UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
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| þ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009 |
For the fiscal year ended December 31, 2010
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| o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________________ to ___________________________ |
For the transition period fromto
Commission File Number0-13814
CORTLAND BANCORP
(Exact Name of Registrant as Specified in its Charter)
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Ohio | | 34-14511184 |
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| (State or Other Jurisdiction of | | (I.R.S. Employer |
| Incorporation or Organization) | | Identification No.) |
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| 194 West Main Street, Cortland, Ohio | | 44410 |
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| (Address of Principal Executive Offices) | | (Zip Code) |
Registrant’s telephone number, including area code:(330) 637-8040
Securities registered pursuant to Section l2(b)12(b) of the Act: None
Securities registered pursuant to Section l2(g)12(g) of the Act:
Common Stock, no par value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.o Yesþ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.o Yesþ No
Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section l313 or l5(d)15(d) of the Securities Exchange Act of l9341934 during the preceding l212 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.þ Yeso No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted an posted pursuant to Rule405Rule 405 of Regulation S-T(§232..405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).o Yeso No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§232.405 of this chapter) 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 the Form 10-K or any amendment to this Form 10-K 10-K.þo.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filero | | Accelerated filero | | AcceleratedNon-accelerated filero | | oSmaller reporting companyþ |
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Non-accelerated filer | | o | | Smaller reporting company | | þ | | |
| (Do not check if a smaller reporting company) | | | | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).o Yesþ No
Based upon the closing price of the registrant’s common stock of June 30, 2009,2010, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $17,967,000.$20,082,507. For purposes of this response, directors and executive officers are considered the affiliates of the issuer at that date.
The number of shares outstanding of the issuer’s classes of common stock as of March 19, 2010: 4,525,55023, 2011: 4,525,540 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders Report for the year ended December 31, 20092010 are incorporated by reference into Parts I and II. Portions of the Proxy Statement for the annual shareholders meeting to be held April 27, 2010May 17, 2011 are incorporated by reference into Part III.
PART I
Item l.1.Business
General
THE CORPORATION
Information relating to Item 1 is set forth in the Cortland Bancorp’s 20092010 Annual Report to Shareholders, Page 4, “Brief Description of the Business” and “Managements“Management’s Discussion and Analysis” pages 46-80,54-91, and is incorporated herein by reference.
SUPERVISION AND REGULATION
Cortland Bancorp (“(the “Company”) and its subsidiary bank, The Cortland Savings and Banking Company (the “Bank”), are subject to Federal and state banking laws that are intended to protect depositors, not stockholders. Changes in Federal and state banking laws, including statutes, regulations, and policies of the Company”)bank regulatory agencies, could have a material adverse impact on our business and prospects. Federal and state laws applicable to holding companies and their financial institution subsidiaries regulate the range of permissible business activities, investments, reserves against deposits, capital levels, lending activities and practices, the nature and amount of collateral for loans, establishment of branches, mergers, dividends, and a variety of other important matters. The Company and the Bank are subject to detailed, complex, and sometimes overlapping Federal and state statutes and regulations affecting routine banking operations. These statutes and regulations include, but are not limited to, state usury and consumer credit laws, the Truth-in-Lending Act and Regulation Z, the Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting Act, the Truth in Savings Act, and the Community Reinvestment Act. In addition to minimum capital requirements, Federal law imposes other safety and soundness standards having to do with such things as internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, and compensation and benefits. The discussion to follow of bank supervision and regulation is qualified in its entirety by reference to the statutory and regulatory provisions discussed.
The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956. As such, the Company is subject to regulation, supervision, and regulationexamination by the Board of Governors of the Federal Reserve System, (the “Federal Reserve”). As of December 31, 2009, the Company’s bank subsidiary was rated “satisfactory” for CRA purposes, and remained well capitalized and, in management’s opinion, well managed. Cortland Bancorp owns no property directly. Operations are conducted at 194 West Main Street, Cortland, Ohio.
The Cortland Savings and Banking Company (the “Bank”) is a wholly-owned subsidiary of the Company, a state chartered banking organization and member ofacting primarily through the Federal Reserve System.Bank of Cleveland. The company is required to file annual reports and other information with the Federal Reserve. The Bank is subject to periodic examinationregulation and supervision by the Ohio Division. As a member bank of the Federal Reserve System, the Bank is also subject to regulation and supervision by boththe Federal Reserve. The Bank is examined periodically by the Federal Reserve Bank of Cleveland and by the State of Ohio Division to test compliance with various regulatory requirements. If as a result of Financial Institutions. These examinations, which include such areas asexamination the Federal Reserve or the Ohio Division determines that a bank’s financial condition, capital liquidity,resources, asset quality, earnings prospects, management, practices andliquidity, or other aspects of the Bank’sbank’s operations are primarilyunsatisfactory, or that the bank or its management is in violation of any law or regulation, the bank regulatory agencies may take a number of remedial actions. Bank regulatory agencies make regular use of their authority to take formal and informal supervisory actions against banks and bank holding companies for unsafe or unsound practices in the protectionconduct of the Bank’s depositors. In addition to these regular examinations, the Bank must furnish periodic reports to regulatory authorities containing a fulltheir businesses and accurate statementfor violations of its affairs. The Bank’s deposits are insuredany law, rule, or regulation, or any condition imposed in writing by the appropriate Federal Deposit Insurance Corporation (FDIC).banking regulatory authority. Potential supervisory and enforcement actions include appointment of a conservator or receiver, issuance of a cease-and-desist order that could be judicially enforced, termination of a bank’s deposit insurance, imposition of civil money penalties, issuance of directives to increase capital, entry into formal or informal agreements, including memoranda of understanding, issuance of removal and prohibition orders against institution- affiliated parties, and enforcement of these actions through injunctions or restraining orders.
On May 26, 2009, the Board of Directors of theThe Company and the Bank adopted resolutions authorizing its President and Chief Executive Officer to enterentered into a Memorandum of Understanding (MOU) with the Federal Reserve. The MOU, was executedReserve on June 1, 2009. The Ohio Division of Financial Institutions, State of Ohio,later became a party to the MOU in December 2009, when the agreement was revised. The revised MOU was executed December 31, 2009. The MOU requiresas well. Unless the Company and the Bank tofirst obtain written approval of the Federal Reserve’s approval prior to: (i) incurring any debt; (ii) repurchasing anyReserve and the Ohio Division, by the terms of its stock;the MOU, the Company and the Bank may not pay dividends, repurchase stock, or (iii) paying any dividends.
incur debt. The Company and the Bank must adopt a plan for maintaining adequate capital and must also plan to strengthen board oversight of management and operations of the Bank. The MOU also required the Bank within specified timeframes, to submit the following plans to the Federal Reserve for its approval: (i)establish a plan to strengthen and improvefor enhanced management of the overallinvestment portfolio’s risk exposure of the investment portfolio; (ii)as well as a plan to maintain an adequate capital position; (iii) a plan to strengthen board oversight of the management and operations of the Bank and (iv) a plan for 2010 to improve the Bank’s earnings and overall condition. Thecondition in 2010. Satisfaction of the terms and conditions of the MOU is a very high priority for the Company and the Bank have substantially complied and continue to comply with the MOU.
Bank. The provisions of the MOU shallwill remain effective and enforceable until stayed, modified, terminated, or suspended by the Federal Reserve and the Ohio Division.
Regulation of bank holding companies. A bank holding company must serve as a source of financial and managerial strength for its subsidiary banks and must not conduct operations in an unsafe or unsound manner. The Federal Reserve requires all bank holding companies to maintain capital at or above prescribed levels. Federal Reserve policy requires that a bank holding company provide capital to its subsidiary banks during periods of financial stress or adversity and that the bank
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Item 1.Business
General
holding company maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting subsidiary banks. Bank holding companies may also be required to give written notice to and receive approval from the Federal Reserve before purchasing or redeeming common stock or other equity securities.
Acquisitions. The Bank Holding Company Act requires every bank holding company to obtain approval of the Federal Reserve to — acquire ownership or control of any voting shares of another bank or bank holding company, if after the acquisition the acquiring company would own or control more than 5% of the shares of the other bank or bank holding company (unless the acquiring company already owns or controls a majority of the shares), — acquire all or substantially all of the assets of another bank, or — merge or consolidate with another bank holding company.
The Federal Reserve will not approve an acquisition, merger, or consolidation that would have a substantially anticompetitive result unless the anticompetitive effects of the proposed transaction are clearly outweighed by a greater public interest in satisfying the convenience and needs of the community to be served. When the Federal Reserve reviews merger and acquisition applications it also considers capital adequacy and other financial and managerial factors, along with the subsidiary banks’ performance under the Community Reinvestment Act of 1977. Approval of the Ohio Division is also necessary to acquire control of an Ohio-chartered bank.
The Bank Holding Company Act, the Change in Bank Control Act, and the Federal Reserve Regulation Y require advance approval of the Federal Reserve to acquire “control” of a bank holding company. Control is conclusively presumed to exist if an individual or company acquires 25% or more of a class of voting securities of the bank holding company. If the holding company has securities registered under section 12 of the Securities Exchange Act of 1934, as the Company does, or if no other person owns a greater percentage of the class of voting securities, control is presumed to exist if a person acquires 10% or more, but less than 25%, of any class of voting securities. Guidance issued by the Federal Reserve in September 2008 states that generally the Federal Reserve will be able to conclude that an investor does not have a controlling influence over a bank or bank holding company if the investor does not own more than 15% of the voting power and 33% of the total equity of the bank or bank holding company, including nonvoting equity securities. The investor may, however, be required to make passivity commitments to the Federal Reserve, promising to refrain from taking various actions that might constitute exercise of a controlling influence. Under prior Federal Reserve guidance, a board seat was generally not permitted for an investment of 10% or more of the equity or voting power without a determination that the investor was in control of the bank holding company. But, under the September 2008 guidance, the Federal Reserve may permit a non- controlling investor to have a board seat.
Under the Bank Merger Act, advance approval of the appropriate Federal bank regulatory agency is necessary for the acquisition of a bank by merger. For this purpose, the term merger is defined very broadly, including not only whole bank acquisitions by statutory merger but also acquisitions by one bank of some or all of the branches of another bank or assumption by one bank of some or all of the deposits of another bank. Under Ohio Revised Code Chapter 1115, approval of the Ohio Division is also necessary for the acquisition of an Ohio-chartered bank, whether by merger or otherwise.
Interstate banking and branching. Section 613 of the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in July 2010 amends the interstate branching provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. The amendments authorize a state or national bank to open a de novo branch in another state if the law of the state where the branch is to be located would permit a bank chartered by that state to open the branch. Under prior law, an out-of state bank could open a de novo branch in another state if and only if the particular state permitted out-of-state banks to establish a de novo branch. Section 607 of the Dodd-Frank Act also increases the approval threshold for interstate bank acquisitions, requiring that a bank holding company be well capitalized and well managed as a condition to approval of an interstate bank acquisition, rather than being merely adequately capitalized and adequately managed, and that an acquiring bank be and remain well capitalized and well managed as a condition to approval of an interstate bank merger.
Nonbanking activities. With some exceptions, the Bank Holding Company Act has for many years prohibited a bank holding company from acquiring or retaining direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve non-bank activities that, by statute or by Federal Reserve Board regulation or order, are held to be closely related to the business of banking or of managing or controlling banks. In its determination about whether a particular activity is closely related to the business of banking, the Federal Reserve considers whether the performance of the activities by a bank holding company can be expected to produce benefits to the public — such as greater convenience, increased competition, or gains in efficiency in resources — that will outweigh the risks of possible adverse effects such as decreased or unfair
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competition, conflicts of interest, or unsound banking practices. Some of the activities determined by Federal Reserve Board regulation to be closely related to the business of banking are: making or servicing loans or leases; engaging in insurance anddiscount brokerage activities; owning thrift institutions; performing data processing services; acting as a fiduciary or investment or financial advisor; and making investments in corporations or projects designed primarily to promote community welfare. Under Bank Holding Company Act section 5(e), the Federal Reserve may require a bank holding company to terminate any activity or relinquish control of a nonbank subsidiary if the Federal Reserve determines that the activity or control constitutes a serious risk to the financial safety, soundness, or stability of a subsidiary bank.
Capital— Risk-based capital requirements. Capital hedges risk, absorbing losses that can be predicted as well as losses that cannot be. According to the Federal Financial Institutions Examination Council’s explanation of the capital component of the Uniform Financial Institutions Rating System, commonly known as the “CAMELS” rating system, a rating system employed by the Federal bank regulatory agencies, a financial institution must “maintain capital commensurate with the nature and extent of risks to the institution and the ability of management to identify, measure, monitor, and control these risks. The effect of credit, market, and other risks on the institution’s financial condition should be considered when evaluating the adequacy of capital.” The minimum ratio of total capital to risk-weighted assets is 8.0%, of which at least 4.0% must consist of so-called Tier 1 capital. The minimum Tier 1 leverage ratio — Tier 1 capital to average assets — is 3.0% for the highest rated institutions and at least 4.0% for all others. These ratios are absolute minimums. In practice, banks are expected to operate with more than the absolute minimum capital. The Federal Reserve may establish greater minimum capital requirements for specific institutions. Failure to satisfy capital guidelines could subject a banking institution to a variety of enforcement actions by Federal bank regulatory authorities, including the termination of deposit insurance by the FDIC and a prohibition on the acceptance of so-called brokered deposits. A bank that does not achieve and maintain the required capital levels may be issued a capital directive to ensure the maintenance of required capital levels.
