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 September 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
Sepstember 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> September 30, 1995 December 31,1994
(Unaudited) (Note)
ASSETS
<S> <C> <C>
Cash and Due From Banks $ 8,596 $ 8,817
Federal Funds Sold 10,200 3,900
Total Cash & Cash Equivalents 18,796 12,717
Investment Securities-Held to Maturity 27,658 23,297
Available for Sale 44,598 47,083
(Market Value 72,640 & 70,182)
Total Investment Securities 72,256 70,380
Loans (Net of Unearned ) 110,833 109,909
Discount of 3,703 and 3,344)
Reserve for Possible Loan Losses (1,166) (1,226)
Net Loans 109,667 108,683
Premises and Equipment 3,366 3,203
Other Real Estate 124 0
Other Assets 4,148 4,248
TOTAL ASSETS $208,357 $199,231
LIABILITIES
Non-Interest Bearing Deposits $ 23,061 $ 24,323
Interest Bearing Deposits 161,054 153,116
Total Deposits 184,115 177,439
Accrued Int, Taxes, & Other Liabilities 654 662
Accrued Post-Retirement Benefits 752 706
TOTAL LIABILITIES 185,521 178,807
SHAREHOLDERS' EQUITY
Common Stock (Par Value 5.00) 3,360 3,360
Outstanding 672,000 shares
Surplus 3,360 3,360
Undivided Profits 16,133 14,579
Net Unrealized Gains/(Losses)Securities (17) (875)
TOTAL SHAREHOLDERS' EQUITY 22,836 20,424
TOTAL LIABILITIES
& SHAREHOLDERS EQUITY $208,357 $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)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Interest Income:
<S> <C> <C> <C> <C>
Interest & fees on loans $ 2,645 $ 2,570 $ 7,820 $ 7,377
Interest on bank deposits 0 0 0 0
Interest on investment securities 1,092 1,020 3,253 2,993
Interest on Federal Funds sold 111 73 338 256
TOTAL INTEREST INCOME $ 3,848 $ 3,663 $11,411 $10,626
Interest Expense:
Interest on deposits 1,447 1,159 4,336 3,436
NET INTEREST INCOME $ 2,401 $ 2,504 $ 7,075 $ 7,190
Provision for loan losses 75 75 225 225
INTEREST INCOME AFTER
PROV FOR LOSSES $ 2,326 $ 2,429 $ 6,850 $ 6,965
Other Income: 362 357 1,015 1,000
Non-interest expenses 1,703 1,757 5,066 5,129
INCOME BEFORE INC TAXES $ 985 $ 1,029 $ 2,799 $2,835
Income Taxes: 288 316 809 872
NET INCOME $ 697 $ 713 $ 1,990 $1,964
Net Income per Common Share $ 1.04 $ 1.06 $ 2.96 $ 2.92
(672,000 shares outstanding)
</TABLE>
Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
Nine Months Ended September 30,
1995 1994
OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 1,990 $ 1,964
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 225 225
Provision for depreciation 280 321
Provision for deferred income taxes (109) 110
Amortization of investment security
premiums(discounts),net 300 392
(Increase) Decrease in interest receivable 17 (156)
(Increase) Decrease in other assets (513) (668)
Increase (Decrease) in interest payable 6 (17)
Increase (Decrease) in other liabilities 32 164
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,228 $ 2,335
INVESTING ACTIVITIES
Proceeds from sales/maturities
of investment securities $16,234 $12,883
Purchase of investment securities (16,972) (16,650)
Net (increase)decrease
in credit card/short term loans 105 145
Longer-term loans sold 873 698
Net longer term loans originated (2,185) (4,101)
Purchases of premises and equipment, net (443) (244)
NET CASH USED BY INVESTING ACTIVITIES $(2,388) $(7,269)
FINANCING ACTIVITIES
Net increase (decrease) in
demand deposits, NOW & savings $ 2,630 $ 2,214
Net proceeds from sales of certif of deposit 4,046 4,062
Net increase (decrease) in short term borrowings 0 (212)
Cash dividends (437) (403)
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 6,239 $ 5,661
INCREASE (DECREASE)IN CASH
AND CASH EQUIVALENTS $ 6,079 $ 727
Cash and cash equivalents at beginning of year $12,717 $10,787
CASH AND CASH EQUIVALENTS AT END OF PERIOD $18,796 $11,514
Supplemental disclosures of cash flow information:
Cash paid during the year for :
Interest on deposits and short term borrowings: $ 4,330 $ 3,453
Income taxes: 986 961
Non Cash Investing Activities:
Unrealized gain/(loss) on 1,439 (1,921)
investment securities
Cortland First Financial Corporation
</TABLE>
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
September 30, 1995
(000's omitted)
Available for Sale Held to Maturity
U.S. Treasury securities and obligations
[S] [C] [C]
of US government corporations and agencies $ 35,123 $ 6,344
Securities issued by State & Political
subdivisions in the U.S. 5,827 14,788
Other securities (includes F.R. stock) 458 1,102
Mortgage backed securities 3,190 5,424
TOTAL INVESTMENT SECURITIES $ 44,598 $ 27,658
December 31, 1994
(000's omitted)
Available for Sale Held to Maturity
U.S. Treasury securities and obligations
of US government corporations and agencies $ 37,972 $ 4,257
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]
C. Provision for Loan Loss
<TABLE>
September 30, 1995 September 30, 1994
<S> <C> <C>
Balance at January 1 $ 1,226 $ 1,080
Provision for the year 225 225
Recoveries on loans 45 60
Total 1,495 1,365
Less loans charged off 329 204
Balance at September 30, $ 1,166 $ 1,161
</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 nine
months ended September 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 $208,357 increased by $9,126 or 4.6% from $199,231 at
year-end 1994. An increase in investment securities of $1,876 represents an
increase of 2.7% 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 an unrealized loss of $1,480 at year end
1994 to an unrealized loss of $41 at quarter end representing an increase in
market value of $1,439. Investment quality remains high. The Bank does not
have a trading portfolio and does not anticipate doing so in the future.
