8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 21, 2004

ALLIANCE FINANCIAL CORPORATION

(Exact name of Registrant as specified in its charter)

New York
(State or other jurisdiction of
incorporation)
0-15366
(Commission
File Number)
16-1276885
(I.R.S. Employer
Identification No.)

120 Madison Street, Syracuse, NewYork
(Address of principal executive offices)
13202
(Zip Code)

(315) 475-4478
(Registrant’s telephone number, including area code)

_____________________________________________________________________________________
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:

|_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))

|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))

-2-

Item 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On October 21, 2004, Alliance Financial Corporation issued an earnings release announcing its financial results for the third quarter ended September 30, 2004. A copy of the earnings release is attached as Exhibit 99.1 and incorporated herein by reference. The supporting financial information referenced in the earnings release is attached as Exhibit 99.2 and incorporated herein by reference. As provided by Form 8-K, the information in the earnings release, the supporting financial information and this Item 2.02 is “furnished” and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934.

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.

(c)The following exhibits are furnished (but not filed) as part of this Form 8-K.

Exhibit No.	Description
99.1	Press Release of Alliance Financial Corporation dated October 21, 2004
99.2	Supporting Financial Information referenced in Press Release

-3-

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	ALLIANCEFINANCIALCORPORATION
Date: October 21, 2004		By:	/s/ David P. Kershaw
			David P. Kershaw Chief Financial Officer and Treasurer

-4-

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release of Alliance Financial Corporation dated October 21, 2004
99.2	Supporting Financial Information referenced in Press Release

EX-99.1

EXHIBIT 99.1

PRESS RELEASE

Date:    October 21, 2004

CONTACTS:
	David P. Kershaw Executive Vice President & Chief Financial Officer 315-475-4478	Joseph M. Russo Vice President Marketing and Investor Relations 315-475-6710

ALLIANCE FINANCIAL REPORTS THIRD QUARTER EARNINGS

SYRACUSE, NEW YORK {October 21, 2004}

Alliance Financial Corporation (Nasdaq: ALNC), parent of Alliance Bank, N. A., reported net income of $2 million and diluted earnings per share of $0.56 for the quarter ended September 30, 2004. When compared with the same period in 2003, net income rose 10% and diluted earnings increased 9.8%. Net income and diluted earnings per share for the three months ended September 30, 2003 were $1.8 million and $0.51, respectively. Comparing the nine months ended September 30, 2004 to September 30, 2003, net income was $5.7 million and $6.3 million, respectively, and diluted earnings per share were $1.56 and $1.78, respectively. The decline in both net income and diluted earnings per share for the comparable nine month periods reflects the inclusion of the nearly $1 million net premium received by the Bank in connection with the 2003 second quarter sale of its Whitney Point branch. When excluding the premium received on the branch sale from the 2003 results, 2004 net income increased 5.6% and diluted earnings per share rose 3.3% for the comparable nine-month periods.

The Company also reported that its return on average assets for the third quarter 2004 was 0.94%, compared with 0.93% reported in the third quarter of 2003, while its return on average equity at 12.18% compared with an 11.24% return reported for the same period in 2003.

“As a report card of our performance, the third quarter is showing high marks on all fronts,” said Jack H. Webb, Chairman, President and Chief Executive Officer of Alliance Financial Corporation. “Increases in net interest income and average earning assets have mitigated the decline in net interest margin stemming from the extended period of low market interest rates. Non-interest income has shown strong performance. Loan quality is even further improved. Our asset size has continued to grow, bringing us closer to the $900-million mark. And we successfully opened our third new branch this year, further building on deposits that have already grown as a consequence of aggressive market efforts and two earlier new branch openings. We’re adhering to our strategic plan and it’s producing the intended positive results.”

Year-over-year third quarter 2004 net interest income increased 3.8% to $7 million, the result of a $67 million, or 9%, increase in average earning assets that generated revenue more than offsetting the negative impact resulting from a 17-basis-point decline in the net interest margin. The increase in average earning assets was primarily attributable to an 11.9% growth rate in average loans over the prior year third quarter. A decline of 26 basis points in overall earning asset yields, chiefly attributable to lower yields on the residential mortgage and indirect auto loan portfolios, contrasted with an 8-basis-point decline in the average rate paid on interest bearing liabilities.

