Document:

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                                                                    EXHIBIT 10.2

                            GROUP TERM CARVE OUT PLAN
                     AMENDED SPLIT DOLLAR POLICY ENDORSEMENT
                    THE CORTLAND SAVINGS AND BANKING COMPANY

POLICY NO. 85998027                               INSURED: Stephen A.Telego, Sr.

     Supplementing and amending the application of The Cortland Savings and
Banking Company (the "Bank") on January 5, 2001 to Great-West Life & Annuity
Insurance Company (the "Insurer"), the applicant requests and directs that:

                                  BENEFICIARIES

     1. The beneficiary designated by the Insured, or his/her transferee shall
be the beneficiary of one of the following death benefit amounts, subject to the
provisions of paragraph 5 below:

     (a)  Pre-Retirement Death Benefit. If the Insured/Participant was employed
          by the Bank at the time of death, the death benefit shall be the
          lesser of : (1) two times the Participant's Base Annual Salary
          (defined in the Cortland Savings and Banking Company Group Term Carve
          Out Plan dated as of February 23, 2001, as amended (the "Plan")), less
          $50,000; or (2) $350,000.

     (b)  Post-Retirement Death Benefit. If the Insured/Participant was no
          longer employed by the Bank at the time of death, but terminated
          within one year after a Change of Control (defined in the Plan) or
          terminated due to Disability (defined in the Plan) or on or after
          Early Retirement Age (defined in the Plan), the death benefit shall be
          the lesser of: (1) one times the Participant's Base Annual Salary
          (defined in the Plan); or (2) $500,000.

     The Insurer may rely on a certificate issued by an authorized officer of
the Bank for a determination of the amount equal to one or two times Base Annual
Salary of the Insured.

     2. The beneficiary of any remaining death proceeds shall be The Cortland
Savings and Banking Company, an Ohio-chartered, FDIC-insured member bank with
its main offices in Cortland, Ohio.

                                    OWNERSHIP

     3. The Owner of the Policy shall be the Bank. The Owner shall have all
ownership rights in the Policy except as may be specifically granted to the
Insured or his/her transferee in paragraph (4) of this endorsement.

     4. The Insured or his/her transferee shall have the right to assign all
rights and interests in the Policy with respect to that portion of the death
proceeds designated in paragraph

<PAGE>

(1) of this endorsement, and to exercise all settlement options with respect to
such death proceeds.

     5. Notwithstanding the provisions of paragraph (4) above, the Insured or
the Insured's transferee shall have no rights or interests in the Policy with
respect to that portion of the death proceeds designated in paragraph (1) of
this endorsement if any of the following events occur:

     (a)  If the Insured/Participant is Terminated for Cause (as defined in the
          Plan).

     (b)  If the Insured/Participant's employment with the Bank is terminated
          prior to Early Retirement Age (as defined in the Plan), for reasons
          other than Disability (as defined in the Plan) or Change of Control
          (as defined in the Plan).

     (c)  If the Insured/Participant terminates employment due to Disability
          (defined in the Plan) and thereafter becomes gainfully employed with
          an entity other than the Bank.

               MODIFICATION OF ASSIGNMENT PROVISIONS OF THE POLICY

     6. Upon the death of the Insured, the interest of any collateral assignee
of the Owner of the Policy designated in paragraph (3) above shall be limited to
the portion of the proceeds described in paragraph (2) above.

                                OWNER'S AUTHORITY

     7. The Insurer is hereby authorized to recognize the Owner's claim to
rights hereunder without investigating the reason for any action taken by the
Owner, including the Owner's statement of the amount of premiums the Owner has
paid on the Policy. The signature of the Owner shall be sufficient for the
exercise of any rights under this Endorsement and the receipt of the Owner for
any sums received by it shall be a full discharge and release to the Insurer.
The Insurer may rely on a sworn statement in form satisfactory to it furnished
by the Owner, its successors or assigns, as to their interest and any payments
made pursuant to such statement shall discharge the Bank accordingly.

