A N N U A L R E P O R T
CONTENTS
Chairnian’s M essage
E
Brief Description of the Business
Rcporl of Indcpendenl Auditors
Consolidatcd Statements of I ncoiiie
Consolidated Balance Sheets
Consolidated Statements of
Sharcholdcrs’ Equity
Consolidated Slalements of Cash Flows
Notes to the C‘onsolidatcd Financial Statemenls
Three Year Sumnary
Averagc Halance Shcet, Yields and Rates
Selected Financial Dala
Manapenienl’s Discussion and Analysis
Information iis lo Stock Prices and Dividends
Cortland Bancorp
Direclors and Officers
Corlland Savings & Banking
Directors and OHkers
Offices and I>ocalions
CH A 1 R M AN’S ME:SSAGE
TO OUR SHAREHOLDERS:
Martha Stewart wiis recently convicted of insidcr trading in
the sale or her lmclone stock, right? Wrong. Thc fact is that
the government was unable to bring ii case of insider
trading against Ms. Stewart. The law and the Licts ol: the
case simply would not support the charge. So they charged
Martha with lying to the government, obstructing justice,
conspiracy and some other trumped up charges that the
judge found so creative that she tossed them right out of
court.
Investigators discovered that their initial suspicion-that
Martha had bccn “tippcd” by Samuel Waksal, a close
personal friend and 1 tnclonc’s founder-simply was not
true. Undaunted, they chosc to indict hcr for lying about a
crime, even though one had not actually bccn committed.
This made it prophct of Justicc Ruth Bader Ginsburg who
wrote in a 1996 Supreme Court case that “The prospect
remains that an ovcrzcalous prosecutor or investigtator-
aware that a pcrson has committed some suspicious acts,
but unable to make a criminal casc-will crcate a crime by
ing about those acts, and rccciv-
surprising the subject,
ing a false denial.” TI
appears to be exactly what has
happcncd to Martha. There was no underlying crime. Had
Martha said nothing at all when confronted by federal
investigators, shc would not now be facing the prospect of
jail.
Ironically, the one charge o n which the jury failed to
convict was that Marthii’s broker had altered evidcnce by
notaling after the fact that there wiis an agreement to sell
Martha’s Imclone holdings i C the stock’s price fell to $60 or
$61. On this point the jury found that they had reasonable
doubt. Yet this was the very corncrstonc of the govern-
ment’s case. If the jury had re:isonablc doubt on this critical
point, they should have had reasonable doubt rcgarding thc
rest of the government’s case. Unfortunatcly for Martha the
jury never made this leap in logic, and Martha was found
guilty.
Perhiips the U.S. Attorney and tlic jurors considered this a
victory Cor the “little guy.” But try cxplaining that to all of
the “little guys” who were either employees or sharcholdcrs
of Martha Stewart Living Onmimedia or K-Mart (21 major
distribution channel and marketing outlet for Martha’s
products). For thosc folks, this was a very expensive “vic-
tory,” disrupting their livcs, undcrrnining their financial
security and thrcatcning thcir very livelihood. Whereas
before there had been no victim for therc was no crime,
now there were plenty of real suffcring victims, all in the
name of justice.
Perhaps the U.S. Attorney and the jurors considered this ii
victory to protect tlic intcgrity of our judicial system? It
would “send a message,” cncouraging future suspects 10 tell
the truth. More likely, iis suggested by Justicc Ginsburg’s
1996 opinion, it calls into question the very integrity of a
system that would put so many innocent lives at-risk in the
absence or any underlying crime. instead of encouraging
“truth-telling,” the case reallirnis the old adage that “si-
lence is golden.” Even i f une has the best legal representa-
tion that money can huy, one may not be able to avoid
trouble. Nearly evcry point on which Martha Stewart was
convicted arose from actions that she took after having
consulted with some of the finest legal minds in the land.
Such i s the state of our judicial system, for all of its many
strengths i t is extraordinarily complex, Craught with the risk
of wrongful accusation, enttapmenl and self-incrimination.
Although ours is a system where the accused is assumed
innocent until proven guilty, the .judge and jury arc still
human. Thc vcrdict may hingc on whcther thc defendant
has disproved the accusations or whether thc dcfcndant is
perceived iis a member of ii special, privilegcd class. Post-
verdict commcnts by .jurors suggcst that this may have
indccd occurred in Martha’s case, and that issues of class
distinction may havc playcd a rolc in the deliberations.
Perhaps we are particularly sensitive to Martha’s plight as
we have bccn to court morc than a fcw timcs oursclvcs.
While we haven’t yet had anyone trick us quitc as badly as
what Martha experienced, we’ve had a Cew folks try. It’s not
that hard. The real beauty or the American jurisprudence
system is that, i f you have the filing fee, just about anybody
can suc anyone else over just about anylhing for any
amount they choose.
Since 1993, the Company’s bank subsidiary has been a
defendant in a class action lawsuit involving purchascd
interests in two Ohio campgrounds. We knew that we
hadn’t done anything wrong, yet we shod accused. In fact,
wc had .joined with other financial institutions to help these
campgrounds work through a difficult bankruptcy reorgani-
zation. As ii result, the campgrounds rcmaincd opcn both
during and aftcr tlic bankruptcy, cnabling the campers to
enjoy without interruption the full benefit of thcir mcmbcr-
ship. Yet we found ourselves accused of all sorts of vile and
dastardly deeds, from racketeering to running a corrupt
organiziilion. None of it was true, of course. All of it was
contrived to “raise the stakes,” reduce our risk tolcrancc,
and drive us to quickly settle. We were supposed to run
(not walk) to the vault, withdraw a tidy sum, and lay ii
largc lump of tnoncy on plaintiffs’ attorneys. Probleni was,
they had pickcd on thc wrong folks this time.
If settling was thc “smart” thing to do, then we were just
way too stupid. Our roots arc firmly plantcd way back in the
19th Century. We believe in old-fashion valucs likc truth,
hard work, honor, loyalty and intcgrity. Wc find that some
things arc just worth fighting about. So when someone
dares besmirch our charactcr and rcputation, it’s titne to
“c;rll them out.” So we did. We fought thcm in the
Northern Ilistrict of Ohio Eastern Division of the Fcdcral
Court, and we won. We fought them in United States
Court of Appeals for the Sixth Circuit, and we won. We
I
fought them in the Common Pleas Court or Trumbull
County, and we won. Wc fought them in the I I t h District
Court or Appeals, and on March 4, 2004 we were notificd
that we had won again. It’s been ii long, tough fight, hut so
Tar truth and .justice have won out. And ror that wc are
grateful.
The Sarhanes-Oxlcy Act, enacted in 2002 in responsc to
numerous corporatc scandals itnd corporate governancc
failures, is a meritorious attempt on the part or our govern-
ment to rcstorc honesty, integrity and ethical behavior in
the corporatc world. It established tough new standards and
regulations regarding corporate responsibility, and
in-
creased civil and criminal penaltics, in an effort to restore
public and inveslor confidencc. Wc have rrlready imple-
iiiented many of the provisions of Sarbanes-Oxley. We will
be spending considerably morc time, energy and money in
2004 to furthcr phase-in additional provisions of the Act to
ensure invcstors of the effectiveness or our internal controls
and procedurcs. While we salute the
lofty goals of
Sarhanes-Oxlcy, wc can’t help but wonder if Justice Gins-
burg’s 1996 warning won’t find new applicability in thc
legal plight of some future CEO or CFO?
What if our government oficials were also held to thc same
high standards as Sarbitnes-Oxley or Martha Stcwart, that
lying to the American public was a criminal act? What i f i t
wcrc a criminitl act to make false cartipaign promises?
What il“ a candidate werc hcld pcrsonally liable Tor ractual
inisrepresentaliom or making falsc accusations against a
political opponent? What a difcrcnt world that would be!
The campaign political rhetoric has alrcady started, and i t
is having an effect on thc Amcrican public. Meitsures or
consumer confidence had rallicd quite strongly during the
second half of 2003. Now with the advent of the presidcn-
tial primaries consuii~er confidence has notably wcakcned.
This dip in confidence has much morc to do with the
constant bashing of the economy by prcsidcntial contenders
than any real weakness in business activity. Perhaps you
may rccall that when young George’s fathcr was running for
re-elcction, the challengers’ battle cry was “It’s thc Worst
Econortiy in SO Years!” or the more insulting “It’s the
Economy, Stupid!” Turns out it was a lic. Thc ccononiy
wits growing at a very rapid pacc, but that wouldn’t he
known for surc until aftcr the election. And unlike Martha,
no onc was threatened with jail time rot lying.
Fact is, the economy is beginning to do rathcr nicely.
Congrcss and the Administration finally got it right last
ycar with legislation that focused tax inccntivcs on capital
spcnding and investment. The dollar was also finally al-
lowed to decline against lhe Euro and thc Ycn, improving
the competitiveness of manufaclurers and exporters. The
Pcd remained accommodative as interest ratcs hcld at or
near their 45-year lows. Fiscal policy .joined in, helping to
prime-the-pump by rcplacing the economic drag or a large
surplus with thc stimulus of it deficit. There are still sornc
hurdles remaining: the high cost of energy, jobs and thc
threat or terrorism and intcrnational turmoil.
U.S. crude oil prices during 2003 averaged $31 per barrel,
thc highest yearly average in morc than 20 years. The high
cost of “black gold” helped push the price or real gold back
over $400 an ounce, ncar its 14-year peak. Energy costs arc
unlikely tu fall until morc capacity i s brought on-streatn or
when alternative fuels are dcvcloped. The longer energy
costs remain at such lofty lcvcls, the more exploration and
research iire encouraged. Mcanwhile, gasoline prices in thc
U.S. are expected to top $2 per gallon, and will likcly
dampen growth in consumer spending.
New jobs will be created once the economy begins lo
consistcntly grow faster than the rate of productivity, which
has bccn siniply phenomenal. Tndccd cconoiiiic growth did
finally overtake productivity growth in the 4th quarter of
2003. Recently we have begun to sce a steady decline in
initial uneinploymenl claims. Ncw .jobs will follow as ca-
pacity utilization increases to mcct the demands of a
growing economy. Remember, until recently the economy
had been considered to hc at full employment when thc
unemployment ratc was at 6.0%. The current unemploy-
ment rate is 5.6%.
The outlook for 2004 is basically positive. Howcvcr, interest
rates arc likcly to remain ;it or near their 45-ycar lows for
much if not all of the year. This will continue to keep the
pressure on thc Company’s net interest margin, thc differ-
ence hetwccn what it earns on its loans and invcstnients and
what it pays for its deposits and borrowings. With interest
ratcs hovcring just above zero, it is difficult to reduce
further the cost or runds. The Company will attempt to
offset this erect by incrcasing non interest income and
controlling non intcrcst cxpense.
Indeed our net intcrcst margin did narrow during 2003 to
below recent historical norms. While the Company was
unahle to achievc a 10th consecutive year of record profits,
net income or $5.484 million was the third best in the
Compiiny’s long history. Earnings per share of $1.34
checked in 3s the second bcst in history. At this time, I
would also likc to recognize Neil J. Kahack, a partncr in
thc CPA firm of Cohen &L Company, who rccently joined
our Board. I would also like to cxtcnd a very special thanks
to William A. Hagood for his 32 years or service. Bill will
be retiring frotn thc Board as his term expires this April.
Sincerely.
Rodpcr W. Platt
Chairman and President
B R I E F DESCRIPTION OF THE BUSINESS
COR‘I’LAN I) BANCORP
Cortland Bancorp (the “Company”) was incorporated
under the laws of the State of Ohio in 1984, as a one
bank holding company registered under the Bank IIold-
ing Company Act of 1956, as amended. On March 13,
2000, the Board of Chvcrnorq of the Federal Reserve
system approved the Company’s application to become
a financial holding company as authorixd by the
C;ramm-I,each-Bliley Act o l 1999. Thc principal activ-
ity of the Company is to own, m:inagc and wpervise the
Cortland Savings and Banking Company (“Cortland
Banks” or the “Rank’). The Company owns d l of tlic
outstanding shareq of the Rank.
The Company is subject to supervision m d regulation by
the Board of Governors of thc Federal Reserve System
(the “Federal Reserve Board”). Aq a financial holding
company, the Company may cngagc in activities that
are financial in nature or incidental to a financial activ-
ity, as authorized by the Grainiii-Leach-Blilcy Act of
1999 (The Financial Services Reform Act). Under the
Financial Services R e h m Act, tlic Company triay con-
tinue to claim the benefits of financial holding company
statuq as long as each depository institution that it
controls rctnainq well capitalized and well managed. Thc
Company is requircd to provide notice to the Board of
Governors of the Federal Rcqcrve Systerii when it be-
conies dware that any depository institution controlled
by the Company ceases to be well capitaliyed or well
managed. Furthermore, current regulation spccifieq that
prior to initiating or engaging in any new activiticq that
are authoriied for financial holding companics, thc
Company’s insured depository instilutions must bc rated
“satisfactory” or better under the Community Kcinvcst-
( C K A ) . 4s of December 31, 2003, thc
inent Act
Company’s bank whsidiary was rated “satisluctory” for
CRA purposes, and remaincd well capitalized and, in
management’s opinion, well managcd. Cortland Rancorp
owns no property. Operations are conducted at I94 Wcst
Main Strcct, Cortland, Ohio.
Tlic husincss of the Company and the Bank i q not
seasonal to any qignificant extent and is not depcndcnt
on any single customcr or group of customers.
NEW RESOURCES LEASING COMPANY
New Resources Leasing Company was formed
in
December 1988 a s ii separatc cntity to handle the
function of conimercial and consumer lcnding The
wholly owncd whsidiary has been
inactive sincc
incorporation.
