SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended June 30, 1996. 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 (IRS Employer I.D. #)
incorporation or organization)
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 report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
The number of shares outstanding of the registrant's common stock
on June 30, 1996:
Common Stock, $1.6667 Par Value --- 2,016,000 shares.<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORTLAND FIRST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
June 30, 1996 December 31, 1995
(Unaudited) (Note)
ASSETS
<S> <C> <C>
Cash and Due From Banks $ 9,042,422 $ 7,854,521
Federal Funds Sold 5,600,000 2,500,000
Investment Securities -
Held to Maturity 5,363,485 3,305,689
Available for Sale 77,952,574 71,956,527
(Market Value 83,303,555 & 75,267,155)
Loans (Net of Unearned Discount of
(3,734,299 & 3,662,724) 113,113,616 112,204,325
Reserve for Possible Loan Losses (1,245,500) (1,175,959)
Net Loans 111,868,116 111,028,366
Premises and Equipment 3,221,858 3,303,196
Other Real Estate 102,218 135,397
Other Assets 3,927,350 3,775,851
TOTAL ASSETS $217,078,023 $203,859,547
LIABILITIES
Non-Interest Bearing Deposits $ 24,896,159 $ 23,018,352
Interest Bearing Deposits 166,805,613 155,427,200
Total Deposits $191,701,772 $178,445,552
Accrued Int, Taxes, & Other
Liabilities 672,963 993,932
Accrued Post-Retirement Benefits 800,278 766,412
TOTAL LIABILITIES $193,175,013 $180,205,896
SHAREHOLDERS' EQUITY
Common Stock (par value 1.6667) 3,360,067 3,360,000
Outstanding 2,016,000 shares
Surplus 3,360,000 3,360,000
Undivided Profits 17,344,824 16,438,145
Net Unrealized Gains/(Losses)
Securities (161,881) 495,506
TOTAL SHAREHOLDERS' EQUITY $ 23,903,010 $ 23,653,651
TOTAL LIABILITIES &
SHAREHOLDERS'EQUITY $ 217,078,023 $ 203,859,547
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from
the audited financial statements at that date.
See notes to condensed consolidated financial statements.<PAGE>
CORTLAND FIRST FINANCIAL CORPORATION
Condensed Consolidated Statements of Income
(000'S Omitted)
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Interest Income:
<S> <C> <C> <C> <C>
Interest & fees on loans $2,588 $2,632 $5,208 $5,175
Interest on investment securities
1,154 1,090 2,239 2,161
Interest on Federal Funds sold 145 106 283 227
TOTAL INTEREST INCOME $3,887 $3,828 $7,730 $7,563
Interest Expense:
Interest on deposits 1,548 1,473 3,064 2,889
NET INTEREST INCOME $2,339 $2,355 $4,666 $4,674
Provision for loan losses 58 75 133 150
INTEREST INCOME AFTER
PROV FOR LOSSES $2,281 $2,280 $4,533 $4,524
Other Income: 324 312 682 653
TOTAL OPERATING INCOME $2,605 $2,592 $5,215 $5,177
Non-interest expenses 1,621 1,693 3,297 3,362
INCOME BEFORE INC TAXES $984 $899 $1,918 $1,815
Income Taxes: 266 258 534 521
NET INCOME $718 $641 $1,384 $1,294
Net Income per Common Share $ .36 $ .32 $ .69 $ .64
(2,016,000 shares outstanding)
(adjusted for stock split)
</TABLE>
<PAGE>
<TABLE>
Consolidated Statement of Cash Flow (Unaudited) (000's Omitted)
Six Months Ended June 30,
1996 1995
OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 1,384 $ 1,294
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 133 150
Provision for depreciation 181 177
Provision for deferred income taxes 44 (109)
Amortization of investment security
premiums (discounts), net 196 206
(Increase) Decrease in interest receivable (38) 149
(Increase) Decrease in other assets (42) 81
Increase (Decrease) in interest payable (8) (5)
Increase (Decrease) in other liabilities 57 (194)
Loss on disposition of investments &
Other Real Estate Owned 43 0
NET CASH PROVIDED BY OPERATING ACTIVITIES
$ 1,950 $ 1,749
INVESTING ACTIVITIES
Proceeds from sales/maturities of
