UNITED STATES
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 quarterly period ended March 31, 1998
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
The number of shares outstanding of the registrant's common stock on March 31,
1998: Common Stock, $1.6667 Par Value -- 1,969,776 shares.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CORTLAND FIRST FINANCIAL CORPORATION
Condensed Consolidated Balance Sheets
(000's Omitted)
March 31, 1998 December 31, 1997
(Unaudited) (Note)
ASSETS
Cash and Due From Banks $ 9,682 $ 10,139
Federal Funds Sold 5,900 1,100
Total Cash and Cash Equivalents 15,582 11,239
Investment Securities
Held to Maturity 2,435 2,435
Available for Sale 86,277 85,821
Total Investment Securities
(Fair Value 88,772 & 88,301,
respectively) 88,712 88,256
Loans (Net of Unearned Discount of
(2,846 & 3,072) 113,702 113,173
Allowance for Possible Loan Losses (1,243) (1,240)
Net Loans 112,459 111,933
Bank Premises, Furniture, and
Equipment 3,461 3,516
Other Assets 4,370 4,425
TOTAL ASSETS $224,584 $219,369
LIABILITIES
Non-Interest Bearing Deposits $ 24,372 24,509
Interest Bearing Deposits 172,600 167,701
Total Deposits $196,972 $192,210
Accrued Int, Taxes, &
Other Liabilities 1,423 1,271
Accrued Post-Retirement Benefits 890 882
TOTAL LIABILITIES 199,285 194,363
SHAREHOLDERS' EQUITY
Common Stock (par value $1.6667)
2,016,000 shares issued;
1,969,776 shares outstanding 3,360 3,360
Surplus 3,360 3,360
Undivided Profits 19,104 18,812
Accumulated other comprehensive
income 541 540
Treasury Stock, at cost;
46,224 shares (1,066) (1,066)
TOTAL SHAREHOLDERS' EQUITY 25,299 25,006
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY $224,584 $219,369
The accompanying notes are an integral part of the financial statements.
<PAGE>
CORTLAND FIRST FINANCIAL CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,
1998 1997
Interest Income:
Interest & fees on loans $2,517,686 $2,541,116
Interest on investment securities 1,276,700 1,274,723
Interest on Federal Funds sold 91,415 103,926
TOTAL INTEREST INCOME $3,885,801 $3,919,765
Interest Expense:
Interest on deposits 1,613,573 1,583,979
NET INTEREST INCOME $2,272,228 $2,335,786
Provision for loan losses 75,000 75,000
NET INTEREST INCOME AFTER PROVISION
FOR LOSSES $2,197,228 $2,260,786
Other Income 439,202 395,321
TOTAL OPERATING INCOME $2,636,430 $2,656,107
Other Expenses 1,882,534 1,770,808
INCOME BEFORE INCOME TAXES $ 753,896 $ 885,299
Provision for Income Taxes 185,914 225,687
NET INCOME $ 567,982 $ 659,612
Net Income per Common Share/Basic $ .29 $ .33
(1,969,776 and 2,016,000 weighted average
shares outstanding, respectively)
The accompanying notes are an integral part of the financial statements.
<PAGE>
CORTLAND FIRST FINANCIAL CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
(000's Omitted)
Three Months Ended
March 31,
1998 1997
Net Income $ 568 $ 660
Other Comprehensive Income net of taxes:
Unrealized net gain on securities 1 549
Comprehensive Income $ 569 $1,209
The accompanying notes are an integral part of the financial statements.
<PAGE>
CORTLAND FIRST FINANCIAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
(000's Omitted)
Accumulated
Other Comp-
Three Months Ended Common Undivided rehensive Treasury
March 31, 1998 and 1997 Stock Surplus Profits Income Stock Total
Balance at December
31,1996 $3,360 $3,360 $18,283 $ 375 - $25,378
Net Income 660 660
Cash Dividend Declared (282) (282)
Net Unrealized Gains on
Securities (549) (549)
Balance at March 31, 1997 $3,360 $3,360 $18,661 $ (174) - $25,207
Balance at December
31, 1997 $3,360 $3,360 $18,812 $ 540 $(1,066) $25,006
Net Income 568 568
Cash Dividend Declared (276) (276)
Net Unrealized Gains on
Securities 1 1
Balance at March 31, 1998 $3,360 $3,360 $19,104 $ 541 $(1,066) $25,299
The accompanying notes are an integral part of the financial statements.
