SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission file number 0-15366
CORTLAND FIRST FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
State of incorporation: New York
I.R.S. Employer Identification No.: 16-1276885
Address of principal executive offices: 65 Main Street, Cortland,
NY 13045
Registrant's telephone number including area code: (607) 756-2831
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, $5.00 par value
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 aggregate market value of the voting stock held by non-affiliates of the
Registrant on February 23, 1996 was $32,430,173.
The number of shares outstanding of the Registrant's common stock
on December 31, 1995: Common Stock, $5.00 Par Value --- 672,000
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders'
meeting to be held March 25, 1996, are incorporated by reference in
Part III.<PAGE>
FORM 10-K
PART I
Item 1 -- Business
Cortland First Financial Corporation is a Bank Holding Company and
commenced business on October 1, 1986. First National Bank of
Cortland is a wholly owned subsidiary of Cortland First Financial
Corporation and its only operating entity.
Government Regulation and Supervision
As a holding company, Cortland First Financial Corporation is
subject to supervision by the Federal Reserve system and is
required to file an annual report with the Federal Reserve Board,
and is subject to examination by that Board as well. Its
subsidiary bank, First National Bank of Cortland, is subject to
supervision by the Office of the Comptroller of the Currency as
well as the Federal Deposit Insurance Corporation (FDIC). The
administrative office of Cortland First Financial Corporation is
located at 65 Main Street, Cortland, New York, in Cortland County.
Service Area and Competition
The company conducts its banking operation primarily in Cortland
County and the surrounding areas. First National Bank of Cortland
currently employs 126 people in its six banking offices located in
Cortland, Cortlandville, Marathon, McGraw, Cincinnatus, and Tully.
A seventh banking facility was added in early 1994 in Whitney
Point, which expanded our service area into neighboring Broome
County and added greater convenience to those customers in the
southern portion of our current market.
First National Bank of Cortland is an independent commercial bank
committed to serving the financial needs of customers in the local
communities. The bank is in competition with other financial
institutions in the area, many of which are branches of large
institutions such as Marine Midland, Fleet, and Key Bank. Other
organizations compete for deposits and loans as well, and include
insurance companies, money market funds, federal credit unions, and
other local independent banking operations.
Services Offered
In addition to providing the traditional loan and deposit services
to its customers, the Bank also provides several specialized
customer services including 24-hour automated teller machines in
four locations: Main Office, 65 Main Street, Cortland; Groton
Avenue Office, 1125 Groton Avenue, Cortlandville; Tully Office,
Route 80 at I-81, Tully; and our Whitney Point Office on Route 11
in Whitney Point; as well as a 24-hour cash dispensing machine in
our Marathon Office located at 14 East Main Street, Marathon. A
full range of trust services including financial planning, estate
planning, and custodial services are handled by the Bank. Other
banking services include annuities, safe deposit boxes, travelers
checks, money orders, wire transfers, collections, and foreign<PAGE>
exchange. Traditional deposit products include checking accounts,
Negotiable order of withdrawal (NOW) and savings accounts, time
deposits, and individual retirement accounts. Lending services
include residential, farm, business loans, Small Business
Administration loans, installment loans, credit card loans, home
equity loans, biweekly mortgages, auto, and student loans.
First National Bank of Cortland has no foreign assets except for a
nominal amount of Canadian currency.
Management is not aware of any exposure to potential environmental
liability under the Superfund. Management is also not aware of any
known trends, events, or uncertainties that will have, or that are
reasonably likely to have, a material effect on the liquidity,
capital resources, or operations of the Corporation or its
subsidiary.
The Changing Face of Banking
As people young and old find their lives filled with more and more
to do and seemingly less time to do it, convenience is the
watchword of the nineties.
The changing world of financial services is really just a
reflection of these changes in society. In the age of information,
consumers and businesses can't seem to get enough news and
information, especially when it improves their quality of life.
Through traditional media like newspapers, radio and TV, over the
cellular phone air waves, via satellites, computer modems, and the
new electronic frontier called cyberspace, people want (and will
always find) more ways to get more data, more facts, more figures,
more information. And now, more than ever, people need more
information on managing their money. They want more access to
their money. And they want more control over their finances, be it
the family budget or the corporate balance sheet.
Banks can and must be a part of the answer. And the independent,
community bank is well positioned to provide solutions with a
personal touch. Only the community bank can truly say that the
financial decisions affecting its customers are made locally by
people who live and work in the community. What's more, community
bankers know the customers they serve. They understand the
realities of meeting a household budget or making payroll in a
small business. There's an empathy, a camaraderie, that leads to
friends helping friends, neighbors working side-by-side with
neighbors. There's a sense of community.
With this foundation of trust, of banker/customer relationships
forged often over the course of many years, the independent,
community bank will continue to be a dynamic force in the changing
landscape of financial services. You've started to see some changes
at First National Bank of Cortland. There's more to come. And the
pace quickens.<PAGE>
Coming Attractions at FNBC
First National introduced its Anytime Banker ATM card in 1988.
Today, through our MAC network affiliation, our customers can use
ATM s across town and around the world to make deposits,
withdrawals, and inquiries about their accounts, 24 hours a day,
365 days a year.
Soon, those same customers (and new ones to be sure) will be
attracted to the convenience of buying groceries, gasoline, and
dinner at their favorite restaurant, all with the FNBC debit card.
Sometimes called a check card, this card looks just like a credit
card but enables customers to pay for products and services by
debiting their checking or savings account. It's convenient, time
saving, appropriate technology that makes our customers' banking a
lot more hassle-free and can help make their lives a little less
hectic.
The Next Generation of Convenience
Banking by phone and personal computer (PC), including the ability
to pay bills over the phone and computer lines, offers the next
generation of convenience for FNBC customers. Electronic banking
has been around for several years now, but the surge of popularity
of touch tone phones and home PC's make it more attractive to banks
and more appealing to their customers. Here's an example.
Let's say it was a Friday evening. After-work errands ate up more
time than you had hoped and you never made it to the bank. Not to
worry, you can do most of your routine banking and bill paying at
home with your FNBC screen phone or your home computer. These on-line
services take a little getting used to, but First National
personal bankers will be available to help bring you up to speed.
(In-branch demonstrations and "help-desk" telephone support will get
you started in no time.)
The benefits of E-banking are many. You'll enjoy the convenience of
banking at home, whenever you want to, day or night. You have
complete access to your banking information. Find out what checks
are outstanding, check your balance, pay bills, delay payment on
certain checks, transfer money from savings to checking or vice
versa. And rest assured that all transactions are confidential and
safe, secured by your Personal Identification Number (PIN).
Not Just Banking...Your Financial Services Center
It all points to a future full of opportunities for First National
Bank of Cortland. With opportunity of course comes
accountability...to our board of directors and shareholders, and a
responsibility...to our customers. The bank is responsible for
providing its customers with quality service, because in the eyes
of the customer that is the only differentiator among financial
service providers. While the products and services we all sell are
essentially the same, service and convenience will continue to set
us apart.<PAGE>
In keeping with the theme, Your Financial Services Center, our
newly expanded Trust & Investment Services division helps us
deliver the promise of comprehensive, quality financial services.
Here, our experienced professionals take the time to listen to our
customers, to understand their needs, and to help them identify and
meet their financial goals.
Likewise, our Business Banking Center has refocused its efforts to
give area businesses the kind of full-service business banking they
deserve right here at home. Thanks in large part to the efforts of
our top-notch commercial lending team, First National was named one
of the most small business friendly institutions in America, as
reported in the April 1995 issue of "Entrepreneur" magazine. This
distinction means that small business owners in our community can
count on First National to work with them when it comes to lending
and providing support for continued development and growth.
We are a retail bank and more, serving a whole cross-section of the
community...families, businesses, and municipalities. In the final
analysis, the bank's success will always come down to service...how
well we meet the needs of our customers. Whether it's a friendly
teller or well-trained customer service representative, a midnight
ATM stop or a 7:00 p.m. screen phone transaction, quality service
is still the name of the game. And your bank intends to be a
player.
MESSAGE TO SHAREHOLDERS
Against a backdrop of increasing competition and declining interest
margins, your company fared very well in 1995. I am pleased to
report that, while income growth was modest, yet another record was
achieved. Net income of $2,732,868 exceeded our goal for 1995.
The resulting return on average assets of 1.34% is a strong
performance indicator when compared to third-quarter annualized
return on assets of 1.19% for all FDIC insured commercial banks.
Expressed as earnings per share, net income in 1995 was $4.07
compared to $4.00 in 1994.
Total assets increased modestly from $198,759,128 in 1994 to
$203,859,547 at the end of 1995, a 2.6% increase, while the capital
account increased from $20,423,557 in 1994 to $23,653,651 in 1995.
By all calculations, our capital ratios are more than double the
minimum regulatory standards for well-capitalized banks, assuring
strength and stability for our shareholders and depositors.
In 1995, the book value of a share of stock increased by 15.8% from
$30.39 to $35.20, and total dividends paid to shareholders reached
an all-time high of $873,600, representing a 4% increase over the
prior year. The market place saw the bid price of a share of stock
decline slightly in 1995; however, a review of the most recent
five-year period shows a five-year cumulative return of 142% or an
average of 28.4% annually for the period 1991 thru 1995, a very
favorable return to shareholders.<PAGE>
I am very pleased to announce that the Board of Directors approved
a Dividend Reinvestment Plan, which will be available to most
shareholders early in 1996. Hopefully, you will have received the
prospectus by the time this report arrives. Information and
enrollment forms are available from our transfer agent.