THE CORTT,AND SAVINGS
AND BANKING COMPANY
The Cortland Savings and Banking Coriipany is it lull
service state bank engaged in commercial and retail
banking and trust services. Thc Bank’s services include
checking accounts, savings accountq, time deposit ac-
counts, commercial, mortgage and installment loans,
leasing, night depository, wtorniited teller scrviccs, safe
dcposit boxes and other miscellaneous services normally
offered by commercial banks. Cortlmd Banks also oKers
ii variety of Tntcrnet Banking products as well as dis-
count brokerage services.
Business is conducted at a total of thirteen ofices, eight
of which are located in Trumbull County, Ohio. Two
offices are located in the comiiiunities of Windham and
Mantua, in Portage County, Ohio. One office is locatcd
in the community of Willianislield, hshtahula County,
Ohio, while two are located in the community of Board-
man, Mahoning County, Ohio.
Cortland Banks niain office (as described in its charter)
is located at 194 Wcqt Main Street, Cortland, Ohio.
Administrative ollices are located at the main office.
The Brookfield, Windham, IIubbard, Boardman and
Niles Park P l a ~ a ollices are leased, while all of thc other
offices are owned by Cortland Banks.
The Bank, as a state chartered banking organization and
member ol‘ the Federal Reserve Systcm, is subject to
periodic examination and regulAon by both the Federal
Reserve Bank o l Cleveland and thc State of Ohio
Division of Banks. These examinations, which includc
wch areas as capital, liquidity, asset quality, managc-
inent practiccs and other aspects of the Bmk’s operit-
tions, lire primarily for thc protcction of the Banks
depositors. In addition io these regular cxaminations,
the Bank must furnish periodic reports to regulatory
authorities containing u lull and accuratc statcment of
its affairs. The Bank‘s deposits are insured by tlic Pcd-
era1 Deposit Insurance Corporation (FDIC) up to tlic
statutory limit of $100,000 per customer.
COMPETIlION
Cortland Banks actively competes with state and na-
tional banks located in Northeast Ohio and Western
Pennsylvania. It also competeq for deposits, loans and
other service business with a largc number of other
financial institutions, such as savings and loan associa-
tions, credit unions, insurance companies, consunicr
finance conipanies and commercial linance and lcasing
companics. Also, money market m u t u d funds, broker-
age houscq and si tnilar institutions provide in a relatively
unregulatcd cnvironment many of the financial services
ofered by hanks. I n the opinion of management, the
principal methods of compctition are the rates o l inter-
est charged on loitns, the rates of intcrcst paid on deposit
funds, the fees charged for services, and tlic conve-
nicncc, availability, timeliness and quality of thc cus-
tonier scrviccq offered.
EMPLOYEES
As of Dccctnher 31, 2003 the Company through its
subsidiary hank, cmployed 144 full-time and 39 part-
time ernployces. The Company provides its employees
with a full rangc of benefit plans, and considers its
relations with its ctnployces to be satisfactory.
KEPOKT OF I’ACKEK THOMAS
I N D E P E N D E N T A U D I T O R S
SHAREHOLDERS AND BOARD OF
DIRECTORS
Cortland Bancorp
We have audited the accompanying consolidated
balance sheets of Cortland Rancorp and subsjdiar-
ies as of December 31, 2003 and 2002 and the
related consolidated statements of income, share-
holders’ equity and cash flows lor each ol‘ the three
years in the period ended December 31, 2003.
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 audits in accordance with audit-
ing standards generally accepted in the United
States of America. Those standards require thai we
plan and perform the audit to obtain reasonable
assurance about whcthcr the financial statements
arc free of material misstatement. An audit in-
in
cludes examining, on a test basis, evidence sup-
the
porting
the amounts and disclosures
consolidated financial statements. A n audit in-
cludes assessing the accounting principles used and
significant estimates made by management, as well
as evaluating the overall financial statement pres-
entation. We believe that our audits provide a
reasonable basis for our opinion.
I n our opinion, the consolidated financial state-
ments referred to above present fairly, in all mate-
rial respects, the consolidated financial position of
Cortland Bancorp and subsidiaries at Decen-
ber 31, 2003 and 2002, and the consolidated rcsults
of their operations and their cash flows for each of
the three years in the period ended December 31,
2003, in conformity with accounting principles
generally accepted
the United States of
America.
in
Youngstown, Ohio
January 30, 2004,
Except for Note 16,
as to which the date
is March 04, 2004
Packer Thomas
CORTLAND BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31. 2003. 2002 and 2001
(Amounts in lhousands except per share data)
Interest income
Interest and fees on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and dividends on investrncnt sccurilies:
. .
Taxable interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nontaxablc intcrcst . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on trading account securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nct interesl incoine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses (Note 4) . . . . . . . . . . . . . . . . . . . . .
Net interest income after provision for loan losses
Other income
. .
Fees for other customer services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities gains . net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading securities gains . net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of' loans . net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net occupancy and equipment expense . . . . . . . . . . . . . . . . . . . . . . . . .
State and local taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lcgal and litigation expense (Note 16) . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. 068
2. 473
132
4. 009
69
117
22. 907
5. 819
2.313
8. 132
14. 775
240
14. 535
1. 636
946
265
470
532
3. 849
6. 586
1. 963
524
347
152
177
1. 780
11. 529
6. 855
Income before federal income taxes
Federal income taxes (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1. 371
$ 5. 484
Net income
Net income per share. both basic and diluted (Note 1 ) . . . . . . . . . . . . . $ 1.34
See accompanying notes to consolidated linancial statements
2003
2002
200 I
. .
$13. 039
$15. 434
$17. 689
3. 272
2. 487
I70
5. 322
3. 733
2. 032
269
5. 708
226
26.91 1
368
29. 799
7. 534
2. 470
IO. 004
16. 907
460
16. 447
1. 362
21 5
318
805
2.700
6. 798
2. 077
505
363
138
161
1.784
1 1 . 826
7. 321
1. 579
$ 5. 742
1 1 . 176
2. 647
13. 823
IS. 976
220
15. 756
I . 537
386
269
531
2.723
6. 283
2. 109
605
411
143
160
I . 494
1 I. 205
7. 274
I. 728
$ 5. 546
$ 1.38
$ 1.33
CORTLAND BANCOKP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As ol‘ December 31. 2003 and 2002
(Amounts in thousands except per share data)
2003
2002
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9, 747
9, 747
12.
$ 5 7 1
20. 000
32. 571
Investment securities available for sale (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities held to maturity (approximate
markct valuc of $98. 451 in 2003 and $85. 957 in 2002) (Note 2) . . . . . . . . . . .
Total loans (Notc 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less allowance for loan losses (Note 4 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Olher assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
125. 841
1 7 9 5
15.
96. 934
189. 262
(2. 408)
186. 854
4. 872
14. 144
84. 108
191. 477
(3. 134)
188. 343
5. 277
1 1 . 504
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$438. 392
$437. 598
LIABILITIES
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Rank advances and other borrowings (Note 7 )
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .
$ 57. 632
279. 924
337. 556;
47. 886
3. 069
388. 511
55.
$ 7 4 5
280.01 3
335. 758
46. 669
3. 132
385. 559
Commitments and contingent liabilities (Notes 8 and 16)
SHAREHOLDERS’ EQIJTTY
Common stock . $5.00 stated value . authorized 20.000. 000 shares;
issued 4.246. 747 shares in 2003 and 4.123. 437 shares in 2002 (Nole 1) . . . . .
Additional paid-in capital (Note I ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (Note 1 ) . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock. at cost. 212. 838 shares in 2003 and 131. 544 shares in 2002 . . . .
Total shareholders’ equity (Notes 15 and 17) . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . .
21. 234
16. 469
15. 401
2. 203
(5. 426)
49. 881
20. 6 I7
13. 323
17. XI0
3. I65
(2. 876)
52. 039
$438. 392
$437. 598
See accompanying notes to consolidated financial statements
E
CORTLAND BANCOKI-' AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF Si1 AREHOLDEKS' EQUITY
Years ended December 31, 2003, 2002 and 2001
(Amounts in thousands excepl per share data)
Additional
Paid-In
Capital
$ 4,271
30
Accuiiiulated
Other
Retined Comprehensive Treasury
Earnings
Income (Loss)
$19,789
Total
Shnre-
holders
Equity
Stock
~-
$(1,657) $47,736
896
$
5,546
938
5,546
938
6,484
210
240
(3,355)
(573)
1,834
- -
(8)
(I ,447)
50,524
5,742
1,331
5,742
1,331
7.073
583
1,644
. . . . . . . . . -~
20,020
10,945
(3,355)
(573)
(2,227)
(8)
19,172
Coininon
Stock
Balance at Decemher 31, 2000 . . . . . . . . . . . . . . . . $19,437
Comprehensive Income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, net of tax:
Unrealized gains on available for sale
securities, net of reclassification adjustment
Total comprehensive income
Common Stock Transactions:
Treasury shares reissued net or shures
repurchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . .
Cash dividends declared ($81 per sh:ire)
Special cash dividend ($.I3 per share) . . . . . . . .
3% stock dividend . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid in lieu of fractional shares
Balancc at Deceniber 31, 2001 . . . . . . . .
Comprehcnsivc Income:
Net income.. .....................
Other comprehensive income, net of tax:
[Jnrealized gains on availahle for sale
securities, net of reclas
Total comprehensive income
Common Stuck Transactions:
Treasury shares rcpurchascd net of shares
rcissued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared ($.83 per share) . . . . .
Special cash dividend ($.21 per shurc) . . . . . . . .
3% stock dividend . . . . . . . . . . . . . . . .
Cash paid in lieu of fractional shares
I65
597
2,213
(3,430)
(855)
(1,429)
(1,264)
(3,430)
(855)
(9) -~
52,039
(2,876)
Balance at December 31, 2002
Comprchensive Income:
Net income.. . . . . . . . . . . . . . . .
Other comprehensive income, net of tax:
Ilnrealized losses on available lor sule
securities, net of reclassification adjustment
~~
2O,6 I7
13,323
17,810
3,165
5,484
Told coinprchcnsivc inconic
Common Stock Transactions:
Treasury shares repurchased net of shares
reissued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends dec
Special cash divide
3% stock dividend
Cash paid in lieu o
Balance at Decemher
DISCLOSURE OF RECLASSIE'ICAI'ION FOR AVA1LARX.E
FOR SALE SECURJTY GAINS AND 1.OSSES:
230
(2,550)
617
2,916
~~
$21,234
~~
~~
$ 16,469
(3,485)
(864)
(3,533)
(11)
$15,401
5.484
(962)
4,522
(2,320)
(3,485)
( 864 )
Unrealized holding (losses) or gains on available for sale securities arising during
the period net of tax of$(174), $758 and $615 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Reclassification adjustment for gains realized in net income,
nct of tax of $322, $74 and $131
624
Net unrealized (losscs) or gains on available for sale securities, net of lax . . . . . . . . . . $ (962)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
~~~
141
$ 1,331
255
938
$
(11)
~~ -~
$ (5,426) $49,881 - -
$ 2,203
2003
$ (338)
$ 1,472
$ 1,193
- - ~
See accompanying notes to consolidatcd financial statements
CORTLAND BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31. 2003. 2002 and 2001
(Amounts in thousands)
Cash flows from operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to
net cash flows from operating activities:
2003
2002
200 I
$ 5. 484
$ 5. 742
$ 5. 546
Depreciation. amortization and accretion . . . . . . . . . . . . . . . .
Provision for loan loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities gains . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans originated for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of loans originatcd for sale . . . . . . . . . . .
Gain on sale of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in:
Interest and fees receivable .......................
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Net cash flows from operating activities . . . . . . . . . .
Cash flows from investing activities
Purchases of securities available for sale . . . . . . . . . . . . . . . . . . . .
Purchases of securities held to maturity . . . . . . . . . . . . . . . . . . . . .
Proceeds from salcs of securities available for sale . . . . . . . . . . . .
Proceeds from call. maturity and principal
. .
paymenls on secunties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (increase) decrease in loans made to customers . . . . . . . . . .
Proceeds from disposition of other real estate . . . . . . . . . . . . . . . .
Proceeds from sale of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of premises and equipment ......................
Net cash flows froiii investing activilics . . . . . . . . . . .
Cash flows from financing activities
Net increase (decrease) in deposit accounts . . . . . . . . . . . . . . . . .
Net increase (decrease) in borrowings . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury shares reissued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash flows from financing activities . . . . . . . . . . .
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . .
. . .
2. 382
240
135
(946)
(470)
(25. 757)
28. 146
131
49
(2. 346)
7. 048
(64. 960)
(62. 165)
8. 114
93. 982
(866)
21
(333)
(26. 207)
1. 798
1. 217
(4. 360)
(3. 641)
1. 321
(3. 665)
(22. 824)
I . 345
460
(151)
(21 5)
(318)
9
( 2 1. 6 12)
19. 908
21 8
(57)
9
5. 338
I . 269
220
(2)
(386)
(269)
17
( 17. 000)
17. 269
(45)
393
(158)
(676)
6. 178
(32. 144)
(56. OXO)
1. 305
(34. 805)
(35. 6 15)
3. 998
82. 185
15. 656
170
(425)
IO. 667
(1. 903)
(2. 693)
(4. 294)
(2. 460)
1. 196
(IO. 154)
5. 851
70. 434
(1. 672)
2
78
(675)
I. 745
7. 712
(106)
(3. 936)
(999)
1. 239
3. 910
11. 833
Cash and cash equivalents
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
End of year ............................................