Also known as core capital, Tier 1 capital consists of common stockholders’ equity, non-cumulative perpetual preferred stock, and minority interests in certain subsidiaries, less most intangible assets. Tier 2 capital, also known as supplementary capital, consists of preferred stock not qualifying as Tier 1 capital, limited amounts of subordinated debt, other qualifying term debt, a limited amount of the allowance for loan and lease losses (up to a maximum of 1.25% of risk-weighted assets), and certain other instruments that have some characteristics of equity. To determine risk-weighted assets, the nominal dollar amounts of assets on the balance sheet and credit-equivalent amounts of off-balance-sheet items are multiplied by one of several risk adjustment percentages, such as 0.0% for assets considered to have low credit risk, for example cash and certain U.S. government securities, 100.0% for assets with relatively higher credit risk, such as business loans, or a risk weight exceeding 100% for selected investments that are rated below investment grade or, if not rated, that are equivalent to investments rated below investment grade. A banking organization’s risk-based capital ratios are obtained by dividing its Tier 1 capital and total qualifying capital (Tier 1 capital and a limited amount of Tier 2 capital) by its total risk-adjusted assets. The Federal Reserve may also employ a market risk component in its calculation of capital requirements for nonmember banks engaged in significant trading activity. The market risk component could require additional capital for general or specific market risk of trading portfolios of debt and equity securities and other investments or assets. The Federal Reserve’s evaluation of an institution’s capital adequacy takes account of a variety of other factors, including, among others, interest rate risks to which the institution is subject, the level and quality of an institution’s earnings, loan and investment portfolio characteristics, and risks arising from the conduct of nontraditional activities. Accordingly, the Federal Reserve’s final supervisory judgment concerning an institution’s capital adequacy could differ significantly from the conclusions that might be derived from the absolute level of an institution’s risk-based capital ratios. Therefore, institutions generally are expected to maintain risk-based capital ratios that exceed the minimum ratios. This is particularly true for institutions contemplating significant expansion plans and institutions that are subject to high or inordinate levels of risk.
The Federal Reserve employs similar risk-based capital guidelines in the regulation of bank holding companies and financial institutions. If capital falls below the minimum levels established by the guidelines, the bank holding company or bank may be denied approval to acquire or establish additional banks or non-bank businesses or to open new facilities. In general, bank holding companies are required to maintain the same capital ratios as banks, which is a minimum ratio of total capital to risk-weighted assets of 8% and Tier 1 capital of at least 4%. Bank holding companies are also subject to a leverage ratio requirement. The minimum required leverage ratio for the very highest rated companies is 3%, but as a practical matter the minimum required leverage ratio for most bank holding companies is 4% or higher. Bank holding companies also must serve as a source of strength for their subsidiary banking institutions. Under Bank Holding Company Act section 5(e), the Federal Reserve Board may require a bank holding company to terminate any activity or relinquish control of a nonbank subsidiary if the Federal Reserve Board determines that the activity or control constitutes a serious risk to the financial safety, soundness, or stability of a subsidiary bank.
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Item 1.Business
General
A capital plan was submitted to the Federal Reserve Bank and the Ohio Division as required by the June 1, 2009 Memorandum of Understanding. In this capital plan, it was stated that both the Company and the Bank have established a total risk-based capital target of 13%, a Tier 1 risk-based capital ratio target of 11%, and a leverage ratio target of 8%. It is unlikely that dividend payments by the Company would resume before those targeted capital levels are attained. If dividend payments do resume, according to the capital plan they would not exceed 50% of after-tax earnings for the previous 12 months, excluding extraordinary items and taking into account the three previous quarterly dividends.
Prompt corrective action.Every institution is classified into one of five categories, depending on the institution’s total risk-based capital ratio, Tier 1 risk-based capital ratio, leverage ratio, and subjective factors. The categories are “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” Capital ratios as of December 31, 2010 are as follows:
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| | | (Amounts in thousands) |
| | | | | | | | | | | The Cortland Savings |
| | | Cortland Bancorp | | & Banking Company |
| | | Amount | | Ratio | | Amount | | Ratio |
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Total capital to risk-weighted assets | | | | | | | | | | | | | | | | |
| Actual | | $ | 49,372 | | | | 13.42 | % | | $ | 46,714 | | | | 12.80 | % |
| For capital adequacy purposes | | | 29,424 | | | | 8.00 | % | | | 29,187 | | | | 8.00 | % |
| To be well capitalized | | | 36,780 | | | | 10.00 | % | | | 36,484 | | | | 10.00 | % |
Tier 1 capital to risk-weighted assets | | | | | | | | | | | | | | | | |
| Actual | | | 46,787 | | | | 12.72 | % | | | 38,129 | | | | 10.45 | % |
| For capital adequacy purposes | | | 14,712 | | | | 4.00 | % | | | 14,594 | | | | 4.00 | % |
| To be well capitalized | | | 22,068 | | | | 6.00 | % | | | 21,891 | | | | 6.00 | % |
Tier 1 leverage capital | | | | | | | | | | | | | | | | |
| Actual | | | 46,787 | | | | 9.59 | % | | | 38,129 | | | | 7.86 | % |
| For capital adequacy purposes | | | 19,505 | | | | 4.00 | % | | | 19,396 | | | | 4.00 | % |
| To be well capitalized | | | 24,381 | | | | 5.00 | % | | | 24,245 | | | | 5.00 | % |
An institution with a capital level that might qualify for well capitalized or adequately capitalized status may nevertheless be treated as though the institution is in the next lower capital category if the institution’s primary Federal banking supervisory authority determines that an unsafe or unsound condition or practice warrants that treatment. A financial institution’s operations can be significantly affected by the bank’s capital classification under the prompt corrective action rules. For example, an institution that is not well capitalized generally is prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market without advance regulatory approval. These deposit-funding limitations can have an adverse effect on the bank’s liquidity. At each successively lower capital category an insured depository institution is subject to additional restrictions. Undercapitalized institutions are required to take specified actions to increase their capital or otherwise decrease the risks to the federal deposit insurance fund. Bank regulatory agencies generally are required to appoint a receiver or conservator within 90 days after an institution becomes critically undercapitalized, with a leverage ratio of less than 2%. Section 38(f)(2)(I) of the Federal Deposit Insurance Act provides that a Federal bank regulatory authority may require a bank holding company to divest itself of an undercapitalized bank subsidiary if the agency determines that divestiture will improve the bank’s financial condition and prospects.
A bank holding company must guarantee that a subsidiary bank that adopts a capital restoration plan will satisfy plan obligations. Any capital loans made by a bank holding company to a subsidiary bank are subordinated to the claims of depositors in the bank and to certain other indebtedness of the subsidiary bank. If bankruptcy of a bank holding company occurs, any commitment by the bank holding company to a Federal banking regulatory agency to maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and would be entitled to priority of payment.
Federal deposit insurance. Deposits in the Bank are insured by the FDIC to applicable limits through the Deposit Insurance Fund. Insured banks must pay deposit insurance premiums assessed semiannually and paid quarterly. The insurance premium amount is based upon a risk classification system established by the FDIC. Banks with higher levels of capital and a low degree of supervisory concern are assessed lower premiums than banks
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with lower levels of capital or a higher degree of supervisory concern. Effective January 1, 2009, the FDIC increased assessment rates uniformly for all risk categories by 7 cents for the first quarter 2009 assessment period. In 2009, the FDIC adopted a rule that imposed a special assessment on banks payable in September 2009 and that allowed the FDIC to impose additional special assessments to replenish the Deposit Insurance Fund, which was badly depleted by bank failures. As an alternative to imposing additional special assessments on insured depository institutions or borrowing from the U.S. Treasury, on November 12, 2009, the FDIC adopted a proposal to increase deposit insurance assessments effective on January 1, 2011, and to require all insured depository institutions to prepay by the end of 2009 their deposit insurance assessments for the fourth quarter of 2009 and for the entirety of 2010 through 2012. Institutions recorded the prepaid FDIC insurance assessments as an asset as of December 31, 2009, later charging the assessments to expense in the periods to which the assessments apply. We anticipate that assessment rates will continue to increase for the foreseeable future because of the significant cost of bank failures, because of the relatively large number of troubled banks, and because of the requirement of the recently enacted Dodd-Frank Act that the FDIC increase its insurance fund reserves to no less than $1.35 for each $100 of insured deposits (as of September 30, 2010, the reserve fund was negative $0.15 for each $100 of insured deposits).
On November 9, 2010, the FDIC proposed to change its assessment base from total domestic deposits to average total assets minus average tangible equity, and was approved February 7, 2011,as required in the Dodd-Frank Act. The new assessment base will apply in the second quarter of 2011, but the FDIC does not expect that the change in assessment base will change the deposit insurance premium revenue raised.
The $100,000 basic deposit insurance limit in place for many years was increased temporarily to $250,000 by the Emergency Economic Stabilization Act of 2008. On July 21, 2010, the Dodd-Frank Act made the $250,000 insurance limit permanent.
The FDIC may terminate the deposit insurance of any insured depository institution if the FDIC determines that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order, or any condition imposed in writing by or written agreement with the FDIC.
Selected regulations. Transactions with affiliates. The Bank must comply with section 23A and section 23B of the Federal Reserve Act, establishing rules for transactions by member banks with affiliates. These statutes protect banks from abuse in financial transactions with affiliates, preventing insured deposits from being diverted to support the activities of unregulated entities engaged in nonbanking businesses. Affiliate-transaction limits could impair the Company’s ability to obtain funds from the bank subsidiary for the holding company’s cash needs, including funds for payment of dividends, interest, and operational expenses. Affiliate transactions include, but are not limited to, extensions of credit to affiliates, investments in securities issued by affiliates, the use of affiliates’ securities as collateral for loans to any borrower, and purchase of affiliate assets. An affiliate of a bank includes any company or entity that controls or is under common control with the bank. Generally, section 23A and section 23B of the Federal Reserve Act — -limit the extent to which a bank or its subsidiaries may lend to or engage in various other kinds of transactions with any one affiliate to an amount equal to 10% of the institution’s capital and surplus, limiting the aggregate of covered transactions with all affiliates to 20% of capital and surplus, -impose strict collateral requirements on loans or extensions of credit by a bank to an affiliate, -impose restrictions on investments by a subsidiary bank in the stock or securities of its holding company, -impose restrictions on the use of a holding company’s stock as collateral for loans by the subsidiary bank, and -require that affiliate transactions be on terms substantially the same as those provided to a non-affiliate.
Loans to insiders. The authority of the Bank to extend credit to insiders —meaning executive officers, directors, and greater than 10% stockholders — or to entities those persons control, is subject to section 22(g) and section 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve. These laws require that insider loans be made on terms substantially similar to those offered to unaffiliated individuals, place limits on the amount of loans a bank may make to insiders based in part on the bank’s capital position, and require that specified approval procedures be adhered to. Loans to an individual insider may not exceed the Federal legal limit on loans to any one borrower, which in general terms is 15% of capital but can be higher in some circumstances. And the aggregate of all loans to all insiders may not exceed the bank’s unimpaired capital and surplus. Insider loans exceeding the greater of 5% of capital or $25,000 must be approved in advance by a majority of the board, with any interested director not participating in the voting. Loans to executive officers are subject to special limitations. Executive officers may borrow in unlimited amounts to finance their children’s education or to finance the purchase or improvement of their residence, but they may borrow no more than $100,000 for most other purposes. Loans to executive officers exceeding $100,000 may be allowed if the loan is fully secured by government securities or a
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segregated deposit account. A violation of these restrictions could result in the assessment of substantial civil monetary penalties, the imposition of a cease-and-desist order, or other regulatory sanctions.
Loans to one borrower. Under Ohio law, the total loans and extensions of credit by an Ohio-chartered bank to a person outstanding at any time generally may not exceed 15% of the bank’s unimpaired capital, plus 10% of unimpaired capital for loans and extensions of credit fully secured by readily marketable collateral.
Dividends and Distributions. Stockholders of an Ohio corporation are entitled to dividends when, as, and if declared by the corporation’s board of directors. This principle of Ohio Law applies both to the Company and the Bank. Future dividends will be payable at the discretion of the board of directors and will depend on our earnings, financial condition, results of operations, business prospects, capital requirements, regulatory restrictions, and other factors that the board of directors may deem relevant. A 1985 policy statement of the Federal Reserve Board declares that a bank holding company should not pay cash dividends on common stock unless the organization’s net income for the past year is sufficient to fully fund the dividends and the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality, and overall financial condition. A bank holding company also must serve as a source of strength to its subsidiary banks, which could mean capital must be retained for further investments in subsidiary banks rather than being paid as dividends to stockholders. The MOU to which the Company and the Bank are subject provides that written approval of the Federal Reserve and the Ohio Division must be obtained to pay dividends.