We completed the relocation of our Loan Department into the newly
renovated Cullen building adjoining the main office in 1995,
enhancing the efficiency of our lending function. At the same
time, the Trust Department was relocated to the street level floor
of the former Cullen building. This provides new prominence for
our Trust Department, especially as we expand our financial
services and products. We were pleased to welcome Christine Blythe
as Vice President and Trust Officer in connection with the
departmental expansion. Chris has had many years of Trust and
Investment experience with both money center and regional banking
organizations. Please take the opportunity to meet with one of our
Trust Officers for any of your financial planning needs.
We also welcomed William McLaughlin as Loan Review Officer in 1995.
This addition is designed to assure the continuing high quality of
our loan portfolio in the future.
We were saddened by the death of long-time Director E.B. "Bud"
Bickford in 1995. Bud's expertise and counsel, especially in farm
and rural economics, will be missed.
In December, we honored two long-time employees upon their
retirement. Clarence Totman, Vice President and Manager of the
Cincinnatus office, retired with forty-five years of service. Joan
Root, Assistant Vice President in the Operations area, retired with
forty-two years of service. Such loyalty is becoming ever more a
rarity. We wish both a long and happy retirement.
The banking industry in the 1990's is in the midst of profound
changes as is much of corporate America. Certainly, we are seeing
much more attention given to fiscal restraint, greater efficiency,
and lower costs. Greater reliance on technology for delivery of
services is one result of these demands, and we intend to utilize
technology to augment personal service, not as a replacement.
According to a survey we commissioned in 1995, First National Bank
of Cortland matches national and regional averages for commercial
banks in terms of customer recognition as the primary financial
institution. We intend to build on this and other strengths in
1996 and beyond as we focus on the issues necessary to carry us
into the new millennium. In the fourth quarter of 1995, the Senior
Officers and the Board of Directors commenced an in-depth strategic
analysis of our bank. From this will spring the strategic
initiative necessary to fulfill our commitment to you, our
shareholders, now and in the future. I am proud to say that your
bank is uniquely qualified to manage the looming transition thanks
to our competent and dedicated employees, officers, and directors.<PAGE>
Sincerely,
David R. Alvord
President and Chief Executive Officer
Item 2 -- Properties
The Registrant operates the following branches:
Name of Office Location County Date Established
Home Office 65 Main Street Cortland March 1, 1869
Cortland, NY
Cincinnatus Main Street Cortland January 1, 1943
Cincinnatus, NY
Groton Avenue 1125 Groton Avenue Cortland June 22, 1987
Cortland, NY
Marathon 14 E. Main Street Cortland August 15, 1957
Marathon, NY
McGraw 30 Main Street Cortland May 1, 1967
McGraw, NY
Tully Route 80 at I-81 Onondaga January 26, 1989
Tully, NY
Whitney Point 2950 NYS Route 11 Broome April 7, 1994
Whitney Point, NY
The Tully and Whitney Point offices are leased. The other banking
premises are owned.
Item 3 -- Legal Proceedings
There are no pending legal proceedings, other than routine
litigation incidental to the business of the Bank, to which the
Registrant or the Bank is a party or of which any of their property
is the subject. In management's opinion, no pending action, if
adversely decided, would materially affect the Bank's or the
Registrant's financial condition.
Item 4 -- Submission of Matters to a Vote of Security Holders
No matters were submitted for security holder vote during the
fourth quarter of 1995.<PAGE>
PART II
Item 5 -- Market for Registrant's Common Stock and Related
Shareholders Matters
Common Stock Data:
The common stock of Cortland First Financial Corporation is
inactively traded in the over-the-counter market. Market makers
for the stock are Ryan, Beck & Company (800-342-2325), Monroe
Securities, Inc. (716-546-5560), and First Albany Corporation
(800-336-3245). There were 545 shareholders of record as of
December 31, 1995. Stock prices below are based on low "offer"
prices and high "bid" prices for the quarter.
1995 High Low Dividend Paid
1st Quarter $ 54.25 $ 52.75 $ .25
2nd Quarter 53.75 52.25 .20
3rd Quarter 53.25 51.50 .20
4th Quarter 53.00 51.00 .65
1994 High Low Dividend Paid
1st Quarter $ 50.00 $ 42.25 $ .30
2nd Quarter 51.50 48.75 .15
3rd Quarter 54.00 49.75 .15
4th Quarter 54.25 52.75 .65
Registrar and Transfer Agent
American Stock Transfer & Trust Company
40 Wall Street - 46th Floor
New York, NY 10005
Automatic Dividend Reinvestment Plan
This plan is administered by ASTC, as your agent. It offers a
convenient way for shareholders to increase their investment in
CFFC. The plan enables certain shareholders to reinvest all or
part of their common stock dividends in additional shares of CFFC
common stock without paying brokerage commissions or service
charges. Shareholders who are interested in this program may
receive a Plan Prospectus and enrollment card by writing or calling
ASTC Dividend Reinvestment at 1-800-278-4353.<PAGE>
Item 6 -- Selected Financial Data
Five Year Comparative Summary (In thousands of dollars)
<TABLE>
<CAPTION>
Assets and Deposits 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Loans $111,028 $108,683 $104,619 $101,669 $102,902
Securities 75,262 70,380 67,587 65,523 53,889
Deposits 178,446 176,967 167,302 167,261 156,825
Total Assets 203,860 198,759 188,683 186,090 173,727
Trust Dept Assets 56,359 49,872 50,130 47,128 49,474
(not included in Total Assets)
Shareholders' Equity 23,654 20,424 20,063 17,526 16,007
(Capital, Surplus & Undivided Profits)
Operating Income & Expenses
Total Interest Income 15,224 14,314 14,292 14,706 15,383
Total Interest Exp 5,848 4,725 5,013 6,058 7,822
Net Interest Income 9,376 9,589 9,279 8,648 7,561
Provision for Possible
Loan Losses 300 300 300 305 240
Net Interest Income
after Provision for
Possible Loan Losses 9,076 9,289 8,979 8,343 7,321
Other Operating Inc 1,446 1,370 1,303 1,241 1,205
Total Operating Inc 10,522 10,659 10,282 9,584 8,526
Salaries & Benefits 3,695 3,596 3,343 3,163 3,161
Occupancy & Equipment
Expense 1,070 1,099 1,005 891 799
Other Operating Exp 1,935 2,096 2,042 1,884 1,623
Total Operating Exp 6,700 6,791 6,390 5,938 5,583
Income Before Taxes 3,822 3,868 3,892 3,646 2,943
Provision for Taxes 1,089 1,178 1,163 1,118 829
Income Before
Acct. Change 2,733 2,690 2,729 2,528 2,114
Cumulative Effect of
Adopting Accrual Basis
Accounting for Postretirement
Benefits ---- ---- ---- 320 ----
Net Income $ 2,733 2,690 $ 2,729 $ 2,208 $ 2,114
Per-Share Statistics
(adjusted for stock split)
Net Income $ 4.07 $ 4.00 $ 4.06 $ 3.29 $ 3.15
Year End Book Value 35.20 30.39 29.86 26.08 23.82
Cash Dividends Paid 1.30 1.25 1.20 1.025 .925<PAGE>
</TABLE>
Item 7 -- Management's Discussion and Analysis of Financial Condition and
Results of Operation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
Cortland First Financial Corporation is a one-bank holding company that was
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 commercial bank delivering financial services from five offices
in Cortland County (Cortland, Cortlandville, Marathon, McGraw, and
Cincinnatus), one office in southern Onondaga County (Tully), and our newest
office in northern Broome County (Whitney Point), which was opened in April
1994. The primary regulator of Cortland First Financial Corporation is the
Federal Reserve Bank of New York in New York City, while its subsidiary,
First National Bank of Cortland, is regulated by the Office of the
Comptroller of the Currency in Washington, D.C.
Consolidated Balance Sheets:
Total resources of $203,859,547 on December 31, 1995 compared to $198,759,128
at year-end 1994, an increase of $5,100,419 or 2.6%. Daily average
outstandings for 1995 amounted to $203,701,598 compared to $195,819,527 for
1994, an increase of $7,882,071 or 4.0%.
Loans:
Total net loans at year-end reflected an increase in outstanding balances of
$2,345,377 or 2.2%, rising to $111,028,366 from $108,682,989 in 1994.
The principal components of the loan portfolio include loans secured by real
estate, commercial and agricultural, and consumer installment loans. At
year-end 1995, loans secured by real estate amounted to $63,415,248, compared
to $63,127,003 in 1994, representing 56.5% and 57.4% respectively of total
loans. The majority of these outstandings are short to medium term, fixed
rate, biweekly mortgages and variable rate home equity loans. Consumer
installment loans at year-end were $24,645,926 compared to $23,305,713 at
year-end 1994. The increase of $1,340,213 or 5.8% was due to the relatively
favorable market during the first six to nine months of the year to the bank's
marketing efforts. Commercial and agricultural loans increased by 1.1% or
$230,377 from $21,805,908 to $22,036,285 in 1995. This modest increase
reflects the continuing softness in these markets in and around the greater
Cortland community.
