Control Act, control is conclusively presumed to exist when an acquiror has 25% ownership of a bank holding company, and control may be rebuttably presumed to exist when the acquiror has 10% ownership. Control determinations under the Bank Holding Company Act and the Change in Bank Control Act are highly dependent on the facts of each case and are not necessarily based on stock ownership alone;

     (d)Change in Board Composition:during any period of two consecutive years individuals who constituted the Board of Directors of Cortland Bancorp or the Bank at the beginning of the two-year period cease for any reason to constitute at least a majority (but directors first elected during the two-year period who were nominated by vote of at least two-thirds (2/3) of the directors are treated as if they were themselves directors at the beginning of the two-year period); or

     (e)Sale of Assets:Cortland Bancorp sells substantially all of its assets to a third party.

If a change in control occurs and the total benefits or payments to which an officerexecutive is entitled as a resultconstitute so-called “excess parachute payments” and are therefore subject to the 20% excise taxestax under Internal Revenue Code Sections 280G and 4999 of the Internal Revenue Code (whether the benefits or payments arise under the severance agreement or under anotherany other compensation plan or arrangement, such as the salary continuation agreements or the Group Term Carve-Out Plan)arrangement), the officer will be entitled towe must also make an additional “gross-up” benefit. Theadjusted gross-up payment would approximate 80% of the amount that would be necessaryto Messrs. Gasior, Carney and Lucido, compensating them for the officer’s net benefits after payment of income, payroll, and excise taxes to equal the total change-in-control benefits promised under the severance agreement, the salary continuation agreement, or other benefit plans and arrangements. Specifically, the payment would include reimbursement of 100% of the excise tax plus 80% of the excess amount necessary to fully reimburse the officeras well as for income, payroll, and excise taxes imposed. The gross-upimposed on that parachute payment would not be deductible by Cortland Bancorp orexcise tax reimbursement payment. A 20% excise tax is imposed under Section 4999 if the Bank. Not partyvalue of an executive’s aggregate change-in-control benefits – calculated according to a severance agreement, Mr. Platt is entitled to a similar gross-up benefit under his Amended Salary Continuation Agreement. Internal Revenue Codeprocedures specified in Section 280G disallows an employer’s compensation deduction for so-called “excess parachute payments,” and Internal Revenue Code Section 4999 imposesaccompanying IRS regulations – equals or exceeds three times the executive’s five-year average taxable compensation. The five-year average is known as the base amount. If the value of the aggregate change-in-control benefits equals or exceeds three times the base amount, a 20% excise tax is imposed on an officer who receives an excess parachute payment. In general,all benefits arising out of a change in control, such as severance benefits and accelerated payment or accelerated vesting under salary continuation agreements or stock options, constitute parachute payments underexceeding the Internal Revenue Code if their value – calculated according to IRS procedures – exceeds the officer’s average taxable compensation over the preceding five years multiplied by three. If the change-in-control benefits exceed that threshold, the officer incurs an excise tax equal to 20% of thebase amount exceeding his or her average taxable compensation over the preceding five years, and the employer forfeits its compensation deduction for those same benefits. The total adjusted gross-up payment to Messrs. Gasior, Carney and Lucido would consist of (1) a payment equal to the initial excise tax and (2) a gross-up payment that is equal to 80% of the difference between (x) the amount that would fully compensate the executives for all income, payroll, and excise taxes imposed on the excise tax reimbursement payment and (y) the excise tax payment itself. The gross-up benefit is not deductible compensation.

Salary Continuation Agreements. Messrs. Gasior, Carney and Lucido are also parties to salary continuation agreements with The Cortland Savings and Banking Company. A copy of the agreement of Mr. Gasior and Mr. Carney – the March 27, 2012 Fifth Amended Salary Continuation Agreement – is included as an exhibit to our Form 10-K Annual Report for the year ended December 31, 2011, which we filed with the SEC on March 29, 2012. A copy of Mr. Lucido’s June 1, 2010 Salary Continuation Agreement is included as an exhibit to the Form 8-K Current Report that we filed with the SEC on June 2, 2010.

