2000
were exercisable. These options have a remaining life ranging from 9 to 10
years.
43
COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments consist primarily of commitments to extend credit
and letters of credit which involve, to varying degrees, elements of credit risk
in excess of amounts recognized in the consolidated statements of condition. The
contract amount of those commitments and letters of credit reflects the extent
of involvement the Company has in those particular classes of financial
instruments. The Company's exposure to credit loss in the event of
nonperformance by the counterparty to the financial instrument for commitments
to extend credit and letters of credit is represented by the contractual amount
of the instruments. The Company uses the same credit policies in making
commitments and letters of credit as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit risk:
Contract Amount
-------------------------------
2000 1999
------- --------
(Dollars In Thousands)
Commitments to extend credit $46,057 $38,351
Standby letters of credit $346 $1,443
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payments of a fee. Since some of the commitment amounts are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Standby letters of credit written are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including bond financing and similar transactions.
The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers. Since the
letters of credit are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
For both commitments to extend credit and letters of credit, the amount of
collateral obtained, if deemed necessary by the Company upon the extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral held varies, but includes residential and commercial real estate.
Principal operating leases are for bank premises. At December 31, 2000,
aggregate future minimum lease payments under noncancelable operating leases
with initial or remaining terms equal to or exceeding one year consisted of the
following: 2001-$211; 2002-$185; 2003-$179; 2004-$128; 2005-$128; and $1,016
thereafter. Total rental expenses amounted to $241 in 2000, $147 in 1999, and
$146 in 1998.
The Company is required to maintain a reserve balance as established by the
Federal Reserve Bank of New York. The required average total reserve for the
14-day maintenance period ended December 31, 2000 was $2,050.
44
DIVIDENDS AND RESTRICTIONS (Dollars In Thousands)
The primary source of cash to pay dividends to the Company's shareholders is
through dividends from its banking subsidiary. The Federal Reserve Board and the
Office of the Comptroller of the Currency are authorized to determine certain
circumstances that the payment of dividends would be unsafe or unsound practice
and to prohibit payment of such dividends. The payment of dividends that deplete
a bank's capital base could be deemed to constitute such an unsafe or unsound
practice. Banking organizations may generally only pay dividends from the
combined current year and prior two years net income less any dividends
previously paid during that period. At December 31, 2000, approximately $3,800
was available for the declaration of dividends by the bank. There were no loans
or advances from the subsidiary bank to the Company at December 31, 2000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires disclosure of fair value information
of financial instruments, whether or not recognized in the statement of
condition, for which it is practicable to estimate that value. In cases where
quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could not
be realized in immediate settlement of the instrument. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Company.
45
The carrying amounts and estimated fair values of financial instruments are as
follows:
Dec. 31, 2000 Dec. 31, 2000 Dec. 31, 1999 Dec. 31, 1999
Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ---------- --------------- ----------
(Dollars In Thousands)
Financial Assets:
Cash and cash equivalents $ 19,274 $ 19,274 $ 20,231 $ 20,231
Investment securities 223,078 223,220 194,382 194,382
Net loans 312,378 310,186 282,025 280,342
-------- -------- -------- --------
Total Financial Assets $554,730 $552,680 $496,638 $494,955
Financial Liabilities:
Deposits $474,899 $474,572 $435,074 $434,929
Borrowings 46,086 46,086 31,225 31,225
-------- -------- -------- --------
Total Financial Liabilities $520,985 $520,658 $466,299 $466,154
The fair value of commitments to extend credit and standby letters of credit is
not significant.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and Cash Equivalents: The carrying amounts reported in the consolidated
statement of condition for cash and short-term instruments approximate those
assets' fair value.
Investments Securities: Fair values for investment securities are based on
quoted market prices or dealer quotes.
Loans: Fair values for loans are estimated using discounted cash flow analysis,
based on interest rates approximating those currently being offered for loans
with similar terms and credit quality. The fair value of accrued interest
approximates carrying value.