     8. Any transferee's rights shall be subject to this Endorsement.

     9. The Owner accepts and agrees to this split dollar endorsement.

                        PRIOR ENDORSEMENTS ARE SUPERSEDED

     10. This Amended Split Dollar Policy Endorsement supersedes any and all
endorsements previously executed by the undersigned Insured under the Plan with
respect to the above-referenced Policy.

<PAGE>

                DEATH BENEFIT FORMULA SUPERSEDES THE PLAN FORMULA

     11. Death benefits payable under the Plan and this endorsement to the
beneficiary(ies) designated by the Insured shall be calculated solely by
reference to the pre-retirement death benefit formula and the post-retirement
death benefit formula stated in paragraph (1) of this endorsement,
notwithstanding that the Plan may provide for a different calculation or
formula.

                                   SIGNATURES

     The undersigned is signing in a representative capacity on behalf of the
Bank and warrants that he or she has the authority to bind the entity on whose
behalf this document is being executed.

     Signed by the Bank at Cortland, Ohio, this ______ day of ________________ ,
200__.

          THE CORTLAND SAVINGS AND BANKING COMPANY

By:
    ---------------------------------
Its:
     --------------------------------

     ACCEPTANCE AND BENEFICIARY DESIGNATION

     The Insured accepts and agrees to the foregoing and, subject to the rights
of the Owner as stated above, designates (relationship:
_____________________________________________________) as primary
beneficiary(ies) and (relationship:
_____________________________________________________ ) as secondary/contingent
beneficiary(ies) of the portion of the proceeds described in paragraph (1)
above.

     Signed by the Insured at , Ohio, this ______ day of ________________ ,
200__.

          INSURED

-------------------------------------
Stephen A. Telego, Sr.<PAGE>

                                                                    EXHIBIT 10.3

                                CORTLAND BANCORP
                          DIRECTOR RETIREMENT AGREEMENT

     THIS DIRECTOR RETIREMENT AGREEMENT (this "Agreement") is made as of ___,
2005, by and between Cortland Bancorp, a bank holding company located in
Cortland, Ohio (the "Company") and Jerry A. Carleton (the "Director").

     To encourage the Director to remain a member of the Company's board of
directors, the Company is willing to provide retirement benefits to the
Director. The Company will pay the benefits from its general assets. None of the
conditions or events included in the definition of the term "golden parachute
payment" that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit
Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance
Corporation Rule 359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)] exists or, to the best
knowledge of the Company, is contemplated insofar as the Company or the Cortland
Savings and Banking Company is concerned.

                                    AGREEMENT

     In consideration of the foregoing premises and other good and valuable
consideration, the receipt and acceptance of which are hereby acknowledged, the
Director and the Company hereby agree as follows:

                                    ARTICLE 1
                                   DEFINITIONS

     Whenever used in this Agreement, the following words and phrases shall have
the meanings specified:

     1.1 "Accrual Balance" means the liability that should be accrued by the
Company under generally accepted accounting principles ("GAAP") for the
Company's obligation to the Director under this Agreement, by applying
Accounting Principles Board Opinion No. 12, as amended by Statement of Financial
Accounting Standards No. 106, and the calculation method and discount rate
specified hereinafter. The Accrual Balance shall be calculated assuming a level
principal amount and interest as the discount rate is accrued each period. The
principal accrual is determined such that when it is credited with interest each
month, the Accrual Balance at Normal Retirement Age equals the present value of
the normal retirement benefits. The discount rate means the rate used by the
Plan Administrator for determining the Accrual Balance. The rate is based on the
yield on a 20-year corporate bond rated Aa by Moody's, rounded to the nearest
1/4%. The initial discount rate is 6.75%. However, the Plan Administrator, in
its sole discretion, may adjust the discount rate to maintain the rate within
reasonable standards according to GAAP.