The salary continuation agreements provide Messrs. Gasior, Carney and Lucido with an annual normal retirement benefit payable for 15 years, beginning at age 65 and payable regardless of whether the executives continue working past age 65. The annual benefit amount is $109,700 for Mr. Gasior, $112,500 for Mr. Carney and $80,900 for Mr. Lucido. A reduced benefit is payable for termination before attaining age 65, the amount of the reduced benefit being the amount that amortizes over 15 years the liability accrual balance existing when termination occurs. Mr. Lucido’s early termination benefit is also subject to a vesting requirement, vesting in equal 10% increments on the first ten anniversaries of the agreement’s June 1, 2010 effective date, but becoming fully vested if a change in control first occurs. For termination before full vesting, Mr. Lucido’s early termination would be based on the vested accrual balance. If a change in control occurs before attaining age 65, instead of an annual retirement-age benefit Mr. Gasior and Mr. Carney would be entitled to an immediate lump-sum payment equal to the liability accrual balance projected to exist at their age 65 normal retirement age, but the payment would be discounted to present value. After a change in control Mr. Lucido would be entitled to a lump-sum payment equal to the existing liability accrual balance, but only if within 24 months after the change in control Mr. Lucido’s employment termination occurs

involuntarily but without cause or voluntarily on account of an adverse change in employment circumstances to which he did not consent in advance. The salary continuation agreements employ the definition of the term change in control that is contained in Internal Revenue Code Section 409A and implementing regulations.

The salary continuation agreements of Messrs. Gasior and Carney were amended in March of 2012, with the Fifth Amended Salary Continuation Agreements replacing the Fourth Amended agreements. The Fifth Amended agreements eliminated the vesting condition that applied to the early termination benefits exceedingof Messrs. Carney and Gasior. However, the five-year average.Fifth Amended agreements add a promise on their part that for two years after employment termination they will not compete with Cortland. Like the severance agreements, the salary continuation agreements provide for reimbursement of up to $500,000 in legal expenses for the executives if the agreements are challenged after a change in control occurs.

If Messrs. Gasior, Carney and Lucido die before age 65 in active service to the Bank, instead of salary continuation agreement benefits payable to Messrs. Gasior and Carney, their beneficiaries will receive a life insurance death benefit in a fixed amount. As informal financing for the salary continuation agreement payment obligation arising out of an officer’sexecutive’s death before retirement, the Cortland Savings and Banking Company purchased life insurance policies on certain officers’ lives, including Messrs. Gasior and Carney. The life insurance policies are owned by the Bank, but the Bank entered into endorsement split dollar arrangements allowing the executives to designate the beneficiary of a portion of the policy death benefits. The Bank will receive the remainder of the death benefits. Messrs. Gasior’s, Carney’s and Lucido’s split dollar agreements provide that the split dollar life insurance benefit expires when the nonqualified deferred compensation obligation is fully accrued at age 65, even if the executive is still working for the Bank. Although the Bank expects the split dollar life insurance policy benefits to finance the expense for the payment obligations under the salary continuation agreements of Messrs. Gasior, Carney and Lucido, the executives’ contractual entitlements under the agreements are not funded and remain contractual liabilities of the Bank. A copy of the agreement of Mr. Gasior and Mr. Carney – the April 19, 2011 Fourth Amended Split Dollar Agreement and Endorsement – is included as an exhibit to the Form 8-K Current Report that we filed with the SEC on April 22, 2011. A copy of the agreement of Mr. Lucido – the March 27, 2012 Endorsement Split Dollar Agreement – is included as an exhibit to the Form 10-K Annual Report that we filed with the SEC on March 29, 2012.

Group Term Carve Out Plan. In December 2000, the Bank purchased with a single premium payment approximately $2.8 million in life insurance on the lives of 22 officers for the Group Term Carve Out Plan. A number of the original 22 officers have since terminated, but those who remain include Messrs. Gasior and Carney. Under group term split dollar endorsements, the Bank and the executives share the rights to death benefits payable under the life insurance policies. An executive’s beneficiaries are entitled to one of the following death benefit amounts:

Pre-Retirement Death Benefit. If the executive dies before retirement, the death benefit is the lesser of (a) $500,000 or (b) twice the executive’s current annual salary at the time of death, less $50,000; or

Post-Retirement Death Benefit. If the executive was no longer employed by the Bank at the time of death, but had terminated employment terminates(i) within one year after a change in control, Cortland Bancorp must(ii) due to disability, or (iii) on or after the early retirement age of 62, the death benefit is the lesser of (a) $500,000 or (b) the Executive’s most recent salary at the time of death.

The Bank receives the remainder of the life insurance policy death benefits, which should be sufficient to recover in full the Bank’s life insurance investment. No benefits are payable under the plan to any executive whose employment terminates before the age of 62, unless termination is due to disability or unless termination occurs within one year after a change in control. Benefits are payable to the executives’ beneficiaries in a lump sum.

Employees also continue hishave life health and disability insurance coverage forbenefits under the Bank’s group term life insurance program, paying benefits up to three years, alongtwice the executive’s current annual salary at the time of death to the executive’s beneficiaries if the executive dies while employed by the Bank, but limited to $50,000 for participants in the Group Term Carve Out Plan. Messrs. Gasior and Carney are limited to the $50,000 cap, while Mr. Lucido’s benefit is twice his salary.