32. 571
$ 9. 747
26. 720
$ 32. 571
14. 887
$ 26. 720
See accompanying notes to consolidated financial slaleinenls
1
L
I
I
t
C O K T L A N D B A N C O R P A N D S U B S I D I A R I E S
NOTES TO T H E CONSUL1 DATED FINANC‘JAJ, STATEMENTS
Ycars endcd Dccernber 31, 2003, 2002 and 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the accounts of Cortland Bancorp
(the Company) and its wholly-owned subsidiaries, Cortland Savings and Banking Company (the Bank) and
New Resources Leasing Co. All significant intercompany balances and transactions have been eliminated.
lnduslry Segment Information: The Company and its subsidiaries operate in the domestic banking industry
which accounts for substantially all of the Company’s assets, revenues and operating income. The Company,
through its subsidiary bank, grants residential, consumer, and commercial loans and offers a variety of saving
plans to customers located primarily in the Northcastcrn Ohio and Western Pennsylvania area.
Use of Estimates: The preparation of financial statements in conformity with gcncrally accepted accounting
principles requires management to make estimales and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the datc of the financial statements
and the reported amounts of revenue and expenses during the reporling period. Actual results could differ
from those estimates.
Cash Flow: Cash and cash equivalents include cash on hand, amounts due from banks and federal funds sold.
Generally, federal funds are purchased and sold for onc-day periods. The Company reports net cash flows for
customer loan transactions, deposit transactions and dcposits made with other financial institutions.
The Company paid interest of $8,083,000, $I0,061,000 and $ I3,9& 1,000 in 2003, 2002 and 200 1, respectively.
Cash paid for income taxes was $1,320,000 in 2003, $1,722,000 in 2002 and $1,695,000 in 2001. Transfers of
loans to othcr real estate were $196,000, $820,000 and $204,000 in 2003, 2002 and 2001, respectively.
Investment Securities: - Investments in debt and equity securities are classified as held to maturity, trading
or available for sale. Securities classified as held to maturity are those that management has the positive
intent and ability to hold to maturity. Securities classified as available for sale are those that could be sold
for liquidity, invcstiiicnt management, or similar reasons, even though management has no present
intentions to do so.
Securities held to maturity are staled at cost, adjusted for amortization of premiums and accretion of
discounts, with such amortimtion or accretion included in interest income. Securities available for sale are
carried at fair value with unrcalized gains and losses recorded as a separate component of shareholders’
equity, net of tax effects. RealiLcd gains or losses on dispositions are based on net proceeds and the adjusted
carrying amount of securities sold, using the specific identification method. Interest on securities is accrued
and credited to operalions bascd on the principal balance outstanding, adjusted for amortimtion of
premiums and accrelion of discounts.
Unrealized losses on corporate bonds have not been recognized into income because the issuer’s bonds are
of invcslment grade quality. Management has the intent and ability to hold these securities for the
foreseeable future. The fair value is expected to recover as the bonds approach their maturity date and/or
market conditions become more favorable to the bonds’ intrinsic value.
Trading Securities: Trading securities are principally held with lhe intention of selling in the ncar term and
are carried at markct value. Realized and unrealiied gains and losses on trading account securities are
recognized in the Statement of Income as they occur. The Company did not hold any trading securities at
Dcccmber 31, 2003 or 2002. During 2003, trading activity produced purchases of $23,680,000 and sales of
$23,945,000, resulting in a net gain of $265,000. There was no trading activity in 2002.
Loans: Loans are stated at the principal amount outstanding net of the unamortized balance of deferred
loan origination fees and costs. Deferred loan origination fees and costs are amortized as an adjustment to
the related loan yield over the contractual life using the level yield method. Interest income on loans is
accrued over the term of the loans based on the aniount of principal outstanding. The accrual of interest is
I
(Continued)
COKTLAND RANCORP A N D SUBSlDlAKlES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Ycars cnded December 31, 2003, 2002 and 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POIJCIES (Continued)
discontinued on a loan when management determines that the collection of interest is doubtful. Generally a
loan is placed on nonaccrual status once the borrower is 90 days past due on payments, or whenever
sufficicnl information is received to question the collectability of the loan or any time legal proceedings are
initiated involving a loan. Interest income accrued up to the date a loan is placed on nonaccrual i s reversed
through interest income. Cash payments received while a loan is classified as nonaccrual are recorded as a
reduction to principal or reported as interest income according to management's judgment as to the
collectibility of principal. A loan is returned to accrual status when either all of the principal and inlerest
amounts contractually due are brought current and futurc payments are, in management's judgment,
collectable, or when it otherwise becomcs well secured and in the process of collection. When a loan is
charged-ofT, any interest accrued but not collected on the loan is charged against earnings.
Loans Held for Sale: The Company originates certain residential mortgage loans lor sale in the secondary
mortgage loan market. For the majority of loan sales, the Company concurrently sells the rights to service
the related loans. In addition, thc Company may periodically identify other loans which may be sold. These
loans are classified as loans held for salc, and carried, in the aggregate, at the lower ol" cost or estimated
market value based on secondary market prices. To mitigate interest rate risk, the Company may obtain
fixed coinmitiuents to sell such loans at the time loans are originated or identified as bcing held lor sale. No
such commitments exisled as of December 31, 2003.
Allowance for Loan Losses: Because some loans may not be repaid in full, an allowance for loan losses is
recorded. Increases to the allowance consist of provisions for loan losses charged to expense and recoveries
of previously charged-ofi loans. Reductions to the allowance result from the charge-off of loans deemed
uncollcctablc by management. After a loan is charged-off', collection efforts continue and future recovcrics
may occur.
A loan is considered impaired when it appears probable that all principal and interest amounts will not be
collected according to the loan contract. Allowances for loan losses on impaired loans are determined using
the estimated futurc cash flows of the loan, discounted to their present value using the loan's eff-ective
interest rate. Allowances for loan losses for impaired loans that are collateral depcndcnt are generally
determined based on the estimated fair value of the underlying collateral. Smaller balance homogeneous
loans arc evaluated for impairment in the aggregate. Such loans include one-to-four family residential,
hoiiic equity and consumer loans. Commercial loans and commercial mortgage loans are evaluated
individually for impairment. Impaired loans are gcncrally classified as nonaccrual loans.
Estimating the risk of loss and the amount of loss on any loan is necessarily subjective. Accordingly, the
allowance is maintained by management at a level considered adequate to covcr possible losses that are
currently anticipated based on past loss experience, general economic conditions, information about specific
borrower situations, including their financial position and collateral values, and other factors and estimates
which are subject to change over time. While management may periodically allocate portions of the
allowance for specific problem loans, thc entire allowance is available for any charge-ofis that occur.
Premises and Equipment: Premises and equipment are stated a t cost less accumulated deprcciation.
Depreciation is computed generally on the straight-linc method over the estimated useful lives of the
various assels. Maintenance and repairs are expensed and major improvements are capitalized.
Other Real Estate: Real estate acquircd through foreclosure or deed-in-lieu of forcclosure is included in
other assets. Such real estate is carried at the lower of cost or fair value less estimated costs to sell. Any
reduction h m the carrying value ofthe related loan to fair value at the time of acquisition is accounted for
as a loan loss. Any subsequent reduction in fair market value is reflected as a valuation allowance through a
(Continued)
C O R T L A N D B A N C O R P A N D S U B S I D I A R I E S
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUN'I'lNG POLICIES (Continucd)
charge to income. Costs of significant property improvements are capitalized, whereas costs rclating to
holding and maintaining the property are charged to expense.
Tntangible Asset: A core deposit intangible asset resulting from a branch acquisition is being amortiLed
over a 15 year period. The intangible asset, net of accumulated amortization, was $244,000 and $281,000 at
December 31, 2003 and 2002, respectively, and is included in other assets. The aggregate amortization
expense was $37,000 at December 31,2003 and 2002. The estimated aggregate amortization expense for the
next five ycars is $37,000 pcr ycar.
Advertising: The Company expenses advertising costs as incurred.
Income Taxcs: A dcfcrrcd tax liability or assct is determined ut each balance sheet date. Tt is measured by
applying currently enacted tax laws to future amounts that result from differences in the financial statement
and tax bases o l asscls and liabilities.
Other Comprehensive Tncome: Accumulated other comprehensive income for the Company is compriscd
solely ol unrealiLed holding gains (losses) on available for sale securities, net of tax.
Per Share Amounts: The Board of Directors declared 3% common stock dividends payable as ol January 1,
2004, 2003 and 2002. The 3% conimon stock dividend issued on January 1, 2004 resulted in the issuance of
123,310 shares of common stock, which have been included in the 4,246,747 shares reported as issued at
December 3 I , 2003.
Basic and diluted earnings per share are based on weighted averagc sharcs outstanding. Average shares
outstanding and per share amounts havc been rcstatcd to givc rctroactive effect to the 3% common stock
dividend of January 1, 2004. Avcragc sharcs outstanding and per share amounts similarly reflect the impact
of the Company's stock repurchase program (see Note 17).
The following table sets forth the computation of basic earnings per common sharc and diluted earnings per
common share:
Years Ended December 3 I,
2002
2003
200 1
. . . . . . . . . . . . . . $
5,484
$
5,142
$
5,546
Net income ($000 omitted) . . . . . . . . . .
Weighted average comiiion
sharcs outstanding . . .
Basic earnings per sharc
Diluted carnings per share . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
4,089,237
1.34
$
1.34
. . $
4,147,036
1.38
$
1.38
$
4,167,318
1.33
$
1.33
$
Reclassifications: Certain items in the financial statements for 2002 and 2001 have bccn reclassified to
conforni to the 2003 presentation.
New Accounting Standards: On December 11, 2003, the SEC staff announced its intention to release a
Staff Accounting Bullctin that would require all registrants to account for mortgage loan interest rate lock
commitments related to loans held for sale as written options, eff'ectivc no latcr than lor commitrncnts
entered into after March 31, 2004. This guidance, if issued, would require the Company to recognize a
liability on its balance sheet equal to the fair value of the commitment at the time the loan commitment is
issued. As a result, this guidance would delay the recognition of any revenue related to these conimitments
until such time as the loan is sold. Howcvcr, the new accounting standard would have no effect on the
ultimate amount of revenue or the cash flows recognized over time. The adoption of this pending guidance
is not expected to have a material impact on the Company's financial position or results of operation.
(Continued)
CORTLAND BANCOKI’ A N D SUBSIDIARIES
NOTES TO THE CONSOLIDATED FTNANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
NOTE 2 - INVESTMENT SECURITIES
The following is a summary of investment securities:
(Amounts in thousands)
Amortized
cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
. .
December 31, 2003
Investment securities available for sale
U.S. Treasury sccurities . . . . . . . . . . . . . . . . . . . . . .
US. Government agcncies and corporations . . , . .
Obligations of states and political subdivisions. . .
Mortgage-backed and related securitics . . . . . . . .
Corporate securities . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt securities . . . . . . . . . . . . . . . .
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total available for sale . . . . . . . . . . . . . .
Investment securities held to maturity
U S . Trcasury securities . . . . . . . . . . . . . . . . . . . . .
U.S. Govcrnrnent agencies and corporations . . . .
Obligations of states and political subdivisions. . .
Mortgage-backed and relatcd securities . . . . . . . .
Total hcld to maturity. . . . . . . . . . . . . . .
December 31, 2002
Investment securities available for sale
U.S. Treasury securities . . . . . . . . . . . . . . . . . . .
U S . Government agencies and corporations. . . . . .
Obligations of states and political subdivisions . . . .
Mortgage-backed and related securitics . . . . . . . . . .
Total debt securities . . . . . . . . . . . . . . . . . .
Marketable equity securities . . . . . . . . . . . . . . . . . . .
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total available for sale . . . . . . . . . . . . . . .
Investment securities held to maturity
US. Government agencies and corporations. . . . . .
Obligations of states and political subdivisions . . . .
Mortgage-backcd and related securities. . . . . . . . . .
Total held to maturity . . . . . . . . . . . . . . . .
$ 4,635
31,843
19,727
52,396
10.786
119,387
3.119
$122,506
$
156
24,976
32,730
39,072
$ 96,934
$ 5,093
2S,SX5
22,032
55,261
1 07,97 1
28
3,006
$ 1 11,005
$ 22,190
31,517
30,401
$ 134,108
$ 336
621
1,062
1,174
397
3,540
$
43
16
I43
53
255
$3,590
$ 255
$
4
230
1,653
62
$1,949
$ 592
1,150
723
2,256
4,721
113
$4,834
$ 645
1,078
237
$1,960
$
62
47
323
$ 432
$
1
17
26
44
$ 44
$
x1
30
$ 1 1 1
$ 4,971
32,421
20,773
53,427
11.130
122,722
3,l I9
$ I25,84 I
$
160
25, I44
34,336
38.811
$ 98,451
$ 5,685
26,734
22,738
57,491
1 12,648
141
3,006
$1 15,795
$ 22,835
323 14
30.608
$ 85,957
At December 3 I , 2003 and 2002, other securities consisted of $2,893,000 and $2,780,000 in Federal Home
Loan Bank (FHLB) stock, respectivcly, and $226,000 in Federal Reserve Board (FED) stock. Each
investment is carried at cost, and the Company is required to hold such invcstmcnts as a condition of
rnembcrship in order to transact business with the FHLB and the FED.
(Continued)
CORTLAND BANCORP AND SUBSIDIAKIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Ycars ended December 31, 2003, 2002 and 2001
NOTE 2 - INVESTMENT SEClJ RlTIES (Continued)
The amortiLed cost and estimated market value of debt securities at December 31, 2003, by contractual
maturity, are shown below. Actual maturities will differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment penalties.
(Amounts in thousands)
December 31. 2003
Amortized
cost
Estimated
Pair Value
Tnvestment securities available for sale
Due in one year or less., . . . . . . . . . . . . . . . . . . . . . . . .