The Allowance for Loan and Lease Losses (ALLL) stood at $1,175,959 at year-end,
representing 1.06% of net loans outstanding compared to $1,225,737,
representing 1.13% at the end of 1994. The principal factor affecting the
reserve in 1995 was the write-off of one large commercial credit resulting in
an increase of $196,000 in net charge-offs for the year. Provision for loan
losses was provided from earnings at the level of $300,000 in both 1995 and
1994.
The adequacy of the ALLL is evaluated quarterly and is judged to be more than
adequate to cover any and all potential losses. Past due loans remain low at
1.0% and the level of non-performing loans was $284,000 at the end of<PAGE>
December 1995 compared to $299,000 at year-end 1994.
At the end of the year, non-performing loans as a percent of loans
outstanding were .23% as compared to .26% in 1994. The reserve to
non-performing loans was 463% in 1995 and 432% in 1994.
Based upon the foregoing and comparison with industry peer group averages,
the loan portfolio continues to be of high quality.
Securities:
Investment securities at year-end 1995 amounted to $75,262,216 compared to
$70,380,051 in 1994, an increase of $4,882,165 or 6.9%. The increase in the
securities portfolio results partially from the current softness in the
commercial loan portfolio.
It is management's policy to purchase investment grade securities which have
relatively short expected maturities. A very large percentage are direct
obligations of the United States government and agencies of the United States
government. In the footnote regarding Investment Securities, the maturity
schedule is displayed; however, expected maturities may differ from stated
maturities because certain securities may have certain call or prepayment
options.
At the end of the year after a careful evaluation of the potential impact of
interest rate movements 32.6% of the portfolio was reclassified as available
for sale, resulting in a total available for sale portfolio of 95.6% in order
to provide maximum flexibility to manage interest rate risk and liquidity
needs in the future. This reclassification was accomplished as a result of a
one-time opportunity by FASB to effect such a change.
Deposits:
On a daily average basis, total deposits during 1995 amounted to $179,981,491
compared to $174,191,872 in 1994, an increase of $5,789,619 or 3.3%. On
December 31, 1995, actual outstandings were $178,445,552 compared to
$176,967,403 for the same date last year. An increasingly competitive
environment resulted in a shift from the NOW and Savings accounts to Money
Market deposits and Certificates of Deposit at an additional cost of
$676,000.
Shareholders' Equity:
Shareholders' equity increased from $20,423,557 at December 31, 1994 to
$23,653,651 in 1995, an increase of $3,230,094 or 15.8%. The increase
resulted from retained earnings and an increase in unrealized gains on
investment securities.
The level of FDIC risk-based premiums as well as regulatory involvement and
funding availability through brokered deposits are all influenced by the
bank's capital ratios. The bank's risk-based capital far exceeds the minimum
requirements for the highest capital level for well capitalized banks.
Liquidity:
Liquidity management involves the ability to meet the cash flow requirements
of customers who may be either depositors wanting to withdraw funds or
borrowers needing assurance that sufficient funds will be available to meet<PAGE>
their credit needs. Securities available-for-sale amounted to $71,956,527 as
of December 31, 1995 compared to $47,082,664 as of December 31, 1994. This,
coupled with being a substantial net seller of Federal Funds in the amount of
$7,829,589 on a daily average basis in 1995, indicates a very high degree of
liquidity. All of the additional liquidity was created by our investment
securities reclassification just prior to year-end 1995.
Trust Department:
At year-end 1995, the book value of the assets held in this department
amounted to $56,358,748 compared to $49,872,335 in 1994. Trust Department
assets are not part of the consolidated balance sheets. Staffed by
well-trained, competent people, this department offers the full spectrum of
fiduciary services on a highly personalized basis. Every shareholder should
give serious consideration to what this department could do for them.
Interest Rate Risk:
The Asset/Liability Committee monitors interest risk exposure on a regular
basis based on proposals in FDICIA Section 305. Interest rate risk is the
risk that changes in market interest rates will have an adverse effect on the
bank's earnings and its underlying economic value. Changes in interest rates
affect a bank's earnings by changing its net interest income. The most recent
IRR model indicates that net income would increase by $65,000 if interest
rates increase by 200 basis points, and decrease by $64,000 if interest rates
decrease by 200 basis points (earning power for one year), indicating that
the Bank has a very acceptable rate risk exposure. The net economic value
showed a decrease of only 10.72% when rates go up 200 basis points, and an
increase of 11.84% when rates go down 200 basis points, also acceptable under
the bank's policies.
Consolidated Statement of Income:
Cortland First Financial Corporation reported an all-time high in net income
of $2,732,868 in 1995 compared to $2,689,861 in 1994 and $2,729,403 in 1993.
Return on average assets (ROA) of 1.34% at year-end 1995 compared to 1.37% in
1994 and 1.43% in 1993. Our return on average shareholders' equity (ROE) of
12.38% in 1995 compared to 13.25% in 1994 and 14.70% in 1993.
Total interest income of $15,223,495 in 1995 compared to $14,314,365 in 1994
and $14,291,797 in 1993. 1995/94 variance of $909,130 is due to rate
increases of $271,000 or 1.9% and increased volume of $639,000. Total
interest expense of $5,847,933 in 1995 compared to $4,725,206 in 1994 and
$5,012,638 in 1993. 1995/94 variance of $1,122,727 is due to rate increases
of $676,000 or 14.3% and increased volume of $446,000. As you can see, and
as we mentioned in 1994, we did experience increased pressure in the cost of
interest bearing liabilities which increased 14.3% in 1995 while our yield on
earning assets only increased by 1.9%. The result was a decrease in net
interest margin in 1995 of 28 basis points from 5.51% in 1994 to 5.23% in
1995.
Total other income (non-interest) of $1,446,110 in 1995 compared to
$1,369,271 in 1994 and $1,302,949 in 1993. The largest increase in 1995 of
$42,437 or 13.0% was in Trust Department income, followed by $25,495 or 4.3%
in service charges, and $8,901 or 2.0% in other operating income.<PAGE>
Total other expenses (non-interest) of $6,700,204 in 1995 compared to
$6,790,719 in 1994 and $6,389,905 in 1993. The major reason our 1995
expenses were less than 1994 is a reduction in FDIC insurance of $181,705 in
1995, and we expect it to further reduce in 1996 by an additional $200,000.
Other increases/decreases in 1995 were: Salaries, wages, and employee
benefits increased $99,116 or 2.8%; supplies, advertising, and communications
expenses declined $2,582 or 0.5%; and an increase in occupancy expense of
bank premises of $17,277 or 3.4% was mainly due to the opening of our Whitney
Point branch in April 1994 and renovation of the Cullen Building. Computer
and equipment expenses decreased $46,467 or 7.8% due to fully depreciated
computer-related equipment. Legal, audit, and outside services increased
$62,792 or 7.8% due to an increase in loan collection expenses.