Profit Sharing Program. If the Bank achieves its profit goal for the fiscal year, the Board may (but is not required to) approve profit sharing. The Bank’s profit goal for profit sharing purposes was not achieved in 2013. As a result, no profit-sharing distributions were made. Should the Bank achieve its profit goal in the future, the Board may (but is not required to) approve profit sharing. If the Board does approve profit sharing, all employees in good standing are eligible.

Employee Benefit Plan 401(k). The Bank maintains a traditional 401(k) retirement plan for employees. In general, the Bank matches participants’ voluntary contributions up to 5% of gross pay. Employee contributions and matching contributions under the plan accumulate tax free until distributions begin at the employee’s normal retirement age. The goal of the 401(k) plan is to enable employees to provide for their own retirement and, combined with fringeSocial Security benefits, such asto ensure that their aggregate post-retirement income is maintained at a percentage of pre-retirement income sufficient to sustain a long-term retirement.

Perquisites and Other Compensation. The Corporate Governance Committee annually reviews the perquisites that the management team receives. In the case of Messrs. Gasior, Carney and Lucido, membership in a golf or social club memberships. The officer will also be entitledis encouraged to out-placement servicesprovide an appropriate forum for one year,entertaining existing customers, developing and promoting new business and generally interacting with influential members of the local community.

IRC Limits. Cortland considers tax and financial planning services for three years after termination. The severance agreements also includeaccounting implications in the design of its compensation programs. Section 162(m) of the IRC places a promiselimit on the parttax deduction for compensation in excess of $1 million paid to the chief executive officer and four most highly compensated executive officers of a corporation in a taxable year. All of the compensation Cortland Bancorp andpaid in 2013 to the Banknamed executive officers is expected to be deductible under Section 162(m). The Executive Compensation Committee retains the flexibility, however, to pay officers’ legal fees associated with the interpretation, enforcement, or defense of their rights under the severance agreements, up to a maximum of $500,000, individually, as adjusted for inflation from time to time.

     The term “change in control” is defined in Mr. Platt’s Amended Salary Continuation Agreement in the same way the term is defined in the severance agreements. The Second Amended Salary Continuation Agreements of Messrs. Carney, Fantauzzi, Gasior, and Telego define the term “change in control” to mean any of the transactions or events described in clauses (a) [merger], (b) [acquisition of 25% of Cortland Bancorp’s shares], (d) [change in a majority of the board], and (e) [sale of assets] above.

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CORTLAND BANCORP PERFORMANCE GRAPH
CUMULATIVE VALUE OF $100 INVESTMENT
Comparison of Five-Year Cumulative Total Return Among Cortland Bancorp,
The Russell 3000 Index and SNL Securities Index of Banks with Assets Under $500Million. (1)

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based on a review of reports filed by our directors and executive officers, all stock ownership reports required to be filed by such persons with the SEC were timely made during 2004.

CORTLAND BANCORP SHARE OWNERSHIP BY
DIRECTORS AND EXECUTIVE OFFICERS

The following table lists the ownership of Cortland Bancorp’s common shares by directors and executive officers. Ownership includes direct and indirect (beneficial) ownership, as defined by rules established and promulgated by the SEC. To the best of our knowledge, each person, along with his spouse (if any), has sole voting and investment power unless otherwise noted. Information in this table is based upon 4,188,597 outstanding common shares of Cortland Bancorp as of March 1, 2005. No person or entity owns more than 5% of the outstanding common shares of Cortland Bancorp.

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The Board recommends that shareholders vote “FOR” the amendment to the Code of Regulations

with assurance that the burden of liability and litigation expenses arising out of their services will be indemnified to the full extent permitted by the Ohio General Corporation Law.

     The proposed form of indemnification agreement included in Appendix A does not alter the standard of care directors owe to Cortland Bancorp and its shareholders under the Ohio General Corporation Law. Indemnification also cannot affect a director’s potential liability under the federal securities laws. Insofar as indemnification for liabilities under the Securities Act of 1933 may be permitted under the articles of incorporation, the regulations and the proposed form of indemnification agreement, it is the opinion of the Securities and Exchange Commission that such indemnification is against public policy and is therefore unenforceable.

