1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
-----------------
Commission file number 0-13814
-------
Cortland Bancorp
- - -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-1451118
- - ------------------------------ -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
194 West Main Street, Cortland, Ohio 44410
- - -----------------------------------------------------------------------------
(Address of principal executive offices) (zip Code)
(216) 637-8040
- - -----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X NO
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 8, 1995
----- --------------------------
Common Stock, No Par Value 989,356 Shares
- - -------------------------- --------------
2
PART 1 - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements (unaudited)
- - ------ -------------------------------
Cortland Bancorp and Subsidiaries:
Consolidated Balance Sheets - March 31,
1995 and December 31, 1994 2
Consolidated Statements of Income - Three
months ended March 31, 1995 and 1994 3
Consolidated Statements of Cash Flows -
Three months ended March 31, 1995 and 1994 4
Notes to Consolidated Financial Statements -
March 31, 1995 5 - 12
Item 2. Management's Discussion and Analysis of
- - ------- ---------------------------------------
Financial Condition and Results of Operations 13 - 17
---------------------------------------------
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal proceedings 18
- - ------- -----------------
Item 2. Changes in Securities 18
- - ------- ---------------------
Item 3. Defaults Upon Senior Securities 18
- - ------- -------------------------------
Item 4. Submission of Matters to a Vote of Security Holders 18
- - ------- ---------------------------------------------------
Item 5. Other Information 18
- - ------- -----------------
Item 6. Exhibits and Reports on Form 8-K 19
- - ------- --------------------------------
Signatures 20
- - ----------
1
3
CORTLAND BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands except per share data)
MARCH 31, DECEMBER 31,
1995 1994
------------ ------------
ASSETS
Cash and due from banks $8,915 $11,567
Federal funds sold 100 0
------------ ------------
Total cash and cash equivalents 9,015 11,567
Investment securities available for sale (Note 3) 70,581 69,573
Investment securities held to maturity
(Approximate market value of $76,389 in 1995 78,432 79,403
and $74,806 in 1994) (Note 3)
Total loans (Note 4) 150,931 150,680
Less allowance for loan losses (Note 4) (3,125) (3,081)
------------ ------------
Net loans 147,806 147,599
------------ ------------
Premises and equipment 6,392 6,475
Other assets 5,613 5,744
------------ ------------
Total assets $317,839 $320,361
============ ============
LIABILITIES
Noninterest-bearing deposits $31,141 $34,358
Interest-bearing deposits 254,211 250,317
------------ ------------
Total deposits 285,352 284,675
Short-term borrowing 2,037 7,091
Other liabilities 952 1,074
------------ ------------
Total liabilities 288,341 292,840
------------ ------------
SHAREHOLDERS' EQUITY
Common stock - $5.00 stated value - authorized
5,000,000 shares; issued 988,742 shares
in 1995 and 977,971 in 1994 4,944 4,890
Additional paid in capital 8,260 8,028
Retained earnings 17,105 16,292
Net unrealized loss on available for sale
debt securities and marketable equity securities (811) (1,689)
------------ ------------
Total shareholders' equity 29,498 27,521
------------ ------------
Total liabilities and shareholders' equity $317,839 $320,361
============ ============
<FN>
See accompanying notes to consolidated financial statements
of Cortland Bancorp and Subsidiaries
2
4
CORTLAND BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Amounts in thousands, except for per share data)
THREE
MONTHS ENDED
MARCH 31,
------------------
1995 1994
------ ------
INTEREST INCOME
Interest and fees on loans $3,421 $3,195
Interest and dividends on investment securities:
Taxable interest income 1,147 985
Nontaxable interest income 169 163
Dividends 31 31
Interest on mortgage-backed securities 1,018 1,020
Interest on trading account securities 0 20
Other interest income 0 40
------ ------
Total interest income 5,786 5,454
------ ------
INTEREST EXPENSE
Deposits 2,436 2,271
Short-term borrowings 76 22
------ ------
Total interest expense 2,512 2,293
------ ------
Net interest income 3,274 3,161
PROVISION FOR LOAN LOSSES 0 0
------ ------
Net interest income after provision
for loan losses 3,274 3,161
------ ------
OTHER INCOME
Fees for other customer services 229 240
Gain on sale of loans 55 3
Trading securities gain (loss) 0 9
Investment securities gains 1 2
Gain (loss) on the sale of other real estate (13) 49
Other operating income 73 31
------ ------
Total other income 345 334
------ ------
OTHER EXPENSES
Salaries and employee benefits 1,227 1,198
Net occupancy expense 142 146
Equipment expense 235 214
State and local taxes 106 100
FDIC assessment 161 162
Office supplies 118 97
Marketing expense 56 70