The Company’s ability to obtain funds for the payment of cash dividends and for other cash requirements depends on the amount of dividends that may be paid by the Bank. Under Ohio law, a dividend may be declared by a bank from surplus, meaning additional paid-in capital, with the approval of (x) the Ohio Division and (y) the holders of two thirds of the bank’s outstanding shares. Superintendent approval is also necessary for payment of a dividend if the total of all cash dividends in a year exceeds the sum of (x) net income for the year and (y) retained net income for the two preceding years. According to the Federal Reserve, it is a prudent banking practice to continue paying cash dividends if and only if the bank or holding company’s net income over the past year is sufficient to fully fund the dividends and if the prospective rate of earnings retention is consistent with the organization’s capital needs, asset quality, and overall financial condition. Relying on 12 U.S.C. 1818(b), the Federal Reserve may restrict a member bank’s ability to pay a dividend if the Federal Reserve has reasonable cause to believe that the dividend would constitute an unsafe and unsound practice. A bank’s ability to pay dividends may be affected also by the Federal Reserve’s capital maintenance requirements and prompt corrective action rules. A bank may not pay a dividend if the bank is undercapitalized or if payment would cause the bank to become undercapitalized. Moreover, regulatory authorities may prohibit banks and bank holding companies from paying dividends if payment of dividends would constitute an unsafe and unsound banking practice.
A bank holding company may not purchase or redeem its equity securities without advance written approval of the Federal Reserve under Federal Reserve Rule 225.4(b) if the purchase or redemption combined with all other purchases and redemptions by the bank holding company during the preceding 12 months equals or exceeds 10% of the bank holding company’s consolidated net worth. However, advance approval is not necessary if the bank holding company is well managed, is not the subject of any unresolved supervisory issues, and both before and immediately after the purchase or redemption is well capitalized. The MOU to which the Company and the Bank are subject provides that we would first have to obtain written approval of the Federal Reserve and the Ohio Division to purchase or redeem our equity securities.
Guidance concerning commercial real estate lending. In December 2006, the Federal banking agencies issued final guidance concerning sound risk management practices for concentrations in commercial real estate lending, including acquisition and development lending, construction lending, and other land loans. Recent experience has shown that these forms of lending can be particularly high risk. According to a 2009 FDIC publication, a majority of the community banks that became problem banks or failed in 2008 had similar risk profiles: the banks often had extremely high concentrations in residential acquisition, development, and construction lending relative to their capital, the loan underwriting and credit administration functions at these institutions typically were criticized by examiners, and many of the institutions had exhibited rapid asset growth funded with brokered deposits.
The commercial real estate risk management guidance does not impose rigid limits on commercial real estate lending but does create a much sharper supervisory focus on the risk management practices of banks with concentrations in commercial real estate lending. According to the guidance, an institution that has experienced rapid growth in commercial real estate lending, has notable exposure to a specific type of commercial real estate, or is approaching or exceeds the following
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PART I (CONTINUED)
Item 1.Business
General
supervisory criteria may be identified for further supervisory analysis of the level and nature of its commercial real estate concentration risk —total reported loans for construction, land development, and other land represent 100% or more of the institution’s total capital, or -total commercial real estate loans represent 300% or more of the institution’s total capital and the outstanding balance of the institution’s commercial real estate loan portfolio has increased by 50% or more during the prior 36 months.
These measures are intended merely to enable the banking agencies to quickly identify institutions that could have an excessive commercial real estate lending concentration, potentially requiring close supervision to ensure that the institutions have sound risk management practices in place. Conversely, these measures do not imply that banks are authorized by the December 2006 guidance to accumulate a commercial real estate lending concentration up to the 100% and 300% thresholds.
Developments affecting management and corporate governance. In June 2010, the Federal banking agencies jointly published their final Guidance on Sound Incentive Compensation Policies. The goal is to enable financial organizations to manage the safety and soundness risks of incentive compensation arrangements and to assist them with identification of improperly structured compensation arrangements. To ensure that incentive compensation arrangements do not encourage employees to take excessive risks that undermine safety and soundness, the incentive compensation guidance sets forth these key principles — -incentive compensation arrangements should provide employees incentives that appropriately balance risk and financial results in a manner that does not encourage employees to expose the organization to imprudent risk, -these arrangements should be compatible with effective controls and risk management, and -these arrangements should be supported by strong corporate governance, including active and effective oversight by the board of directors.
To implement the interagency guidance, a financial organization must regularly review incentive compensation arrangements for all executive and non-executive employees who, either individually or as part of a group, have the ability to expose the organization to material amounts of risk, as well as to regularly review the risk-management, control, and corporate governance processes related to these arrangements. The organization must immediately correct any identified deficiencies in compensation arrangements or processes that are inconsistent with safety and soundness and must ensure that incentive compensation arrangements are consistent with the principles discussed in the guidance.
In addition to numerous provisions that affect the business of banks and bank holding companies, the Dodd-Frank Act includes a number of provisions affecting corporate governance and executive compensation, for example requirements that stockholders be given the opportunity to consider and vote upon executive compensation disclosed in a company’s annual meeting proxy statement, that a company’s compensation committee be comprised entirely of independent directors and that the committee have stated minimum authorities, that annual meeting proxy statements disclose the ratio of CEO compensation to the median compensation of all other employees, that company policy provide for recovery of excess incentive compensation after an accounting restatement, and that stockholders have the ability to designate director nominees for inclusion in a company’s annual meeting proxy statement. Section 956 also provides for adoption of incentive compensation guidelines jointly by the Federal banking agencies, the SEC, the National Credit Union Administration, and the Federal Housing Finance Agency. Due for adoption by the end of April 2011, the guidelines could be different from the Guidance on Sound Incentive Compensation Policies adopted by the Federal bank regulators in June of 2010. The new guidelines adopted under the Dodd-Frank Act could impose additional compliance burdens beyond those already imposed by the Federal bank regulatory agency guidelines adopted in June of 2010.
Consumer protection laws and regulations. Banks are subject to regular examination to ensure compliance with Federal statutes and regulations applicable to their business, including consumer protection statutes and implementing regulations, some of which are discussed below. Potential penalties under these laws include, but are not limited to, fines.
Community Reinvestment Act. Under the Community Reinvestment Act of 1977 (the “CRA”) and implementing regulations of the Federal banking agencies, a financial institution has a continuing and affirmative obligation — consistent with safe and sound operation — to fulfill the credit needs of its entire community, including low- and moderate-income neighborhoods. But the CRA does not establish specific lending requirements nor does the CRA limit an institution’s discretion to develop the types of products and services the institution believes are best suited to the community. The CRA requires that bank regulatory agencies conduct regular CRA examinations and provide written evaluations of institutions’ CRA performance. The CRA also requires that an institution’s CRA performance rating be made public. CRA performance evaluations are based on a four-tiered rating system: Outstanding, Satisfactory, Needs to Improve, and Substantial Noncompliance. Although CRA examinations occur regularly, CRA performance evaluations are used principally in the evaluation of regulatory applications submitted by an institution. Federal bank regulatory agencies consider CRA performance evaluations when they evaluate applications for such
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PART I (CONTINUED)
Item 1.Business
General
things as mergers, acquisitions, and applications to open branches. The Bank’s CRA performance rating is “satisfactory,” according to the evaluation dated September 14, 2009.
Equal Credit Opportunity Act. The Equal Credit Opportunity Act generally prohibits discrimination in any credit transaction, whether for consumer or business purposes, on the basis of race, color, religion, national origin, sex, marital status, age (except in limited circumstances), receipt of income from public assistance programs, or good faith exercise of any rights under the Consumer Credit Protection Act.
Truth in Lending Act. The Truth in Lending Act is designed to ensure that credit terms are disclosed in a meaningful way so that consumers may compare credit terms more readily and knowledgeably. As a result of the Truth in Lending Act, all creditors must use the same credit terminology to express rates and payments, including the annual percentage rate, the finance charge, the amount financed, the total of payments, and the payment schedule, among other things.
Fair Housing Act. The Fair Housing Act makes it unlawful for any lender to discriminate in its housing-related lending activities against any person because of race, color, religion, national origin, sex, handicap, or familial status. A number of lending practices have been held by the courts to be illegal under the Fair Housing Act, including some practices that are not specifically mentioned in the Fair Housing Act.
Home Mortgage Disclosure Act. The Home Mortgage Disclosure Act arose out of public concern over credit shortages in urban neighborhoods. The Home Mortgage Disclosure Act requires financial institutions to collect data that enable regulatory agencies to determine whether the financial institutions are serving the housing credit needs of the neighborhoods and communities in which they are located. The Home Mortgage Disclosure Act also requires the collection and disclosure of data about applicant and borrower characteristics as a way to identify possible discriminatory lending patterns. The vast amount of information that financial institutions collect and disclose concerning applicants and borrowers receives attention not only from state and Federal banking supervisory authorities but also from community-oriented organizations and the general public.
Real Estate Settlement Procedures Act. The Real Estate Settlement Procedures Act requires that lenders provide borrowers with disclosures regarding the nature and cost of real estate settlements. The Real Estate Settlement Procedures Act also prohibits abusive practices that increase borrowers’ costs, such as kickbacks and fee-splitting without providing settlement services.
Privacy. Under the Gramm-Leach-Bliley Act, all financial institutions are required to establish policies and procedures to restrict the sharing of non-public customer data with non-affiliated parties and to protect customer data from unauthorized access. In addition, the Fair Credit Reporting Act of 1971 includes many provisions concerning national credit reporting standards and permits consumers to opt out of information-sharing for marketing purposes among affiliated
Predatory lending. What is commonly referred to as predatory lending typically involves one or more of the following elements — making unaffordable loans based on a borrower’s assets rather than the borrower’s ability to repay an obligation, — inducing a borrower to refinance a loan repeatedly in order to charge high points and fees each time the loan is refinanced, or loan flipping, and — engaging in fraud or deception to conceal the true nature of the loan obligation from an unsuspecting or unsophisticated borrower.
The Home Ownership and Equity Protection Act of 1994 and implementing regulations adopted by the Federal Reserve require specified disclosures and extend additional protection to borrowers in closed-end consumer credit transactions, such as home repairs or renovation, that are secured by a mortgage on the borrower’s primary residence. The disclosures and protections are applicable to “high cost” transactions with any of the following features — -interest rates for first lien mortgage loans more than eight percentage points above the yield on U.S. Treasury securities having a comparable maturity, -interest rates for subordinate lien mortgage loans more than 10 percentage points above the yield on U.S. Treasury securities having a comparable maturity, or -total points and fees paid in the credit transaction exceed the greater of either 8% of the loan amount or a specified dollar amount that is inflation-adjusted each year.
The Home Ownership and Equity Protection Act prohibits or restricts numerous credit practices, including loan flipping by the same lender or loan servicer within a year of the loan being refinanced. Lenders are presumed to have violated the law unless they document that the borrower has the ability to repay. Lenders that violate the rules face cancellation of loans and penalties equal to the finance charges paid. The Home Ownership and Equity Protection Act also governs so-called “reverse mortgages.”
9
PART I (CONTINUED)
Item 1.Business
General
Overdraft protection practices. With amendment of Regulations E and DD, Federal Reserve rules regarding overdraft charges for debit card and ATM transactions became effective on July 1, 2010. The amendments do away with the automatic overdraft protection arrangements that had been in common use, instead requiring banks to notify and obtain the consent of customers before enrolling them in an overdraft protection plan. The amended rules restrict a bank’s ability to charge fees for the payment of overdrafts for debit and ATM card transactions.
Monetary policy. The earnings of financial institutions are affected by the policies of regulatory authorities, including monetary policy of the Federal Reserve. An important function of the Federal Reserve is regulation of aggregate national credit and money supply, relying on measures such as open market transactions in securities, establishment of the discount rate on bank borrowings, and changes in reserve requirements against bank deposits. These methods are used in varying combinations to influence overall growth and distribution of financial institutions’ loans, investments, and deposits, and they also affect interest rates charged on loans or paid on deposits. Monetary policy is influenced by many factors, including inflation, unemployment, short-term and long-term changes in the international trade balance, and fiscal policies of the United States government. Federal Reserve Board monetary policy has had a significant effect on the operating results of financial institutions in the past and it will continue to influence operating results in the future.
Anti-money laundering and anti-terrorism legislation. The Bank Secrecy Act of 1970 requires financial institutions to maintain records and report transactions to prevent the financial institutions from being used to hide money derived from criminal activity and tax evasion. The Bank Secrecy Act establishes (a) record-keeping requirements to assist government enforcement agencies with tracing financial transactions and flow of funds, (b) reporting requirements for Suspicious Activity Reports and Currency Transaction Reports to assist government enforcement agencies with detecting patterns of criminal activity, (c) enforcement provisions authorizing criminal and civil penalties for illegal activities and violations of the Bank Secrecy Act and its implementing regulations, and (d) safe harbor provisions that protect financial institutions from civil liability for their cooperative efforts.