     Like the corporate law of most if not all states, Ohio’s General Corporation Law allows an Ohio corporation to indemnify its directors and officers against liabilities arising out of their service to the corporation, and it allows the corporation to advance a director’s or officer’s litigation expenses before the litigation is concluded. And like the corporate law of most if not all states, the Ohio General Corporation Law makes clear that a corporation may provide broader indemnification rights to its directors and officers through indemnification provisions in its governing documents – its articles of incorporation and regulations – and through private indemnification contracts. In addition to the limited indemnification powers that exist under the Ohio General Corporation Law, Cortland Bancorp’s regulations provide for indemnification of directors and officers. Cortland Bancorp proposes to enter into indemnification agreements with directors and officers in substantially the form attached to this proxy statement as Appendix A.

     The following discussion of the indemnification and other provisions of the Ohio General Corporation Law and Cortland Bancorp’s regulations is merely a summary. The discussion is qualified in its entirety by reference to the Ohio General Corporation Law and Cortland Bancorp’s regulations, including the provisions cited in the discussion. Cortland Bancorp is not aware of any pending or threatened litigation that would lead to claims under the articles of incorporation, the regulations or the form of indemnification agreements.

The Ohio General Corporation Law Provides Limited Statutory Indemnification Rights

Permitted Indemnification in General. Section 1701.13(E) of the Ohio General Corporation Law grants to Ohio corporations the power to indemnify directors within prescribed limits, requiring indemnification in some circumstances. The scope of authorized indemnification is more limited in the context of a shareholder’s lawsuit brought on behalf of the corporation – a so-called “derivative suit” – than it is in other litigation contexts.

Indemnification Is Required If the Director Is Successful on the Merits. Under Ohio General Corporation Law section 1701.13(E)(3), an Ohio corporation must indemnify a director who is wholly successful in a derivative suit or in a non-derivative suit, whether the director is successful on the merits or on another basis.

Indemnification Is Allowed, Even If He Is Not Successful on the Merits. If a director is not successful in the defense of litigation but nevertheless satisfied the standard of conduct established under the Ohio General Corporation Law, indemnification is discretionary. The standard of conduct requires that the director “acted” in good faith and in the manner the director reasonably believed to be in or not opposed to the best interests of the corporationCortland.

TRANSACTIONS WITH RELATED PERSONS

In 2013, executive officers and with respectdirectors of Cortland, members of their immediate families, and corporations or organizations as to any criminal actionwhich directors of Cortland serve as executive officers or proceeding, if he had no reasonable cause to believe his conduct was unlawful. Indemnification also may be ordered by a court even if the director did not satisfy the required standard of conduct for indemnification. The general standard of conduct required of directors is stated in section 1701.59(B)beneficially own more than 10% of the Ohio General Corporation Law –

     (B) A director shall performequity interest, were involved in banking transactions with the director’s dutiesBank in the ordinary course of their respective businesses and in compliance with applicable federal and state laws and regulations. It is expected that similar banking transactions will be entered into in the future. Transactions with such persons in connection with the deposit of funds or the Bank acting in an agency capacity have been made on substantially the same terms as a director,those prevailing at the time for comparable transactions with persons not affiliated with Cortland or its subsidiaries. Loans to these persons have been made on substantially the same terms, including the dutiesinterest rate charged and collateral required, as those prevailing at the time for comparable transactions with persons not affiliated with Cortland or its subsidiaries. These loans have been subject to and are presently subject to no more than a membernormal risk of any committeecollectability and present no other unfavorable features. As of the directors upon which the director may serve,

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in good faith, in a manner the director reasonably believes to be in or not opposed to the best interestsdate of this proxy statement, all of the corporation, andloans described in this paragraph were performing in accordance with the care that an ordinarily prudent person in a like position would use under similar circumstances.their original terms.

No Indemnification If the Director Acted Negligently or Improperly Obtained a Personal Benefit. The Ohio General Corporation Law does not authorize indemnification in a derivative suit if the director is held liable to the corporation for his actions. Indemnification in those cases may be ordered by a court, however.ADVISORY VOTE ON EXECUTIVE COMPENSATION

Advancement of Directors’ Expenses. If a director of an Ohio corporation is named as a defendant in litigation, the corporation may advance his expenses if the director agrees to repay the amount advanced if it is ultimately determined that the director did not satisfy the applicable standard of conduct. Expenses includes attorneys’ fees.

Cortland Bancorp’s Governing Documents Also Provide for Indemnification

Code of Regulations. Many corporations provide for indemnification in their governing documents, clarifying and in some cases expanding upon the indemnification provided by statute. Rather than the discretionary indemnification allowed under Ohio General Corporation Law section 1701.13(E), section 5.01 of Cortland Bancorp’s Code of Regulations requires indemnification if the director satisfied the standard of conduct established in section 1701.59(B) of the Ohio General Corporation Law, stating also that a person seeking indemnification is presumed to have acted according to the required standard of conduct. Like section 1701.13(E)(5) of the Ohio General Corporation Law, section 5.05 of Cortland Bancorp’s regulations also allows a director’s litigation expenses to be advanced if the director agrees to repay the amount advanced if it is ultimately determined that the director is not entitled to indemnification.