Collection, repossession and foreclosure expenses 23 38
Legal expense 77 62
Other operating expenses 308 262
------ ------
Total other expenses 2,453 2,349
------ ------
Income before federal income taxes 1,166 1,146
FEDERAL INCOME TAXES 353 329
------ ------
NET INCOME $813 $817
====== ======
EARNINGS PER COMMON SHARE (Note 6) $0.82 $0.84
====== ======
<FN>
See accompanying notes to consolidated financial statements
of Cortland Bancorp and Subsidiaries
3
5
CORTLAND BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands except per share data)
FOR THE
THREE MONTHS ENDED
MARCH 31,
------------------
1995 1994
------ ------
NET CASH FROM OPERATING ACTIVITIES $1,702 $723
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held to maturity (222) (1,546)
Purchases of securities available for sale (1,765) (8,081)
Proceeds from call, maturity and principal
payments on securities available for sale 1,954 8,817
Proceeds from call, maturity and principal
payments on securities held to maturity 1,102 1,159
Net increase in loans made to customers (1,169) (761)
Proceeds from disposition of other real estate 12 246
Proceeds from sale of loans 36 39
Net increase in time deposits of other banks 0 (1,709)
Purchase of premises and equipment (111) (1,373)
------ ------
Net cash from investing acitivities (163) (3,209)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts 677 (1,143)
Net decrease in short term borrowings (5,054) (588)
Proceeds from sale of common stock 286 174
------ ------
Net cash from financing activities (4,091) (1,557)
------ ------
NET CHANGE IN CASH AND CASH EQUIVALENTS (2,552) (4,043)
CASH AND CASH EQUIVALENTS
Beginning of period 11,567 13,047
------ ------
$9,015 $9,004
====== ======
SUPPLEMENTAL DISCLOSURES
Interest paid $2,508 $2,306
Income taxes paid $0 $490
<FN>
See accompanying notes to consolidated financial statements
of Cortland Bancorp and Subsidiaries
4
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CORTLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
(Dollars in thousands)
1.) Management Representation:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring items) considered necessary for a
fair presentation have been included. Operating results for the three months
ended March 31, 1995 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1995. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1994.
2.) Reclassifications:
The financial statements for 1994 have been reclassified to conform
with the presentation for 1995. Such reclassifications had no effect on the
net results of operations.
3.) Investment Securities:
Securities classified as held to maturity are those that management
has the positive intent and ability to hold to maturity. Securities classified
as available for sale are those that could be sold for liquidity, investment
management, or similar reasons, even though management has no present
intentions to do so. Trading securities are principally held with the intention
of selling in the near term.
5
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CORTLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
(Dollars in thousands)
Securities held to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts, with such amortization or
accretion included in interest income. Securities available for sale are
carried at fair value using the specific identification method. Unrealized
gains and losses on available for sale securities are recorded as a separate
component of shareholders' equity, net of tax effects. Changes in fair values
of trading securities are reported in the Consolidated Statements of Income.
Realized gains or losses on dispositions are based on net proceeds and the
adjusted carrying amount of securities sold, using the specific identification
method.
During the quarter ended March 31, 1995, $10 of municipal housing bonds
classified as held to maturity were called by the issuer due to mortgage
prepayments, resulting in losses of less than $1. No securities were sold
during the quarter.
On February 15, 1994 a pre-refunded, escrowed municipal bond with a par
value of $100 and a current book value of $124, issued by Northeast Randolph
County, Alabama, was placed on nonaccrual status by the Bank. These bonds were
pre-refunded with U.S. treasury securities financed by a subsequent bond issue
of Northern Randolph County, Alabama, which has since defaulted. Holders of
this previously defaulted issue have filed suit, seeking to have the escrow
unwound with proceeds distributed to the claimants. The bond trustee has
suspended interest payments pending a ruling from the court on this matter. The
probability of an unfavorable outcome regarding this litigation cannot be
ascertained at this time. Accordingly, management is unable to determine if
any writedown will be required of the bond.
Securities available for sale, carried at fair value, totalled $70,581
representing 47.4% of all investment securities, providing an adequate level of
liquidity in management's opinion.
