-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LVrw4CiNxF5IzMW6LstkhNJTx779x8tBxhQNceCrvKWTQDKDo+i7n4gXYTcMnQYZ Z4fA46CfZlCOVrWzcsWziw== 0000796317-96-000013.txt : 19961118 0000796317-96-000013.hdr.sgml : 19961118 ACCESSION NUMBER: 0000796317-96-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORTLAND FIRST FINANCIAL CORP CENTRAL INDEX KEY: 0000796317 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 161276885 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15366 FILM NUMBER: 96663119 BUSINESS ADDRESS: STREET 1: 65 MAIN ST STREET 2: PO BOX 5430 CITY: CORTLAND STATE: NY ZIP: 13045-5430 BUSINESS PHONE: 6077562831 MAIL ADDRESS: STREET 1: PO BOX 5430 STREET 2: 65 MAIN STREET CITY: CORTLAND STATE: NY ZIP: 13045-5430 10-Q 1 FORM 10-Q SEPTEMBER 1996 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended September 30, 1996. or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-15366 CORTLAND FIRST FINANCIAL CORPORATION (Exact name of Registrant as specified in its charter) New York 16-1276885 (State or other jurisdiction of (IRS Employer I.D. #) incorporation or organization) 65 Main Street, Cortland, New York 13045 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (607) 756-2831 Indicate by check mark whether the Registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of the registrant's common stock on September 30, 1996: Common Stock, $1.6667 Par Value -- 2,016,000 shares. PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CORTLAND FIRST FINANCIAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS September 30, 1996 December 31, 1995 (Unaudited) (Note) ASSETS Cash and Due From Banks $ 10,176,948 $ 7,854,521 Federal Funds Sold 700,000 2,500,000 Investment Securities Held to Maturity 2,405,914 3,305,689 Available for Sale 82,231,705 71,956,527 (Market Value 84,639,411 & 75,267,155) Loans (Net of Unearned Discount of (3,874,049 & 3,662,724) 113,527,144 112,204,325 Reserve for Possible Loan Losses (1,252,489) (1,175,959) Net Loans 112,274,655 111,028,366 Premises and Equipment 3,204,748 3,303,196 Other Real Estate 15,000 135,397 Other Assets 3,910,914 3,775,851 TOTAL ASSETS $214,919,884 $203,859,547 LIABILITIES Non-Interest Bearing Deposits $ 23,383,892 $ 23,018,352 Interest Bearing Deposits 165,170,834 155,427,200 Total Deposits 188,554,726 178,445,552 Accrued Interest, Taxes, & Other Liabilities 875,054 993,932 Accrued Post-Retirement Benefits 819,144 766,412 TOTAL LIABILITIES 190,248,924 180,205,896 SHAREHOLDERS' EQUITY Common Stock (par value 5.00) 3,360,067 3,360,000 Outstanding 2,016,000 shares Surplus 3,360,000 3,360,000 Undivided Profits 17,850,736 16,438,145 Net Unrealized Gains/(Losses) on Securities 100,157 495,506 TOTAL SHAREHOLDERS' EQUITY 24,670,960 23,653,651 TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $214,919,884 $203,859,547
Note: The balance sheet at December 31, 1995, has been derived from the audited financial statements at that date. See notes to condensed consolidated financial statements. CORTLAND FIRST FINANCIAL CORPORATION Condensed Consolidated Statements of Income (000's omitted) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 Interest Income: Interest & fees on loans $2,617 $2,645 $ 7,826 $ 7,820 Interest on bank deposits 0 0 0 0 Interest on investment securities 1,221 1,092 3,460 3,253 Interest on Federal Funds sold 113 110 395 338 TOTAL INTEREST INCOME $3,951 $3,847 $11,681 $11,411 Interest Expense: Interest on deposits 1,557 1,447 4,622 4,336 NET INTEREST INCOME $2,394 $2,400 $ 7,059 $ 7,075 Provision for loan losses 75 75 208 225 INTEREST INCOME AFTER PROVISION FOR LOSSES $2,319 $2,325 $ 6,851 $ 6,850 Other Income: 403 362 1,086 1,015 Non-interest expenses 1,668 1,703 4,966 5,065 INCOME BEFORE INC TAXES $1,054 $ 984 $ 2,971 $ 2,800 Income Taxes: 316 288 849 809 NET INCOME $ 738 $ 696 $ 2,122 $ 1,991 Net Income per Common Share $ .37 $ .35 $ 1.05 $ .99 (2,016,000 shares outstanding)
Consolidated Statement of Cash Flow (Unaudited) (000's OMITTED) Nine Months Ended September 30, 1996 1995 OPERATING ACTIVITIES Net Income $ 2,122 $ 1,991 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 208 225 Provision for depreciation 271 280 Provision for deferred income taxes 44 (109) Amortization of investment security premiums (discounts), net 290 300 (Increase) Decrease in interest receivable (28) 17 (Increase) Decrease in other assets (79) (513) Increase (Decrease) in interest payable (19) 6 Increase (Decrease) in other liabilities 222 31 Loss on disposition of investments & Other Real Estate Owned 68 0 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,099 $ 2,228 INVESTING ACTIVITIES Proceeds from sales/maturities of investment securities $ 20,575 $ 16,234 Purchase of investment securities (30,929) (16,972) Net (increase) decrease in credit card and short term loans 120 105 Longer-term loans sold 0 873 Net longer term loans originated (1,574) (2,185) Purchase of premises and equipment, net (173) (443) Proceeds