Indemnification Rights under a Company’s Governing Instruments or and under the Ohio General Corporation Law Are Not Exclusive of Indemnification Rights under Private Agreements. Both section 1701.13(E)(6) of the Ohio General Corporation Law and section 5.06 of Cortland Bancorp’s regulations allow Cortland Bancorp to purchase and maintain insurance and enter into private indemnification agreements to protect directors, officers, employees, and agents from liability, regardless of whether the power to indemnify those individuals exists under the Ohio General Corporation Law.(Proposal Two)

We Propose That Shareholders Approve the Form and Use of Director Indemnification Agreements

Indemnification Rights under the Code of Regulations Can Be Taken Away Without Directors’ and Officers’ Consent. The indemnification protection of Cortland Bancorp’s regulations could become ineffective. For example, if Cortland Bancorp merges into another company, Cortland Bancorp’s regulations would be cancelled. Additionally, the regulations could be amended after a change in control of Cortland Bancorpare subject to delete or limit indemnification rights.

Indemnification Agreements Are Private Contracts; Directors’ and Officers’ Contract Rights Cannot Be Taken Away Unless They Consent. In contrast, if Cortland Bancorp enters into indemnification agreements with directors, the indemnification rights under those agreements would not be eliminated automatically by a merger and they would not be affected by amendment of the articles of incorporation or regulations. Indemnification agreements are private contracts, granting indemnification rights that can be modified or taken away solely with the approval of the parties to the contract, regardless of whether the articles of incorporation and regulations are cancelled or amended.

Why Is the Director Indemnification Agreement Being Submitted to Shareholders for Their Approval? Section 1701.60(A)(1)(b) of the Ohio General Corporation Law provides that a conflict of interest transaction between a corporation and one or more of its directors, including entry into an indemnification contract between a corporation and a director, is not voidable by the corporation simply because of the director’s interest in the transaction if the material facts of the transaction and the director’s interest in the transaction are disclosed to shareholders and if the shareholders nevertheless approve the

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transaction. The minimum shareholder vote that is necessary for this purpose is the affirmative vote of a majority of the shares issued and outstanding, excluding shares held by interested directors. Shareholder approval is not necessary if the transaction or contract is fair to the corporation. Although the Board believes the form of indemnification agreement is fair to Cortland Bancorp – and that shareholder approval is therefore not absolutely necessary under Ohio law – the Board nevertheless believes it is appropriate that shareholders be given the opportunity to vote on this matter. Shareholder approval would make it unnecessary for the directors to prove that the indemnification agreement is fair to Cortland Bancorp if the agreement is ever challenged. For that reason, the Board is submitting this proposal for shareholders’ consideration and vote at the annual meeting.

What Rights Do the Indemnification Agreements Provide? Shareholders should read the form of indemnification agreement included in Appendix B. The agreement requires Cortland Bancorp to indemnify directors, allowing directors to select the most favorable indemnification rights provided under –

	•	Cortland Bancorp’s articles of incorporation and regulations in effect on the date of the indemnification agreement or on the date expenses are incurred;
	•	state law in effect on the date of the indemnification agreement or on the date expenses are incurred;
	•	any liability insurance policy in effect when a claim is made against the director or on the date expenses are incurred; and
	•	any other indemnification arrangement otherwise available.

     The director would have the right to be reimbursed for expenses as they are incurred, but only if he files with Cortland Bancorp an undertaking to repay that amount if it is later determined that he must repay it. No indemnification will be required under the indemnification agreements for actions, fines, or penalties that are specifically excluded from indemnification coverage under applicable law, for claims arising under the short-swing trading prohibition of Section 16(b)14A of the Securities Exchange Act of 1934, or for any proceeding initiated bywhich requires that we provide to our shareholders the director withoutopportunity to vote on the consentcompensation of the board, exceptexecutive officers named in limited cases.the Summary Compensation Table. Added by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010, Section 14A was not applicable to us until 2013.

What If Shareholders Do Not ApproveCommonly known as a say-on-pay vote, the Form and Useshareholder vote required by Section 14A is an advisory vote, which means that the vote is not binding on us, on our Board of Director Indemnification Agreements? The Board has not determined what action, if any, it will take if shareholders do not approve the form and use of director indemnification agreements. Even if shareholders do not approve the agreements, the Board could nevertheless enter into the proposed agreements with directors basedDirectors, or on the Board’s opinionCorporate Governance Committee. The say-on-pay vote is intended to be a vote on the executive officer compensation that the agreements are fair to Cortland Bancorp. Cortland Bancorp may also enter into indemnification agreementsis disclosed in the form attached to this proxy statement in accordance with the disclosure rules of the Securities and Exchange Commission.

