SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1997.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 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 the number of shares outstanding of the registrant's common stock on
September 30, 1997: Common Stock, $1.6667 Par Value -- 1,967,462 shares.
<PAGE>PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORTLAND FIRST FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1997 December 31,1996
(Unaudited) (Note)
000's Omitted
ASSETS
Cash and Due From Banks $ 9,248 $ 10,500
Federal Funds Sold 0 4,900
Investment Securities - Held to Maturity 2,460 2,378
Available for Sale 87,196 81,750
(Market Value 89,691 & 84,141)
Loans (Net of Unearned Discount of
(3,374 & 3,774) 115,765 113,632
Reserve for Possible Loan Losses (1,241) (1,271)
Net Loans 114,524 112,361
Premises and Equipment 3,526 3,342
Other Assets 4,670 3,841
TOTAL ASSETS $221,624 $219,072
LIABILITIES
Non-Interest Bearing Deposits $ 21,194 $ 22,802
Interest Bearing Deposits 172,729 169,036
Total Deposits $193,923 $191,838
Accrued Int, Taxes, & Other Liabilities 1,363 1,021
Accrued Post-Retirement Benefits 872 835
TOTAL LIABILITIES $196,158 $193,694
SHAREHOLDERS' EQUITY
Common Stock (par value 1.6667) 3,360 3,360
Outstanding 1,967,462 shares
Surplus 3,360 3,360
Undivided Profits 19,418 18,283
Treasury Stock (1,119) 0
Net Unrealized Gains/(Losses) Securities 447 375
TOTAL SHAREHOLDERS' EQUITY 25,466 25,378
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $221,624 $219,072
Note: The balance sheet at December 31, 1996, 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)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Interest Income:
Interest & fees on loans $2,639 $2,617 $ 7,758 $ 7,826
Interest on bank deposits 0 0 0 0
Interest on investment securities 1,353 1,221 4,040 3,460
Interest on Federal Funds sold 55 113 237 395
TOTAL INTEREST INCOME $4,047 $3,951 $12,035 $11,681
Interest Expense:
Interest on deposits 1,627 1,557 4,886 4,622
NET INTEREST INCOME $2,420 $2,394 $ 7,149 $ 7,059
Provision for loan losses 105 75 285 208
INTEREST INCOME AFTER
PROVISION FOR LOSSES $2,315 $2,319 $ 6,864 $ 6,851
Other Income: 540 403 1,304 1,086
Non-interest expenses: 1,904 1,668 5,477 4,966
INCOME BEFORE INCOME TAXES $ 951 $1,054 $ 2,691 $ 2,971
Income Taxes: 252 316 717 849
NET INCOME $ 699 $ 738 $ 1,974 $ 2,122
Net Income per Common Share $ .35 $ .37 $ .99 $ 1.05
Per Share Data:
Per share amounts are based on the weighted average number of shares
outstanding during the period. The weighted averages are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
$1,977,353 $2,016,000 $2,002,976 $2,016,000
<PAGE> Consolidated Statement of Cash Flow
(Unaudited)
(000's OMITTED)
Nine Months Ended
September 30,
1997 1996
OPERATING ACTIVITIES
Net Income $ 1,974 $ 2,122
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 285 208
Provision for depreciation 338 271
Provision for deferred income taxes (64) 44
Amortization of investment security premiums
(discounts), net 208 290
(Increase) Decrease in interest receivable (132) (28)
(Increase) Decrease in other assets (632) (79)
Increase (Decrease) in interest payable 2 (19)
Increase (Decrease) in other liabilities 328 222
Loss on disposition of investments &
Other Real Estate Owned --- 68
Loss on disposal of Fixed Assets 9 0
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,316 $ 3,099
INVESTING ACTIVITIES
Proceeds from maturities of investment securities $ 13,930 $ 20,575
Proceeds from sales of investment securities 13,278 0
Purchase of investment securities (32,824) (30,929)
Net (increase) decrease in credit card/
short term loans 133 120
Longer-term loans sold 781 984
Net longer term loans originated (3,361) (2,558)
Purchase of premises and equipment, net (581) (173)
Proceeds from disposition of Other Real Estate Owned 0 14
Proceeds from disposal of fixed assets 50 0
NET CASH USED BY INVESTING ACTIVITIES $ (8,594) $(11,967)
FINANCING ACTIVITIES
Net increase(decrease) in demand deposits,
NOW & savings $ (3,014) $ 9,940
Net proceeds from sales of certificates of deposits 5,099 169
Cash dividends (840) (719)
Treasury Stock Purchases (1,119) 0
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 126 $ 9,390
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (6,152) $ 522
Cash and cash equivalents at beginning of year $ 15,400 $ 10,355
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,248 $ 10,877
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and short term borrowings: $ 4,883 $ 4,640
Income taxes: 724 803
Non Cash Investing Activities:
Change in unrealized gain/(loss) on
investment securities 120 (664)
<PAGE>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 Consolidate Financial Statements in the Corporation's
Annual Report to Shareholders on Form 10-K, for the year ended
December 31, 1996.