The Bank’s provision for loan and lease loss expense declined $264,000 when comparing the third quarter of 2004 to the third quarter of 2003. Improvement in loan portfolio quality indicators over the past twelve months, highlighted by a significant decline in loan losses contributed to the decline in the provision expense. Net loans charged off, as a percentage of average annualized loans, were 0.13% for the quarter ended September 30, 2004, declining from 0.35% for the quarter ended September 30, 2003. Loan delinquency, as measured by the percentage of loans past due 30 days or more and nonaccruing to total loans, ended the third quarter of 2004 at 1.64%, comparable with the 1.61% rate reported a year earlier. The Bank’s level of criticized loans was 21.1% of the Company’s combined capital plus the allowance for loan losses during the 2004 third quarter, comparable with last quarter, but up slightly from the 18.6% reported in last year’s third quarter. At September 30, 2004, the ratio of non-performing loans to total loans was 0.82%, down 23.4%, from the 1.07% ratio reported a year earlier. At September 30, 2004, the Allowance for Loan and Lease Losses represented 1.18% of outstanding loans and leases.

Non-interest income for the 2004 third quarter rose 6.3% compared with the third quarter of 2003 reflecting growth in trust and brokerage revenues and increases in the gain on the sale of loans and other recurring fee income. Non interest expense for the comparable periods increased 10.5%. Increased salary and employee benefits expense included costs associated with the Bank’s 2004 opening of three new branches as well as costs relating to the planned acquisition of a portion of the HSBC personal trust business. The Bank’s branch expansion program also contributed to higher occupancy and equipment expense while the increase in other expense related to growth in the balance sheet over the past 12 months.

As of September 30, 2004, total assets were $884 million, increasing $76.6 million, or 9.5%, compared with September 30, 2003. The growth in assets over the past 12 months reflects a $41.2 million, or 8.8%, increase in loans, and an increase of $33.6 million, or 11.5%, in the investment portfolio. The loan portfolio growth during the last 12 months reflects increases in indirect auto and commercial loans, as well as increased outstanding balances on home equity lines of credit. At September 30, 2004, deposits of $641.9 million were up $79.1 million, or 14.1%, compared with a year ago, with the growth rate positively impacted by the build in overall retail deposits supported by the 2004 new branch openings, as well as strong growth in commercial deposits. Borrowings of $162.7 million at September 30, 2004 declined by $7.8 million, or 4.6% compared with that reported on September 30, 2003.

6

Shareholders’ equity at September 30, 2004 was $69 million, or 7.8% of assets, compared with $65.3 million, 8.1% of assets on the same date the prior year. The increase of $3.7 million, or 5.7%, in shareholders’ equity over the past 12 months reflects the addition of net income after payment of dividends and proceeds from the issuance of common stock in connection with the exercise of stock options, offset by a reduction in accumulated other comprehensive income due to a decline in the market value of the Company’s investment portfolio. On September 16, 2004, the Company declared its regular quarterly dividend of $0.21 per share. The dividend was paid on October 8, 2004.

For a copy of this release including third quarter 2004 performance highlights and supporting financial information, please refer to the “Press Releases” section of the “Investor Information” module on the Company’s website at www.alliancebankna.com.

Alliance Financial Corporation is the parent bank holding company of Alliance Bank, N.A., that provides banking, commercial leasing, trust and investment services through 20 office locations in Cortland, Madison, Oneida and Onondaga counties.

This press release contains certain forward-looking statements with respect to the financial condition, results of operations and business of Alliance Financial Corporation. These forward-looking statements involve certain risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities: (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; (6) changes in the securities markets; (7) changes occur in technology used in the banking business; (8) the ability to maintain and increase market share and control expenses; and (9) other factors detailed from time to time in the Company’s SEC filings.

