ELECTION OF DIRECTORS

(Proposal One)

The Board currently has eleventwelve members. Directors are divided into three classes, and directors of each class serve for three-year terms. Four directors serve in the class whose terms will expire at the Annual Meeting, four directors serve in the class whose term expires in 20152018 and threefour directors serve in the class whose term expires in 2016.2019. Proxies may not be voted for more than the four nominees.

BOARD NOMINEES

Directors are individuals with knowledge and experience who serve and represent Cortland’s geographic footprint throughout the counties and communities served and those counties contiguous to its market. Current Board representation by outside directors demonstrates a background in the automotive, law, manufacturing, financial services, construction and the accounting industries, with the expertise of these individuals covering a broad array of skills including corporate management, human resource management, strategic planning, business acquisitions, and small business operations.

The Board proposes that the four nominees identified be elected for a new term of three years. Each nominee was recommended by the Board’s Corporate Governance Committee. Each individual elected as a director at the Annual Meeting will hold office until his term expires and thereafter until his successor is duly elected and qualified, or until his earlier resignation, removal from office, or death. While it is contemplated that all nominees will stand for re-election, if a nominee who would otherwise receive the required number of votes becomes unavailable or unable to serve as a candidate for re-election as a director, the individuals designated as proxies on the proxy card will have full discretion to vote the common shares represented by the proxies they hold for the election of the remaining nominees and for the election of any substitute nominee or nominees designated by the Board following recommendation by the Corporate Governance Committee. The Board knows of no reason any of the nominees named below will be unavailable or unable to serve if elected to the Board.

Recommendation and Vote

Under Ohio law and Cortland’s Code of Regulations, the nominees receiving the greatest number of votes“FOR” election will be elected to the Board. Shareholders are not entitled to cumulate votes in the election of directors. Common shares represented by properly executed and returned proxy cards will be voted“FOR”the election of the Board’s nominees named above unless authority to vote for one or more nominees is withheld. Common shares as to which the authority to vote is withheld and broker non-votes will be counted for quorum purposes, but will not be counted in the election of directors.

The Board recommends a voteFOR the election of the nominees.

CONTINUING DIRECTORS

Nominee		Age		Biography		Director of Cortland Since		Term Expires In
Joseph P. Langhenry		58		From 2000 to 2016, Mr. Langhenry was President and CEO of Watteredge, Inc., a division of Coleman Cable, Inc., a Cleveland-area manufacturer of power connectors and other products for the power generation, automotive and other industries. Mr. Langhenry started with Watteredge as a Sales Manager and previously worked as a bond trader for Prescott Ball and Turben. He previously served on the Board of the Lakewood Country Club. The Corporate Governance Committee and the Board believe that Mr. Langhenry’s experiences, qualifications, attributes and skills allow him to provide valuable business leadership expertise to the Board.		2013		2019
Thomas P. Perciak		69		Mr. Perciak has been the mayor of Strongsville, Ohio since 2004. From 1999 to 2004, he was the Executive Vice President of Fifth Third Bank, Northeastern Ohio. Mr. Perciak was President and CEO of Emerald Financial Corp., the NASDAQ-traded, SEC-registered thrift holding company of The Strongsville Savings Bank, from the inception of Emerald Financial Corp. in January 1995 through August 1999 when Fifth Third Bancorp, Cincinnati, Ohio acquired Emerald Financial Corporation. During a twenty year tenure as the principal executive officer, Mr. Perciak led The Strongsville Savings Bank from a two office savings institution to a retail savings bank that had 16 banking offices in high growth suburban locations throughout Cuyahoga County, Lorain County and Medina County, Ohio. For two decades, Mr. Perciak received awards from the Homebuilders Association of Greater Cleveland in recognition of excellence in construction lending to builders and developers of residential real estate in Northeastern Ohio. From April 22, 2008 through August 14, 2015, Mr. Perciak served as a director of LNB Bancorp, an SEC-registered, NASDAQ-traded bank holding company headquartered in Lorain, Ohio. Northwest Bancshares, Inc., Warren, Pennsylvania acquired LNB Bancorp on August 14, 2015. He is the retired Chairman of the Southwest Health Center Foundation Board, a 358-bed hospital located in Middleburg Heights, Ohio. Mr. Perciak currently serves on the board of financial advisors to the Cleveland Catholic Diocese. The Corporate Governance Committee and the Board believe that Mr. Perciak’s experiences, qualifications, attributes and skills allow him to provide extensive understanding of the banking industry and economic and business development abilities in the Cleveland-area suburbs, markets the Company has targeted for continued growth.		2016		2019

THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD

Independence of Directors

The Board has reviewed, considered, and discussed each director’s relationships, both direct or indirect, with Cortland and its subsidiaries and the compensation and other payments, if any, each director has, both directly or indirectly, received from or made to Cortland and its subsidiaries in order to determine whether the director is independent. The Board has determined that it has a majority of independent directors and that each of the following directors qualifies as independent under Nasdaq Rule 5605(a)(2): David C. Cole, George E. Gessner,J. Martin Erbaugh, James E. Hoffman, III, Neil J. Kaback, Joseph E. Koch, Joseph P. Langhenry, Thomas P. Perciak, Richard B. Thompson, Anthony R. Vross, and Timothy K. Woofter.

James M. Gasior and Timothy Carney do not qualify as independent directors because they currently serve as executive officers of Cortland and its subsidiaries.

Meetings of the Board and Attendance at the Annual Meeting of Shareholders

In 2013,2016, the Board held a total of 1812 meetings. Each incumbent director attended at least 75% of the aggregate of the total number of meetings held by the Board and the total number of meetings held by the board committees on which he served, in each case during the period of his service.

Cortland encourages all incumbent directors and director nominees to attend each annual meeting of shareholders. All of the incumbent directors and director nominees attended Cortland’s last Annual Meeting of Shareholders, held on May 28, 2013.24, 2016.

Communications with the Board

Although Cortland does not currently have formal procedures by which shareholders may communicate directly with directors, Cortland believes that its current process has adequately served the needs of the Board and its shareholders. Communications sent to the Board, either generally or in care of the Chief Executive Officer, Secretary, the Investor Relations Officer, or another corporate officer, are forwarded to all directors. There is no screening process, and all communications that are received by officers for the Board’s attention are forwarded to the Board.