from disposition of Other Real Estate Owned 14 0 NET CASH USED BY INVESTING ACTIVITIES $(11,967) $ (2,388) FINANCING ACTIVITIES Net increase (decrease) in demand deposits, NOW & savings $ 9,940 $ 2,630 Net proceeds from sales of certificates of deposit 169 4,046 Cash dividends (719) (437) NET CASH PROVIDED BY FINANCING ACTIVITIES $ 9,390 $ 6,239 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 522 6,079 Cash and cash equivalents at beginning of year $ 10,355 $ 12,717 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,877 $ 18,796 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest on deposits and short term borrowings: $ 4,640 $ 4,330 Income taxes: 803 986 Non Cash Investing Activities: Change in unrealized gain/(loss) on investment securities (664) 1,439
Cortland First Financial Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. The foregoing financial statements are unaudited; however, in the opinion of Management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the financial statements have been included. A summary of the Corporation's significant accounting policies is set forth in Note 1 to the Consolidated Financial Statements in the Corporation's Annual Report to Shareholders on Form 10-K, for the year ended December 31, 1995. B. Investment Securities September 30, 1996 (000's omitted) Available for Sale Held to Maturity U.S. Treasury securities and obligations of U.S. government corporations and agencies $44,103,978 $ 0 Securities issued by State & Political subdivisions in the U.S. 24,246,308 2,405,914 Other securities (includes F.R. stock) 819,475 0 Mortgage back securities 13,061,944 0 TOTAL INVESTMENT SECURITIES $82,231,705 $ 2,405,914
December 31, 1995 (000's omitted) Available for Sale Held to Maturity U.S. Treasury securities and obligations of U.S. government corporations and agencies $40,924,445 $ 0 Securities issued by State & Political subdivisions in the U.S. 20,108,131 3,305,689 Other securities (includes F.R. stock) 462,640 0 Mortgage backed securities 10,461,311 0 TOTAL INVESTMENT SECURITIES $71,956,527 $ 3,305,689
C. Provision for Loan Loss September 30, 1996 September 30, 1995 Balance at January 1 $ 1,175,959 $ 1,225,737 Provision for the year 208,000 225,000 Recoveries on loans 38,370 44,544 Total 1,422,329 1,495,281 Less loans charged off 169,840 329,168 Balance at September 30, $ 1,252,489 $ 1,166,113
The appropriateness of allowance for loan losses is determined by quarterly detailed review of the loan portfolio. PART 1. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Cortland First Financial Corporation is a one-bank holding company formed in 1986. Its only subsidiary and operating entity is First National Bank of Cortland, chartered in 1869. First National Bank of Cortland is an independent bank delivering financial services from its seven offices in Cortland, Cortlandville, Marathon, McGraw, Cincinnatus, and Tully, to its customers in Cortland County and the surrounding area, and includes our newest branch location in Whitney Point which opened in 1994 expanding our service area into Broome County. The primary regulator of Cortland First Financial Corporation is the Federal Reserve Bank of New York, while its subsidiary, First National Bank of Cortland, is regulated by the Office of the Comptroller of the Currency in Washington, DC. At the end of the third quarter 1996, total assets of $214,919,884 had increased $11,060,337, or 5.4% from $203,859,547 on December 31, 1995. Increased funding from deposits has allowed management to increase the securities portfolio by $9,375,403 with available for sale securities increasing by $10,275,178 and a decrease in the held to maturity category of $899,775. Net unrealized gains on securities available for sale was $167,177, or .2% of the total portfolio as of September 30, 1996, which is reflected in the carrying value of those securities. Investment quality remains high with over 92% of the portfolio rated AAA or better. Of the remaining 8% of the portfolio, 5% are rated A or higher with the balance consisting of local municipal bonds for which we maintain financial data. There are no derivatives or structured notes in the investment portfolio. The Bank does not have a trading portfolio nor does it anticipate one in the future. Net loans outstanding of $112,274,655 increased 1.1% from year-end. No significant changes were seen in the various loan categories from December 31, 1995. Loan demand continued to show some improvement during the third quarter. While the local economy has been somewhat lethargic, the expansion of Buckbee Mears, a large manufacturer of video aperture masks, is anticipated to add 300 to 400 new jobs. With the relocation of our loan department into newly renovated and expanded quarters, our loan delivery system has been streamlined for more efficient customer service. The introduction of our loan-by-phone product during the third quarter has also enhanced the availability