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 Quarter ended June 30, 1995. Commission file number 0-15366
CORTLAND FIRST FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
New York 16-1276885
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
65 Main Street, Cortland, New York 13045
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (607) 756-2831
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
The number of shares outstanding of the registrant's common stock on June 30,
1995:
Common Stock, $5.00 Par Value --- 672,000 shares
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORTLAND FIRST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(000'S OMITTED)
<TABLE>
<CAPTION>
June 30, 1995 December 31,1994
(Unaudited) (Note)
ASSETS
<S> <C> <C>
Cash and Due From Banks $ 8,134 $ 8,817
Federal Funds Sold 7,100 3,900
Investment Securities - Held to Maturity 26,365 23,297
Available for Sale 46,267 47,083
(Market Value 73,027 & 70,182)
Loans (Net of Unearned Discount of 3,610 & 3,344) 109,624 109,909
Reserve for Possible Loan Losses (1,123) (1,226)
Net Loans 108,501 108,683
Premises and Equipment 3,452 3,203
Other Real Estate 14 0
Other Assets 3,497 4,248
TOTAL ASSETS $203,330 $199,231
LIABILITIES
Non-Interest Bearing Deposits $ 23,454 $ 24,323
Interest Bearing Deposits 156,400 153,116
Total Deposits 179,854 177,439
Accrued Int, Taxes, & Other Liabilities 433 662
Accrued Post-Retirement Benefits 736 706
TOTAL LIABILITIES 181,023 178,807
SHAREHOLDERS' EQUITY
Common Stock (Par Value 5.00) 3,360 3,360
Outstanding 672,000 shares
Surplus 3,360 3,360
Undivided Profits 15,571 14,579
Net Unrealized Gains/(Losses) Securities 16 (875)
TOTAL SHAREHOLDERS' EQUITY 22,307 20,424
TOTAL LIABILITIES & SHAREHOLDERS EQUITY $203,330 $199,231
</TABLE>
Note: The balance sheet at December 31, 1994 has been derived from the audited
financial statements at that date. See notes to condensed consolidated
financial statements.
CORTLAND FIRST FINANCIAL CORPORATION
<TABLE>
Condensed Consolidated Statements of Income
(000's) omitted
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Interest Income:
<S> <C> <C> <C> <C>
Interest & fees on loans $ 2,632 $ 2,429 $ 5,175 $ 4,807
Interest on bank deposits 0 0 0 0
Interest on investment securities 1,090 985 2,161 1,975
Interest on Federal Funds sold 106 99 227 183
TOTAL INTEREST INCOME $ 3,828 $ 3,513 $ 7,563 $ 6,965
Interest Expense:
Interest on deposits 1,473 1,152 2,889 2,277
NET INTEREST INCOME $ 2,355 $ 2,361 $ 4,674 $ 4,688
Provision for loan losses 75 75 150 150
INTEREST INCOME AFTER
PROV FOR LOSSES $ 2,280 $ 2,286 $ 4,524 $ 4,538
Other Income: 312 314 653 643
TOTAL OPERATING INCOME $ 2,592 $ 2,600 $ 5,177 $ 5,181
Non-interest expenses 1,693 1,713 3,362 3,372
INCOME BEFORE INC TAXES $ 899 $ 887 $ 1,815 1,809
Income Taxes: 258 265 521 557
NET INCOME $ 641 $ 622 $ 1,294 $1,252
Net Income per Common Share $ .95 $ .93 $ 1.93 $ 1.86
(672,000 shares outstanding)
</TABLE>
<TABLE>
Consolidated Statement of Cash Flows (Unaudited)
Six Months Ended June 30,
1995 1994
OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 1,294 $ 1,252
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 150 150
Provision for depreciation 177 210
Provision for deferred income taxes (109) 110
Amortization of investment security
premiums(discounts),net 206 269
(Increase) Decrease in interest receivable 149 (87)
(Increase) Decrease in other assets 81 (638)
Increase (Decrease) in interest payable (5) (13)
Increase (Decrease) in other liabilities (194) 100
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,749 $ 1,353
INVESTING ACTIVITIES
Proceeds from sales/maturities of
investment securities $11,084 $ 9,490
Purchase of investment securities (12,034) (11,605)
Net (increase) decrease in credit
card/short term loans (147) 133
Longer-term loans sold 0 469
Net longer term loans originated 178 676
Purchases of premises and equipment, net (426) (115)
NET CASH USED BY INVESTING ACTIVITIES $(1,345) $ (952)
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
NOW & savings $ (953) $ 5,460
Net proceeds from sales of
certificates of deposit 3,368 996
Net increase (decrease) in short term
borrowings 0 (212)
Cash dividends (302) (302)
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 2,113 $ 5,942
INCREASE (DECREASE)IN CASH
AND CASH EQUIVALENTS $ 2,517 $ 6,343
Cash and cash equivalents at beginning of year $12,717 $10,787
CASH AND CASH EQUIVALENTS AT END OF PERIOD $15,234 $17,130
Supplemental disclosures of cash flow information:
Cash paid during the year for :
Interest on deposits and short term borrowings: $ 2,889 $ 2,290
Income taxes: 696 641
Non Cash Investing Activities: (1,507) 1,011<PAGE>
</TABLE>
Cortland First Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. The foregoing financial statements are unaudited, however, in the
opinion of Management, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the
financial statements have been included. A summary of the
Corporation's significant accounting policies is set forth in Note 1
to the Consolidated Financial Statements in the Corporation's Annual
Report to Shareholders on Form 10-K, for the year ended
December 31, 1994.