investment securities $ 11,858 $ 11,084
Purchase of investment securities (21,240) (12,034)
Net (increase) decrease in credit card and
short term loans 120 (147)
Longer-term loans sold 0 0
Net longer term loans originated (1,093) 178
Purchase of premises and equipment, net (100) (426)
Proceeds from disposition of Other
Real Estate Owned 14 0
NET CASH USED BY INVESTING ACTIVITIES $(10,441) $ (1,345)
FINANCING ACTIVITIES
Net increase (decrease) in demand
deposits, NOW & savings $ 12,056 $ (953)
Net proceeds from sales of
certificates of deposits 1,200 3,368
Cash dividends (477) (302)
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 12,779 $ 2,113
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ 4,287 $ 2,517
Cash and cash equivalents at
beginning of year $ 10,355 $ 12,717
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,642 $ 15,234
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and
short term borrowings: $ 3,072 $ 2,889
Income taxes: 543 696
Non Cash Investing Activities: (1,108) 1,507<PAGE>
</TABLE>
Cortland First Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. The foregoing financial statements are unaudited; however, in the opinion
of Management, all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the financial statements have been
included. A summary of the Corporation's significant accounting policies is
set forth in Note 1 to the Consolidated Financial Statements in the
Corporation's Annual Report to Shareholders on Form 10-K, for the year ended
December 31, 1995.
<TABLE>
B. Investment Securities
June 30, 1996
Available for Sale Held to Maturity
U.S. Treasury securities and obligations
of U.S. government corporations
<S> <C> <C>
and agencies $41,925,570 $ 0
Securities issued by State & Political
subdivisions in the U.S 22,473,409 5,363,485
Other securities (includes F.R. stock) 1,071,193 0
Mortgage back securities 12,482,402 0
TOTAL INVESTMENT SECURITIES $77,952,574 $5,363,485
December 31, 1995
Available for Sale Held to Maturity
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies $40,924,445 $ 0
Securities issued by State & Political
subdivisions in the U.S. 20,108,131 3,305,689
Other securities (includes F.R. stock) 462,640 0
Mortgage backed securities 10,461,311 0
TOTAL INVESTMENT SECURITIES $71,956,527 $ 3,305,689
</TABLE>
<TABLE>
C. Provision for Loan Loss
June 30, 1996 June 30, 1995
<S> <C> <C>
Balance at January 1 $ 1,175,959 $ 1,225,737
Provision for the year 133,000 150,000
Recoveries on loans 27,264 36,669
Total 1,336,223 1,412,406
Less loans charged off 90,723 289,898
Balance at June 30, $ 1,245,500 $ 1,122,508
</TABLE>
The appropriateness of allowance for loan losses is determined by
quarterly detailed review of the loan portfolio.<PAGE>
PART 1.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 indepen-
dent bank delivering financial services from its seven offices in Cortland,
Cortlandville, Marathon, McGraw, Cincinnatus, Tully and Whitney Point, to its
customers in Cortland, northern Broome, southern Onondaga counties and the
surrounding area. 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 $217,078,023 have increased $13,218,476, or 6.5% from
$203,859,547 on December 31, 1995. As a result of increased funding from
deposits and a slow loan demand, management has increased the securities
portfolio in held to maturity by $2,057,796 as well as securities available
for sale by $5,996,047. The net unrealized losses on securities available
for sale was $277,156, or .3% of the total portfolio as of June 30, 1996,
which is reflected in the carrying value of those securities. Investment
quality remains high. The Bank does not have a trading portfolio and does
not anticipate having one in the future.