B.Investment Securities
September 30, 1997
(000's omitted)
Available for Sale Held to Maturity
U.S. Treasury securities and obligations
of U.S. government corporations and agencies $36,175 $ 999
Securities issued by State & Political
subdivisions in the U.S. 27,677 1,461
Other securities (includes F.R. stock) 863 0
Mortgage back securities 22,481 0
TOTAL INVESTMENT SECURITIES $87,196 $2,460
December 31, 1996
(000's omitted)
Available for Sale Held to Maturity
U.S. Treasury securities and obligations
of U.S. government corporations and agencies $42,088 $ 0
Securities issued by State & Political
subdivisions in the U.S. 24,912 2,378
Other securities (includes F.R. stock) 819 0
Mortgage backed securities 13,931 0
TOTAL INVESTMENT SECURITIES $81,750 $2,378
C. Provision for Loan Loss
September 30, 1997 September 30,1996
Balance at January 1 $1,271 $1,176
Provision for the year 285 208
Recoveries on loans 50 38
Total 1,606 1,422
Less loans charged off 365 170
Balance at September 30, $1,241 $1,252
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
The purpose of this discussion is to provide the reader with information
designed to understand the financial statements of Cortland First Financial
Corporation included herewith and to provide information as to material events
or changes which affected the financial condition or results of operation
since the last reporting period. This discussion will, in general, not repeat
numerical data contained in the financial statements nor will it recite the
amount of change from period to period since these changes are readily
computable from the financial statements. References to "Bank" are to
Cortland First Financial Corporation and its wholly owned operating subsidiary
First National Bank of Cortland. First National Bank of Cortland is an
independent community bank with offices in Cortland, southern Onondaga, and
northern Broome counties.
In March of 1997, a new in-store facility was opened in the Wal-Mart store
located in Cortlandville, New York. The Wal-Mart branch provides
full-service to our customers 64 hours a week and includes an ATM for added
convenience. At the end of the third quarter of 1997, the Bank's Cincinnatus
office was relocated in a new facility. This new office will enhance service
to our customers in that area and includes a drive-up ATM. The third quarter
also saw the introduction of our telephone banking service allowing customers
24 hour access to deposit and loan account information as well as the ability
to transfer funds.
The primary regulator of Cortland First Financial Corporation is the Federal
Reserve Bank of New York in New York City, while its subsidiary, First
National Bank of Cortland, is regulated by the Office of the Comptroller of
the Currency in Washington, DC.
INCOME STATEMENT - THIRD QUARTER
Several factors combined to affect the third quarter income for 1997 when
compared with the third quarter of 1996. The resulting net income decrease of
.02 per share was due primarily to increased non-interest expense. An increase
of $110 thousand in salary and benefits expense resulted from an unanticipated
increase of $55 thousand in costs associated with our self-insured medical
benefits over the same period in 1996, increased salary expense for the
staffing of a new branch office as well as normal merit increases for our
employees. Increases during the third quarter of 1997 versus 1996 in
depreciation and maintenance expense of $63 thousand are a result of the 1996
upgrade of our mainframe computer and software. The increased expenses were
offset in part by $115 thousand in securities gains as well as an increase in
customer service fee income and other non-interest income.
INCOME STATEMENT - YEAR TO DATE
For the first nine months of 1997, interest income after provision for losses
was relatively unchanged from the same period in 1996. The net interest
margin on a year to date basis was 4.89% which compares to 4.99% for the same
period in 1996. The yield on average earning assets decreased from 8.05% for
the first nine months of 1996 to 8.01% for the same period in 1997. This is
due in large part to a decline of 25 basis points in the average yield on real
estate loans from 8.83% for the first nine months of 1996 to 8.58% when
compared to the same period in 1997 as a result of refinancings as mortgage
rates declined during the past two years. A shift in the deposit mix to
higher cost certificates of deposit has increased the cost of funds to 3.76%
on a year to date basis in 1997 from 3.72% for the comparable period in 1996.
