Document:

<PAGE>

                                                                    EXHIBIT 10.4

                                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 David C. Cole (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

<PAGE>

     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 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 61st 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

<PAGE>

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 (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.

<PAGE>

     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 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;

<PAGE>

          (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 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.

<PAGE>

     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
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,

<PAGE>

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

     (b)  If to the Director, to:   David C. Cole

                                    ____________________________________

                                    ____________________________________

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:
-------------------------------------       ------------------------------------
David C. Cole                           Title:
                                               ---------------------------------

<PAGE>

                             BENEFICIARY DESIGNATION
                                CORTLAND BANCORP.
                          DIRECTOR RETIREMENT AGREEMENT

                                  DAVID C. COLE

     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:
       ------------------------------

<PAGE>

                                February __, 2004

Mr. David C. Cole
Director
Cortland Bancorp
194 West Main Street
Cortland, Ohio 44410-1466

              RE: LETTER AMENDMENT OF DIRECTOR RETIREMENT AGREEMENT

Dear Mr. Cole:

     The purpose of this letter is to memorialize in writing certain changes in
your March 1, 2001 Director Retirement Agreement, which I refer to hereinafter
as the "Agreement." Cortland Bancorp had been accruing for its liability under
the Agreement using an 8.00% accrual rate assumption, but that assumed rate was
changed to 6.75% effective on October 1, 2003, reflecting the decline in
prevailing interest rates that has persisted since the Agreements were
originally entered into. A similar change in the accrual rate assumption was
recently made by Cortland Savings and Banking Company for its liability accruals
under Salary Continuation Agreements with officers.

     The changed accrual rate assumption affects anticipated benefit payment
amounts, both under the Agreements and under the officers' Salary Continuation
Agreements. Just as the Salary Continuation Agreements' Schedules A have been
updated to reflect this changed assumption, we propose to replace the Schedule A
attached to your Agreement with a new Schedule A. To make this process more
fluid if a similar change needs to be made in the future, we are also proposing
(a) to add to the Agreement a definition of the term "Accrual Balance," (b) to
add a provision clarifying that the Agreement's terms govern in all cases in
which there is a conflict between the text of the Agreement versus the benefits
reflected on Schedule A, and (c) to replace Sections 8.9 and 8.10 with a new
Article 9 that has to do with administration of the Agreement. These new
provisions make more clear the power of the administrator of the Agreement (the
board) to make decisions about important accounting and interpretive issues
under the Agreement, including changes in Schedule A of the Agreement.

     The text of the amendment is set forth below. Following that text is a
signature line. I ask that you sign and date the enclosed copy of this letter in
the spaces provided, and that you return the executed copy to me. That will
complete the amendment process. A revised Schedule A is also attached to this
letter. Please retain the accompanying revised Schedule A. The revised Schedule
A replaces and supersedes in its entirety the Schedule A currently associated
with your Agreement. You may discard the old Schedule A.

FIRST AMENDMENT

     A new definition of the term "Accrual Balance" is added to the Agreement as
Section 1.12, as follows:

<PAGE>

          1.12 "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. The Plan Administrator shall
     consist of the Company's board of directors or such committee or person(s)
     as the board shall appoint.

SECOND AMENDMENT

     A new section 2.5 is added to the Agreement to clarify that the terms of
the Agreement govern if there is a conflict between the text of the Agreement
versus the benefits reflected on Schedule A attached to the Agreement, as
follows:

          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.

THIRD AMENDMENT

     The sections of the Agreement having to do with "Administration" (section
8.9) and "Named Fiduciary" (section 8.10) are hereby deleted in their entirety,
and the sections that follow are renumbered accordingly sections 8.9
("Severability"), 8.10 ("Headings"), and 8.11 ("Notices").

FOURTH AMENDMENT

     A new Article 9 having to do with administration is added to the Agreement,
as follows:

                                    ARTICLE 9
                           ADMINISTRATION OF AGREEMENT

          9.1 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.

          9.2 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.

<PAGE>

          9.3 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.

          9.4 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.

          9.5 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.