Provision for income taxes of $1,088,600 in 1995 compared to $1,177,850 in
1994 and $1,162,800 in 1993. The reduction in 1995 of $89,250 or 7.6% is
primarily due to a rehabilitation tax credit for the Cullen Building and
higher levels of tax exempt income.<PAGE>
Item 8 -- Financial Statements and Supplementary Data
The consolidated financial statements, footnotes, and supplementary data
follow:
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS Dec. 31, 1995 Dec. 31, 1994
ASSETS
<S> <C> <C>
Cash and due from banks $ 7,854,521 $ 8,345,594
Federal funds sold 2,500,000 3,900,000
Total cash and cash equivalents 10,354,521 12,245,594
Held to maturity securities 3,305,689 23,297,387
Available for sale securities 71,956,527 47,082,664
Total securities 75,262,216 70,380,051
(fair value - $75,267,155 for 1995 and $70,181,689 for 1994)
Commercial and agricultural loans 22,036,285 21,805,908
Real estate loans 63,415,248 63,127,003
Installment loans 24,645,926 23,305,713
Other loans 5,769,590 5,014,330
Total loans 115,867,049 113,252,954
Less: Unearned income 3,662,724 3,344,228
Less: Allowance for possible
loan losses 1,175,959 1,225,737
Net Loans 111,028,366 108,682,989
Bank premises, furniture
and equipment 3,303,196 3,203,018
Accrued interest receivable 1,701,108 1,711,236
Other real estate owned 135,397 ----
Other assets 2,074,743 2,536,240
Total Assets $203,859,547 198,759,128
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing deposits $ 23,018,352 23,851,213
Interest bearing deposits 155,427,200 153,116,190
Total Deposits 178,445,552 176,967,403
Accrued interest, taxes and
other liabilities 993,932 661,870
Accrued postretirement benefits 766,412 706,298
Total Liabilities 180,205,896 178,335,571
Shareholders' equity: Common stock - par value $5.00 a share;
3,000,000 shares authorized;
672,000 shares issued and outstanding 3,360,000 3,360,000
Surplus 3,360,000 3,360,000
Undivided profits 16,438,145 14,578,877
Unrealized net gain/(loss) on
investment securities 495,506 (875,320)
Total Shareholders' Equity 23,653,651 20,423,557
Total Liabilities and
Shareholders' Equity $203,859,547 $198,759,128
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME:
INTEREST INCOME Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
<S> <C> <C> <C>
Interest and fees on loans $10,456,163 $ 9,965,487 $ 9,758,772
Interest on investment securities:
U.S. Treasury 1,731,430 1,873,295 1,905,601
U.S. Government Agencies 1,457,322 1,194,953 1,543,138
State and political
subdivisions 1,108,042 934,710 885,212
Other 14,361 9,236 7,923
Interest on federal
funds sold 456,177 336,684 191,151
Total Interest Income 15,223,495 14,314,365 14,291,797
INTEREST EXPENSE
Interest on deposits 5,847,933 4,724,891 5,011,735
Interest on short-term
borrowings ----- 315 903
Total Interest Expense 5,847,933 4,725,206 5,012,638
Net Interest Income 9,375,562 9,589,159 9,279,159
Provision for possible
loan losses 300,000 300,000 300,000
Net Interest Income After
Provision For Loan Losses 9,075,562 9,289,159 8,979,159
OTHER INCOME
Trust department services 368,716 326,279 341,064
Deposit accounts service
charges 612,448 586,947 552,502
Investment securities
gains/(losses) ----- ----- 25,811
Other operating income 464,946 456,045 383,572
Total Other Income 1,446,110 1,369,271 1,302,949
Total Operating Inc 10,521,672 10,658,430 10,282,108
OTHER EXPENSES
Salaries, wages and
employee benefits 3,694,682 3,595,566 3,342,654
Supplies, advertising and
communications expense 567,019 569,601 559,293
Occupancy exp of premises 522,673 505,396 451,116
Computer and equipment
expense 547,230 593,697 553,747
Legal, audit and other
outside services 867,075 804,283 795,425
Other operating expense 501,525 722,176 687,670
Total Other Expenses 6,700,204 6,790,719 6,389,905
Income Before Income Taxes 3,821,468 3,867,711 3,892,203
Provision for income taxes 1,088,600 1,177,850 1,162,800
Net Income $ 2,732,868 $ 2,689,861 $ 2,729,403
Net income per common share $4.07 $4.00 $4.06
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS:
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<CAPTION>
OPERATING ACTIVITIES
Year ended: Dec. 31, 1995 1994 1993
<S> <C> <C> <C>
Net income $ 2,732,868 $ 2,689,861 $ 2,729,403
Adjustments to reconcile net
income to net cash provided by
operating activities:
Provision for loan losses 300,000 300,000 300,000
Provision for depreciation 383,486 423,797 383,241
Provision for deferred
income taxes 15,198 (135,768) 34,509
Amortization of investment
security premiums
(discounts), net 391,207 511,526 520,030
Realized investment security
(gains) losses ---- ---- (25,810)
Loss (gain) on disposal of
bank equipment ---- ---- (7,414)
(Increase) decrease in
interest receivable 10,128 (237,481) 142,632
(Increase) decrease in
other assets (293,608) (365,249) (158,611)
Increase (decrease) in
interest payable 37,301 10,876 (19,360)
Increase (decrease) in other
liabilities 19,205 252,782 (378,107)
Net Cash Provided by
Operating Activities $ 3,595,785 $ 3,450,344 $ 3,520,513
INVESTING ACTIVITIES
Proceeds from maturities of
investment securities,
available for sale $ 13,159,859 $ 11,794,119 $ 20,576,971
Proceeds from maturities of
investment securities,
held to maturity 7,250,998 5,074,752 ----
Proceeds from sales of
investment securities ---- ---- 1,767,655
Purchase of investment securities,
available for sale (20,254,059) (10,904,485) (23,871,915)
Purchase of investment securities,
held to maturity (3,119,163) (11,779,528) ----
Net (increase) decrease in
credit card receivables and
other short-term loans 28,380 96,822 113,916
Longer-term loans sold 972,410 791,272 686,291
Net longer-term loans (3,646,168) (5,251,934) (8,013,755)
originated
Purchases of premises and
equipment, net (483,664) (426,221) (249,521)
Proceeds from disposition of
other real estate ---- ---- 85,882
Net Cash Used by Investing
Activities (6,091,407) (10,605,203) (8,904,476)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.<PAGE>
<TABLE>
FINANCING ACTIVITIES
<CAPTION>
Year ended: Dec. 31, 1995 1994 1993
Net increase (decrease) in
demand deposits, NOW accounts
<S> <C> <C> <C>
and savings accounts (8,042,267) 4,789,101 1,917,968
Net increase (decrease) in
certificates of deposit 9,520,416 4,876,118 (1,876,743)
Net increase (decrease) in
short-term borrowings ---- (211,743) (39,282)
Cash dividends (873,600) (840,000) (806,400)
Net Cash Provided (Used)
by Financing Activities 604,549 8,613,476 (804,457)
Increase (Decrease) in Cash
and Cash Equivalents (1,891,073) 1,458,617 (6,188,420)
Cash and cash equivalents at
beginning of year 12,245,594 10,786,977 16,975,397
Cash and Cash Equivalents
at End of Year 10,354,521 12,245,594 10,786,977
Supplemental Disclosures of
Cash Flow Information:
Cash paid during the year for:
Interest on deposits and
short-term borrowings 5,810,632 4,714,328 5,031,998
Income taxes 1,260,503 1,245,567 1,204,010
Non-cash investing activity:
Unrealized gain/(losses) on
investment securities 2,311,005 (2,511,003) 1,031,173
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY:
<TABLE>
<CAPTION>
For the years ended Common Undivided Investment
Dec. 31, 1995, 1994, 1993 Stock Surplus Profits Gains/Losses Total
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $1,680,000 $1,680,000 $14,166,013 $17,526,013
Two-for-one stock split 1,680,000 1,680,000 (3,360,000)
Net income for the year 2,729,403 2,729,403
Unrealized net gain on
investment securities $ 613,547 613,547
Cash dividends, $1.20 per share (806,400) (806,400)
Balance at December 31, 1993$3,360,000 $3,360,000 $12,729,016 $ 613,547 $20,062,563
Net income for the year 2,689,861 2,689,861
Change in unrealized net
gain/(loss) on investment
securities (1,488,867) (1,488,867)
Cash dividends, $1.25 per share (840,000) (840,000)
Balance at December 31, 1994$3,360,000 $3,360,000 $14,578,877 $ (875,320) $20,423,557
Net income for the year 2,732,868 2,732,868
Change in unrealized net
gain/(loss) on investment
securities 1,370,826 1,370,826
Cash dividends, $1.30 per share (873,600) (873,600)
Balance at December 31, 1995$3,360,000 $3,360,000 $16,438,145 $ 495,506 $23,653,651
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended Dec. 31, 1995, 1994, 1993
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: Cortland First Financial Corporation (the
Company) is a one-bank holding company whose only subsidiary and
operating entity, First National Bank of Cortland (the Bank),
delivers commercial banking services from seven branches in
Cortland, Onondaga, and Broome counties.
Basis of Presentation: The accompanying financial statements
include the accounts of Cortland First Financial Corporation (the
Company) and its wholly owned subsidiary, First National Bank of
Cortland (the Bank). Intercompany transactions have been
eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements: The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash Flows: Cash equivalents include amounts due from banks and
federal funds sold. Generally, federal funds are purchased and
sold for one-day periods.
Accounting For Postretirement Benefits: The Bank provides
postretirement medical and life insurance plans that cover
substantially all of its employees. The plans are
non-contributory; however, retiree contributions may be required if
certain age and length of service criteria are not met.
The following sets forth the plan's funded status reconciled with
the amounts reported in the company's statement of financial
position at December 31, for the combined medical and life
insurance plans:
<TABLE>
<CAPTION>
Accumulated postretirement benefit obligation (APBO):
1995 1994
<S> <C> <C>
Retirees $326,446 $343,379
Fully eligible active plan
participants 70,879 120,169
Other active plan participants 398,158 391,885
Total APBO 795,483 855,433
Plan assets at fair value ---- ----
Unrecognized net loss (29,071) (149,135)
Accrued postretirement benefit
obligation $766,412 $706,298
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost $ 31,778 $ 30,568 $ 28,981
Interest cost 53,314 62,234 69,834
Net periodic postretirement
benefit cost $ 85,092 92,802 $ 98,815<PAGE>
</TABLE>
An 11% annual rate of increase in the per capita costs of covered
health care benefits was assumed for 1995, gradually decreasing
to 5.1% by the year 2045. Increasing the assumed health care
cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of
December 31, 1995, by $131,146 and increase the aggregate of the
service cost and interest cost components of net periodic
postretirement benefit cost for 1995 by $16,328. A discount rate
of 7.25% was used to determine the accumulated postretirement
benefit obligation.
Fair Value of Financial Instruments: Statement of Financial
Accounting Standard No. 107, "Disclosures about Fair Value of
Financial Instruments," requires disclosure of fair value
information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value
or other valuation techniques. Those techniques are
significantly affected by the assumption used, including the
discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instrument.
Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Bank.
The following methods and assumptions were used by the Bank in
estimating its fair value disclosures for financial instruments:
Cash and Cash equivalents: The carrying amounts reported in the
balance sheet for cash and short-term instruments approximate
those assets' fair value.
Investment securities: Fair values for investment securities are
based on quoted market prices or dealer quotes.
Loans: Fair values for loans are estimated using discounted cash
flow analysis, based on interest rates approximating those
currently being offered for loans with similar terms and credit
quality. The fair value of accrued interest approximates
carrying value.