The Treasury’s Office of Foreign Asset Control administers and enforces economic and trade sanctions against targeted foreign countries, entities, and individuals based on U.S. foreign policy and national security goals. As a result, financial institutions must scrutinize transactions to ensure that they do not represent obligations of or ownership interests in entities owned or controlled by sanctioned targets.
Signed into law on October 26, 2001, the USA PATRIOT Act of 2001 is omnibus legislation enhancing the powers of domestic law enforcement organizations to resist the international terrorist threat to United States security. Title III of the legislation, the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, most directly affects the financial services industry, enhancing the Federal government’s ability to fight money laundering through monitoring of currency transactions and suspicious financial activities. The Act has significant implications for depository institutions and other businesses involved in the transfer of money — -a financial institution must establish due diligence policies, procedures, and controls reasonably designed to detect and report money laundering through correspondent accounts and private banking accounts, -no bank may establish, maintain, administer, or manage a correspondent account in the United States for a foreign shell bank, -financial institutions must abide by Treasury Department regulations encouraging financial institutions, their regulatory authorities, and law enforcement authorities to share information about individuals, entities, and organizations engaged in or suspected of engaging in terrorist acts or money laundering activities, -financial institutions must follow Treasury Department regulations setting forth minimum standards regarding customer identification. These regulations require financial institutions to implement reasonable procedures for verifying the identity of any person seeking to open an account, maintain records of the information used to verify the person’s identity, and consult lists of known or suspected terrorists and terrorist organizations provided to the financial institution by government agencies, -every financial institution must establish anti-money laundering programs, including the development of internal policies and procedures, designation of a compliance officer, employee training, and an independent audit function.
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PART I (CONTINUED)
Item 1.Business
General
Recent initiatives. The economic upheaval that reached crisis proportions in the third and fourth quarters of 2008 and the resulting adverse impact on the national, regional, and local economies have not ended and might not end for some time. Legislation has been enacted and the Treasury Department, the Federal Reserve, and the FDIC have taken actions in the meantime to stabilize the financial industry, promote recovery, and prevent the recurrence of a similar crisis. The purpose of these legislative and regulatory initiatives is to stabilize U.S. financial markets. The legislative and regulatory actions already taken or that could be taken might not have the intended beneficial impact on the financial markets or the banking industry. We cannot assure you that these initiatives will improve economic conditions generally or the financial markets or financial services industry in particular. The failure of legislative and regulatory initiatives to stabilize the financial markets could materially adversely affect our access to the capital and credit markets, our business, our financial condition, our results of operations, and the market price of our common stock.
AVAILABLE INFORMATION
The Company files an annual report on Form 10K,10-K, quarterly reports on Form 10Q,10-Q, current reports on Form 8K8-K and amendments to those reports with the Securities and Exchange Commission (SEC) pursuant to Section 13(a) or 15(d) of the Exchange Act. The Company’s Internet address iswww.cortland-banks.com. The Company makes available through this address, free of charge, the reports filed, as soon as reasonably practicable after such material is electronically filed, or furnished to, the SEC. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC atwww.sec.gov. The public may read and copy any materials filed with the Commission at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549, on official business days during the hours of 10:00 am to 3:00 pm. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.
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PART I (CONTINUED)
Item l.1.Business
Statistical Disclosure
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL
Information relating to meI — Distribution of Assets, Liabilities and Shareholders’ Equity; Interest Rates and Interest Differential is set forth in the Corporation’s 2009Company’s 2010 Annual Report to Shareholders under the pages indicated below and is incorporated herein by reference:
| | | | | |
| | | | Pages in 20092010 |
| | | | Annual Report |
| | | | to Shareholders |
A. Average Balance Sheet -— December 31, 2010, 2009 and 2008 | | |
| | December 31, 2009, 2008 and 2007 | | 4452 & 45 |
| | | | 53 |
B. Analysis of Net Interest Earnings - | | |
| | — Years ending December 31, 2010, 2009 2008 and 20072008 | | 4452 & 45 |
| | | | 53 |
C. Rate and Volume Analysis - | | |
| | — 2010 change from 2009 and 2009 change from 2008 and | | |
| | 2008 change from 2007 | | 5867 |
II. INVESTMENT PORTFOLIO
Information relating to II — Investment Portfolio is set forth in the Corporation’s 2009Company’s 2010 Annual Report to Shareholders under the pages indicated below and is incorporated herein by reference:
| | | | | |
| | | | Pages in 20092010 |
| | | | Annual Report |
| | | | to Shareholders |
A. Book value of investments -— December 31, 2010, 2009 and 2008 | | |
| | December 31, 2009, 2008 and 2007 | | 67 - 71 |
| | | | 76-80 |
B. Summary of securities held -— December 31, 2010 | | |
| | December 31, 2009 | | 70 & 71 |
| | | | 79 |
| C. Not applicable | | |
III. LOAN PORTFOLIO (ALL DOMESTIC)
A. TYPES OF LOANS
Information relating to III — Loan Portfolio — A. Types of Loans is set forth in the Corporation’s 2009Company’s 2010 Annual Report to Shareholders, Page 64,73, Loan Portfolio and is incorporated herein by reference.
B. MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
Information relating to III — Loan Portfolio — B. Maturities and Sensitivities of Loans to Interest Rates is set forth in the Corporation’s 2009Company’s 2010 Annual Report to Shareholders, Pages 64 & 65Page 74 Loan Portfolio and is incorporated herein by reference.
C. RISK ELEMENTS
Information relating to III — Loan Portfolio — C. Risk Elements, is set forth in the Corporation’s 2009Company’s 2010 Annual Report to Shareholders under the pages indicated below and is incorporated herein by reference:
| | | | | | | | | |
| | | | | | | | Pages in 20092010 |
| | | | | | | | Annual Report |
| | | | | | | | | to Shareholders |
| | | | | | | | |
| 1. Nonaccrual, Past Due and Restructured Loans | | |
| | | | | | | | |
| | (1) Aggregate amount in each category (5 years) | | 5261 |
| | | | | | | | |
| | (2) Interest income | | |
| | | | (i) | | That would have been recorded | | 2327 & 5261 |
| | | | (ii) | | That was included in income | | 2327 & 5261 |
| | | | | | | | |
| | (3) Policy for placing loans on non-accrual status | | 12 |
| | | | | | | | |
| 2. Potential Problem Loans | | 23 |
| | | | | | | | 30 |
| 3. Foreign Outstandings | | N/A |
| | | | | | | | |
| 4. Loan concentrations over 10% not otherwise disclosed | | 66 & 6776 |
D. Other Interest Bearing Assets
Information relating to III — Loan Portfolio — D. Other Interest Bearing Assets is set forth in the Corporation’s 2009Company’s 2010 Annual Report to Shareholders, Pages 5261 and 5362 Asset Quality, and is incorporated herein by reference.
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PART I (CONTINUED)
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. Analysis of the Allowance for Loan Loss
Information relating to IV — Summary of Loan Loss Experience — A. Analysis of the Allowance for Loan Loss is set forth in the Corporation’s 2009Company’s 2010 Annual Report to Shareholders, Pages 61-63,24-30 and 71-73, Allowance for Loan Losses and is incorporated herein by reference.
B. Breakdown of the Allowance for Loan Losses
Information relating to IV — Summary of Loan Loss Experience — B. Breakdown of the Allowance for Loan Losses is set forth in the Corporation’s 2009Company’s 2010 Annual Report to Shareholders under the pages indicated below and is incorporated herein by reference.
| | | |
| | | Pages in 20092010 |
| | | Annual Report |
| | | to Shareholders |
| Breakdown of the Allowance for Loan Losses | | 63 |
| | 73 |
| Percentage of loans in each category | | 64 |
| | 73 |
| Loan Commitments and Lines of Credit | | 26-2734-35 & 76-7787-88 |
V. DEPOSITS (ALL DOMESTIC)
A. Average Deposits and Average Rates Paid on Deposit Categories
Information relating to V — Deposits — A. Average Deposits and Rates is set forth in the Corporation’s 2009Company’s 2010 Annual Report to Shareholders, Pages 4452 & 45,53, Five Year Summary Average Balance Sheet, Yields and Rates and is incorporated herein by reference.
B. Not applicable
C. Not applicable
D. Summary of Time Deposits of $100,000 or More
Information relating to V — Deposits — D. Summary of Time Deposits of $100,000 or More by Maturity Range, is set forth in the Corporation’s 2009Company’s 2010 Annual Report to Shareholders, Page 24,Pages 31 and 32, Note 6, Deposits and is incorporated herein by reference.
E. Not applicable
VI. RETURN ON EQUITY AND ASSETS
Information relating to VI — Return on Equity and Assets is set forth in the Corporation’s 2009Company’s 2010 Annual Report to Shareholders, page 43,51, Selected Financial Data and is incorporated herein by reference.
VII. SHORT TERM BORROWINGS
Not required
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PART I (CONTINUED)
Item 1.A — Risk Factors
The material risks and uncertainties that management believes affect the Company are described below. Before making an investment decision with respect to the Company’s stock, you should carefully consider the risks and uncertainties as described below together with all of the information included herein. The risks and uncertainties described below are not the only risks and uncertainties the Company faces. Additional risks and uncertainties not presently known and that are deemed immaterial also may have a material adverse effect on the Company’s result of operations and financial condition. If any of the following risks actually occur, the value of the Company’s common stock could decline.
Risks Related to Our Business
Recent negative developments in the financial industry and the domestic credit market may adversely affect the Company’s operations and results.Negative developments throughout the last two years in the credit and securitization markets have resulted in uncertainty in financial markets with the expectation of the general economic downturn continuing. Business activity across a wide range of industries and regions has declined and unemployment has increased significantly. The financial services industry has been materially and adversely affected by significant declines in the values of nearly all asset classes and by a serious lack of liquidity. These negative developments were initially triggered by declines in home prices and the values of subprime residential mortgage loans, but quickly spread to other asset classes. Market conditions have also led to the failure or merger of a number of formerly prominent and large financial institutions. Furthermore, declining asset values on financial instruments, defaults on residential mortgages and consumer loans, and the lack of market and investor confidence, as well as other factors, have all combined to decrease liquidity, despite very significant declines in Federal Reserve borrowing rates and other government actions. Some banks and other lenders have suffered significant losses and have become reluctant to lend, even on a secured basis, due to the increased risk of default and the impact of declining asset values on the value of collateral. If current levels of market disruption and volatility continue or worsen, there can be no assurance that the Company will not experience an adverse effect, which may be material, on the Company’s ability to access capital and on the Company’s business, financial condition, and results of operations.
Further economic downturns may have an impact on our investment portfolio.The deterioration in the credit markets created market volatility and illiquidity, resulting in significant declines in the market values of a broad range of investment products. We continue to monitor the investment portfolio for deteriorating collateral values and other-than-temporary-impairments in our investment portfolios. Although all identified impairment has been recognized, further impairment is possible and could cause further deterioration of earnings and capital.
Changes in laws and regulations may affect our results of operations.The earnings of financial institutions are affected by the regulations and policies of various regulatory authorities, including the Federal Reserve Board, which regulates the money supply, and the FDIC. The Federal Reserve has extensive supervisory authority over the Company, affecting a comprehensive range of matters relating to ownership and control of the our shares, our acquisition of other companies and businesses, permissible activities for the Company to engage in, maintenance of adequate capital levels and other aspects of operations. These supervisory and regulatory powers are intended primarily for the protection for our depositors and customers and the deposit insurance fund, rather than our shareholders.
FDIC insurance premiums have increased substantially in 2009, and the Bank expects to pay higher FDIC premiums in the future because bank failures have significantly reduced the deposit insurance fund’s ratio of reserves to insured deposits. The FDIC adopted a revised risk-based deposit insurance assessment schedule on February 27, 2009, which raised deposit insurance premiums. On May 22, 2009, the FDIC also implemented a special assessment, which totaled $224,000 for Cortland Banks. Additional special assessments may be imposed by the FDIC for future periods. On November 12, 2009, the FDIC adopted a final rule that requires insured depository institutions to prepay on December 30, 2009, their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012. The Bank’s deposit insurance premiums will also increase because of the MOU. Additional bank failures may require additional significant deposit insurance premium increases, which would affect our income.
The laws and regulations applicable to the banking industry could change at any time. As a result of ongoing challenges facing the U.S. economy in particular, the potential exists for new laws and regulations, and bank regulatory agencies are expected to be active in responding to concerns and trends identified in examinations. Increased regulation could increase our cost of compliance and reduce our income to the extent that they limit the manner in which we may conduct business, including our ability to offer new products, charge fees for specific products and services, obtain financing, attract deposits, make loans and achieve satisfactory interest spreads.
