<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999. Commission File Number: 0-20159
CROGHAN BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-1073048
(State of Incorporation) (I.R.S. Employer Identification No.)
323 Croghan Street, Fremont, Ohio 43420
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (419) 332-7301
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered under Section 12(g) of the Act:
Common Stock, Par Value $12.50 Per Share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates was
$46,774,199 as of February 29, 2000.
The number of shares outstanding for the registrant's sole class of common
equity as of February 29, 2000 is 1,909,151 shares of common stock, par value
$12.50 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for the fiscal year ended December 31, 1999 - PART
II of Form 10-K.
Portions of Proxy Statement dated March 24, 2000 for the 2000 Annual Meeting of
Shareholders - PART III of Form 10-K.
This document contains 74 pages. The Exhibit Index is on pages 20 and 21.
<PAGE> 2
<TABLE>
<CAPTION>
INDEX
<S> <C>
Part I
Item 1. Description of business 3 - 15
Item 2. Description of property 16
Item 3. Legal proceedings 16
Item 4. Submission of matters to a vote of security holders 16
Part II
Item 5. Market for registrant's common equity and related 17
stockholder matters
Item 6. Selected financial data 17
Item 7. Management's discussion and analysis 17
Item 7a. Quantitative and qualitative disclosures about market risk 17
Item 8. Financial statements and supplementary data 17
Item 9. Changes in and disagreements with accountants on 18
accounting and financial disclosure
Part III
Item 10. Directors and executive officers of the registrant 19
Item 11. Executive compensation 19
Item 12. Security ownership of certain beneficial owners 19
and management
Item 13. Certain relationships and related transactions 19
Part IV
Item 14. Exhibits, financial statements schedules, and reports 20 - 22
on Form 8-K
Signatures 23
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Croghan Bancshares, Inc. (the "Corporation") was organized under the laws of the
State of Ohio on September 27, 1983, and is registered as a bank holding company
under the Bank Holding Company Act of 1956, as amended. The Corporation, as the
result of a merger and reorganization effective in 1984, acquired all of the
voting shares of The Croghan Colonial Bank (the "Bank"), an Ohio chartered bank
organized in 1888. The Bank is the only subsidiary of the Corporation, and
substantially all of the Corporation's operations are conducted through the
Bank. The principal offices of both the Corporation and the Bank are located at
323 Croghan Street, Fremont, Ohio. The Bank also operates eight Ohio branch
offices: two in Bellevue, one in Clyde, three in Fremont, one in Green Springs,
and one in Monroeville. The Corporation and the Bank had total consolidated
assets of $350,586,000 at December 31, 1999.
The Corporation, through its subsidiary, the Bank, operates in one industry
segment, the commercial banking industry.
GENERAL
The Bank conducts a general banking business embracing the usual functions of
commercial, retail, and savings banking, including time, savings, money market
and demand deposits; commercial, industrial, agricultural, real estate, consumer
installment and credit card lending; safe deposit box rental; automatic teller
machines; trust department services; and other services tailored for individual
customers. The Bank makes and services secured and unsecured loans to
individuals, firms and corporations. The Bank makes direct loans to individuals
and purchases installment obligations from retailers, both with and without
recourse. The Bank makes a variety of residential, industrial, commercial and
agricultural loans secured by real estate, including interim construction
financing. Additionally, investment products bearing no FDIC insurance are
offered through the Bank's Invest Division.
On a parent company only basis, the Corporation's only source of funds is the
receipt of dividends paid by the Bank subsidiary. The ability of the Bank to pay
dividends is subject to limitations under various laws and regulations, and to
prudent and sound banking principles. Generally, subject to certain minimum
capital requirements, the Bank may declare a dividend without the approval of
the State of Ohio Division of Financial Institutions, unless the total of the
dividends in a calendar year exceeds the total of its net profits for the year
combined with its retained profits of the two preceding years. Management
believes that the future earnings of the Bank will be sufficient to support
anticipated asset growth at the Bank and at the same time provide funds to the
Corporation to service debt and continue dividends at their current level.
REGULATION AND SUPERVISION
The Corporation, as a registered bank holding company, is subject to regulation
by the Board of Governors of the Federal Reserve System under the Bank Holding
Company Act of 1956, as amended (the "Act"). The Act limits the activities in
which the Corporation and the Bank may engage to those activities that the
Federal Reserve Board finds, by order or regulation, to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto. A
favorable determination by the Federal Reserve Board as to whether any such new
activity by the Corporation or the Bank is in the public interest, taking into
account both the
3
<PAGE> 4
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
likely adverse effects and the likely benefits, is also necessary before any
such activity may be engaged in. A bank holding company is prohibited from
acquiring direct or indirect ownership or control of any company that is not a
bank or bank holding company unless its business and activities would be
acceptable for the bank holding company itself. The Federal Reserve Board,
however, is empowered to differentiate between activities which are initiated de
novo by a bank holding company or a subsidiary and activities commenced by
acquisition of a going concern. The Act also requires every bank holding company
to obtain the prior approval of the Federal Reserve Board before acquiring all
or substantially all of the assets of any bank, or acquiring ownership or
control of any voting shares of any other bank, if after such acquisition, it
would own or control such bank. In making such determinations, the Federal
Reserve Board considers the effect of the acquisition on competition, the
financial and managerial resources of the holding company and the convenience
and needs of the affected communities.
The Federal Reserve Board possesses cease and desist powers over bank holding
companies and their non-bank subsidiaries for activities that are deemed by the
Board of Governors to constitute a serious risk to the financial safety,
soundness or stability of a bank holding company, that are inconsistent with
sound banking principles, or that are in violation of law. Further, under
Section 106 of the 1970 Amendments to the Board's regulations, bank holding
companies and their subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit or lease or sale of any
property or the furnishing of services.
The Bank, as an Ohio chartered bank, is supervised by the State of Ohio Division
of Financial Institutions. The Bank is also a member of the Federal Reserve
System and subject to its supervision. As such, the Bank is subject to periodic
examinations by both the Ohio Division of Financial Institutions and the Federal
Reserve Board. These examinations are designed primarily for the protection of
the Bank's depositors and not for its shareholders. The Bank must file
prescribed periodic reports with the Ohio Division of Financial Institutions
containing a full and accurate statement of its affairs.