Deposits: The fair values disclosed for noninterest-bearing accounts and
accounts with no stated maturity are, by definition, equal to the amount payable
on demand at the reporting date. The fair value of time deposits was estimated
by discounting expected monthly maturities at interest rates approximating those
currently being offered on time deposits of similar terms. The fair value of
accrued interest approximates carrying value.
Borrowings: The carrying amounts of borrowings approximate their fair value.
Off-balance-sheet Instruments: Off-balance-sheet financial instruments consist
of commitments to extend credit and standby letters of credit, with fair value
based on fees currently charged to enter into agreements with similar terms and
credit quality.
46
REGULATORY MATTERS
The Company and its banking subsidiary are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve quantitative measures
of the Company's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Company's capital amounts
and classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and its subsidiary bank to maintain minimum amounts and
ratios (set forth in the tables below) of total and Tier 1 Capital (as defined
in the regulations) to risk-weighted assets (as defined) and of Tier 1 Capital
(as defined) to average assets (as defined). Management believes, as of December
31, 2000, that the Company and its subsidiary bank met all capital adequacy
requirements to which they are subject.
As of June 30, 2000, the most recent notification from the Office of the
Comptroller of the Currency categorized the bank as "well-capitalized," under
the regulatory framework for prompt corrective action. To be categorized as
"well-capitalized," the bank must maintain total risk-based, Tier 1 risk-based
and Tier 1 leverage ratios as set forth in the tables below. There are no
conditions or events since that notification that management believes have
changed the institution's category. The Company's actual capital amounts and
ratios are presented in the following table:
To be Well Capitalized
For Capital Under Prompt Corrective
Adequacy Purposes Action Provisions
--------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- -------- ----- ----------- -----
As of December 31, 2000
Total Capital (to
Risk-Weighted Assets) $55,703 16.22% $27,466 >=8.00% $34,333 >=10.00%
Tier I Capital (to ------- -------
Risk-Weighted Assets) 52,333 15.24% 13,733 >=4.00% 20,600 >=6.00%
Tier I Capital (to Average ------- -------
Assets) 52,333 9.46% 22,126 >=4.00% 27,657 >=5.00%
------- -------
As of December 31, 1999
Total Capital (to
Risk-Weighted Assets) $54,743 17.22% $25,435 >=8.00% $31,794 >=10.00%
Tier I Capital (to ------- -------
Risk-Weighted Assets) 51,331 16.14% 12,718 >=4.00% 19,077 >=6.00%
Tier I Capital (to Average ------- -------
Assets) 51,331 10.02% 20,488 >=4.00% 25,610 >=5.00%
------- -------
47
SELECTED QUARTERLY FINANCIAL DATA
Summarized quarterly financial information for the years ended December 31,
2000 and 1999 are as Follows:
Three Three
Months Months
Ended Ended
3/31/00 6/30/00 9/30/00 12/31/00 3/31/99 6/30/99 9/30/99 12/31/99
------- ------- ------- -------- ------- ------- ------- --------
Total
interest
income $9,276 $9,920 $10,213 $10,653 $8,161 $8,784 $8,563 $9,000
Total
interest
expense 4,161 4,642 5,138 5,526 3,330 3,472 3,505 3,914
Net
interest
income 5,115 5,278 5,075 5,127 4,831 5,312 5,058 5,086
Provision
for loan
losses 250 300 300 300 225 250 250 250
Non-interest
income 1,332 1,420 2,105 1,792 1,111 1,016 1,260 1,171
Non-interest
expense 4,382 4,485 4,871 4,899 3,947 4,199 4,074 4,405
Income
before
income
taxes 1,815 1,913 2,009 1,720 1,770 1,879 1,994 1,602
Provision
for
income
taxes 481 507 669 375 521 506 542 274
Net Income
Earnings 1,334 1,406 1,340 1,345 1,249 1,373 1,452 1,328
per share:
Basic $0.38 $0.40 $0.37 $0.37 $0.35 $0.38 $0.41 $0.37
Diluted $0.38 $0.40 $0.37 $0.37 $0.35 $0.38 $0.41 $0.37
48
18. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial statement information of Alliance Financial Corporation
is as follows:
BALANCE SHEETS
Assets Dec. 31, 2000 Dec. 31, 1999
------------- -------------
(Dollars In Thousands)
Investment in subsidiary bank $50,768 $47,225
Cash 2,907 2,369
Investment securities 28 268
------- -------
Total Assets $53,703 $49,862
======= =======
Liabilities