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PART I (CONTINUED)
Failure to comply with the Memorandum of Understanding with the Federal Reserve Bank may have a material adverse effect on our business.In 2009, we entered into a memorandum of understanding with the Federal Reserve. Pursuant to the MOU we made informal commitments to, among other things, obtain the Federal Reserve’s approval prior to incurring any debt, repurchasing any of our stock or paying any dividends. We also agreed not to incur any additional debt. Any material failures to comply with the MOU would likely result in more stringent enforcement actions by the Federal Reserve, which could damage our reputation and have a material adverse effect on our business.Success in the banking industry requires disciplined management of lending risks.A significant portion of the Company’s loan portfolio is secured by real property. Originating and underwriting loans properly are integral to the Company’s success. Credit risk is the risk of not being able to collect the contractual obligation, including all principal and interest income when the borrower is unable to repay the obligation as agreed. Credit risk could be affected by a variety of negative conditions, including, (1) general, regional, or local economic conditions, (2) rapid increase in interest rates, and/or (3) a downturn in an industry sector.
The allowance for possible loan losses, a reserve established through a provision for possible loan losses charged to expense that represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans, is a critical resource for maintaining the safety and soundness of banks so that they can fulfill their basic function of financial intermediation.
The level of the allowance reflects management’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic, political, and regulatory conditions; and unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for possible loan losses inherently involves a high degree of subjectivity and requires management to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Continuing deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for possible loan losses. In addition, bank regulatory agencies periodically review the allowance for loan losses and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs, based on judgments different than those of management. If charge-offs in future periods exceed the allowance for possible loan losses, the Company will need additional provisions to increase the allowance for possible loan losses. Any increases in the allowance for possible loan losses will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on the Company’s financial condition and results of operations. The current economic environment has led us, and may continue to lead us, to take provisions that are higher than the Company’s historical experience.
Fluctuations in interest rates could adversely affect the Company’s earnings and financial condition.The risk of nonpayment of loansItem 1A.Risk Factors — or credit risk — is not the only lending risk. Lenders are subject also to interest rate risk. Fluctuating rates of interest prevailing in the market affect a bank’s net interest income, which is the difference between interest earned from loans and investments, on one hand, and interest paid on deposits and borrowings, on the other. Changes in the general level of interest rates can affect the Company’s net interest income by affecting the difference between the weighted average yield earned on our interest-earning assets and the weighted average rate paid on our interest-bearing liabilities, or interest rate spread, and the average life of our interest-earning assets and interest-bearing liabilities. Changes in interest rates also can affect (i) the Company’s ability to originate loans, (ii) the value of the Company’s interest earning assets, and the Company’s ability to realize gains from the sale of such assets, (iii) the Company’s ability to obtain and retain deposits in competition with other available investment alternatives, and (iv) the ability of the Company’s borrowers to repay adjustable or variable rate loans. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions, and other factors beyond our control. Although the Company believes that the estimated maturities of our interest-earning assets currently are well balanced in relation to the estimated maturities of our interest-bearing liabilities (which involves various estimates as to how changes in the general level of interest rates will impact these assets and liabilities), there can be no assurance that the Company’s profitability would not be adversely affected during any period of changes in interest rates.
6
PART I (CONTINUED)
We could be subject to valuation and extension risk related to the Federal Reserve ending its program to purchase mortgage-backed securities backed by Fannie Mae, Freddie Mac and Ginnie Mae. On November 25, 2008, the Federal Reserve announced that it would initiate a program to purchase $100.0 billion in direct obligations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks and $500.0 billion in mortgage-backed securities backed by Fannie Mae, Freddie Mac and the Government National Mortgage Association (“Ginnie Mae”). The Federal Reserve stated that its actions were intended to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally. On March 18, 2009, the Federal Open Market Committee (“FOMC”) announced the expansion of the Federal Reserve’s program to purchase up to $1.25 trillion of mortgage-backed securities. On September 23, 2009, the FOMC announced that the Federal Reserve would gradually slow the pace of purchases, anticipating that they would be complete by the end of first quarter 2010. Recent FOMC pronouncements have confirmed that intention. The planned withdrawal of the Federal Reserve from the market for mortgage-backed investments could cause mortgage rates to rise and the price of mortgage-backed securities to fall, which would negatively impact the valuation of our investments in mortgage-backed securities and increase extension risk on those investments. Valuation risk is the risk that prices for mortgage-backed investments could decline as mortgage rates increase. Extension risk is the cash flow risk resulting from the possibility that fewer borrowers will prepay or refinance their loans as interest rates in the mortgage markets increase. This could result in lowering the Bank’s capital due to declines in mark-to-market valuations and our net interest margin could be negatively impacted by holding relatively lower yielding investments for a longer than anticipated period.
The Company operates in a highly competitive industry and market area. The U.S. financial system has become highly concentrated and has moved into a barbell-type structure. This structure is characterized at one end by a handful of large financial conglomerates and at the other end by thousands of community financial institutions spread across the U.S.
The Company faces significant competition both in making loans and in attracting deposits. Competition is based on interest rates and other credit and service charges, the quality of services rendered, the convenience of banking facilities, the range and type of products offered and, in the case of loans to larger commercial borrowers, lending limits, among other factors. Competition for loans comes principally from commercial banks, savings banks, savings and loan associations, credit unions, mortgage banking companies, insurance companies, and other financial service companies. Our most direct competition for deposits has historically come from commercial banks, savings banks, and savings and loan associations. Technology has also lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Larger competitors may be able to achieve economies of scale and, as a result, offer a broader range of products and services. The Company’s ability to compete successfully depends on a number of factors, including, among other things:
| • | | the ability to develop, maintain, and build long-term customer relationships based on top quality service, high ethical standards, and safe, sound assets; |
|
| • | | the ability to expand the Company’s market position; |
|
| • | | the scope, relevance, and pricing of products and services offered to meet customer needs and demands; |
|
| • | | the rate at which the Company introduces new products and services relative to its competitors; |
|
| • | | customer satisfaction with the Company’s level of service; and |
|
| • | | industry and general economic trends. |
Failure to perform in any of these areas could significantly weaken the Company’s competitive position, which could adversely affect growth and profitability.
7
PART 1 (CONTINUED)
The Company’s business could be adversely affected by a downturn in the local geographic markets where the Company operates.The Bank derives the majority of its loans and deposits from the communities located in the northeast Ohio region. Local economic conditions in these areas have a significant impact on the generation of the Bank’s loan and deposit portfolios; the ability of borrowers to repay these loans; and the value of collateral securing these loans. In January 2009, northeast Ohio unemployment rates were at the highest level in 15 years. A prolonged economic downturn would likely contribute to the deterioration of the credit quality of our loan portfolio and reduce our level of customer deposits, which in turn would hurt our business. If the current economic downturn in the economy as a whole, or in the northeastern Ohio market continues for a prolonged period, borrowers may be less likely to repay their loans as scheduled or at all. Moreover, the value of real estate or other collateral that may secure our loans could be adversely affected. Unlike many larger institutions, the Company is not able to spread the risks of unfavorable local economic conditions across a large number of diversified economies and geographic locations. A prolonged economic downturn could, therefore, result in losses that could materially and adversely affect the Company’s business. Consequently, adverse changes in the economic conditions of the northeast Ohio region in general could result in a negative impact on the financial results of the Company’s operations and have a negative effect on profitability.
The Company does not have the financial and other resources that larger competitors have; this could affect its ability to compete for large commercial loan originations and its ability to offer products and services competitors provide to customers. The northeastern Ohio market in which the Company operates has high concentrations of financial institutions. Many of the financial institutions operating in our market are branches of significantly larger institutions headquartered in Cleveland or in other major metropolitan areas, with significantly greater financial resources and higher lending limits. In addition, many of these institutions offer services that the Company does not or cannot provide. For example, the larger competitors’ greater resources offer advantages such as the ability to price services at lower, more attractive levels, and the ability to provide larger credit facilities. Because the Company is currently smaller than many commercial lenders in its market, it is on occasion prevented from making commercial loans in amounts competitors can offer. Financial institutions’ success is increasingly dependent upon use of technology to provide products and services that satisfy customer demands and to create additional operating efficiencies. Many of the Company’s competitors have substantially greater resources to invest in technological improvements, which could enable them to perform various banking functions at lower costs than the Company, or to provide products and services that the Company is not able to economically provide. We cannot assure you that the Company will be able to develop and implement new technology-driven products or services or that the Company will be successful in marketing these products or services to customers.
Changes in accounting standards could materially impact the Company’s consolidated financial statements. The Company’s accounting policies and methods are fundamental to how our financial condition and results of operations are recorded and reported. The accounting standard setters, including the Financial Accounting Standards Board, the SEC, and other regulatory bodies, from time to time may change the financial accounting and reporting standards that govern the preparation of the Company’s consolidated financial statements. These changes can be hard to predict and can materially impact how the Company records and reports financial condition and results of operations. In some cases, the Company could beNot required to apply a new or revised standard retroactively, resulting in changes to previously reported financial results, or a cumulative charge to retained earnings. Management may be required to make difficult, subjective, or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions.
The Company utilizes the Federal Home Loan Bank as an additional source of liquidity. The Bank is a member of the Federal Home Loan Bank (“FHLB”) of Cincinnati, which is one of the twelve regional banks comprising the FHLB System. The FHLB provides credit for member financial institutions. As a member of the FHLB, we are required to own stock in the FHLB in proportion to our borrowings. As of December 31, 2009, the Company’s investment in FHLB stock totaled $3.523 million. The Company is authorized to apply for advances from the FHLB, which are collateralized in the aggregate by loans, securities, FHLB stock, and by deposits with the FHLB. At December 31, 2009, the Company had approximately $56.5 million in FHLB advances. FHLB advances are only available to borrowers that meet certain conditions. If the Company were to cease meeting these conditions, our access to FHLB advances could be significantly reduced or eliminated.
8
PART 1 (CONTINUED)
The 12 FHLBs obtain their funding primarily through issuance of consolidated obligations of the FHLB System. The U.S. government does not guarantee these obligations, and each of the 12 FHLBs are jointly and severally liable for repayment of each other’s debt. Therefore, the Company’s investment in the equity stock of the FHLB of Cincinnati could be adversely impacted by the operations of the other FHLBs. Should the FHLBs be restricted from redeeming or repurchasing member banks’ FHLB stock due to adverse financial conditions affecting either individual FHLBs or the FHLB System as a whole, member banks may be required to recognize an impairment charge on their FHLB equity stock investments. Certain FHLBs, including Cincinnati, have recently experienced lower earnings and paid out lower dividends to their members. Future problems at the FHLBs may impact the collateral necessary to secure borrowings and limit the borrowings extended to member banks, as well as require additional capital contributions by member banks. Should this occur, the Company’s short term liquidity needs could be negatively impacted. Should the Company be restricted from using FHLB advances due to weakness in the FHLB System or with the FHLB of Cincinnati, the Company may be forced to find alternative funding sources. These alternative funding sources may include seeking lines of credit with third party banks or the Federal Reserve Bank, borrowing under repurchase agreement lines, increasing deposit rates to attract additional funds, accessing brokered deposits, or selling certain investment securities categorized as available-for-sale in order to maintain adequate levels of liquidity.
Operating results may require us to raise additional capital, but that capital may not be available or it may be dilutive.We are required by the Federal Reserve to maintain adequate levels of capital to support our operations. In the event that our future operating results erode capital, if we are required to maintain capital in excess of well-capitalized standards, or if we elect to expand through loan growth or acquisitions, we may be required to raise additional capital. Our ability to raise capital will depend on conditions in the capital markets, which are outside our control, and on our financial performance. Accordingly, we cannot be assured of our ability to raise capital on favorable terms when needed, or at all. If we cannot raise additional capital when needed, we will be subject to increased regulatory supervision and the imposition of restrictions on our growth and business. These outcomes could negatively impact our ability to operate or further expand our operations through acquisitions or the establishment of additional branches and may result in increases in operating expenses and reductions in revenues that could have a material adverse effect on our financial condition and results of operations. In addition, in order to raise additional capital, we may need to issue shares of our common stock that would dilute the book value of our common stock and reduce our current shareholders’ percentage ownership interest to the extent they do not participate in future offerings.
Our information systems may experience an interruption or breach in security.The Company relies heavily on communications and information systems to conduct its business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in the Company’s customer relationship management, general ledger, deposit, loan and other systems. While the Company has policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of its information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions or security breaches of the Company’s information systems could damage the Company’s reputation, result in a loss of customer business, subject the Company to additional regulatory scrutiny, or expose the Company to civil litigation and possible financial liability, any of which could have a material adverse effect on the Company’s financial condition and result of operations
We may be a defendant from time to time in the future in a variety of litigation and other actions, which could have a material adverse effect on our financial condition and results of operation.We may be involved from time to time in the future in a variety of litigation arising out of our business. Our insurance may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. Should the ultimate judgments or settlements in any litigation exceed our insurance coverage, they could have a material adverse effect on our financial condition and results of operation. In addition, we may not be able to obtain appropriate types or levels of insurance in the future, nor may we be able to obtain adequate replacement policies with acceptable terms, if at all.