The Corporation and the Bank are subject to the Community Reinvestment Act of
1977, as amended (the "CRA"), which is designed to encourage financial
institutions to give special attention to the needs of low and moderate income
areas in meeting the credit needs of the communities in which they operate. If
the CRA regulatory evaluation of a bank's activities is less than satisfactory,
regulatory approval of proposed acquisitions, branch openings and other
applications requiring Federal Reserve Board approval may be delayed until a
satisfactory CRA evaluation is achieved. The Bank currently has a CRA regulatory
evaluation of satisfactory.
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley
Act, or the Financial Services Modernization Act of 1999, which will, effective
March 11, 2000, permit bank holding companies to become financial holding
companies and thereby affiliate with securities firms and insurance companies
and engage in other activities that are financial in nature. A bank holding
company may become a financial holding company if each of its subsidiary banks
is well capitalized under the Federal Deposit Insurance Corporation Act of 1991
prompt corrective action provisions, is well managed, and has at least a
satisfactory rating under the Community Reinvestment Act by filing a declaration
that the bank holding company wishes to become a financial holding company. No
regulatory approval will be required for a financial holding company to acquire
a company, other than a bank or savings
4
<PAGE> 5
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
association, engaged in activities that are financial in nature or incidental to
activities that are financial in nature, as determined by the Federal Reserve
Board.
The Financial Services Modernization Act defines "financial in nature" to
include: (i) securities underwriting, dealing and market making; (ii) sponsoring
mutual funds and investment companies; (iii) insurance underwriting and agency;
(iv) merchant banking activities; and (v) activities that the Federal Reserve
Board has determined to be closely related to banking.
Subsidiary banks of a financial holding company must continue to be well
capitalized and well managed in order to continue to engage in activities that
are financial in nature without regulatory actions or restrictions, which could
include divestiture of the financial in nature subsidiary or subsidiaries. In
addition, a financial holding company or a bank may not acquire a company that
is engaged in activities that are financial in nature unless each of the
subsidiary banks of the financial holding company or the bank has a Community
Reinvestment Act rating of satisfactory or better.
The specific effects of the enactment of the Financial Services Modernization
Act on the banking industry in general and on the Corporation and the Bank have
yet to be determined due to the fact that the Financial Services Modernization
Act was only recently adopted.
The Corporation and Bank are subject to various regulatory capital requirements
administered by the federal and state banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt, corrective action,
the Corporation and Bank must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices.
The capital amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and Bank to maintain minimum amounts and ratios of total
and Tier I capital to risk-weighted assets, and of Tier I capital to average
assets. Management believes that the Corporation and Bank meet all capital
adequacy requirements to which they are subject. The Corporation's only source
of funds are dividends paid by the Bank. The ability of the Bank to pay
dividends is subject to limitations under various laws and regulations, and to
prudent and sound banking principles. Generally, subject to certain minimum
capital requirements, the Bank may declare a dividend without the approval of
the State of Ohio Division of Financial Institutions, unless the total dividends
in a calendar year exceed the total of its net profits for the year combined
with its retained profits of the two preceding years. The Board of Governors of
the Federal Reserve System generally considers it to be an unsafe and unsound
banking practice for a bank holding company to pay dividends except out of
current operating income, although other factors such as overall capital
adequacy and projected income may also be relevant in determining whether
dividends should be paid.
5
<PAGE> 6
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
EFFECTS OF GOVERNMENT MONETARY POLICY
The earnings of the Bank are affected by general and local economic conditions
and by the policies of various governmental regulatory authorities. In
particular, the Federal Reserve Board regulates money and credit conditions and
interest rates in order to influence general economic conditions, primarily
through open market acquisitions or dispositions of United States Government
securities, varying the discount rate on member bank borrowings, and setting
reserve requirements against member and nonmember bank deposits. Federal Reserve
Board monetary policies have had a significant effect on the interest income and
interest expense of commercial banks, including the Bank, and are expected to
continue to do so in the future.
COMPETITION
The Corporation's wholly-owned subsidiary, the Bank, has active competition in
all areas in which it engages. The Bank competes for commercial and individual
deposits and/or loans with other commercial banks in Huron, Sandusky, and Seneca
counties in Northwestern Ohio, as well as with savings and loan associations in
the trade area, credit unions, brokerage firms, mutual funds, and financial
units of non-local bank holding companies. The Bank focuses on personalized
service, convenience of facilities, pricing of products, community stature, and
its local ownership and control in meeting its competition.
EMPLOYEES
The Corporation has no employees and conducts its business through its
wholly-owned subsidiary, the Bank.
As of December 31, 1999, the Bank employed 169 full-time employees and 29
part-time employees to whom it provides a variety of benefits and with whom it
believes relationships are excellent.
The following pages present various statistical disclosures required for bank
holding companies. The information represents only domestic information since
the Corporation has no foreign operations or foreign loans.
6
<PAGE> 7
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The following table sets forth, for the years ended December 31, 1999, 1998 and
1997, the distribution of assets, liabilities and stockholders' equity,
including interest amounts and average rates of major categories of
interest-earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
(Dollars in thousands)
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) (2) $233,580 $19,900 8.52% $232,977 $20,639 8.86% $227,900 $20,440 8.97%
Taxable investment securities 65,838 3,613 5.49% 56,618 3,439 6.07% 58,576 3,735 6.38%
Non-taxable investment securities 14,365 616 4.29% 14,000 616 4.40% 14,187 636 4.48%
Federal funds sold 2,559 130 5.08% 8,545 457 5.35% 4,417 245 5.55%
-------- ------- -------- ------- -------- -------
Total interest-earning assets 316,342 24,259 7.67% 312,140 25,151 8.06% 305,080 25,056 8.21%
-------- ------- -------- ------- -------- -------
Non-interest earning assets:
Cash and due from banks 10,512 9,050 9,083
Bank premises and equipment, net 7,554 8,073 7,951
Other assets 13,244 11,744 12,287
Less allowance for loan losses (3,306) (3,514) (3,522)
-------- -------- --------
Total $344,346 $24,259 $337,493 $25,151 $330,879 $25,056
======== ======= ======== ======= ======== =======
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Savings, NOW and Money Market
deposits $117,533 $2,550 2.17% $110,491 $2,771 2.51% $109,158 $2,584 2.37%
Time Deposits 143,520 7,232 5.04% 151,644 8,222 5.42% 150,976 8,169 5.41%
Federal funds purchased and
securities sold under repurchase
agreements 7,161 344 4.80% 5,418 241 4.45% 3,515 136 3.88%
Borrowed funds 5,700 308 5.40% 2,614 186 7.12% 4,386 339 7.73%
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 273,914 10,434 3.81% 270,167 11,420 4.23% 268,035 11,228 4.19%
-------- ------- -------- ------- -------- -------
Non-interest-bearing liabilities:
Demand deposits 33,739 32,090 29,745
Other liabilities 2,263 2,564 2,579
-------- -------- --------
36,002 34,654 32,324
-------- -------- --------
Stockholders' equity 34,430 32,672 30,520
-------- -------- --------
Total $344,346 $10,434 $337,493 $11,420 $330,879 $11,228
======= ====== ======= ====== ======= ======
Net interest income $13,825 $13,731 $13,828
====== ====== ======
Net yield on interest-earning
assets 4.37% 4.40% 4.53%
======= ======= ======
</TABLE>
(1) Included in loan interest income are loan fees of $523,187 in 1999,
$446,556 in 1998, and $422,894 in 1997.
