SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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, $1.6667 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
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant on February 25, 1997 was $42,935,895.
The number of shares outstanding of the Registrant's common stock
on December 31, 1996: Common Stock, $1.6667 Par Value --- 2,016,000
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders'
meeting to be held March 31, 1997, are incorporated by reference in
Part III.
<PAGE>
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.
During 1997, we anticipate construction of a new facility to
enhance the convenience of our Cincinnatus branch by including a
drive-up ATM. In addition, First National Bank of Cortland will be
opening the area's first in-store, full service bank branch in the
Cortlandville Wal-Mart. Along with our network of traditional
offices, ATMs, and off-site ATMs, this in-store branch will bring a
new level of convenience to current and new First National
customers.
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
five locations: Main Office, 65 Main Street, Cortland; Groton
Avenue Office, 1125 Groton Avenue, Cortlandville; Tully Office,
Route 80 at I-81, Tully; Whitney Point Office on Route 11 in
Whitney Point; and the Express Mart Mobil, Route 281, Homer; as
well as 24-hour cash dispensing machines in our Marathon Office
located at 14 East Main Street, Marathon, Cortland Memorial
Hospital, Homer Avenue, Cortland, and the Pit Stop Travel Center at
Exit 10 off of I-81. A full range of trust services including
investment management, retirement plans, insurance trusts,
financial planning, estate planning, and custodial (agency)
accounts are handled by the Bank. Other banking services include
annuities, safe deposit boxes, travelers checks, money orders, wire
transfers, collections, and foreign 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. We also initiated a Loan-By-Phone service
("Anytime Loans") enabling customers to file consumer loan
applications from any telephone, anywhere, anytime 24 hours a
day, seven days a week using a toll-free telephone number.
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.
During 1996, First National Bank of Cortland customers enjoyed even
greater convenience with the with the introduction of 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. These options are currently
in the planning stages for implementation in the near future.
REVIEW OF THE YEAR 1996
The results of operations for your Company in 1996 were very
good. The Company experienced moderate growth, achieving new
records in assets, capitalization, and earnings. Total assets of
the Company grew to $219 million, an increase of $15.2 million, or
about 7.5%, and total capital increased by $1.7 million to $25.4
million. Net income of $2.8 million, or $1.41 per share, was the
highest in the history of the Company, and was achieved in spite of
declining net interest margins throughout most of the year.
Earnings were sufficient to post a return on average assets of
1.32%.
In moves aimed at enhancing the value of your shares of common
stock, the Board of Directors authorized a dividend reinvestment
plan which was implemented in early 1996. Available to most
shareholders, the plan has proven to be popular with a growing
number of shareholders interested in the opportunity to acquire
additional shares of stock, automatically, with each dividend.
Separately, the shareholders approved a 3-for-1 stock split in
1996. The split was completed in the second quarter. Dividends
paid to shareholders in 1996 were increased more than 15%,
resulting in the largest dividend payment in the history of the
Company with over $1 million paid to shareholders last year. These
moves underscore our mission of building maximum value for
shareholders while maintaining the highest standards of customer
service and convenience.
As people find their lives filled with more and more to do and
seemingly less time to do it, convenience has become the watchword
of the 90's. The changing world of financial services is really
just a reflection of these changes in society.
In the age of information, people and businesses can't seem to
get enough news and 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 First National
Bank of Cortland is well positioned to provide solutions with a
personal touch. First National Bank of Cortland will continue to
be a dynamic force in the changing landscape of financial services.
In 1996, we expanded our network of ATMs with three new off-site locations
in Homer, New York at the Express-Mart Mobil, in Cortland at Cortland
Memorial Hospital, and at the Interstate 81 Exit 10 Pit Stop Travel Center.
This brings our network of ATMs to seven convenient locations in
and around Cortland County, more than any other financial
institution in the area. We also initiated a Loan-By-Phone service
("Anytime Loans") enabling customers to file consumer loan
applications from any telephone, anywhere, anytime 24 hours a
day, seven days a week using a toll-free telephone number. And,
in October, we introduced our new Anytime Banker VISA Check Card,
a debit card and ATM card, providing account access at ATMs and
purchasing power at merchants wherever the VISA, MAC, or CIRRUS
logos are displayed. Our customers can now get cash or pay for
merchandise from their checking account around the county or around
the world without the hassle of writing a check. The response to
this card has been very enthusiastic. It's a product designed with
today's customer in mind.
To help prepare for the future, the Board of Directors authorized a
significant expenditure to upgrade the Bank's computer system. This
was accomplished with our installation of the state-of-the-art
Unisys NX 4601-31N platform in November 1996. This installation is
critical to fulfilling many elements of the Bank's strategic plan,
including: local and wide area networks, branch automation,
personal computer and telephone banking, voice response, and the
ability to pay bills over the telephone in 1997-98.
Our customers will enjoy the convenience of banking at home,
whenever they want, day or night. They will have complete access
to their banking information with the assurance that all
transactions are confidential and safe.
Customer convenience will be further enhanced in 1997 with the
opening of our new Wal-Mart in-store branch targeted for opening in
the first quarter of 1997. The branch will be located just inside
the front door of the Cortlandville Wal-Mart and will offer full-service
banking, expanded hours, and an Anytime Banker ATM. We
also plan to relocate the Cincinnatus office to provide added
convenience to our customers and staff in the Cincinnatus area.
Our Trust and Investment Services Department is ready to offer
competitive new products and services in 1997, including a new 401-K
product being launched in the first quarter. Our highly trained
and competent staff are available to provide investment counseling
and work with customers to design and plan their financial future.
There were several promotions in 1996: Suzanne Wasley,
formerly Internal Auditor, was named Assistant Vice President and
Assistant Operations Officer; Joyce Blakeman was named Assistant
Cashier and Manager of the Cincinnatus office; and Chris Hotchkiss,
Manager of the Marathon office, was promoted to Assistant Cashier.
Mary Coye-Robillard, long-time employee and Manager of the Groton
Avenue office, was appointed Assistant Vice President and Manager
of Consumer Lending; Jeffrey Armstrong was named Manager of the
Groton Avenue office; and William McLaughlin, Loan Review Officer,
assumed additional responsibility as supervisor of the
Credit/Collateral Department.
In 1996, we took what, in upstate New York, may be an unusual
step by outsourcing our internal audit function. We contracted
with the Liverpool CPA firm of Kane, Bowles & Moore, P.C. to
perform our ongoing internal audit. This has enabled us to expand
our audit coverage with a team of highly qualified certified public
accountants in a cost-effective manner. This has proven to be a
very positive move.