Dividends payable 668 617
------- -------
Total Liabilities 668 617
======= =======
Shareholders' Equity
Common stock 3,815 3,641
Surplus 7,096 3,641
Undivided profits 46,030 46,768
Accumulated other
comprehensive income 702 (2,086)
Treasury stock (4,608) (2,719)
------- -------
Total Shareholders' Equity 53,035 49,245
------- -------
Total Liabilities and
Shareholders' Equity $53,703 $49,862
======= =======
STATEMENTS OF INCOME
Years ended Dec. 31,
--------------------------------------------
2000 1999 1998
------- ------ ------
(Dollars In Thousands)
Dividend income from
subsidiary bank $4,500 $2,500 $3,781
Investment income 9 7 2
Gain on the sale of
securities 181 -- --
Operating expenses (19) (122) (1,036)
------- ------ ------
4,671 2,385 2,747
======= ====== ======
Equity in undistributed
income of subsidiary 754 3,017 686
------- ------ ------
Net Income $5,425 $5,402 $3,433
======= ====== ======
49
STATEMENTS OF CASH FLOWS
Years ended Dec. 31,
--------------------------------------
Operating Activities 2000 1999 1998
------ ------ ------
(Dollars in Thousands)
Net income $5,425 $5,402 $3,433
Adjustments to reconcile net income
to net cash provided by operating activities:
Equity in undistributed net income
of subsidiary (754) (3,017) (686)
Realized investment security gains (181) -- --
Decrease in other assets -- -- 431
Increase (decrease) in other liabilities -- (246) 246
------ ------ ------
Net Cash Provided by Operating Activities 4,490 2,139 3,424
Investing Activities
Dividends received -- -- 3,435
Purchase of investment securities, available-for-sale (128) (240) --
Proceeds from sales of investment securities,
available for sale 548 -- --
------ ------ ------
Net Cash Provided by (Used in) Investing Activities 420 (240) 3,435
Financing Activities
Purchase and retirement of common shares -- -- (86)
Treasury stock purchased (1,889) (1,653) --
Cash dividends paid (2,483) (2,510) (2,188)
------ ------ ------
Net Cash Used in Financing Activities (4,372) (4,163) (2,274)
------ ------ ------
Increase (Decrease) in Cash and Cash Equivalents 538 (2,264) 4,585
------ ------ ------
Cash and Cash Equivalents at Beginning of Year 2,369 4,633 48
------ ------ ------
Cash and Cash Equivalents at End of Year $2,907 $2,369 $4,633
Supplemental Disclosures of Cash Flow Information:
Non-cash financing activities:
Dividend declared and unpaid $668 $617 $629
50
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Alliance Financial Corporation
In our opinion, the accompanying consolidated statements of condition and the
related consolidated statements of income, comprehensive income, changes in
shareholders' equity and cash flows present fairly, in all material respects,
the financial position of Alliance Financial Corporation and Subsidiaries at
December 31, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
Syracuse, New York
January 19, 2001
51
REPORT OF MANAGEMENT'S RESPONSIBILITY
Management is responsible for preparation of the consolidated financial
statements and related financial information contained in all sections of this
Annual Report on Form 10-K, including the determination of amounts that must
necessarily be based on judgments and estimates. It is the belief of management
that the consolidated financial statements have been prepared in conformity, in
all material respects, with generally accepted accounting principles appropriate
in the circumstances and that the financial information appearing throughout
this annual report is consistent, in all material respects, with the
consolidated financial statements.
Management depends upon the Company's system of internal accounting
controls in meeting its responsibility for reliable financial statements. This
system is designed to provide reasonable assurance that assets are safeguarded
and that transactions are executed in accordance with management's authorization
and are properly recorded.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with the Company's management, internal auditors
and independent auditors, PricewaterhouseCoopers LLP, to review matters relating
to the quality of financial reporting, internal accounting control, and the
nature, extent and results of audit efforts. The internal auditors and
independent auditors have unlimited access to the Audit Committee to discuss all
such matters.