<PAGE>

     1.2 "Beneficiary" means each designated person, or the estate of the
deceased Director, entitled to benefits, if any, upon the death of the Director,
determined according to Article 4.

     1.3 "Beneficiary Designation Form" means the form established from time to
time by the Plan Administrator that the Director completes, signs, and returns
to the Plan Administrator to designate one or more Beneficiaries.

     1.4 "Change in Control" means any of the following events occur:

          (a) the acquisition by a person or persons acting in concert of the
     power to vote 25% or more of a class of the Company's voting securities,

          (b) during any period of two consecutive years, individuals who at the
     beginning of such period constitute the board of directors of the Company
     cease for any reason to constitute at least a majority thereof, provided,
     however, that - for purposes of this clause (b) - each director who is
     first elected by the board (or first nominated by the board for election by
     shareholders) by a vote of at least two-thirds (2/3) of the directors then
     in office shall be deemed to have been a director at the beginning of the
     period,

          (c) the Company shall have merged into or consolidated with another
     corporation, or merged another corporation into the Company, on a basis
     whereby less than 50% of the total voting power of the surviving
     corporation is held by persons who were shareholders of the Company
     immediately before the merger or consolidation, or

          (d) the Company shall have sold substantially all of its assets to
     another person.

     For purposes of this Agreement, the term "person" means an individual,
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization, or other entity.

     Notwithstanding this definition of Change in Control, a Change in Control
shall not be deemed to have occurred solely because a person's beneficial
ownership of more than 25% of the Company's voting securities is the result of
the Company's acquisition of its voting securities, reducing the number of the
Company's voting securities outstanding; provided, however, that if such person
acquires additional voting securities of the Company, increasing the percentage
of outstanding Company voting securities beneficially owned by that person, a
Change in Control shall be deemed to have occurred.

     1.5 "Code" means the Internal Revenue Code of 1986, as amended.

<PAGE>

     1.6 "Disability" means, if the Director is covered by a Company-sponsored
disability policy, total disability as defined in such policy without regard to
any waiting period. If the Director is not covered by such a policy, Disability
means the Director suffers a sickness, accident or injury that, in the judgment
of a physician satisfactory to the Company, prevents the Director from
performing substantially all of the Director's normal duties for the Company. As
a condition to receiving any Disability benefits, the Company may require the
Director to submit to such physical or mental evaluations and tests as the
Company's board of directors deems appropriate.

     1.7 "Early Termination" means Termination of Service before the Normal
Retirement Age for reasons other than death, Disability, Termination for Cause,
or following a Change in Control.

     1.8 "Early Termination Date" means the month, day, and year of Early
Termination.

     1.9 "Effective Date" means March 1, 2005.

     1.10 "Normal Retirement Age" means the Director's 70th birthday.

     1.11 "Normal Retirement Date" means the later of the Normal Retirement Age
or Termination of Service.

     1.12 "Plan Administrator" means the plan administrator described in Article
7.

     1.13 "Plan Year" means each twelve-month period from the Effective Date of
this Agreement.

     1.14 "Termination for Cause" means the Director is not nominated by the
board or nominating committee for reelection as a director after the expiration
of his current term, or the Director is removed from the board of directors, in
either case -

          (a) because of the Director's gross negligence or gross neglect of
     duties, or

          (b) because of the Director's commission of a felony, or commission of
     a misdemeanor involving moral turpitude, or

          (c) because of the Director's fraud, disloyalty, dishonesty, or
     willful violation of any law or significant policy of the Company committed
     in connection with the Director's service and resulting in an adverse
     effect on the Company, or

          (d) because the Director is removed from service or permanently
     prohibited from participating in the Company's or the Cortland Savings and

<PAGE>

     Banking Company's affairs by an order issued under Section 8(e)(4) or
     (g)(1) of the Federal Deposit Insurance Act [12 U.S.C. 1818(e)(4) or
     (g)(1)].