<PAGE>
CORTLAND FIRST FINANCIAL CORPORATION
Consolidated Statements of Cash Flow
(Unaudited)
(000's OMITTED) Three Months
Ended March 31,
1998 1997
OPERATING ACTIVITIES
Net Income $ 568 $ 660
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 75 75
Provision for depreciation 109 108
(Benefit) for deferred income taxes 0 (64)
Amortization of investment security premiums,
net 52 87
Increase in interest receivable (277) (212)
Decrease (Increase) in other assets 332 (245)
Increase (Decrease) in interest payable 5 (6)
Increase in other liabilities 155 257
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,019 660
INVESTING ACTIVITIES
Proceeds from maturities of investment
securities 6,719 5,502
Purchase of investment securities (7,226) (11,478)
Net (increase) decrease in loans (601) 432
Purchase of premises and equipment, net (54) (116)
NET CASH USED BY INVESTING ACTIVITIES (1,162) (5,660)
FINANCING ACTIVITIES
Net increase in demand deposits,
NOW & savings 4,311 3,922
Net proceeds from sales of certificates
of deposits 451 3,140
Cash dividends (276) (282)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 4,486 6,780
INCREASE IN CASH AND CASH EQUIVALENTS 4,343 1,780
Cash and cash equivalents at beginning
of year 11,239 15,400
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $15,582 $17,180
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and short term
borrowings $ 1,609 $ 1,590
Income taxes 63 74
Non Cash Investing Activities:
Change in net unrealized gains (losses) on
investment securities 1 (549)
The accompanying notes are an integral part of the financial statements.
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, 1997. The balance sheet at December 31, 1997, has been
derived from the audited financial statements at that date.
B. Effective January 1, 1998, the Bank adopted Statement of Financial
Accounting Standard (SFAS) No. 130, "Reporting Comprehensive Income." This
pronouncement requires the Bank to report the effects of unrealized
investment holding gains or losses on comprehensive income.
C. Investment Securities
March 31, 1998
(000's Omitted)
Available for Sale Held to Maturity
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $34,775 $ 999
Obligations of State & Political
subdivisions 26,499 1,436
Other debt securities 5,712 0
Mortgage backed securities 19,291 0
TOTAL INVESTMENT SECURITIES $86,277 $ 2,435
December 31, 1997
(000's Omitted)
Available for Sale Held to Maturity
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $35,750 $ 999
Obligations of State & Political
subdivisions 28,274 1,436
Other debt securities 865 0
Mortgage backed securities 20,932 0
TOTAL INVESTMENT SECURITIES $85,821 $ 2,435
D. Allowance for Possible Loan Loss
March 31, 1998 March 31, 1997
(000's Omitted)
Balance at January 1 $ 1,240 $ 1,217
Provision for the period 75 75
Recoveries on loans 11 15
Sub Total 1,326 1,361
Less loans charged off (83) (179)
Balance at March 31, $ 1,243 $ 1,182
The appropriateness of the allowance for loan losses is
determined by quarterly detailed review of the loan portfolio.
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 asto material events or
changeswhich 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.
The primary regulator of Cortland First Financial Corporation is the Federal
Reserve Bank of New York, while its subsidiary, First National Bank of Cortland,
is regulated by the Office of the Comptroller of the Currency.
Effective January 1, 1998, the Bank implemented Statement of Financial
Accounting Standard (SFAS) No. 130 Reporting Comprehensive Income. For the Bank,
comprehensive income is determined by adding unrealized investment holdings,
gains or losses during the period to net income.