     Please signify your acceptance of and agreement to the foregoing changes by
executing and dating the enclosed copy of this letter in the spaces provided and
returning it to the undersigned. The changes become effective as an amendment of
your Director Retirement Agreement upon receipt by Cortland Bancorp of this
letter executed by you.

                                        Cortland Bancorp

                                        By:
                                            ------------------------------------
                                            Rodger W. Platt
                                        Its: Chairman of the Board and President

     Accepted and agreed to this _____ day of _________ , 2004 by the
undersigned director of Cortland Bancorp.

                                        Director

                                        ----------------------------------------
                                        David C. Cole

<PAGE>

                                   SCHEDULE A
                                CORTLAND BANCORP
                          DIRECTOR RETIREMENT AGREEMENT

David C. Cole
Normal Retirement Age: 61

<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>
      2004         45    $ 5,478         $ 2,083          $ 2,083        $ 5,478
      2005         46    $ 8,125         $ 2,889          $ 2,889        $ 8,125
      2006         47    $10,956         $ 3,642          $ 3,642        $10,956
      2007         48    $13,985         $  ,346          $ 4,346        $13,985
      2008         49    $17,224         $ 5,004          $ 5,004        $17,224
      2009         50    $20,689         $ 5,620          $  ,620        $20,689
      2010         51    $24,395         $ 6,195          $ 6,195        $24,395
      2011         52    $28,360         $ 6,733          $ 6,733        $28,360
      2012         53    $32,600         $ 7,236          $ 7,236        $32,600
      2013         54    $37,135         $ 7,706          $ 7,706        $37,135
      2014         55    $41,987         $ 8,146          $ 8,146        $41,987
      2015         56    $47,176         $ 8,557          $ 8,557        $47,176
      2016         57    $52,726         $ 8,941          $ 8,941        $52,726
      2017         58    $58,663         $ 9,300          $ 9,300        $58,663
      2018         59    $65,013         $ 9,636          $ 9,636        $65,013
      2019         60    $71,806         $ 9,950          $ 9,950        $71,806
   April 2019      61    $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 May 1, 2019.

(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)  Projected retirement occurs April 20, 2019, with the first the first normal
     monthly retirement benefit commencing May 2019. The accrual balance at the
     end of April 2019 will be $72,983.<PAGE>

                                                                    EXHIBIT 10.5

                                CORTLAND BANCORP
                          DIRECTOR RETIREMENT AGREEMENT

     THIS AGREEMENT is made as of this 1st day of March, 2001, by and between
Cortland Bancorp., a bank holding company located in Cortland, Ohio (the
"Company') and George E. Gessner (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 such person, a Change in Control of
     the Company shall then occur.

<PAGE>

     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 66st 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 (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.

<PAGE>

          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 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

<PAGE>

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 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

<PAGE>

                          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
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

<PAGE>

     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

     (b) If to the Director, to:   George E. Gessner

                                   _________________________

                                   _________________________

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

<PAGE>

     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:
George E. Gessner                           ------------------------------------

                                        Title:
                                               ---------------------------------

<PAGE>

                             BENEFICIARY DESIGNATION
                                CORTLAND BANCORP.
                          DIRECTOR RETIREMENT AGREEMENT

                                GEORGE E. GESSNER

     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:
       ------------------------------

<PAGE>

                                February __, 2004

Mr. George E. Gessner
Director
Cortland Bancorp
194 West Main Street
Cortland, Ohio 44410-1466

          RE: LETTER AMENDMENT OF DIRECTOR RETIREMENT AGREEMENT

Dear Mr. Gessner:

     The purpose of this letter is to memorialize in writing certain changes in
your March 1, 2001 Director Retirement Agreement, which I refer to hereinafter
as the "Agreement." Cortland Bancorp had been accruing for its liability under
the Agreement using an 8.00% accrual rate assumption, but that assumed rate was
changed to 6.75% effective on October 1, 2003, reflecting the decline in
prevailing interest rates that has persisted since the Agreements were
originally entered into. A similar change in the accrual rate assumption was
recently made by Cortland Savings and Banking Company for its liability accruals
under Salary Continuation Agreements with officers.