     1.15 "Termination of Service" means the Director ceases to be a member of
the Company's board of directors for any reason whatsoever. For purposes of this
Agreement, if there is a dispute over the service status of the Director or the
date of the Director's Termination of Service, the Company shall have the sole
and absolute right to decide the dispute unless a Change in Control shall have
occurred.

                                    ARTICLE 2
                                LIFETIME BENEFITS

     2.1 Normal Retirement Benefit. For Termination of Service on or after
Normal Retirement Age, the Company shall pay to the Director the benefit
described in this Section 2.1 instead of any other benefit under this Agreement.

          2.1.1 Amount of Benefit. The annual benefit under this Section 2.1 is
     $10,000.

          2.1.2 Payment of Benefit. The Company shall pay the annual benefit to
     the Director in 12 equal monthly installments payable on the first day of
     each month, beginning with the month after the Director's Normal Retirement
     Date. The annual benefit shall be paid to the Director for 10 years.

     2.2 Early Termination Benefit. After Early Termination, the Company shall
pay to the Director the benefit described in this Section 2.2 instead of any
other benefit under this Agreement.

          2.2.1 Amount of Benefit. The benefit under this Section 2.2 is the
     Early Termination annual benefit set forth in Schedule A for the Plan Year
     ending immediately before the Early Termination Date (except during the
     first Plan Year, the benefit is the amount set forth for Plan Year 1).

          2.2.2 Payment of Benefit. The Company shall pay the annual benefit to
     the Director in 12 equal monthly installments payable on the first day of
     each month, beginning with the month after the Normal Retirement Age. The
     annual benefit shall be paid to the Director for 10 years.

     2.3 Disability Benefit. If the Director terminates service because of
Disability before the Normal Retirement Age, the Company shall pay to the
Director the benefit described in this Section 2.3 instead of any other benefit
under this Agreement.

          2.3.1 Amount of Benefit. The benefit under this Section 2.3 is the
     Disability annual benefit set forth in Schedule A for the Plan Year ending
     immediately before the

<PAGE>

     date of Termination of Service (except during the first Plan Year, the
     benefit is the amount set forth for Plan Year 1).

          2.3.2 Payment of Benefit. The Company shall pay the annual benefit to
     the Director in 12 equal monthly installments payable on the first day of
     each month, beginning with the month after the Normal Retirement Age. The
     annual benefit shall be paid to the Director for 10 years.

     2.4 Change in Control Benefit. If the Director's service with the Company
terminates within one year after a Change in Control (except for Termination for
Cause), the Company shall pay to the Director the benefit described in this
Section 2.4 instead of any other benefit under this Agreement.

          2.4.1 Amount of Benefit. The benefit under this Section 2.4 is the
     Accrual Balance on the date of the Director's Termination of Service.

          2.4.2 Payment of Benefit. The Company shall pay this benefit to the
     Director in a lump sum within 3 days after the Director's Termination of
     Service.

     2.5 Contradiction in Terms of Agreement and Schedule A. If there is a
contradiction in the terms of this Agreement and Schedule A attached hereto
concerning the benefits due under Section 2.2, 2.3, or 2.4 hereof, then the
actual amount of benefits prescribed by this Agreement shall control. If the
Plan Administrator changes the discount rate employed for purposes of
calculating the Accrual Balance, the Plan Administrator shall prepare or cause
to be prepared a revised Schedule A, which shall supersede and replace any and
all Schedules A previously prepared under or attached to this Agreement.

     2.6 Savings Clause Relating to Compliance with Code Section 409A. If any
provision of this Agreement does not satisfy the requirements of Code section
409A or rules, regulations, and guidance of general application issued by the
Department of the Treasury under Code section 409A, such provision shall be
applied in a manner consistent with those requirements, notwithstanding any
provision of this Agreement.

                                    ARTICLE 3
                                 DEATH BENEFITS

     Instead of any other benefit under this Agreement, the Director's
Beneficiary shall be entitled to receive the following benefits under Articles
3.1, 3.2, 3.3, or 3.4, depending on whether the Director's death occurs during
or after active service and before or after Normal Retirement Age.

