<PAGE> 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, 1999
---------------
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)
(330) 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 11, 1999
----- ---------------------------
Common Stock, No Par Value 3,595,979 Shares
-------------------------- ----------------
<PAGE> 2
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements (Unaudited)
- ------- --------------------------------
Cortland Bancorp and Subsidiaries:
Consolidated Balance Sheets - March 31,
1999 and December 31, 1998 2
Consolidated Statements of Income - Three
months ended March 31, 1999 and 1998 3
Consolidated Statement of Shareholders'
Equity - Three months ended March 31, 1999 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements -
March 31, 1999 6 - 15
Item 2. Management's Discussion and Analysis of
- ------- ---------------------------------------
Financial Condition and Results of Operations 16 - 23
---------------------------------------------
Item 3. Quantitative and Qualitative Disclosures about
- ------- ----------------------------------------------
Market Risk 24
-----------
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings 25
- ------- -----------------
Item 2. Changes in Securities 25
- ------- ---------------------
Item 3. Defaults Upon Senior Securities 25
- ------- -------------------------------
Item 4. Submission of Matters to a Vote of Security Holders 25
- ------- ---------------------------------------------------
Item 5. Other Information 25
- ------- -----------------
Item 6. Exhibits and Reports on Form 8-K 26
- ------- --------------------------------
Signatures 27
- ----------
1
<PAGE> 3
CORTLAND BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks $ 9,524 $ 10,870
Federal Funds sold 1,500 4,150
--------- ---------
Total cash and cash equivalents 11,024 15,020
--------- ---------
Investment securities available for sale (Note 3) 125,194 119,575
Investment securities held to maturity (approximate market
value of $64,004 in 1999 and $56,526 in 1998) (Note 3) 63,866 55,935
Total loans (Note 4) 195,370 200,478
Less allowance for loan losses (Note 4) (3,056) (3,055)
--------- ---------
Net loans 192,314 197,423
--------- ---------
Premises and equipment 5,980 6,190
Other assets 4,523 3,789
--------- ---------
Total assets $ 402,901 $ 397,932
========= =========
LIABILITIES
Noninterest-bearing deposits $ 46,165 $ 50,230
Interest-bearing deposits 270,662 270,870
--------- ---------
Total deposits 316,827 321,100
--------- ---------
Federal Home Loan Bank advances and other borrowings 34,024 29,971
Other liabilities 6,718 3,321
--------- ---------
Total liabilities 357,569 354,392
--------- ---------
Commitments and contingent liabilities (Notes 4 & 5)
SHAREHOLDERS' EQUITY
Common stock - $5.00 stated value - authorized 5,000,000 shares; issued
3,605,572 shares in 1999 and 3,570,827 in 1998 (Note 6) 18,028 17,854
Additional paid-in capital (Note 6) 5,685 4,920
Retained earnings 21,235 20,015
Accumulated other comprehensive income 482 849
Treasury stock, at cost, 4,761 shares in 1999 and 1998 (98) (98)
--------- ---------
Total shareholders' equity 45,332 43,540
--------- ---------
Total liabilities and shareholders' equity $ 402,901 $ 397,932
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
of Cortland Bancorp and Subsidiaries
2
<PAGE> 4
CORTLAND BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
MARCH 31,
--------------------
1999 1998
------ ------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $4,172 $4,173
Interest and dividends on investment securities:
Taxable interest income 853 1,395
Nontaxable interest income 402 245
Dividends 61 59
Interest on mortgage-backed securities 1,283 1,231
Other interest income 63 49
------ ------
Total interest income 6,834 7,152
------ ------
INTEREST EXPENSE
Deposits 2,563 2,888
Borrowed funds 435 419
------ ------
Total interest expense 2,998 3,307
------ ------
Net interest income 3,836 3,845
Provision for loan losses 50 75
------ ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,786 3,770
------ ------
OTHER INCOME
Fees for other customer services 298 335
Investment securities gains - net 7 62
Gain on sale of loans - net 57 8
Other non-interest income 46 61
------ ------
Total other income 408 466
------ ------
OTHER EXPENSES
Salaries and employee benefits 1,377 1,400
Net occupancy expense 195 180
Equipment expense 295 277
State and local taxes 138 141
Office supplies 107 109
Marketing expense 50 73
Legal and litigation expense 28 38
Other operating expenses 354 321
------ ------
Total other expenses 2,544 2,539
------ ------
INCOME BEFORE FEDERAL INCOME TAXES 1,650 1,697
Federal income taxes 430 494
------ ------
NET INCOME $1,220 $1,203
====== ======