While loan demand has been relatively flat in 1995, the third quarter has
shown some growth. Total loans of $110,833 less allowance for loan losses of
$1,166 leaving a net balance of $109,667 represents an increase of $984 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. 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 $284
compared to $144 for year to date 1994, this increase was mainly due to one
large loan. Our allowance for loan losses which currently stands at 1.05% 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 resulted in an increase of 3.8% from $177,439 at year end
1994 to $184,115 at September 30, 1995. Part of this increase is due to a
temporary fluctuation in municipal deposits. Real deposit growth for the
year, on an average basis, is projected to be approximately 3.5%.
Shareholder's equity grew from $20,424 at year end 1994 to $22,836 at
September 30, 1995, an increase of 11.8% which includes retained earnings as
well as the change in unrealized gains/losses on securities after taxes of
$858 as required by Financial Accounting Standard 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%), as well as a leverage ratio
of 11.19% indicate a strong capital position. Book value per share increased
$3.59 to $33.98 at the end of the quarter. The Bank's average federal funds
sales on a year to date basis of $7,682 coupled with an available for sale
investment portfolio of $44,598 ensures that sufficient liquidity exists to
fund the needs of both depositors and borrowers.
Trust department assets (book value) on September 30, 1995 amounted to
$55,881 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 a second Trust officer has
expanded our capacity for additional trust services.
Year to date net income at quarter end of $1,990 increased $26 or 1.3%
over the comparable period in 1994, resulting in a return on average assets
(ROA) of 1.31 at the end of the third quarter of 1995. Return on average
equity of 12.20% compared to 12.93% for the same period in 1994. Net interest
income declined by $115 from $7,190 year to date 1994 to $7,075 at quarter end
1995. Shrinkage in the net interest margin (NIM) from 5.42% in 1994 to the
current NIM of 5.27% is due to our cost of funds at 3.69% in 1995 compared to
3.05% in 1994 coupled with a volume increase of 4.4%, while our yield on
earning assets of 8.32% has increased from 8.06% in 1994 with a volume
increase of 4.3%. Other key ratios, based on averages were loans to total
deposits at 60.92 in 1995 versus 60.93 in 1994 and earning assets to total
assets at 93.54 in 1995 compared to 93.34 in 1994.
Non-interest income of $1,015 increased by $15 on a year to date basis,
while non-interest expense of $5,066 decreased by $63 over the same period in
1994. Salary and benefit expense of $2,782 increased by $98 or 3.7% from
$2,684 year to date 1994. Occupancy expenses of $402 increased $24 from $378
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 $42 from $132 in 1994
(related to our Whitney Point branch opening in April of that year as well as
our 125th anniversary celebration) to a current $90 year to date 1995. As a
result of the recapitalization of the Bank Insurance Fund (BIF), a significant
reduction in FDIC insurance expense was realized in the third quarter with a
year to date expense of $222 in 1995 versus $335 in 1994, a reduction of $111
or 33% over the same period. Increases in our tax free income position
allowed us to reduce our income tax expense by $64 from $873 in 1994 to $809
in 1995. As a result, net income for the period was $1,990, an increase of
$26 over $1,964 recorded in the same period in 1994. While earnings continue
at their budgeted level, forecasted earnings for 1995 should be approximately
the same as 1994 due to the increased pressure on the net interest margin.
PART II. OTHER INFORMATION
ITEMS 1-6. Not Applicable
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 FIRST FINANCIAL
CORPORATION
DATE November 3, 1995 /s/ David R Alvord
David R. Alvord
President
DATE November 3, 1995 /s/ Bob Derksen
Bob Derksen
Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 8596
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 72256
<INVESTMENTS-MARKET> 72640
<LOANS> 110833
<ALLOWANCE> 1166
<TOTAL-ASSETS> 208357
<DEPOSITS> 184115
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1406
<LONG-TERM> 0
<COMMON> 3360
0
0
<OTHER-SE> 194746
<TOTAL-LIABILITIES-AND-EQUITY> 208357
<INTEREST-LOAN> 7820
<INTEREST-INVEST> 3253
<INTEREST-OTHER> 338
<INTEREST-TOTAL> 11411
<INTEREST-DEPOSIT> 4336
<INTEREST-EXPENSE> 4336
<INTEREST-INCOME-NET> 7075
<LOAN-LOSSES> 225
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5066
<INCOME-PRETAX> 2799
<INCOME-PRE-EXTRAORDINARY> 2799
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1990
<EPS-PRIMARY> 2.96
<EPS-DILUTED> 2.96
<YIELD-ACTUAL> 8.32
<LOANS-NON> 281
<LOANS-PAST> 40
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 6220
<ALLOWANCE-OPEN> 1226
<CHARGE-OFFS> 329
<RECOVERIES> 45
<ALLOWANCE-CLOSE> 1166
<ALLOWANCE-DOMESTIC> 1166
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