     3.1 Death in Active Service Before Normal Retirement Age. If the Director
dies before Normal Retirement Age while in the active service of the Company,
the Company shall pay to the Director's Beneficiary a lump sum benefit in an
amount equal to the Accrual Balance

<PAGE>

on the date of the Director's death. The Company shall pay this benefit to the
Director's Beneficiary in a lump sum within 30 days after the Director's death.

     3.2 Death in Active Service After Normal Retirement Age. If the Director
dies after Normal Retirement Age while in the active service of the Company, the
Company shall for a period of 10 years pay to the Director's Beneficiary the
Normal Retirement Benefit provided in Article 2.1.1.

     3.3 Death After Termination of Service Before Normal Retirement Age. (a)
After Payments Commence. If, a Termination of Service before Normal Retirement
Age having previously occurred, the Director dies after benefit payments
commence under Article 2.2 of this Agreement but before receiving all such
payments, the Company shall pay the remaining benefits to the Director's
Beneficiary at the same time and in the same amounts they would have been paid
to the Director had the Director survived.

          (b) Before Payments Commence. If, a Termination of Service before
Normal Retirement Age having previously occurred, the Director is entitled to
any benefit pursuant to Article 2.2 of this Agreement but dies before the
benefit payments commence, the Company shall pay the same aggregate benefit
payments to the Director's Beneficiary that the Director was entitled to before
death, except that the benefit payments shall commence on the first day of the
month after the date of the Director's death.

     3.4 Death After Termination of Service After Normal Retirement Age. (a)
After Payments Commence. If, a Termination of Service on or after Normal
Retirement Age having previously occurred, the Director dies after benefit
payments commence under Article 2.1 of this Agreement but before receiving all
such payments, the Company shall pay the remaining benefits to the Director's
Beneficiary at the same time and in the same amounts they would have been paid
to the Director had the Director survived.

          (b) Before Payments Commence. If, a Termination of Service on or after
Normal Retirement Age having previously occurred, the Director is entitled to
any benefit pursuant to Article 2.1 of this Agreement but dies before the
benefit payments commence, the Company shall pay the same aggregate benefit
payments to the Director's Beneficiary that the Director was entitled to before
death, except that the benefit payments shall commence on the first day of the
month after the date of the Director's death.

                                    ARTICLE 4
                                  BENEFICIARIES

     4.1 Beneficiary Designations. The Director shall designate a Beneficiary by
filing a written designation with the Company. The Director may revoke or modify
the designation at any time by filing a new designation. However, designations
will only be effective if signed by the Director and received by the Company
during the Director's lifetime. The Director's beneficiary designation shall be
deemed automatically revoked if the Beneficiary predeceases the

<PAGE>

Director or if the Director names a spouse as Beneficiary and the marriage is
subsequently dissolved. If the Director dies without a valid beneficiary
designation, the Director's estate shall be the Beneficiary.

     4.2 Facility of Payment. If a benefit is payable to a minor, to a person
declared incapacitated, or to a person incapable of handling the disposition of
his or her property, the Company may pay such benefit to the guardian, legal
representative, or person having the care or custody of such minor,
incapacitated person, or incapable person. The Company may require proof of
incapacity, minority, or guardianship as it may deem appropriate prior to
distribution of the benefit. Such distribution shall completely discharge the
Company from all liability with respect to such benefit.

                                    ARTICLE 5
                               GENERAL LIMITATIONS

     5.1 Termination for Cause. Notwithstanding any provision of this Agreement
to the contrary, the Company shall not pay any benefit under this Agreement and
this Agreement shall terminate if the Director's Termination of Service is the
result of Termination for Cause. Likewise, no benefits shall be paid under the
Split Dollar Agreement and Endorsement between the Company and the Director and
the Split Dollar Agreement and Endorsement also shall terminate if Termination
of Service is the result of Termination for Cause. The board of directors or a
duly authorized committee of the board shall have the sole and absolute right to
determine whether the bases for denial of benefits for cause exist. Benefits may
be denied for cause regardless of whether the Director continued to serve as a
director after the board or committee made its determination not to nominate the
Director for reelection.