BASIC EARNINGS PER COMMON SHARE (NOTE 6) $ 0.34 $ 0.34
====== ======
DILUTED EARNINGS PER COMMON SHARE (NOTE 6) $ 0.34 $ 0.34
====== ======
</TABLE>
See accompanying notes to consolidated financial statements
of Cortland Bancorp and Subsidiaries
3
<PAGE> 5
CORTLAND BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
ADDITIONAL OTHER SHARE-
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY HOLDERS
STOCK CAPITAL EARNINGS INCOME STOCK EQUITY
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1999 $17,854 $4,920 $20,015 $849 ($98) $43,540
COMPREHENSIVE INCOME:
Net income 1,220 1,220
Other comprehensive income, net of tax:
Unrealized losses on available-
for-sale securities, net of
reclassification adjustment (367) (367)
-------------
Total comprehensive income 853
-------------
Common stock transactions:
Shares sold 174 765 939
=========================================================================
BALANCE AT MARCH 31, 1999 $18,028 $5,685 $21,235 $482 ($98) $45,332
=========================================================================
DISCLOSURE OF RECLASSIFICATION FOR AVAILABLE
FOR SALE SECURITY GAINS AND LOSSES:
Net unrealized holding gains or losses on
available-for -sale securities
arising during the period, net of tax (362)
Less: Reclassification adjustment
for net gains realized in net income, net of tax 5
============
Net unrealized gains on available-
for-sale securities, net of tax ($367)
============
</TABLE>
See accompanying notes to consolidated financial statements
of Cortland Bancorp and Subsidiaries
4
<PAGE> 6
CORTLAND BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES $ 4,591 $ 1,697
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held to maturity (12,954) (2,394)
Purchases of securities available for sale (17,091) (6,597)
Proceeds from sales of securities available for sale 949
Proceeds from call, maturity and principal
payments on securities 15,759 15,207
Net decrease (increase) in loans made to customers 4,991 (6,198)
Purchase of premises and equipment (11) (108)
-------- --------
Net cash flows from investing activities (9,306) 859
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposit accounts (4,273) (2,634)
Net increase (decrease) in borrowings 4,053 (1,300)
Proceeds from sale of common stock 939 605
-------- --------
Net cash flows from financing activities 719 (3,329)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (3,996) (773)
CASH AND CASH EQUIVALENTS
Beginning of period 15,020 12,609
-------- --------
End of period $ 11,024 $ 11,836
======== ========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 3,043 $ 3,363
Income taxes paid $ 30 $ 0
</TABLE>
See accompanying notes to consolidated financial statements
of Cortland Bancorp and Subsidiaries
5
<PAGE> 7
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, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. 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, 1998.
2.) Reclassifications:
Certain items contained in the 1998 financial statements have been
reclassified to conform with the presentation for 1999. 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 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 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. Securities available for sale are
carried at fair value using the specific identification method. Changes in the
unrealized gains and losses on available for sale securities are recorded net of
tax effect as a component of comprehensive income.
Trading securities are principally held with the intention of selling
in the near term. Trading securities are carried at fair value with changes in
fair value reported in the Consolidated Statements of Income.
6
<PAGE> 8
CORTLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
(Dollars in thousands)
Realized gains or losses on dispositions are based on net proceeds and
the adjusted carrying amount of securities sold, using the specific
identification method. The table below sets forth the proceeds, gains and losses
realized on securities sold or called for the period ended:
<TABLE>
<CAPTION>
THREE MONTHS
March 31, 1999
--------------
<S> <C>
Proceeds on securities sold $ 0
Gross realized gains 0
Gross realized losses 0
Proceeds on securities called $ 4,500
Gross realized gains 7
Gross realized losses 0
</TABLE>
Securities available for sale, carried at fair value, totalled $125,194
at March 31, 1999 and $119,575 at December 31, 1998 representing 66.2% and
68.1%, respectively, of all investment securities. These levels were deemed to
provide an adequate level of liquidity in management's opinion.
Investment securities with a carrying value of approximately $29,203 at
March 31, 1999 and $29,840 at December 31, 1998 were pledged to secure deposits
and for other purposes.