Due d t e r one year through tive years. . . . . . . . . . . . . .
Due after five years through ten years . . . . . . . . . . . . .
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities held to maturity
Due in one year or less.. . . . . . . . . . . . . . . . . . . . . . . . .
Due after one year through five years.. . . . . . . . . . . . .
Due after fivc years through ten years . . . . . . . . . . . . .
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sub t o t a1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,506
7,605
23,936
33.944
66,99 I
52,396
$1 19,387
$ 2,088
197
12,081
43,496
57,862
39,072
$ 96,934
$ 1,514
8,103
24,525
35,153
69,295
53,427
$122,722
$ 2,093
21 0
12,230
45,107
59,640
38,811
$ 911,451
The following table sets forth the proceeds, gains and losses realized on securities sold or called for each of
the years ended December 31:
(Amounts in thousands)
2003
2002
200 1
Proceeds.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross realized gains
Gross realized losscs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,115
948
2
$17,085
329
114
$23,919
54 I
155
Investment securities with a carrying value of approximately $43,909,000 at December 3 1, 2003 and
$38,126,000 at December 3 1, 2002 were pledged to securc deposits and for other purposes.
(Continued)
Years cnded Deceinbcr 31, 2003, 2002 and 2001
NOTE 2 - INVESTMENT SECURITIES (Continued)
The following is a summary of the fair value of securities with unrealiled losses and an aging of those
unrealiLed losses at December 31, 2003:
(Amounts in thousands)
Less than 12 Months
IJnrealized
T.osscs
Fair
Value
12 Months or More
Unrealized
Fair
Losses
Value
Total
Fair
Value
Unrealized
Losses
U.S. Government agencies
and corporations . . . . . . . . . $ 9,221
$1 05
$
Obligations of states and
political subdivisions . . . . . .
. .
Mortgage-backed and related
securities . . . . . . . . . . . . . . . .
Corporate securities. . . . . . . . .
3,498
48
42,036
2,528
$57,283
452
53
~
$658
~
~
$
15
14
1,713
2,208
$3,921
$29 - -
$ 9,221
$105
5,211
63
44,244
2,528
466
53
-
$687
$6 1,204 - -
The abovc table represents 66 investment securities where the current value is less than the related
amortized cost. The unrealiLed losses do not reflect any deterioration of the credit worthiness of the issuing
cntities. No security has a current rating that is below investment grade, and 61 of the securities are rated
“AAA”. Thc lowest rated security is rated A-. Thc unrealized losses on these sccurities are a result of
changes in interest rates Lor fixed-rate securities where the interest rate received is less than the current rate
available for new offerings of similar securities, changcs in market spreads as a result of shifts in supply and
demand, and changes in the level of prepayment activity for mortgage related sccurities.
NOTE 3 - LOANS RECEIVABLE
The following is a suinmary of loans:
(Amounts in thousands)
1-4 family rcsidential mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conimercial loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity loans.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1-4 family residential mortgage loans held for sale . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2003
2002
$ 57,854
92,822
7,231
21,711
9,541
103
$189,262
$ 62,365
86,929
9,792
22,o I 6
8,353
2,022
$191,477
(Continued)
COKTLAND BANCORP AND SUBSlDIARlES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
NOTE 4 - ALLOWANCE POR LOAN LOSSES
The following is an analysis of changes in the allowance lor loan losses for the year ended:
(Amounts in thousands)
December 3 1.
2002
2003
Balance at beginning o l year. . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loan charge-ofb . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision charged to operations. . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of y e a r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
!$ 3,134
(1,120)
154
(966)
240
$ 2,408
$2,9138
(441 1
117
(324)
460
$3,134
200 I
$2,974
(275)
79
(196)
220
$2,998
Loans on which the accrual of intcrest has been discontinued because circumstances indicate that collection
is questionable amounted to $2,067,000, $1,406,000 and $829,000 at December 31, 2003, 2002 and 2001,
respectively. Interest income on these loans, if accrued, would have increased pretax income by approxi-
mately $135,000, $69,000 and $52,000 for 2003, 2002 and 2001, respectively.
Impaired loans are generally included in nonaccruul loans. Management does not individually evaluate
certain smaller balance loans for impairment as such loans are evaluated on an aggrcgatc basis. These loans
generally include I -4 family, consumer and home equity loans. Impaired loans are generally evaluated using
the fair value of collateral as the measurement method. At December 31, 2002 and 2001, there were no
loans considered impaired. At December 3 I , 2003, thc recorded investment in impaircd loans was $87 1,000
while the allocated portion of the allowance for loan losses for such loans was $177,000. Interest income
recognized on impaired loans using the cash basis was $42,000 for 2003.
The remaining principal balance of renegotiated loans for which intercst has been reduced and that arc still
accruing intercst totaled $26,000 and $134,000 at December 31, 2002 and 2001, respectively, and none at
Tlecember 31, 2003. Interest income rccognized on these loans wits $18,000 for 2002 and $22,000 for 2001.
Interest income that would have been recognized under the original terms was $23,000 for 2002 and
$27,000 for 2001.
As of December 31, 2003, 2002 and 2001, there were $2,1 13,000, $2,058,000 and $1,504,000 in loans that
were neither classified as nonaccrual nor considered impaired, but which can be considered potential
problem loans.
Any loans classified lor regulatory purposes as loss, doubtful, substandard, or special mention that have not
been disclosed above do not (i) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity, or capital rcsources, or
(ii) represent inaterial credits about which management is aware of any information which causes
management to have serious doubts as to the ability of such borrowers to comply with the loan repayment
terms.
(Continued)
CORTLAND BANCORP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended Dcccmber 31, 2003, 2002 and 2001
NOTE 5 - PREMISES AND EQUIPMENT
The following is a summary of premises and equipment:
(Amounts in thousands)
December 3 1,
2003
2002
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . .
$ 692
5,527
9,161
279
15,659
Less accumulated depreciation . . . . . . . . . . . . . . . . . 10,787
$ 4,872
Net book v a l u e . . ....................
$
6 9 2
5,5 I8
8,838
279
15,327
10,050
$ 5,277
Depreciation expense was $737,000 for 2003, $858,000 for 2002 and $934,000 for 2001
NOTE 6 - DEPOSITS
The following is a summary of interest-bearing deposits:
(Amounts in ihousands)
December 3 1.
2003
2002
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 29,153
17,376
89,830
$ 31,816
23,7 I5
87,676
Timc:
In denominations under $100,000. . . . . . . . . . . . .
In denominations of $100,000 or more . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
114,485
29,080
$279,924
11 1,113
25,693
$280,0 I 3
The Mowing is a summary of timc deposiis of $100,000 or more by remaining maturities:
(Amounts in thousands)
December 31,
2003
2002
Certificates Other Time
of Deposit
Thrcc nionths or less . . . . . . . . . . . $ 3,936
4,999
Three to six months . . . . . . . . . . . .
Six to twelve months . . . . . . . . . . .
4,020
Onc through five years . . . . . . . . . .
8,631
Over five years.. . . . . . . . . . . . . . . .
1,132
$22,718
To tal . . . . . . . . . . . . . . . . .
Deposits
$ 409
4,204
$6,3h2
1,749
(Continued)
Certificates Other Time
of Deposit
Deposits
3,469
$ 6,233
$ 540
500
Total
$ 4,345
4,999
4,020
10,380
5,336
3,097
742
$5,860
$29,080
$19,833
~~ -~
3,213
6,176
1,601
122
~~
Total
$ 6,713
3,969
3,335
7,777
3,839
$25,693
CORTLAND BANCORP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FlNANCTAL STATEMENTS
Years ended Decernbcr 3 I , 2003, 2002 and 2001
NOTE 7 - FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWlNGS
The following is a summary of total Federal Home Loan Bank advances and other borrowings:
(Amounts in thousands)
Federal Home Loan Bank advances
Variable rate LIBOR based Fedcral Home Loan Bank advanccs,
with monthly interest payments:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
fixed ratc Federal Home Loan Bank
advances, with monthly intcrcst payinenls:
Due in 2003 . . . . . . . . . . .
Due in 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . .
Due in 2009 .
. . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .
Due in 2011 . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . .
Total Federal Home Loan Bank advances . . . . . . . . . . . . . . .
Other borrowings
Securities sold under repurchase agreements . . . . . . . . . . . . . . . . . . .
U S . Trcasury interest-bearing demand note.
Fedcral Funds Purchased
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .
Total other borrowings. . . . .
Total Federal Home Loan
other borrowings. . . . . . . . . .
Weighted
Average
Interest
Rate
December 3 I.
2003
2002
1.310%
!$ 5,000
$
6*3700%
5.6340%
5.1600%
5.9293%
4.9553%
4.9957%
0.7978%
0.7280%
1.1875%
0.8865%
1,000
5,000
10,000
13,500
9,500
44,000
2,243
643
1,000
3,886
4,000
1,000
5,000
10,000
13,500
9,500
43,000
1,680
1,9x9
3,669
4.6622%
9; 4 7,s 8 6
$46,669
Securities sold under repurchase agreements rcpresent arrangements that the Hank has entered into with
ccrtain deposit customers within its local market areas. These borrowings are collateralized with securitics.
There are $6.S million in securities, allocated for this purpose, owned by the Bank and held in safekeeping
accounts at independent correspondent banks.
Fedcral Home Loan Bank (FHLB) advances are collateralized by the FHLB stock owned by the Bank,
which had a carrying value of $2,893,000 at December 31, 2003, and a blanket lien against the Bank’s
qualified mortgage loan portfolio and $10,836,000 in collateralized mortgage obligations. Maximum
borrowing capacity from the FHLB totaled $SO,I80,000 at Deccrnber 31, 2003.
As of both December 3 I , 2003 and 2002, $38,000,000 of the FHLB fixed rate advanccs are convertible to
quarterly LIBOR floating rate advances on or after certain specified dales at the option of the FHLB.
Should the FHLB clect to convert, the Company acquires the right to prepay any ox all of the borrowing at
the time of conversion and on any interest payrncnt due date, thereafter, without penalty.
I
NOTE 8 - COMMITMENTS
The Bank occupies ollice facilities under operating leases extending to 2008. Most of these leases contain an
option to renew at the then faair rental value for periods of five and ten years. These options enable the Bank
to retain use of facilities in desirable operating areas. I n most cases, management expccls that in the normal
course of business, leases will be renewed or replaced by other leases. Rental expense was $286,000 for
(Continued)
t
C O R T L A N D BANCORP A N D SUBSlDlARIES
N O T E S TO T H E CONSOLIDATED F I N A N C I A L STATEMENTS
Ycars ended December 3 1 , 2003, 2002 and 2001
NOTE 8 - COMMITMENTS (Continued)
2003, $295,000 for 2002 and $251,000 for 2001. The following is a summary of remaining future minimum
lease payments under current noncancelable operating leases for office facilities:
(Amounts in thousands)
Years ending:
December 3 I ,
2004. . . . . . . . . . . . . . . . . . $191
December 31, 2005.. . . . . . . . . . . . . . . . . 191
December 31, 2006.. . . . . . . . . . . . . . . . . 187
December 31, 2007.. . . . . . . . . . . . . . . . . 82
27
December 31, 2008. . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$678
-
~
At December 31, 2003, thc Bank was rcquircd lo maintain aggregate cash reserves amounting to $5,006,000
in order to satisfy fcdcral rcgulatory requirements. These amounts do not earn interest.
The Bank grants commercial and industrial loans, commercial and residential mortgages, and consumer
loans to customers in Northeast Ohio and Western Pennsylvania. Although the Bank has a diversified
portfolio, exposure to credit loss can be advcrscly impacted by downturns in local economic and
employment conditions. Approximately 2.60% of total loans are unsecured at December 3 1, 2003,
compared to 3.10% at December 31, 2002.
The Company currently does not enter into derivative financial instruments including futures, forwards,
interest rate risk swaps, option contracts, or other financial instruments with similar characteristics. The
Company also does not participate in any partnerships or other special purpose entities that might give rise
to off-balance shcct liabilities.
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to
meet thc financing nccds of' its cuslomers. These financial instruments include commitments to extend
credit, standby letters of credit and financial guarantees. Such instruments involve, to varying degrees
elements of credit risk in excess of the amount recognized on the balance sheet. The Bank's exposure to
credit loss in the event of nonperformance by the other party to these financial instruments is rcprcscnted by
the contractual amount of the instruments. The Bank uses the same credit policies in making commitments
and conditional obligations as i t does for instruments recorded on the balance sheet. The amount and nature
of collateral obtained, if any, is based on management's credit evaluation.
(Continued)
CORTLAND BANCORP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Ycars cndcd Dcccmbcr 31, 2003, 2002 and 2001
NOTE 8 - COMMITMENTS (Continued j
The following i s a summary of such contractual commitments:
(Amounts in thousands)
December 3 1.
2003
2002
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit
Fixed rate ............................
Variable rate . . . . . . . . . . . . . . . . . . . . . . . . . .
Standby letters of credit . . . . . . . . . . . . . . . . . .
$
96
29,411
761
859
$
36,890
615
Commitments to extend credit are agreements to lend lo a customer as long as there is no violation of any
condition established in the contract. Coininilments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Standby letters of credit arc conditional commit-
ments issued by the Bank to guarantee the performance of a customer to ;I third party. Since many of the
commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management’s credit evaluation of the countcrparty. Collateral held varies but may
include accounts receivable, inventory, property, plant and equipmcnt and income-producing commercial
properties.