Until other procedures are developed and posted on Cortland’s website at www.cortland-banks.com,www.cortlandbank.com, any communication to the Board may be mailed to the Board, in care of the Investor Relations Officer, at Cortland’s headquarters in Cortland, Ohio. The mailing envelope must contain a clear notation indicating that the enclosed letter is a “Shareholder-Board Communication” or a “Shareholder-Director Communication.” In addition, communication via Cortland’s website may be used. Correspondence through the investor relations page of the website should also be directed to the Investor Relations Officer and indicate that the communication is a “Shareholder-Board Communication” or a “Shareholder-Director Communication.” All such communications, whether via mail or website, must identify the author as a shareholder and clearly state whether the intended recipients are all directors on the Board or just certain specified individual directors or committee members. The Investor Relations Officer will make copies of all such communications and circulate them to the appropriate director or directors.

Board Committees

Audit Committee

The Board has an Audit Committee comprised of Messrs. Cole,Erbaugh, Kaback (Chair), Thompson and Vross. The Board has determined that each member and nominee of the Audit Committee qualifies as independent under the Nasdaq Marketplace Rules, as well as under Rule 10A-3 promulgated under the Exchange Act. The Board has determined that Mr. Kaback qualifies as an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K. Mr. Kaback has acquired these attributes through education and experience as a certified public accountant.

The Audit Committee conducts its business pursuant to a written charter adopted by the Board. A current copy of the charter of the Audit Committee is posted on Cortland’s website at www.cortland-banks.comwww.cortlandbank.com on the investor relations page under Governance Documents, “Audit Committee Charter.” At least annually, the Audit Committee reviews and reassesses the adequacy of its charter and recommends any proposed changes to the full Board for approval as necessary.

The Audit Committee is responsible for appointing, compensating, and overseeing the independent registered public accounting firm employed by Cortland for the purpose of preparing and issuing an audit report or other audit, review, or attestation services. The Audit Committee evaluates the independence of the independent registered public accounting firm on an ongoing basis. The Audit Committee also approves audit reports and plans, accounting policies, and audit outsource arrangements, including audit scope, internal audit reports, audit fees, and certain other expenses. The Audit Committee is responsible for developing procedures for the receipt, retention, and treatment of complaints regarding accounting, internal auditing controls, or auditing matters, including procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

The Audit Committee held six (6) meetings in 2013.2016. The Audit Committee’s report relating to the 20132016 fiscal year appears elsewhere in this proxy statement.

Corporate GovernanceCompensation Committee

The Corporate GovernanceCompensation Committee is currently comprised of Messrs. Carney, Cole, Gasior, Gessner,Langhenry, Perciak, Thompson and Woofter (Chair). Mr. Perciak was appointed to the Compensation Committee on May 24, 2016. The Board has determined that each non-employee member of the Corporate GovernanceCompensation Committee qualifiesqualified as independent under Nasdaq Marketplace Rules. In addition, each non-employee member of the Corporate GovernanceCompensation Committee qualifiesqualified as an “outside director” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the IRC), and as a “non-employee director” for purposes of Section 16b-3 under the Exchange Act. The Corporate Governance Committee met twice in 2013.

The Corporate GovernanceCompensation Committee oversees director and executive officer compensation as well as compensation under the Profit Sharing Program and the Employee Benefit Plan 401(k). Plan. The Corporate GovernanceCompensation Committee is also responsible for administration of other executive benefits and plans, including the 2015 Omnibus Equity Plan. The Compensation Committee reviews and recommends officer compensation levels and benefit plans. In evaluating executive officer performance, the committeeCompensation Committee takes into account –

The Corporate GovernanceCompensation Committee occasionally requests the Chief Executive Officer (CEO) to be present at Corporate GovernanceCompensation Committee meetings to discuss executive compensation and evaluate individual performance. The Corporate GovernanceCompensation Committee discusses the CEO’s compensation with him, but final deliberations and all votes regarding his compensation are made in executive session, without the CEO present. The Corporate GovernanceCompensation Committee also approves the compensation for other executive officers based on the CEO’s recommendations with input from outside advisors and counsel and then makes its recommendationrecommendations to the Board.

The Corporate GovernanceCompensation Committee reviews publicly available peer data to assist with evaluating the overall compensation for the Board. From time to time, the Corporate GovernanceCompensation Committee recommendswill recommend changes in compensation to further the goals of the director compensation program, which strives to provide appropriate compensation to directors for their time, efforts and contributions.

The Corporate GovernanceCompensation Committee uses compensation data from similar-sized financial institutions for comparative purposes from time to time to provide input on both for director compensationBoard and for executive compensation issues, but the committee did not engageand used Meyer-Chatfield Compensation Advisors as a consultant in setting 20132016 compensation. The Compensation Committee conducts its business pursuant to a written charter adopted by the Board. At least annually, the Compensation Committee reviews and reassesses the adequacy of its charter and recommends any proposed changes to the full Board for approval as necessary. The Compensation Committee held three (3) meetings in 2016.

Corporate Governance Committee does not have a formal charter.

The Corporate Governance Committee alsois comprised of Messrs. Cole, Koch, Perciak, Thompson, and Woofter (Chair). Mr. Koch was appointed to the Corporate Governance Committee on May 24, 2016. The Board has determined that each member of the Corporate Governance Committee qualifies as independent under Nasdaq Marketplace Rules. In addition, each member of the Corporate Governance Committee qualifies as an “outside director” for purposes of Section 162(m) of the IRC, and as a “non-employee director” for purposes of Section 16b-3 under the Exchange Act. The Corporate Governance

Committee held one (1) meeting during 2016. The charter of the Corporate Governance Committee is reviewed annually and is available on Cortland’s website at www.cortlandbank.com on the investor relations page under Governance Documents, “Nominating and Corporate Governance Committee Charter.”