7
<PAGE> 9
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, 1999, by contractual maturity, are shown below. Expected maturities
may differ from contractual maturities because borrowers have the right to call
or prepay certain obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Investment securities
- --------------------- AMORTIZED ESTIMATED
available for sale COST FAIR VALUE
- ------------------ ---- -----------
<S> <C> <C>
Due in one year or less $ 19,748 $ 19,854
Due after one year
through five years 15,576 15,747
Due after five years
through ten years 7,750 7,804
Due after ten years 7,088 7,001
-------- --------
50,162 50,406
Mortgage-backed Securities 70,066 70,720
-------- --------
$120,228 $121,126
======== ========
<CAPTION>
Investment securities
- --------------------- AMORTIZED ESTIMATED
held to maturity COST FAIR VALUE
- ---------------- ---- -----------
<S> <C> <C>
Due in one year or less $ 236 $ 237
Due after one year
through five years 10,019 10,154
Due after five years
through ten years 19,486 19,520
Due after ten years 16,476 16,355
-------- --------
46,217 46,266
Mortgage-backed Securities 17,649 17,738
-------- --------
$ 63,866 $ 64,004
======== ========
</TABLE>
8
<PAGE> 10
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 investment securities held to maturity as of March 31,
1999, are as follows:
<TABLE>
<CAPTION>
Investment
- ----------
securities available GROSS GROSS ESTIMATED
- -------------------- AMORTIZED UNREALIZED UNREALIZED FAIR
for sale COST GAINS LOSSES VALUE
- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
U.S. Treasury
securities $ 22,824 $ 245 $ 3 $ 23,066
U.S. Government
agencies and
corporations 16,229 54 54 16,229
Obligations of states
and political
subdivisions 11,109 91 89 11,111
Mortgage-backed and
related securities 70,066 756 102 70,720
-------- -------- -------- --------
Total 120,228 1,146 248 121,126
Marketable equity
securities 2,171 130 259 2,042
Other securities 2,026 2,026
-------- -------- -------- --------
Total available
for sale $124,425 $ 1,276 $ 507 $125,194
======== ======== ======== ========
<CAPTION>
Investment
- ----------
securities held GROSS GROSS ESTIMATED
- --------------- AMORTIZED UNREALIZED UNREALIZED FAIR
to maturity COST GAINS LOSSES VALUE
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
U.S. Government
agencies and
corporations $ 22,386 $ 49 $ 147 $ 22,288
Obligations of states
and political
subdivisions 23,831 332 185 23,978
Mortgage-backed and
related securities 17,649 145 56 17,738
-------- -------- -------- --------
Total held to
maturity $ 63,866 $ 526 $ 388 $ 64,004
======== ======== ======== ========
</TABLE>
9
<PAGE> 11
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 investment securities
held to maturity as of December 31, 1998:
<TABLE>
<CAPTION>
Investment
- ----------
securities available GROSS GROSS ESTIMATED
- -------------------- AMORTIZED UNREALIZED UNREALIZED FAIR
for sale COST GAINS LOSSES VALUE
- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
U.S. Treasury
securities $ 22,828 $ 375 $ $ 23,203
U.S. Government
agencies and
corporations 14,855 118 17 14,956
Obligations of states
and political
subdivisions 11,353 134 72 11,415
Mortgage-backed and
related securities 65,043 919 48 65,914
-------- -------- -------- --------
Total 114,079 1,546 137 115,488
Marketable equity
securities 2,171 127 206 2,092
Other securities 1,995 1,995
-------- -------- -------- --------
Total available
for sale $118,245 $ 1,673 $ 343 $119,575
======== ======== ======== ========
<CAPTION>
Investment
- ----------
securities held GROSS GROSS ESTIMATED
- --------------- AMORTIZED UNREALIZED UNREALIZED FAIR
to maturity COST GAINS LOSSES VALUE
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
U.S. Government
agencies and
corporations $ 14,934 $ 108 $ 10 $ 15,032
Obligations of states
and political
subdivisions 22,379 462 99 22,742
Mortgage-backed and
related securities 18,622 158 28 18,752
-------- -------- -------- --------
Total held to
maturity $ 55,935 $ 728 $ 137 $ 56,526
======== ======== ======== ========
</TABLE>
10
<PAGE> 12
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,
standby letters of credit, and financial guarantees. Such 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.
In the event of nonperformance by the other party, the Company's
exposure to credit loss on these financial instruments is represented by the
contract or notional amount of the instrument. The Company uses the same credit
policies in making commitments and conditional obligations as it does for
instruments recorded on the balance sheet. The amount and nature of collateral
obtained, if any, is based on management's credit evaluation.
<TABLE>
<CAPTION>
CONTRACT OR
NOTIONAL AMOUNT
---------------------------
March 31, December 31,
1999 1998
----------- --------------
<S> <C> <C>
Financial instruments whose contract
amount represents credit risk:
Commitments to extend credit:
Fixed rate $ 4,832 $ 2,136
Variable 19,884 18,210
Standby letters of credit 295 328
</TABLE>
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.
11
<PAGE> 13
CORTLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
(Dollars in thousands)
The Company, through its subsidiary bank, grants residential, consumer
and commercial loans, and also offers a variety of saving plans to customers
located primarily in its immediate lending area. The following represents the
composition of the loan portfolio:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
1-4 family residential mortgages 41.5% 41.7%
Commercial mortgages 31.6% 30.5%
Consumer loans 8.4% 8.8%
Commercial loans 14.3% 14.7%
Home equity loans 4.2% 4.3%
</TABLE>
Included in 1-4 family residential mortgages as of March 31, 1999 are
$4,338 of mortgage loans held for sale in the secondary market. Loans held for
sale at December 31, 1998 totaled $4,336.