For First National Bank of Cortland, the year 1996 was notable
on several counts. With excellent financial performance, new
product offerings, and a highly competent staff, the Bank is
positioned to make significant investments in new technology to
prepare not only for 1997-98 but also for banking in the new
millennium. The costs are not inconsequential, but, by preparing
now, we are building the foundation for the next 125 years.
<PAGE>
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 1996.
<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 539 shareholders of record as of
December 31, 1996. Stock prices below are based on low "offer"
prices and high "bid" prices for the quarter.
1996 High Low Dividend Paid
1st Quarter $ 17.00 $ 16.875 $ .117*
2nd Quarter 19.00 18.00 .12
3rd Quarter 19.00 18.875 .12
4th Quarter 19.75 19.00 .14
1995* High Low Dividend Paid
1st Quarter $ 18.08 $ 17.58 $ .083
2nd Quarter 17.92 17.42 .067
3rd Quarter 17.75 17.17 .067
4th Quarter 17.67 17.00 .216
*Restated to reflect 3-for-1 stock split.
The transfer agent for the company stock is American Stock Transfer
& Trust Company. They can be contacted at the address below:
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)
Assets and Deposits 1996 1995 1994 1993 1992
Loans $112,361 $111,028 $108,683 $104,619 $101,669
Securities 84,128 75,262 70,380 67,587 65,523
Deposits 191,838 178,446 176,967 167,302 167,261
Total Assets 219,072 203,860 198,759 188,683 186,090
Trust Dept Assets 61,924 56,359 49,872 50,130 47,128
(not included in Total Assets)
Shareholders' Equity 25,378 23,654 20,424 20,063 17,526
(Capital, Surplus & Shareholders Equity)
Operating Income & Expenses
Total Interest Income 15,632 15,224 14,314 14,292 14,706
Total Interest Exp 6,220 5,848 4,725 5,013 6,058
Net Interest Income 9,412 9,376 9,589 9,279 8,648
Provision for Possible
Loan Losses 283 300 300 300 305
Net Interest Income
after Provision for
Possible Loan Losses 9,129 9,076 9,289 8,979 8,343
Other Operating Inc 1,523 1,446 1,370 1,303 1,241
Total Operating Inc 10,652 10,522 10,659 10,282 9,584
Salaries & Benefits 3,625 3,695 3,596 3,343 3,163
Occupancy & Equipment
Expense 1,100 1,070 1,099 1,005 891
Other Operating Exp 1,953 1,935 2,096 2,042 1,884
Total Operating Exp 6,678 6,700 6,791 6,390 5,938
Income Before Taxes 3,974 3,822 3,868 3,892 3,646
Provision for Taxes 1,128 1,089 1,178 1,163 1,118
Income Before
Acct. Change 2,846 2,733 2,690 2,729 2,528
Cumulative Effect of
Adopting Accrual Basis
Accounting for Postretirement
Benefits ---- ---- ---- ---- 320
Net Income $ 2,846 2,733 2,690 $ 2,729 $ 2,208
Per-Share Statistics
(adjusted for stock split)
Net Income $ 1.41 $ 1.36 $ 1.33 $ 1.35 $ 1.10
Book Value at Year End 12.59 11.73 10.13 9.95 8.69
Cash Dividends Paid .497 .433 .417 .400 .342
<PAGE>
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:
The purpose of this discussion is to provide the reader with
information designed to understand the financial statements
included herewith and to provide information as to material events
or changes which affected the financial condition or results of
operation since December 31, 1995. This discussion will, in
general, not repeat numerical information contained in the
financial statement, since these changes are readily computable.
References below to "Bank" refer to First National Bank of Cortland.
SHAREHOLDERS' EQUITY
At the Annual Meeting of Shareholders held on March 25, 1996, a
proprosal to amend the Company's Certificate of Incorporation to
reduce the par value of the then authorized 3,000,000 shares of
common stock, both issued and unissued, from $5.00 per share to
$1.6667 per share, and to change each share of common stock
presently issued into three shares of common stock at $1.6667 per
share, was approved.
The Company continues to add approximately 65% of its net income to
retained earnings with the remainder being paid in the form of
dividends to shareholders. Cash dividends paid to shareholders in
1995 and 1996 were $873,600 and $1,001,280, respectively.
Unrealized net gains on investment securities resulting from
changes in the investment portfolio and general market conditions
was reduced from $495,506 at year-end 1995 to $374,768 at year-end
1996. Changes in the unrealized gains/losses affect the capital
ratios even though they are, in fact, not realized.
Changes in the components of the Company's capital resulted in an
increase in book value per share from $11.73 at year-end 1995 to
$12.59 at year-end 1996. The ratio of capital to risk weighted
assets continues to exceed the regulatory requirements for well-capitalized
banks as indicated.
LIQUIDITY
Liquidity management involves the ability to meet 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 their credit needs. The Bank was a net
seller of federal funds in the amount of $9,049,000 on a daily
average basis. The investment portfolio provides liquidity from
maturing instruments on a regular basis 97.2% is available for
sale, and 70.6% matures in less than five years. The Bank also
enjoys a nearly $22 million credit facility with the Federal Home
Loan Bank of New York. With a stable deposit base, the Bank is not
dependent on volatile deposits (certificates of deposit greater
than $100,000, also known as jumbo CD's) which tend to be more
market sensitive. Investments maturing in one year exceed the
total jumbo certificates of deposit, thereby providing adequate
coverage for any reduction in funding from this source. At year-end,
the ratio of net liquid assets to net deposits amounted to
31.10%, further indicating a high level of liquidity.
ASSET-LIABILITY MANAGEMENT
Managing the asset and liability sensitivity position to achieve an
acceptable balance of risk versus return is achieved through loans,
investments, and retail deposits rather than reliance on swaps,
futures, or off-balance-sheet derivative products. The Asset-Liability
Committee of the Bank manages the position in addition to
its role in assessing interest rate risk. Interest rate risk
management provides a forward looking assessment of the impact that
movement in rates may have on net interest income. An analysis,
performed monthly, indicates that the Bank is positioned so as to
minimize the impact on income when rates are subjected to an
immediate increase or decrease of 200 basis points in all interest
rates on assets and liabilities.
RESULTS OF OPERATIONS
Net income per share increased from $1.36 in 1995 to $1.41 in 1996.
Several factors affected this 4.15% increase in net income.