B. Investment Securities
<TABLE>
<CAPTION>
June 30, 1995
(000's omitted)
Available for Sale Held to Maturity
<S> <C> <C>
U.S. Treasury securities and obligations $ 37,068 $ 5,459
of US Government corporations and agencies
Securities issued by State & Political
subdivisions in the U.S. 6,243 15,154
Other securities (includes F.R. stock) 208 432
Mortgage backed securities 2,748 5,320
TOTAL INVESTMENT SECURITIES $ 46,267 $ 26,365
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
(000's omitted)
Available for Sale Held to Maturity
<S> <C> <C>
U.S. Treasury securities and obligations $ 37,972 $ 4,257
of US Government corporations and agencies
Securities issued by State & Political
subdivisions in the U.S. 5,963 16,112
Other securities (includes F.R. stock) 208 433
Mortgage backed securities 2,940 2,495
TOTAL INVESTMENT SECURITIES $ 47,083 $ 23,297
</TABLE>
<TABLE>
C. Provision for Loan Loss
<CAPTION>
June 30, 1995 June 30, 1994
<S> <C> <C>
Balance at January 1 $ 1,226 $ 1,079
Provision for the year 150 150
Recoveries on loans 36 45
Total 1,412 1,275
Less loans charged off 290 127
Balance at June 30, $ 1,122 $ 1,148
</TABLE>
The appropriateness of allowance for possible loan losses is determined by
quarterly detailed review of the loan portfolio. Effective January 1, 1995,
the Company adopted Financial Accounting Standard #114 "Accounting by
Creditors for Impairment of a Loan". The adoption of this pronouncement had
no significant effect on the Company's financial statements for the six
months ended June 30, 1995.
PART I.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
(000's Omitted)
Cortland First Financial Corporation is a one-bank holding company formed
in 1986. Its only subsidiary and operating entity is First National Bank of
Cortland, chartered in 1869. First National Bank of Cortland is an independent
bank delivering financial services from its seven offices in Cortland,
Cortlandville, Marathon, McGraw, Cincinnatus and Tully, to its customers in
Cortland County and the surrounding area and includes our newest branch
location in Whitney Point which opened last year expanding our service area
into Broome County. The primary regulator of Cortland First Financial
Corporation is the Federal Reserve Bank of New York, while its subsidiary,
First National Bank of Cortland, is regulated by the Office of the Comptroller
of the Currency in Washington, D.C.
Total assets of $203,330 increased by $4,099 or 2.1% from $199,231 at
year-end 1994. An increase in investment securities of $2,252 represents a
little more than half of the increase in total assets at quarter end. As
required by Financial Accounting Standard No. 115 "Accounting for Certain
Investments in Debt and Equity Securities", our portfolio is classified into
"Held to maturity" (reported at cost) and "Available for sale" (reported at
fair value). Favorable market conditions during 1995 as compared to 1994 have
resulted in a change in market value of securities available for sale from a
net unrealized loss of $1,480 at year end 1994 to a net unrealized gain of $27
at quarter end representing an increase in market value of $1,507. Investment
quality remains high. The Bank does not have a trading portfolio and does not
anticipate doing so in the future.
Loan demand has been relatively flat for 1995. Total loans of $109,624
less allowance for loan losses of $1,123 leaving a net balance of $108,501
represents a decrease of $182 when compared to total loans of $109,909 less
allowance for loan losses of $1,226 for a net balance of $108,683 at year end
1994. The local economy has been affected by the bankruptcy of Smith Corona, a
national typewriter manufacturer which employed many local people, but it is
anticipated that conditions may improve due to the announcement of a major
expansion of Buckbee Meers, another large manufacturer in Cortland. Our recent
expansion into the Broome County area has also increased our potential for loan
growth in the future. Relocation of our loan department into newly renovated
and expanded quarters will also enhance our loan services delivery system as
well as streamline our operations. While our year to date net chargeoffs were
$254 compared to $82 for year to date 1994, this increase was mainly due to one
large loan. Our allowance for loan losses which currently stands at 1.02% of
total loans is reviewed on a quarterly basis and is judged to be adequate to
absorb the inherent loss in the portfolio at quarter end.