7

EX-99.2

ALLIANCE FINANCIAL CORPORATION
Consolidated Financial Information
($ in thousands)
Unaudited

		September 30, 2004			Period Ended December 31, 2003			September 30, 2003
Balance Sheet
Cash and Due From Banks	$	25,022		$	21,824		$	23,152
Federal Funds Sold		—			—			1,000
Securities Held-to-Maturity		5,571			6,756			7,012
Securities Available-for-Sale		319,516			299,031			284,517
Total Securities		325,087			305,787			291,529
Residential Real Estate Loans		174,757			173,963			174,337
Commercial Loans and Leases		155,283			147,142			144,814
Indirect Loans		117,209			97,163			91,238
Other Consumer Loans		62,450			58,803			58,062
Gross Loans and Leases		509,699			477,071			468,451
Less Unearned Income		991			630			382
Less Allowance for Loan and Lease Losses		6,031			6,069			5,984
Net Loans and Leases		502,677			470,372			462,085
Premises and Equipment, Net		12,301			10,410			10,228
Accrued Interest Receivable		4,307			4,017			4,091
Other Assets		14,631			13,845			15,367
Total Assets	$	884,025		$	826,255		$	807,452
Non-Interest Checking Accounts		77,904			56,085			56,968
Interest Bearing Checking Accounts		83,574			85,614			85,490
Savings and MMDA Accounts		218,801			204,168			210,193
Time Deposits		261,651			215,533			210,183
Total Deposits		641,930			561,400			562,834
Short-Term Borrowings		52,417			68,483			40,996
Long-Term Borrowings		110,310			120,310			129,500
Accrued Interest Payable		1,360			1,244			1,125
Other Liabilities		9,049			8,665			7,735
Total Liabilities		815,066			760,102			742,190
Common Stock		3,942			3,910			3,903
Surplus		10,181			9,288			9,116
Unamortized Value of Restricted Stock		(1,093	)		(563	)		(500	)
Undivided Profits		61,390			57,976			57,371
Accumulated Other Comprehensive Income		2,494			3,517			3,327
Treasury Stock		(7,955	)		(7,955	)		(7,955	)
Total Shareholders’ Equity		68,959			66,153			65,262
Total Liabilities and Shareholders’ Equity	$	884,025		$	826,255		$	807,452
Assets Under Trust Administration (Book Value)	$	250,835		$	223,242		$	227,560

ALLIANCE FINANCIAL CORPORATION
Consolidated Financial Information
($ in thousands)
Unaudited

	QuarterlyAverage						YeartoDate
	September30,2004			September30,2003			September30,2004			September30,2003
Balance Sheet
Cash and Due From Banks	$	22,655		$	20,371		$	22,049		$	19,975
Federal Funds Sold		988			982			5,415			2,847
Securities Held-to-Maturity		5,244			7,052			6,364			6,152
Securities Available-for-Sale		300,036			290,854			304,237			297,188
Total Securities		305,280			297,906			310,601			303,340
Residential Real Estate Loans		174,722			167,338			173,263			159,250
Commercial Loans & Leases		154,172			140,230			151,945			138,080
Indirect Loans		115,767			86,742			108,144			78,362
Other Consumer Loans		61,377			58,027			59,791			57,857
Gross Loans and Leases		506,038			452,337			493,143			433,549
Less Unearned Income		945			372			765			229
Less Allowance for Loan and Lease Losses		6,048			5,945			6,076			5,631
Net Loans and Leases		499,045			446,020			486,302			427,689
Premises and Equipment, Net		11,904			10,165			11,236			10,211
Accrued Interest Receivable		3,407			3,527			3,718			3,866
Other Assets		14,808			15,309			14,423			14,983
Total Assets	$	858,087		$	794,280		$	853,744		$	782,911
Non-Interest Checking Accounts		74,394			58,702			66,292			57,399
Interest Bearing Checking Accounts		82,653			85,056			83,045			83,108
Savings and MMDA Accounts		222,258			196,945			228,402			193,754
Time Deposits		252,431			208,747			239,247			220,158
Total Deposits		631,736			549,450			616,986			554,419
Borrowings		151,746			170,971			161,499			154,788
Other Liabilities		8,217			8,424			8,372			9,048
Total Liabilities		791,699			728,845			786,857			718,255
Common Stock		3,942			3,901			3,938			3,877
Surplus		10,181			9,075			10,058			8,512
Unamortized Value of Restricted Stock		(1,113	)		(509	)		(1,069	)		(450	)
Undivided Profits		60,856			56,733			59,698			54,588
Accumulated Other Comprehensive Income		477			4,190			2,217			6,065
Treasury Stock		(7,955	)		(7,955	)		(7,955	)		(7,936	)
Total Shareholders’ Equity		66,388			65,435			66,887			64,656
Total Liabilities and Shareholders’ Equity	$	858,087		$	794,280		$	853,744		$	782,911