Salaries, wages, and employee benefit costs were reduced in 1996
due in large measure to reduced health benefit costs and
implementation of the planned outsourcing of internal audit
activities. The expense for advertising, communications, and
supplies increased due to the production and promotion of new
product offerings principally the Anytime Banker Check Card and
the Loan-By-Phone service. A new computer, installed in November
1996, is responsible for increased computer and equipment expense
between 1995 and 1996. An increase in audit, legal, and outside
services expense was attributed to the employment of consultants to
perform internal audit activities and to the cost of expansion of
the ATM network. A decrease in FDIC insurance of $201,578 was part
of the nation-wide reduction in FDIC insurance costs for
well-capitalized banks.
The Bank planned the sale of certain securities in 1996 realizing a
loss of $23,907; however, this was offset by increased yields on
new investments which will further enhance income in succeeding
years.
Net interest margins were impacted unfavorably in 1996 by general
movements in the market. During the year the yield on earning
assets declined more rapidly than the cost of funds, resulting in
an overall reduction in the net interest margin of 25 basis points.
The net interest margin for the year was 4.98%. Loan demand in the
markets served by the Bank continued to be soft in 1996 due
principally to the continuing relatively soft economy of the area.
The loan portfolio continues to be of high quality when compared
with industry peer groups. The adequacy of the allowance for loan
and lease losses is evaluated quarterly and is judged to be
sufficient to absorb any inherent losses in the portfolio.
Trust and Investment services provide substantial income to the
Bank and are considered important to further revenue growth.
Staffed by well-trained, highly competent people, this department
offers a full spectrum of fiduciary services on a highly
personalized basis. Income from that department increased 19.4% in
1996. Trust assets are not part of the consolidated balance
sheets.
On a daily average basis, total deposits during 1996 amounted to
$189,669,284, compared to $179,981,471 in 1995, an increase of
$9,687,813 or 5.4%. Much of the gain was in higher cost
certificates of deposit. Our preliminary budget projection for
1997 anticipates continued growth in deposits in the 4-4.5% range.
Investment quality remains high with 90% of the Bank's securities
portfolio rated AAA or better. Of the remaining 10%, 6% are rated A
or better with the balance consisting of non-rated, local municipal
bonds for which we maintain financial data. There are no
derivatives or structured notes in the investment portfolio. The
Bank does not have a trading portfolio and does not anticipate
having one in the future.
In a continuing commitment to provide the technology necessary to
compete in the marketplace, our mainframe computer was upgraded in
November 1996, allowing for expanded capacity. Among other
benefits, this will allow us to begin the networking process to
link our locations which will enhance our customer service
capabilities. The new computer will also allow for more efficient
processing of data and provide increased capacity for growth.
RISK ASSESSMENT
Risk is the potential that unexpected and unanticipated events may
have an adverse impact on the Bank's capital or earnings. The
Office of the Comptroller of the Currency has defined several
categories of risk for supervisory purposes. Management assesses
and evaluates its exposure to these risk categories.
Credit risk: Credit risk arises from an obligor's potential failure
to meet the terms of any loan or contract with the Bank or
otherwise fail to perform as agreed. The Bank has determined that
credit risk is low due to the quality of the loan and investment
portfolio.
Interest rate risk: Interest rate risk arises from the movement in
market interest rates and the impact that such movement may have on
the Bank's capital and earnings. The most recent internal analysis
indicates that net income would decrease by $322,000 if interest
rates increase by 200 basis points, and increase by $154,000 if
interest rates decrease by 200 basis points. The Bank's risk-based
capital would continue to be sufficient to be regarded as a well-capitalized
bank in the scenario described above; therefore, the Bank deems the
risk exposure to be low.
Liquidity risk: Liquidity risk arises from a bank's inability to
meet its obligations when they become due, without incurring
unacceptable losses. Liquidity risk is considered low.
Transaction risk: Transaction risk arises from problems with
service or product delivery. The Bank's systems and procedures are
deemed adequate to assess transaction risk as low.
Compliance risk: Compliance risk arises from failure to comply
with laws and regulations. Again, system and procedures combined
with ongoing internal surveillance are deemed sufficient to assess
the risk as low.
Strategic risk: Strategic risk arises from adverse business
decisions or improper implementation of those decisions. The Bank's
Board of Directors, President, and all Vice Presidents are involved
in the strategic planning process. Managerial capacities and
capabilities, and Board oversight are deemed adequate to mitigate
strategic risk.
Reputation risk: Reputation risk arises from serious negative
public opinion. The Bank exercises an abundance of caution and
diligence in managing its affairs so as to minimize consequences of
reputation risk.
<PAGE>
Item 8 -- Financial Statements and Supplementary Data
The consolidated financial statements, footnotes, and supplementary data
follow:
CONSOLIDATED BALANCE SHEETS Dec. 31, 1996 Dec. 31, 1995
ASSETS
Cash and due from banks $ 10,499,851 $ 7,854,521
Federal funds sold 4,900,000 2,500,000
Total Cash and Cash Equivalents 15,399,851 10,354,521
Held to maturity investment securities 2,377,788 3,305,689
Available for sale investment securities 81,750,581 71,956,527
Total Investment Securities 84,128,369 75,262,216
(fair value - $84,141,362 for 1996
and $75,267,155 for 1995)
Commercial and agricultural loans 20,892,312 22,036,285
Real estate loans 64,738,861 63,415,248
Installment loans 25,611,633 24,645,926
Other loans 6,163,608 5,769,590
Total Loans 117,406,414 115,867,049
Less: Unearned income 3,774,128 3,662,724
Less: Allowance for possible
loan losses 1,270,798 1,175,959
Net Loans 112,361,488 111,028,366
Bank premises, furniture
and equipment 3,341,627 3,303,196
Accrued interest receivable 1,588,702 1,701,108
Other real estate owned ---- 135,397