The following table sets forth the aggregate balance of underperforming
loans for each of the following categories at March 31, 1999 and December 31,
1998:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Loans accounted for on a
nonaccrual basis $2,476 $2,741
Loans contractually past due
90 days or more as to
interest or principal
payments (not included in
nonaccrual loans above) 0 41
Loans considered troubled debt
restructurings (not included
in nonaccrual loans or loans
contractually past due above) 500 162
</TABLE>
12
<PAGE> 14
CORTLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
(Dollars in thousands)
The following shows the amounts of contractual interest income and
interest income actually reflected in income on loans accounted for on a
nonaccrual basis and loans considered troubled debt restructuring as of March
31, 1999.
<TABLE>
<S> <C>
Gross interest income that would have been recorded
if the loans had been current in accordance with
their original terms $93
Interest income actually included in income on the loans 21
</TABLE>
A loan is placed on a nonaccrual basis whenever sufficient information
is received to question the collectibility of the loan or any time legal
proceedings are initiated involving a loan. When a loan is placed on nonaccrual
status, any interest that has been accrued and not collected on the loan is
charged against earnings.
Impaired loans are generally included in nonaccrual loans. Management
does not individually evaluate certain smaller balance loans for impairment as
such loans are evaluated on an aggregate basis. These loans include 1 - 4
family, consumer and home equity loans. Impaired loans were evaluated using the
fair value of collateral as the measurement method. At March 31, 1999, the
recorded investment in impaired loans was $600 while the related portion of the
allowance for loan losses was $138.
As of March 31, 1999, there were $1,548 in loans, not included in the
above categories and not considered impaired, but which can be considered
potential problem loans. The Small Business Administration has guaranteed $37 of
this total.
Any loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention that have not been disclosed above do not (i)
represent or result from trends or uncertainties which management reasonably
expects will materially impact future operating results, liquidity, or capital
resources, or (ii) represent material credits about which management is aware of
any information which causes management to have serious doubts as to the ability
of such borrowers to comply with the loan repayment terms.
13
<PAGE> 15
CORTLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
(Dollars in thousands)
The following is an analysis of the allowance for loan losses for the
three month periods ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Balance at beginning of period $ 3,055 $ 2,817
Loan charge-offs:
1-4 family residential mortgages 2
Commercial mortgages 16
Consumer loans 35 44
Commercial loans 23
Home equity loans
------- -------
76 44
------- -------
Recoveries on previous loan losses:
1 - 4 family residential mortgages
Commercial mortgages
Consumer loans 26 23
Commercial loans 1 2
Home equity loans
------- -------
27 25
------- -------
Net loan losses (49) (19)
Provision charged to operations 50 75
------- -------
Balance at end of period $ 3,056 $ 2,873
------- -------
Ratio of annualized net charge-offs to
average net loans outstanding 0.10% 0.04%
======= =======
</TABLE>
For each of the periods presented above, the provision for loan losses
charged to operations is based on management's judgment after taking into
consideration all known factors connected with the collectibility of the
existing portfolio. Management evaluates the portfolio in light of economic
conditions, changes in the nature and volume of the portfolio, industry
standards and other relevant factors. Specific factors considered by management
in determining the amounts charged to operations include previous loan loss
experience, the status of past due interest and principal payments, the
anticipated impact of Year 2000 problems on certain commercial customers, the
quality of financial information supplied by customers and the general economic
condition present in the lending area of the Company's bank subsidiary.
14
<PAGE> 16
CORTLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
(Dollars in thousands except per share data)
5.) Legal Proceedings:
The Company's subsidiary bank was a defendant in a class action lawsuit
FRANK SLENTZ, ET AL. V. CORTLAND SAVINGS AND BANKING COMPANY, involving
purchased interests in two campgrounds.
On October 20, 1997 the judge presiding over this case filed a judgment
entry dismissing all claims against the Bank without prejudice. The judgment was
appealed by the plaintiffs. On March 2, 1999, the United States Court of Appeals
for the Sixth Circuit affirmed the decision of the district court to grant
summary judgment in favor of the defendant Bank. The plaintiffs have the right
to appeal to the United States Supreme court. Plaintiffs have also filed a
similar suit in the Common Pleas Court of Trumbull County which is currently
scheduled for May 2000. Accordingly, the ultimate outcome of this litigation
presently cannot be determined, and therefore no provision for any liability
relative to such litigation has been made in the accompanying consolidated
financial statements.
The Bank is also involved in other legal actions arising in the
ordinary course of business. In the opinion of management, the outcome of these
matters is not expected to have any material effect on the Company.
6.) Earnings Per Share and Capital Transactions:
The following table sets forth the computation of basic earnings per common
share and diluted earnings per common share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
Net Income $1,220 $1,203
Weighted average common
shares outstanding * 3,599,427 3,551,411
Basic earnings per share * $0.34 $0.34
Diluted earnings per share * $0.34 $0.34
</TABLE>
*Average shares outstanding and resultant per share amounts have been
restated to give retroactive effect to the 3% stock dividend of January
1, 1999.