of our loan services. Year-to-date net charge-offs of $131,470 represent a marked improvement over the same period last year of $284,624 which included one large loan of $190,000. Our allowance for loan losses, which currently stands at 1.1% of total net loans, is reviewed on a quarterly basis and is judged to be sufficient to absorb any inherent loss in the portfolio. Deposits increased $10,109,174, or 5.7% since December 31, 1995. Over 80% of this growth was in the traditional savings and money market accounts, while less than 1% was attributable to time deposits, and the balance of the growth was in the NOW accounts. Forecasts indicate about a 5% growth for the year based on averages. On March 25, 1996, a three-for-one stock split was declared increasing the shares issued and outstanding from 672,000 to 2,016,000, and a reduction in the par value from $5 per share to $1.6667 per share was approved. Dividends paid year-to-date amount to $.3567 per share compared to $.2167 paid for the same period in 1995, as adjusted for the stock split. Shareholders' equity grew from $23,653,651 at December 31, 1995 to $24,670,960 as of September 30, 1996. Components of shareholders' equity reflect retention of net income of $1,412,659 as well as a decrease in net unrealized gains on securities of $395,348 as required by FAS 115 accounting treatment. The regulatory capital leverage ratio was 11.24% at September 30, 1996, which was slightly higher than the September 1995 ratio of 11.19%. The leverage ratio represents the ratio of Tier 1 capital (stock, surplus, and retained earnings) to the average total assets for the quarter. Our Tier 1 risk based capital ratio of 21.49% was again more than twice the minimum requirement for institutions considered to be well capitalized. Book value per share increased by 4.4% to $12.24 per share, when adjusted for the stock split. Managing the asset and liability sensitivity position to achieve an acceptable balance of risk versus return is achieved through loans, investments, and retail deposits rather than reliance on swaps, futures, or off-balance sheet derivative products. The Asset and Liability Committee of the Bank is also responsible for assessing interest rate risk. This measurement provides a forward looking assessment regarding the impact interest rate movement may have on net interest income. Analysis indicates that the Bank is well positioned with minimal impact on income when subjected to a 200 basis point (2.00%) shock - the equivalent of an immediate increase or decrease of 2% in all interest rates on both assets and liabilities. The Bank manages its liquidity position by maintaining adequate cash levels to service normal customer demands. In addition, the investment portfolio provides funds from maturing instruments on a regular basis. While there are no known demands, commitments, events, or uncertainties which will result in any material increase or decrease of liquidity requirements, the Bank recently became a member of the Federal Home Loan Bank which will act as an additional source of funding. With a stable deposit base, the Bank is not dependent on volatile deposits (certificates of deposit larger than $100,000 - also known as jumbo CD's) which tend to be more market sensitive. Investments maturing within one year exceed the total jumbo CD deposits, thereby providing more than adequate coverage for any reduction in funding from this source. Federal funds sold, which also provide liquidity, averaged $8,525,000 during the third quarter. Trust Department assets (book value) on September 30, 1996 amounted to $60,770,774 as compared to $57,880,581 at September 30, 1995. Trust assets are not part of the consolidated balance sheet. Our recently updated Trust services area provides expanded services and more convenience for our customers. Net income for the third quarter of 1996 was $737,808, an increase of 6.0% from $695,948 from the same period of 1995, while net income year-to-date 1996 of $2,121,699 shows an increase of 6.6% from $1,990,583 for the comparable period in 1995, resulting in a return on average assets (ROA) of 1.32% for the nine months ended September 30, 1996. Net interest income was $7,059,346 for the nine months ended September 30, 1996, a decrease of $15,397 (.2%) from the same period in 1995. Earning assets grew 2.9% from $193,289,931 at September 30, 1995 to $198,864,763, while interest income grew only 2.7% on a taxable equivalent basis, due to decreases in the prime rate and lower yields available on investment securities replacing the higher yields on those maturing. These changes in interest income are the result of an increase due to volume of $589,000 which was offset by a reduction due to rates of $319,000. Interest bearing liabilities grew 2.6% from $161,054,413 as of September 30, 1995 to $165,170,834 at the period end resulting in an increase in interest expense of 6.6% from $4,336,377 to $4,621,370. Of this