Document:

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                                                                    EXHIBIT 10.8

                                CORTLAND BANCORP
                          DIRECTOR RETIREMENT AGREEMENT

     THIS DIRECTOR RETIREMENT AGREEMENT (this "Agreement") is made as of March
1, 2004, by and between Cortland Bancorp, a bank holding company located in
Cortland, Ohio (the "Company") and Neil J. Kaback (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.

     1.2 "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.

<PAGE>

     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.

     1.3 "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.

     1.4 "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.

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

     1.6 "Effective Date" means March 1, 2004.

     1.7 "Normal Retirement Age" means the Director's 67th birthday.

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

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

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

     1.11 "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
     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)].

     1.12 "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

<PAGE>

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 prior to 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 prior to the 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
     benefit determined under Schedule A based on the date of the Director's
     Termination of Service, which is determined by vesting the Director in 100%
     of the Accrual Balance.

          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.

                                    ARTICLE 3

<PAGE>

                                 DEATH BENEFITS

     Instead of any other benefit under this Agreement, the Director's
beneficiary(ies) 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(ies) a lump sum benefit
determined by vesting the Director in 100% of the Accrual Balance on the
Director's date of death. The Company shall pay this benefit to the Director's
beneficiary(ies) in a lump sum within 30 days following 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(ies)
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(ies) 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(ies) 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(ies) 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(ies) 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 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

<PAGE>

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, the Company shall not pay any
benefits under the Split Dollar Agreement and Endorsement, 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 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

<PAGE>

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, 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 rights 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 services 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. Failure of the Company to obtain such
assumption agreement before effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Director to the Change in Control
benefit provided in Section 2.4.

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

<PAGE>

     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.

     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:
-------------------------------------       ------------------------------------
Neil J. Kaback                          Title:
                                               ---------------------------------

<PAGE>

                             BENEFICIARY DESIGNATION
                                CORTLAND BANCORP
                          DIRECTOR RETIREMENT AGREEMENT

     I, Neil J. Kaback, 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:
           --------------------------
           Neil J. Kaback

Date: __________________, 2004

Received by the Company this ________ day of _________, 2004.

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

<PAGE>

                                   SCHEDULE A
                                CORTLAND BANCORP
                          DIRECTOR RETIREMENT AGREEMENT

Neil J. Kaback
Normal Retirement Age: 67

<TABLE>
<CAPTION>
                                          EARLY
                                       TERMINATION      DISABILITY
                   AGE               ANNUAL BENEFIT   ANNUAL BENEFIT   CHANGE-IN-
                   AT                  PAYABLE AT       PAYABLE AT       CONTROL
                  PLAN    ACCRUAL        NORMAL           NORMAL         BENEFIT
   PLAN YEAR      YEAR   BALANCE @   RETIREMENT AGE   RETIREMENT AGE   PAYABLE IN
ENDING FEBRUARY    END   6.75% (1)         (2)              (2)        A LUMP SUM
---------------   ----   ---------   --------------   --------------   ----------
<S>               <C>    <C>         <C>              <C>              <C>
      2005         44    $ 1,334         $   822          $   822        $ 1,334
      2006         45    $ 2,761         $ 1,590          $ 1,590        $ 2,761
      2007         46    $ 4,287         $ 2,308          $ 2,308        $ 4,287
      2008         47    $ 5,919         $ 2,980          $ 2,980        $ 5,919
      2009         48    $ 7,666         $ 3,608          $ 3,608        $ 7,666
      2010         49    $ 9,533         $ 4,195          $ 4,195        $ 9,533
      2011         50    $11,531         $ 4,744          $ 4,744        $11,531
      2012         51    $13,668         $ 5,257          $ 5,257        $13,668
      2013         52    $15,953         $ 5,736          $ 5,736        $15,953
      2014         53    $18,398         $ 6,185          $ 6,185        $18,398
      2015         54    $21,013         $ 6,604          $ 6,604        $21,013
      2016         55    $23,810         $ 6,996          $ 6,996        $23,810
      2017         56    $26,802         $ 7,362          $ 7,362        $26,802
      2018         57    $30,002         $ 7,705          $ 7,705        $30,002
      2019         58    $33,425         $ 8,025          $ 8,025        $33,425
      2020         59    $37,086         $ 8,325          $ 8,325        $37,086
      2021         60    $41,003         $ 8,605          $ 8,605        $41,003
      2022         61    $45,191         $ 8,866          $ 8,866        $45,191
      2023         62    $49,672         $ 9,111          $ 9,111        $49,672
      2024         63    $54,464         $ 9,340          $ 9,340        $54,464
      2025         64    $59,591         $ 9,554          $ 9,554        $59,591
      2026         65    $65,074         $ 9,754          $ 9,754        $65,074
      2027         66    $70,939         $ 9,940          $ 9,940        $70,939
   June 2027       67    $72,983 (3)     $10,000          $10,000        $72,983
</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 July 1, 2027.

(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%).