15
<PAGE> 17
CORTLAND BANCORP AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(Dollars in thousands)
The following is management's discussion and analysis of the financial
condition and results of operations of Cortland Bancorp (the "Company"). The
discussion should be read in conjunction with the Consolidated Financial
Statements and related notes included elsewhere in this report.
Note Regarding Forward-looking Statements
- -----------------------------------------
In addition to historical information contained herein, the following
discussion may contain forward-looking statements that involve risks and
uncertainties. Economic circumstances, the Company's operations and actual
results could differ significantly from those discussed in any forward-looking
statements. Some of the factors that could cause or contribute to such
differences are changes in the economy and interest rates either nationally or
in the Company's market area; increased competitive pressures or changes in
either the nature or composition of competitors; changes in the legal and
regulatory environment; changes in factors influencing liquidity such as
expectations regarding the rate of inflation or deflation, currency exchange
rates, and other factors influencing market volatility; unforeseen risks
associated with the Year 2000 issue and other global economic and financial
factors.
Liquidity
- ---------
The central role of the Company's liquidity management is to (1) ensure
sufficient liquid funds to meet the normal transaction requirements of its
customers, (2) take advantage of market opportunities requiring flexibility and
speed, and (3) provide a cushion against unforeseen liquidity needs.
Principal sources of liquidity for the Company include assets
considered relatively liquid, such as interest-bearing deposits in other banks,
federal funds sold, cash and due from banks, as well as cash flows from
maturities and repayments 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, borrowings from the Federal Home Loan Bank of Cincinnati and
access to the Federal Reserve Discount Window.
16
<PAGE> 18
CORTLAND BANCORP AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
(Dollars in thousands)
Cash and cash equivalents decreased compared to year end 1998.
Operating activities provided cash of $4,591 and $1,697 during the three months
ended March 31, 1999 and 1998, respectively. Refer to the Consolidated
Statements of Cash Flows for a summary of the sources and uses of cash for March
31, 1999 and 1998.
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 11.01% for the three months ended March 31, 1999, as compared to 11.9% for
the like period during 1998. Overall during the first three months of 1999,
capital grew at the annual rate of 16.5%, a figure which reflects earnings,
dividends paid, common stock issued, treasury shares purchased and the net
change in the estimated fair value of available for sale securities.
During the first three months of 1999, the Company issued 34,745 shares of
common stock which resulted in proceeds of $939. Of the 34,745 shares issued,
29,358 shares were issued through the Company's dividend reinvestment plan. The
remaining 5,387 shares were issued through the subsidiary bank's 401-k Plan,
which offers employees the opportunity to invest in the common stock of the
Company as one of several participant directed investment alternatives.
Risk-based standards for measuring capital adequacy require banks and
bank holding companies to maintain capital based on "risk-adjusted" assets.
Categories of assets with potentially higher credit risk require more capital
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.
17
<PAGE> 19
CORTLAND BANCORP AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
(Dollars in thousands)
These standards also classify capital into two tiers, referred to as
Tier 1 and Tier 2. The Company's Tier 1 capital consists of common shareholders'
equity (excluding any gain or loss on available for sale debt securities) less
intangible assets and the net unrealized loss on equity securities with readily
determinable fair values. Tier 2 capital is the allowance for loan and lease
losses reduced for certain regulatory limitations. Risk based capital standards
require 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) in the range of 3% to 4%, subject to regulatory
guidelines.
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) required banking regulatory agencies to revise risk- based capital
standards to ensure that they adequately account for the following additional
risks: interest rate, concentration of credit, and nontraditional activities.
Accordingly, regulators will subjectively consider an institution's exposure to
declines in the economic value of its capital due to changes in interest rates
in evaluating capital adequacy.
The table below illustrates the Company's risk weighted capital ratios
at March 31, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
----- -------- -----------------
<S> <C> <C>
Tier 1 Capital $44,346 $42,211
Tier 2 Capital 2,488 2,473
-------- --------
TOTAL QUALIFYING
CAPITAL $46,834 $44,684
======== ========
Risk Adjusted
Total Assets (*) $198,440 $197,276
Tier 1 Risk-Based
Capital Ratio 22.35% 21.40%
Total Risk-Based
Capital Ratio 23.60% 22.65%
Tier 1 Risk-Based
Capital to Average Assets
(Leverage Capital Ratio) 11.21% 10.68%
</TABLE>
(*) Includes off-balance sheet exposures.
18
<PAGE> 20
CORTLAND BANCORP AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
(Dollars in thousands)
Assets, less intangibles and the net unrealized market value adjustment
of investment securities available for sale, averaged $395,471 for the three
months ended March 31, 1999 and $395,076 for the year ended December 31, 1998.
First Three Months of 1999 as Compared to First Three Months of 1998
- --------------------------------------------------------------------
During the first three months of 1999, net interest income after
provision for loan losses increased by $16 compared to the first three months of
1998. Total interest income decreased by $318 or 4.4% from the level recorded in
1998. This was accompanied by a decrease in interest expense of $309 or 9.3%,
and a decrease in provision for loan loss of $25 or 33%.