Deposits: The fair values disclosed for non-interest bearing
accounts and accounts with no stated maturity are, by definition,
equal to the amount payable on demand at the reporting date. The
fair value of time deposits was estimated by discounting expected
monthly maturities at interest rates approximating those
currently being offered on time deposits of similar terms. The
fair value of accrued interest approximates carrying value.
Short-term borrowings: These funds reprice daily and, therefore,
current book value was used as an estimate of fair value.<PAGE>
Off-balance sheet instruments: Off-balance sheet financial
instruments consist of standby letters of credit, with fair value
based on fees currently charged to enter into agreements with
similar terms and credit quality.
The net approximate carrying amounts and fair values of financial instruments
<TABLE>
are as follows:
<CAPTION> (In Thousands)
Dec. 31, 1995 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1994
Financial Assets: Carrying Amount Fair Value Carrying Amount Fair Value
<S> <C> <C> <C> <C>
Cash and cash equivalent$10,355 $ 10,355 $ 12,246 $ 12,246
Investment securities 75,262 75,267 70,380 70,182
Loans 112,204 ---- 109,909 ----
Allowances for loan
losses (1,176) ---- (1,226) ----
Net Loans 111,028 112,302 108,683 106,586
Total financial assets $196,645 $197,924 $191,309 $189,013
Financial Liabilities:
Deposits $178,446 $178,910 $176,967 $175,856
Total financial
liabilities $178,446 $178,910 $176,967 $175,856
</TABLE>
The fair value of off-balance sheet financial instruments, principally standby
letters of credit, is not significant.
Trust Assets: Property (other than cash deposits) held by the Bank in fiduciary
or agency capacities for its customers is not included in the accompanying
balance sheets, since such items are not assets of the Bank.
Investment Securities: Effective December 31, 1993 the Bank adopted Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." As required by this pronouncement, the Bank
classifies its investments in debt securities as held-to-maturity or
available-for-sale. Held-to-maturity securities are those for which the Bank
has the positive intent and ability to hold to maturity, and are reported at
cost, adjusted for amortization of premiums and accretion of discounts.
Debt securities not classified as held-to-maturity are classified as
available-for-sale and reported at fair value, with net unrealized gains and
losses reflected as a separate component of shareholders' equity, net of the
applicable income tax effect. None of the Bank's investment securities are
classified as trading securities.
Purchases and sales of investment securities are recorded as of settlement
date; gains and losses are based on identification of specific securities.
Fees on Loans: Loan origination fees and certain direct loan origination costs
are deferred and the net amount is amortized as a yield adjustment. The Bank
is generally amortizing these amounts over the contractual life of the related
loans. However, for fixed-rate mortgage loans that are generally made for
a 20-year term, the Bank has anticipated prepayments and used an estimated
life of 7.5 years.<PAGE>
Allowance for Possible Loan Losses: The allowance for possible loan
losses is maintained at a level considered adequate to provide for
potential loan losses. The allowance is increased by provisions
charged to operating expenses and reduced by net charge-offs. The
level of the allowance is based on management's evaluation of
potential losses in the loan portfolio, as well as prevailing
economic conditions. Substantially all of the Bank's borrowers are
concentrated within Cortland and adjacent counties.
Effective January 1, 1995, the Bank adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." Under this
standard, a loan is considered impaired, based on current
information and events, if it is probable that the Bank will not be
able to collect the scheduled payments of principal or interest
when due according to the contractual terms of the loan agreement.
The measurement of impaired loans is generally based on the present
value of expected future cash flows discounted at the historical
effective interest rate, except that all collateral-dependent loans
are measured for impairment based on the fair value of the
collateral. The adoption of SFAS 114 had no effect on the
allowance for possible loan losses, determined at January 1, 1995.
Bank Premises, Furniture and Equipment: Bank premises, furniture
and equipment are stated at cost less accumulated depreciation.
Annual provisions for depreciation are computed by the
straight-line or declining balance methods over the estimated
useful lives of the assets. Repairs and maintenance are charged to
expenses as incurred, whereas capital additions and betterments are
capitalized.
Other Real Estate: Other real estate is carried at the lower of the
recorded investment in the loan or fair value less estimated
disposal costs.
Income Taxes: Effective January 1, 1993, the Bank adopted FASB
Statement No. 109 "Accounting for Income Taxes" which requires an
asset and liability approach to recognizing the tax effects of
temporary differences between tax and financial reporting. In prior
years, the Bank accounted for the tax effects of timing differences
between tax and financial reporting using Accounting Principles
Board opinion No. 11. This change had no significant effect on the
1993 financial statements.
Retirement Benefits: The Bank has a defined contribution pension
plan, administered by its Trust Department, for all eligible
employees. Contributions to the plan are determined based upon
percentages of compensation for eligible employees and are funded
as accrued. Pension expense for 1995, 1994, and 1993 was $128,129,
$97,101, and $112,906, respectively.
The Bank also has a defined contribution 401(k) savings plan,
administered by its Trust Department, for all eligible employees.
Contributions to the plan are determined by the Board of Directors,
at its discretion, and are funded as accrued. Up to certain
limitations, employees may also contribute to this plan. Expense
under this plan was $94,752 in 1995, $81,523 in 1994, and $72,155
in 1993.
The Bank maintains a supplemental retirement plan for its President
and Chief Executive Officer. The Bank has segregated assets which
are managed by its Trust Department to fund the estimated benefit
liability upon retirement. Plan expense of $80,213, $58,005, and
$21,443 was recognized for the years ended December 31, 1995, 1994,
and 1993, respectively.
Stock Split: During August 1993, the Company effected a two-for-one
stock split through the issuance of one additional share of $5 par
value common stock for every share then outstanding.
Per-Share Amounts: Earnings per share are computed on the basis of
weighted average shares outstanding, retroactively adjusted for the
stock split (672,000 for 1995, 1994, and 1993). Cash dividends per
share are based on declared rates.<PAGE>
INVESTMENT SECURITIES
The amortized cost and approximate fair value of investment securities at
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Amortized Gross Unreal- Gross Unreal- Estimated
Cost ized Gains ized Losses Fair Value
Held-to-Maturity Portfolio - 1995
Obligations of states and
<S> <C> <C> <C> <C>
political subdivisions $ 3,305,689 $ 5,752 $ 813 $ 3,310,628
Totals $ 3,305,689 $ 5,752 $ 813 $ 3,310,628
Available-for-Sale Portfolio - 1995
U.S. Treasury securities and
obligations of U.S. government
corporation and agencies $40,521,437 $ 472,260 $ 69,252 $40,924,445
Obligations of states and
political subdivisions 19,701,984 462,965 56,818 20,108,131
Other debt securities 461,025 1,615 ---- 462,640
Mortgage-backed securities 10,440,905 117,793 97,387 10,461,311
Totals 71,125,351 1,054,633 223,457 71,956,527
Grand total $74,431,040 $1,060,385 $ 224,270 $75,267,155
Held-to-Maturity Portfolio - 1994
U.S. Treasury securities and
obligations of U.S. government
corporation and agencies $ 4,257,135 $ 10,453 $ 87,160 $ 4,180,428
Obligations of states and
political subdivisions 16,111,747 104,696 232,914 15,983,529
Other debt securities 433,485 1,681 5,565 429,601
Mortgage-backed securities 2,495,020 20,350 9,903 2,505,467
Totals 23,297,387 137,180 335,542 23,099,025
Available-for-Sale Portfolio - 1994
U.S. Treasury securities and
obligations of U.S. government
corporation and agencies 39,037,358 45,382 1,110,512 37,972,228
Obligations of states and
political subdivisions 6,303,105 ---- 339,891 5,963,214
Other debt securities 207,875 ---- ---- 207,875
Mortgage-backed securities 3,014,155 455 75,263 2,939,347
Totals 48,562,493 45,837 1,525,666 47,082,664
Grand total $71,859,880 $ 183,017 $1,861,208 $70,181,689
</TABLE>
During 1995, the Bank transferred investment securities with an amortized cost
of $24,505,992 an unrealized net gains of $494,820 from held to maturity to
available for sale. These transfers were made pursuant to the Financial
Accounting Standards Board's "Guide to Implementation of Statement 115," and
the Bank's prevailing financial management objectives.
At December 31, 1995, securities having a book value of $44,766,124 were
pledged to collateralize public fund deposits as required by law.
The amortized cost and estimated market value of investment securities at
December 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.<PAGE>
<TABLE>
<CAPTION>
Held-to-Maturity Portfolio Available-for-Sale Portfolio
Amort Cost Est Fair Value Amort Cost Est Fair Value
<S> <C> <C> <C> <C>
Due in one year $ 2,936,162 $ 2,936,162 $14,328,536 $14,358,788
Due after one year
through five years 155,275 156,803 38,733,765 39,326,563
Due after five years
through ten years 214,252 217,663 13,899,304 14,060,448
Due after ten years ---- ---- 4,163,746 4,210,728
Total $ 3,305,689 $ 3,310,628 $71,125,351 $71,956,527
</TABLE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
Changes in the loan loss allowance during the years ended December 31, 1995,
1994 and 1993 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Balance at January 1 $1,225,737 $ 1,079,689 $ 1,025,485
Provision for the year 300,000 300,000 300,000
Recoveries on loans 63,140 91,113 60,734
Subtotal 1,588,877 1,470,802 1,386,219
Less: Loans charged off 412,918 245,065 306,530
Balance at December 31 $1,175,959 $ 1,225,737 $ 1,079,689
</TABLE>
As of December 31, 1995, the Bank had no impaired loans for which specific
valuation allowances were recorded.