The goals of our compensation arrangements are to provide fair and competitive compensation, to provide compensation that promotes the hiring and retention of the most talented personnel, to create incentives for and to reward superior performance, and to align the interests of our officers and employees with the interests of shareholders. We seek to avoid creating incentives for unnecessary or excessive risk-taking, avoid creating incentives for excessive focus on stock price performance instead of fundamental business values, avoid creating incentives to seek short-term benefits at the expense of long-term results, and avoid creating incentives to achieve short-term benefits with long-term risks. With the assistance of the Corporate Governance Committee, the Board believes that Cortland’s compensation arrangements avoid these adverse incentives and instead reward performance promoting our long-term prosperity, although the arrangements are continually evolving and are and will remain subject to ongoing review and evaluation by the board and by the Corporate Governance Committee. We are asking shareholders to vote on the following resolution at the 2014 Annual Meeting:

“RESOLVED, that the compensation paid to the company’s named executive officers, as Appendix Bdisclosed in Cortland Bancorp’s Proxy Statement for the 2014 Annual Meeting in compliance with officers.Item 402 of the Securities and Exchange Commission’s Regulation S-K, including the compensation tables and narrative discussion, is hereby APPROVED.”

Approval of the Form and Use of Director Indemnification Agreements Requires the Affirmative Vote of a Majority Votemajority of the Shares Outstanding

     Under section 1701.60(A)(1)(b)votes cast will constitute approval of this proposal to approve the named executive officer compensation disclosed in this proxy statement. An abstention or broker non-vote is not counted as a vote cast, and as a result will have no effect on the vote to approve the proposal. A proxy that does not specify voting instructions will be voted in favor of this non-binding, advisory proposal. Although the results of the Ohio General Corporation Law,say-on-pay vote will not be binding on us, we expect to take the results into account in future compensation decisions.

The Board recommends a vote “FOR” approval of the formcompensation of our named executive officers, as disclosed in this proxy statement.

AMENDMENT OF THE CODE OF REGULATIONS

(Proposal Three)

Proposed amendment of Section 2.02. We are asking shareholders to adopt an amendment of the Code of Regulations. If adopted, the amendment will replace Section 2.02 of the Code of Regulations in its entirety with the following revised Section 2.02:

Section 2.02. Number of Directors and useTerm of indemnification agreements forOffice. The board of directors requiresshall consist of no fewer than nine and no more than 15 directors, the exact number being fixed from time to time within that range either (x) by the Board or (y) at an annual meeting, by the affirmative vote of holders of a majority of the voting power meaningof the corporation represented at the meeting and entitled to vote on such proposal. The board of directors shall be divided into three classes as nearly equal in number as possible. The classes shall serve staggered three-year terms so that one of the three classes stands for election at each annual meeting. At each annual meeting of shareholders, successors of the class of directors whose term then expires shall be elected to hold office for a three-year term. If the number of directors of the corporation increases or decreases, the change in the number of directors shall be apportioned among director classes so that class sizes are maintained as nearly equal in number as possible. No reduction in the number of directors constituting the board of directors may shorten the term of any incumbent director, however.

Our board approved the amended Section 2.02, but the amendment will not be considered adopted and will not become effective unless it also is adopted by shareholders.

Effect of the amendment. The proposed amendment does not affect the right of the board or the right of shareholders to change the board’s size. Both the board itself and shareholders have that right under the current Section 2.02 of the Code of Regulations and they will continue to have that right under revised Section 2.02. The amendment does not affect the provision of Section 2.02 establishing a classified board. That is, the board is and will continue to be divided into three classes, with each class having a number of directors as nearly equal as possible to the other classes. Directors in each class serve a three-year term, and class terms are staggered so that only one of the three classes stands for election each year. A decrease or increase in the number of directors is required to be – and will continue to be required to be – apportioned among the three classes so that class sizes remain as nearly equal as possible, and a reduction in board size will not shorten the term of any serving director.

What the proposed amendment will do is allow the board size to increase beyond 11 directors. Section 2.02 of the Code of Regulations currently does not permit the size of the board to exceed 11 directors, which is the size of our board now, so in order to add a new director we would first have to amend the Code of Regulations to allow for a board of 12 or more directors. The proposed revised Section 2.02 will allow the board size to change within the range of 9 to 15 directors, rather than the very limited range of 9 to 11 that Section 2.02 currently provides for. Although the amendment will allow it, we currently do not plan to increase the board’s size. There are no new director candidates whom we have identified for board service, nor are we actively seeking new candidates.