INCOME STATEMENT - FIRST QUARTER
Net income for the first quarter of 1998 was $.29 per share compared to $.33 for
the same period in 1997. The decrease is due primarily to unfavorable changes in
the yields on loans and higher cost of funds on interest bearing deposit
accounts compared to the first quarter of 1997. Loan yields for the first
quarter of 1998 were 16 basis points lower when compared to 1997 due primarily
to a minor drop in market rates. Average loans outstanding for the quarter are
unchanged from the same period in 1997. The cost of funds on interest bearing
deposits increased by 9 basis points in the first three months of 1998 when
compared to the same period in 1997. This is due primarily to shift of the
Bank's deposit base to higher cost time deposits.
Non-interest income increased by $44,000 for the first quarter of 1998 compared
to 1997. The increase is due primarily to increased service fees collected on
transaction accounts as a result of a change in return item processing,increased
ATM fees, and fees for a new service "business manager." Other operating
expenses for the first three months of 1998 were $112,000 higher compared to the
same period in 1997. This is the result of several factors. Salary and employee
benefits expense increased by $42,000 due primarily to increased staffing levels
and normal merit increases to our employees. Occupancy expense increased by
$28,000 due primarily to the addition of our Wal-Mart branch which opened in
March of 1997. Also, operating expenses increased due to a $28,000 increase in
loan and collection expenses due primarily to the Bank taking a more aggressive
approach to collect delinquent loan accounts.
STATEMENT OF CONDITION
The Bank's total assets for the first quarter of 1998 increased $5.2 million or
2.4%, from year end 1997. Average interest bearing assets increased by $2.0
million or 1.0% for the first three months of 1998 compared to the same
period in 1997. This increase in interest-earning assets was primarily due to an
increase in the investment securities portfolio (up $2.9 million), offset in
part by a decrease in federal funds sold (down $1.2 million).
Total liabilities increased to $199.3 million, an increase of $4.9 million or
2.5% since December 31, 1997. The increase is due primarily to an increase in
interest bearing deposits. MMDA accounts increased by $6 million, or 19.21% and
were partially offset by a decrease in NOW and savings accounts of $1.8
million.Non-interest bearing deposits were unchanged from year end 1997.
Shareholders'equity increased to $25.3 million, or 1.17% since December 31,
1997.
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 for the first quarter of
1998 were $72,000 compared to $164,000 for the same period in 1997. This
reflects the Bank's efforts to improve underwriting standards and enhanced
collection procedures. The allowance for loan losses was 1.09% of loans
outstanding as of March 31, 1998 which is an increase from 1.05% for the same
period in 1997. In management's opinion, the allowance for loan losses is
adequate to absorb any losses in the portfolio as of March 31, 1998.
CAPITAL ADEQUACY
Capital adequacy continues strong at the end of the first quarter and equity
shows continued growth. As previously discussed, equity grew by $293,000 since
year end and was $25.3 million at March 31, 1998. At the end of the quarter,
the Bank's capital leverage ratio was 11.16% which compares to 11.31% for the
quarter ended March 31, 1997. Tier 1 and Total Risk-based capital ratios were
21.34% and 22.42%,respectively,compared to 21.49% and 22.58% at March 31,1997.
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.
LIQUIDITY
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 $86.3 million at March 31, 1998, were available for the management of
liquidity and interest rate risk. At March 31, 1998, the ratio of net liquid
assets to net deposits amounted to 32.00%, and compared to the year end 1997
ratio of 32.89%, 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.
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.
The Asset and Liability Committee of the Bank is responsible for assessing these
risks. 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 its exposure in each of the risk categories is low.
YEAR 2000
The Bank has made continued progress on its Year 2000 compliance program. The
costs to implement the program have not been material.