                                       9

<PAGE>

(3)  Projected retirement occurs on June 20, 2027, with the first normal monthly
     retirement benefit commencing July 1, 2027.

                                       10<PAGE>

                                                                    EXHIBIT 10.9

                                CORTLAND BANCORP
                         DIRECTOR RETIREMENT AGREEMENT

     THIS AGREEMENT is made as of this lst day of March, 2001, by and between
Cortland Bancorp., a bank holding company located in Cortland, Ohio (the
"Company') and Karl R. Mahan (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. Section 1828(k)(4)(A)(ii)] and in Federal Deposit
Insurance Corporation Rule 359.1(f)(1)(ii) [12 CFR 359.l (f)(1)(ii)] exists or,
to the best knowledge of the Company, is contemplated insofar as the 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 "Change in Control" means that 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) The acquisition by a person of the power to direct the Company's
     management or policies, if the Board of Directors of the Company has made a
     determination that such acquisition constitutes or will constitute an
     acquisition of control of the Company for the purposes of the Bank Holding
     Company Act or the Change in Bank Control Act and the regulations
     thereunder,

          (c) 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 (c) -- each director who is
     first elected by the Board of the Company (or first nominated by that 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;

          (d) 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 represented by shares held by persons who were shareholders
     of the Company immediately before such merger or consolidation, or

          (e) The Company shall have sold substantially all of its assets to
     another person.

          For purposes of this Agreement, the term "person" refers to 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 of the Company shall not be deemed to occur solely because any
     person acquires beneficial ownership of more than 25% of the Company's
     voting securities as a result of the acquisition of the Company voting
     securities by the Company which reduces the number of the Company's voting
     securities outstanding, provided, that if after such acquisition by the
     Company such person becomes the beneficial owner of additional Company
     voting securities that increases the percentage of outstanding Company
     voting securities beneficially owned by

<PAGE>

     such person, a Change in Control of the Company shall then occur.

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

     1.3 "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 suffering a sickness, accident or injury, which, 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.

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

     1.5 "Early Termination Date" means the month, day and year in which Early
Termination occurs.

     1.6 "Effective Date" means March 1, 2001,

     1.7 "Normal Retirement Age" means the Director's 63rd birthday.

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

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

     1.10 "Termination for Cause" See Section 5.2.

     1.11 "Termination of Service" means that 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 tight to decide the dispute unless a Change in Control shall
have occurred,

                                    ARTICLE 2
                                LIFETIME BENEFITS

     2.1 Normal Retirement Benefit. Upon Termination of Service on or after
Normal Retirement Ag; the Company shall pay to the Director the benefit
described in this Section 2.1 in lieu of any other benefit under this Agreement

          2.1.1 Amount of Benefit. The annual benefit under this Section 2.1 is
     $10,000 (Ten Thousand Dollars). The Company's Board of Directors, in its
     sole discretion, may increase the annual benefit under this Section 2.1.1;
     however, any increase shall require the recalculation of Schedule A.

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

          2.1.3 Benefit Increases. Commencing on the first anniversary of the
     first benefit payment, and continuing on each subsequent anniversary, the
     Company's Board of Directors, in its sole discretion, may increase the
     benefit

     2.2 Early Termination Benefit. Upon Early Termination, the Company shall
pay to the Director the benefit described in this Section 2.2 in lieu 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 prior to the Early Termination Date

                                        2

<PAGE>

     (except during the first Plan Year, the benefit is the amount set forth for
     Plan Year 1). Any increase in the annual benefit under Section 2.1.1 shall
     require the recalculation of this benefit on Schedule A.

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

          2.2.3 Benefit Increases. Benefit payments may be increased as provided
     in Section 2.1.3.

     2.3 Disability Benefit. If the Director terminates service due to
Disability prior to Normal Retirement Age, the Company shall pay to the Director
the benefit described in this Section 2.3 in lieu 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 prior to the date in which Termination of Service occurs
     (except during the first Plan Year, the benefit is the amount set forth for
     Plan Year 1). Any increase in the annual benefit under Section 2.1.1 would
     require the recalculation of this benefit on Schedule A.

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

          2.3.3 Benefit Increases. Benefit payments may be increased as provided
     in Section 2.1.3.

     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 in lieu of any other benefit under this Agreement

          2.4.1 Amount of Benefit. The benefit under this Section 2.4 is the
     benefit determined under Schedule A based on the date of the Director's
     Termination of Service, which is determined by vesting the Director in 100%
     of the Accrual Balance. Any increase in the annual benefit under Section
     2.1.1 would require the recalculation of this benefit on Schedule A.

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

                                    ARTICLE 3
                                 DEATH BENEFITS

     In lieu of any other benefit under this Agreement, the Director's
beneficiary(ies) 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(ies) a lump sum benefit
determined by vesting the Director in 100% of the Accrual Balance on the
Director's date of death. The Company shall pay this benefit to the Director's
beneficiary(ies) in a lump sum within 30 days following 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(ies)
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 Directors
beneficiary(ies) at the same time and in the same

                                        3

<PAGE>

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(ies) that the Director was entitled to
before death, except that the benefit payments shall commence on the first day
of the month following the date of the Director's death.