NOTE 9 - BENEFIT PLANS
The Bank has a contributory defined contribution retirement plan (a 401 (k) plan) which covers
substantially all employees. Total expense undcr the plan was $21 1,000 for 2003, $219,000 for 2002 and
$205,000 for 2001. The Bank matches participants’ voluntary contributions up to 5% of gross pay.
Participants may make voluntary contributions to the plan up to a maximum of 15% of gross wages or
$12,000, whichever is less. The Bank makes monthly contributions to this plan equal to amounts accrued for
plan expense.
The Bank and Bancorp provide supplemental retirement benefit plans for the benefit of certain officers and
non officer directors. The plan for ollicers is designed to provide post-retirement benefits to supplement
other sources of retirement income such as social security and 401 (k) benefits. The bcncfits will be paid for
a period of 15 years after retirement. The amount of each officer’s benefit is determined by their salary at
retirement as well as their other sources of retirement income. Director Relirement Agreements provide lor
a benefit of $10,000 annually on or after the director reaches normal retirement age, which is based on a
combination of age and years of service. Director retirement benefits are paid over a period of 10 years
following retirement. The Bank and Bancorp accrue the cost of these post-retirement bcnefits during the
working careers of the olliccrs and directors. At Dcccmber 31, 2003, thc cumulative cxpense accrued for
these benefits totaled $677,000, with $487,000 accrued for the officers’ plan and $190,000 for the directors’
plan.
The Bank has purchased insurance contracts on the lives of the participants in the supplcmcntal retirement
benefit plan and has named the Bank as the beneficiary. Similarly, the Bancorp has purchased insurance
(Conlinued)
COKTLAND BANCORP AND SUBSIDIARIES
NOTES TO T H E CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
NOTE 9 - BENEFIT PLANS (Continued)
contracts on the lives of‘ the directors with the Bancorp as beneficiary. Whilc no direct linkagc exists
between ihc supplemental retirement bencfit plan and thc life insurance contracts, it is management’s
current intent that the rcvenue from thc insurance contracts be used as a f‘unding source for the plan. At
Deccinber 3 I , 2003, the cumulative income accrued on these contracls totaled $936,000 on a tax equivalent
basis, with $6 13,000 accrued on the officers’ contracts and $323,000 on the directors’ contracts.
NOTE 10 - FEDERAL INCOME TAXES
The composition of income tax cxpense is as follows:
(Amounts in thousands)
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deleerred
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended
December 31.
2002
2001
$1,730
(151)
$1,579
$1,730
(2)
$1,728
2003
$1,236
135
$1,371
The following is a summary of net deferred taxes included in other liabilities:
(Amounts in thousands)
December 31,
2002
2003
200 I
Gross deferred tax assets:
Provision for loan and other real estate losscs. . .
Other items
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
!$
495
386
$
742
240
$ 696
121
Gross defcrred tax liabilities:
Unrealiied gain on available lor sale securilics..
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan origination cost - net
Other itcms
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferrcd tax liability.. . . . . . . . . . . . . !$
. . . . . . . . . . . . . . . . . .
(1,135)
(343)
(2)
(389)
(988)
(1,631)
(339)
6
(367)
(945)
(355)
(3
(328)
$(1,349)
$ (814)
(Continucd)
CORTLAND BANCORP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended Deccmher 31, 2003, 2002 and 2001
NOTE 10 - I4EDERAL INCOME TAXKS (Continued)
The following is a reconciliation between tax expense using the statutory tax rate of34% and the income tax
provision:
(Amounts in thousands)
Years Ended
December 31,
2002
2003
Statutory t a x . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EiTcct of non-taxable interest and dividends . . . . . .
$2,331
(960)
Total incomc taxes., . . . . . . . . . . . . . . . . . $1,371
$2,489
(910)
$1,579
200 I
$2,473
(745)
$1,728
The related income tax expense on investment securities gains and losses amounted to $321,000 for 2003,
$73,000 for 2002 and $131,000 for 2001, and is included in the total federal income tax provision.
NOTE: 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of the Company’s financial instruments are as lollows:
(Amounts in thousands)
December 31, 2003
December 3 I , 2002
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estirnatcd
Fair Value
ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $ 9,747
Federal Funds sold . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Investment securities
Loans, net of allowance for loan losses . . . . . . . .
LIABILITIES:
Demand and savings dcposits
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . .
$193,991
143,565
44,000
3,886
. . . . . . . . . . . . . . . .
222,775
186,854
$ 9,747
224,292
186,869
$193,991
145,407
44,632
3,886
$ 12,571
20,000
199,903
188,343
$198,952
136,806
43,000
3,669
$ 12,571
20,000
201,752
188,304
$198,952
139,158
44,128
3,669
For purposes of thc above disclosures of estimated fair value, the following assumptions were used as or
December 31, 2003 and 2002. The estimated fair value for cash and cash equivalents is considered to
approximate cost. l h e estimated fair value for securities is based on quoted market values for individual
sccurities or for equivalent sccurities when specific quoted prices arc not available. Carrying value is
considered to approximate fair value for loans, FHLB advances and other borrowings that reprice frequently
and for deposit liabilities subject to immediate withdrawal. The fair values of loans, FHLB advances and
other borrowings and time dcposits that reprice less frequently are approximated by a discount rate
valuation technique utilizing estimated market interest rates as of December 3 I , 2003 and 2002. The fair
value of unrecordcd commitments ut December 31, 2003 and 2002, is not material.
(Continued)
-
CORTLAND BANCORP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
NOTE 11 - FATR VALUE OF FTNANCIAL INSTRUMENTS (Continued)
In addition, other asscts and liabilities of the Company that are not defined as financial instruments are not
included in the above disclosures, such as property and equipment. Also, non-financial instruments typically
not recogniLed in financial statements nevertheless may have value but are not included in the above
disclosures. These include, among other items, the estimated carning power of core deposit accounts, the
trained work force, customer goodwill and similar items. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
NOTE 12 - REGULATORY MATTERS
The Company is subject to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital rcquirements can initiate certain actions by regulators that, if
undertaken, could have a direct material effect on the Company’s financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain
off-balance shcet items as calculated under regulatory accounting practices. The Company’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 Company to
maintain: ( I ) a iiiinimum ratio of4% both for total Tier I risk-based capital to risk-weighted asscts and for
Tier I risk-based capital to average assets, and (2) a minimum ratio of 8% for total risk-based capital to
risk-weighted assets.
Under the regulatory framework for prompt corrective action, the Coiiipany is categoriLed as well
capitalized, which rcquires minimum capital ratios of 10% for total risk-based capital to risk-weighted
assets, 6% for Tier I risk-based capital to risk-weightcd assets, and 5% for Tier T risk-based capital to
average assets (also known as the leverage ratio). Thcre are no conditions or events since the most recent
communication from regulators that inanagcment believes would change the Company’s category.
(Amounts in thousands)
December 31,
2003
Amount
Ratio
December 31,
2002
Katio
Amount
-~
$5 1,415
Total Risk-Based Capital. . . . . . . . . . . . . .
Ratio to Risk-Weighted Assets. . . . . . .
Tier T Risk-Based Capital . . . . . . . . . . . . .
Ratio to Risk-Weighted Assets. . . . . . .
Ratio to Average Assets . . . . . . . . . . . .
$49,841
$47,433
21.57%
20.53%
10.94%
$48,593
23.23%
21.95%
11.12%
Tier I capital is shareholders’ equity less intangibles and the unrealized market value adjustment of
investment securities available for sale. Total risk-based capital is Tier I capital plus the qualifying portion
of the allowance for loan losses. Assets and certain off balance shcct items ad-justed in accordance with risk
classification comprise risk-weighted assets of $23 1,034,000 and $221,332,000 as of Deccmber 3 1 , 2003 and
2002, respectively. Assets less intangibles and the net unrealized market value adjustment of investment
(Continued)
CORTLAND BANCORP AND SUBSIDIARTES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years cnded December 31, 2003, 2002 and 2001
NOTE 12 - REGIJLATORY MATTERS (Continued)
securities available for sale averaged $433,513,000 and $437,149,000 for the years ended December 31,
2003 and 2002, respectively.
NOTE, 13 - RELATED PARlY TRANSACTTONS
Certain directors, executive officers and companies with which thcy are afiliated were loan customers
during 2003. The following is an analysis of such loans:
(Amounts in thousands)
Total loans at December 31, 2002 . . . . . . . . . . . . . . . . . . . . .
New loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kepayments or other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,497
193
393
Total loans at December 3 I , 2003 . . . . . . . . . . . . . $1,297
NOTE 14 - CONDENSED FINANCTAL INFORMATION
Below is condensed financial information of Cortland Bancorp (parent company only). Tn this information,
the prcnt’s investment in subsidiaries is stated at cost, including equity in the undistributed earnings of the
subsidiaries since inception, adjusted for any unrealired gains or losses on available for sale securities.
BALANCE SHEETS
(Amounts in thousands)
Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tnvestment securities available for sale . . . . . . . .
Investment securities held to maturity . . . . . . . . .
Investment in bank subsidiary. . . . . . . . . . . . . . . .
Investment in non-bank subsidiary . . . . . . . . . . . .
Other assets.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 3 I .
2003
2002
$ 2,169
3,218
43,125
15
1,668
$50,195
$ 5,235
1,307
1,305
42,770
15
1,597
$52,229
Liabilities:
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 314
$
190
Shareholders’ equity:
Common stock (Notc 1 ) . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital (Note 1 ) . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income.. . . .
Treasury stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity. . . . . . . . . . . . .
2 1,234
16,469
15,401
2,203
(5,426)
49,881
$50,195
20,6 17
13,323
17,8 I0
3, I65
(2,876)
52,039
$52,229
(Continued)
CORTLAND BANCORP AND SUBSIDIARIES
NOTES TO THE CONSOLlDATED FlNANClAL STATEMENTS
Years cnded December 31, 2003, 2002 and 2001
NOTE 14 - CONDENSED JWANClAL INFORMATION (Continued)
STATEMENTS OF INCOME
(Amounts in thousands)
Dividends from bank subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tnterest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tnvestrnent securilies gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tncome before income lax and equity in
Undistributed net income of subsidiaries . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in undistributed net income o l subsidiaries . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years ended Decembcr 31,
200 I
2002
2003
$ 4,400
$ 7,000
$ 4,000
185
202
180
33
21
192
77
87
76
(176)
(149)
(184)
4,265
(63)
1,282
$ 5,484
4,550
(24)
1,216
$ 5,742
7,129
(13)
(1,570)
$ 5,546
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Years ended December 31,
2002
2003
200 1
Cash flows from operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash flows horn
$ 5,484
$ 5,742
$ 5,546
operating activities:
Equity in undistributed net income of subsidiaries . . . . . . . . . . . .
Investment securities gains
. .
Accretion on sccurities
Deferred tax benefit
Change in other assets and liabilities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Net cash flows lrom operating activities . . . . . . . . . . . . . . . .
Cash flows from investing activities
Purchases of investment securilies availablc for sale . . . . . . . . . . . .
Purchases of investment securities held to maturity . . . . . . . . . . . . .
Proceeds from sales of securities available for sale. . . . . . . . . . . . . .
Proceeds from call, maturity and principal payments
on securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash flows from investing activities.. . . . . . . . . . . . . . . .
Cash flows from financing activities
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net treasury shares (repurchased) reissued ....................
Net cash flows lrom financing activities.. . . . . . . . . . . . . . . .
Net change in c a s h . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash
.
.
Reginning o l year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
E n d o f y e a r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,282)
(192)
31
(24)
95
4,112
(3,007)
1,204
1,305
(498)
(4,360)
(2,320)
(6,680)
(3,066)
(1,216)
(21 1
8
(23)
(3)
4,487
~
(250)
(2,042)
1,570
(33)
3
(17)
36
7,105
(356)
1,550
(742)
3,767
3,41 I
(4,294)
( 1,264)
(5,558)
(1,813)
(3,936)
240
(3,696)
6,820
5,235
!fi 2,169
7,048
$ 5,235
228
$ 7,048
(Continued)
CORTLAND BANCORP AND SUBSIDTARIES
NOTES TO THE CONSOLIDATED FTNANCIAL STATEMENTS
Ycars ended December 31, 2003, 2002 and 2001
NOTE 15 - DlVInEND RESTRICTIONS
The Bank i s subject to regulations of the Ohio Division of Ranks which restrict dividends to retained
earnings (as defined by statute) of the currcnt and prior two years. Under this restriction, at Dcceinber 31,
2003, approximately $928,000 is available for the payment of dividends by the Bank without seeking prior
regulatory approval. In addition, dividend payments may not reduce capital levels below minimuni
regulatory guidelines.
NOTE 16 - LITIGATION
Since 1993 the Company’s subsidiary bank has been a defendant in a class action lawsuit, Frunk Slentz. et
al. v. Cnrtlund Swings and Banking Company, involving purchased interests in two campgrounds.
On September 30, 2002 the registrant received notice that The Court of Common Pleas in Trumbull
County, Ohio had ordered the dismissal of all Plaintiff’s’ claims in Slcntz, et ul (Plaintifly) versus Cortland
Savings and Banking Company (Defendunt), and a related case, McDonugh, et a1 (PlaintiJs) versus
C’orthnd Savings and Bunking Cnnipany (Drfkndant), and granted registrani’s subsidiary bank, Cortland
Savings and Banking Company, Summary Judgment on all counts of Plaintiffs’ Complaint in both cases.