The average rate paid on interest sensitive liabilities declined by 41
basis points year-over-year. The average balance of interest sensitive
liabilities decreased by $513 or 0.2%. Compared to the first quarter of last
year, average borrowings, primarily with the Federal Home Loan Bank, increased
by $4,473 while average interest bearing demand deposits and savings accounts
increased by $2,947 and $1,778, respectively, essentially offsetting a
$9,711 decrease in more costly time deposits.
Interest and dividend income on securities registered a decrease of
$331 or 11.3% during the first three months of 1999 when compared to 1998. The
average invested balances declined by 3.7%, decreasing by $6,848 over the levels
of a year ago. The decrease in the average balance of investment securities was
accompanied by a 32 basis point decline in the tax equivalent yield of the
portfolio.
Interest and fees on loans decreased by only $1 for the first three
months of 1999 compared to 1998. A $10,537 increase in the average balance of
the loan portfolio, or 5.6%, was accompanied by a 48 basis point decline in the
portfolio's tax equivalent yield.
Other interest income increased by $14 from the same period a year ago
due to an increase in the average balance of Federal Funds sold, which increased
by $1,741. The yield decreased by 75 basis points reflecting the change in
Federal Reserve policy during the latter half of last year.
19
<PAGE> 21
CORTLAND BANCORP AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
(Dollars in thousands)
Overall average earning assets grew by $5,431, or 1.5%, from the same
period last year, with the tax equivalent yield on earning assets declining by
37 basis points to 7.44%. The tax equivalent yield of the investment portfolio
measured 6.30%, while the loan portfolio yielded 8.54%. The tax equivalent net
interest margin increased to 4.24% from the 4.23% achieved during last year's
first quarter, as the interest expense ratio declined from 3.58% to 3.20%.
Other income from all sources decreased by $58 from the same period a
year ago. Gains on 1-4 residential mortgage loans in the secondary mortgage
market increased by $49 from the same period a year ago, reflecting favorable
market conditions and an increased allocation of resources to this activity.
Gains on securities called and gains on the sale of available for sale
investment securities showed a decrease of $55 from year ago levels. Fees for
other customer services decreased by $37, mainly due to the sale of the bank
subsidiary's credit card portfolio in the fourth quarter of 1998, while other
sources of non recurring non-interest income decreased by $15 from the same
period a year ago.
Loans decreased by $5,109 during the period. Loans as a percentage of
earning assets stood at 50.6% as of March 31, 1999 as compared to 52.7% at
December 31, 1998 and 50.9% on March 31, 1998. The loan to deposit ratio at the
end of the first three months of 1999 was 61.7% compared to 62.4% at December
31, 1998 and 60.0% at the end of the same period a year ago. The investment
portfolio represented 59.7% of each deposit dollar, up from 57.2% a year ago and
54.7% at December 31, 1998.
Loan charge-offs during the first three months were $76 in 1999 and $44
in 1998, while the recovery of previously charged-off loans amounted to $27 in
1999 compared to $25 in 1998. A provision for loan loss of $50 was charged to
operations in 1999, compared to $75 charged in 1998. At March 31, 1999, the loan
loss allowance of $3,056 represented approximately 1.6% of outstanding loans.
Non accrual loans at March 31, 1999 represented 1.3% of the loan portfolio
compared to 1.4% at December 31, 1998 and 1.2% a year ago.
Total other expenses in the first three months were $2,544 in 1999
compared to $2,539 in 1998, an increase of $5 or 0.2%. Full time equivalent
employment during the first three months averaged 179 employees in 1999, a 4.3%
decline from the 187 in the same quarter of 1998. Salaries and benefits
decreased by $23 compared to the similar period a year ago.
20
<PAGE> 22
CORTLAND BANCORP AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
(Dollars in thousands)
For the first three months of 1999, state and local taxes decreased by
$3 or 2.1%. Occupancy and equipment expense increased by $33 or 7.2%, reflecting
the increased expense of the newly constructed facility at Mantua Corners which
opened in the fourth quarter of 1998 and the cost of continued Y2K readiness
preparation. All other expense categories decreased by 0.4% or $2 as a group.
Income before income tax expense amounted to $1,650 for the first three
months of 1999 compared to $1,697 for the similar period of 1998 reflecting an
increased allocation of investment funds to the tax advantaged municipal sector.
The effective tax rate for the first three months was 26.1% in 1999 compared to
29.1% in 1998, resulting in income tax expense of $430 and $494, respectively.
Net income for the first three months registered $1,220 in 1999 compared to
$1,203 in 1998, representing per share amounts of $0.34 in both 1999 and 1998.