The Corporate Governance Committee is charged with the following responsibilities:

Nominating Procedures

The Corporate Governance Committee has the responsibility to identify and recommend individuals qualified to become directors. Each candidate must satisfy the eligibility requirements set forth in Cortland’s Code of Regulations, Article Two, Section 2.01 “Authority and Qualifications.Qualifications,” and in guidelines adopted by the Board from time to time. No person who has attained the age of 70 is eligible for election as a director. The Board of Directors is seeking stockholder approval to increase the mandatory retirement age for directors in order to provide the Company with the opportunity to benefit from the valuable expertise of directors for a longer time and to bring the Company’s director and each director must hold sharesretirement policy in line with other similarly sized financial institutions. The proposal to increase the mandatory retirement age is described below in the discussion of stockProposal Three, the proposal to amend the Code of Cortland with an aggregate par value or stated value of $500, an aggregate shareholder equity of at least $500, or an aggregate fair market value of at least $500. The stockRegulations. Stock ownership guidelines adopted by the boardBoard and described above in 2012“SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS –Stock Ownership Guidelines,” provide that the minimum stock ownership levellevels for nonemployee directors is shares having a value equal to two times the annual retainer, and the minimum stock ownership level for employee directors is shares having a value equal to four times the annual retainer.non-employee directors.

When considering potential candidates for the Board, the Corporate Governance Committee strives to assure that the composition of the Board, as well as its practices and operation, contributes to an effective representation and advocacy of shareholders’ interest. The Corporate Governance Committee may consider those factors it deems appropriate in evaluating director candidates, including judgment, skill, strength of character, experience with business and organizations comparable in size and scope to Cortland, experience and skills relative to other Board members, and specialized knowledge or experience. Depending upon the current needs of the Board, certain factors may be weighed more heavily than others by the Corporate Governance Committee. The Corporate Governance Committee does not have a policy for the consideration of diversity in the nomination process, but takes into account in its deliberations all facets of a potential nominee’s background, including the potential nominee’s educational background, gender, business and professional experience, and his or her particular skills and other qualities. The Corporate Governance Committee’s goal is to identify individuals who will enhance and add valuable perspective to the Board’s deliberations and who will assist Cortland in its effort to capitalize on business opportunities in a challenging and highly competitive market.

In considering candidates for the Board, the Corporate Governance Committee evaluates the entirety of each candidate’s credentials and, other than the eligibility requirements set forth in Cortland’s Code of Regulations and other than the stock ownership guidelines, there are no specific minimum qualifications that must be met by a Corporate Governance Committee-recommended nominee. However, the Corporate Governance Committee does believe that each director on the Board should be of the highest character and integrity; possess a reputation for working constructively with others; have sufficient time to devote to Board matters; and be without any conflict of interest that would impede the individual’s performance as a director.

The Corporate Governance Committee will consider candidates for the Board from any reasonable source, including shareholder recommendations. The Corporate Governance Committee will not evaluate candidates differently based on who has made the recommendation. The Corporate Governance Committee has the authority to hire and pay a fee to consultants or search firms for the purpose of identifying and evaluating candidates. No such consultants or search firms have been used to date and, accordingly, no fees have been paid to consultants, search firms, or any other individuals.

According to Section 2.03(B) of Cortland’s Code of Regulations, any shareholder who desires to nominate an individual to the Board must provide timely written notice. To be timely, the notice must be mailed to the President of Cortland at least 14 days but no more than 50 days before the meeting at which directors will be elected, or 7 days after notice of the meeting is mailed to shareholders if the meeting is held within 21 days of Cortland mailing notice of the meeting.

The shareholder’s notice of nomination must give:

The Corporate Governance Committee will disregard a shareholder’s nomination if it is not made in compliance with these rules and standards.

Board Leadership Structure and Role in Risk Oversight

The office of Chairman of the Board and the office of Chief Executive Officer have been separate at Cortland since 2005. Since November 2, 2009, James M. Gasior has held the office of Chief Executive Officer and effective April 27, 2010, Timothy K. Woofter became Chairman of the Board. Cortland believes that separation of these two offices is consistent with the Board’s responsibility for oversight of management and of Cortland’s affairs generally. The Board and its committees have a significant role in oversight of the risks to which Cortland is subject. Like other community banking organizations, we exerciseCortland exercises oversight of common banking risks through a loan committee that considers loan applications and credit risk, an asset and liability committee whose routine responsibilities require consideration of interest rate and liquidity risk, an audit committee that takes into account audit and regulatory compliance risks and a loan review committee that monitors non-performing assets and their ultimate outcome. The full Board of course, takes these and other risks into account in its deliberations as well.

Code of Ethics

Cortland has adopted a Code of Ethics (the Code) as part of its corporate governance program. The Code applies to all of Cortland’s officers and employees, including its Chief Executive Officer and Chief Financial Officer. The Code is posted on the Investor Relations page of Cortland’s website at www.cortland-banks.comwww.cortlandbank.com under Governance Documents, “Code of Business Conduct and Ethics.” Any amendments to, or waivers from, this Code will be posted on this same website. In addition, a copy of the Code is available to shareholders upon request. Shareholders desiring a copy of the Code should address written requests to Mr. Timothy Carney, ExecutiveLance A. Morrison, Vice President Chief Operating Officer and Secretary of Cortland Bancorp, 194 West Main Street, Cortland, Ohio 44410, and are asked to mark “Code of Business Conduct and Ethics” on the outside of the envelope containing the request.

DIRECTOR COMPENSATION IN 20132016

The following table shows the compensation of Cortland directors for their service in 2013,2016, other than Directors Gasior and Carney. Information about compensation paid to and earned by Directors Gasior and Carney is included in the Summary Compensation Table.Table for Executive Compensation. Compensation shown in the table is aggregate compensation paid in 20132016 for directors’ service both to Cortland and all of its subsidiaries.