BANK PREMISES, FURNITURE AND EQUIPMENT
Bank premises, furniture and equipment are comprised of the following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Land $ 506,975 $ 506,975 $ 506,975
Bank premises 3,118,912 2,870,249 2,638,263
Furniture and equipment 2,770,685 2,540,712 2,349,940
Subtotal 6,396,572 5,917,936 5,495,178
Less: Accumulated depreciation 3,093,376 2,714,918 2,294,584
Total $ 3,303,196 $ 3,203,018 $ 3,200,594<PAGE>
</TABLE>
COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS
The Bank 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 consist primarily of commitments to extend credit
and letters of credit which involve, to varying degrees, elements of credit
risk in excess of amounts recognized in the consolidated balance sheet. The
contract amount of those commitments and letters of credit reflects the
extent of involvement the Bank has in those particular classes of financial
instruments. The Bank's exposure to credit loss in the event of
nonperformance by the counterparty to the financial instrument for
commitments to extend credit and letters of credit is represented by the
contractual amount of the instruments. The Bank uses the same credit
policies in making commitments and letters of credit as it does for
on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit risk:
Contract Amount
1995 1994
Commitments to extend credit $15,444,188 $13,913,176
Standby letters of credit $ 1,318,344 $ 1,513,562
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.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitment
amounts are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
Standby letters of credit written are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including bond financing and similar transactions.
The credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loan facilities to customers. Since the
letters of credit are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
For both commitments to extend credit and letters of credit, the amount of
collateral obtained, if deemed necessary by the Bank upon the extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral held varies, but includes residential and commercial real estate.
Principal operating leases are for bank premises. At December 31, 1995,
aggregate future minimum lease payments under non-cancelable operating leases
with initial or remaining terms equal to or exceeding one year consist of the
following: 1996 - $51,620; 1997 - $51,620; 1998 - $51,620; 1999 - $51,620;
and 2000 - $51,620 and $499,860 thereafter. Total rental expense amounted to
$51,620 in 1995, $53,575 in 1994, and $41,799 in 1993.
The Bank is subject to legal limitation on the amount of dividends that can
be paid to the Company. Dividends are limited to retained net profits, as
defined. At December 31, 1995, approximately $5,600,000 was available for
the declaration of dividends by the Bank. <PAGE>
<TABLE>
INCOME TAXES
<CAPTION>
The income tax provision for 1995, 1994, and 1993 is summarized as follows:
1995 1994 1993
<S> <C> <C> <C>
Currently payable $1,073,402 $1,313,618 $1,260,627
Deferred (credit) 15,198 (135,768) (97,827)
Total $1,088,600 $1,177,850 $1,162,800
The provision for income taxes includes the following:
1995 1994 1993
Federal income tax $ 798,900 $ 877,000 $ 881,500
New York State
franchise tax 289,700 300,850 281,300
Total $1,088,600 $1,177,850 $1,162,800
</TABLE>
The components of deferred income taxes at December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1995 1994
Assets:
<S> <C> <C>
Allowance for possible loan losses $ 220,567 $ 242,155
Postretirement benefits 309,439 286,934
Deferred compensation 121,391 106,756
Other 30,445 40,189
Investment Securities ---- 601,181
Total Assets $ 681,842 $1,277,215
Liabilities:
Investment securities $ 335,670 ----
Accretion 42,258 17,199
Total Liabilities $ 377,928 17,199
</TABLE>
A reconciliation between the statutory federal income tax rate and the
effective income tax rate for 1995, 1994, and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
State franchise tax, net of
federal tax benefit 5.0 5.1 4.8
Tax exempt income (10.1) (9.0) (9.0)
Other, net (.4) .3 .1
Total 28.5% 30.4% 29.9%<PAGE>
</TABLE>
RELATED PARTY TRANSACTIONS
Directors and executive officers of the Bank and their affiliated companies
were customers of, and had other transactions with, the Bank in the ordinary
course of business during 1995. It is the Bank's policy that all loans and
commitments included in such transactions are made on substantially the same
terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and do not involve more
than the normal risk of collectibility or present other unfavorable features.
Loan transactions with related parties are summarized as follows:
Balance at December 31, 1994 $4,400,130
New loans and advances 510,969
Loan payments 582,330
Balance at December 31, 1995 $4,328,769
LINES OF CREDIT
At December 31, 1995, the Bank had available lines of credit totaling
$2,000,000 which were unused.
PARENT COMPANY FINANCIAL INFORMATION
Condensed financial statement information of Cortland First Financial
Corporation is as follows:
<TABLE>
<CAPTION>
Balance Sheet Dec. 31, 1995 Dec. 31, 1994
Assets
<S> <C> <C>
Investment in subsidiary bank $23,652,208 $20,419,584
Cash and other assets 1,443 3,973
Total Assets $23,653,651 $20,423,557
Shareholders' Equity
Common Stock $ 3,360,000 $ 3,360,000
Surplus 3,360,000 3,360,000
Undivided profits 16,438,145 14,578,877
Unrealized net gains/(losses)
on investment securities 495,506 (875,320)
Total Shareholders' Equity $ 23,653,651 $20,423,557
</TABLE>
Statement of Income Year ended
<TABLE>
<CAPTION>
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
Dividend income from
<S> <C> <C> <C>
subsidiary bank $ 903,600 $ 865,000 $ 821,400
Operating expenses (32,530) (25,808) (21,811)
871,070 839,192 799,589
Equity in undistributed
income of subsidiary 1,861,798 1,850,669 1,929,814
Net Income $2,732,868 $2,689,861 $2,729,403<PAGE>
</TABLE>
Statement of Cash Flows Year Ended
<TABLE>
<CAPTION>
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
Operating Activities
<S> <C> <C> <C>
Net Income $2,732,868 $2,689,861 $2,729,403
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Equity in undistributed
net income of
subsidiary (1,861,798) (1,850,669) (1,929,814)
Net Cash Provided by
Operating Activities 871,070 839,192 799,589
Financing Activities
Cash dividends paid (873,600) (840,000) (806,400)
Net Cash Used by
Financing Activities (873,600) (840,000) (806,400)
Increase (Decrease) in
Cash and Cash
Equivalents (2,530) (808) (6,811)
Cash and Cash Equivalents
at beginning of year 3,973 4,781 11,592
Cash and Cash Equivalents
at End of Year $ 1,443 3,973 $ 4,781<PAGE>
</TABLE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Cortland First Financial Corporation and Subsidiary
We have audited the accompanying consolidated balance sheets of Cortland
First Financial Corporation and Subsidiary as of December 31, 1995 and 1994,
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cortland First
Financial Corporation and Subsidiary at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As further discussed in the notes to financial statements, the Company
adopted SFAS No. 109 (Accounting for Income Taxes) and SFAS No. 115
(Accounting for Investments in Certain Debt and Equity Securities) in 1993.
COOPERS & LYBRAND, LLP
Syracuse, New York
January 12, 1996<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES, AND SHAREHOLDERS' EQUITY:
The following table sets forth the amounts of the Corporation's daily average
assets, liabilities, and shareholders' equity for the period indicated, the
amounts of the interest earned and interest paid thereon, the average
interest rate earned for each type of earning asset, and the average rate
paid for each type of interest bearing liability. Interest earned on
non-accruing loans is included in the interest earned on loans only when
collected. The average balances of non-accruing loans are included in the
average balances of loans. Taxable equivalent adjustments have been made based
on applicable marginal Federal and State tax rates. Yields on investment
securities are based on historical cost.
<TABLE>
<CAPTION>
1/95-12/95 1/94-12/94
(In Thousands) (In Thousands)
Average Interest Yield/ Average Interest Yield/
Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets $ 0 $ 0 0 $ 0 $ 0 0
Deposits with Banks
Investment Securities
Taxable $ 51,740 $ 3,291 6.36% $ 50,678 $ 3,152 6.22%
Tax Exempt 21,042 1,507 7.16% 17,328 1,270 7.35%
Total Invest Securities $ 72,782 $ 4,798 6.59% $ 68,007 $ 4,422 6.51%
Federal Funds Sold $ 7,830 $ 456 5.83% $ 8,288 $ 337 4.06%
Loans
Real Estate Mortgages $ 61,912 $ 5,650 9.13% $ 61,513 $ 5,597 9.10%
Commercial & Agricultural 22,962 2,432 10.59% 23,827 2,218 9.31%
Consumer 22,021 2,165 9.83% 18,268 1,947 10.66%
Municipal 3,140 310 9.87% 3,100 302 9.77%
Total Loans $110,035 $10,557 9.59% $106,708 $10,064 9.43%
Total Int Earning Assets $190,647 $15,811 8.29% $183,003 $14,823 8.10%
Non Interest Earning Assets
Non Earning Assets $ 14,266 $ 13,954
Allowance for Loan Losses (1,212) ( 1,137)
Total Assets $203,701 $195,820
Interest Bearing Liabilities
Savings Rate Deposits $ 44,789 $ 1,346 3.00% $ 54,034 $ 1,599 2.96%
Market Rate Deposits 112,330 4,502 4.01% 96,574 3,126 3.24%
Total Deposits $157,119 $ 5,848 3.72% $150,608 $ 4,725 3.14%
Borrowed Funds 0 0 0% 18 0 1.68%
Total Int Bearing Liab. $157,119 $ 5,848 3.72% $150,626 $ 4,725 3.14%
Non Interest Bearing Liab. $ 24,504 $ 24,896
Shareholders' Equity 22,078 20,298
$ 46,582 $ 45,194
Total Liabilities and
Shareholders' Equity $203,701 $195,820
Net Interest Income $ 9,963 $10,098
Net Yield on Interest
Earning Assets 5.23% 5.51%<PAGE>
</TABLE>
INTEREST RATES AND INTEREST DIFFERENTIAL:
The following table sets forth for the periods indicated a survey of the
changes in interest earned and interest paid resulting from changes in volume
and changes in rates. Interest earned on non-accruing loans is included in
the interest earned on loans only when collected, i.e., on the cash basis,
but the average balances of such loans are included in the average balances
of loans. The change in interest due to both rate and volume has been
allocated to volume and rate changes in proportion to the relationship of the
absolute dollar amounts of the change in each.