These two class action cases originaled in 1993 with filings in the Northern District of Ohio Eastern
Division of the Federal Court system. In addition to their alleged Federal claims, Plaintifis had alleged
State law claims which were included as pendent causes of action. On October 20, 1997 the federal judge
presiding over these cases filed a judgment cntry dismissing all federal claims against the registrant’s
subsidiary bank without prejudice. The judgment of the district court was appealed by Plaintiffs. On
March 2, 1999 the United States Court of Appeals for the Sixth Circuit affirmed the decision of the district
court to grant suinniary judgment in hvor of the defendant bank and dismissing all of Plaintiffs’ Federal
Claims. While awaiting the ruling of the Sixth Circuit Court of Appeals, the Plaintiffs asserted lheir alleged
Stale law claims by filing suit in the Common Pleas Court of Trumbull County seeking damages of
approximately $4.3 million.
Plainliffs appealed the judgment rendered by the Common Pleas Court of Trumbull County. Thc Company
and Plaintiffs filed all pcrmilted briefs with the 11th District Court of Appeals and oral arguments were
made before the Court of Appeals on October 20, 2003. On March 4, 2004, the Company received notice
that the 1 I th District Court of Appeals had upheld the decision of the Court of Common Pleas in Trumbull
Counly, Ohio, in fwor of the registrant and its subsidiary bank. Plaintiffs have the right to appeal lhe I 1 th
District Court’s decision to the Ohio Supreme Court. While it is not feasible to predict the ultimate
resolution of this mailer, an outcome unhvorable to the Company’s bank subsidiary could have a material
effect on the Company’s quarterly and annual operating results for that period in which such a judgment
might be rendered. It remains the Company’s intent to vigorously defend these actions.
The Bank is also involved in other legal actions arising in the ordinary course of business. In the opinion of
management, the outcome of thesc matters i s not expected to have material effect on thc Company,
NOTE 17 - STOCK REPURCHASE PROGRAM
On January 23,2001, the Company’s Board of Directors approved a Stock Repurchase Program (the “2001
Program”), which allowed the Company to repurchase up to 187,000 shares (or approximately 4.9% of the
3,815, I25 shares outstanding as of January 3 I , 2001 ) of the Company’s outstanding common stock. The
Program expired on February 6, 2002. On January 22, 2002 the Company’s Board of Directors approved a
new Program (the “2002 Program”), which allowed the Company to repurchase up to 193,000 shares (or
approximately 4.9% o l lhe 3,943,151 shares outstanding as of January 31, 2002) of the Company’s
outstanding common stock. This program expired on February 6, 2003. On January 28, 2003, thc
(Continued)
CORTLAND BANCORP ANT) SURSTDTARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended Decembcr 31, 2003, 2002 and 2001
NOTE 17 - STOCK REPURCHASE PROGRAM (Continued)
Company’s Board of Directors once again approved a new program (the “2003 Program”) which allows the
Company to repurchase up to 196,000 shares (or approximately 4.9% of the 3,998,191 shares outstanding as
of January 28,2003) of the Company’s outstanding common stock. This program will expire on February 6,
2004. Repurchased shares arc designated as treasury shares, available for general corporate purposes,
including possible use in connection with thc Company’s dividend reinvestment program, employee benefit
plans, acquisitions or other distributions.
Repurchase amounts are effected through open market transactions or in privately negotiated agreements in
accordance with applicable regulations of the Securities and Exchange Commission. Under the 2001
program based on the value of the Company’s stock on January 31, 2001, the commitment to repurchase
the stock ovcr thc next year was approximately $3,179,000. The Company repurchased 51,321 shares under
the 2001 Program.
Under thc 2002 Program, based on the value of the Company’s stock on January 31,2002, the commitment
to repurchase the stock over the next year was $4,053,000. The Company repurchased 19,745 shares
between January 1 and February 6, 2003, bringing the total repurchased shares to 114,073 under thc 2002
Program. The Company also reissued 20,592 shares to existing shareholders through its dividend rcinvest-
ment program in January 2003, bringing the total number of shares reissued during the 2002 Program to
52,647.
Under the 2003 Program, based on the value of the Company’s stock on January 28,2003, the commitment
to rcpurchasc the stock over the next twelve months was $5,037,000. As of December 31, 2003, the
Company has repurchased 103,264 shares under the 2003 Program. The Company also reissued 27,121
shares to existing shareholders through its dividend reinvestment program. The 3% common stock dividend
paid January I , 2004 increased treasury shares by an additional 5,998 shares. Based on the price of the
Company’s stock at December 31, 2003, the remaining commitment to repurchase the stock was
approximately $2,089,000.
THREE YEAK SUMMARY
AVERAGE BALANCE SHEET, YIELDS AND RATES
The following schedules show average balances of interest-earning and non interest-earning assets and liabilities, and
Shareholdcrs' equity for the years indicated. Also shown are the related amounts or interest earned or paid and the related
avcrage yields or interest rates paid for the years indicatcd. The averages arc based on daily balances.
(Fully taxahlc equivalent basis in thousitnds of dollars)
Interest-earning assets:
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Othcr Cash Mnnagenient Funds . . . . . . .
Investment securities:
. . . . . .
U.S. Treasury and other U.S.
eminent agencies and corporatio
overnrnent morlgage-hacked
through certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
of the U.S. and polilical
. . . . . . . . . . . . . . . . . . . . . . . . . . .
subdivisions (Nolc I , 2, 3 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other sccurities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL INVESTMENT SEC?URITJES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .
. . . . . . . . . . . .
Loans (Note 2, 3, 4 ) .
Truding Account Securities . . . . . . .
'TOTAL IN'lXREST-EARNING ASS
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
2003
Interest
Earned
Outstanding or Paid
Average
Balance
Yield
vr
Ratc
$ 10,201
137
$
117
1
1.1%
0.7%
52,587
2,640
5.0%
89,652
4,009
4.5%
7.1%
51,363
3,649
5.1%
10,997
559
~-
5.3%
204,599
10,857
6.9%
191,392
13.141
5.7%
1,190
68
- -
5.9%
407,519
$24,184
Non interest-earning assets:
Cash and due froin bat
Preiniscs and equiprnet
. . . . . .
Othcr .
TOTAL, ASSETS . . . . .
Interest-hearing liabilities:
Deposits:
. . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
10.140
Si119
13,461
$436,239
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .
. . . . . .
. . . . . . . . . . . . . . . . . .
0.5%
$ 50,714
88,953
0.6%
- -
3.6%
139,568
2.1%
279,235
- -
$ 249
540
5,030
5,819
57
1,999
3,671
39,178
44,905
324,140
1
17
160
2,135
2,313
$ 8,132
1.8%
0.9%
4.4%
5.4%
5.2%
2.5%
~-
. . . . .
TOTAL INTEREST-BEARING DEPOSITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings:
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agrccrnent to r
Other borrowings under one year. . .
. .
Other borrowings over one year..
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
TOTAL BORROWINGS.
TOTAL INTEREST-BEARING LIABTI~ITIES . . . . .
Non interest-hearing liabilities:
. . . . . . . . . . . . . . . . . . .
TOTAL J6AB1LI'l'IF.S AND SHAREHOLDERS EQ
Net interest income . . . .
Net interest rate sprcad (Note 5 )
Net interest margin (Notc 6)
. . . . . .
. . . .
. . . . . . .
. . . . . .
. . . . . .
55,898
4,394
51,807
. . . . . . . . . . . . . . . $436,239
. . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$16,052
. . . . . .
. . . . . .
. . . . . . . . . . . . . . . . . .
. . . . .
. . . . . .
3.4%
- -
3.9%
- -
Notc 1 - Includcs both laxable nnd Lax exempt securities.
Notc 2 - The amounts are presented on 3 fully taxablc equivalent basis using the statutory tax rale of 34% in 2003, 2002 and 2001,
and have been iidjusted to reflect the elrect of disnllowcd interest expense related to carrying tax exempt assets. Tax-free
income l'rom states of thc LIS. and political subdivisions, and loans atnounled to $2,466 and $214 Ior 2003, $2,480 and $178
for 2002 and $2,026 and $1 32 lor 2001, respectively.
Notc 3 - Average halance outstanding includes the uvcrage ainount outstanding of all nonaccrual investment seourities and loans.
States and political subdivisions consist of' average total principal adjusled for amortization of premium and accretion or
discount less average allowance for estiinLited losses, and include both taxahle and tax exempt securities. Loans consist of
average total louns less averugc unearned income.
I
(Fully taxable equivalent hasis in thousands of dollars)
Avcrage
Balance
Outstanding
2002
Intcrest
Earned
vr Paid
$ 14,184
115
$
226
2
Yicld
or
-
Kale
I .6%
I ,770
200 1
Interest
Earned
Outslanding or Paid
Avcrage
Balance
$ 10,907
44
$
368
2
Yicld
or
-
IIale
3.4%
4.5%
5 I ,630
3,272
6.3%
91,536
5,322
5.8'70
5 1,052
3,461
197,679
201,106
3,647
168
12,409
15,518
7.1%
4.9'70
6.3%
1.7%
413,084
$28,155
6.8%
10,172
5,614
10,860
$439,730
.% 55,586
85,712
142,199
283,497
$
557
1,050
5,927
7,534
2,222
2,393
42,903
47,518
331,015
30
I52
2,288
2,470
$10,004
1.08
I .2%
4.2%
2.7%
1.4%
6.4%
5.3'70
5.2'70
3.0%
53,295
3,623
5 1,197
$439,730
54,468
3,733
6.9%
89,254
5,708
6.4%
41,779
4,171
189,672
208,614
2,942
267
12,650
17,749
7.0%
6.4%
6.7%
8.5%
409,237
$30,769
7.5%
9,643
5,962
9,988
$434,830
$ 52,252
78,915
150,807
28 1.974
71
3,688
1,441
44,446
49,646
33 1,620
49,475
3,735
50,000
$434,830
$ 1,071
1,684
8,421
11,176
4
138
70
2,435
2,647
$13,823
2.0'70
2.1%
5.6%
4.0%
5.6%
3.7%
4.9%
5.58
5.38
4.2'70
$18,151
$16,946
3.8%
__ -
4.4%
- -
3.3'70
- -
- I_
4,1%
Note 4 - Interest eurncd on loans includes nel loan fees ol' $241 i n 2003, $277 in 2002 and $180 in 2001.
Note 5 - Net interest rate spread represents thc diwerencc between the yield on earning assets and the rutc paid on intcrest hearing
1: b' ' '
5
Years
$ 53,127
14,432
67,559
26,355
$ 93,914
$ 29,153
17,376
89,830
25,705
5,439
2,243
643
1,000
5,000
176.389
$
$
$
37,22 I
9,700
35,280
8,606
16,279
5,335
46,921
6,000
49,886
$ 46,921
$ 23,164
$ 49,886
$128,320
33.000
54,6 I4
57,632
3,069
49,881
$165,196
$ 12,945
- Total
$222,775
189,262
412,037
26,355
$438,392
$ 29,153
17,376
89,830
1 14,485
29,080
2,243
643
1,000
44,000
327,X I O
57,632
3,069
49,88 1
$438,392
Cumulative Gap . . . . . . . . . . . . . . . . . . . .
$(80,202) $(57,038) $ 71,282
$ 84,227
Curnulative Gap lo Total Assets . . . . . .
(18.3)’ro
( I 3.0)%
16.3%
19.2%
CORTLAND BANCORP AND SUBSIDIARIES
M A N A G E M E N T ’ S DISCUSSION A N D A N A L Y S I S
(In thousands of dollars, except for per share amounts)
The preceding Gap Table presents an analysis of
the Company’s earliest repricing opportunity for
each of its interest-earning assets and interest-
bearing liabilities. Assets are distributed according
lo the earlier ol interest rate repricing opportunity
or expected cash flows. Time deposits and liabili-
ties with defined maturities are distribu ted accord-
ing to the earlier of the repricing intcrval or
contractual maturity. Other core deposit accounts
(Tnterest-bearing checking, Money Market and
Savings accounts) are shown as being available for
repricing in the earliest time frame, although man-
agcmcnt can exert considerable influence over the
timing and manner of repricing such core deposits.
Therefore, these accounts may reprice in later time
intervals and reflect smaller incremental changes
than other intcrest-earning assets and interest-
bearing liabilities. Since management may reprice
thcsc accounts at its discretion, the impact of
changing rates on net interest income is likely to be
considerably different than inferred by this table.
Tluring 2003, the effective maturities o l earning
assets tended to shorten as interest rates in the
credit markets stayed low during the year. Federal
Reserve policy makers reduced short-term interest
rates one time during the year, from 1.25% to
1.00% in an attempt to avoid an unwelcome sub-
stantial fall in inflation. The Federal Keserve also
encouraged investors to increase their interest rate
risk by repeatedly reassuring investors that interest
rates could remain low for ‘‘a considerable period.”
With credit market rates remaining low throughout
the year, the volume of investment securities eligi-
ble to be called remained high, while prepayments
on loans and iiiortgage-backed securities similarly
increased, causing the effective maturities o l cx-
isting earning assets to shorten. Accordingly, man-
agement sought to extend duration by investing
excess overnight funds (federal funds sold bal-
ances) and by extending the maturity and increas-
ing the convexity of reinvested funds.
While the preceding Gap Table provides a general
indication of the potential effect that changing
interest rates may have on net interest incoiue, i t
does not by itself present a complete picture of
interest rate sensitivity. Because the repricing of
the various categories of assets and liabilities is
subject to competitive pressures, customer prefer-
ences and other factors, such assets and liabilities
may in I‘act repricc in diflerent lime periods and in
different increments than assumed.
The computeriLed simulation techniques utiliLed
by management provide a more sophisticated mca-
sure o l the dcgrcc to which the Company’s interest
sensitive assets and liabilities may be impacted by
changes in the general level o l inkrest rates. Thcsc
analyses show the Company’s net interest inconic
remaining relatively neutral within the economic
and interest rate scenarios anticipated by manage-
ment. In fact, as previously noted, the Company’s
net interest margin has remained rclativcly stable
in the range of 3.94% to 4.39% over the past five
years, despite significant shifts in the mix of earn-
ing assets and the direction and level of interest
rates.