6
8
CORTLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
(Dollars in Thousands)
The amortized cost and estimated market value of debt securities at
March 31, 1995, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
ESTIMATED
----------
Securities available AMORTIZED COST FAIR VALUE
- - -------------------- ---------------- ------------------
for sale 3-31-95 3-31-95
-------- ------- -------
Due in one year or less $ 4,983 $ 4,975
Due after one year
through five years 18,186 18,113
Due after five years
through ten years 5,483 5,534
Due after ten years 1,914 1,910
-------- --------
30,566 30,532
Mortgage-Backed Securities 38,597 38,151
-------- --------
$ 69,163 $ 68,683
======== ========
ESTIMATED
----------
Securities held AMORTIZED COST FAIR VALUE
- - -------------------- ---------------- ------------------
to maturity 3-31-95 3-31-95
----------- ------- -------
Due in one year or less $ 435 $ 438
Due after one year
through five years 17,713 17,406
Due after five years
through ten years 32,695 31,935
Due after ten years 967 898
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51,810 50,677
Mortgage-Based Securities 26,498 25,599
Securities in default 124 113
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$78,432 $76,389
======= =======
Investment securities with a market value of approximately $26,991
at March 31, 1995 and a carrying value of $27,029 at December 31, 1994 were
pledged to secure deposits and for other purposes.
7
9
CORTLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
(Dollars in Thousands)
The amortized cost and estimated fair value of investment securities available
for sale and held to maturity as of March 31, 1995, are as follows:
Investment
- - -----------
Securities available GROSS GROSS ESTIMATED
- - -------------------- AMORTIZED UNREALIZED UNREALIZED FAIR
for sale COST GAINS LOSSES VALUE
- - -------- --------- ---------- ---------- ---------
U.S. Treasury
securities $ 16,798 $ 34 $ 122 $ 16,710
U.S. Government
agencies and
corporations 13,292 120 66 13,346
Mortgage-backed
and related
securities 38,597 189 635 38,151
Corporate securities 250 -0- -0- 250
Other debt securities 226 -0- -0- 226
-------- -------- -------- --------
Total debt securities 69,163 343 823 68,683
Marketable equity
securities 2,216 8 326 1,898
-------- -------- -------- --------
Total available
for sale $ 71,379 $ 351 $ 1,149 $ 70,581
======== ======== ======== ========
Investment
- - -----------
Securities held GROSS GROSS ESTIMATED
- - -------------------- AMORTIZED UNREALIZED UNREALIZED FAIR
to maturity COST GAINS LOSSES VALUE
- - -------- --------- ---------- ---------- ---------
U.S. Treasury
securities 11,994 2 260 11,736
U.S. Government
agencies and
corporations 24,820 62 570 24,312
Obligations of
states and
political
subdivisions 15,120 67 445 14,742
Mortgage-backed and
related securities 26,498 10 909 25,599
--------- -------- -------- --------
Total held to
maturity $ 78,432 $ 141 $ 2,184 $ 76,389
========= ======== ======== ========
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CORTLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
-----------------------------------------------------
(Dollars in Thousands)
The following provides a summary of the amortized cost and estimated fair value
of investment securities available for sale and held to maturity as of December
31, 1994:
Investment
- - -----------
Securities available GROSS GROSS ESTIMATED
- - -------------------- AMORTIZED UNREALIZED UNREALIZED FAIR
for sale COST GAINS LOSSES VALUE
- - -------- --------- ---------- ---------- ---------
U.S. Treasury
securities $ 17,338 $ 17 $ 341 $ 17,014
U.S. Government
agencies and
corporation 11,816 15 189 11,642
Mortgage-backed
and related
securities 39,824 83 1,314 38,593
Corporate securities 250 250
Other debt securities 226 226
-------- -------- -------- --------
Total debt securities 69,454 115 1,844 67,725
Marketable equity
securities 2,170 7 329 1,848
-------- -------- -------- --------
Total available
for sale $ 71,624 $ 122 $ 2,173 $ 69,573
======== ======== ======== ========
Investment
- - -----------
Securities held GROSS GROSS ESTIMATED
- - -------------------- AMORTIZED UNREALIZED UNREALIZED FAIR
to maturity COST GAINS LOSSES VALUE
- - -------- --------- ---------- ---------- ---------
U.S. Treasury
securities $ 12,519 $ $ 563 $ 11,956
U.S. Government
agencies and
corporation 24,602 1,346 23,256
Obligations of states
and political
subdivisions 15,285 24 834 14,475
Mortgage-backed and
related securities 26,997 1 1,879 25,119
-------- -------- -------- --------
Total held to
maturity $ 79,403 $ 25 $ 4,622 $ 74,806
======== ======== ======== ========
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CORTLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
(Dollars in Thousands)
4.) Concentration of Credit Risk and Off Balance Sheet Risk:
The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit. Those instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized on the balance
sheet. The contract or notional amounts of those instruments reflect the extent
of involvement the Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to extend
credit and standby letters of credit and financial guarantees written is
represented by the contract or notional amount of those instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
CONTRACT OR
------------------
NOTIONAL AMOUNT
------------------
3-31-95 12-31-94
------- --------
Financial instruments whose contract
amount represents credit risk:
Commitments to extend credit
Fixed rate $ 4,928 $ 4,806
Variable 22,514 18,471
Standby letters of credit 324 392
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Generally
these financial arrangements have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of these commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount and nature of
collateral obtained, if any, is based on management's credit evaluation.