     5.2 Suicide or Misstatement. The Company shall not pay any benefit under
this Agreement if the Director commits suicide within two years after the date
of this Agreement, or if the Director has made any material misstatement of fact
on any application for life insurance purchased by the Company.

                                    ARTICLE 6
                          CLAIMS AND REVIEW PROCEDURES

     6.1 Claims Procedure. The Company shall notify any person or entity that
makes a claim for benefits under this Agreement (the "Claimant") in writing,
within 90 days of Claimant's written application for benefits, of his or her
eligibility or noneligibility for benefits under the Agreement. If the Company
determines that the Claimant is not eligible for benefits or full benefits, the
notice shall set forth (1) the specific reasons for such denial, (2) a specific
reference to the provisions of the Agreement on which the denial is based, (3) a
description of any additional information or material necessary for the Claimant
to perfect his or her claim, and a description of why it is needed, and (4) an
explanation of the Agreement's claims review procedure and other appropriate
information as to the steps to be taken if the Claimant wishes to have the claim
reviewed. If the Company determines that there are special circumstances
requiring additional time to make a decision, the Company shall notify the
Claimant of the

<PAGE>

special circumstances and the date by which a decision is expected to be made,
and may extend the time for up to an additional 90 days.

     6.2 Review Procedure. If the Claimant is determined by the Company not to
be eligible for benefits, or if the Claimant believes that he or she is entitled
to greater or different benefits, the Claimant shall have the opportunity to
have such claim reviewed by the Company by filing a petition for review with the
Company within 60 days after receipt of the notice issued by the Company. Said
petition shall state the specific reasons, which the Claimant believes entitle
him or her to benefits or to greater or different benefits. Within 60 days after
receipt by the Company of the petition, the Company shall afford the Claimant
(and counsel, if any) an opportunity to present his or her position to the
Company verbally or in writing, and the Claimant (or counsel) shall have the
right to review the pertinent documents. The Company shall notify the Claimant
of its decision in writing within the 60-day period, stating specifically the
basis of its decision, written in a manner to be understood by the Claimant and
the specific provisions of the Agreement on which the decision is based. If,
because of the need for a hearing, the 60-day period is not sufficient, the
decision may be deferred for up to another 60 days at the election of the
Company, but notice of this deferral shall be given to the Claimant.

                                    ARTICLE 7
                           ADMINISTRATION OF AGREEMENT

     7.1 Plan Administrator Duties. This Agreement shall be administered by a
Plan Administrator consisting of the Company's board of directors or such
committee or person(s) as the board shall appoint. The Director may be a member
of the Plan Administrator. The Plan Administrator shall also have the discretion
and authority to (a) make, amend, interpret, and enforce all appropriate rules
and regulations for the administration of this Agreement and (b) decide or
resolve any and all questions, including interpretations of this Agreement, as
may arise in connection with the Agreement.

     7.2 Agents. In the administration of this Agreement, the Plan Administrator
may employ agents and delegate to them such administrative duties as it sees fit
(including acting through a duly appointed representative), and may from time to
time consult with counsel, who may be counsel to the Company.

     7.3 Binding Effect of Decisions. The decision or action of the Plan
Administrator with respect to any question arising out of or in connection with
the administration, interpretation, and application of the Agreement and the
rules and regulations promulgated hereunder shall be final and conclusive and
binding upon all persons having any interest in the Agreement. No Director or
Beneficiary shall be deemed to have any right, vested or nonvested, regarding
the continued use of any previously adopted assumptions, including but not
limited to the discount rate and calculation method employed in the
determination of the Accrual Balance.