(2) Non-accrual loans are included in loan totals and do not have a
material impact on the analysis presented.
7
<PAGE> 8
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
RESULTING FROM CHANGES IN VOLUME AND CHANGES IN RATE
The following table sets forth, for the periods indicated, a summary of the
changes in interest income and interest expense resulting from changes in volume
and changes in rate:
<TABLE>
<CAPTION>
1999 compared to 1998 1998 compared to 1997
Increase (decrease) Increase (decrease)
due to volume/rate (1) due to volume/rate (1)
--------------------------------- ---------------------------------------
Volume Rate Net Volume Rate Net
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable $54 (793) (739) $450 (251) 199
Taxable investment securities 427 (253) 174 (122) (174) (296)
Non-taxable investment securities 28 (28) (0) (8) (12) (20)
Federal funds sold (307) (20) (327) 221 (9) 212
-------- -------- -------- -------- -------- --------
Total interest-earning assets 202 (1,094) (892) 541 (446) 95
-------- -------- -------- -------- -------- --------
Interest expense:
Savings, NOW and Money Market deposits 198 (419) (221) 32 155 187
Time deposits (427) (563) (990) 36 17 53
Federal funds purchased and securities sold
under repurchase agreements 82 21 103 82 23 105
Borrowed funds 153 (31) 122 (128) (25) (153)
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 7 (993) (986) 22 170 192
-------- -------- -------- -------- -------- --------
Net interest income $195 (101) 94 $519 (616) (97)
======== ======== ======== ======== ======== ========
</TABLE>
(1) The change in interest income and interest expense due to changes in
both volume and rate, which cannot be segregated, has been allocated
proportionately to the absolute dollar change due to volume and the
change due to rate.
8
<PAGE> 9
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
INVESTMENT PORTFOLIO
The following table sets forth the carrying amount of investment securities,
which are presented on the basis of Statement of Financial Accounting Standards
No. 115, at December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1999 1998 1997
(Dollars in thousands)
<S> <C> <C> <C>
U. S. Treasury securities and obligations of U.S. $57,437 $58,857 $54,713
Government agencies and corporations
Obligations of states and political subdivisions (1) 14,963 15,141 12,307
Other securities 5,032 2,237 2,644
-------------- -------------- --------------
$77,432 $76,235 $69,664
============== ============== ==============
</TABLE>
(1) There are no investment securities of an "issuer" where the aggregate
carrying value of such securities exceeded ten percent of stockholders'
equity.
The following table sets forth the maturities of investment securities at
December 31, 1999 and the weighted average yields of such securities:
<TABLE>
<CAPTION>
Maturing
---------------------------------------------------------------------------------
After one After five
Within but within but within After
one year five years ten years ten years
------------------ ------------------ ------------------ -----------------
Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Treasury securities and obligations of U. S. $18,183 5.16% $37,975 5.40% $1,279 6.81% - -
Government agencies and corporations
Obligations of states and political subdivisions 3,949 6.16% 9,188 7.06% 1,099 7.01% 727 6.44%
(1)
Other securities (2) - - 2,546 - - - - -
------- ----- ------- ------ ------ ------ ------- ------
$22,132 5.33% $49,709 5.79% $2,378 6.90% $727 6.44%
======= ===== ======= ======= ====== ====== ======= ======
</TABLE>
(1) Weighted average yields on non-taxable obligations have been computed
on a fully tax-equivalent basis assuming a tax rate of 34%.
(2) Excludes equity investments of $2,486,000 which have no stated maturity.
9
<PAGE> 10
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
LOAN PORTFOLIO
TYPES OF LOANS
The amounts of gross loans outstanding at December 31, 1999, 1998, 1997, 1996
and 1995 are shown in the following table according to types of loans:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 31,057 $ 32,161 $ 32,739 $ 33,574 $ 24,830
Real estate - mortgage 155,615 155,431 156,717 156,846 105,484
Real estate - construction 506 903 3,478 1,239 2,585
Consumer 49,682 48,327 43,609 36,440 25,150
Credit card and other 2,549 2,537 2,533 2,548 1,921
-------- -------- -------- -------- --------
$239,409 $239,359 $239,076 $230,647 $159,970
======== ======== ======== ======== ========
</TABLE>
Commercial loans are those made for commercial, industrial, and professional
purposes to sole proprietorships, partnerships, corporations, and other business
enterprises. Financial loans are those made to banks, depository institutions,
other associations and financial intermediaries whose business is to accept
deposits and extend credit. Agricultural loans are for the purpose of financing
agricultural production, including all costs associated with growing crops or
raising livestock. These loans may be secured, other than by real estate, or
unsecured, requiring one single repayment or on an installment repayment
schedule. The loans involve certain risks relating to changes in local and
national economic conditions and the resulting effect on the borrowing entities.
Real estate - mortgage loans are secured wholly or substantially by a lien on
real property. Real estate - mortgage loans generally pose the least risk
exposure to the Bank.
Real estate - construction loans are made to finance land development prior to
erecting new structures and the construction of new buildings or additions to
existing buildings. Real estate - construction loans pose more risk than real
estate - mortgage loans, but generally afford adequate security upon completion
of the construction project.
Consumer loans are made to individuals for household, family, and other personal
expenditures. These often include the purchase of vehicles or furniture,
educational expenses, medical expenses, taxes, or vacation expenses. Consumer
loans may be secured, other than by real estate, or unsecured, generally
requiring repayment on an installment repayment schedule. Consumer loans pose
relatively higher risk and are also influenced by local and national economic
conditions.
Credit card and other loans are made to individuals for personal expenditures
and principally arise from bank credit cards. Such loans generally pose the most
risk as they are most frequently unsecured.
There were no foreign loans in 1999, 1998, 1997, 1996, and 1995. Lease financing
receivables, included in commercial, financial and agricultural, were $290,000
in 1999, $128,000 in 1998, $511,000 in 1997, and $515,000 in 1996 (none in years
prior to 1995).