10
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CORTLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
(Dollars in Thousands)
Most of the Company's business activity is conducted with customers
located within Northeastern Ohio, where the Company maintains a network of ten
offices serving three counties. (The Company will open an eleventh office, de
novo, during the third quarter of 1995 in the community of Niles, Ohio located
in southern Trumbull County.) The Company grants residential, consumer and
commercial loans, and also leases assets, to customers located primarily in its
immediate lending area.
The following represents the composition of the loan portfolio at
March 31, 1995 and December 31, 1994:
3-31-95 12-31-94
------- --------
1-4 Family residential mortgages 45.3% 45.1%
Commercial mortgages 24.2% 24.9%
Consumer loans 12.3% 11.5%
Commercial loans 9.9% 10.0%
Home equity loans 8.3% 8.5%
Included in 1-4 Family residential mortgages as of March 31, 1995 are
$964 of mortgage loans held for sale in the secondary market. Loans held for
sale at December 31, 1994 totaled $1,855. The estimated market value of these
loans approximates their carrying value.
The following is an analysis of changes in the allowance for loan
losses at March 31, 1995 and March 31, 1994:
3-31-95 12-31-94
------- --------
Balance at beginning of period $ 3,081 $ 3,139
Loan charge-offs (104) (78)
Recoveries 148 52
------- -------
Net loan recoveries (charge-offs) 44 (26)
------- -------
Provision charged to operations -0- -0-
------- -------
Balance at end of period $ 3,125 $ 3,113
======= =======
The recorded investment in loans for which impairment has been
recognized in accordance with Financial Accounting Standards (SFAS) No. 114,
"Accounting by Creditors for Impairment of Loans," as amended by SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures", was $366 while the related portion of the allowance for loan
losses was $158 at March 31, 1995.
11
13
CORTLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
5.) Legal Proceedings:
The Bank is involved in legal actions arising in the ordinary course
of business. In the opinion of management, the outcome of these matters, is
not expected to have a material effect on the Company.
6.) Earnings Per Share:
THREE MONTHS
ENDED
MARCH 31,
-------------
1995 1994
------------------
Net income $ 813 $ 817
Average shares outstanding 988,282 971,653
Net income per share $ 0.82 $ 0.84
Average shares outstanding and resultant per share amounts have been restated
to give retroactive effect to the 3% stock dividend of January 1, 1995.
12
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CORTLAND BANCORP AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(Dollars in thousands)
Liquidity
- - ---------
The central role of the Company's liquidity management is to (1)
ensure the possession of and access to sufficient liquid funds to meet the
normal transaction requirements of its customers, (2) to take advantage of
market opportunities requiring flexibility and speed and (3) to provide a
cushion against unforeseeable liquidity needs.
Principal sources of liquidity for the Company include assets
considered relatively liquid such as investment securities available for sale,
trading account securities, interest-bearing deposits in other banks, federal
funds sold, and cash and due from banks; as well as cash flows from maturities
and repayment of loans, investment securities and mortgage backed securities.
Along with its liquid assets, the Company has other sources of
liquidity available to it which help to ensure that adequate funds are
available as needed. These other sources include, but are not limited to, the
ability to obtain deposits through the adjustment of interest rates, the
purchasing of federal funds and borrowing on other credit facilities. Access
to the Federal Reserve Discount Window provides an additional source of funds
to the Company. During the quarter, the Company was approved for membership by
the Federal Home Loan Bank of Cincinnati, which represents yet another source
of liquidity commencing in the second quarter of 1995.