change in interest expense, $305,000 is due to the increase in volume while a change in rate accounted for a $20,000 decrease. With the cost of funds increasing from 3.70% in 1995 to 3.72% in 1996, and our yield on earning assets declining from 8.32% for the three quarters of 1995 to 8.05% for the comparable period in 1996, our net interest margin on earning assets continues to show a narrowing from 5.27% in 1995 to the current level of 4.99%. This tightening should slow since rates have remained relatively stable during the past few months. Other key ratios were: average loans to average deposits at 59.30% as of September 30, 1996 compared to 60.92% in 1995 and average earning assets to average total assets at 93.89% as of September 30, 1996 compared to 93.54% as of September 30, 1995. Non-interest income of $1,085,446 increased by $70,291 on a year-to-date basis versus $1,015,155, while non-interest expense of $4,965,505 decreased by $99,520 over the same period in 1995 of $5,065,025. Trust income of $288,436 for 1996 year-to-date increased $78,844, or 37.6% over $209,592 for the comparable period in 1996. Service charge income showed a modest increase as well from $456,203 in 1995 to $479,475 in 1996. The single most significant factor in the reduction of non-interest expense is the recapitalization of the Federal Deposit Insurance Corporation (FDIC) insurance fund resulting in the lowering of the premium payments from $185,134 year-to-date 1995 to $1,000 for the comparable period in 1996. Since the Bank meets the requirements for a well capitalized institution, it pays the lowest premium available. The FDIC insurance expense is expected to increase in 1997 by approximately $25,000 since Congress has mandated that the Bank Insurance Fund (BIF) must pay part of the interest on bonds which were issued to fund the deficit of the Savings Association Insurance Fund (SAIF). The current year savings on the FDIC insurance were offset in part by an increase of over $68,000 in outside services expense with $26,000 of that increase being the result of the outsourcing of the internal audit function. Additional increases were noted as follows: $13,000 in marketing and public relations expense, $43,993 in losses on disposition of other real estate owned, $36,000 in holding company expense, and over $46,000 in both equipment maintenance and depreciation expense. Salary expense was maintained at the same level as the previous year since the above-mentioned audit changes allowed for more efficient allocation of personnel. Benefits expense saw a decrease of over $50,000 due to a reduction of $78,000 in our self-insured medical expense offset by small increases in post-retirement benefits expense as well as workmen's compensation and other deferred benefits. Provision for income taxes increased over $40,000 as compared to the same period for 1995. Net income per common share increased to $1.05 year-to-date 1996 compared to $.99 in the same period for 1995, when adjusted for the stock split. In a continuing commitment to provide the technology necessary to compete in the marketplace, the mainframe computer will be upgraded during the fourth quarter of 1996. This will allow for more efficient processing of data and provide the increased capacity to allow for the continued growth of our customer base. Our financial services and product offerings will be enhanced with the introduction of First National Bank of Cortland's debit card during October 1996, allowing our customers to access their checking account at all locations that honor the Visa card. Quality service and convenience for our customers are essential to our continued success which will translate to enhanced shareholder benefit. PART 2. ITEM 1. In April 1996, the Corporation noted that certain reports required by the Securities and Exchange Act of 1934 had inadvertently note been filed - specifically, Forms 3, 4, and 5. Shortly after the discovery, the Corporation notified the Securities and Exchange Commission of these omissions. Since that date, the Corporation and the directors and officers have filed the omitted reports. As of the date hereof, no proceeding has been instituted against the Corporation or any of its officers or directors. Instead, the parties are attempting to resolve the matter administratively. In the event the matter cannot be resolved, a formal proceeding will likely be commenced. ITEM 2-6. Not applicable SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CORTLAND FIRST FINANCIAL CORPORATION DATE November 13, 1996 David R. Alvord, President DATE November 13, 1996 Bob Derksen, Treasurer EX-27 2
9 1,000 9-MOS DEC-31-1996 SEP-30-1996 10,177 0 700 0 82,232 2,406 2,408 113,527 1,252 214,920 188,555 0 1,694 0 0 0 6,720 17,951 214,920 7,826 3,460 395 11,681 4,622 4,622 7,059 208 (24) 4,966 2,971 2,971 0 0 2,122 1.05 1.05 3.55 99 98 0 4,074 1,176 170 38 1,252 1,252 0 0
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