Other assets 2,252,241 2,074,743
Total Assets $219,072,278 $203,859,547
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing deposits $ 22,802,077 $ 23,018,352
Interest bearing deposits 169,035,872 155,427,200
Total Deposits 191,837,949 178,445,552
Accrued interest, taxes and
other liabilities 1,021,505 993,932
Accrued postretirement benefits 835,029 766,412
Total Liabilities 193,694,483 180,205,896
Shareholders' equity: Common stock - par value $1.6667 a share;
3,000,000 shares authorized;
2,016,000 shares issued and outstanding
for 1996 and 1995 respectively 3,360,067 3,360,000
Surplus 3,360,000 3,360,000
Undivided profits 18,282,960 16,438,145
Unrealized net gain/(loss) on
investment securities 374,768 495,506
Total Shareholders' Equity 25,377,795 23,653,651
Total Liabilities and
Shareholders' Equity $219,072,278 $203,859,547
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF INCOME:
INTEREST INCOME Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
Interest and fees on loans $10,453,073 $10,456,163 $ 9,965,487
Interest on investment securities:
U.S. Treasury 1,728,913 1,731,430 1,873,295
U.S. Government Agencies 1,679,912 1,457,322 1,194,953
State and political
subdivisions 1,255,577 1,108,042 934,710
Other 35,642 14,361 9,236
Interest on federal
funds sold 479,227 456,177 336,684
Total Interest Income 15,632,344 15,223,495 14,314,365
INTEREST EXPENSE
Interest on deposits 6,220,102 5,847,933 4,724,891
Interest on short-term
borrowings ---- ---- 315
Total Interest Expense 6,220,102 5,847,933 4,725,206
Net Interest Income 9,412,242 9,375,562 9,589,159
Provision for possible
loan losses 283,000 300,000 300,000
Net Interest Income After
Provision For Loan Losses 9,129,242 9,075,562 9,289,159
OTHER INCOME
Trust department services 440,260 368,716 326,279
Deposit accounts service
charges 641,484 612,448 586,947
Investment securities
gains/(losses) (23,907) ---- ----
Other operating income 465,066 464,946 456,045
Total Other Income 1,522,903 1,446,110 1,369,271
Total Operating Income 10,652,145 10,521,672 10,658,430
OTHER EXPENSES
Salaries, wages and
employee benefits 3,624,569 3,694,682 3,595,566
Supplies, advertising and
communications expense 600,344 567,019 569,601
Occupancy exp of premises 503,282 522,673 505,396
Computer and equipment
expense 597,640 547,230 593,697
Legal, audit and other
outside services 967,309 867,075 804,283
Other operating expense 385,039 501,525 722,176
Total Other Expenses 6,678,183 6,700,204 6,790,719
Income Before Income Taxes 3,973,962 3,821,468 3,867,711
Provision for income taxes 1,127,800 1,088,600 1,177,850
Net Income $ 2,846,162 $ 2,732,868 $ 2,689,861
Net income per common share $1.41 $1.36* $1.33*
* Adjusted for stock split (3-for-1) 3/96.
The accompanying notes are an integral part of the consolidated
financial statements.<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS:
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES
Year ended: Dec. 31, 1996 1995 1994
Net income $ 2,846,162 $ 2,732,868 $ 2,689,861
Adjustments to reconcile net
income to net cash provided by
operating activities:
Provision for loan losses 283,000 300,000 300,000
Provision for depreciation 379,150 383,486 423,797
(Benefit) Provision for
deferred income taxes (89,805) 15,198 (135,768)
Amortization of investment
security premiums
(discounts), net 380,592 391,207 511,526
Realized investment security
(gains) losses 23,907 ---- ----
Loss (gain) on disposal of
bank equipment 17,800 ---- ----
Loss (gain) on disposal of
other real estate 57,006 ---- ----
(Increase) decrease in
interest receivable 112,406 10,128 (237,481)
(Increase) decrease in
other assets (87,694) (293,608) (365,249)
Increase (decrease) in
interest payable 7,999 37,301 10,876
Increase (decrease) in other
liabilities 173,088 19,205 252,782
Net Cash Provided by
Operating Activities $ 4,103,611 $ 3,595,785 $ 3,450,344
INVESTING ACTIVITIES
Proceeds from maturities of
investment securities,
available for sale $ 17,544,275 $ 13,159,859 $ 11,794,119
Proceeds from maturities of
investment securities,
held to maturity 6,633,032 7,250,998 5,074,752
Proceeds from sales of
investment securities 975,390 ---- ----
Purchase of investment securities,
available for sale (29,897,388) (20,254,059) (10,904,485)
Purchase of investment securities,
held to maturity (4,731,598) (3,119,163) (11,779,528)
Net (increase) decrease in
credit card and other
short-term loans 67,022 28,380 96,822
Longer-term loans sold ---- 972,410 791,272
Net longer-term loans (1,683,145) (3,646,168) (5,251,934)
originated
Purchases of premises and
equipment, net (435,381) (483,664) (426,221)
Proceeds from disposition of
other real estate 78,395 ---- ----
Net Cash Used by Investing
Activities (11,449,398) (6,091,407) (10,605,203)
<PAGE>
FINANCING ACTIVITIES
Year ended: Dec. 31, 1996 1995 1994
Net increase (decrease) in
demand deposits, NOW accounts
and savings accounts 8,142,380 (8,042,267) 4,789,101
Net increase (decrease) in
certificates of deposit 5,250,017 9,520,416 4,876,118
Net increase (decrease) in
short-term borrowings ---- ---- (211,743)
Cash dividends (1,001,280) (873,600) (840,000)
Net Cash Provided (Used)
by Financing Activities 12,391,117 604,549 8,613,476
Increase (Decrease) in Cash
and Cash Equivalents 5,045,330 (1,891,073) 1,458,617
Cash and cash equivalents at
beginning of year 10,354,521 12,245,594 10,786,977
Cash and Cash Equivalents
at End of Year 15,399,851 10,354,521 12,245,594
Supplemental Disclosures of
Cash Flow Information:
Cash paid during the year for:
Interest on deposits and
short-term borrowings 6,212,103 5,810,632 4,714,328
Income taxes 1,083,086 1,260,503 1,245,567
Non-cash investing activity:
Unrealized gain/(losses) on
investment securities (205,635) 2,311,005 (2,511,003)
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY:
Unrealized
Investment
For the years ended Common Undivided Securities
Dec. 31, 1996, 1995, Stock Surplus Profits Gains/Losses Total
1994
Balance at
January 1, 1994 $3,360,000 $3,360,000 $12,729,016 $ 613,547 $20,062,563
Net income for year 2,689,861 2,689,861
Change in unrealized
net gain/(loss) on
investment securities (1,488,867) (1,488,867)
Cash dividends,
$.4166 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,
$.4333 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
Net income for the year 2,846,162 2,846,162
Change par value
to $1.6667 67 (67)
Change in unrealized
net gain/(loss) on
investment securities (120,738) (120,738)
Cash dividends,
$.4966 per share* (1,001,280) (1,001,280)
Balance at
December 31, 1996 $3,360,067 $3,360,000 $18,282,960 $ 374,768 $25,377,795
* Restated to reflect 3-for-1 stock split 3/96.