Net loans outstanding of $111,868,116 changed little during the quarter, up
only .8% from year end. There was also no significant change in the various
loan categories from December 31, 1995. Loan demand was slow during the
first quarter, but has improved slightly during the second quarter. While the
local economy is somewhat sluggish, the expansion of Buckbee Mears, a large
manufacturer of video apertures, is anticipated to add several hundred jobs.
With the relocation of our loan department into newly renovated and expanded
quarters, our loan delivery system has been streamlined for more efficient
customer service. Year to date net charge-offs of $63,459 represented a marked
improvement over the same period last year when charge-offs reached $253,229
which included one large loss of $190,000. Our allowance for loan losses,
which currently stands at 1.13% of total net loans, is reviewed on a quarterly
basis and is judged to be sufficient to absorb the inherent loss in the
portfolio.
Deposits increased $13,256,110, or more than 7% since December 31, 1995. Over
60% of this growth was in the traditional savings and money market accounts,
while less than 10% was in the time deposit area, and demand deposit and NOW
accounts represented the remaining 27%. This should result in about a 4% growth
for the year based on averages.
On March 25, 1996 a three-for-one stock split was declared increasing the
shares issued and outstanding from 672,000 to 2,016,000 and a reduction in the
par value from $5 per share to $1.6667 per share. Dividends paid year to date
amount to $.2367 per share compared to $.15 paid for the same period in 1995,
as adjusted for the stock split. Shareholders' equity grew from $23,653,651 at
year end to $23,903,010 as of June 30, 1996. Components of shareholders'
equity reflect retention of net income of $906,746, as well as the change in
net unrealized losses on securities of $657,387 as required by FAS 115
accounting treatment. The regulatory capital leverage ratio was 11.11% at
June 30, 1996. Our risk based capital ratio of 21.15% was again more than
twice the minimum requirement for the well capitalized level (10%) indicating
a strong capital position. Book value per share increased by over 7% to
$11.85 per share as of June 30, 1996 when compared to $11.06 per share on June
30, 1995 when adjusted for the stock split.
With a liquidity ratio of 28.18% and a volatile liability dependency ratio of
- -8.65%, sufficient liquidity exists to fund the needs of both depositors and
borrowers. The Bank recently became a member of the Federal Home Loan Bank
which will serve as an additional source of liquidity.
Trust department assets (book value) on June 30, 1996 amounted to $55,744,264
as compared to $57,542,873 at June 30, 1995. Trust assets are not part of the
consolidated balance sheet. Our recently updated Trust services area provides
expanded services and more convenience for our customers.
Net income for the second quarter of 1996 was $717,508, an increase of 11.9%
from $641,450 from the same period of 1995, while net income year to date 1996
of $1,383,866 shows an increase of 6.9% from $1,294,584 for the first half of
1995 resulting in a return on average assets (ROA) of 1.30 at the end of the
second quarter of 1996. Net interest income was $4,665,549, a decrease of .2%
from the same period in 1995. Earning assets grew 6.7% from $189,355,005 at
June 30, 1995 to $202,029,675, while interest income grew 2.2% due to
decreases in the prime rate and lower yields available on investment
securities replacing the higher yields on those maturing. These changes in
interest income are the result of an increase due to volume of $340,000 offset
by a reduction due to rates of $173,000 Interest bearing liabilities grew
6.7% from $156,400,162 as of June 30, 1995 to $166,805,613 at the period end
resulting in an increase in interest expense of 6.1% from $2,889,191 to
$3,064,211. Of this change in interest expense, $177,000 is due to the
increase in volume while a change in rate accounted for a $2,000 decrease.