Retirement Agreements and Insurance for Non-Employee Directors. Directors Carleton, Cole, Gessner, Hoffman, Kaback, Koch, Langhenry, Thompson, and Woofter are parties to director retirement agreements with Cortland. The director retirement agreements promise a post-retirement benefit of $10,000 payable annually for 10 years if the director retires after reaching his normal retirement age, which is a function of years of service on the Board and attained age. Normal retirement ages for these directors are age 61 (Mr. Cole), age 62 (Mr. Hoffman), age 63 (Mr. Woofter), age 66 (Mr. Gessner), age 67 (Mr. Kaback), andage 70 (Mr. Koch), age 72 (Mr. Langhenry), age 70 (Mr. Thompson), and age 63 (Mr. Woofter). A reduced annual retirement benefit is payable if the director terminates service or becomes disabled before reaching the normal retirement age, but the benefit is not paid until the director reaches the normal retirement age. Having attained normal retirement age under his agreement, Mr. Carleton retired in 2013. If termination of the director’s service occurs within one year after a change in control of Cortland, the director will receive cash in a single lump sum equal to the retirement benefit expense accrued by Cortland. The director retirement agreement benefits to which a director is entitled are payable to his beneficiary after the director’s death, but if the director dies in active service to Cortland before reaching his normal retirement age, his beneficiary will be entitled to cash in a single lump sum equal to the retirement benefit expense accrued by Cortland.

Cortland purchased insurance on the lives of directors who are parties to the director retirement agreements and entered into split dollar agreements with them, promising to share a portion of the life insurance death benefits with the directors’ designated beneficiaries. Each director’s portion of the policy’s death benefit is $100,000, payable to the director’s beneficiary whether the director’s death occurs while in active service to Cortland or after retirement. Cortland will receive any death benefits remaining after payment to the director’s beneficiary. Entry into the Director Retirement Program has been discontinued. There will be no new director participants in the program, although the former directors currently participating will continue to do so.

Director Indemnification. At the 2005 Annual Meeting, the shareholders of Cortland approved the form and use of indemnification agreements with directors. Cortland has entered into indemnification agreements with each of its directors. The indemnification agreements allow a director to select the most favorable indemnification rights provided under:

The indemnification agreements cover all fees, expenses, judgments, fines, penalties, and settlement amounts paid in any matter relating to the director’s role as director, officer, employee, agent, or when serving as Cortland’s representative with another entity. Each indemnification agreement provides for the prompt advancement of all expenses incurred in a proceeding, subject to the director’s obligation to repay those advances if it is determined later that the director is not entitled to indemnification.

Retainer and Fees. Currently, the Board and the Board of Directors of the Bank consist of the same individuals. The annual retainer for the Chairman of the Board is $20,000, with $675 for each board meeting attended. The annual retainer for all other non-employee directors is $18,000, plus $600 for each board meeting attended. Non-employee directors also receive a fee for each committee meeting attended: $400 for the Audit Committee, $400 for the Corporate Governance Committee, $400 for the Compensation Committee and $250 for all other committees. Directors of the Bank (both employee and non-employee) may also elect to participate in the Bank’s health care plans at substantially the same rates as all employees.

Director Emeritus Compensation. For up to ten years after retirement as a director, an emeritus director of the Bank is paid $600 for each meeting attended, for an annual compensation of $7,200, provided the director emeritus attends at least 75% of Board meetings. Emeritus directors are also entitled to continue participation in the Bank’s health care plan, although the former director is responsible for paying 100% of the Bank’s cost to maintain health care coverage. After the emeritus director’s death, his or her spouse may similarly maintain health care coverage, at the spouse’s cost. Emeritus directors participate in Board meetings, but are not entitled to vote on any matters coming before the Board. In October 2012, the Board elected to discontinue the director emeritus compensation program. There will be no new emeritus director participants in the program, although the former directors currently participating will continue to do so until the end of the ten-year term.

EXECUTIVE COMPENSATION

Cortland does not provide any monetary compensation directly to its executive officers. Instead, the executive officers of Cortland are paid by the Bank for services rendered in their capacity as executive officers of Cortland and the Bank.

Summary Compensation Table

(3)

On April 26, 2016, the Compensation Committee of Cortland’s Board of Directors awarded 2,433 shares of restricted stock to President and CEO James M. Gasior, 2,297 shares to Executive Vice President and COO Timothy Carney, and 1,593 shares to Senior Vice President and Chief Financial Officer David J. Lucido. Awarded under the 2015 Omnibus Equity Plan, the shares vest in equal thirds on the first three anniversaries of the award date if the executive remains employed with Cortland, but the awards will be fully vested if a change in control occurs. The price of stock on the grant date was $15.25 per share. In 2016, Cortland expensed $8,463 for Mr. Gasior, $7,990 for Mr. Carney and $5,541 for Mr. Lucido.

(4)

The figures in the “all other compensation” column consist of the Bank’s contribution to the 401(k) plan accounts for the named executive officers, the imputed monetary value of life insurance policies, vehicle-related expenses, club memberships, and accrual expense for benefits payable under the executives’ salary continuation agreements. For 2013,2016, the Bank made contributions of $11,665$12,852 to the 401(k) plan account of Mr. Gasior, $11,024$13,250 to the account of Mr. Carney and $7,314$9,268 to the account of Mr. Lucido. The imputed value of life insurance policies for income tax purposes in 20132016 was $1,645$3,596 for Mr. Gasior, $1,079$2,043 for Mr. Carney and $940$2,472 for Mr. Lucido. Vehicle-related expenses in 20132016 were $8,400 for Mr. Gasior, $8,100 for Mr. Carney and $6,600 for Mr. Lucido. Club membership dues in 20132016 were $5,342$8,014 for Mr. Gasior, $8,264$14,811 for Mr. Carney and $6,658$7,816 for Mr. Lucido. In 2016, dividends earned on restricted shares awarded under the 2015 Omnibus Equity Plan were $511 for Mr. Gasior, $482 for Mr. Carney and $335 for Mr. Lucido. Incentives earned on residential mortgage loans in 2016 were $0 for Mr. Gasior, $300 for Mr. Carney and $100 for Mr. Lucido. The addition to the liability accrual balance to account for the salary continuation agreements in 20132016 was $62,441$81,478 for Mr. Gasior, $42,590$53,240 for Mr. Carney and $66,388$71,073 for Mr. Lucido.

Administration of Cortland’s Compensation Programs.Cortland’s compensation programs for its executive officers are generally administered by or under the direction and supervision of Cortland’s Corporate GovernanceCompensation Committee, which is responsible for reviewing and recommending to the independent members of the Board of Directors for approval the salary, bonus and all other compensation and benefits to be provided to Cortland’s Chief Executive Officer and other executive officers.

