Cortland Bancorp Reports 2013 Net Income of $1.8M

CORTLAND, Ohio -- Cortland Bancorp, holding company for Cortland Savings and Banking Co. reports a net loss of $462,000 for the quarter ended Dec. 31 but net income of $1.8 million for all of 2013. The quarterly loss translates to 11 cents a share and full-year net income to 39 cents a share.

For the fourth quarter of 2012, Cortland reported a net loss of $464,000, or 11 cents a share, and net income for all of 2012 of $2.9 million, or 64 cents a share.

The bank holding company attributed its fourth-quarter (and lower full-year 2013) results to the Volcker Rule, the section of the Dodd-Frank Act that specifically prohibits banks from engaging in proprietary trading, that is, using bank deposits to own or invest in hedge funds or private equity funds. Congress said a bank cannot use funds its customers deposit to trade on its own accounts.

“Excluding the charges for the investment portfolio, which were $2.0 million pre-tax and $1.3 million after tax,” the bank said, “Cortland would have earned $3.1 million, or 68 cents per share, in 2013.”

In a prepared statement, the president and CEO of Cortland Bancorp, James M. Gasior, explained, “The regulatory initiated charge to our trust preferred securities portfolio, although significant, is considered nonoperational. Our core banking operations have been performing well and are gaining momentum going into the new year. Our net interest margin is expanding, loan demand is robust and asset quality continues to improve."

The fourth-quarter results were affected by a $1.3 million, or a 28-cents-per-share after-tax cost, as a result of $2.0 million in other-than-temporary- impairment losses recognized on $10.5 million of trust preferred securities, a form of collateralized debt obligations (CDOs). The CDO securities were among those the Volcker Rule disallows. Cortland said it continues to hold other CDOs that total $3.4 million deemed permissible under the ruling that provided exemptions for certain CDOs.

"The ruling prohibiting banks from holding certain CDOs was unexpected by many of us within the industry," Gasior noted. "The results of this regulatory change required many banks to abruptly recognize impairment charges. It also eliminates the ability of banks to hold these securities through maturity by mandating divestiture by July 2015. The vast majority of banks, including Cortland, had both the ability and intention to hold these securities through maturity. The CDOs held in our investment portfolio have provided $200,000 of interest income on average over their seven- to 10-year holding period."

In its earnings release, Cortland cited these highlights:

  • Net interest margin was 3.63% for the fourth quarter, up from 3.44% the same quarter in 2012 and 3.42% in the third quarter.
  • Loans increased 9.2% to $346.8 million from $317.3 million at Dec. 31, 2012.
  • Continued improvement in asset quality with nonaccrual loans, net charge-offs and provision for loan losses all declining in the quarter and the year. Nonperforming assets fell to 0.56% of total loans at year-end, from 0.94% at Dec. 31, 2012.
  • Cortland Bancorp, and its subsidiary, The Cortland Savings and Banking Co., remained well capitalized with total risk-based capital to risk-weighted assets of 14.10% and 13.68%, respectively.
  • Paid a fourth-quarter cash dividend of three cents per share, for a total of 12 cents for 2013.

Cortland also reported that its board of directors declared a cash dividend of three cents a share payable Feb. 28 to shareholders of record Feb. 10.

Interest and fees on loans contributed $15.9 million to 2013 revenues and $3.9 million to fourth-quarter revenues.

Non-Interest Income

Noninterest income, excluding the previously noted investment securities losses, was $4.3 million in 2013, versus $4.5 million in 2012. "The end of the refinance wave in our mortgage banking operations reduced revenues in 2013 by $281,000," said David J. Lucido, chief financial officer.

"Our wealth management efforts continue to contribute to top line growth," Lucido continued. "Our financial advisors now provide nondeposit investment advisory and sales services to customers in the branch network in affiliation with a third-party provider. As assets under management grow, fee income from wealth management sources will enhance our revenue stream."

Noninterest expense (wages and benefits, rents, data processing, advertising, Federal Deposit Insurance Corp. premiums) rose $1.5 million in 2013 from 2012, reflecting the additional personnel and other expenses to operate the expanded wholesale and retail mortgage banking operation before Cortland curtailed its wholesale mortgage operations last September.

Included in noninterest expense for the year is the one-time investment of $444,000 in a historic-tax credit partnership that generated $634,000 in such credits. The company reported no tax credit in 2013.

“Credit quality continues to improve reflecting the gradual improvement in the regional economy,” Cortland said.

Nonaccrual loans declined to $1.9 million at Dec. 31, or 0.56% of loans, compared to $3.0 million, or 0.94% of loans at Dec. 31, 2012. Net loan charge-offs were $711,000 in 2013, or 0.23% of total average loans, compared to a net charge-off rate of 0.78% for 2012. The ratio for allowance for loan loss to total loans was 1.09% at Dec. 31, versus 1.21% a year before.

SOURCE: Cortland Bancorp.

Published by The Business Journal, Youngstown, Ohio.
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