<PAGE>
INTEREST MARGIN REPORT
(000's Omitted)
<TABLE>
INTEREST INCOME
1/98 - 3/98 1/97 - 3/97 CHANGE DUE TO:
TOTAL TOTAL
EARNINGS ASSET YIELDS: FTE INC BALANCE YIELD FTE INC BALANCE YIELD VOLUME RATE CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GOVT & AGY SEC $ 572 $ 36,914 6.24 $ 686 $ 43,511 6.13 (116) 2 (114)
TAX EXEMPT SEC 491 27,942 7.03 438 25,100 7.03 30 4 34
MORTG BACKED SEC 323 20,357 6.43 245 13,910 7.07 94 (16) 78
OTHER SECURITIES 63 3,041 8.40 47 2,921 6.99 0 15 15
TOTAL SECURITIES $1,449 $ 88,254 6.66 $1,416 $ 85,442 6.55 8 5 13
FED FUNDS SOLD $ 91 $ 6,666 5.46 $ 104 $ 7,893 5.23 (18) 5 (13)
COMMERCIAL LOANS $ 558 $ 23,148 9.77 $ 548 $ 21,834 10.00 20 (10) 10
OVERDRAFTS 0 149 0.00 0 150 0.00 0 0 0
CONSTRUCTION LOANS 14 639 9.10 7 278 9.24 8 0 (8)
MORTGAGE LOANS 1,177 55,519 8.60 1,158 54,474 8.66 20 (1) 19
INSTALLMENT LOANS 474 19,896 9.66 538 22,826 9.56 (62) (4) (66)
CONSUMER LOANS 224 9,425 9.64 239 9,652 10.13 (4) (11) (15)
TAX FREE LOANS 89 4,116 8.69 75 3,230 9.67 22 (12) 10
TOTAL LOANS $2,536 $112,892 9.10 $2,565 $112,444 9.26 4 (38) (34)
TOTAL EARNING ASSETS $4,076 $207,812 7.93 $4,086 $205,779 7.97
TOTAL INTEREST INCOME (6) (28) (34)
INTEREST EXPENSE
COST/FUNDS RATES: EXP BALANCE RATE EXP BALANCE RATE CHANGE DUE TO:
NOW & SAVINGS $ 455 $ 77,062 2.39 $ 468 $ 76,562 2.49 (2) (12) (14)
MONEY MARKET DEP 426 36,353 4.76 418 36,637 4.35 (22) 30 8
MONEY MARKET CDS 75 6,447 4.73 75 6,512 4.65 0 1 1
CDS OVER $100M 142 12,215 4.71 150 13,752 4.41 (17) 12 (5)
OTHER CDS 510 39,002 5.30 467 35,573 5.28 36 4 40
TIME DEPOSITS 6 845 2.70 6 853 2.80 0 0 0
TOTAL CDS & TIME $ 733 $ 58,509 5.08 $ 698 $ 56,690 4.96 19 17 36
S-T BORROWINGS 0 0 0 $ 0 $ 0 0.00 0 0 0
TOTAL INT BEARING
LIAB $1,614 $171,924 3.81 $1,584 $169,889 3.72
TOTAL INTEREST EXPENSE (5) 35 30
NET INTEREST SPREAD 4.12 4.22
NET INTEREST MARGIN $2,462 $207,812 4.78 $2,502 $207,507 4.87 (1) (63) 64)
</TABLE>
<PAGE>
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:
(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 first quarter of 1998.
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 May 13, 1998 /s/ David R. Alvord
David R. Alvord, President & CEO
DATE May 13, 1998 /s/ Bob Derksen
Bob Derksen, Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,682
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 86,277
<INVESTMENTS-CARRYING> 2,435
<INVESTMENTS-MARKET> 2,474
<LOANS> 116,548
<ALLOWANCE> 1,243
<TOTAL-ASSETS> 224,584
<DEPOSITS> 196,972
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,313
<LONG-TERM> 0
0
0
<COMMON> 6,720
<OTHER-SE> 18,579
<TOTAL-LIABILITIES-AND-EQUITY> 224,584
<INTEREST-LOAN> 2,518
<INTEREST-INVEST> 1,277
<INTEREST-OTHER> 91
<INTEREST-TOTAL> 3,886
<INTEREST-DEPOSIT> 1,614
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 2,272
<LOAN-LOSSES> 75
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,883
<INCOME-PRETAX> 754
<INCOME-PRE-EXTRAORDINARY> 754
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 568
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
<YIELD-ACTUAL> 4.78
<LOANS-NON> 460
<LOANS-PAST> 307
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,894
<ALLOWANCE-OPEN> 1,240
<CHARGE-OFFS> 83
<RECOVERIES> 11
<ALLOWANCE-CLOSE> 1,243
<ALLOWANCE-DOMESTIC> 1,243
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