/s/ David R. Alvord /s/ John C. Mott /s/ David P. Kershaw
- ------------------- ---------------- -----------------------
President Chairman & CEO Chief Financial Officer
& Treasurer
52
Item 9 -- Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10 -- Directors and Executive Officers of the Registrant
The information required by this Item 10 is incorporated herein by
reference to the section entitled "Information Concerning Nominees for
Directors, Directors Continuing in Office and Additional Executive Officers" in
the Company's Proxy Statement.
On January 18, 2001, the Company announced organizational changes to the
Boards of Directors of the Company and its operating subsidiary, Alliance Bank,
N.A. Boards of the Company and the Bank determined that a consolidation of the
two boards, along with a reduction in the number of the combined Board members,
would provide the opportunity for improved and more efficient corporate
governance. The combined number of Board members was reduced from 21 to 14, with
seven members retiring effective with the announcement. The consolidation
reflects the Company's original plans to reduce the number of Board members
after a successful transition period following the 1998 merger of Cortland First
Financial Corporation and Oneida Valley Bancshares, Inc.
Item 11 -- Executive Compensation
The information required by this Item 11 is incorporated herein by reference to
the section entitled "Executive Compensation" in the Company"s Proxy Statement.
Item 12 -- Security Ownership of Certain Beneficial Owners and Management
The information required by this Item 12 is incorporated herein by reference to
the sections entitled "Voting Securities and Principal Holders Thereof" and
"Information Concerning Nominees for Directors, Directors Continuing in Office
and Additional Executive Officers" in the Company's Proxy Statement.
Item 13 -- Certain Relationships and Related Transactions
The information required by this Item 13 is incorporated herein by reference to
the section entitled "Transactions with Management" in the Company's Proxy
Statement.
PART IV
Item 14 -- Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this report:
(1) The following financial statements are included in Item 8:
Consolidated Statements of Condition at December 31, 2000 and 1999.
Consolidated Statements of Income For Each of the Three Years in the
Period Ended December 31, 2000.
Consolidated Statements of Comprehensive Income For Each of the Three
Years in the Period Ended December 31, 2000.
Consolidated Statements of Shareholders' Equity For Each of the Three
Years in the Period Ended December 31, 2000.
Consolidated Statements of Cash Flows For Each of the Three Years in
the Period Ended December 31, 2000.
Notes to Consolidated Financial Statements.
Independent Accountants' Report.
(2) Financial statement schedules are omitted from this Form 10-K since
the required information is not applicable to the Company.
(3) Listing of Exhibits:
The following documents are attached as Exhibits to this Form 10-K or
are incorporated by reference to the prior filings of the Company with
the Securities and Exchange Commission.
53
FORM 10-K
Exhibit
Number Exhibit
- ------ -------
3.1 Amended and Restated Certificate of Incorporation of the Company(1)
3.2 Amended and Restated Bylaws of the Company(1)
10.1 Stock Option Agreement, dated as of July 10, 1998, between Cortland
First (as the issuer) and Oneida Valley (as the grantee)(2)
10.2 Stock Option Agreement, dated as of July 10, 1998, between Oneida
Valley (as the issuer) and Cortland First (as the grantee)(2)
10.3 Form of Voting Agreement, dated as of July 10, 1998, between Cortland
First Directors and Oneida Valley(2)
10.4 Form of Voting Agreement, dated as of July 10, 1998, between Oneida
Valley Directors and Cortland First(2)
10.5 Employment Agreement, dated as of November 25, 1998, between the
Company and David R. Alvord(1)
10.6 Employment Agreement, dated as of November 25, 1998, between the
Company and John C. Mott(1)
10.7 Alliance Financial Corporation 1998 Long Term Incentive Compensation
Plan(1)
10.8 Change of Control Agreement, dated as of February 16, 1999, by and
among the Company, First National Bank of Cortland, Oneida Valley
National Bank, and David P. Kershaw(3)
10.9 Change of Control Agreement, dated as of February 16, 1999, by and
among the Company, First National Bank of Cortland, Oneida Valley
National Bank, and James W. Getman(3)
10.10 Directors Compensation Deferral Plan of the Company(4)
10.11 Employment Agreement, dated as of May 1, 2000, by and among the
Company, Alliance Bank, N.A., and Jack H. Webb(5)
10.12 Supplemental Retirement Agreement, dated as of May 1, 2000, by and
among the Company, Alliance Bank, N.A., and Jack H. Webb(5)