Capital Resources
- - -----------------
The capital management function is a continuous process which consists
of providing capital for both the current financial position and the
anticipated future growth of the Company. Central to this process is internal
equity generation, particularly through earnings retention. Internal capital
generation is measured as the annualized rate of return on equity, exclusive of
any appreciation or depreciation relating to available for sale securities,
multiplied by the percentage of earnings retained. Internal capital generation
was 11.3% for the three months ended March 31, 1995, as compared to 12.3% for
the like period during 1994. Overall during the first three months of 1995,
capital grew at the annual rate of 28.7%, a figure which reflects earnings,
common stock issued, and the net change in the estimated fair value of
available for sale securities.
13
15
CORTLAND BANCORP AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
(Dollars in thousands)
During the first quarter of 1995, the Company issued 10,771 shares of
common stock which resulted in proceeds of $286. Of the 10,771 shares issued,
7,419 shares were issued through the Company's dividend reinvestment plan. The
remaining 3,352 shares were issued through the subsidiary bank's 401-k Plan
which offers employees the choice of investing in the common stock of the
Company as one of several participant directed investment options.
In January 1989, the Federal Reserve Board adopted risk-based standards
for measuring capital adequacy for U.S. banking organizations. In general, the
standards require banks and bank holding companies to maintain capital based on
"risk-adjusted" assets so that categories of assets with potentially higher
credit risk will require more capital backing than assets with lower risk. In
addition, banks and bank holding companies are required to maintain capital to
support, on a risk-adjusted basis, certain off balance sheet activities such as
standby letters of credit and interest rate swaps.
These standards also classify capital into two tiers, referred to as
Tier 1 and Tier 2. Tier 1 capital consists of common shareholders' equity,
noncumulative and cumulative perpetual preferred stock, and minority interests
less goodwill. Tier 2 capital consists of allowance for loan and lease losses
(subject to certain limitations), perpetual preferred stock (not included in
Tier 1), hybrid capital instruments, term subordinated debt, and
intermediate-term preferred stock. Banks are required to meet a minimum ratio
of 8% of qualifying total capital to risk-adjusted total assets with at least
4% constituting Tier 1 capital. Capital qualifying as Tier 2 capital is
limited to 100% of Tier 1 capital. All banks and bank holding companies are
also required to maintain a minimum leverage capital ratio (Tier 1 capital to
total average assets) generally in the range of 3% to 4%, which is subject to
regulatory guidelines.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
required banking regulatory agencies to revise risk-based capital standards by
June 19, 1993 to ensure that they take adequate account of the following
additional risks: interest rate, concentration of credit, and nontraditional
activities. Banks with relatively high levels of such risks, as compared to
industry averages, will be required to hold risk-based capital above the 8%
requirement or reduce their exposure to such risks. These new standards have
not yet been issued in their final form.
14
16
CORTLAND BANCORP AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
(Dollars in thousands)
The table below illustrates the Company's risk weighted capital ratios
at March 31, 1995 and December 31, 1994.
March 31, 1995 December 31, 1994
-------------- -----------------
Tier 1 Capital $ 30,139 $ 29,005
Tier 2 Capital 1,877 1,865
TOTAL QUALIFYING -------- --------
CAPITAL $ 32,016 $ 30,870
======== ========
Risk Adjusted
Total Assets (*) $148,919 $148,020
Tier 1 Risk-Based
Capital Ratio 20.24% 19.60%
Total Risk-Based
Capital Ratio 21.50% 20.86%
Total Leverage
Capital Ratio 9.47% 8.97%
(*) Includes off-balance sheet exposures.
First Quarter of 1995 as Compared to First Quarter of 1994
- - ----------------------------------------------------------
During the first three months of 1995, net interest income increased
by $113 compared to the first three months of 1994. Total interest income
increased by $332 or 6.1% from the level recorded in 1994. This increase was
partially offset by an increase in interest expense of $219 or 9.6%. The
average rate paid on interest sensitive liabilities increased by 42 basis
points. The average balance of interest sensitive liabilities declined by
2.1%, decreasing by $5,529. The change in average earning assets was less
pronounced, declining by $1,890, or 0.6%, from the same quarter last year.
Interest and dividend income on securities registered an increase of
$166 or 7.5% during the first three months of 1995 when compared to 1994. The
average invested balances declined by 1.0%, dropping by $1,469. The decline
in the average balance of investment securities was more than offset by a 43
basis point increase in portfolio yield, as rates ratcheted up in response to
policy changes at the Federal Reserve.
15
17
CORTLAND BANCORP AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
(Dollars in thousands)
Interest and fees on loans increased by $226 for the first three
months of 1995 compared to 1994, representing the combined effects of a $5,901
increase in the average balance of the loan portfolio and a 26 basis point
increase in yield due to the effect of rising interest rates.