10
<PAGE> 11
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
LOAN PORTFOLIO
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
The following table shows the amount of commercial, financial and agricultural
loans outstanding as of December 31, 1999 which, based on the contract terms for
repayments of principal, are due in the periods indicated. Also, the amounts due
after one year are classified according to their sensitivity to changes in
interest rates.
<TABLE>
<CAPTION>
Maturing
---------------------------------------------------------
After one
Within but within After
one year five years five years Total
----------- ------------ ------------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $4,944 $11,674 $14,439 $31,057
====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Interest
Sensitivity
-------------------------
Fixed Variable
rate rate
(Dollars in thousands)
<S> <C> <C>
Due after one but within five years $5,441 $6,233
Due after five years 1,379 13,060
----------- ----------
$6,820 $19,293
====== ======
</TABLE>
The above maturity information is based on the contract terms at December 31,
1999 and does not include any possible "rollover" at maturity date. In the
normal course of business, the Bank considers and acts upon the borrower's
request for renewal of a loan at maturity. Evaluation of such a request includes
a review of the borrower's credit history, the collateral securing the loan, and
the purpose for such request.
11
<PAGE> 12
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
LOAN PORTFOLIO
RISK ELEMENTS
The following table presents information concerning the amount of loans at
December 31, 1999, 1998, 1997, 1996, and 1995 which contain certain risk
elements:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis (1) $ 392 $315 $212 $649 $845
Loans contractually past due 90 days or more as to 2,144 1,086 582 764 477
principal or interest payments (2)
Loans whose terms have been renegotiated to provide 0 0 0 471 0
a reduction or deferral of interest or principal
because of a deterioration in the financial position
of the borrower
(1) (3)
</TABLE>
(1) Loans are placed on nonaccrual status when, in the opinion of
management, full collection of principal and interest is unlikely.
Interest is then recognized on a cash basis where future collections of
principal are probable. The amount of interest income that would have
been recorded had all nonaccrual and renegotiated (of the type
specified above) loans been current in accordance with their terms
approximated $50,000 in 1999, $48,000 in 1998, $100,000 in 1997,
$167,000 in 1996, and $89,000 in 1995. Actual interest included in
income on these loans amounted to approximately $16,000 in 1999,
$25,000 in 1998, $84,000 in 1997, $130,000 in 1996 and $27,000 in 1995.
(2) Excludes loans accounted for on a nonaccrual basis.
(3) Excludes loans accounted for on a nonaccrual basis and loans
contractually past due 90 days or more as to principal or interest
payments.
In addition to the loan amounts identified above, there were approximately
$1,176,000 of potential problem loans at December 31, 1999, none of which relate
to any concentrated risk elements common to all the loans. While these loans are
all currently performing, management has some doubt about the ability of the
borrowers to continue to comply with all of their present loan repayment terms.
As of December 31, 1999, there was no concentration of loans that exceeded 10%
of total loans.
12
<PAGE> 13
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
SUMMARY OF LOAN LOSS EXPERIENCE
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
The following table shows the daily average loan balances, for the periods
indicated, and changes in the allowance for possible loan losses for such years:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Daily average amount of loans $233,580 $232,977 $227,900 $187,126 $155,253
======== =========== =========== =========== ===========
Allowance for loan losses at beginning of year $3,418 $3,518 $3,368 $2,614 $2,357
Acquisition of Union Bancshares Corp. - - - 711 -
----- ----- ----- ----- -----
3,418 3,518 3,368 3,325 2,357
----- ----- ----- ----- -----
Loan charge-offs:
Commercial, financial and agricultural (35) (6) - (97) (2)
Real estate - mortgage (165) (58) (111) - (25)
Real estate - construction - - - (198) -
Consumer (412) (389) (159) (116) (99)
Credit card and other (18) (22) (17) (17) (12)
----- ----- ----- ----- -----
(630) (475) (287) (428) (138)
----- ----- ----- ----- -----
Recoveries of loans previously charged off:
Commercial, financial and agricultural 27 15 16 80 154
Real estate - mortgage - 15 193 - 88
Real estate - construction - - 1 187 -
Consumer 131 101 45 40 32
Credit card and other 10 4 2 4 1
----- ----- ----- ----- -----
168 135 257 311 275
----- ----- ----- ----- -----
Net recoveries (charge-offs) (1) (462) (340) (30) (117) 137
----- ----- ----- ----- -----
Additions to allowance charged to expense (2) 240 240 180 160 120
----- ----- ----- ----- -----
Allowance for loan losses at end of year $3,196 $3,418 $3,518 $3,368 $2,614
====== ====== ====== ====== ======
Allowance for loan losses as a percent of year-end 1.33% 1.43% 1.47% 1.46% 1.63%
loans
====== ====== ====== ====== ======
Ratio of net charge-offs (recoveries) during the
year to average loans outstanding .20% .15% .01% .06% (.09%)
====== ====== ====== ====== ======
</TABLE>
(1) The amount of charge-offs and recoveries fluctuates from year to year
due to factors relating to the condition of the general economy and
specific business segments. The 1995 recoveries included one real
estate-mortgage loan recovery of $63,465 and one commercial loan
recovery of $122,700. The 1996 charge-offs included one real
estate-construction loan write-off of $197,452 and the recoveries
included a $186,769 recovery on the same loan. The 1997 real
estate-mortgage recoveries included a $191,782 recovery. The 1998
charge-offs included one real estate-mortgage loan write-off of
$57,836. The 1999 charge-offs included five real estate mortgage loan
write-offs amounting to $164,991.
(2) The determination of the balance of the allowance for loan losses is
based upon an analysis of the loan portfolio and reflects an amount
which, in management's judgment, is adequate to provide for possible
loan losses. Such analysis is based on the character of the loan
portfolio, current economic conditions, past loan loss experience, and
such other factors as management believes require current recognition
in estimating possible loan losses.