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended Dec. 31, 1996, 1995, 1994
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:
Accumulated postretirement benefit obligation (APBO):
1996 1995
Retirees $317,024 $326,446
Fully eligible active plan
participants 109,686 70,879
Other active plan participants 416,015 398,158
Total APBO 842,725 795,483
Plan assets at fair value ---- ----
Unrecognized net loss (7,696) (29,071)
Accrued postretirement benefit
obligation $835,029 $766,412
Net periodic postretirement
benefit cost included the
following components: 1996 1995 1994
Service cost $ 35,638 $ 31,778 $ 30,568
Interest cost 56,187 53,314 62,234
Net periodic postretirement
benefit cost $ 91,825 $ 85,092 $ 92,802
<PAGE>
An 11% annual rate of increase in the per capita costs of covered
health care benefits was assumed for 1996, gradually decreasing to
5.0% by the year 2046. 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,
1996, by $113,995 and increase the aggregate of the service cost
and interest cost components of net periodic postretirement benefit
cost for 1996 by $16,130. 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.
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.<PAGE>
The net approximate carrying
amounts and fair values of financial instruments are as follows:
(In thousands of dollars)
Dec. 31, 1996 Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1995
Financial Assets: Carrying Amt Fair Value Carrying Amt Fair Value
Cash and cash equivalent $ 14,955 $ 14,955 $ 10,355 $ 10,355
Investment securities 84,128 84,141 75,262 75,267
Loans 113,632 ---- 112,204 ----
Allowance for loan losses (1,271) ---- (1,176) ----
Net Loans 112,361 111,070 111,028 112,302
Total financial assets $211,444 $210,166 $196,645 $197,924
Financial Liabilities:
Deposits $191,838 $187,665 $178,446 $178,910
Total financial liabilities $191,838 $187,665 $178,446 $178,910
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: 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>
Interest on Loans: Unearned income on certain installment loans is
taken into income on the actuarial method. Interest on all other
loans is based upon the principal amount outstanding. Interest on
loans is accrued except when in management's opinion the
collectibility of principal or interest is doubtful, at which time
the accrual of interest on the loan is discontinued.
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: Income tax expense consists of currently payable and
deferred income taxes which are based upon temporary differences
between financial accounting and tax bases of assets and
liabilities as measured by tax rates which are anticipated to be in
effect when these differences are reversed. The deferred tax
provision is the result of the net change in the deferred tax
assets and liabilities.
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 1996, 1995, and 1994 was $109,295,
$128,129, and $97,101, 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 $98,072 in 1996, $94,752 in 1995, and $81,523
in 1994.
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
$59,547, $80,213, and $58,005 was recognized for the years ended
December 31, 1996, 1995, and 1994, respectively.
Stock Split: During March 1996, the Company effected a
three-for-one stock split through the issuance of one additional
share of $1.6667 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 (2,016,000 for 1996, 1995, and 1994). 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, 1996 and 1995 are as follows:
Amortized Gross Unreal- Gross Unreal-Estimated
Cost ized Gains ized Losses Fair Value
Held-to-Maturity Portfolio - 1996
Obligations of states and
political subdivisions $ 2,377,788 $ 13,818 $ 825 $ 2,390,781
Totals $ 2,377,788 $ 13,818 $ 825 $ 2,390,781
Available-for-Sale Portfolio - 1996
U.S. Treasury securities and
obligations of U.S. government
corporation and agencies $41,851,768 $ 311,468 $ 75,560 $42,087,676
Obligations of states and
political subdivisions 24,566,311 439,691 94,234 24,911,768
Other debt securities 819,475 ---- ---- 819,475
Mortgage-backed securities 13,887,486 124,796 80,620 13,931,662
Totals 81,125,040 875,955 250,414 81,750,581
Grand total $83,502,828 $ 889,773 $251,239 $84,141,362
Held-to-Maturity Portfolio - 1995
Obligations of states and
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
During 1995, the Bank transferred investment securities with an amortized
cost of $24,505,992 and 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, 1996, securities having a book value of $46,532,680 were
pledged to collateralize public fund deposits as required by law.
The amortized cost and estimated market value of investment securities at
December 31, 1996, 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.
Held-to-Maturity Portfolio Available-for-Sale Portfolio
Amortized Cost Est. Fair Value Amortized Cost Est. Fair Value
Due in one year $ 1,479,589 $ 1,479,587 $12,509,397 $12,519,352
Due after one year
through five years 135,799 137,009 45,258,570 45,682,809
Due after five years
through ten years 762,400 774,185 16,952,946 17,119,922
Due after ten years ---- ---- 6,404,127 6,428,498
Total $ 2,377,788 $ 2,390,781 $81,125,040 $81,750,581
ALLOWANCE FOR POSSIBLE LOAN LOSSES
Changes in the loan loss allowance during the years ended December 31, 1996,
1995 and 1994 are summarized as follows:
1996 1995 1994
Balance at January 1 $1,175,959 $1,225,737 $ 1,079,689
Provision for the year 283,000 300,000 300,000
Recoveries on loans 73,363 63,140 91,113
Subtotal 1,532,322 1,588,877 1,470,802
Less: Loans charged off 261,524 412,918 245,065
Balance at December 31 $1,270,798 $1,175,959 1,225,737
As of December 31, 1996 and 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:
1996 1995
Land $ 506,975 $ 506,975
Bank premises 3,118,912 3,118,912
Furniture and equipment 3,121,613 2,770,685
Subtotal 6,747,500 6,396,572
Less: Accumulated depreciation 3,405,873 3,093,376
Total $ 3,341,627 $ 3,303,196
<PAGE>
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
1996 1995
Commitments to extend credit $17,169,306 $15,444,188
Standby letters of credit $ 1,003,814 $ 1,318,344
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,
1996, 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: 1997 - $66,620; 1998 - $69,620; 1999
- - $69,620; and 2000 - $69,620 and $641,147 thereafter. Total rental
expense amounted to $51,620 in 1996, $51,620 in 1995, and $53,575 in
1994.
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, 1996, approximately $5,600,000 was
available for the declaration of dividends by the Bank.
INCOME TAXES
The income tax provision for 1996, 1995, and 1994 is summarized as
follows:
1996 1995 1994
Currently payable $1,217,605 $1,073,402 $1,313,618
Deferred (credit) (89,805) 15,198 (135,768)
Total $1,127,800 $1,088,600 $1,177,850
The provision for income taxes includes the following:
1996 1995 1994
Federal income tax $ 837,100 $ 798,900 $ 877,000
New York State
franchise tax 290,700 289,700 300,850
Total $1,127,800 $1,088,600 $1,177,850
The components of deferred income taxes at December 31, 1995 and 1994
are as follows:
1996 1995
Assets:
Allowance for possible loan losses $ 257,024 $ 220,567
Postretirement benefits 334,751 309,439
Deferred compensation 163,566 121,391
Other 29,734 30,445
Total Assets $ 785,075 $ 681,842
Liabilities:
Investment securities $ 250,773 $ 335,670
Accretion 55,952 42,258
Total Liabilities $ 306,725 $ 377,928
A reconciliation between the statutory federal income tax rate and the
effective income tax rate for 1996, 1995, and 1994 is as follows:
1996 1995 1994
Statutory federal income tax rate 34.0% 34.0% 34.0%
State franchise tax, net of
federal tax benefit 4.8 5.0 5.1
Tax exempt income (11.7) (10.1) (9.0)
Other, net 1.3 (.4) .3
Total 28.4% 28.5% 30.4%
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 1996. 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, 1995 $4,328,769
New loans and advances 449,146
Loan payments 595,303
Balance at December 31, 1996 $4,182,612
<PAGE>
LINES OF CREDIT
At December 31, 1996, the Bank had available lines of credit totaling
$23,876,700 which were unused.
REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly discretionary actions by regulators
that, if undertaken, could have a direct material effect on the Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) and Tier 1 capital (as defined in the regulations) to risk-
weighted assets (as defined). Management believes, as of December 31, 1996,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the Bank believes it is well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized, the Bank must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table.
Minimum Required
Minimum Required To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amt Ratio Amt Ratio Amt Ratio
As of December 31, 1996
Total Capital (to Risk
Weighted Assets) $26,273,825 23.98% $8,765,774 8.0% $10,957,217 10.0%
Tier 1 Capital (to Risk
Weighted Assets) 25,003,027 22.82% 4,382,887 4.00% 6,574,330 6.0%
Tier 1 Capital (to
Average Assets) 25,003,027 11.46% 8,724,279 4.0% 10,905,250 5.0%
As of December 31, 1995
Total Capital (to Risk
Weighted Assets) $24,334,104 22.24% $8,754,640 8.0% $10,943,300 10.0%
Tier 1 Capital (to Risk
Weighted Assets) 23,158,145 21.16% 4,377,320 4.00% 6,565,980 6.0%
Tier 1 Capital (to
Average Assets) 23,158,145 11.30% 8,197,639 4.0% 10,247,049 5.0%
<PAGE>
PARENT COMPANY FINANCIAL INFORMATION
Condensed financial statement information of Cortland First Financial
Corporation is as follows:
Balance Sheet Dec. 31, 1996 Dec. 31, 1995
Assets
Investment in subsidiary bank $25,375,097 $23,652,208
Cash and other assets 2,698 1,443
Total Assets $25,377,795 $23,653,651
Shareholders' Equity
Common Stock $ 3,360,067 $ 3,360,000
Surplus 3,360,000 3,360,000
Undivided profits 18,282,960 16,438,145
Unrealized net gains/(losses)
on investment securities 374,768 495,506
Total Shareholders' Equity $25,377,795 $23,653,651
Statement of Income Year ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
Dividend income from
subsidiary bank $1,071,280 $ 903,600 $ 865,000
Operating expenses (68,745) (32,530) (25,808)
1,002,535 871,070 839,192
Equity in undistributed
income of subsidiary 1,843,627 1,861,798 1,850,669
Net Income $2,846,162 $2,732,868 $2,689,861
Statement of Cash Flows Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
Operating Activities
Net Income $2,846,162 $2,732,868 $2,689,861
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Equity in undistributed
net income of
subsidiary (1,843,627) (1,861,798) (1,850,669)
Net Cash Provided by
Operating Activities 1,002,535 871,070 839,192
Financing Activities
Cash dividends paid (1,001,280) (873,600) (840,000)
Net Cash Used by
Financing Activities (1,001,280) (873,600) (840,000)
Increase (Decrease) in
Cash and Cash
Equivalents 1,255 (2,530) (808)
Cash and Cash Equivalents
at beginning of year 1,443 3,973 4,781
Cash and Cash Equivalents
at End of Year $ 2,698 1,443 3,973
<PAGE>
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND, LLP
Syracuse, New York
January 17, 1997
<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.
1/96-12/96 1/95-12/95
(In Thousands) (In Thousands)
Average Interest Yield/ Average Interest Yield/
Balance Rate Balance Rate
Interest Earning Assets
Investment Securities
Taxable $ 56,999 $ 3,576 6.27% $ 51,918 $ 3,291 6.34%
Tax Exempt 23,864 1,671 7.00% 20,864 1,507 7.22%
Total Invest Securities 80,863 5,247 6.49% 72,782 4,798 6.59%
Federal Funds Sold 9,049 480 5.30% 7,830 456 5.83%
Loans
Real Estate Mortgages 63,742 5,685 8.92% 61,912 5,650 9.13%
Commercial & Agricultural 22,891 2,245 9.79% 22,962 2,432 10.59%
Consumer 22,637 2,292 10.12% 22,021 2,165 9.83%
Municipal 3,383 360 10.64% 3,140 310 9.87%
Total Loans 112,653 10,582 9.39% 110,035 10,557 9.59%
Total Int Earning Assets 202,565 16,309 8.05% 190,647 15,811 8.29%
Non Interest Earning Assets
Non Earning Assets 14,476 14,266
Allowance for Loan Losses (1,229) (1,212)
Total Assets 215,812 203,701
Interest Bearing Liabilities
Savings Rate Deposits 45,858 1,381 3.01% 44,789 1,346 3.00%
Market Rate Deposits 120,611 4,839 4.01% 112,330 4,502 4.01%
Total Deposits 166,469 6,220 3.74% 157,119 5,848 3.72%
Borrowed Funds 0 0 0% 0 0 0%
Total Int Bearing Liab. 166,469 6,220 3.74% 157,119 5,848 3.72%
Non Interest Bearing Liab. 25,125 24,504
Shareholders' Equity 24,218 22,078
49,343 46,582
Total Liabilities and
Shareholders' Equity $215,812 $203,701
Net Interest Income $10,089 $ 9,963
Net Yield on Interest
Earning Assets 4.98% 5.23%
<PAGE>
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.
1996 Compared to 1995 1995 Compared to 1994
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:
Taxable $(81) 365 284 $ (5) 143 138
Tax-exempt (38) 143 105 (34) 195 161
Total Investments (119) 508 389 (39) 338 299
Federal Funds Sold (46) 69 23 139 (20) 119
Loans:
Real Estate (138) 172 34 (113) 36 (77)
Commercial and Agric (178) (11) (189) 298 (64) 234
Consumer 67 60 127 (16) 361 345
Municipal 23 2 25 1 (12) (11)
Total Loans (226) 223 (3) 170 321 491
Total Int Inc: (391) 800 409 270 639 909
Interest Paid on Liabilities:
Deposits:
Savings rate $ 4 31 35 $(10) (243) (253)
Market rate (45) 383 338 686 690 1376
Total Deposits (41) 414 373 676 447 1123
Total Int Exp: (41) 414 373 676 447 1123
Net Change in Net
Interest Income: $(350) $386 $ 36 $(406) 192 (214)
<PAGE>
INVESTMENT PORTFOLIO - MATURITY SCHEDULE
The following schedule sets forth the maturities of both available-for-sale
and held-to-maturity securities at December 31, 1996. Amounts and weighted
average yields of such securities are based on amortized cost for held to
maturity and estimated fair value for available for sale 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 $819,475.)
