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Cortland Bancorp Earns $4.843M for 2004
"CORTLAND, Ohio -- Cortland Bancorp earned $4.843 million, 11.7% less than 2003 earnings, according to Chairman Rodger W. Platt. Earnings per share in 2004 amounted to $1.17 compared with $1.30 per share earned for the fiscal year ended Dec. 31, 2003.For the quarter ended Dec. 31, 2004, earnings were $1.305 million compared to $1.34 million a year ago, representing a decline of 2.6%. Earnings per share for the fourth quarter of 2004 were down a penny to 31 cents compared to the prior year. Total assets, year-over-year, exhibited moderate growth, increasing 1.8% to $446.4 million compared to $ 438.4 million a year ago. Directors recently declared a regular quarterly dividend of 22 cents per share payable April 1 to shareholders of record as of March 11.Despite the year-over-year decline in earnings, the company's performance in 2004 represented one of the best in its 113-year history, Platt noted. "It was a good, solid performance -- not great, but certainly good in a challenging operating environment," he said. "Unemployment remains stubbornly high in northeastern Ohio, while operating margins continue to be under pressure. Nevertheless, we were able to earn 1.1% on average assets, a level that historically has been considered good by community bankers."Several factors, he added, kept 2004 from being a great year. "While the most recent economic recession began early in 2001, the company's asset quality did not show any adverse effects until the second half of 2002, when marginal credits began to struggle," he commented. That trend continued throughout 2004. At year-end 2004, loans 30 days or more beyond their contractual due date represented 2.5% of total loans compared to 1.8% a year ago. Total under-performing assets (a measure that includes restructured loans, loans past due 90 days or more, and real estate acquired in foreclosure) increased to 0.76% of total assets from 0.70% a year ago, and up from 0.26% at the end of the 2001 recession year."Cortland Bancorp's asset quality measures remain in a range that management considers acceptable as the trend in problem credits seems to be stabilizing as the local economy continues to improve, Platt said. "The economic recovery has been late in reaching northeastern Ohio," he stated. "At any rate, the allowance for loan losses has been strengthened to provide for a probable increase in loss experience in the months ahead. The allowance now stands at 1.37% of total loans, up from 1.27% last year. This action required that we increase our provision for probable loan losses to $415,000 this year compared to $240,000 in the prior year. This increase, along with a $171,000 loss on foreclosed real estate, represented 35.6% of the decline in earnings this year. "Another factor that limited our performance this past year was the continued pressure on our net interest margin," Platt continued. "During the unusually low interest rate environment of the past few years, the company has experienced compression in its net interest margin, the difference between what the company pays for its deposits and borrowings and what it is able to earn on its loans and investments. With short-term interest rates hovering just above zero for much of the past couple of years, the company had little opportunity to further reduce its cost of funds, while the yields available on loans and investments continued to decline as assets matured and re-priced. With the Federal Reserve now in the process of gradually removing excess monetary accommodation, short-term interest rates have begun to move up and more typical interest rate spreads are returning. As a result, the company's net interest margin was able to stabilize during 2004, albeit at a lower level than last year. We were able to offset some of this with growth in our earning assets. Still, the change in the company's net interest income accounted for 48.5% of our earnings decline."Still another major factor in the 2004 results was a "dramatic slowdown" in mortgage originations and refinancing activity in 2004 from the tidal wave pace of the past few years was the other major factor impacting us this year," Platt noted. "This slowdown impacted our ability to sell loans into the secondary mortgage market. As a result, gains on the sale of mortgage loans declined from $470,000 in 2003 to just $54,000 in 2004. This decline represented 42.9% of the decrease in 2004 earnings."The company's capital ratios remain well above regulatory minimums, with equity capital representing more than 11% of assets, Platt said. Shareholder book value measured $11.85 at the end of 2004 compared to $12.01 per share as of Dec. 31, 2003."