Non-interest income increased during the first nine months of 1997 as a result
of the increases in service charges and fees , customer service and credit
card fees, and other miscellaneous income when compared with the same nine
month period in 1996. Realized securities gains year to date 1997 of $115
thousand compared to $24 thousand in realized losses on securities for the
first nine months of 1996 - an overall increase of $139 thousand.
An increase in salary and benefits expense on a year to date basis of $286
thousand, or 10.5% is due to increased medical insurance expense of $113
thousand, salary expense for the new branch office, and normal merit increases
for the staff. Furniture and fixtures expenses increased $146 thousand when
compared to the same period in 1996 as a result of the computer upgrade in the
last quarter of 1996 as well as normal equipment maintenance and repair
expense. Insurance expense increased nearly $20 thousand due primarily to
increases in the FDIC insurance as mandated by Congress.
STATEMENT OF CONDITION
The Bank's average total assets for the first three quarters of 1997 amounted
to $223.7 million, an increase of $8.9 million, or 4.1% over the same period
in 1996. Average interest-earning assets increased $7.7 million, or 3.8%.
This increase in interest-earning assets was primarily due to an increase in
the investment securities portfolio (up $10.6 million, or 13.3% on an average
basis), offset in part by a decrease in federal funds sold (down $5.6 million,
or 41.3% on an average basis).
Average total liabilities increased to $198.3 million, or 3.9% during the
first three quarters of 1997 when compared with the same period in 1996.
Within interest-bearing liabilities, certificates of deposits increased on a
year to date average basis by $4.6 million, or 8.5%, while savings and NOW
accounts increased by $3.1 million, or 2.7%. Non-interest bearing
liabilities, however, showed a decrease, on average, of $.7 million, or 3.1%.
Average shareholders' equity increased to $25.4 million, or 6% over the same
period
The fair value, amortized cost and gross unrealized holding gains and losses
for the Bank's securities available for sale follow (in thousands):
Sept 30, June 30, Mar 31, Dec 31
1997 1997 1997 1996
Fair Value $87,196 $91,311 $86,755 $81,750
Amortized cost 86,449 90,970 87,030 81,125
Excess of fair value over
amortized cost* $747 $341 ($ 275) $625
* Components
Unrealized gains $917 $678 $412 $876
Unrealized losses 170 337 687 251
$747 $341 ($275) $625
Enhanced efforts to attract high quality loans within our commercial loan
portfolio have resulted in an increase of $2.8 million, or 13.6% since year
end 1996. The Bank expects that the addition of a commercial loan officer to
generate loans in an expanded area including the Syracuse metropolitan area
and Onondaga County will further assist in increasing our commercial loan
volume.
PROVISION FOR LOAN LOSSES
The Bank places a strong emphasis on asset quality and performs a thorough
analysis of the risks in its loan portfolio and the allowance for loan
losses. Review of the loan portfolio and assessment of adequacy of the
allowance for loan losses is a continuing process in light of changing
economic conditions and changes in the strength of borrowers. Net charge offs
year to date 1997 of $315 compares to $132 one year ago for the same period.
This trend may continue throughout the remainder of 1997 reflecting the
national trend in consumer delinquencies and charge offs; however, appropriate
collection measures and underwriting standards are expected to partially
mitigate the negative aspects of the current trend. The allowance for loan
losses was 1.07% of loans outstanding as of September 30, 1997 which compares
to 1.10% for the same period in 1996. In management's opinion, the allowance
for loan losses is adequate as of September 30, 1997.
CAPITAL ADEQUACY
Capital adequacy continues strong at the end of the third quarter and equity
shows continued growth. As previously discussed, equity grew by 6% even
though $1.1 million was utilized to repurchase 48.5 thousand shares of common
stock during the third quarter of 1997. At the end of the quarter, the Bank's
capital leverage ratio was 11.21% which compares to 11.24% for the quarter
ended September 30, 1996. Tier 1 and Total Risk-based capital ratios were
21.74% and 22.82%, respectively, compared to 21.49% and 22.58% at September
30, 1996. Regulatory minimums to qualify as "well capitalized" are 5% for
capital leverage, 6% for Tier 1 Risk-based capital, and 10% for Total
Risk-based capital. The Bank's strong capital position is available to
support future growth.