Deposit growth remained relatively flat showing an increase of only 1.4%
from $177,439 at year end 1994 to $179,854 at June 30, 1995. This is
anticipated to remain fairly stable for the remainder of the year while some
growth is projected at our Whitney Point location.
Shareholder's equity grew from $20,424 at year end 1994 to $22,307 at June
30, 1995, an increase of 9.2% reflecting the change in unrealized gains/losses<PAGE>
on securities after taxes of $891 as required by FAS 115 accounting treatment.
Our risk based capital ratio of over 21% was again more than twice the minimum
requirement for the well capitalized level (10%) indicating a strong capital
position. Book value per share increased $2.80 to $33.19 at the end of the
quarter. The Bank's average federal funds sales on a year to date basis of
$7,714 coupled with an available for sale investment portfolio of $46,267
ensures that sufficient liquidity exists to fund the needs of both depositors
and borrowers.
Trust department assets (book value) on June 30, 1995 amounted to $57,543
as compared to year end 1994 book value of $49,872. Trust assets are not part
of the consolidated balance sheet. Relocation of our Trust services area to
the first floor of the adjacent building has resulted in increased convenience
for our customers. The hiring of Christine Blythe as a Trust officer has also
expanded our capacity for additional trust services.
Year to date net income at quarter end of $1,294 increased $42 or 3.4%
over the comparable period in 1994, resulting in a return on average assets
(ROA) of 1.28 at the end of the second quarter of 1995. Return on average
equity of 12.12% compared to 12.42% for the same period in 1994. Net interest
income declined by $14 from $4,688 year to date 1994 to $4,674 at quarter end
1995. Shrinkage in the net interest margin (NIM) from 5.42% in 1994 to the
current NIM of 5.26% is due to our cost of funds at 3.70% in 1995 compared to
3.03% in 1994 coupled with a volume increase of 3.4%, while our yield on
earning assets of 8.33% has increased from 7.93% in 1994 with a volume increase
of 3.5%. Other key ratios, based on averages were loans to total deposits at
60.96 in 1995 versus 60.64 in 1994 and earning assets to total assets at 93.58
in 1995 compared to 93.51 in 1994.
Non-interest income of $653 increased by $10 on a year to date basis
versus $643 in 1994, while non-interest expense of $3,362 decreased by $10 over
the same period in 1994 of $3,372. Salary and benefit expense of $1,788
increase by $61 or 3.5% from $1,727 year to date 1994. Occupancy expenses of
$275 increased $21 from $254 in 1994 for the same period due to additional
depreciation expense related to our renovation of the adjacent building and the
opening of our Whitney Point branch, as well as increases in real estate taxes
and property insurance expense. A significant decrease in marketing expense of
$46 from $125 in 1994 (related to our Whitney Point branch opening in April of
that year) to a current $80 year to date 1995. This coupled with a decrease in
other operating expense of $26 from $626 in 1994 to $600 in 1995 year to date
as well as a $27 decrease in furniture and equipment expense enabled us to
achieve net income before tax of $1,815 in 1995 versus $1,809 in 1994.
Increases in our tax free income position allowed us to reduce our income tax
expense by $36 from $557 in 1994 to $521 in 1995. Net income per common share
increased to $1.93 year to date 1995 compared to $1.86 in the same period for
1994. While earnings continue at their budgeted level, forecasted earnings for
1995 will be slightly below that of 1994 due to the increased pressure on the
net interest margin.
PART II. OTHER INFORMATION
ITEMS 1-6. Not Applicable
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 8134
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 72632
<INVESTMENTS-MARKET> 73027
<LOANS> 109624
<ALLOWANCE> 1123
<TOTAL-ASSETS> 203330
<DEPOSITS> 179854
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1169
<LONG-TERM> 0
<COMMON> 3360
0
0
<OTHER-SE> 18947
<TOTAL-LIABILITIES-AND-EQUITY> 203330
<INTEREST-LOAN> 5175
<INTEREST-INVEST> 2161
<INTEREST-OTHER> 227
<INTEREST-TOTAL> 7563
<INTEREST-DEPOSIT> 2889
<INTEREST-EXPENSE> 2889
<INTEREST-INCOME-NET> 4674
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3362
<INCOME-PRETAX> 1815
<INCOME-PRE-EXTRAORDINARY> 1815
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1294
<EPS-PRIMARY> 1.93
<EPS-DILUTED> 1.93
<YIELD-ACTUAL> 8.33
<LOANS-NON> 285
<LOANS-PAST> 91
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 6748
<ALLOWANCE-OPEN> 1226
<CHARGE-OFFS> 290
<RECOVERIES> 37
<ALLOWANCE-CLOSE> 1123
<ALLOWANCE-DOMESTIC> 1123
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