ALLIANCE FINANCIAL CORPORATION
Consolidated Financial Information
($ in thousands)
Unaudited

	ThreemonthsendedSeptember30,				NinemonthsendedSeptember30,
	2004		2003		2004		2003
Income Statement
Interest Income	$	10,108	$	9,767	$	30,211	$	30,222
Interest Expense		3,127		3,042		9,148		9,913
Net Interest Income		6,981		6,725		21,063		20,309
Provision for Loan and Lease Losses		140		404		319		1,965
Net Interest Income After Provision for Loan and Lease Losses		6,841		6,321		20,744		18,344
Trust & Brokerage Income		422		329		1,303		1,004
Service Charges on Deposit Accounts		767		876		2,285		2,120
Investment Securities Gains		312		276		717		1,142
Gain on the Sale of Loans		67		3		156		105
Bank Owned Life Insurance		105		116		504		349
Net Premium on Sale of Branch		—		—		—		1,407
Other Operating Income		514		457		1,307		1,408
Total Other Income		2,187		2,057		6,272		7,535
Salaries and Employee Benefits		3,742		3,462		11,231		9,887
Occupancy Expense		1,105		827		3,262		2,682
Other Operating Expense		1,665		1,605		5,162		4,651
Total Other Expense		6,512		5,894		19,655		17,220
Net Income Before Taxes		2,516		2,484		7,361		8,659
Provision for Income Taxes		494		645		1,701		2,349
Net Income	$	2,022	$	1,839	$	5,660	$	6,310
Share and Per Share Data
Period Ending Shares Outstanding		3,566,963		3,528,075		3,566,963		3,528,075
Basic Average Shares Outstanding		3,566,963		3,525,733		3,563,259		3,502,469
Diluted Average Shares Outstanding		3,623,891		3,586,606		3,633,547		3,553,848
Basic Earnings Per Share	$	0.57	$	0.52	$	1.59	$	1.80
Diluted Earnings Per Share	$	0.56	$	0.51	$	1.56	$	1.78
Cash Dividends Declared	$	0.21	$	0.21	$	0.63	$	0.63
Book Value	$	19.33	$	18.50	$	19.33	$	18.50

ALLIANCE FINANCIAL CORPORATION
Consolidated Financial Information
($ in thousands)
Unaudited

	ThreemonthsendedSeptember30,						NinemonthsendedSeptember30,
	2004			2003			2004			2003
Key Ratios
Leverage Ratio		7.75	%		7.80	%		7.76	%		7.80	%
Return on Average Assets		0.94	%		0.93	%		0.88	%		1.07	%
Return on Average Equity		12.18	%		11.24	%		11.28	%		13.01	%
Net Interest Margin (Tax Equivalent)		3.65	%		3.82	%		3.69	%		3.91	%
Efficiency Ratio		71.03	%		67.11	%		71.90	%		61.84	%
Net Loans Charged-off to Average Loans and Leases, Annualized		0.13	%		0.36	%		0.10	%		0.31	%
Provision for Loan and Lease Losses to Average Loans and Leases, Annualized		0.11	%		0.36	%		0.09	%		0.60	%
Allowance for Loan and Lease Losses to Period-end Loans and Leases		1.18	%		1.28	%		1.18	%		1.28	%
Allowance for Loan and Lease Losses to Nonperforming Loans and Leases		144.61	%		119.17	%		144.61	%		119.17	%
Nonperforming Loans and Leases to Period-end Loans and Leases		0.82	%		1.07	%		0.82	%		1.07	%
Nonperforming Assets to Period-end Assets		0.48	%		0.63	%		0.48	%		0.63	%
Allowance for Loan Losses
Allowance for Loan Losses, Beginning of Period	$	6,060		$	5,978		$	6,069		$	6,019
Loans Charged-off		(231	)		(495	)		(669	)		(1,275	)
Recoveries of Loans Previously Charged-off		62			97			312			275
Net Loans Charged-off		(169	)		(398	)		(357	)		(1,000	)
Provision for Loan Losses		140			404			319			1,965
Allowance for Loan Losses, End of Period	$	6,031		$	5,984		$	6,031		$	5,984