Reasons for the amendment. The purpose of the amendment is to restore flexibility where there currently is none. With a board that has expanded to eleven directors, neither our board nor our shareholders can add a twelfth unless we first obtain shareholder approval of an amendment of the Code of Regulations, an amendment raising from 11 to 12 or to some greater number the maximum number of directors. Having first to amend the Code of Regulations in order to achieve the goal of adding a director maintains shareholders’ control over the Board’s size. But we believe that it also greatly increases the costs for adding a director, adds a significant amount of delay and uncertainty, and fails to account for the fact that the opportunity to add a qualified and talented candidate to the board might be open for a very limited time only.

Calling and holding a special meeting so that shareholders can consider and vote upon an amendment of the Code of Regulations is an expensive process, involving preparation and mailing of proxy materials, filings with the SEC, administrative details associated with the conduct of the meeting, and preparation of and board approval of the actual amendment. Although considering and voting upon an amendment at a regular annual meeting of shareholders is not as expensive as doing so at a special meeting, the Code of Regulations amendment would add to our costs even at an annual meeting. Moreover, whether the amendment is considered at an annual meeting or at a special meeting, the process of soliciting shareholder approval of an amendment and holding a meeting means months can elapse between the time a new director candidate is identified and the date when the Code of Regulations is finally amended to allow for the board expansion that is necessary, with no certainty during that time that the process will succeed. The delays also put us at a competitive disadvantage. Another company also seeking director talent might be able to offer a board seat to our director candidate without having first to amend its governing documents to make that possible.

We believe that most companies of our size or larger preserve the flexibility to add quickly to the board the director talent that they need to compete and to prosper. We believe amending Section 2.02 will restore that flexibility to Cortland Bancorp as well.

Required vote for adoption of the amendment. Cortland’s Articles of Incorporation state in Article Nine that amendment of the Code of Regulations requires approval of 80% of the outstanding shares if the amendment is not first approved by two thirds of the directors, but that approval of a majority of allthe shares issued and outstanding and with shares heldis sufficient if the amendment is first approved by directors excluded from the calculationtwo thirds of the numberdirectors. The proposed amendment of Section 2.02 has been approved by two thirds of the directors. The proposal to amend Section 2.02 of the Code of Regulations will not be considered adopted and percentagewill not become effective unless it receives the affirmative vote of the holders of shares voting. Asentitled to exercise a group, Cortland Bancorp directors own or control the power to vote approximately 7.435%majority of the voting power of Cortland Bancorp’sthe outstanding shares.shares of Cortland’s common stock. Shareholders may vote “FOR,” “AGAINST,” or “ABSTAIN.” Abstentions and broker non-votes will have the same effect as votes against the form and useproposal to amend the Code of indemnification agreements with directors, because this matter requires the affirmative vote of a specified percentage of all shares outstanding, excluding shares held by directors.Regulations.

     The preceding discussion of the indemnification agreement is merely a summary. The discussion is qualified in its entirety by reference to the form of indemnification agreement attached to this proxy statement as Appendix B.

The Board recommends that shareholdersa vote “FOR” approval the proposal to adopt amended Section 2.02 of the form and useCode of director indemnification agreementsRegulations.

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NOTIFICATION OF APPOINTMENTRATIFICATION OF INDEPENDENT AUDITORS

The Audit Committee has appointed the firm of Packer Thomas to serve as(Proposal Four)

Cortland’s independent auditors for Cortland Bancorpauditor for the 2005 fiscal year. They have served as independent auditors for Cortland Bancorp since 1994. Representatives of Packer Thomas planyear ended December 31, 2013, was S.R. Snodgrass, P.C. Subject to shareholder ratification, the audit committee has selected S.R. Snodgrass, P.C. to be in attendanceCortland’s independent auditor for the fiscal year ending December 31, 2014. We expect one or more representatives of S.R. Snodgrass, P.C. to be present at the Annual MeetingMeeting. The representative of S.R. Snodgrass, P.C. will have the opportunity to make a statement if desired, and will be available to answer shareholderrespond to appropriate questions.

Audit Fees of Independent Registered Public Accounting Firm. Fees contracted for the fiscal years ended December 31, 2004 and 2003 wereservices by S. R. Snodgrass, P.C. for professional services rendered for the auditseach of the consolidated2013 fiscal year and the 2012 fiscal year were as follows:

Pre-Approval of the Company, quarterly reviews of the financial statements included in Cortland Bancorp’s Quarterly Reports on Form 10-Q and services associated with SEC registrations.