Remaining Maturities December 31, 1996
(In thousands)
Within After 1 Year After 5 Years
1 Year to 5 Years to 10 Years After 10 Yrs Total
Held to Maturity Amt Yld Amt Yld Amt Yld Amt Yld Amt Yld
Portfolio
Obligations $ 1,480 5.61% 136 6.77% 762 7.13% -- -- 2,378 6.17%
of States & Political
Subdivisions
Total Held-To-
Maturity 1,480 5.61% 136 6.77% 762 7.13% -- -- 2,378 6.17%
Available for Sale Portfolio
US Treasury
Securities $ 8,926 5.56% 20,366 6.51% --- --- -- -- 29,292 6.22%
US Government Corp and
Agy Sec 2,091 6.57% 7,059 6.04% 2,741 7.40% 905 6.47% 12,795 6.45%
Obligations of
States and Political
Subdivision 974 6.97% 13,549 7.07% 8,803 6.85% 1,585 6.53% 24,912 6.95%
Mortgage Backed
Securities 528 7.23% 4,709 6.82% 5,576 7.25% 3,119 7.38% 13,932 7.13%
Total Available-
for-Sale $12,519 5.91% 45,683 6.63% 17,120 7.06% 5,609 7.00% 80,931 6.62%
Grand Total $13,999 5.88% 45,819 6.63% 17,882 7.07% 5,609 7.00% 83,309 6.62%
At December 31, 1996, 94% of the state and municipal securities portfolio,
based upon par value was rated "A" or higher, and 74% "AA" or higher.
Obligations of the State of New York and its political subdivisions
constituted $18,059,590 par value or 22% of the total securities portfolio at
that date, with a market value of $18,727,996. There were no securities of a
single issuer which constituted more than 10% of shareholders equity as of
December 31, 1996.
BALANCE SHEET GAP ANALYSIS
DECEMBER 31, 1996
(in thousands)
Assets: 3 Months 3-12 Months 1-5 Years >5 Years Total
Cash & Due From Banks $10,500 $ 0 $ 0 $ 0 $ 10,500
Total Securities 5,301 11,566 49,322 16,786 84,128
Short-Term Investments 4,900 0 0 0 4,900
Total Loans 25,283 14,482 62,190 11,677 113,632
Loan Reserve 0 0 0 (1,271) (1,271)
Net Loans 25,283 14,482 62,190 10,406 112,361
Total Fixed & Other
Assets 0 0 0 7,183 7,183
Total Assets $47,137 $ 26,048 $111,512 $ 34,375 $219,072
Liabilities & Capital:
Non-Interest Bearing
Deposits $ 1,566 $ 5,596 $ 15,640 $ 0 $ 22,802
NOW & Savings Accounts 4,847 5,856 33,890 32,145 76,738
Money Market Deposits 7,553 9,425 20,332 0 37,310
Total Core Deposits $13,966 $ 20,877 $ 69,862 $ 32,145 $136,850
Certificates of
Deposit 14,521 23,508 16,959 0 54,988
Total Deposits $28,487 $ 44,385 $ 86,821 $ 32,145 $191,838
Short-Term Borrowings $ 0 $ 0 $ 0 $ 0 $ 0
Other Liabilities $ 0 $ 0 $ 0 $ 1,856 $ 1,856
Total Liabilities $28,487 $ 44,385 $ 86,821 $ 34,001 $193,694
Common Stock $ 0 $ 0 $ 0 $ 6,720 $ 6,720
Retained Earnings 0 0 0 18,658 18,658
Total Equity $ 0 $ 0 $ 0 $ 25,378 $ 25,378
Total Liabilities &
Equity $28,487 $ 44,385 $ 86,821 $ 59,379 $219,072
GAP $18,650 $(18,337) $ 24,691 $(25,004)$ 0
Cumulative Gap $18,650 $ 313 $ 25,004 $ 0 $ 0
<PAGE>
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 repriceable. 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 1/2 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 decrease by $322,000 if interest rates
increase by 200 basis points and increase by $154,000 if interest
rates decline by 200 basis points.
NON-PERFORMING ASSETS Year Ended December 31
1996 1995
(In Thousands)
Non-accruing loans:
Real estate mortgages $393 $128
Commercial and Agricultural 121 106
Consumer 0 29
Municipal 0 0
Total non-accruing loans $514 $263
Loans past due 90 days or more
and still accruing:
Real estate mortgages $ 0 $ 3
Commercial & agricultural 0 0
Consumer 63 17
Municipal 0 0
Total past-due loans 90 days or more $ 63 $ 20
Restructured loans $ 0 $ 0
Other real estate owned 0 135
Total restructured and OREO $ 0 $135
Total non-performing assets $577 $418
Percent of total net loans .51% .37%
Income that would have been accrued at original
Contract rates on non-accruing loans $ 29 $ 15
Amount recognized as income 10 6
Interest income not accrued $ 19 $ 9
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, 1996, the Company had $2,102,000 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
Year Ended December 31,
1996 1995
% of Loans % of Loans
Amount to Total Amount to Total
(In thousands of dollars)
Real Estate Mortgage $ 254 55% $ 240 57%0
Commercial, Municipal
& Agricultural $ 493 21% $ 498 22%
Consumer 524 24% 438 21%
Total Allocation $1,271 100% $1,176 100%
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.
There were no impaired loans for purposes of FASB 114 at the end of
1996.
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)
1996 1995
Real Estate Loans $ 64,738,861 55% $ 63,415,248 55%
Commercial & Agricultural 20,892,312 18% 22,036,285 19%
Installment 25,611,633 22% 24,645,926 21%
Municipal & Other 6,163,608 5% 5,769,590 5%
Total $117,406,414 100% $115,867,049 100%
<PAGE>
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, 1996 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.