10.13 First National Bank of Cortland Excess Benefit Plan for David R.
Alvord, dated December 31, 1991, and all amendments thereto(6)
21 List of the Company's Subsidiaries(6)
23 Consent of PricewaterhouseCoopers LLP(6)
(1) Incorporated herein by reference to the exhibit with the same number to the
Registration Statement on Form S-4 (Registration No. 333-62623) of the
Company previously filed with the Securities and Exchange Commission (the
"Commission") on August 31, 1998, as amended.
(2) Incorporated herein by reference to the exhibit with the same number to the
Current Report on Form 8-K of the Company (File No. 0-15366) filed with the
Commission on July 22, 1998.
54
(3) Incorporated herein by reference to the exhibit numbers 10.1 and 10.2 to
quarterly reports on Form 10-Q of the Company (File No. 0-15366) filed with
the Commission on May 17, 1999.
(4) Incorporated herein by reference to the exhibit number 10.1 to quarterly
reports on Form 10-Q of the Company (File No. 0-15366) filed with the
Commission on August 13, 1999.
(5) Incorporated herein by reference to the exhibit number 10.1 and 10.2 to
quarterly reports on Form 10-Q of the Company (File No. 0-15366) filed with
the Commission on August 14, 2000.
(6) Filed herewith.
Item 14(b) -- Reports on Form 8-K
No Current Reports on Form 8-K were filed by the Company during the fourth
quarter of the year ended December 31, 2000.
Item 14(c)
See Item 14 (a) (3) above.
Item 14(d)
See Item 14 (a) (2) above.
55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ALLIANCE FINANCIAL CORPORATION
(Registrant)
Date March 30, 2001 By /s/ David R. Alvord
------------------------------------ ----------------------------------
David R. Alvord, President
(Principal Executive Officer)
Date March 30, 2001 By /s/ David P. Kershaw
------------------------------------ ----------------------------------
David P. Kershaw, Treasurer & CFO
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant, and
in the capacities and on the dates indicated.
/s/ Mary Pat Adams Date March 30, 2001
- --------------------------------------- ---------------------------------
Mary Pat Adams, Director
/s/ David R. Alvord Date March 30, 2001
- --------------------------------------- ---------------------------------
David R. Alvord, President and Director
(Principal Executive Officer)
/s/ Donald S. Ames Date March 30, 2001
- --------------------------------------- ---------------------------------
Donald S. Ames, Secretary and Director
/s/ John H. Buck Date March 30, 2001
- --------------------------------------- ---------------------------------
John H. Buck, Director
/s/ Donald H. Dew Date March 30, 2001
- --------------------------------------- ---------------------------------
Donald H. Dew, Director
/s/ Peter M. Dunn Date March 30, 2001
- --------------------------------------- ---------------------------------
Peter M. Dunn, Director
/s/ Samuel J. Lanzafame Date March 30, 2001
- --------------------------------------- ---------------------------------
Samuel J. Lanzafame, Director
/s/ Robert M. Lovell Date March 30, 2001
- --------------------------------------- ---------------------------------
Robert M. Lovell, Director
/s/ John C. Mott Date March 30, 2001
- --------------------------------------- ---------------------------------
John C. Mott, Chairman and Director
Date
- --------------------------------------- ---------------------------------
Charles E. Shafer, Director
Date
- --------------------------------------- ---------------------------------
Charles H. Spaulding, Director
/s/ David J. Taylor Date March 30, 2001
- --------------------------------------- ---------------------------------
David J. Taylor, Director
/s/ Jack H. Webb Date March 30, 2001
- --------------------------------------- ---------------------------------
Jack H. Webb, Executive Vice President
and Director
56