The Company’s Chief Executive Officer and human resources manager annually review the compensation and performance of each executive officer of Cortland (other than the Chief Executive Officer, whose compensation and performance is reviewed by the Corporate GovernanceCompensation Committee). The results of these reviews are communicated to the Corporate GovernanceCompensation Committee, along with recommendations regarding compensation adjustments for the ensuing year. The Corporate GovernanceCompensation Committee either approves the recommended compensation adjustments or makes modifications in its discretion. The Corporate GovernanceCompensation Committee then makes its final recommendations to the independent members of the Board of Directors for approval.

In setting salaries for Cortland’s executive officers, the Corporate GovernanceCompensation Committee and human resources manager use pay ranges that are established based on publicly available market data regarding compensation paid to similarly situated executive officers at other companies. Pay ranges are established and adjusted periodically with reference to market data from publicly available compensation surveys. For each employee position or category within Cortland, the pay range that is established includes a minimum, a mid-point and a maximum salary. Although the Corporate GovernanceCompensation Committee generally does not target a specific point within the pay range for executive officer salaries, the Corporate GovernanceCompensation Committee strives to ensure that its executive officer compensation remains competitive with the compensation provided by other financial institutions with which Cortland competes for executive talent.

Annual Incentive Plan for Executive Officers. At its March 4, 2014 meeting, the Board adopted the Annual Incentive Plan for Executive Officers. The plan is a short-term cash incentive plan paying additional cash compensation of a maximum of 15% of salary if specified annual objectives are achieved. The Plan objective is to align the interests of management to that of the shareholders by paying out only upon achieving an acceptable shareholder return. The performance objectives can include bank-wide performance objectives, business unit goals, and individual performance goals. Adopted by the Compensation Committee at its October 28, 2014 meeting, the six bank-wide performance goals in effect for 2015 and 2016 were based on return on equity, return on assets, net interest margin, efficiency ratio (noninterest expense divided by the sum of tax-equivalent net interest income and noninterest income), asset quality (net charge-offs as a percentage of average loans, classified asset coverage, meaning assets classified substandard or doubtful as a percentage of the sum of tier 1 capital and the allowance for loan and lease losses, and loan loss exposure, meaning nonaccrual loans as a percentage of total loans), and each executive’s individual performance evaluation, with each of the six goals having its own assigned weight. If targeted performance is achieved, a participating officer will receive a cash bonus ranging from 10% to 15% of base salary, depending on the level of goal achievement. Assuming targeted goals are achieved for a calendar year, cash distributions under the plan

occur in the first quarter of the immediately following year. It is not necessary to achieve each of the performance goals to become entitled to a cash incentive bonus under the plan. CEO James M. Gasior, COO Timothy Carney, Senior Vice President and Chief Lending Officer Stanley P. Feret, and Senior Vice President and Chief Financial Officer David J. Lucido are participants in the Annual Incentive Plan. The Annual Incentive Plan may be terminated by the Board of Directors at any time.

Severance Agreements. We entered intoCortland is a party to severance agreements with Messrs. Gasior, Carney, and Lucido in September 2012, superseding their previous agreements.Lucido. Messrs. Gasior and Carney are entitled by their severance agreement to an immediate lump-sum cash payment if a change in control occurs. The amount of the payment is 2.99 times the sum of their base salary and the most recent annual bonus. If the executive’s employment terminates involuntarily but without cause or voluntarily because of an adverse change in employment circumstances to which he did not consent in advance, in either case with termination occurring within 24 months after a change in control, he would also be entitled to continued medical, dental, accident, disability, and life insurance coverage for up to three years. Mr. Lucido’s severance agreement is similar to that of Messrs. Gasior and Carney, except that (x) the change-in-control benefit of Mr. Lucido is 2.00 times compensation and (y) the change-in-control benefit is payable if and only if Mr. Lucido’s employment is terminated within 24 months after a change in control, whether because of involuntary termination by Cortland without cause or voluntary termination by Mr. Lucido because of a material adverse change in employment circumstances to which he did not consent in advance.

The severance agreements of the executives have numerous common provisions, including a prohibition againstprohibit competition with Cortland in Trumbull, Portage, or Mahoning Counties in Ohio for one year after employment termination. The executives are entitled to a payment equal to 1.0 times compensation after employment termination in exchange for the agreement not to compete, unless (x) they also receive or are entitled to receive change-in-control benefits under the severance agreement or (y) their employment termination occurs after age 65 or on account of retirement. Other common provisions of theThe severance agreements include these:

If a change in control occurs and the total benefits or payments to which an executive is entitled constitute so-called “excess parachute payments” and are therefore subject to the 20% excise tax under Internal Revenue CodeIRC Sections 280G and 4999 (whether under the severance agreement or under any other compensation arrangement), weCortland must by the terms of the severance agreements also make an adjusted gross-up payment to Messrs. Gasior, Carney, and Lucido, compensating them for the excise tax as well as for income, payroll, and excise taxes imposed on that parachute payment excise tax reimbursement payment. A 20% excise tax is imposed under Section 4999 if the value of an executive’s aggregate change-in-control benefits – calculated according to procedures specified in Section 280G and accompanying 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 all benefits exceeding the base amount 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$127,555 for Mr. Gasior, $112,500$129,840 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 CodeIRC 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 of Messrs. Carney and Gasior. However, the 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 by Cortland after a change in control occurs. The salary continuation agreements of Messrs. Gasior and Carney prohibit them from competing with the Bank for two years after employment termination. The prohibition against competition is void if a change in control occurs, however. Finally, although the salary continuation agreements do not commit Cortland to changing the executives’ benefit amounts in the future, as amended in late 2015 the agreements require Cortland to review every three years whether the retirement benefits payable under the agreements continue to be sufficient to provide the intended retirement income security for the executives. A copy of the agreement of Mr. Gasior and Mr. Carney – the November 24, 2015 Seventh Amended Salary Continuation Agreement – is included as an exhibit to the Form 8-K Current Report filed with the SEC on December 1, 2015. A copy of Mr. Lucido’s November 24, 2015 Amended Salary Continuation Agreement also is included as an exhibit to the Form 8-K.