I
I 5.01
NET INTEREST MARGIN RATIO
(In Percentages)
4.39
4.30 4.31
I -’” 2003 2002
2001
2000
1999
LTQIJTnTTY
The central role of the Company’s liquidity man-
agement is to ( I ) ensure sufficient liquid funds to
meet the normal transaction requireiiients of its
customers, (2) take advantage of market opportu-
nities requiring flexibility and speed, and (3) pro-
vide a cushion against unloresecn liquidity nccds.
Principal sources o l liquidity for the Company
include assets considered relatively liquid, such as
interest-bearing deposits in other banks, federal
lunds sold, cash and duc from banks, as well as
cash flows from maturities and repayments of
loans, investment securities and mortgagc-backed
securities.
CORTLAND BANCORP A N D SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
( I n thousands ol' dollars, except lor per share amounts)
Cash and cash equivalents, which includes federal
funds sold decreased by $22,824 compared to year-
end 2002. Anticipated principal repayments on
mortgagc-backed securities along with investment
securities maturing, repricing, or expected to be
called in onc year or less amounted to $60,533 at
December 31, 2003, representing 27.2% of the total
conibincd portfolio, as compared to $79,453 or
34.7% ol' the portfolio a year ago.
Along with its liquid assels, the Company has
other sources of liquidity available to it which help
to ensure that adequate funds are available as
needed. These other sources include, but are not
limited to, the ability to obtain deposils through
the adjuslment of' interest rates, the purchasing of
federal funds, and access to the Federal Reserve
Discount Window. The Company is also a member
of the Federal Home Loan Bank ol' Cincinnati,
which providcs yet another source ol liquidity.
Operating activities provided cash ol' $7,048 in
2003, $5,338 in 2002 and $6,178 in 2001. Kcy
diffcrences stem mainly from 1) loans held for sale
at December 31, 2003 totaled $103, as compared
to $2,022 at December 31, 2002 and none a t
December 31, 2001 which favorably impacts the
proceeds and gains on loans r e a b e d in 2003;
2) the purchase of an additional $2.5 million
insurance contracts on the lives of the participants
in the supplemental post retirement benefit plan in
2003; 3) $946 gains on the sale of investments as
compared to $215 in 2002 and $386 in 2001; and
4 ) the increase in amortization on securities of
$1,644 in 2003 compared to $487 in 2002 and $335
in 2001. Refer to the Consolidated Statements ol'
Cash Flows for a summary of the sources and uses
ol' cash in 2003, 2002 and 2001.
CONTRACTUAL OBLIGATIONS AND
COMMITMENTS
The Corporation has various obligations, including
contractual obligations and comrnitincnts that may
require future cash payments.
Contractual Obligations: The following
table
presents, as of' December 3 1, 2003, significant fixed
and determinable contractual obligations to third
parties by payment date. Further discussion of' the
nature ol' each obligation is included in the refer-
financial
enced note
statements.
the consolidated
to
Non-interest hearing deposits
Interest bearing deposits(a)
Avg. Rate(b)
Certificates of deposil ( a )
A v ~ . Rcitc ( b )
Federal funds purchascd and security
repurchase agreemenls(a)
Avg. Ratc(b)
U .S. Trcasury interest-bearing demand
nole (a)
Avg. Rale(b)
Federal Home Loan Bank advances (a)
Avg. Rate(b)
Operating leases
See
Note -
One
Year
nr Less
$ 51,632
136,359
0.4 I 9'0
61,045
Payments Due in
Three
to Five
Years
Over
Five
Years
One to
Three
Ycars
$
$
$
Total
$ 51,632
136,359
0.41 %
44,362
15,935
22,223
143,565
2.45%
4.71%
4.50%
5.01%
3.46%
3,243
0.92%
643
0.73%
3,243
0.92%
643
0.73%
5,000
6,000
33,000
44,000
1.31%
378
5.76%
109
5.42%
5.00%
678
8
I91
6
6
7
7
7
(a) Excludes present and future accrucd inkrest.
(b) Variahle rate obligations reflect idlcrcst rates in elkct at Tlecembrr 31, 2003
CORTLAND BANCORP AND SUBSIDIARIES
MANAGEMENT’S DISCUSS ION AND ANALYSIS
(In thousands of dollars, except for per share amounts)
The Corporation’s operating lease obligations rep-
resent short and long-krm lease and rental pay-
ments for the subsidiary bank’s branch facilities.
The Corporation also has obligations under its
supplemental retirement plans as described
in
Note 9 to the consolidated financial statements.
The postretiremcnt benefil payments represent ac-
tuarially determined Juture benefit payments to
eligible plan participants. The Corporation does
not have any commitments or obligations to the
(401 (k)
defined contribution
plan) at December 31, 2003 due to the funded
status of the plan. Scc further discussion in Note 9.
retirement plan
Commitments: The table on the following page
details the amounts and expected maturities of
significant commitments as of December 3 1, 2003.
Further discussion of these commitments is in-
cluded in Note 8 to the consolidated financial
statements.
Oiic to Thrcc
Onc
to Five
Thrcc
Ycnr
or 1 . e ~ Yearn
Yews
Ovcr
Kive
Yews
‘l‘nlsl
Coiiiniitmcnts tu cxlcnil
crcdil:
Cointnercinl
Residential real estate
Revolving hoinc cyuity
0tht.r
Standby lcllcrs or crcciil
$18,469
$858
$
$1,018 $20,345
8,452
710
761
R,4S2
710
761
Commitments to extend credit, including loan
cornmilmenis, standby letters of credit, and com-
mercial letters of credit do not necessarily repre-
sent future cash requirements,
these
comniitnients often expire without being drawn
upon.
that
in
CAPITAL RESOURCES
Regulatory standards for measuring capital ade-
quacy require banks and bank holding companies
to maintain capital based on “risk-adjusted’’ assets
so that categories of assets of potentially highcr
credit risk require more capital hacking than asscts
with lower risk. In addition, banks and bank hold-
ing companies are required to maintain capital to
support, on a risk-adjusted basis, certain on-bal-
ance sheet activities such ;IS standby letters of
credit and interest rate swaps.
The risk-based standards classify capital into two
tiers. Tier 1 capital consists of common sharchold-
ers’ cyuity, noncumulative and cumulative perpct-
ual preferred stock, and minority interests less
goodwill. Tier 2 capital consists of a limited
amount of the allowance for loan and lease losses,
perpetual preferred stock (not included in Tier l ) ,
hybrid capital
term subordinated
instruments,
debt, and intermediate- term preferred stock.
The following graph, which is not “risk-adjusted,”
depicts Tier 1 capital as a percentage of total
average assets over the past several years. This
measure of capital adequacy is known as the “lev-
erage ratio.” The ratio decreased from 11.12% in
2002 to 10.94% in 2003. hut rcrnains well above
regulatory minimums.
LEVERAGE RATIO
(In Percentages)
12
11
10
9
8
7
6
The Federal Deposit Insurance Corporation Im-
provement Act of 1991 (FDICIA) required bank-
ing regulatory agencies to revise risk-based capital
standards to ensure that they take adequate account
of interest rate risk. Accordingly, regulators subjcc-
tively consider an institution’s exposure to declines
in the economic value of its capital due lo changes
in interest rates in evaluating capital adequacy.
The table on the following page illustrates the
Company’s risk-weighted capital ratios at Decem-
ber 31, 2003 and 2002. Banks are required to
maintain a minimum ratio of 8% of qualifying lotal
capital lo risk-adjusted total assets. The Tier 1
capital ratio must be at least 4%. Capital qualilying
as Tier 2 capital is limited to 100% o l Tier 1
capital. As the table indicates, the Company main-
tains both Tier 1 and total risk-based capital well
CORTLAND BANCORP AND SUBSIDIARIES
MANAGEMENT’S DISCUSSTON AND ANALYSIS
(In thousands ol‘ dollars, except for per share amounls)
in excess of the required regulatory minimum
ratios.
Risk-Based Capital
I_
Ikcember 31,
2003
$ 47,433
2,4ux
December 3 I
2002
$ 48,593
2,822
$ 49,841
$ 51,415
Tier I Capital
Tier 2 Capital
QUALIFY 1NG
CAPITAL
Risk-Adjusted
Total Assets( *)
$231,034
$221,332
Ticr 1 Risk-Based
Capital Ratio
Total Risk-Based
Capital Ratio
Total Leverage
C‘apitd Ratio
20.53%
21.57%
10.948
21.95%
23.23%
11.12%
(*) Includes or-balance shcct cxposures
SFAS I 15, “Accounting for Certain Investments
in Debt and Equity Securities,” requires that
investments designated as available for sale be
marked-to-market with corresponding entries to
the deferred tax account and shareholders’ equity.
Regulatory agcncies, however, exclude these ad-
justments in computing risk-based capital, as their
inclusion would tend to increase the volatility of
this important mcasure of capital adequacy. Addi-
tional inforimtion regarding regulatory matters can
be found in the Notes to the Consolidatcd Finan-
cial Statements (NOTE 12.)
REGULATORY MATTERS
On March 13, 2000, the Board of Governors ofthe
Federal Reserve System approved the Company’s
application to become a financial holding com-
pany. As a financial holding company, the Com-
pany may engage in activities that are financial in
nature or incidental to a financial activity, as au-
thorized by the Gramm-Leach-Rliley Act of 1999
(The Financial Services Reform Act). Under the
Financial Services Reform Act, the Company may
continue to claim the bencfits of financial holding
company status as long as each depository institu-
tion that it controls remains well capitalized and
well managcd. The Company is required to provide
noticc to the Board of Governors of the Federal
Rcscrve System when it hecomes aware that any
depository institution controlled by the Company
ccascs to be well capitalized or well managcd.
Furthermore, current regulation specifies that prior
to initiating or engaging in any new activities that
are a u t h o r i d for financial holding companies, the
Company’s insured depository institutions must be
rated “satisfactory” or better undcr the Commu-
nity Reinvestment Act (CRA). As of Decem-
ber 31, 2003, the Company’s bank subsidiary was
rated “satisfactory” for CRA purposes, and re-
mained well capitalized and well managed, in
managemcnt’s opinion.
MARKET RISK
Management considers interest rate risk to be the
Company’s principal source of market risk. Inter-
est rate risk is measured as the impact of interesl
rate changes on the Company’s net inleresl in-
come. Components of interest rate risk comprise
repricing risk, basis risk and yield curve risk.
Repricing risk arises due lo timing differences in
the repricing of assets and liabilities as interest rate
changes occur. Basis risk occurs when repricing
assets and liabilities reference different kcy rates.
Yield curve risk arises when a shift occurs in the
relationship among key rates across the maturity
spectrum.
The effective management of intcrest rate risk
seeks to limit the adverse impact of interest rate
changes on thc Company’s net interest margin,
providing the Company with the best opportunity
for maintaining consistent earnings growth. To-
ward this end, managemcnt uses computer simula-
financial
tion
performance under varying interest rate scenarios.
These scenarios may reflect changes in the level of
interest rates, changes in the shape of the yield
curve, and changes in interest rate relationships.
the Company’s
to modcl
The simulation model allows managemcnt to test
and evaluate alternative responses to a changing
interest rate environment. Typically when con-
fronted with a heightened risk of rising interest
rates, the Company will evaluate stralegies that
shorten investment and loan repricing inlervals and
CORTLAND BANCORP AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
(Tn thousands of dollars, except [or pcr share amounts)
maturities, emphasix the acquisition of floating
rate over fixed rate assets, and lengthen the maturj-
ties of liability funding sources. When the risk ol‘
falling rates is perceived, management will con-
sider strategies that shorten the maturities of fund-
ing sources, lengthen the rcpricing intervals and
maturities of investments and loans, and enipha-
size the acquisition of fixed rate assets over floating
rate assets.
The most Significant assumptions used in the sirnu-
lation relate to the cash flows and repricing charac-
teristics of the Company’s balance sheet. Repricing
and runoff ratc assumptions are based upon spe-
cific product parameters modified by historical
trends and internal projections. These assumptions
are periodically reviewed and benchmarked against
historical results. Actual results may differ froni
simulated results not only due to the timing, mag-
nitude and frequency of interest rate changes, but
also due to changcs in general economic condi-
tions, changes in customer prefercnces and behav-
ior, and changes in strategies by both existing and
poten tiiil competitors.
The following table shows the Company’s current
estimate of interest rate sensitivity based on the
composition of its balance sheet ut December 3 I ,
2003. For purposes of this analysis, short term
interest rates as measured by the federal funds rate
and the prime lending ralc are assumed to increase
(decrease) gradually over the next twelvc months
reaching a level 300 basis points higher (lower)
than the rates in effect at December 31, 2003.
Undcr both the rising rate scenario and the falling
ratc sccnario, the yield curve is assumed to exhibit
a pardlel shift.
During 2003, the Fcderal Reserve decreased its
target rate for overnight federal funds by 25 points.
A1 year end December 31, 2003, the diff‘erence
between the yield on the ten year Treasury and the
three month Treasury had increased to a positive
332 basis points from thc positive 26 I basis points
that existed at December 31, 2002. The yield curve
is positively sloping, as intcrest rates now increase
with a lengthcning of maturities, with rates peaking
at the long-end of the Treasury curve.
The base case against which interest ralc scnsitiv-
ity is mcasurcd assumes no change in short term
rates. The base case also assumes no growth in
assets and liabilities and no change in asset or
liability mix. Under these simulated conditions, the
base case projects net interest income of $15,363
for the year ending December 31, 2004.
