Cortland Bancorp Reports Q1 Net Income Up 37%

CORTLAND, Ohio — Cortland Bancorp, the holding company for Cortland Savings and Banking Co., reports net income of $2.1 million, or 49 cents per share, for the first quarter, an increase of 37% over the $1.5 million, or 35 cents per share for the first quarter of 2018.   The return on average assets and return on average equity for 2019 were 1.22% and 12.75% compared to 0.91% and 10.13% for 2018, respectively.

“As we continue to expand and introduce our brand into new markets in northeast Ohio, we are generating new opportunities to build our deposit base and grow our loan portfolio, said James Gasior, president and CEO in a prepared statement. “This has translated into overall asset growth, which combined with a disciplined approach to loan and deposit pricing as well as in expense control, is producing the desired results.  Over the last several years, our organic growth strategies, have translated into higher revenues, an expanded net interest margins while expense control measures have resulted in a substantially improved efficiency ratio.”

The board of directors declared a quarter dividend of 11 cents per share. “With the intent of increasing shareholder value, the continued dividend combined with opportunistic share repurchases allow the company to provide increased returns to shareholders,” Gasior said.

The company listed these highlights for the quarter ended March 31:

• The efficiency ratio was 63.69% for 2019, versus 64.66% for 2018.
• Net interest income increased 11% to $6.2 million, compared to $5.6 million in 2018.
• Total loans grew 7% to $482 million from $452 million a year ago.
• Total deposits grew 3% to $572 million from 2018.
• Nonperforming assets were 1.28% of total assets versus 1.56% a year ago.
• Cortland Bancorp remained well capitalized with total risk-based capital to risk-weighted assets of 13.56% and tangible equity to tangible assets of 9.97%.
• A quarterly cash dividend of $0.11 per share will be payable on June 3, 2019 to shareholders of record on May 13, 2019.
• The company was approved to trade on the NASDAQ National Market and began trading on the exchange on March 8.
• The new Strongsville branch location opened in February, extending the bank’s footprint into southern Cuyahoga County.

The 11% increase in net interest income over 2018 was primarily the result of 7% loan growth over the same period. Additionally, the rate hikes initiated by the Federal Reserve, one each in March, June, September, and December of 2018 have contributed to increase the yield on loans, the company said.

Loan yield of 5.33% for the first quarter improved by 55 basis points from the loan yield of 4.78% for the same quarter last year.

While cost of deposits has also increased on a year over year basis, the increase was just 32 basis points, thus contributing to margin expansion in 2019.  Net interest margin was 3.90% compared to 3.62% for the first quarter a year ago.

Non-interest income was up $212,000 in the first quarter 2019 or 21% over the same period last year. The improvement was led by an increase of $99,000 in mortgage banking gains, supplemented by an increase of $54,000 in earnings on bank-owned life insurance. Despite slightly lower mortgage originations this quarter ($11 million versus $12 million), an improved margin drove the higher gains. Much of the recent volume has been construction loans, the disbursements for which will occur in coming months.

Non-interest expense was $4.8 million compared to $4.3 million for first quarters of 2019 and 2018, respectively. 

“With the investments of opening of our Strongsville branch this quarter and entry onto the Nasdaq trading platform, the company and bank subsidiary recorded additional expense to enhance the visibility of its common stock and to meet organic growth objectives,” explained Gasior. “The company has made a meaningful improvement in its efficiency ratio.”  The efficiency ratio for the first quarter 2019 was 63.69%, still an improvement compared to 64.66% for the same period a year ago

The effective tax rate was 15.8% compared to 13.6% for the first quarters 2019 and 2018, respectively. The Tax Act reduced the corporate income tax rate from 34% to 21% beginning in 2018. Further reductions in the rate are realized by the company resulting from tax free investment income and earnings on bank-owned life insurance

Total assets were $685 million at March 31, compared to $663 million at March 31, 2018, and $715 million at December 31, 2018.

“We continue to drive revenue through consistent loan production,” commented Gasior. Total loans increased 7% year over year and 2% on linked quarter basis, exclusive of $41 million of seasonal short-term production. The loan to deposit ratio has increased to just over 84% from 81% a year ago. Average loan balances, which help smooth out some of the seasonal impact, increased 2% on a linked quarter basis and 6% year-over-year.

The loan portfolio remains diversified and comprised of both retail and business relationships with commercial real estate loans accounting for 65%, of which 14% were owner-occupied by businesses. Commercial loans accounted for 15% while residential 1-4 loans accounted for 14%. 

“Our loan production remains solid, benefiting from the expansion into other Ohio markets,” added Gasior.

Total deposits grew by $17 million, or 3%, to $572 million at March 31, from $555 million at March 31, 2018. Excluding $41 million of seasonal short-term accounts at year-end 2018, deposits grew by $8 million or 1% on a linked quarter basis. Noninterest-bearing deposits accounted for 23% of total deposits; while certificates of deposits were 24% of the deposit mix.

“The Kasasa free checking account program continues to be successful with more than 4,800 accounts now opened. Online account opening was launched allowing customers to open a Rewards Kasasa account on their computer or mobile device,” commented Gasior.

Nonperforming loans were $8.8 million, compared to $9.3 million a year earlier and $10.1 million, at December 31, 2018. A provision for loan losses of $175,000 was recorded in the current quarter, versus $75,000 last quarter, and $500,000 in the first quarter last year. Performing restructured loans, that are included in nonperforming loans at the end of the quarter were $6.7 million, compared to $8.3 million a year ago and $7.9 million on a linked quarter basis.

SOURCE: Cortland Bancorp.

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