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, Carney and Carney,Lucido, 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 executive’s death before retirement, the Cortland Savings and Banking Company purchased life insurance policies on certain officers’ lives, including Messrs. Gasior, Carney, and Carney.Lucido. 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 theadopting a Group Term Carve Out Plan.Plan that allows those 22 officers to designate through a split dollar life insurance endorsement the beneficiary of a portion of the life insurance proceeds. The Bank is entitled to all proceeds other than the portion allocable to the officers’ designated beneficiaries. A number of the original 22 officers have since terminated, but those who remain include Messrs. Gasior and Carney. Under group termThe Group Term Carve Out Plan was amended and restated as of November 1, 2014. A copy of the November 1, 2014 Amended and Restated Group Term Carve Out Plan is included as an exhibit to the Form 8-K Current Report filed with the SEC on November 3, 2014. As amended and restated, the Group Term Carve Out Plan provides that – unless an individual participating officer’s split dollar endorsements, the Bank and the executives share the rights to death benefits payable under the life insurance policies. Anendorsement states otherwise – 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 lesserleast of (a) $500,000, or (b) twice the executive’s current annual salary at the time of death, less $50,000;$50,000, or (c) 100% of the life insurance policy net death proceeds, meaning total death proceeds minus policy cash surrender value, or

Post-Retirement Death Benefit. If the executive was no longer employed by the Bank at the time of death, but had terminated employment (i) within one year after a change in control, (ii)or due to disability, or (iii) on or after the early retirement age of 62, the death benefit is the lesserleast of (a) $500,000, or (b) the Executive’s most recent salary at the time of death.death, or (c) 100% of the life insurance policy net death proceeds, meaning total death proceeds minus policy cash surrender value.

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. When the Group Term Carve Out Plan was amended and restated effective November 1, 2014, the split dollar life insurance endorsements of participating officers were also replaced by new endorsements. The new endorsements eliminate the pre-retirement death benefit. As a result, the designated beneficiary of a participating officer will be entitled to a life insurance death benefit under the Group Term Carve Out Plan if and only if the officer dies after employment termination, and only if employment termination occurred on account of disability, or within one year after a change in control, or after attaining age 62. The benefit amount is limited as described under the heading Post-Retirement Death Benefit, above.

Employees also have life insurance benefits under the Bank’s group term life insurance program, paying benefits up to twice 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.Bank.

Profit Sharing Program. If theThe 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 formaintains a profit sharing purposes was not achieved in 2013. As a result, no profit-sharing distributions were made. Shouldplan designed to provide incentives to eligible employees to contribute toward 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, allachievement of superior performance. Eligible employees are those in good standing areand who do not participate in other incentive programs. Executive management is not eligible. The Board performance criterion for 2016 was return on assets. Based upon the level of 2016 return on assets, the Board approved a profit sharing pool that paid [1.8%] of salary for eligible employees.

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 Social Security benefits, to 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 GovernanceCompensation 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 is encouraged to provide an appropriate forum for entertaining existing customers, developing and promoting new business and generally interacting with influential members of the local community.

IRC Limits.Cortland considers tax and accounting implications in the design of its compensation programs. Section 162(m) of the IRC places a limit on the tax 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 paid in 20132016 to the named executive officers is expected to be deductible under Section 162(m). The Executive Compensation Committee retains the flexibility, however, to pay non-deductible compensation if it believes doing so is in the best interests of Cortland.

TRANSACTIONS WITH RELATED PERSONS

The Board is responsible for reviewing and overseeing the procedures designed to identify “related party” transactions that are material to Cortland’s consolidated financial statements or otherwise require disclosure under applicable laws and rules adopted by the SEC and the Board has the authority to approve such “related party” transactions. In 2013,addition, each director and executive officer of Cortland must complete a Director and Officer Questionnaire that requires disclosure of any transaction, arrangement or relationship with Cortland or the Bank during the last fiscal year in which the director or executive officer, or any member of his or her immediate family, had a direct or indirect material interest. Any transaction, arrangement or relationship disclosed by a director or executive officer in the questionnaire is reviewed and considered by the Board in making independence determinations with respect to directors and resolving any conflicts of interest that may be implicated.

During the Company’s 2016 fiscal year, the Bank entered into banking-related transactions in the ordinary course of business with certain executive officers and directors of Cortland (including certain executive officers of the Bank), members of their immediate families and corporations or organizations as towith which directors of Cortland serve as executive officers or beneficially own more than 10% of the equity interest, were involved in banking transactions with the Bank in the ordinary course of their respective businesses and in compliance with applicable federal and state laws and regulations.they are affiliated. It is expected that similar banking transactions will be entered into in the future. Transactions with such personsAll loans made to directors and executive officers (i) were made in connection with the depositordinary course of funds or the Bank acting in an agency capacity have beenbusiness; (ii) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactionsloans with persons not affiliated with Cortland or its subsidiaries. Loansrelated to these persons have been made on substantially the same terms, including the interest rate chargedCortland; and collateral required, as those prevailing at the time for comparable transactions with persons(iii) did not affiliated with Cortland or its subsidiaries. These loans have been subject to and are presently subject to noinvolve more than athe normal risk of collectability andor present no other unfavorable features. The outstanding principal balance of loans to directors, executive officers, and principal shareholders of Cortland (including certain executive officers of the Bank) and their associates as a group at December 31, 2016 was $4.6 million. As of the date of this proxy statement,Proxy Statement, all of thethese loans described in this paragraph were performing loans.

OUTSTANDING EQUITY AWARDS

The following table shows as of December 31, 2016 unvested stock awards held by the executives identified in accordancethe Summary Compensation Table.

On April 26, 2016, the Compensation Committee of Cortland’s Board of Directors awarded 2,433 shares of restricted stock to President and CEO James M. Gasior, 2,297 shares to Executive Vice President and COO Timothy Carney, and 1,593 shares to Senior Vice President and Chief Financial Officer David J. Lucido. Awarded under the 2015 Omnibus Equity Plan, the shares vest in equal thirds on the first three anniversaries of the award date if the executive remains employed with their original terms.Cortland, but the awards will be fully vested if a change in control occurs. The price of stock on the grant date was $15.25 per share. In 2016, Cortland expensed $8,463 for Mr. Gasior, $7,990 for Mr. Carney and $5,541 for Mr. Lucido.