13
<PAGE> 14
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
SUMMARY OF LOAN LOSS EXPERIENCE
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
The following table allocates the allowance for loan losses for the periods
indicated to each loan category. The allowance has been allocated to the
categories of loans noted according to the amount deemed to be reasonably
necessary to provide for the possibility of losses being incurred based on
specific credit analyses and the proration of the unallocated allowance to the
loan categories based on actual loss experience:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------------------- --------------------------
Percentage Percentage
of loans to of loans to
Allowance Total loans Allowance Total loans
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 528 13.0% $ 585 13.4%
Real estate - mortgage 1,319 65.0% 1,415 64.9%
Real estate - construction - .2% - .4%
Consumer 1,260 20.7% 1,322 20.2%
Credit card and other 89 1.1% 96 1.1%
------ ----- ------ -----
$3,196 100.0% $3,418 100.0%
====== ===== ====== =====
December 31, 1997 December 31, 1996
----------------------------- --------------------------
Percentage Percentage
of loans to of loans to
Allowance Total loans Allowance Total loans
(Dollars in thousands) (Dollars in thousands)
Commercial, financial and agricultural $635 13.7% $647 14.6%
Real estate - mortgage 1,517 65.5% 1,216 68.0%
Real estate - construction - 1.5% - .5%
Consumer 1,264 18.2% 1,350 15.8%
Credit card and other 102 1.1% 155 1.1%
------ ----- ------ -----
$3,518 100.0% $3,368 100.0%
====== ===== ====== =====
December 31, 1995
-----------------------------
Percentage
of loans to
Allowance Total loans
(Dollars in thousands)
Commercial, financial and agricultural $1,161 15.5%
Real estate - mortgage 682 66.0%
Real estate - construction - 1.6%
Consumer 682 15.7%
Credit card and other 89 1.2%
------ -----
$2,614 100.0%
====== =====
</TABLE>
14
<PAGE> 15
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
DEPOSITS
The average daily amount of deposits (all in domestic offices) and average rates
paid on such deposits is summarized for the years 1999, 1998 and 1997 in the
following table :
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ---------------------- -------------------------
Average Average Average Average Average Average
balance rate paid balance rate paid balance rate paid
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand deposits $33,784 - $ 32,090 -% $ 29,745 -%
Interest-bearing demand deposits 40,543 1.47% 37,186 1.97% 35,034 2.02%
Savings, including Money Market deposits 76,990 2.54% 73,305 2.77% 74,124 2.53%
Time deposits 143,520 5.04% 151,644 5.42% 150,976 5.41%
-------- -------- --------
Total $294,837 $294,225 $289,879
======== ======== ========
</TABLE>
Maturities of time deposits of $100,000 or more outstanding at December 31, 1999
are summarized as follows (Dollars in thousands):
<TABLE>
<S> <C>
3 months or less $ 6,458
Over 3 through 6 months 2,703
Over 6 through 12 months 7,926
Over 12 months 6,272
--------
Total $23,359
========
</TABLE>
RETURN ON EQUITY AND ASSETS
The ratio of net income to daily average total assets and average stockholders'
equity, and certain other ratios, for the periods noted are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Percentage of net income to:
Average total assets .91% .94% .94%
Average stockholders' equity 9.11% 9.67% 10.18%
Percentage of cash dividends declared per common 44.24% 36.14% 36.76%
share to net income per common share
Percentage of average stockholders' equity to 10.00% 9.68% 9.22%
average total assets
</TABLE>
15
<PAGE> 16
ITEM 2. DESCRIPTION OF PROPERTY
The Corporation neither owns nor leases any properties. The Bank maintains its
main office at 323 Croghan Street, Fremont, Ohio. In addition, the Bank operates
two branch offices in Bellevue, one in Clyde, three in Fremont, one in Green
Springs, and one in Monroeville. The Bank's operations center is also located in
Fremont, Ohio. All of such premises are owned by the Bank, are in satisfactory
condition, and are suitable for their intended use.
ITEM 3. LEGAL PROCEEDINGS
Corporation management is aware of no material pending or threatened litigation
in which the Corporation or its subsidiary Bank faces potential loss or
exposure, which could materially affect the consolidated financial statements.
The Corporation is not aware of any proceedings involving the Corporation that a
governmental authority is contemplating.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of shareholders, through the solicitation of
proxies or otherwise, during the quarter ended December 31, 1999.
16
<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The number of holders of record of the Corporation's common stock at December
31, 1999 is 769.
Information relating to dividend restrictions is contained on pages 27 and 28 in
Financial Statement Footnote No. 12 captioned "Regulatory Matters" of the 1999
Annual Report to Shareholders of Croghan Bancshares, Inc. and is incorporated
herein by reference.
Other information required by this Item is contained on page 3 under the caption
"Market Price and Dividends on Common Stock" of the 1999 Annual Report to
Shareholders of Croghan Bancshares, Inc. and is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this Item is contained on page 4 under the caption "Five
Year Summary of Selected Financial Data" of the 1999 Annual Report to
Shareholders of Croghan Bancshares, Inc. and is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Information required by this Item is contained on pages 5 through 11 under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" of the 1999 Annual Report to Shareholders of Croghan Bancshares,
Inc. and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this Item is contained on page 10 under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Interest Rate Risk " of the 1999 Annual Report to Shareholders of
Croghan Bancshares, Inc. and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information required by this Item is contained on pages 12 through
32 in the 1999 Annual Report to Shareholders of Croghan Bancshares, Inc. and is
incorporated herein by reference:
Independent Auditor's Report
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Operations - Years ended December 31, 1999, 1998 and
1997
Consolidated Statements of Stockholders' Equity - Years ended December 31, 1999,
1998 and 1997
Consolidated Statements of Cash Flows - Years ended December 31, 1999, 1998 and
1997
Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements
17
<PAGE> 18
PART II
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants during the years
ended December 31, 1999 or 1998.
18
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Directors and Executive Officers of the Corporation is
contained on pages 17 and 18 under the caption "Election of Directors", and on
pages 19 and 20 under the caption "Executive Officers" in the Corporation's
Definitive Proxy Statement dated March 24, 2000, for the Annual Meeting of
Shareholders to be held on May 9, 2000, and is incorporated herein by reference.
Information concerning the failure of a director of the Corporation to comply
with share beneficial ownership reporting requirements under Section 16(a) of
the Securities Exchange Act of 1934, as amended, is contained on page 30 under
the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Corporation's Definitive Proxy Statement dated March 24, 2000, for the Annual
Meeting of Shareholders to be held on May 9, 2000, and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning compensation of directors and executive compensation is
contained on page 19 under the caption "Election of Directors", on pages 20 and
21 under the captions "Executive Compensation" and "Compensation Committee
Report" in the Corporation's Definitive Proxy Statement dated March 24, 2000,
for the Annual Meeting of Shareholders to be held on May 9, 2000, and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is contained on pages 3, 17 and 18 under the captions "Voting
Securities and Principal Holders Thereof" and "Election of Directors" in the
Corporation's Definitive Proxy Statement dated March 24, 2000, for the Annual
Meeting of Shareholders to be held on May 9, 2000, and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning related party transactions is contained on page 30 under
the caption "Indebtedness of and Transactions with Officers and Directors" in
the Corporation's Definitive Proxy Statement dated March 24, 2000, for the
Annual Meeting of Shareholders to be held on May 9, 2000, and is incorporated
herein by reference.