Year 2000
- ---------
In 1997, Cortland Bancorp established a "Year 2000 (Y2K) project management
team" to provide a structured format for thoroughly addressing the Year 2000
problem. The project team's mission is to ensure that the Company's operation is
not adversely impacted by systemic errors arising from calculations using the
year 2000 date. At this time the Company expects to expend $650 on its Year 2000
program. It is anticipated that approximately 65% of these costs comprise
capital expenditures for normal lifecycle replacement/upgrades for the Company's
information systems, 20% represent capital expenditures directly associated with
Year 2000, and the remaining 15% embrace consulting, testing and other
miscellaneous Year 2000 expenses. The Company does not separately track the
internal costs incurred for the Y2K project, such as payroll costs for its
project management team, as these costs are considered immaterial. The Y2K
project team has been entirely staffed with existing personnel. It is
anticipated that costs associated with the Year 2000 project will not have a
material adverse impact on net income. To date, the Company has spent
approximately $446 on it's Year 2000 project. The Company expects to expend an
additional $204 by December 31, 1999 to ensure Y2K readiness.
In conjunction with the Federal Financial Institutions Examination Council
Interagency Statement, the Company has outlined key phases, and important
aspects, essential for effective Year 2000 project management. An overview of
these phases and their completion status are as follows:
21
<PAGE> 23
CORTLAND BANCORP AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
(Dollars in thousands)
AWARENESS (100% COMPLETE): Outline the Year 2000 problem, gaining
executive level support for the resources to perform compliance work. Establish
a Year 2000 project team and develop an overall plan to perform Y2K compliance
work that encompasses vendors, customers, suppliers, correspondent banks,
service bureaus, The Federal Reserve, insurance providers, manufacturers and
distributors of information systems and related equipment.
ASSESSMENT (100% COMPLETE): Assess the size and complexity of the
problem and detail the magnitude of the effort necessary to address Year 2000
issues. Identify all hardware, software, networks, ATM's, and other various
platforms, as well as customer and vendor interdependencies affected by the Year
2000 date change. The assessment includes environmental systems that are
dependent on embedded microchips, such as security equipment, elevators,
voice/data telecommunications and vaults.
RENOVATION (100% COMPLETE): This phase includes hardware and software
upgrades, system replacements, vendor certifications, and other associated
changes deemed necessary to assure Y2K compliance.
VALIDATION (100% COMPLETE): This stage includes the testing of
incremental changes to hardware and software components. In addition to testing
upgraded components, connections with other systems are verified and system
performance evaluated utilizing a variety of key sensitive dates. The Company
has completed the development of test and validation methodologies, and tested
critical subsystems.
IMPLEMENTATION (90% COMPLETE): Mission critical systems must be
certified as Year 2000 compliant and accepted by the Company. Any noncompliant
mission critical system will be brought to the attention of executive management
immediately for resolution. The Company has formulated contingency plans in the
event that critical applications are determined to be inoperable on or near the
year 2000. These contingency plans are labor intensive and would result in
additional payroll expense until the functionality of the mission critical
applications are restored. For any system failing certification, the business
effect will be assessed and the organization's Year 2000 contingency plans
activated.
22
<PAGE> 24
CORTLAND BANCORP AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
(Dollars in thousands)
The Company's personnel are also actively educating and alerting
customers to potential Y2K issues and problems. Loan review personnel have
conducted surveys and made inquiries of key loan customers as to their Y2K
readiness to determine whether any additional provisions to the allowance for
loan loss are required. As of March 31, 1999, no additional provisions were
required.
Due to the scope and magnitude of the Year 2000 project, the Company
has designed an extensive monitoring process to oversee the completion of the
Year 2000 project with results presented to the Board of Directors on a
quarterly basis. The Company and its bank subsidiary are also regulated by the
Federal Reserve and the State of Ohio, who periodically review the Company's Y2K
readiness, and who have the power and authority to issue sanctions to enforce
Y2K compliance.
Ultimate success is dependent upon the cooperation and ability of
vendors, customers and all levels of government and governmental agencies to
meet the Y2K challenge. The problem is truly global in nature, and its
successful resolution depends upon everyone, everywhere, doing their part. It is
recognized that the failure of any of these parties to achieve Year 2000
compliance could result in material additional expense to the Company, including
possible litigation. The Company currently believes that the reasonably "worst
case" Y2k scenario involves the failure of utilities and governments to achieve
Y2K compliance, causing a general disruption of commerce resulting in a material
increase in nonperforming loans and credit losses, accompanied by a lack of
liquidity due to financial market dysfunctions. The Company's net income would
be adversely impacted by increased operating costs, additional collection and
foreclosure expense, and the effects of a compressed net interest margin. The
Company maintains capital levels significantly in excess of regulatory minimum
guidelines as additional protection in the event of such "worst case" scenarios.
If you would like more information on Cortland Banks Year 2000 efforts,
please e-mail Timothy Carney at [email protected].
New Accounting Standards
- ------------------------
In June 1998 the Financial Accounting Standards Board issued (SFAS) No. 133
"Accounting for Derivative Instruments and Hedging Activities". This standard is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management does not anticipate that adoption of this standard will have a
material impact on the Company's financial position or results of operation.