ADVISORY VOTE ON EXECUTIVE COMPENSATION

(Proposal Two)

We are subject to Section 14A of the Securities Exchange Act of 1934, which requires that we provide to our shareholders the opportunity to vote on the compensation of the executive officers named in 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.

Commonly known as a say-on-pay vote, the shareholder vote required by Section 14A is an advisory vote, which means that the vote is not binding on us, on our Board of Directors, or on the Corporate GovernanceCompensation Committee. The say-on-pay vote is intended to be a vote on the executive officer compensation that is disclosed in 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 GovernanceCompensation 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 boardBoard and by the Corporate GovernanceCompensation Committee. We are asking shareholders to vote on the following resolution at the 20142017 Annual Meeting:

“RESOLVED, that the compensation paid to the company’sCompany’s named executive officers, as disclosed in Cortland Bancorp’s Proxy Statement for the 20142017 Annual Meeting in compliance with Item 402 of the Securities and Exchange Commission’s Regulation S-K, including the compensation tables and narrative discussion, is hereby APPROVED.”

Approval of a majority of the 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 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”FOR approval of the compensation of our named executive officers, as disclosed in this proxy statement.

AMENDMENT OF THE CODE OF REGULATIONS

(Proposal Three)

Proposed amendmentThe Board of Section 2.02. We are asking shareholders to adoptDirectors has adopted, declared advisable and is submitting for stockholder approval an amendment ofto the Code of Regulations. If adopted, the amendment will replace Section 2.02 of theCompany’s Code of Regulations in its entirety withto increase the following revised Section 2.02:

Section 2.02. Number of Directors and Term of Office. The board of directors shall 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 majoritymandatory retirement age for members of the voting powerCompany’s Board of the corporation represented at the meeting and entitled to vote on such proposal.Directors. 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 theCompany’s Code of Regulations currently does not permit the sizeimposes a mandatory retirement age 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.70. 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 planCompany proposes to increase this mandatory retirement age by making directors eligible for one additional term after they have first attained 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.age of 70 or above. 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 thethis 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 the shares is sufficient if the amendment is first approved by two thirds of the directors. 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 will not become effective unless it receives the affirmative vote of the holders of shares entitled to exercise a majority of the voting power of the outstanding shares of Cortland’sour common stock. Shareholders may vote “FOR,

The second sentence of Article Two, Section 2.01 of the Company’s Code of Regulations currently provides as follows:

“No person who has attained the age of seventy (70) shall be eligible for election as a director.” “AGAINST,

If the proposed amendment is approved by shareholders, the second sentence of Article Two, Section 2.01 of the Company’s Code of Regulations will be amended to read as follows:

“A director whose term expires after he has first attained the age of seventy (70) shall be eligible to serve one additional term as a director.” or “ABSTAIN.” Abstentions

For the reasons set forth below, the Company’s Board of Directors has adopted and broker non-votes have the same effect as votes against the proposalis submitting for stockholder approval an amendment to amendthis provision of the Code of Regulations.Regulations to increase the current mandatory retirement age for directors. The effect of the amendment as proposed will be to establish a mandatory retirement age of 73 to 75, depending upon the director’s age when his or her term expires after he or she first attains the age of 70.

The Board believes that a more flexible mandatory retirement age for the Company’s directors is in line with other community bank holding companies in the Company’s market and is an appropriate and commonsense act of corporate governance. The current mandatory retirement age could deter well-qualified candidates who are approaching the mandatory retirement age from agreeing to serve as directors and could result in the premature retirement of experienced directors who are valuable members of the Board of Directors with deep knowledge of the Company’s history and operations. Providing a degree of flexibility in director retirement would give the Company the opportunity to benefit from the valuable expertise of directors for a longer time, while maintaining a mandatory retirement age that is in line with the average retirement age of directors of other bank holding companies.

The Company has surveyed twelve bank holding companies located in Ohio that, as of December 31, 2016, had securities registered under the Securities Exchange Act of 1934 and consolidated assets of between $200 million and $1.4 billion. The Company found that its current mandatory retirement age of 70 is on the low end of that survey. Based on the publicly available codes of regulations and corporate governance guidelines of the surveyed companies, nine of the twelve companies have a mandatory retirement age higher than the Company’s current retirement age of 70 or have no mandatory retirement age at all.

Increasing the Company’s mandatory retirement age for directors will bring the Company into better alignment with similarly situated bank holding companies in Ohio and will allow the Company to be more competitive with its peers in the recruitment and retention of experienced directors.

In 2015, the Company appointed two seasoned directors to the Board, each of whom had significant prior experience with publicly traded bank holding companies in the Company’s market areas. The Company’s appointment of these experienced directors has had a positive impact on both business development and corporate governance. The proposed amendment to the Code of Regulations would give the Company the required flexibility to attract and retain additional directors of that caliber.

If approved by the shareholders, this amendment to the Company’s Code of Regulations will become effective immediately upon approval, and the Board of Directors will also make conforming changes to its corporate governance guidelines regarding the retirement age for directors.

The Board recommends a voteFOR the proposal to adopt amended Section 2.022.01 of the Code of Regulations.

RATIFICATION OF INDEPENDENT AUDITORS

(Proposal Four)

Cortland’s independent auditor for the year ended December 31, 2013,2016, was S.R. Snodgrass, P.C. Subject to shareholder ratification, the audit committee has selected S.R. Snodgrass, P.C. to be Cortland’s independent auditor for the fiscal year ending December 31, 2014.2017. We expect one or more representatives of S.R. Snodgrass, P.C. to be present at the Annual Meeting. The representative of S.R. Snodgrass, P.C. will have the opportunity to make a statement if desired, and will be available to respond to appropriate questions.

Fees of Independent Registered Public Accounting Firm. Fees contracted for services by S. R. Snodgrass, P.C. for each of the 20132016 fiscal year and the 20122015 fiscal year were as follows:

Pre-Approval of Services Performed by 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 services rendered by S.R. Snodgrass, P.C. to Cortland and its subsidiaries for the 20132016 and the 20122015 fiscal years were pre-approved by the Audit Committee.