     The changed accrual rate assumption affects anticipated benefit payment
amounts, both under the Agreements and under the officers' Salary Continuation
Agreements. Just as the Salary Continuation Agreements' Schedules A have been
updated to reflect this changed assumption, we propose to replace the Schedule A
attached to your Agreement with a new Schedule A. To make this process more
fluid if a similar change needs to be made in the future, we are also proposing
(a) to add to the Agreement a definition of the term "Accrual Balance," (b) to
add a provision clarifying that the Agreement's terms govern in all cases in
which there is a conflict between the text of the Agreement versus the benefits
reflected on Schedule A, and (c) to replace Sections 8.9 and 8.10 with a new
Article 9 that has to do with administration of the Agreement. These new
provisions make more clear the power of the administrator of the Agreement (the
board) to make decisions about important accounting and interpretive issues
under the Agreement, including changes in Schedule A of the Agreement.

     The text of the amendment is set forth below. Following that text is a
signature line. I ask that you sign and date the enclosed copy of this letter in
the spaces provided, and that you return the executed copy to me. That will
complete the amendment process. A revised Schedule A is also attached to this
letter. Please retain the accompanying revised Schedule A. The revised Schedule
A replaces and supersedes in its entirety the Schedule A currently associated
with your Agreement. You may discard the old Schedule A.

FIRST AMENDMENT

     A new definition of the term "Accrual Balance" is added to the Agreement as
Section 1.12, as follows:

          1.12 "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

<PAGE>

     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. The Plan Administrator shall consist of the Company's
     board of directors or such committee or person(s) as the board shall
     appoint.

SECOND AMENDMENT

     A new section 2.5 is added to the Agreement to clarify that the terms of
the Agreement govern if there is a conflict between the text of the Agreement
versus the benefits reflected on Schedule A attached to the Agreement, as
follows:

          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.

THIRD AMENDMENT

     The sections of the Agreement having to do with "Administration" (section
8.9) and "Named Fiduciary" (section 8.10) are hereby deleted in their entirety,
and the sections that follow are renumbered accordingly sections 8.9
("Severability"), 8.10 ("Headings"), and 8.11 ("Notices").

FOURTH AMENDMENT

     A new Article 9 having to do with administration is added to the Agreement,
as follows:

                                    ARTICLE 9
                           ADMINISTRATION OF AGREEMENT

          9.1 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.

          9.2 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.

          9.3 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.

<PAGE>

          9.4 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.

          9.5 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.

     Please signify your acceptance of and agreement to the foregoing changes by
executing and dating the enclosed copy of this letter in the spaces provided and
returning it to the undersigned. The changes become effective as an amendment of
your Director Retirement Agreement upon receipt by Cortland Bancorp of this
letter executed by you.

                                        Cortland Bancorp

                                        By:
                                            ------------------------------------
                                            Rodger W. Platt
                                        Its: Chairman of the Board and President

     Accepted and agreed to this __________ day of ___________ , 2004 by the
undersigned director of Cortland Bancorp.

                                        Director

                                        ----------------------------------------
                                        George E. Gessner

<PAGE>

                                   SCHEDULE A
                                CORTLAND BANCORP
                          DIRECTOR RETIREMENT AGREEMENT

George E. Gessner
Normal Retirement Age: 66

<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>
      2004         59    $15,560         $ 3,396          $ 3,396         $15,560

      2005         60    $22,303         $ 4,551          $ 4,551         $22,303

      2006         61    $29,516         $ 5,631          $ 5,631         $29,516

      2007         62    $37,231         $ 6,640          $ 6,640         $37,231

      2008         63    $45,483         $ 7,584          $ 7,584         $45,483

      2009         64    $54,310         $ 8,466          $ 8,466         $54,310

      2010         65    $63,752         $ 9,291          $ 9,291         $63,752

    Jan 2011       66    $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 February 1, 2011.

     (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) Projected retirement occurs January 24, 2011, with the first the first
normal monthly retirement benefit commencing February 2011. The accrual balance
at the end of January 2011 will be $72,983.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00099-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00099-of-00352.parquet"}]]