Remaining Maturity at December 31, 1996
Within After 1 yr. After
1 Year within 5 Yrs. 5 Years Total
(in thousands of dollars)
Real estate loans $ 5,249,610 $25,962,102 $33,527,149 $ 64,738,861
Commercial & 5,223,821 8,092,485 7,576,006 20,892,312
Agricultural
Installment 7,590,049 17,760,500 261,084 25,611,633
Municipal & Other 1,951,047 3,201,290 1,011,271 6,163,608
Total $20,014,527 $55,016,377 $42,375,510 $117,406,414
Sensitivity of Loans Due
After One Year to Changes
in Interest Rates: Fixed Rate Variable Rate Total
Due after 1 year but
within 5 years $46,439,428 $ 8,576,949 $55,016,377
Due after 5 years $29,302,686 $13,072,824 $42,375,510
$75,742,114 $21,649,773 $97,391,887
<PAGE>
Summary of Loan Loss Experience
The following table summarizes the Company's loan loss experience for
the two years ended December 31, 1995 and 1996.
Year Ended December 31,
1996 1995
(In thousands of dollars)
Loans, Net of unearned income
at end of period $113,632 $112,204
Average amount of net loans $112,652 $110,035
Balance of allowance for possible
loan losses at beginning of period $ 1,176 $ 1,226
Additions:
Provisions for losses 283 300
Deductions:
Charge offs:
Real estate mortgages 0 10
Commercial and agricultural 79 209
Consumer loans 183 194
Municipal loans 0 0
Total charge offs $ 262 $ 413
Recoveries:
Real estate mortgages 0 0
Commercial and agricultural 12 21
Consumer loans 62 42
Municipal loans 0 0
Total recoveries $ 74 $ 63
Net charge offs $ 188 $ 350
Allowance for possible loan losses-
end of period $ 1,271 $ 1,176
Ratio of net charge offs to
average loans .17% .32%
Ratio of reserve for loan losses to
loans outstanding at end of period 1.12% 1.05%
Ratio of provisions for losses
to net charge offs 150.53% 85.71%
<PAGE>
Deposits
The exhibit below presents daily average amounts and rates of deposits
by type for the years ended December 31, 1996 and December 31, 1995.
1996 1995
Amount Rate Amount Rate
(In thousands) (In thousands)
Savings Deposits $ 44,750 3.02% $ 43,677 3.00%
Money Market Savings 36,302 4.36 36,898 4.63
Time Open 1,108 2.76 1,113 2.99
Interest Bearing Checking 31,095 1.75 31,795 1.75
Time Deposits 53,214 5.09 43,636 5.13
Total Interest Bearing $166,469 3.74% $157,119 3.72%
Demand Deposits 23,200 22,862
Total Deposits $189,669 $179,981
Maturities of time certificates of deposit of $100,000 or more
outstanding at December 31, 1996, are summarized as follows:
Amount
(in thousands of dollars)
3 months or less $ 5,653
Over 3 through 6 months 5,780
Over 6 through 12 months 490
Over 12 months 2,354
Total $14,277
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,
1996 1995
Return on Assets
Net Income/Average Total Assets 1.32% 1.34%
Return on Equity
Net Income/Average Shareholder Equity 11.75% 12.38%
Dividend Payout Ratio
Cash Dividends Declared/Net Income 35.18% 31.97%
Capital Ratio
Average Shareholder Equity/
Average Total Assets 11.17% 10.84%
<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, 1997, pages 2 through 3, incorporated herein by reference. Information
relating to Section 16 compliance is included in the Annual Proxy Statement
dated February 28, 1997 on pages 11 and 12 incorporated herein by reference.
Item 11 -- Executive Compensation
Annual Proxy Statement, dated February 28, 1997, pages 7 through
11, incorporated herein by reference.
Item 12 -- Security Ownership of Certain Beneficial Owners and
Management
Annual Proxy Statement, dated February 28, 1997, pages 2 through
4, incorporated herein by reference.
Item 13 -- Certain Relationships and Related Transactions
Annual Proxy Statement, dated February 28, 1997, pages 12 and 13,
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 *
3.3 Amendment to Certificate of Incorporation of
Cortland First Financial Corporation incorporated by
reference from Form 10Q for the quarter ended March 31, 1996
filed by the Company on May 14, 1996 with the Securities and
Exchange Commission.
4 Specimen Stock Certificates *
21 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.
Item 14 (b)
There were no reports filed on Form 8-K during the fourth
quarter of 1996.
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 March 12, 1997 By /s/ David R. Alvord
David R. Alvord, President and
Chief Executive Officer
Date March 12, 1997 By /s/ Bob Derksen
Bob Derksen, Treasurer
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.
/s/ David R. Alvord Date March 12, 1997
David R. Alvord, President, CEO and Director
/s/ Donald S. Ames Date March 12, 1997
Donald S. Ames, Director
Date
Mary Alice Bellardini, Director
Date
John S. Buck, Director
Date
Robert M. Lovell, Director
/s/ Harry D. Newcomb Date March 12, 1997
Harry D. Newcomb, Director
/s/ Richard J. Shay Date March 12, 1997
Richard J. Shay, Director
/s/ Charles H. Spaulding Date March 25, 1997
Charles H. Spaulding, Director
Date
David J. Taylor, Director
/s/ Stuart Young Date March 12, 1997
Stuart Young, Director
<PAGE>
Exhibit 22 -- Subsidiaries
Subsidiary of the Registrant
First National Bank of Cortland is a wholly owned subsidiary of
Cortland First Financial Corporation.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,500
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 81,751
<INVESTMENTS-CARRYING> 2,378
<INVESTMENTS-MARKET> 2,391
<LOANS> 113,632
<ALLOWANCE> 1,271
<TOTAL-ASSETS> 219,072
<DEPOSITS> 191,838
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,857
<LONG-TERM> 0
0
0
<COMMON> 6,720
<OTHER-SE> 18,657
<TOTAL-LIABILITIES-AND-EQUITY> 219,072
<INTEREST-LOAN> 10,453
<INTEREST-INVEST> 4,700
<INTEREST-OTHER> 479
<INTEREST-TOTAL> 15,632
<INTEREST-DEPOSIT> 6,220
<INTEREST-EXPENSE> 6,220
<INTEREST-INCOME-NET> 9,412
<LOAN-LOSSES> 283
<SECURITIES-GAINS> (24)
<EXPENSE-OTHER> 6,678
<INCOME-PRETAX> 3,974
<INCOME-PRE-EXTRAORDINARY> 3,974
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,846
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.41
<YIELD-ACTUAL> 7.72
<LOANS-NON> 514
<LOANS-PAST> 63
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,102
<ALLOWANCE-OPEN> 1,176
<CHARGE-OFFS> 262
<RECOVERIES> 73
<ALLOWANCE-CLOSE> 1,271
<ALLOWANCE-DOMESTIC> 1,271
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