9
PART I (CONTINUED)
Risks Associated with the Company’s Common Stock
An investment in the Company’s common stock is not an insured deposit. The Company’s common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity. As a result, if you acquire the Company’s common stock, you could lose some or all of your investment.
Our common stock has a limited trading market, which may make the prompt execution of sale transactions difficult. Although our common stock may be traded from time to time on an individual basis, no active trading market has developed and none may develop in the foreseeable future. Our common stock is not traded on any exchange. However, our common stock is quoted and traded by several dealers on the OTC Bulletin Board under the symbol “CLDB.” The Company currently does not intend to seek listing of its common stock on NASDAQ or on another securities exchange. Accordingly, if you wish
to sell shares you may experience a delay or have to sell them at a lower price in order to sell them promptly, if at all. A stock that is not listed on a securities exchange might not be accepted as collateral for loans. If accepted as collateral, the stock’s value could nevertheless be substantially discounted. Consequently, investors should regard our common stock as a long-term investment and should be prepared to bear the economic risk for an indefinite period. Investors who need or desire to dispose of all or a part of their investments in our common stock might not be able to do so except by private, direct negotiations with third parties.
The Company’s stock price is volatile.The Company’s stock price has been volatile in the past, and several factors could cause the price to fluctuate substantially in the future. These factors include:
| • | | Actual or anticipated variations in earnings; |
|
| • | | Changes in dividend policy and dividend payout practices. |
|
| • | | Changes in analyst’s recommendations or projections; |
|
| • | | Operating and stock performance of other companies deemed to be peers; |
|
| • | | News reports of trends, concerns and other issues related to the financial services industry; and |
|
| • | | Low volume of stock trades. |
The Company’s stock price may fluctuate significantly in the future, and these fluctuations may be unrelated to performance. General market price declines or market volatility in the future could adversely affect the price of the Company’s stock, and the current market price may not be indicative of future market prices.
Further information relating to Item 1A “Risk Factors” is set forth in the Corporation’s 2009 Annual Report to Shareholders “Management’s Discussion Analysis”. This information includes, but is not limited to Page 46, “Note regarding Forward-Looking Statements”; pages 61-63, “Allowance for Loan Losses”; pages 78-80, “Interest Rate Risk”; pages 46-49, “Critical Accounting Policies and Estimates”; and page 80, “Impact of Inflation”, and is incorporated herein by reference.
Item 1B.Unresolved Staff Comments — N/A
Item 2.Properties
CORTLAND BANCORP and CORTLAND BANKS’COMPANY AND BANK PROPERTY
The information is set forth in the Corporation’s 2009Company’s 2010 Annual Report to Shareholders; page 4, “Brief Description of the Business” –— “CORTLAND BANCORP” and “THE CORTLAND SAVINGS AND BANKING COMPANY” and Page 8496 “Cortland Banks Offices and Locations” is incorporated herein by reference.
10
PART I (CONTINUED)
Item 3.Legal Proceedings
The information set forth in the Corporation’s 2009Company’s 2010 Annual Report to Shareholders, page 41,50, Note 17; “Litigation” is incorporated herein by reference.
Item 4.(Removed and Reserved)
14
PART II
Information relating to Items 5, 6, 7, 7A and 8 is set forth in the Company’s 2010 Annual Report to Shareholders under the pages indicated below and is incorporated herein by reference:
| | | | | | |
| | | | Pages in 2010 |
| | | | Annual Report |
| | | | to Shareholders |
| | | | | | |
Item 5. | | Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchase of Equity Securities | | | | |
| | a) Market Information | | 93 |
| | b) Holders | | 93 |
| | c) Dividends | | 50, 58 & 93 |
| | d) N/A | | | | |
| | e) Shareholder Return Performance Graph | | Not Required |
| | | | | | |
| | Issuer Purchases of Equity Securities in The Fourth Quarter of 2010 | | None |
| | | | | | |
| | | | | | |
Item 6. | | Selected Financial Data | | 51 |
| | | | | | |
| | | | | | |
Item 7. | | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 54-91 |
| | | | | | |
| | | | | | |
Item 7A. | | Quantitative and Qualitative Disclosures About Market Risk | | 83, 90-91 |
| | | | | | |
| | | | | | |
Item 8. | | Financial Statements and Supplementary Data | | 4-53, 70 |
| | | | | | |
| | | | | | |
Item 9. | | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures | | None |
| | | | | | |
| | | | | | |
Item 9A | | Controls and Procedures | | | | |
| | | | | | |
| | Evaluation of Disclosure Controls and Procedures. With the supervision and participation by management, including the Company’s principal executive officer and principal financial officer, the effectiveness of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) has been evaluated as of the end of the period covered by this report. Based upon that evaluation, the Company’s principal executive officer and principal financial officer have concluded that these controls and procedures are designed to ensure that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and are operating in an effective manner. | | | | |
| | | | | | |
| | Management’s Annual Report on Internal Control Over Financial Reporting. The Report on Management’s Assessment of Internal Control Over Financial Reporting is included on page 5 of the 2010 Annual Report to Shareholders and is incorporated herein by reference. | | | | |
| | | | | | |
| | Changes in Internal Control Over Financial Reporting. Our Chief Executive Officer and Chief Financial Officer have concluded that there have been no changes during the fourth quarter of 2010 on the Company’s internal control over financial reporting (as defined in Rules 13a-13 and 15d-15 of the Exchange Act) that have materially affected, or are reasonable likely to materially affect, internal control over financial reporting. | | | | |
| | | | | | |
| | | | | | |
Item 9B. | | Other Information | | None |
15
PART III
Item 10.Directors, Executive Officers and Corporate Governance
Information relating to this item will be set forth in the Company’s definitive proxy statement to be filed on or about April 4, 2011 in connection with the annual meeting of shareholders to be held May 17, 2011 (the “Proxy Statement”). The information contained in the Proxy Statement under the following captions is incorporated herein by reference: “Board Nominees,” “Continuing Directors,” “The Board of Directors and Committees of the Board,” and “Section 16(a) Beneficial Ownership Reporting Compliance.”
Executive Officers of the Registrant
The names, ages and positions of the executive officers as of March 29, 20102011 are as follows:
| | | | | | | |
| Name | | Age | | Position Held |
| | | | | | |
| James M. Gasior | | | 5051 | | | President, Chief Executive
Officer and Director |
| | | | | | |
| Timothy Carney | | | 4445 | | | Executive Vice President,
Chief Operations Officer,
Secretary and Director |
| | | | | | |
| David J. Lucido | | | 5253 | | | Senior Vice President and
Chief Financial Officer |
| | | | | | |
| Stanley P. Feret | | | 4950 | | | Senior Vice President and
Chief Lending Officer |
All of the officersThe directors listed above will hold office until the next annual meeting of shareholders and until their successors are duly elected and qualified.
Principal Occupation and Business Experience of Executive Officers
During the past five years the business experience of each of the executive officers has been as follows:
Mr. Gasior succeeded Mr. Fantauzzi as President and Chief Executive Officer of the Cortland Savings and Banking Company and the Cortland BancorpBank beginning November 2, 2009. Mr. Gasior is a Certified Public Accountant, a member of the American Institute of CPA’s and the Ohio Society of CPA’s, and has been a member of the Board of Directors since November of 2005. Previously, Mr. Gasior served as Senior Vice President, Chief Financial Officer and Secretary of Cortland Bancorp,the Company, and as Senior Vice President, Chief Financial Officer and Secretary of the Bank. He had been in these positions since November, 2005. Mr. Gasior served as Senior Vice President of Lending and Administration of Cortland Bancorpthe Company and the Bank from April 1999 to October 2005.
Mr. Carney was elected as Executive Vice President, Chief Operating Officer and Secretary of both the Cortland Savings and Banking Company and the Cortland BancorpBank on November 2, 2009. Mr. Carney was also appointed to the Board of Directors on November 2, 2009 to serve the unexpired term of Lawrence Fantauzzi. Mr. Carney was elected as Senior Vice President and Chief Operations Officer of Cortland Bancorpthe Company on April 22, 2008. He was Senior Vice President and Chief Operations of the Bank beginning in 2000.
Mr. Lucido was appointed Senior Vice President and Chief Financial Officer of Cortland Savings and Bankingthe Company and Cortland Bancorpthe Bank on January 18, 2010. Previously, Mr. Lucido served as Corporate Vice President and Treasurer of First Place Bank (2008-2010) and Vice President and Manager of Holding Company Accounting for National City Bank (1994-2007).
Mr. Feret was appointed Senior Vice President and Chief Lending Officer of Cortland Savings and Bankingthe Company and Cortland Bancorpthe Bank on March 10, 2010. Previously, Mr. Feret served as Senior Vice President of Huntington National Bank from June 2007 to March 2010 and Senior Vice President of Sky Bank from August 2004 to June 2007.
11
PART II
Information relating to Items 5, 6, 7, 7A and 8 is set forth in the Corporation’s 2009 Annual Report to Shareholders under the pages indicated below and is incorporated herein by reference:
| | | | | | |
| | | | Pages in 2009 | |
| | | | Annual Report | |
| | | | to Shareholders | |
| | Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchase of Equity Securities | | | | |
| | a) Market Information | | | 81 | |
| | b) Holders | | | 81 | |
| | c) Dividends | | | 41, 51 & 81 | |
| | d) N/A | | | | |
| | | | | | |
| | e) Shareholder Return Performance Graph | | | | |
CUMULATIVE VALUE OF $100 INVESTMENT
Comparison of Five-Year Cumulative Total Return Among Cortland Bancorp,
The Russell 2000 Index and SNL Securities Index of Banks with Assets Under $500 Million. (1)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Period Ending |
| Index | | 12/31/04 | | 12/31/05 | | 12/31/06 | | 12/31/07 | | 12/31/08 | | 12/31/09 |
| |
| Cortland Bancorp | | | 100.00 | | | | 86.23 | | | | 92.37 | | | | 65.03 | | | | 55.76 | | | | 25.17 | |
| Russell 2000 | | | 100.00 | | | | 104.55 | | | | 123.76 | | | | 121.82 | | | | 80.66 | | | | 102.58 | |
| SNL Bank < $500M Index | | | 100.00 | | | | 105.88 | | | | 111.23 | | | | 90.31 | | | | 52.42 | | | | 47.75 | |
| | |
(1) | | Assumes that on December 31, 2004, $100 each was invested in the common shares of Cortland Bancorp, the Russell 2000 index, and the SNL Bank Index, with all subsequent dividends reinvested. Cortland Bancorp is not among the banking companies included in the SNL Bank Index, nor is it included in the Russell 2000 index. SNL Securities provided information for Cortland Bancorp, The Russell 2000 index and the SNL Bank Index. Past performance provides no guarantee or assurance that similar results can or will be achieved in the future. |
1216
PART II
| | | | | | |
| | | | Pages in 2009 |
| | Annual Report |
| | | | to Shareholders |
|
Item 5.
| | (Continued) | | |
|
| | Issuer Purchases of Equity Securities in The Fourth Quarter of 2009 | | none |
|
| | Selected Financial Data | | | | 43 |
| | | | |
Item 7.
| | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 46-80 |
| | | | |
Item 7A.
| | Quantitative and Qualitative Disclosures About Market Risk | | 73-74 & 78-79 |
| | | | |
Item 8.
| | Financial Statements and Supplementary Data | | 4-45, 61 |
| | | |
Item 9.
| | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures | |
Item 9A.(t)Controls and Procedures
Evaluation of Disclosure Controls and Procedures. With the supervision and participation by management, including the Company’s principal executive officer and principal financial officer, the effectiveness of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) has been evaluated as of the end of the period covered by this report. Based upon that evaluation, the Company’s principal executive officer and principal financial officer have concluded that such disclosure controls and procedures are effective as of the end of the period covered by this report.
Management’s Annual Report on Internal Control Over Financial Reporting. The Report on Management’s Assessment of Internal Control Over Financial Reporting is included on page 5 of the 2009 Annual Report to Shareholders and is incorporated herein by reference.
Changes in Internal Control Over Financial Reporting. Our Chief Executive Officer and Chief Financial Officer have concluded that there have been no changes during the fourth quarter of 2009 in the Company’s internal control over financial reporting (as defined in Rules 13a-13 and 15d-15 of the Exchange Act) that have materially affected, or are reasonable likely to materially affect, internal control over financial reporting.
Item 9B. Other Information
Not applicable
13
PART III (CONTINUED)
Item l0.11.Directors, Executive Officers and Corporate Governance
Information relating to this item will be set forth in the Corporation’s definitive proxy statement to be filed on or about March 26, 2010 in connection with the annual meeting of shareholders to be held April 27, 2010 (the “Proxy Statement”). The information contained in the Proxy Statement under the following captions is incorporated herein by reference: “Board Nominees”, “Continuing Directors”, “The Board of Directors and Committees of the Board”, and “Section 16(a) Beneficial Ownership Reporting Compliance”.
Information relating to executive officers of the Corporation is set forth in Part I. of this Form 10-K.
Item ll.Executive Compensation
Information relating to this item is incorporated herein by reference to the information in the Proxy Statement that is set forth under the following captions of “Executive Compensation” and “Directors Compensation in 2009”.2010.”