     7.4 Indemnity of Plan Administrator. The Company shall indemnify and hold
harmless the members of the Plan Administrator against any and all claims,
losses, damages,

<PAGE>

expenses, or liabilities arising from any action or failure to act with respect
to this Agreement, except in the case of willful misconduct by the Plan
Administrator or any of its members.

     7.5 Company Information. To enable the Plan Administrator to perform its
functions, the Company shall supply full and timely information to the Plan
Administrator on all matters relating to the date and circumstances of the
retirement, Disability, death, or Termination of Service of the Director, and
such other pertinent information as the Plan Administrator may reasonably
require.

                                    ARTICLE 8
                                  MISCELLANEOUS

     8.1 Amendment and Termination. This Agreement may be amended solely by a
written agreement signed by the Company and by the Director. Except as provided
in Article 5, this Agreement may be terminated solely by a written agreement
signed by the Company and by the Director.

     8.2 Binding Effect. This Agreement shall bind the Director and the Company,
and their beneficiaries, survivors, executors, successors, administrators, and
transferees.

     8.3 No Guarantee of Service. This Agreement is not a contract for services.
It does not give the Director the right to remain a Director of the Company, nor
does the Agreement interfere with the right of the Company's shareholders not to
re-elect the Director or the right of shareholders or the Board to remove an
individual as a director of the Company. The Agreement also does not require the
Director to remain a director nor interfere with the Director's right to
terminate service at any time.

     8.4 Non-Transferability. Benefits under this Agreement cannot be sold,
transferred, assigned, pledged, attached, or encumbered in any manner.

     8.5 Successors; Binding Agreement. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company, by an
assumption agreement in form and substance satisfactory to the Director, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform this Agreement if
no such succession had occurred.

     8.6 Tax Withholding. The Company shall withhold any taxes that are required
to be withheld from the benefits provided under this Agreement.

     8.7 Applicable Law. The Agreement and all rights hereunder shall be
governed by the laws of the State of Ohio, except to the extent preempted by the
laws of the United States of America.

<PAGE>

     8.8 Unfunded Arrangement. The Director and beneficiary are general
unsecured creditors of the Company for the payment of benefits under this
Agreement. The benefits represent the mere promise by the Company to pay
benefits. The rights to benefits are not subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors. Any insurance on the Director's life is a general
asset of the Company to which the Director and beneficiary have no preferred or
secured claim.

     8.9 Entire Agreement. This Agreement and the Split Dollar Agreement and
Endorsement constitute the entire agreement between the Company and the Director
concerning the subject matter hereof. No rights are granted to the Director
under this Agreement other than those specifically set forth herein.

     8.10 Severability. If for any reason any provision of this Agreement is
held invalid, such invalidity shall not affect any other provision of this
Agreement not held invalid, and each such other provision shall continue in full
force and effect to the full extent consistent with law. If any provision of
this Agreement is held invalid in part, such invalidity shall not affect the
remainder of such provision, and the remainder of such provision, together with
all other provisions of this Agreement, shall continue in full force and effect
to the full extent consistent with law.

     8.11 Headings. The headings of Sections herein are included solely for
convenience of reference and shall not affect the meaning or interpretation of
any provision of this Agreement.

     8.12 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, certified or registered mail, return receipt
requested, with postage prepaid, to the following addresses or to such other
address as either party may designate by like notice. If to the Company, notice
shall be given to the board of directors, Cortland Bancorp, 194 W. Main Street,
P.O. Box 98, Cortland, Ohio 44410-1466, or to such other or additional person or
persons as the Company shall have designated to the Director in writing. If to
the Director, notice shall be given to the Director at the address of the
Director appearing on the Company's records, or to such other or additional
person or persons as the Director shall have designated to the Company in
writing.

     IN WITNESS WHEREOF, the Director and a duly authorized Company officer have
executed this Agreement as of the date first written above.