Cortland First Financial Corporation filed a Schedule 13E4 with the Securities
and Exchange Commission on May 28, 1997 regarding an Offer to Repurchase up to
150,000 shares of its outstanding common stock. The Offer to Repurchase was
conducted through a procedure commonly referred to as a "Dutch Auction". The
offer period expired on July 2, 1997. Given the Bank's strong capital
position, the Board of Director's determined that the offer to repurchase
directly to stockholders would provide a fair and easy means for stockholders
who may have desired to sell some or all of their stock. Cortland First
Financial Corporation repurchased 30,538 shares at a price of $22.50 per share
in accordance with the Offer to Repurchase and subsequently has purchased an
additional 18,000 shares in open market transactions. Cortland First
Financial Corporation may continue to repurchase common stock from time to
time in open market repurchases or private transactions subject to regulatory
and compliance requirements. The repurchase program will not affect our
strategic plan to continue to grow the First National Bank of Cortland as a
strong, independent community bank.
LIQUIDITY AND INTEREST RATE RISK
Liquidity is primarily needed to meet the borrowing and deposit withdrawal
requirements of the Bank's customers and to fund current and planned
expenditures. The Bank derives liquidity from increased customer deposits,
the maturity distribution of the investment portfolio, loan repayments, and
income from earning assets. The Bank also maintains a line of credit with the
Federal Home Loan Bank of New York which provides an additional source of
liquidity. Additionally, the Bank's securities classified as
available-for-sale, which totaled $87.2 million at September 30, 1997, were
available for the management of liquidity and interest rate risk. At
September 30, 1997, the ratio of net liquid assets to net deposits amounted to
31.99%, an increase of .89% over the year end 1996 ratio of 31.10%, further
indicating a high level of liquidity. Management is not aware of any trend,
demands, commitments, or uncertainties that are reasonably likely to result in
material changes in liquidity.
The Asset and Liability Committee of the Bank is responsible for assessing
interest rate risk. Management of the composition and maturity configurations
of earning assets and funding sources contributes to maintaining an
appropriate balance between the maturity and repricing characteristics of
assets and liabilities that is consistent with liquidity, growth, and capital
adequacy goals. A forward looking assessment regarding the impact interest
rate movement may have on net interest income is performed on a monthly
basis. Based on current analysis, the Bank believes that it is well
positioned with minimal impact on income when subjected to a 200 basis point
(2.00%) shock - the equivalent of an immediate increase or decrease of 2% in
all interest rates on both assets and liabilities. Management believes that
the overall rate sensitivity position is appropriate for current rate
conditions.
PART 2.
ITEM 1. Legal Proceedings
None.
ITEM 2. Changes in Securities
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits required by Item 601 of Regulation S-K:
(11) Statement re Computation of earnings per share
(21) Subsidiaries of the registrant
- First National Bank of Cortland, State of New York
(27) Financial Data Schedule
b) Reports on Form 8-K
No Form 8-K was filed during the third quarter of 1997.
<PAGE>SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORTLAND FIRST FINANCIAL CORPORATION
DATE November 6, 1997 /s/ David R. Alvord
David R. Alvord, President & CEO
DATE November 6, 1997 /s/ Bob Derksen
Bob Derksen, Treasurer
<PAGE>EXHIBIT 11
CORTLAND FIRST FINANCIAL CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(in thousands, except per share amounts)
Nine Months Ended
September 30,
1997 1996
Primary earnings
Net Income $1,974 $2,122
Shares
Weighted average number of
common shares outstanding $2,003 $2,016
Primary earnings per common share $ 0.99 $ 1.05
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000796317
<NAME> KAY BREED
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 9,248
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 87,196
<INVESTMENTS-CARRYING> 2,460
<INVESTMENTS-MARKET> 2,495
<LOANS> 115,765
<ALLOWANCE> 1,241
<TOTAL-ASSETS> 221,624
<DEPOSITS> 193,923
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,335
<LONG-TERM> 0
0
0
<COMMON> 6,720
<OTHER-SE> 18,746
<TOTAL-LIABILITIES-AND-EQUITY> 221,624
<INTEREST-LOAN> 7,758
<INTEREST-INVEST> 4,040
<INTEREST-OTHER> 237
<INTEREST-TOTAL> 12,035
<INTEREST-DEPOSIT> 4,886
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 7,149
<LOAN-LOSSES> 285
<SECURITIES-GAINS> 115
<EXPENSE-OTHER> 5,477
<INCOME-PRETAX> 2,691
<INCOME-PRE-EXTRAORDINARY> 2,691
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,974
<EPS-PRIMARY> .99
<EPS-DILUTED> .99
<YIELD-ACTUAL> 4.5
<LOANS-NON> 403
<LOANS-PAST> 105
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,905
<ALLOWANCE-OPEN> 1,271
<CHARGE-OFFS> 365
<RECOVERIES> 50
<ALLOWANCE-CLOSE> 1,241
<ALLOWANCE-DOMESTIC> 1,241
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