Item l2.12.Security Ownership of Certain Beneficial Owners and Management and Related Shareholders Matters
Information relating to this item is incorporated herein by reference to the information in the Proxy Statement that is set forth under the caption “Share Ownership by Directors and Executive Officers”.Officers.”
Item l3.Item 13.Certain Relationships and Related Transactions, and Director Independence |
Information relating to this item is incorporated herein by reference to the information in the Proxy Statement that is set forth under the captions of “Transactions with Related Persons” and “The Board of Directors and Committees of the Board”.Board.”
Item l4.14.Principal Accountant Fees and Services
Information relating to this item is incorporated herein by reference to the information in the Proxy Statement that is set forth under the captions “Audit Committee Matters”.“Ratification of Independent Auditors.”
1417
PART IV
Item l5.15.Exhibits, Financial Statement Schedules
| | | | | | |
| (a) | | l. | | 1.Financial Statements |
| | | | | | |
| | | | Included in Part II of this report: |
| | | | | | |
| | | | | | Item 8., Financial Statements and Accompanying Information, is set forth in the Corporation’s 2009 |
Included in Part II of this report:
Item 8., Financial Statements and Accompanying Information, is set forth in the Company’s 2010 Annual Report to Shareholders and is incorporated by reference in Part II of this report.
| | | |
| | | Pages in 20092010 |
| | | Annual Report |
| | | To Shareholders |
| Consolidated Financial Statements: | | |
| | |
| Report of Independent Registered Public Accounting Firm | | 6 |
Consolidated Balance Sheets as of December 31, 20092010 and 20082009 | | 7 |
Consolidated Statements of Income for the Years Ended December 31, 2010, 2009 2008 and 20072008 | | 8 |
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2010, 2009 2008 and 20072008 | | 9 |
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 2008 and 20072008 | | 10 |
| Notes to Consolidated Financial Statements | | 11 - 4250 |
| | | | | | |
(a) | | (a) 2. | | Financial Statement Schedules |
| | | | | | |
| | | | Included in Part IV of this report as Exhibit 23: |
| | | | | | |
| | | | | | Independent Accountants’ Consent |
| | | | | | |
| | | | | | Schedules: |
| | | | | | | | |
| | | | | | | | All schedules are omitted because they are not applicable. |
| | | | | | | | |
(a) | | 3. | | Exhibits Required by Item 601 of Regulation S-K |
| | | | | | | | |
| | | | The exhibits filed or incorporated by reference as a part of this report are listed in the Index to Exhibits which appears on page 17-19 hereof and is incorporated herein by reference. |
| | | | | | | | |
| | | | Exhibit 11 — Statement regarding computation of earnings per share — is set forth in the Corporation’s 2009 Annual Report to Shareholders page 15, Note 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Per Share Amounts — and is incorporated herein by reference. |
Included in Part IV of this report as Exhibit 23: All schedules are omitted because they are not applicable.
(a) 3.Exhibits Required by Item 601 of Regulation S-K
The exhibits filed or incorporated by reference as a part of this report are listed in the Index to Exhibits which appears on page 20-22 hereof and is incorporated herein by reference.
Exhibit 11 — Statement regarding computation of earnings per share — is set forth in the Company’s 2010 Annual Report to Shareholders page 15, Note 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Per Share Amounts — and is incorporated herein by reference.
1518
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.
| | | | | | | | | | | |
| |
| | | CORTLAND BANCORP | | |
| | | | | | | | | | | |
March 29, , 2010 | | | | 2011 | | By | | /s/ James M. Gasior | | |
| | | | | | | | | | |
| Date | | | | | | | | President, Chief Executive | | |
| | | | | | | | | Officer and Director | | |
| | | | | | | | (Principal Executive 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/ K.Ray MahanTimothy K. Woofter | | Director and Chairman of the Board | | March 29, 2010
2011Date |
| | | | |
| | President, Chief Executive Officer and Director (Principal Executive Officer) | | March 29, 2010
2011Date |
| | | | |
| | Director | | March 29, 2010
2011Date |
| | | | |
| | Executive Vice President, Chief Operating Officer,
Secretary and Director | | March 29, 2010
2011Date |
| | | | |
| | Director | | March 29, 2010
2011Date |
| | | | |
| | Director | | March 29, 2010
2011Date |
| | | | |
| | Director | | March 29, 2010
Date |
/s/ Neil J. Kaback | | Director | | March 29, 2010
2011Date |
| | | | |
/s/ Richard B. ThompsonNeil J. Kaback | | Director | | March 29, 2010
2011Date |
| | | | |
/s/ Timothy K. WoofterJoseph E. Koch | | Director | | March 29, 2010
2011Date |
| | | | |
| | Director | | March 29, 2011Date |
| | | | |
| | Director | | March 29, 2011Date |
| | | | |
| | Chief Financial Officer
(Principal Financial Officer)
| | March 29, 2011Date |
| | (Principal Accounting Officer) | | March 29, 2010 |
| |
1619
INDEX TO EXHIBITS
The following exhibits are filed or incorporated by reference as part of this report:
Item 15(b). Exhibits
| | | | | | | | | | | | | | | |
| | | | | | | Incorporated by Reference | | |
| Exhibit | | | | | | | | | | Filing | | Filed |
| No. | | Exhibit Description | | Form | | Exhibit | | Date | | Herewith |
| | 3.1 | | | Restated Amended Articles of Cortland Bancorp reflecting amendment dated May 18, 1999. Note: filed for purposes of SEC reporting compliance only. This restated document has not been filed with the State of Ohio | | 10-K | | | 3.1 | | | 03/16/06 | | |
| | | | | | | | | | | | | | | |
| | 3.2 | | | Code of Regulations, as amended | | | | | | | | | | |
| |
| | | | | For the Bancorp | | 10-K | | | 3.2 | | | 03/16/06 | | |
| | | | | For Cortland Savings and Banking | | 10-K | | | 3.2 | | | 03/15/07 | | |
| | 4 | | | The rights of holders of equity securities are defined in portions of the Articles of Incorporation and Code of Regulations as referenced in Exhibits 3.1 and 3.2 | | 10-K | | | 4 | | | 03/16/06 | | |
| | | | | | | | | | | | | | | |
| | *10.1 | | | Group Term Carve Out Plan dated February 23, 2001, by The Cortland Savings and Banking Company with each executive officer other than Rodger W. Platt and with selected other officers, as amended by the August 2002 letter amendment | | 10-K | | | 10.1 | | | 03/16/06 | | |
| | | | | | | | | | | | | | | |
| | *10.2 | | | Group Term Carve Out Plan Amended Split Dollar Policy Endorsement entered into by The Cortland Savings and Banking Company on December 15, 2003 with Stephen A. Telego, Sr. | | 10-K | | | 10.2 | | | 03/16/06 | | |
| | | | | | | | | | | | | | | |
| | *10.3 | | | Amended Director Retirement Agreement between Cortland Bancorp and Jerry A. Carleton, dated as of December 18, 2007 | | 10-K | | | 10.3 | | | 03/17/08 | | |
| | | | | | | | | | | | | | | |
| | *10.4 | | | Amended Director Retirement Agreement between Cortland Bancorp and David C. Cole, dated as of December 18, 2007 | | 10-K | | | 10.4 | | | 03/17/08 | | |
| | | | | | | | | | | | | | | |
| | *10.5 | | | Amended Director Retirement Agreement between Cortland Bancorp and George E. Gessner, dated as of December 18, 2007 | | 10-K | | | 10.5 | | | 03/17/08 | | |
| | | | | | | | | | | | | | | |
| | *10.6 | | | Amended Director Retirement Agreement between Cortland Bancorp and William A. Hagood, dated as of October 12, 2003 | | 10-K | | | 10.6 | | | 03/16/06 | | |
| | | | | | | | | | | | | | | |
| | *10.7 | | | Amended Director Retirement Agreement between Cortland Bancorp and James E. Hoffman III, dated as of December 18, 2007 | | 10-K | | | 10.7 | | | 03/17/08 | | |
| | | | | | | | | | | | | | | |
| | *10.8 | | | Amended Director Retirement Agreement between Cortland Bancorp and Neil J. Kaback, dated as of December 18, 2007 | | 10-K | | | 10.8 | | | 03/17/08 | | |
| | | | | | | | | | | | | | | |
| | *10.9 | | | Director Retirement Agreement between Cortland Bancorp and K. Ray Mahan, dated as of March 1, 2001 | | 10-K | | | 10.9 | | | 03/16/06 | | |
| | | | | | | | | | | | | | | |
| | *10.10 | | | Amended Director Retirement Agreement between Cortland Bancorp and Richard B. Thompson, dated as of December 18, 2007 | | 10-K | | | 10.10 | | | 03/17/08 | | |
| | | | | | | | | | | | | | | |
| | *10.11 | | | Amended Director Retirement Agreement between Cortland Bancorp and Timothy K. Woofter, dated as of December 18, 2007 | | 10-K | | | 10.11 | | | 03/17/08 | | |
| | | | | | | | | | | |
| | | | | Incorporated by Reference | | |
| Exhibit | | | | | | | | Filing | | Filed |
| No. | | Exhibit Description | | Form | | Exhibit | | Date | | Herewith |
| | | | | | | | | | | |
| 3.1 | | Restated Amended Articles of Cortland Bancorp reflecting amendment dated May 18, 1999. Note: filed for purposes of SEC reporting compliance only. This restated document has not been filed with the State of Ohio. | | 10-K(1) | | 3.1 | | 03/16/06 | | |
| | | | | | | | | | | |
| 3.2 | | Code of Regulations, as amended: | | | | | | | | |
| | | For the Bancorp | | 10-K(1) | | 3.2 | | 03/16/06 | | |
| | | For Cortland Savings and Banking | | 10-K | | 3.2 | | 03/15/07 | | |
| | | | | | | | | | | |
| 4 | | The rights of holders of equity securities are defined in portions of the Articles of Incorporation and Code of Regulations as referenced in Exhibits 3.1 and 3.2 | | 10-K(1) | | 4 | | 03/16/06 | | |
| | | | | | | | | | | |
| *10.1 | | Group Term Carve Out Plan dated February 23, 2001, by The Cortland Savings and Banking Company with each executive officer other than Rodger W. Platt and with selected other officers, as amended by the August 2002 letter amendment | | 10-K(1) | | 10.1 | | 03/16/06 | | |
| | | | | | | | | | | |
| *10.2 | | Group Term Carve Out Plan Amended Split Dollar Policy Endorsement entered into by The Cortland Savings and Banking Company on December 15, 2003 with Stephen A. Telego, Sr. | | 10-K(1) | | 10.2 | | 03/16/06 | | |
| | | | | | | | | | | |
| *10.3 | | Amended Director Retirement Agreement between Cortland Bancorp and Jerry A. Carleton, dated as of December 18, 2007 | | 10-K | | 10.3 | | 03/17/08 | | |
| | | | | | | | | | | |
| *10.4 | | Amended Director Retirement Agreement between Cortland Bancorp and David C. Cole, dated as of December 18, 2007 | | 10-K | | 10.4 | | 03/17/08 | | |
| | | | | | | | | | | |
| *10.5 | | Amended Director Retirement Agreement between Cortland Bancorp and George E. Gessner, dated as of December 18, 2007 | | 10-K | | 10.5 | | 03/17/08 | | |
| | | | | | | | | | | |
| *10.6 | | Amended Director Retirement Agreement between Cortland Bancorp and William A. Hagood, dated as of October 12, 2003 | | 10-K(1) | | 10.6 | | 03/16/06 | | |
| | | | | | | | | | | |
| *10.7 | | Amended Director Retirement Agreement between Cortland Bancorp and James E. Hoffman III, dated as of December 18, 2007 | | 10-K | | 10.7 | | 03/17/08 | | |
| | | | | | | | | | | |
| *10.8 | | Amended Director Retirement Agreement between Cortland Bancorp and Neil J. Kaback, dated as of December 18, 2007 | | 10-K | | 10.8 | | 03/17/08 | | |
| | | | | | | | | | | |
| *10.9 | | Director Retirement Agreement between Cortland Bancorp and K. Ray Mahan, dated as of March 1, 2001 | | 10-K(1) | | 10.9 | | 03/16/06 | | |
| | | | | | | | | | | |
| *10.10 | | Amended Director Retirement Agreement between Cortland Bancorp and Richard B. Thompson, dated as of December 18, 2007 | | 10-K | | 10.10 | | 03/17/08 | | |
| | | | | | | | | | | |
| *10.11 | | Amended Director Retirement Agreement between Cortland Bancorp and Timothy K. Woofter, dated as of December 18, 2007 | | 10-K | | 10.11 | | 03/17/08 | | |