DIRECTOR                                CORTLAND BANCORP

                                        By:
-------------------------------------       ------------------------------------
Jerry A. Carleton                       Title:
                                               ---------------------------------

<PAGE>

                             BENEFICIARY DESIGNATION
                                CORTLAND BANCORP
                          DIRECTOR RETIREMENT AGREEMENT

     I, Jerry A. Carleton, designate the following as beneficiary of any death
benefits under this Director Retirement Agreement:

Primary: ______________________________________________________________________

_______________________________________________________________________________

Contingent: ___________________________________________________________________

_______________________________________________________________________________

NOTE: TO NAME A TRUST AS BENEFICIARY, PLEASE PROVIDE THE NAME OF THE TRUSTEE(S)
      AND THE EXACT NAME AND DATE OF THE TRUST AGREEMENT.

     I understand that I may change these beneficiary designations by filing a
new written designation with the Company. I further understand that the
designations will be automatically revoked if the beneficiary predeceases me,
or, if I have named my spouse as beneficiary and our marriage is subsequently
dissolved.

Signature:
           --------------------------
           Jerry Carleton

Date: ______________________, 2005

Received by the Company this ___________ day of _________________, 2005.

By:
    ---------------------------------
Title:
       ------------------------------

<PAGE>

                                   SCHEDULE A
                                CORTLAND BANCORP
                          DIRECTOR RETIREMENT AGREEMENT

Director Jerry A. Carleton
Normal Retirement Age: 70

<TABLE>
<CAPTION>
                                        EARLY
                                     TERMINATION      DISABILITY
                AGE                ANNUAL BENEFIT   ANNUAL BENEFIT
                AT                   PAYABLE AT       PAYABLE AT     CHANGE-IN-CONTROL
  PLAN YEAR    PLAN    ACCRUAL         NORMAL           NORMAL            BENEFIT
   ENDING      YEAR   BALANCE @    RETIREMENT AGE   RETIREMENT AGE      PAYABLE IN A
FEBRUARY 28,    END   6.75% (1)          (2)              (2)           LUMP SUM (3)
------------   ----   ---------    --------------   --------------   -----------------
<S>            <C>    <C>          <C>              <C>              <C>
    2006        63     $ 7,420         $ 1,602          $ 1,602           $ 7,420
    2007        64     $15,358         $ 3,099          $ 3,099           $15,358
    2008        65     $23,847         $ 4,499          $ 4,499           $23,847
    2009        66     $32,928         $ 5,807          $ 5,807           $32,928
    2010        67     $42,641         $ 7,031          $ 7,031           $42,641
    2011        68     $53,031         $ 8,175          $ 8,175           $53,031
    2012        69     $64,143         $ 9,244          $ 9,244           $64,143
  November      70     $72,983(4)      $10,000          $10,000           $72,983
    2012
</TABLE>

     (1) Calculations are approximations. Benefit calculations are based on
prior year-end accrual balances. The accrual balance reflects payment at the
beginning of each month during retirement, beginning December 1, 2012.

     (2) Benefit is based on the present value of the current payment stream of
the vested accrual balance using a standard discount rate (6.75%).

     (3) The benefit payable under section 2.4 for Termination of Service after
a Change in Control is the Accrual Balance on the date of the Director's
Termination of Service. The benefit is shown for illustrative purposes only.

     (4) Projected retirement occurs on November 22, 2012, with the first normal
monthly retirement benefit commencing December 1, 2012.

     If there is a contradiction between the terms of the Agreement and Schedule
A concerning the actual amount of a particular benefit amount due the Executive
under Section 2.2, 2.3, or 2.4 of the Agreement, then the actual amount of the
benefit set forth in the Agreement shall control. If the Plan Administrator
changes the discount rate employed for purposes of calculating the Accrual
Balance, the Plan Administrator shall prepare or cause to be prepared a revised
Schedule A, which shall supersede and replace any and all Schedules A previously
prepared under or attached to the Agreement.

                                       12

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