Sirnubated Net liiterest lncome Sensitivity
For the Twelve Months Endiiig December 31, 2004
Change in lnlerevl Rutei
Graduated increase of
+300 basis points
Short term rate\
Net lnterevt
lncumr
~~~
$ Change % Change
$14,955
$(408)
(2.7)%
unchanged (base case)
15,363
Graduated decreaw or
-300 basis points
14,700
(663)
(4.3)%
The level of interest rate risk indicated is within
limits
that management considers acceptable.
However, given that interest ratc movements can
be sudden and unanticipated, and are increasingly
influenced by global events and circumstances
beyond the purview of the Fcderal Reserve, no
assurances can be made that interest rate move-
ments will not impact key assumptions and parani-
eters in a manner not presently embodied by the
model.
Tt i s management’s opinion that hedging instru-
ments currently available are not a cost effcctive
means of controlling intcrcst rate risk for the Com-
pany. Accordingly, the Company does not cur-
rently use financial derivatives, such as interest rate
options, swaps, caps, floors or other similar
instruments.
CRlTlCAL ACCOUNTING POT,TC:IES AND
ESTIMATES
The Company’s consolidatcd financial statements
are prepared in accordance with accounting princi-
ples generally accepted in the United States and
follow general practices within the industries in
which it operates. The most significant accounting
policies followed by the Company are presented in
“Notes to Consolidated Financial Statements -
Summary of Significant Accounting Policies.” Ap-
plication of these principles requires management
CORTLAND BANCORP AND SUBSIDIARIES
MANAGEMENT’S T)lSCUSSION AND ANALYSIS
( I n thousands of dollars, exccpt for pcr share amounts)
to make estimates, :issumptions and judgments
that affect the amounts reporlcd in the financial
statements and accompanying notes. Soinc of
these policies and related methodologies are more
critical than others. The Company has identificd
its policy on the allowance for loan losses as bcing
critical because it requires management to make
particularly difficult, subjectivc and/or complex
judgments about matters that are inherently uncer-
tain and because of the likelihood that matcrially
different amounts would be reported under differ-
ent condilions or by using different assumptions.
The allowance for loan losses represents managc-
ment’s estimate of probable credit losses inhercnt
in the loan portfolio. Determining the amount of
the allowance for loan losses is considercd a critical
accounting estimate because it requires significant
judgment and the use of subjective measurements
including management’s assessment of the internal
risk classifications of loans, changes in the nature
of the loan portfolio, industry concentrations and
the impact of current local, regional and national
economic factors on the quality of the loan portfo-
lio. Changes in these estiinutes and assumptions
are reasonably possible and may have a material
impact on the Company’s consolidated financial
statements, results of operations or liquidily.
Accordingly, the Company has developed and
maintains 3 comprehensive, systematic and con-
sistently applied process to determine thc appropri-
ate amounts of the allowance for loan losses, and
rcsultant provision for loan losses, necessary to
absorb estimated credit losses inherent in the loan
portfolio. The allowance for loan losses represcnts
management’s best estimate from within an ac-
ccptable range of estimated losses that it considers
appropriate and prudent, but not excessive.
While management’s evaluation of the allowance
for loan losses ;is of December 3 I , 2003 has deter-
mined the allowance to bc adequate, under ad-
vcrsely difierenl conditions or assumptions, the
Company would most likely necd to increase the
allowance. The assumptions and estimates used by
the Company in its internal review of non-perform-
ing loans and potential problem loans, as well as
the associated evaluation of the related collateral
coverage for these loans, can have a significant
irnpacl on the overall assessment of the adequacy
of the allowance for loan losses. While manage-
ment has concluded that the current valuation of
loan collatcral is reasonable under present circum-
stances, if collateral valuations were significantly
reduced due to either new informalion or other
changing circumstances, additional provisions to
the allowance for loan losses would most likely be
necessary.
All accounting policies are important and the
reader of these financial statements is encouraged
to review the summary of significant accounting
policies described in Note I of the Consolidated
Financial Statements, in order to gain a bettcr
understanding of how the Company’s financial per-
formance is reported.
For additional information regarding the allowance
for loan losses, its relation to the provision for loan
losses and risk related to asset quality, see sections
ofthe “Notes to the Consolidated Financial Slate-
ments” and “Management Discussion and Analy-
sis” related to the allowance for loan losses.
IMPACT OF INFLATION
Consolidated financial information included herein
has been prepared in accordance with gcnerally
accepted accounting principles, which require the
Company to measure financial position and operat-
ing results in terms of historical dollars. Changes in
the relative value of money due to inflation are
generally not considered. Neither the price, timing
nor the magnitude of changes directly coincide
with changes in interest rates.
INFORMATION AS TO STOCK PRICES AND DIVIDENDS OF CORTLAND BANCORP
OTHER INFORMATlON
(Forms
The Company files quarterly reports,
10-Q, an annual report (Form IO-K), current
reports on Form 8-K and all amendments to those
reports with the Securities and Exchange Commis-
sion (SEC) pursuant to section 13(a) or (15)d of
the Exchange Act. In 2004 the quarterly reports
will be filed within 40 days of tlic end of each
quarter, while the annual report is filed within 75
days of the end of the year. Any individual request-
ing copies of such reports may obtain these h e of
charge, as soon as reasonably practicable aficr such
material is electronically tiled with or furnished to
the S E C by visiting our web site at www.cortland-
banks.com or by writing to:
Deborah L. Eazor
Cortland Bancorp
194 West Main Street
Cortland, Ohio 44410
The S E C also maintains an Internet site that
contains reports, proxy and information state-
ments, and other information regarding issuers that
file electronically with the SEC at www.scc.gov.
The Company’s stock trades on the NASDAQ
OTC market under the symbol CLDB. The follow-
ing brokerage firms are known to be relatively
active in trading the Company’s stock
Community Banc Investments, Inc.
Columbus, Ohio
Contact: Greig A. McDonald
Telephone: I -800-224- IO1 3
McDonald & Company Securities, Tnc.
6575 Sevillc Drive
2nd Floor
P.O. Box 119
Canfield, Ohio 44406
Telephone: 1-330-746-2993
Salornon Smith Barney, Inc.
5048 Belmont Avc.
Youngstown, Ohio 44505
Telephone: I-800-535-0017
UBS Financial Services
3701 Boardman Canfield Rd
P.O. Box 100
Canfield, Ohio 44406
Telephone: 330-533-7191
The following table shows the prices at which
the coiiimon stock of the Company has actually
been purchased and sold in market transactions
during the periods indicated. The range ol‘ market
price is compiled from data provided by brokers
based on limited trading. Also shown in the table
are the dividends per share on the outstanding
common stock. All figures shown have been ad-
.justed to givc retroactive effect to the 3% stock
dividend paid as of January 1, 2004, 2003 and
2002. The Company currently has approximately
1,748 shareholders.
2003
Fourth Quarter
Third Quartcr
Second Quarter
First Qorrter
2002
Fourth Quiirter
Third Quarter
Second Quartcr
First Quarter
2001
Fourlh Quarler
Third Quarler
Sccond Quartcr
First Quartcr
Price Per Sharc
High
~
1.nw
-
Cash
Dividends
Per Shnre
$30.58
32.53
mo
26.46
$24.75
25.92
25.69
20.97
$19.80
19.91
20.15
16.51
$29.00
29.31
26.22
24.61
$22.78
23.33
20.26
18.86
$16.73
16.50
15.79
I S S S
$0.44
0.21
0.21
0.21
$0.44
0.20
0.20
0.20
$0.37
0.19
0. I 9
0.19
For the convenience of shareholders, the Company
has established a plan whereby shareholders may
have their dividends automatically reinvested in
the common stock of Corlland Bancorp. Participa-
tion in the plan is completely voluntary and share-
holders may withdraw at any time.
For current stock prices you may access our honic
page at www.cortland-banks.com.
For more information on the dividend reinvest-
ment plan, you may contact Deborah L. Eazor at
the following telephone number: (330) 637-8040
Ext. 130 or E-mail address DEAZOR@cortland-
banks.com.
CORTLAND BANCORP
BOARD OF DIRECTORS
RODGER W, PLATT
Chairman
DAVTD C. COLE
LAWRENCE A. FANTAUZZI
GEORGE E. GESSNER
WILLTAM A. HAGOOD
JAMES E. HOFFMAN 111
NEIL J. KABACK
K. RAY MAHAN
RICHARD B. THOMPSON
TIMOTHY K. WOOFTER
OFFICERS
RODGER W. PLATT
Chairman and President
LAWRENCE A. FANTAUZZT
Senior Vice President
Controller
Chief Financial Officer
and Secretary-Treasurer
JAMES M. GASTOR
Senior Vice President
Chief of Administration and Lending
THE CORTLAND SAVINGS AND BANKING COMPANY
BOARD OF DIRECTORS
DAVID C. COLE
General Manager
C O ~ C Valley Motor Company
LAWRENCE A. FANTAUZZI
Senior Vicc president
GEORGE E. GESSNER
Atlorney
WILLIAjV A. HAGOOD
President, Tri-City Mobile Homes, Inc.
JAMES E. HOFFMAN IT1
Attorney
N E I L J. KABACK
Partner, Cohen & C:onipany
K. R A Y MAHAN
Presidenl, Malian Packing Co.
RODGER W. PLATT
President and Chairman
RJCHAKD B. THOMPSON
Exccutive, 'Therm-0-Link, Inc.
TIMOTHY K. WOOFTER
Prcsident, Stan-Wade Metal Products
PAUL C. BOWERS
Director Erneritus
I
*
*
*
*
OFFICERS
KODGER W . PLATT
President, Chairman and Chief Executive Officer
LAWRENCE A. FANTAUZZI
Senior Vice President, Secrelary-'rreasurer
and Chief Financial Oficer
JAMES M. GASTOR
Senior Vice Prcsidenl and Chief Lending OfIiccr
STEPHEN A. TELBGO, SR.
Senior Vict: President and Director of 1Iunian Resources and
Chrporatc hdministrnticm
TlMOTllY CAKNEY
Senior Vice Pi-csident & Chief Operations Ofliccr
CHARLES J. COMMONS
Vice President
GERALD L. THOMPSON
Vice Prcsidenl
MARLENE LENTO
Vice Presiden(
EMMA J E A N WOLLAM
Vice President
ROBERT J. HORVATH
Vice President
DANNY 1,. W l i l T E
Vice President
JUDY RUSSELL
Vice President
JAMES DUFF
Vice President
PKANK R. SEJIALL
Vice President
DOUGLAS BLAY
Vice President
KEITH MROZEK
Vicc President
CRAIG I'HYTHYON
Vice President
DEBORAH L. EAZOK
Vice President
GERARD F. KANE
Assistant Vicc Presidcnt
MARK GOVERNOR
Assistant Vice President
MARCEL P. AKNAL
tant Vice Prcsidenl
J. BACOT
ice Prcsidenl
BEVERLY KOSTOFP
Assistant Vice President
PTETKQ PASCALE
Assistrtnl Vice Presidenl
SHIKLEY F. ROOT
Assistant Vice Presidcnt
DARLENE MACK
Assistant Vice President
and Trust Olficer
KAREN CLOWER
Assistant Vice Prcsidenl
BARBAKA R. SANDROCK
Assistant Vicc Presidcnt
KIMBERLY S. V O G l
Assistant Vice President
JANET K. HOUSER
Assistant Vice Prcsident
RUSSELL E. TAYLOR
Assistant Vice Prcsident
SOAN M. FRANGIAMORE
Assistant Vicc Presidcnt
JUDY A. LARSON
Assistant Vice President
DAVTD MAY
Assistant Vice President
BAKBARA McK ENZlH
Assistanl Vice Presidenl
STEVE 5. M A C K
Assistanl Secrelary-Treasurer
LANA M U l R
Assistant Secret~~ry-Treasu*cr
JAMES H U G H E S
Assislant Secretaiy-Trcasurer
WILLIAM J. HOLLAND
Assistant Secretary
KAREN MII,LER
Assistint Sccretrtry
MATTHEW LAUTHER
Assistant Sccretary
CORTLAND BANKS OFFlCES AND LOCATIONS
Thirteen OfJes Serving These Fine Communities
BOARDMAN
85x0 South Avenue
Youngstown, Ohio 44514
330-758-5X84
HUBBARD
890 West Liberty Strcct
Hubbard, Ohio 44425
330-534-2265
VIENNA
4434 Warren -Sharon Road
Vienna, Ohio 44473
330-394-1 438
BOARDMAN
Victor Hills Playa
6538 South Avenue
Boardman, Ohio 4451 2
330-629-9151
BRISTOL
6090 State Routc 45
Bristolville, Ohio 44402
330-889-3062
BROOKFIELD
7325 Warren-Sharon Road
Brookfield, Ohio 44403
330-448-6814
MANTUA
11661 State Route 44
Mantua, Ohio 44255
330-274-3111
WARREN
2935 Elm Road
Warren, Ohio 44483
330-372- 1 S20
NILES PARK PLAZA
8 I5 Youngstown-Warren Road
Suite 1
Niles, Ohio 44446
330-652-X700
W ILL1 A MSFIELD
5917 U S . Route 322
Williamsfield, Ohio 44093
440-293-7502
CORTLAND
194 Wcst Main Street
Cortland, Ohio 44410
330-637-8040
NORTH BLOOMFIELD
X837 Stale Route 45
North Rloomfield, Ohio 44450
440-685-473 1
WTNDHAM
9690 Bast Center Street
Windham, Ohio 44288
330-326-2340
Member
Federal Reserve System
and
Federal Deposit Insurance Corporation
Visit us at our home page on the world wide web at
www.cortland- ban ks.com
or e-mail us at cbinfo~~cortland-banks.com