| | | | | | | | | | | |
| *10.12 | | Form of Split Dollar Agreement entered into by Cortland Bancorp and each of Directors David C. Cole, George E. Gessner, William A. Hagood, James E. Hoffman III, K. Ray Mahan, and Timothy K. Woofter as of February 23, 2001, as of March 1, 2004, with Director Neil J. Kaback, and as of October 1, 2001, with Director Richard B. Thompson; | | 10-K(1) | | 10.12 | | 03/16/06 | | |
| | | as amended on December 26, 2006, for Directors Cole, Gessner, Hoffman, Mahan, Thompson, and Woofter; | | 10-K | | 10.12 | | 03/15/07 | | |
| | | Amended Split Dollar Agreement and Endorsement entered into by Cortland Bancorp as of December 18, 2007, with Director Jerry A. Carleton | | 10-K | | 10.12 | | 03/17/08 | | |
| | | | | | | | | | | |
| 10.13 | | Reserved | | | | | | | | |
| | | | | | | | | | | |
| 10.14 | | Reserved | | | | | | | | |
1720
INDEX TO EXHIBITS
| | | | | | | | | | | | | | |
| | | | | Incorporated by Reference | | |
| Exhibit | | | | | | | | | | Filing | | Filed | |
| No. | | Exhibit Description | | Form | | Exhibit | | Date | | Herewith | |
*10.12 | | Form of Split Dollar Agreement entered into by Cortland Bancorp and each of Directors David C. Cole, George E. Gessner, William A. Hagood, James E. Hoffman III, K. Ray Mahan, and Timothy K. Woofter as of February 23, 2001, as of March 1, 2004, with Director Neil J. Kaback, and as of October 1, 2001, with Director Richard B. Thompson; | | 10-K | | | 10.12 | | | 03/16/06 | | | | |
| | | | | | | | | | | | | | |
| | as amended on December 26, 2006, for Directors Cole, Gessner, Hoffman, Mahan, Thompson, and Woofter; | | 10-K | | | 10.12 | | | 3/15/07 | | | | |
| | | | | | | | | | | | | | |
| | Amended Split Dollar Agreement and Endorsement entered into by Cortland Bancorp as of December 18, 2007, with Director Jerry A. Carleton | | 10-K | | | 10.12 | | | 03/17/08 | | | | |
| | | | | | | | | | | | | | |
10.13 | | Reserved | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
10.14 | | Reserved | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| *10.15 | | Form of Indemnification Agreement entered into by Cortland Bancorp with each of its directors as of May 24, 2005directors. | | 10-K | 10-K(1) | | 10.15 | | | 03/16/06 | | | | |
| | | | | | | | | | | | | | |
| 10.16 | | Reserved | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| *10.17 | | ThirdFourth Amended and Restated Salary Continuation Agreement between The Cortland Savings and Banking Company and Timothy Carney, dated as of December 3, 2008June 1, 2010 | | 8-K | | | 10.17 | | | 12/12/08 | | 06/02/10 | | |
| | | | | | | | | | | | | | |
| *10.18 | | Third Amended and Restated Salary Continuation Agreement between The Cortland Savings and Banking Company and Lawrence A. Fantauzzi, dated as of December 3, 2008 | | 8-K | | | 10.18 | | | 12/12/08 | | | | |
| | | | | | | | | | | | | | |
| *10.19 | | ThirdFourth Amended and Restated Salary Continuation Agreement between The Cortland Savings and Banking Company and James M. Gasior, dated as of December 3, 2008June 1, 2010 | | 8-K | | | 10.19 | | | 12/12/08 | | 06/02/10 | | |
| | | | | | | | | | | | | | |
| *10.20 | | Second Amended Salary Continuation Agreement between The Cortland Savings and Banking Company and Marlene Lenio, dated as of December 3, 2008 | | 8-K | | | 10.20 | | | 12/12/08 | | | | |
| | | | | | | | | | | |
| *10.20.1 | | Amendment of the December 3, 2008 Second Amended Salary Continuation Agreement between The Cortland Savings and Banking Company and Marlene J. Lenio | | 10-Q | | 10.20.1 | | 05/17/10 | | |
| | | | | | | | | | | |
| *10.21 | | Amended Salary Continuation Agreement between The Cortland Savings and Banking Company and Craig Phythyon, dated as of December 3, 2008 | | 8-K | | | 10.21 | | | 12/12/08 | | | | |
| | | | | | | | | | | |
| *10.21.1 | | Amendment of the December 3, 2008 Second Amended Salary Continuation Agreement between The Cortland Savings and Banking Company and Craig M. Phythyon | | 10-Q | | 10.21.1 | | 05/17/10 | | |
| | | | | | | | | | | |
| *10.22 | | Third Amended and Restated Salary Continuation Agreement between The Cortland Savings and Banking Company and Stephen A. Telego, Sr., dated as of December 3, 2008 | | 8-K | | | 10.22 | | | 12/12/08 | | | | |
| | | | | | | | | | | |
| *10.22.1 | | Amendment of the December 3, 2008 Third Amended Salary Continuation Agreement between The Cortland Savings and Banking Company and Stephen A. Telego, Sr. | | 10-Q | | 10.22.1 | | 05/17/10 | | |
| | | | | | | | | | | |
| *10.23 | | Third Amended and Restated Salary Continuation Agreement between The Cortland Savings and Banking Company and Danny L. White,David J. Lucido dated as of December 3, 2008June 1, 2010 | | 8-K | | | 10.23 | | | 12/12/08 | | 06/02/10 | | |
| | | | | | | | | | | | | | |
| *10.24 | | Third Amended Split Dollar Agreement and Endorsement between The Cortland Savings and Banking Company and Timothy Carney, dated as of December 3, 2008 | | 8-K | | | 10.24 | | | 12/12/08 | | | | |
| | | | | | | | | | | |
| *10.25 | | Salary Continuation Agreement between The Cortland Savings and Banking Company and Stanley P. Feret dated as of June 1, 2010 | | 8-K | | 10.25 | | 06/02/10 | | |
10.25 | | Reserved | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| *10.26 | | Third Amended Split Dollar Agreement and Endorsement between The Cortland Savings and Banking Company and James M. Gasior, dated as of December 3, 2008 | | 8-K | | | 10.26 | | | 12/12/08 | | | | |
| | | | | | | | | | | | | | |
| *10.27 | | Second Amended Split Dollar Agreement between The Cortland Savings and Banking Company and Marlene Lenio, dated as of December 3, 2008 | | 8-K | | | 10.27 | | | 12/12/08 | | | | |
| | | | | | | | | | | |
| *10.27.1 | | | |
*10.28 | | AmendedTermination of Split Dollar Agreement and Endorsement between The Cortland Savings and Banking Company and Craig Phythyon, dated as of December 3, 2008Marlene Lenio | | 8-K10-Q | | | 10.2810.27.1 | | | 12/12/08 | | | | |
| | | | | | | | | | | | | | |
*10.29 | | Third Amended Split Dollar Agreement and Endorsement between The Cortland Savings and Banking Company and Stephen A. Telego, Sr., dated as of December 3, 2008 | | 8-K | | | 10.29 | | | 12/12/08 | | | | |
| | | | | | | | | | | | | | |
*10.30 | | Third Amended Split Dollar Agreement and Endorsement between The Cortland Savings and Banking Company and Danny L. White, dated as of December 3, 2008 | | 8-K | | | 10.30 | | | 12/12/08 | | 05/17/10 | | |
1821
| | | | | | | | | | | | | | | |
| | | | | Incorporated by Reference | |
| Exhibit | | | | | | | | | | Filing | | Filed | |
| No. | | Exhibit Description | | Form | | Exhibit | | Date | | Herewith | |
| *10.31 | | Severance Agreement entered into by Cortland Bancorp and The Cortland Savings and Banking Company in December 3, 2008, with each of Timothy Carney, James M. Gasior, and Stephen A. Telego, Sr. | | 8-K | | | 10.31 | | | 12/12/08 | | | | |
| | | | | | | | | | | | | | | |
| *10.32 | | Severance Agreement entered into by Cortland Bancorp and The Cortland Savings and Banking Company in December 3, 2008, with each of Marlene Lenio, Craig M. Phythyon, Barbara Sandrock, and Danny L. White | | 8-K | | | 10.32 | | | 12/12/08 | | | | |
| | | | | | | | | | | | | | | |
| *10.33 | | Agreement and General Release with Lawrence A. Fantauzzi | | 8-K | | | 10.1 | | | 10/22/09 | | | | |
| | | | | | | | | | | | | | | |
| 11 | | Statement of re-computation of per share earnings | | See Note 1 of | | | | | | | | | | |
| | | | | Financial | | | | | | | | | | |
| | | | | Statements | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| 13 | | Annual Report to security holders | | | | | | | | | | ü | | |
| | | | | | | | | | | | | | | |
| 14 | | Code of Ethics | | 10-K | | | 14 | | | 3/17/08 | | | | |
| | | | | | | | | | | | | | | |
| 21 | | Subsidiaries of the Registrant | | | | | | | | | | ü | | |
| | | | | | | | | | | | | | | |
| 23 | | Consents of experts and counsel — Consent of independent registered public Accounting firms | | | | | | | | | | ü | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| 31.1 | | Certification of the Chief Executive Officer under Rule 13a-14(a) | | | | | | | | | | ü | | |
| | | | | | | | | | | | | | | |
| 31.2 | | Certification of Chief Financial Officer under Rule 13a-14(a) | | | | | | | | | | ü | | |
| | | | | | | | | | | | | | | |
| 32 | | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer required under section 906 of the Sarbanes-Oxley Act of 2002 | | | | | | | | | | ü | | |
| | | | | | | | | | | |
| | | | | Incorporated by Reference | | |
| Exhibit | | | | | | | | Filing | | Filed |
| No. | | Exhibit Description | | Form | | Exhibit | | Date | | Herewith |
| | | | | | | | | | | |
| *10.28.1 | | Termination of the Split Dollar Agreement and Endorsement between The Cortland Savings and Banking Company and Craig Phythyon | | 10-Q | | 10.28.1 | | 05/17/10 | | |
| | | | | | | | | | | |
| *10.29 | | Third Amended Split Dollar Agreement and Endorsement between The Cortland Savings and Banking Company and Stephen A. Telego, Sr., dated as of December 3, 2008 | | 8-K | | 10.29 | | 12/12/08 | | |
| | | | | | | | | | | |
| *10.29.1 | | Termination of the Split Dollar Agreement and Endorsement between The Cortland Savings and Banking Company and Stephen A. Telego, Sr. | | 10-Q | | 10.29.1 | | 05/17/10 | | |
| | | | | | | | | | | |
| 10.30 | | Reserved | | | | | | | | |
| | | | | | | | | | | |
| *10.31 | | Severance Agreement entered into by Cortland Bancorp with each of Messrs. Timothy Carney, James M. Gasior and David J. Lucido | | 8-K | | 10.31 | | 12/12/08 | | |
| | | | | | | | | | | |
| *10.32 | | Severance Agreement entered into by Cortland Bancorp and The Cortland Savings and Banking Company in December 3, 2008, with each of Marlene J. Lenio, Craig M. Phythyon and Barbara R. Sandrock | | 8-K | | 10.32 | | 12/12/08 | | |
| | | | | | | | | | | |
| *10.32.1 | | Termination of Severance Agreement entered into by each of Mses. Marlene J. Lenio and Barbara R. Sandrock and Messrs. Craig M. Phythyon and Stephen A. Telego, Sr. | | 10-Q | | 10.32.1 | | 05/17/10 | | |
| | | | | | | | | | | |
| *10.33 | | Agreement and General Release with Lawrence A. Fantauzzi | | 8-K | | 10.1 | | 10/22/09 | | |
| | | | | | | | | | | |
| *10.34 | | Severance Agreement between Cortland Bancorp and Stanley P. Feret | | 8-K | | 10.34 | | 06/02/10 | | |
| | | | | | | | | | | |
| 11 | | Statement of re-computation of per share earnings | | See Note 1
of Financial
Statements | | | | | | |
| | | | | | | | | | | |
| 13 | | Annual Report to security holders | | | | | | | | ü |
| | | | | | | | | | | |
| 14 | | Code of Ethics | | 10-K | | 14 | | 3/17/08 | | |
| | | | | | | | | | | |
| 21 | | Subsidiaries of the Registrant | | | | | | | | ü |
| | | | | | | | | | | |
| 23 | | Consents of experts and counsel — Consent of independent registered public Accounting firms | | | | | | | | ü |
| | | | | | | | | | | |
| 31.1 | | Certification of the Chief Executive Officer under Rule 13a-14(a) | | | | | | | | ü |
| | | | | | | | | | | |
| 31.2 | | Certification of Chief Financial Officer under Rule 13a-14(a) | | | | | | | | ü |
| | | | | | | | | | | |
| 32 | | Section 1350 Certification of Chief Executive Officer and Chief | | | | | | | | ü |
| | | Financial Officer required under section 906 of the Sarbanes-Oxley Act of 2002 | | | | | | | | |
| | |
| (1) | | Film number 06691632 |
|
| * | | Management contract or compensatory plan or arrangement |
Copies of any exhibits will be furnished to shareholders upon written request. Requests should be directed to Timothy Carney, Secretary, Cortland Bancorp, 194 West Main Street, Cortland, Ohio 44410.
1922