19
<PAGE> 20
PART IV
ITEM 14. (a) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following financial statements are filed as a part of this report and are
contained on pages 12 through 32 of Exhibit 13 (the 1999 Annual Report to
Shareholders of Croghan Bancshares, Inc.):
Independent Auditor's Report
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Operations - Years ended December 31, 1999, 1998
and 1997
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years ended
December 31, 1999, 1998 and 1997
Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements
Financial statement schedules have been omitted because they are not applicable
or because the required information is provided in the Consolidated Financial
Statements, including the Notes thereto.
The following exhibits are filed with or incorporated by reference (in
accordance with Item 601 of Regulation S-K) in this filing:
<TABLE>
<CAPTION>
Regulation Reference to Prior
S-K Exhibit Document Filing of Exhibit
Number or of the Exhibit's
Inclusion in this Filing
<S> <C> <C>
3(i) Amended Articles of Incorporation of Croghan Bancshares, Inc. (1)
3(ii) Code of Regulations of Croghan Bancshares, Inc. (2)
4.1 Certificate of Registrant's Common Stock (3)
4.2 Articles Fourth, Fifth and Eighth of Registrant's Articles of Incorporation (1)
4.3 Articles II, III, V, VII and VIII of Registrant's Code of Regulations (2)
10(i) The Croghan Colonial Bank 401 (k) Plan (4)
10(ii) Executive Supplemental Retirement Plan Agreement Included with
This filing
13 Annual Report to Shareholders - 1999 Included with
This filing
21 Subsidiaries of the Registrant Included with
This filing
23 Consent of Independent Auditor Included with
This filing
27 Financial Data Schedule Included with
This filing
</TABLE>
20
<PAGE> 21
ITEM 14. (a) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES, CONTINUED
(1) This document was previously filed as Exhibit 3(i) to the Registrant's
June 30, 1997 quarterly report on Form 10-QSB and is incorporated
herein by reference.
(2) This document was previously filed as Exhibit 2 to the Registrant's
Form 10 registration statement pursuant to Section 12(g) of the
Securities Exchange Act of 1934 and is incorporated herein by
reference.
(3) This document was previously filed as Exhibit 3 to the Registrant's
Form 10 registration statement pursuant to Section 12(g) of the
Securities Exchange Act of 1934 and is incorporated herein by
reference.
(4) Included herein by reference to the Registrant's registration statement
on Form S-8 dated May 19, 1998 (Reg. No. 333-53075)
21
<PAGE> 22
ITEM 14. (b) REPORTS ON FORM 8-K
None were filed during the quarter ended December 31, 1999.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CROGHAN BANCSHARES, INC.
Date: March 14, 2000 /s/ Thomas F. Hite
------------------- ------------------------------------
Thomas F. Hite, President/CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the date indicated:
/s/ Allan E. Mehlow /s/ Robert H. Moyer
- ---------------------------------------- ----------------------------
Allan E. Mehlow, Treasurer/ Robert H. Moyer, Director
Director
/s/ Janet E. Burkett /s/ Thomas F. Hite
- ---------------------------------------- ----------------------------
Janet E. Burkett, Director Thomas F. Hite, Director
/s/ Claire F. Johansen /s/ K. Brian Pugh
- ---------------------------------------- ----------------------------
Claire F. Johansen, Director K. Brian Pugh, Director
/s/ J. Terrence Wolfe
- ---------------------------------------- ----------------------------
John P. Keller, Director J. Terrence Wolfe, Director
/s/ Stephen A. Kemper /s/ Claude E. Young
- ---------------------------------------- ----------------------------
Stephen A. Kemper, Director Claude E. Young, Director
/s/ Daniel W. Lease /s/ Gary L. Zimmerman
- ---------------------------------------- ----------------------------
Daniel W. Lease, Director Gary L. Zimmerman, Director
Date: March 14, 2000
-------------------
23
<PAGE> 1
EXHIBIT 10(ii)
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
AGREEMENT
This Agreement, made and entered into this 29th day of April, 1999, by and
between The Croghan Colonial Bank, a Bank organized and existing under the laws
of the State of Ohio, hereinafter referred to as "the Bank," and (Executive
Officer)1, a Key Employee and the Executive of the Bank, hereinafter referred to
as "the Executive."
The Executive has been in the employ of the Bank for several years and has
now and for years past faithfully served the Bank. It is the consensus of the
Board of Directors of the bank (the Board) that the Executive's services have
been of exceptional merit, in excess of the compensation paid and an invaluable
contribution to the profits and position of the Bank in its field of activity.
The Board further believes that the Executive's experience, knowledge of
corporate affairs, reputation and industry contacts are of such value and his
continued services are so essential to the Bank's future growth and profits that
it would suffer severe financial loss should the Executive terminate the
Executive's services.
Accordingly, it is the desire of the Bank and the Executive to enter into
this Agreement under which the Bank will agree to make certain payments to the
Executive upon retirement and, alternatively, to the Executive's
beneficiary(ies) in the event of premature death while employed by the Bank.
It is the intent of the parties hereto that this Agreement be considered an
arrangement maintained primarily to provide supplemental retirement benefits for
the Executive, as a member of a select group of management or highly-compensated
employees of the Bank, and to be considered a non-qualified benefit plan for
purposes of the Employee Retirement Security Act of 1974 (ERISA). The Executive
is fully advised of the Bank's financial status and has had substantial input in
the design and operation of this benefit plan.
Therefore, in consideration of the Executive's services performed in the
past and those to be performed in the future and based upon the mutual promises
and covenants herein contained, the Bank and the Executive, agree as follows:
I. DEFINITIONS
A. EFFECTIVE DATE:
The effective date of this Agreement shall be April 29, 1999.
<PAGE> 2
B. PLAN YEAR:
Any reference to "year" shall mean a calendar year from January
1 to December 31. In the year of implementation, the term "year"
shall mean the period from the effective date to December 31 of
the year of the effective date.
C. RETIREMENT DATE:
Retirement Date shall mean retirement from service with the Bank
which becomes effective on the first day of the calendar month
following the month in which the Executive reaches his
sixty-fifth (65th) birthday or such later date as the Executive
may actually retire.