     3.4 Death After Termination of Service After Normal Retirement Age. (a)
After Payments Commence. 1f, 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(ies) 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(ies) that the Director was entitled to
before death, except that the benefit payments shall commence on the first day
of the month following 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
modi1~y 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 Director or if the Director names a spouse as beneficiary and the marriage
is subsequently dissolved, lithe 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 if
the Company terminates the Director's service for:

          (a) Gross negligence or gross neglect of duties;

          (b) Commission of a felony or of a gross misdemeanor involving moral
     turpitude; or

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

     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.

     5.3 Removal. If the Director is removed from service and/or permanently
prohibited from participating in the conduct of the Company's affairs by an
order issued under Section 8(e)(4) or (g)(l) of the Federal

                                        4

<PAGE>

Deposit Insurance Act, 12 U.S.C. Section 18l8(e)(4) or (g)(1), all obligations
of the Company under this Agreement shall terminate as of the effective date of
the order.

                                    ARTICLE 6
                          CLAIMS ANTI 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 lithe 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, lithe Company determines that there are special circumstances
requiring additional time to make a decision, the Company shall notify the
Claimant of the 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 sixty-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
                           AMENDMENTS AND TERMINATION

     This Agreement may be amended or terminated only by a written agreement
signed by the Company and the Director.

                                    ARTICLE 8
                                  MISCELLANEOUS

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

     8.2 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 rights 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 services at any time.

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

     8.4 Successors; Binding Agreement. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/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 taken place. Failure of the Company to obtain such

                                        5

<PAGE>

assumption agreement prior to the effectiveness of any such succession shall be
a breath of this Agreement and shall entitle the Director to the Change in
Control Benefit provided in Section 2.4.

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

     8.6 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.

     8.7 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 such
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.

     8.8 Entire Agreement. This Agreement constitutes the entire agreement
between the Company and the Director as to the subject matter hereof. No rights
are granted to the Director by virtue of this Agreement other than those
specifically set forth herein.

     8.9 Administration. The Company shall have powers which are necessary to
administer this Agreement, including but not limited to:

          (a) Interpreting the provisions of the Agreement

          (b) Establishing and revising the method of accounting for the
     Agreement,

          (c) Maintaining a record of benefit payments; and

          (d) Establishing riles and prescribing any forms necessary or
     desirable to administer the Agreement

     8.10 Named Fiduciary. The Company shall be the named fiduciary and plan
administrator under this Agreement. The named fiduciary may delegate to others
certain aspects of the management and operation responsibilities of the plan
including the employment of advisors and the delegation of ministerial duties to
qualified individuals.

     8.11 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 so invalid, and each such other provision shall, to the full
-extent consistent with the law, continue in full force and effect. If any
provision of this Agreement shall be held invalid in part, such invalidity shall
in no way affect the rest of such provision, not held so invalid, and the rest
of such provision, together with all other provisions of this Agreement shall,
to the full extent consistent with the law, continue in full force and effect

     8.12 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

     8.13 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.

     (a) If to the Company, to:   Board of Directors
                                  Cortland Bancorp.
        `                         194W, Main Street
                                  P.O. Box 98
                                  Cortland, Ohio 44410-1466

                                        6

<PAGE>

     (b)  If to the Director, to:       Karl R. Mahan

                                        ----------------------------------------

                                        ----------------------------------------

and to such other or additional person or persons as either party shall have
designated to the other party in writing by like notice.

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

DIRECTOR:                               COMPANY:

                                        CORTLAND BANCORP.

-------------------------------------   By:
Karl R. Mahan                               ------------------------------------
                                        Title:
                                               ---------------------------------

                                        7

<PAGE>

                             BENEFICIARY DESIGNATION
                                CORTLAND BANCORP.
                          DIRECTOR RETIREMENT AGREEMENT

                                  KARL R. MAHAN

     I 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:
           --------------------------
Date:
      -------------------------------

     Received by the Company this ______ day of ____________________ ,2001.

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

                                        8

<PAGE>

                                   SCHEDULE A

                 CORTLAND BANCORP. DIRECTOR RETIREMENT AGREEMENT

                                  KARL R. MAHAN

<TABLE>
<CAPTION>
                                                                               CHANGE OF
                                                                DISABILITY      CONTROL
                             VESTED           EARLY               ANNUAL       LUMP SUM
PLAN   ACCRUAL    VESTING   ACCRUAL     TERMINATION ANNUAL       BENEFIT        PAYABLE
YEAR   BALANCE   SCHEDULE   BALANCE   BENEFIT PAYABLE AT 63   PAYABLE AT 63   IMMEDIATELY
----   -------   --------   -------   ---------------------   -------------   -----------
<S>    <C>       <C>        <C>       <C>                     <C>             <C>
  1    $32,974     100%     $32,974          $ 5,199             $ 5,199        $32,974
  2    $68,685     100%     $68,685          $10,000             $10,000        $68,685
</TABLE>

                                        9

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