Audit Related Feesinclude the financial statement audits of employee benefit plans.

Tax Feesinclude U.S. federal, state and local tax planning and advice, and U.S. federal, state and local tax compliance.

All Other Feesmust be pre-approvedServices Performed by the Audit Committee to ensure that such services do not impair the auditor’s independence.

Independent Registered Public Accounting Firm. The Audit Committee pre-approves all audit and non-audit services provided by the independent auditors prior to the engagement of the independent auditors with respect to such services. The Chairman of the Audit Committee has been designated the authority by the Committee to pre-approve the engagement of the independent auditors when the entire Audit Committee is unable to do so. The Chairman must report all such pre-approvals to the entire Audit Committee at its next meeting. All of the next committee meeting.

Audit Committee Report for the Fiscal Year Ended December 31, 2013

The Audit Committee has reviewed the audited financial statements for the year ended December 31, 2013, and has discussed the audited financial statements with management. The Audit Committee has also discussed with S.R. Snodgrass, P.C., Cortland’s independent registered public accounting firm, the matters required to be discussed by Statement on Auditing Standards No. 61 (having to do with accounting methods used in the financial statements). The Audit Committee has received the written disclosures and the letter from S.R. Snodgrass, P.C. required by Independence Standards Board Standard No. 1 (having to do with matters that could affect the independent registered accounting firm’s independence), and has discussed with S.R. Snodgrass, P.C. the independent registered accounting firm’s independence. Based on this, the Audit Committee recommended to the Board that Cortland’s audited consolidated financial statements be included in Cortland’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, for filing with the Securities and Exchange Commission.

Submitted by the Audit Committee

David C. Cole, Neil J. Kaback, Richard B. Thompson, and Anthony R. Vross

SUBMISSION OF SHAREHOLDER PROPOSALS

If any Cortland shareholder of the Corporation wishes to submit a proposal to be included in next year’s Proxy Statementproxy statement and acted upon at the annual meeting of the CorporationCortland’s Annual Meeting to be held in 2006,2015, the proposal must be received by the CorporationCortland’s Secretary prior to the close of business on November 17, 2005. December 19, 2014. Upon receipt of a shareholder proposal, Cortland will determine whether or not to include the proposal in the proxy materials in accordance with applicable SEC Rules.

If a shareholder intends to present a proposal at the 20062015 Annual Meeting, but has not sought the inclusion of such proposal in the Corporation’sCortland’s proxy materials, such proposal must be received by the CorporationSecretary of Cortland prior to January 31, 2006,March 4, 2015, or the Corporation’s management proxies for the 20062015 Annual Meeting will be entitled to use their discretionary voting authority, should such proposal then be raised, without any discussion of the matter in Cortland Bancorp’sCortland’s proxy material.

DELIVERY OF PROXY MATERIALS TO SHAREHOLDERS SHARING AN ADDRESS

SEC rules provide for “householding,” which permits the Cortland Bancorp to send a single annual report and a single proxy statement to any household at which two or more different shareholders reside if Cortland Bancorp believes such shareholders are members of the same family or otherwise share the same address or in which one shareholder has multiple accounts, if in each case such shareholder(s) have not opted out of the householding process. Each shareholder would continue to receive a separate notice of any meeting of shareholders and a separate proxy card. The householding procedure reduces the volume of duplicate information that shareholders may receive and reduces the company’sCortland’s expense. Cortland

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Bancorp may institute householding in the future, and will notify those registered shareholders who will be affected by householding at that time.

Many brokerage firms and other holders of record have instituted householding. If your family has one or more “street name” accounts under which you beneficially own common shares of the Cortland, Bancorp, you may have received householding information from your broker, bank, or other nominee in the past. Please contact the holder of record directly if you have any questions, require additional copies of the Form 10-K or proxy statement or our annual report to shareholders for the 20042013 fiscal year, or to revoke your consent to household and, thereby, receive multiple copies once again. These options are available to you at any time.

OTHER BUSINESS

As of the date of this proxy statement, the Board of Directors knows of no other matters that will be presented for action at the Annual Meetingannual meeting other than those discussed in this proxy statement. If any other business should properly arise, the persons acting under the proxies solicited by the Board of Directors have the discretionary authority to vote in accordance with their best judgement.

By Order of the Board of Directors.

Lawrence A. Fantauzzi
Secretary-Treasurer

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Appendix A

CHARTER OF THE NOMINATING AND CORPORATE
GOVERNANCE COMMITTEE OF THE BOARD OF DIRECTORS OF
CORTLAND BANCORP
(Approved by Board of Directors, October 26, 2004)