D. EARLY RETIREMENT DATE:
Early Retirement Date shall mean a retirement from service which
is effective prior to the Normal Retirement Date stated above,
provided the Executive has attained age sixty-two (62).
E. TERMINATION OF SERVICE:
Termination of Service shall mean either: (i) a voluntary
resignation of service by the Executive; or (ii) the Bank's
discharge of the Executive without cause ["cause" defined in
Subparagraph III (E) hereinafter], prior to the Normal
Retirement Age [described in Subparagraph I (K) hereinafter].
F. PRE-RETIREMENT ACCOUNT:
A Pre-Retirement Account shall be established as a liability
reserve account on the books of the Bank for the benefit of the
Executive. Prior to termination of service or the Executive's
Retirement, such liability reserve account shall be increased
each year by an amount equal to the annual earnings, if any, for
the year determined by the Index (described in Subparagraph I
(H) hereinafter), less the Opportunity Cost for that year
(described in Subparagraph I (I) hereinafter).
G. INDEX RETIREMENT BENEFIT:
The Index Retirement Benefit for the Executive for any year
shall be equal to the excess of the annual earnings (if any)
determined by the Index [Subparagraph I (H)] for that year over
the Opportunity Cost [Subparagraph I (I)], for that year.
2
<PAGE> 3
H. INDEX:
The Index for any year shall be the aggregate annual after-tax
income from the life insurance contracts described hereinafter
as defined by FASB Technical Bulletin 85-4. This Index shall be
applied as if such insurance contracts were purchased on the
effective date hereof.
If such contracts of life insurance are actually purchased by
the Bank then the actual policies as of the dates they were
purchased shall be used in calculations under this Agreement.
If such contracts of life insurance are not purchased or are
subsequently surrendered or lapsed, then the Bank shall receive
annual policy illustrations that assume the above described
policies were purchased from the above named insurance
company(ies) on the effective date from which the increase in
policy value will be used to calculate the amount of the Index.
In either case, references to the life insurance contract are
merely for purposes of calculating a benefit. The Bank has no
obligation to purchase such life insurance and, if purchased,
the Executive and his beneficiary(ies) shall have no ownership
interest in such policy and shall always have no greater
interest in the benefits under this Agreement than that of an
unsecured general creditor of the Bank.
I. OPPORTUNITY COST:
The Opportunity Cost for any Plan Year shall be calculated by
taking the sum of the amount of premiums set forth in the
Indexed policies described hereinabove plus the amount of any
after-tax benefits paid to any Executive pursuant to the Plan
(Paragraph III hereinafter) plus the amount of all previous
years after-tax Opportunity Cost, and multiplying that sum by
the average annualized after-tax yield of a two-year Treasury
note for the Plan Year.
J. CHANGE OF CONTROL
Change of Control shall be deemed to be the cumulative transfer
of more than fifty percent (50%) of the voting stock of the Bank
or Croghan Bancshares, Inc. from the effective date of this
Agreement. For the purposes of this Agreement, transfers on
account of deaths or gifts, transfers between family members or
transfers to a qualified retirement plan maintained by the Bank
or Croghan Bancshares, Inc. shall not be considered in
determining whether there has been a change in control.
3
<PAGE> 4
K. NORMAL RETIREMENT AGE:
Normal Retirement Age shall mean the date on which the Executive
attains age sixty-five (65).
II. EMPLOYMENT
No provision of this Agreement shall be deemed to restrict or limit any
existing employment agreement by and between the Bank and the
Executive, nor shall any conditions herein create specific employment
rights to the Executive nor limit the right of the Employer to
discharge the Executive with or without cause. In a similar fashion, no
provision shall limit the Executive's rights to voluntarily sever his
employment at any time.
III. INDEX BENEFITS
The following benefits provided by the Bank to the Executive are in the
nature of a fringe benefit and shall in no event be construed to effect
nor limit the Executive's current or prospective salary increases, cash
bonuses or profit-sharing distributions or credits.
A. RETIREMENT BENEFITS:
Should the Executive continue to be employed by the Bank until
the "Normal Retirement Age" defined in Subparagraph I (K), he
shall be entitled to receive the balance in the Pre-Retirement
Account [as defined in Subparagraph I (F)] in ten (10) equal
annual installments commencing thirty (30) days following the
Executive's retirement. In addition to these payments, the Index
Retirement Benefit (as defined in Subparagraph I (G) above) for
each year shall be paid to the Executive until death.
B. EARLY RETIREMENT:
Should the Executive elect Early Retirement subsequent to the
Early Retirement Date [defined in Subparagraph I (D)], the
Executive shall be entitled to receive the balance in the
Pre-Retirement Account paid over ten (10) years in equal
installments commencing at said Early Retirement Date. In
addition to these payments and commencing when the Executive
attains Normal Retirement Age [Subparagraph I (K)], the Index
Retirement Benefit for each year shall be paid to the Executive
until death.
4
<PAGE> 5
C. TERMINATION OF SERVICE:
(I) VOLUNTARY RESIGNATION OF SERVICE
Should the Executive voluntarily resign from service at
the Bank prior to attaining age sixty-five (65)
[Subparagraph I (E)(i)], then the Executive shall
forfeit all benefits under this Agreement.
(II) DISCHARGE WITHOUT CAUSE
Subject to Subparagraph III (E) hereinafter, should the
Executive suffer a Termination of Service as defined in
Subparagraph I (E)(ii) [i.e. the Bank's discharge of the
Executive without cause prior to attaining age
sixty-five (65)], the Executive shall be entitled to
receive the following percentage of the balance in the
Pre-Retirement Account paid over ten (10) years in equal
installments commencing at the Normal Retirement Age
[Subparagraph I (K)]. In addition to these payments and
commencing in the Plan Year in which the Executive
attains Normal Retirement Age, the following percentage
of the Index Retirement Benefit for each year shall be
paid to the Executive until death. The percentage
hereinbelow corresponds to the number of full years the
Executive has been employed by the Bank from the date of
first employment:
Total Years
of Employment
With the Bank Vested
------------- ------
0-5 0%
6-10 20% per year
(to a maximum of
100%)
D. DEATH:
Should the Executive die prior to having received that portion
of the Pre-Retirement Account to which the Executive may be
entitled pursuant to this Agreement the unpaid balance of the
Pre-Retirement Account shall be paid in a lump sum to the
beneficiary selected by the Executive and filed with the Bank.
In the absence of or a failure to designate a beneficiary, the
unpaid balance shall be paid in a lump sum to the personal
representative of the Executive's estate.