Other interest income decreased by $60 from the same period a year
ago, as the Company did not have any trading positions on during the first
quarter of 1995 and the Company was a net borrower of Federal Funds throughout
the quarter.
Other income increased by $11 from the same period a year ago. Gains
on 1-4 residential mortgage loans in the secondary mortgage market increased by
$52 from the same period a year ago. However, this was more than offset by a
$62 turn around on the sale of other real estate, which produced a $13 loss
compared to a $49 gain in the same period last year. Additionally other
operating income increased by $42. Recovery of prior year expenses for
telephone and repossession costs accounted for $27 of this increase.
Loans continued to increase modestly, adding $251 to outstanding
balances during the quarter. Loans as a percentage of earning assets stood at
50.3% as of March 31, 1995 as compared to 48.2% at March 31, 1994. The loan to
deposit ratio at the end of the first quarter of 1995 was 52.9% compared to
51.0% at the end of the same period a year ago. The investment portfolio
declined, falling $4,371 or 2.8% from March 31, 1994, and now represents 52.2%
of each deposit dollar, down from 53.6% a year ago.
Loan charge-offs during the first three months were $104 in 1995 and
$78 in 1994, while the recovery of previously charged-off loans amounted to
$148 in 1995 compared to $52 in 1994. The loan loss allowance of $3,125
represents 2.1% of outstanding loans. Non accrual loans at March 31, 1995
represented 1.0% of the loan portfolio compared to 1.3% at December 31, 1994.
Full time equivalent employment during the first three months
averaged 192 employees in 1995 and 189 in 1994. Salaries and benefits
increased by $29 over the similar period a year ago, representing an
increase of 2.4%.
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18
CORTLAND BANCORP AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
(Dollars in thousands)
FDIC assessment remained relatively stable. State and local taxes
increased by $6, or 6.0%. Equipment expense increased by $21, or 9.8%,
primarily due to increased amortizing costs on computer equipment purchased for
the conversion in the second quarter of 1994. Legal and litigation expense
increased by $15. Other expense categories increased by $34 as a group,
representing a 5.6% increase from year ago levels, accounted for in part by
increased telephone costs since computer conversion, an increase in consultant
fees, and increased postage and printing expenses.
Income before income tax expense amounted to $1,166 for the first three
months of 1995 compared to $1,146 for the first three months of 1994. The
effective tax rate for the first three months was 30.3% in 1995 compared to
28.7% in 1994, resulting in income tax expense of $353 and $329, respectively.
Net income for the first three months registered $813 in 1995 compared to $817
in 1994, representing a 2.4% decline in per share amounts from the $0.84 earned
in 1994 to the $0.82 recorded in 1995.
New Accounting Standards
- - ------------------------
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 114, "Accounting by Creditors for Impairment of Loans," as amended
by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures," effective January 1, 1995. As a result of
applying new rules, certain impaired loans have been reported at the present
value of expected future cash flows using the loan's effective interest rate,
or as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. Adoption of the
standard did not have a material impact on the Company's financial position or
results of operations.
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19
CORTLAND BANCORP AND SUBSIDIARIES
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
- - ------- -----------------
See Note (5) of the financial statements.
Item 2. Changes in Securities
- - ------- ---------------------
Not applicable
Item 3. Defaults upon Senior Securities
- - ------- -------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
- - ------- ---------------------------------------------------
Not applicable
Item 5. Other Information
- - ------- -----------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
- - ------- --------------------------------
(a) Exhibits
--------
2. Not applicable
4. Not applicable
10. Not applicable
11. See Note (6) of the Financial Statements
15. Not applicable
18. Not applicable
18
20
CORTLAND BANCORP AND SUBSIDIARIES
PART II - OTHER INFORMATION (CONTINUED)
---------------------------------------
Item 6. Exhibits and Reports on Form 8-K (continued)
------- --------------------------------------------
19. Not applicable
22. Not applicable
23. Not applicable
24. Not applicable
27. Financial Data Schedule
99. Not applicable
(b) Reports on Form 8-K
-------------------
Not applicable
19
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cortland Bancorp
----------------
(Registrant)
DATED: May 8, 1995 Lawrence A. Fantauzzi
------------ ---------------------
Controller/Treasurer
(Chief Accounting Officer)
DATED: May 8, 1995 Dennis E. Linville
------------ ------------------
Executive Vice-President,
Secretary
20