23
<PAGE> 25
CORTLAND BANCORP AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
(Dollars in thousands)
Management considers interest rate risk to be the Company's principal
source of market risk. Since December 31, 1998, short term interest rates, as
measured by U. S. Treasury securities with maturities of one year or less, have
been relatively stable, reflecting a steady interest rate policy on the part of
the Federal Reserve. Intermediate and long term interest rates, as measured by
U. S. Treasury securities with maturities of two or more years, have increased
by approximately 40-50 basis points reflecting above average growth in the U. S.
economy, improved conditions in global financial markets, and increased
international tensions and uncertainties.
During that same time period, the Company's subsidiary bank experienced
a modest decline of 2.5% in it's loan portfolio with funds being shifted to the
investment portfolio. Meanwhile, more expensive time deposit liabilities were
replaced with less expensive Federal Home Loan Bank borrowings, and growth in
traditional passbook savings products which increased at the annual rate of 8.7%
during the first quarter.
The net effect of these changes had minimal effect on the Company's
risk position. When these changes are incorporated into the Company's risk
analysis, simulated results indicate a $50-$60 decline in net interest income
for the twelve month horizon subsequent to March 31, 1999, compared to the
simulated results for a similar twelve month horizon subsequent to December 31,
1998. Management expects that this decrease in anticipated net interest income
will be offset by similar declines in operating expense and loan loss provision
requirements due to the decline in loan volume.
Simulated Net Interest Income (NII) Scenarios
for the Twelve Months Ending
<TABLE>
<CAPTION>
Net Interest Income $ Change in NII % Change in NII
Changes in Mar. 31, Dec. 31, Mar. 31, Dec. 31, Mar. 31, Dec. 31,
Interest Rates 2000 1999 2000 1999 2000 1999
- -------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Graduated increase of
+300 basis points 15,969 16,027 (475) (467) (2.9)% (2.8)%
Short term rates unchanged 16,444 16,494
Graduated decrease of -300
basis points 16,174 16,234 (270) (260) (1.6)% (1.6)%
</TABLE>
The level of interest rate risk indicated remains within limits that
management considers acceptable. However, given that interest rate movements can
be sudden and unanticipated, and are increasingly influenced by global events
and circumstances beyond the purview of the Federal Reserve, no assurance can be
made that interest rate movements will not impact key assumptions and
relationships in a manner not presently anticipated.
24
<PAGE> 26
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
- ------- ---------------------------------------------------
None
Item 5. Other Information
- ------- -----------------
Not applicable
25
<PAGE> 27
CORTLAND BANCORP AND SUBSIDIARIES
PART II - OTHER INFORMATION (CONTINUED)
---------------------------------------
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
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
--------------------
Form 8-K was filed with the United States Securities and
Exchange Commission, dated December 31, 1998. The 8-K applied to Item 5 - Other
Events, per the 8-K instructions, and described resignations of certain members
of the registrant's Board of Directors and senior management. No financial
statements were filed with this report.
26
<PAGE> 28
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 11, 1999 Lawrence A. Fantauzzi
------------ ---------------------
Secretary/Treasurer
(Chief Financial Officer)
DATED: May 11, 1999 Rodger W. Platt
------------ ---------------
Chairman and President
(Duly Authorized Officer)
27
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 9,524
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 125,194
<INVESTMENTS-CARRYING> 63,866
<INVESTMENTS-MARKET> 64,004
<LOANS> 195,370
<ALLOWANCE> (3,056)
<TOTAL-ASSETS> 402,901
<DEPOSITS> 316,827
<SHORT-TERM> 8,006
<LIABILITIES-OTHER> 6,718
<LONG-TERM> 26,018
0
0
<COMMON> 18,028
<OTHER-SE> 27,304
<TOTAL-LIABILITIES-AND-EQUITY> 402,901
<INTEREST-LOAN> 4,172
<INTEREST-INVEST> 2,599
<INTEREST-OTHER> 63
<INTEREST-TOTAL> 6,834
<INTEREST-DEPOSIT> 2,563
<INTEREST-EXPENSE> 2,998
<INTEREST-INCOME-NET> 3,836
<LOAN-LOSSES> 50
<SECURITIES-GAINS> 7
<EXPENSE-OTHER> 2,544
<INCOME-PRETAX> 1,650
<INCOME-PRE-EXTRAORDINARY> 1,220
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,220
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
<YIELD-ACTUAL> 4.24
<LOANS-NON> 2,476
<LOANS-PAST> 0
<LOANS-TROUBLED> 500
<LOANS-PROBLEM> 41
<ALLOWANCE-OPEN> 3,055
<CHARGE-OFFS> 76
<RECOVERIES> 27
<ALLOWANCE-CLOSE> 3,056
<ALLOWANCE-DOMESTIC> 2,732
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 324
</TABLE>