<TABLE>
<CAPTION>
1995 Compared to 1994 1994 Compared to 1993
Increase (Decrease) Due to Increase (Decrease) Due to
Rate Volume Net Rate Volume Net
(in thousands of dollars) (in thousands of dollars)
Interest on Earning Assets:
Investment Securities:
<S> <C> <C> <C> <C> <C> <C>
Taxable $ (5) 143 138 $(179) (163) (342)
Tax-exempt (34) 95 161 (74) 85 11
Total Investments (39) 338 299 (253) (78) (331)
Federal Funds Sold 139 (20) 119 87 58 145
Loans:
Real Estate (113) 36 (77) (179) 290 111
Commercial and Agric 298 (64) 234 162 (33) 129
Consumer (16) 361 345 (257) 260 3
Municipal 1 (12) (11) 0 (51) (51)
Total Loans 170 321 491 (274) 466 192
Total Int Inc: $270 639 909 $(439) 445 6
Interest Paid on Liabilities:
Deposits:
Savings rate $(10) (243) (253) $(205) (126) (331)
Market rate 686 690 1376 (157) 201 44
Total Deposits 676 447 1123 $(362) 75 (287)
Borrowed Funds: 0 0 0 0 (1) (1)
Total Int Exp: $676 447 1123 $(362) 74 (288)
Net Change in Net
Interest Income: $(406) 192 (214) $ (77) 371 294<PAGE>
</TABLE>
INVESTMENT PORTFOLIO - MATURITY SCHEDULE
The following schedule sets forth the maturities of both available-for-sale and
held-to-maturity securities at December 31, 1995. Amounts and weighted
average yields of such securities are based on amortized cost for all
securities. Yield of tax exempt securities have been computed on a tax
equivalent basis using a marginal Federal and State income tax rate. (Excludes
Federal Reserve Bank and other stock of $207,000.)
<TABLE>
<CAPTION>
Remaining Maturities December 31, 1995
Within After 1 Year After 5 Years
1 Year to 5 Years to 10 Years After 10 Yrs Total
Held to Maturity Port Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Obligations of States and$ 2,936 5.87% 155 6.81% 215 6.78% --- --- 3,306 5.97%
Political Subdivisions
Total Held-To-Maturity 2,936 5.87% 155 6.81% 215 6.78% --- --- 3,306 5.97%
Available for Sale Portfolio
US Treasury Securities $ 8,748 6.39% 18,333 6.14% --- --- --- --- 27,081 6.22%
US Government Corporation and
Agency Securities 3,601 5.67% 8,319 6.08% 821 7.48% 952 6.97% 13,693 6.11%
Obligations of States and
Political Subdivisions 1,816 7.51% 10,029 7.24% 7,129 6.93% 728 6.86% 19,702 7.14%
Mortgage Back Securities 163 6.87% 2,049 6.97% 5,949 7.37% 2,280 7.74% 10,441 7.37%
Total Available-for-Sale $14,328 6.36% 38,730 6.46% 13,899 7.15% 3,960 7.39% 70,917 6.63%
Grand Total $17,264 6.28% 38,885 6.46% 14,114 7.14% 3,960 7.39% 74,223 6.60%
</TABLE>
At December 31, 1995, 85% of the state and municipal securities portfolio,
based upon par value was rated "A" or higher, and 64% "AA" or higher.
Obligations of the State of New York and its political subdivisions
constituted $17,327,689 par value or 23% of the total securities portfolio
at that date, with a market value of $17,669,605. There were no securities
of a single issuer which constituted more than 10% of shareholders equity
as of December 31, 1995.
<TABLE>
<CAPTION>
BALANCE SHEET GAP ANALYSIS
DECEMBER 31, 1995
(in thousands)
Assets: 3 Months 3-12 Months 1-5 Years >5 Years Total
<S> <C> <C> <C> <C> <C>
Cash & Due From Banks $ 7,855 $ 0 $ 0 $ 0 $ 7,855
Total Securities 2,553 12,736 39,484 20,489 75,262
Short-Term Investments 2,500 0 0 0 2,500
Total Loans 25,996 13,982 54,749 17,477 112,204
Loan Reserve 0 0 0 1,176 1,176
Net Loans 25,996 13,982 54,749 16,301 111,028
Total Fixed & Other
Assets 0 0 0 7,214 7,214
Total Assets $38,904 $ 26,718 $ 94,233 $44,004 $203,859
Liabilities & Capital:
Non-Interest Bearing
Deposits $ 3,535 $ 0 $ 16,294 $ 3,189 $ 23,018
NOW & Savings Accounts 0 0 58,307 14,577 72,884
Money Market Deposits 0 16,806 16,806 0 33,612
Total Core Deposits $ 3,535 $ 16,806 $ 91,407 $17,766 $129,514
Certificates of
Deposit 12,540 20,134 16,257 0 48,931
Total Deposits $16,075 $ 36,940 $107,664 $17,766 $178,445
Short-Term Borrowings $ 0 $ 0 $ 0 $ 0 $ 0
Other Liabilities $ 0 $ 0 $ 0 $ 1,760 $ 1,760
Total Liabilities $16,075 $ 36,940 $107,664 $19,526 $180,205
Common Stock $ 0 $ 0 $ 0 $ 6,720 $ 6,720
Retained Earnings 0 0 0 16,934 16,934
Total Equity $ 0 $ 0 $ 0 $23,654 $ 23,654
Total Liabilities &
Equity $16,075 $ 36,940 $107,664 $43,180 $203,859
GAP $22,829 $(10,222) $(13,431) $ 824 $ 0
Cumulative Gap $22,829 $ 12,607 $ (824) $ 0 $ 0<PAGE>
</TABLE>
Gap analysis indicates the sensitivity to fluctuations in interest rates by
providing information regarding maturity repricing and cash flows for both
assets and liabilities. Cash and Federal funds sold are assigned to
immediate repricing since they represent overnight sales. Investment
securities are scheduled according to the final maturity date in the case
of fixed rate issues and by next repricing date for variable rate
securities. Loans are assigned by final maturity for fixed rate loans with
no scheduled amortizing payments, while loans with amortizing payments are
scheduled according to amortized payback since this would represent a
repricing opportunity on funds received as payments. Variable rate loans
are assigned to the next repricing date. Demand loans are categorized as
immediately repliceable. Non-interest bearing deposits repricing within
three months represent approximately 50% of commercial demand balances.
The remaining interest bearing, savings, and money market accounts which
represent core deposits are spread across the Gap buckets to yield a 3.5
year average maturity. Fixed rate certificates of deposit are assigned by
final maturity date, while variable rates are assigned as of the next
repricing date. Fixed assets, other assets, other liabilities, and equity
are assigned to the over five year category since they represent stable,
non-repricing components. Changes in interest rates affect a bank's
earnings by changing its net interest income. The most recent interest
rate risk model indicates that the bank's net interest income would
increase by $65,000 if interest rates increase by 200 basis points and
decrease by $64,000 if interest rates decline by 200 basis points.
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS Year Ended December 31
1995 1994
(In Thousands)
Non-accruing loans:
<S> <C> <C>
Real estate mortgages $128 $ 64
Commercial and Agricultural 106 52
Consumer 29 4
Municipal 0 0
Total non-accruing loans $263 $120
Loans past due 90 days or more
and still accruing:
Real estate mortgages $ 3 $124
Commercial & agricultural 0 3
Consumer 17 31
Municipal 0 0
Total past-due loans 90 days or more $ 20 $158
Restructured loans $ 0 $ 0
Other real estate owned 135 0
Total restructured and OREO $135 $ 0
Total non-performing assets $418 $278
Percent of total net loans .37% .26%
Income that would have been accrued at original
Contract rates on non-accruing loans $ 15 $ 8
Amount recognized as income 6 $ 4
Interest income not accrued $ 9 $ 4<PAGE>
</TABLE>
Non-accruing Loans
The Company does not accrue interest on certain non-performing loans.
Non-accrual status is normally reserved for loans 90 days or more past
due unless both well secured and in the process of collection.