With the cost of funds increasing from 3.70% in 1995 to 3.75% in 1996, and our
yield on earning assets declining from 8.33% for the first half of 1995 to
8.09% for the comparable period in 1996, our net interest margin on earning
assets continues to show a narrowing from 5.26% in 1995 to the current level
of 5.01%. This trend is expected to ease if the economic predictions for
modest increases in the prime rate are realized during the next two quarters
of 1996. Other key ratios, based on averages, were loans to total deposits
at 59.54% for the first six months in 1996 compared to 60.96% for the same
period in 1995 and earning assets to total assets at 93.94% year to date 1996
compared to 93.58% for the first half of 1995.
Non-interest income of $682,205 increased by $29,196 on a year to date basis
versus $653,009, while non-interest expense of $3,297,372 decreased by
$64,498 over the same period in 1995 of $3,361,869. Trust income of $185,890
for 1996 year to date increased $38,347, or 26% over $147,543 for the
comparable period in 1996. Service charge income showed a modest increase as
well from $297,983 in 1995 to $312,749 in 1996. The single most significant
factor in thereduction of non-interest expense is the recovery of the FDIC
insurance fund resulting in the lowering of the premium payments from $195,919
year to date 1995 to $1,000 for the comparable period in 1996. This was offset
in part by increases of over $57,000 in outside services expense, $18,634 in
losses on disposition of other real estate owned, $33,000 in holding company
expense and $24,000 in equipment maintenance. While our self-insured medical
expense was down by approximately $57,000, the savings were offset by an
increase in salary expense of $31,000 and an increase in other benefits expense
of $21,000. Increases in our tax free income position allowed us to keep our
income tax expense to a relatively modest increase of $12,540 over the
comparable period in 1995. Net income per common share increased to $.69 year
to date 1996 compared to $.64 in the same period for 1995, when adjusted for
the stock split.
In our continuing commitment to expand our financial services and product
offerings, Cortland First Financial Corporation anticipates the introduction
of a debit card during the second half of 1996. Quality service and
convenience for our customers are essential to our continued success which
will translate to enhanced shareholder benefit.
PART 2. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 1996, the Corporation noted that certain reports required by the
Securities and Exchange Act of 1934 had inadvertently not been filed
specifically, Forms 3, 4, and 5. Shortly after the discovery, the Corporation
notified the Securities and Exchange Commission of these omissions. Since
that date, the Corporation and the directors and officers have filed the
omitted reports. As of the date hereof, no proceeding has been instituted
against the Corporation or any of its officers or directors. Instead, the
parties are attempting to resolve the matter administratively. In the event
the matter cannot be resolved, a formal proceeding will likely be commenced.
ITEM 2-6. 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 August 12, 1996 / s / David R. Alvord
President
Date August 12, 1996 / s / Bob Derksen
Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,042
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 77,953
<INVESTMENTS-CARRYING> 5,363
<INVESTMENTS-MARKET> 5,351
<LOANS> 113,114
<ALLOWANCE> 1,246
<TOTAL-ASSETS> 217,078
<DEPOSITS> 191,702
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,473
<LONG-TERM> 0
0
0
<COMMON> 6,720
<OTHER-SE> 17,183
<TOTAL-LIABILITIES-AND-EQUITY> 217,078
<INTEREST-LOAN> 5,208
<INTEREST-INVEST> 2,239
<INTEREST-OTHER> 283
<INTEREST-TOTAL> 7,730
<INTEREST-DEPOSIT> 3,064
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 4,666
<LOAN-LOSSES> 133
<SECURITIES-GAINS> (24)
<EXPENSE-OTHER> 3,297
<INCOME-PRETAX> 1,918
<INCOME-PRE-EXTRAORDINARY> 1,918
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,384
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
<YIELD-ACTUAL> 4.66
<LOANS-NON> 129
<LOANS-PAST> 50
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,977
<ALLOWANCE-OPEN> 1,176
<CHARGE-OFFS> 90
<RECOVERIES> 27
<ALLOWANCE-CLOSE> 1,246
<ALLOWANCE-DOMESTIC> 1,246
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