Auditor Independence. The Audit Committee believes that the non-audit services provided by S.R. Snodgrass, P.C. are compatible with maintaining the auditor’s independence. To the best of Cortland’s knowledge, none of the time devoted by S.R. Snodgrass, P.C. on its engagement to audit Cortland’s financial statements for the year ended December 31, 2013,2016, is attributable to work performed by persons other thanfull-time, permanent employees of S.R. Snodgrass, P.C.

Cortland’s Code of Regulations do not require the submission of the selection of independent auditors to shareholders for approval. However, the Board believes it is appropriate to give shareholders the opportunity to ratify the decision of the Audit Committee to appoint S.R. Snodgrass, P.C. as Cortland’s principal accountant. Neither the Audit Committee nor the Board will be bound by the shareholders’ vote at the Annual Meeting, but may take the shareholders’ vote into account in future determinations regarding the retention of an independent auditor.

Recommendation and Vote

The Board recommends a voteFOR ratification of the appointment of S.R. Snodgrass, P.C. as Cortland’s independent auditor for the fiscal year ending December 31, 2014.2017.

AUDIT COMMITTEE MATTERS

Audit Committee Report for the Fiscal Year Ended December 31, 20132016

The Audit Committee has reviewed the audited financial statements for the year ended December 31, 2013,2016, 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, 2013,2016, for filing with the Securities and Exchange Commission.

Submitted by the Audit Committee

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

SUBMISSION OF SHAREHOLDER PROPOSALS

If any Cortland shareholder wishes to submit a proposal to be included in next year’s proxy statement and acted upon at Cortland’s Annual Meeting to be held in 2015,2018, the proposal must be received by Cortland’s Secretary prior to the close of business on December 19, 2014.12, 2017. 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 20152018 Annual Meeting, but has not sought the inclusion of such proposal in Cortland’s proxy materials, such proposal must be received by the Secretary of Cortland prior to March 4, 2015,the close of business on February 25, 2018, or the management proxies for the 20152018 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’s proxy material.

DELIVERY OF PROXY MATERIALS TO SHAREHOLDERS SHARING AN ADDRESS

SEC rules provide for “householding,” which permits Cortland to send a single annual report and a single proxy statement to any household at which two or more different shareholders reside if Cortland 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 Cortland’s expense. Cortland 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 Cortland, 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 for the 20132016 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 knows of no other matters that will be presented for action at the annual 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 have the discretionary authority to vote in accordance with their best judgement.judgment.

By Order of the Board of Directors,

Lance A. Morrison

Secretary

March [29], 2017

Timothy Carney

Secretary

April [18], 2014WWW.CORTLANDBANK.COM

ANNUAL MEETING OF SHAREHOLDERS OF

CORTLAND BANCORP

May 23, 2017

GO GREEN

e-Consent makes it easy to go paperless. With e-Consent, you can quickly access your proxy

material, statements and other eligible documents online, while reducing costs, clutter and

paper waste. Enroll today via www.amstock.com to enjoy online access.

NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL:

The Notice of Meeting, proxy statement and proxy card

are available at https://www.snl.com/IRW/CustomPage/100699/Index?KeyGenPage=203211

Please sign, date and mail

your proxy card in the

envelope provided as soon

as possible.

i Please detach along perforated line and mail in the envelope provided.i

		Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.

ANNUAL MEETING OF SHAREHOLDERS OF

CORTLAND BANCORP

May 23, 2017

INTERNET - Access “www.voteproxy.com” and follow theon-screen instructions or scan the QR code with your smartphone. Have your proxy card available when you access the web page.		CORTLAND BANCORP
	Annual Meeting of Shareholders
	May 27, 2014
PRELIMINARY		10:00 a.m. Eastern Daylight Time
		VOTER CONTROL NUMBER:
		PROXY NUMBER:
			ACCOUNT NUMBER:                 SHARES:
TELEPHONE-Call toll-free1-800-PROXIES(1-800-776-9437) in the United States or1-718-921-8500from foreign countries from any touch-tone telephone and follow the instructions. Have your proxy card available when you call.
Vote online/phone until 11:59 PM EST the day before the meeting.		COMPANY NUMBER
MAIL -Sign, date and mail your proxy card in the envelope provided as soon as possible.
IN PERSON -You may vote your shares in person by attending the Annual Meeting.		ACCOUNT NUMBER
GO GREEN - e-Consent makes it easy to go paperless. Withe-Consent, you can quickly access your proxy material, statements and other eligible documents online, while reducing costs, clutter and paper waste. Enroll today via www.amstock.com to enjoy online access.

i Please detach along perforated line and mail in the envelope providedIF you are not voting via the Internet or telephone.i

20433300000000001000  8		052317

		Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.

PROXY - CORTLAND BANCORP

0                    

CORTLAND BANCORP

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

FOR THE ANNUAL MEETING OF SHAREHOLDERS.SHAREHOLDERS

The undersigned hereby appoints Timothy K. Woofter, Richard B. Thompson, Joseph P. Langhenry and George E. GessnerThomas P. Perciak as proxies, each with the power to appoint his substitute,and hereby authorizes them to represent and to vote, as designated below, all of the shares of common stock of Cortland Bancorp which the undersigned is entitled to vote at the Annual Meeting of Shareholders to be held at the Squaw Creek Country Club, 761 Youngstown-Kingsville Road, Vienna,The Butler Institute of American Art, 9350 East Market Street, Howland, Ohio 4447344484 on Tuesday, May 27, 201423, 2017 at 10:2:00 a.m.p.m. EDT, or any adjournment thereof.

This proxy when properly executed will be voted insigned on the manner directed herein by the undersigned shareholder(s).

If no direction is made, this proxy will be voted FOR the nominees listed in proposal 1 and FOR proposals 2, 3 and 4.Management and the Board recommend a vote FOR each of the proposals presented above.reverse side.)

		1.1					14475
		SIGNATURE		DATE				SIGNATURE		DATE

NOTE: PLEASE DATE PROXY AND SIGN IT EXACTLY AS NAME OR NAMES APPEAR ON THIS CARD. ALL JOINT OWNERS OF SHARES SHOULD SIGN. STATE FULL TITLE WHEN SIGNING AS EXECUTOR, ADMINISTRATOR, TRUSTEE, GUARDIAN, ETC. PLEASE PROMPTLY RETURN SIGNED PROXY IN THE ENCLOSED ENVELOPE.