Potential Problem Loans
At December 31, 1995, the Company had $3,624,000 in commercial and consumer
loans for which payments are presently current, but the borrowers are
currently experiencing financial difficulties. Those loans are subject to
constant management attention and are reviewed weekly. The Registrant had
no restructured loans as defined by FASB 114 in the portfolio. Loans which
are current for which collection is doubtful are not normally placed in
non-accrual status. Such loans are on a watch list to allow monitoring by
management.
Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that are not included above, do not represent or result
from trends or uncertainties which management reasonably expects will
materially impact future operating results, liquidity, or capital
resources, nor do they represent material credits about which management is
aware of information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms.
Loan Concentration
There are no concentrations of loans which amount to more than 10% of total
loans other than those which have been separately disclosed, i.e., real
estate, consumer, commercial, agricultural, and municipal. All loans
granted are to entities within Cortland County and those immediately
adjoining counties which are in our local service area. We have no outside
area loans in our portfolio.
Allocations of the Allowance for Loan Losses
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
% of Loans % of Loans
Amount to Total Amount to Total
(In thousands of dollars)
<S> <C> <C> <C> <C>
Real Estate Mortgage $ 240 57% $ 341 58%
Commercial, Municipal
& Agricultural 498 22% 467 24%
Consumer 438 21% 418 18%
Total Allocation $1,176 100% $1,226 100%
</TABLE>
Allowance for Possible Loan Losses
The allowance for possible loan losses is maintained at a level considered
adequate to provide for potential loan losses. The allowance is increased
by provisions charged to operating expenses and reduced by net charge-offs.
The adequacy of the allowance is based on management evaluation of the last
three years historical loss experience, specific allocations for losses
detailed in the loan loss review, and an additional allocation based on the
total outstandings in the loan portfolio. Additional factors considered in
the evaluation include the levels and trends in delinquencies and
non-accruals, underwriting guidelines and collection procedures, the experience
and ability of the lending staff, and current economic conditions within our
lending area. The Company has a diverse customer base with no known
significant concentrations of credit that would affect the allowance.
Substantially all of the Bank's borrower's are concentrated within Cortland
and adjacent counties. There were no impaired loans for purposes of FASB 114 at
the end of 1995.<PAGE>
Loan Portfolio Composition
The following table presents the composition by types of loans within the
Company's loan portfolio for the dates indicated:
Type of Loan December 31
(in thousands)
1995 1994
Real Estate Loans $ 63,415,248 $ 63,127,003
Commercial & Agricultural 22,036,285 21,805,908
Installment 24,645,926 23,305,713
Municipal & Other 5,769,590 5,014,330
Total $115,867,049 $113,252,954
Maturities and Sensitivities of Loans to Changes in Interest Rates
The loan portfolio maturity schedule shows the amount of loans outstanding
as of December 31, 1995 according to the remaining scheduled payment of
principal for the periods indicated. The amounts due after one year are
classified according to the sensitivity to changes in the interest rates.
<TABLE>
Remaining Maturity at December 31, 1995
<CAPTION>
Within After 1 yr. After
1 Year with 1 Yrs. 5 Years Total
(in thousands of dollars)
<S> <C> <C> <C> <C>
Real estate loans $ 4,202,253 $13,463,400 $45,749,595 $ 63,415,248
Commercial & 18,972,934 1,935,859 1,127,492 22,036,285
Agricultural
Installment 1,664,379 22,705,933 275,614 24,645,926
Municipal & Other 1,623,392 2,083,508 2,062,690 5,769,590
Total $26,462,958 $40,188,700 $49,215,391 $115,867,049
</TABLE>
<TABLE>
<CAPTION>
Sensitivity of Loans Due
After One Year to Changes
in Interest Rates: Fixed Rate Variable Rate Total
Due after 1 year but
<S> <C> <C> <C>
within 5 years $35,636,526 $4,552,174 $40,188,700
Due after 5 years $48,957,634 $ 257,757 $49,215,391<PAGE>
</TABLE>
Summary of Loan Loss Experience
The following table summarizes the Company's loan loss experience for the
two years ended December 31, 1995.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
(In thousands of dollars)
Loans, Net of unearned income
<S> <C> <C>
at end of period $112,204 $109,909
Average amount of net loans $110,035 $106,708
Balance of allowance for possible
loan losses at beginning of period $ 1,226 $ 1,080
Additions:
Provisions for losses 300 300
Deductions:
Charge offs:
Real estate mortgages 10 0
Commercial and agricultural 209 126
Consumer loans 194 119
Municipal loans - 0
Total charge offs $ 413 $ 245
Recoveries:
Real estate mortgages 0 0
Commercial and agricultural 21 10
Consumer loans 42 81
Municipal loans 0 0
Total recoveries $ 63 $ 91
Net charge offs $ 350 $ 154
Allowance for possible loan losses-
end of period $ 1,176 $ 1,226
Ratio of net charge offs to
average loans .32% .14%
Ratio of reserve for loan losses to
loans outstanding at end of period 1.05% 1.12%
Ratio of provisions for losses
to net charge offs 85.71% 194.80%<PAGE>
</TABLE>
Deposits
The exhibit below presents daily average amounts and rates of deposits by
type for the years ended December 31, 1995 and December 31, 1994.
<TABLE>
<CAPTION>
1995 1994
Amount Rate Amount Rate
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Savings Deposits $ 43,677 3.00% $ 52,880 2.97%
Money Market Savings 36,898 4.63 28,257 3.61
Time Open 1,113 2.99 1,153 2.60
Interest Bearing Checking 31,795 1.75 32,324 1.87
Time Deposits 43,636 5.13 35,994 4.17
Total Interest Bearing $157,119 3.72% $150,608 3.14%
Demand Deposits 22,862 23,584
Total Deposits $179,981 $174,192
</TABLE>
Maturities of time certificates of deposit of $100,000 or more outstanding
at December 31, 1995, are summarized as follows:
Amount
(in thousands of dollars)
3 months or less $3,628
Over 3 through 6 months 2,866
Over 6 through 12 months 677
Over 12 months 1,851
Total $9,022
Non-interest bearing deposits disclosed represent all demand deposits which
are non-interest bearing. These deposits are held by individuals,
partnerships, corporations, and municipalities. There are no significant
deposits from trust activities.
Return on Equity and Assets
The following table shows operating and capital ratios for the last two years.
Year Ended December 31,
1995 1994
Return on Assets
Net Income/Average Total Assets 1.34% 1.37%
Return on Equity
Net Income/Average Shareholder Equity 12.38% 13.25%
Dividend Payout Ratio
Cash Dividends Declared/Net Income 31.97% 31.23%<PAGE>
Capital Ratio
Average Shareholder Equity/
Average Total Assets 10.84% 10.37%<PAGE>
Item 9 -- Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
PART III
Item 10 -- Directors and Executive Officers of the Registrant
Directors are listed in the Annual Proxy Statement, dated February 28,
1996, pages 2 through 4, incorporated herein by reference.
Item 11 -- Executive Compensation
Annual Proxy Statement, dated February 28, 1996, pages 5 through 9,
incorporated herein by reference.
Item 12 -- Security Ownership of Certain Beneficial Owners and Management
Annual Proxy Statement, dated February 28, 1996, pages 2 through 4,
incorporated herein by reference.
Item 13 -- Certain Relationships and Related Transactions
Annual Proxy Statement, dated February 28, 1996, pages 3 and 9,
incorporated herein by reference.
PART IV
Item 14 -- Exhibits, Financial Statement Schedules, and Reports on 8-K
(a) Documents filed as part of this report:
(2) Financial statement schedules are omitted from this Form 10-K
since the required information is not applicable to the
Registrant.
(3) Listing of Exhibits:
The following documents are attached as Exhibits to this Form 10-K as
indicated by the page number or exhibit or are incorporated by reference
to the prior filings of the Registrant with the Commission.
FORM 10-K
Exhibit
Number Exhibit Page
3.1 Certificate of Incorporation of
Cortland First Financial Corporation *
3.2 Bylaws of the Company *
4 Specimen Stock Certificates *
22 List of Registrant's Subsidiary E-2
* Exhibit is incorporated herein by reference to the identically
numbered exhibit to the Form S-4 Registration Statement filed by the
Company with the Securities an Exchange Commission on August 18, 1986.<PAGE>
Item 14 (b)
There were no reports filed on Form 8-K during the fourth quarter of
1995.
Item 14 (c)
See Item 14 (a) (3) above.
Item 14 (d)
See Item 14 (a) (2) above.<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
(Registrant)
Date By
David R. Alvord, President and
Chief Executive Officer
Date By
Bob Derksen, Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant, and in the capacities and on the dates
indicated.
David R. Alvord, President, CEO and Director March 25, 1996
Donald S. Ames, Director March 25, 1996
Mary Alice Bellardini, Director March 25, 1996
John H. Buck, Director March 25, 1996
Robert M. Lovell, Director March 25, 1996
Harry D. Newcomb, Director March 25, 1996
Richard J. Shay, Director March 25, 1996
David J. Taylor, Director March 25, 1996
Stuart Young, Director March 25, 1996
Exhibit 22 -- Subsidiaries
Subsidiary of the Registrant
First National Bank of Cortland is a wholly owned subsidiary of
Cortland First Financial Corporation.<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
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0
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