5
<PAGE> 6
E. DISCHARGE FOR CAUSE:
Should the Executive be discharged for cause at any time, all
benefits under this Agreement shall be forfeited. The term "for
cause" shall mean gross negligence or gross neglect or the
commission of a felony or of a misdemeanor involving moral
turpitude, fraud, dishonesty or willful violation of any law
that results in any adverse effect on the Bank. If a dispute
arises as to discharge "for cause", such dispute shall be
resolved by arbitration as set forth in this Agreement.
F. DISABILITY BENEFIT:
In the event the Executive becomes disabled prior to Termination
of Service, and the Executive's service is terminated because of
such disability, the Executive shall immediately begin receiving
the benefits in Subparagraph III (A) above. Such benefit shall
begin without regard to Executive's Normal Retirement Age and
the Executive shall be one hundred percent (100%) vested in the
entire benefit amount. For the purposes of this Agreement,
disability shall have the same definition and criteria as the
Bank's long-term disability program. If a change in control
occurs or the Bank discontinues its long-term disability
program, disability shall have the same definition as described
in the last long-term disability program prior to said
discontinuance or change of control.
G. DEATH BENEFIT:
Except as set forth above, there is no death benefit provided
under this Agreement.
IV. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement.
The Executive, the Executive's beneficiary(ies) or any successor in
interest to the Executive shall be and remain simply a general creditor
of the Bank in the same manner as any other creditor having a general
claim for matured and unpaid compensation.
The Bank reserves the absolute right at its sole discretion to either
fund the obligations undertaken by this Agreement or to refrain from
funding the same and to determine the exact nature and method of such
funding. Should the Bank elect to fund this Agreement, in whole or in
part, through the purchase of life insurance, mutual funds, disability
policies or annuities, the Bank reserves the absolute right, in its
sole discretion, to terminate such funding at any time, in whole or in
part. At no time shall the Executive be deemed to have any lien or
right, title or interest in or to any specific funding investment or to
any assets of the Bank.
6
<PAGE> 7
If the Bank elects to invest in a life insurance, disability or annuity
policy upon the life of the Executive, then the Executive shall assist
the Bank by freely submitting to a physical exam and supplying such
additional information necessary to obtain such insurance or annuities.
V. CHANGE OF CONTROL
Upon a Change of Control (as defined in Subparagraph I (J) herein), if
the Executive's employment is subsequently terminated, except for
cause, then he shall receive the benefits promised in this Agreement
upon attaining age sixty-two (62), as if the Executive had been
continuously employed by the Bank until said age sixty-two (62). The
Executive will also remain eligible for all promised death benefits in
this Agreement. In addition, no sale, merger or consolidation of the
Bank shall take place unless the new or surviving entity expressly
acknowledges the obligations under this Agreement and agrees to abide
by its terms.
VI. COVENANT NOT TO COMPETE
1. COVENANT NOT TO COMPETE. In recognition of the value provided by
the Executive Supplemental Retirement Plan which the Executive and
the Bank agree is good and sufficient consideration for the
promises made herein, Executive agrees that the following
covenants are necessary for the protection of the Bank, do not
impose undue hardship on the Executive and are not injurious to
the public. Therefore, the Executive agrees that, in the event the
Executive elects to accept the supplemental retirement benefit
under the early retirement clause [Subparagraphs I(D) and III(B)],
then for a period of three years or until the Executive attains
age 65, whichever comes first.
(a) Executive will not accept employment, serve as a consultant or
independent Contractor, have any ownership or equity position
(except that Executive may own not more than 2% of the
outstanding stock of any publicly traded company without
violating this covenant), serve as a director or officer,
assist or act in concert with any bank or financial services
provider having an office or branch office located within
thirty (30) miles of any office or branch office of the Bank.
(b) Executive acknowledges that, within the course of the
Executive's employment, the Executive has and will acquire
knowledge of trade secrets and confidential information about
the business of the Bank and the customers whom it serves and
that the release of such knowledge would result in economic
and other harm to the Bank. The Executive will not disclose or
make use of any of the Bank's trade secrets or confidential
information concerning the Bank's customers, information
obtained from customers, information concerning the operations
of the Bank or its marketing efforts and any other information
which the Executive held as
7
<PAGE> 8
secret or confidential or was directed by the Bank to hold as
secret or confidential during the term of the Executive's
employment. This covenant shall be continuing without regard
to any period of time specified above. Upon the termination of
employment with the Bank for any reason, the Executive will
return to the Bank all materials in whatever format they may
exist including electronic media, which constitute or relate
to the confidential or trade secret information described
above.
(c) The Executive will not solicit any employee of the Bank to
leave his or her employment with the Bank or assist or
recommend to any third party that an employee of the Bank be
solicited to leave the employment of the Bank nor will the
Executive hire or recommend the hiring of any employee of the
Bank who seeks employment with the Executive or any company
other than the Bank with which the Executive is employed or
with which the Executive has any relationship in the future.
(d) The Executive agrees that each of the forgoing covenants is a
separate and distinct covenant, independent of the others, and
that the illegality or invalidity of any one or more of them
or any part of any one or more of them shall not render the
others illegal or invalid, and that, if the invalidity or
unenforceability is due to the unreasonableness of the time or
geographical area covered by the covenant, then the covenant
shall nevertheless be enforced to the maximum extent permitted
by law and effective for such period of time and for such area
as may be determined to be reasonable by a court of competent
jurisdiction, and the Executive agrees that the scope may be
jurisdictionally modified accordingly in any proceeding
brought to enforce such covenant.
(e) The Executive acknowledges and agrees that the above covenants
are of the essence of this Agreement and shall be construed as
independent of any other provision of this Agreement, and the
existence of any claim or cause of action of the Executive
against the Bank, whether predicated on the Agreement or
otherwise, shall not constitute a defense to the enforcement
by the Bank of any of the covenants.
2. ENFORCEMENT. The Executive acknowledges and agrees that, if
the Executive breaches any of the covenants not to compete as
set forth herein, the Bank shall have the right, in addition
to any other rights provided herein, or that it may have in
law or equity, to seek and obtain from any court of competent
jurisdiction relief by way of injunction. The Executive
acknowledges and agrees that if the Executive breaches any of
the covenants, the Bank will suffer irreparable harm and will
have no adequate remedy at law although the Bank may be
entitled to damages for the breach in addition to injunctive
relief. If it is determined by a court of competent
jurisdiction that the Executive has breached the covenant to
compete as set forth herein, then this
8
<PAGE> 9
Agreement shall immediately terminate and the Executive shall
forfeit all benefits provided herein.
VII. MISCELLANEOUS
A. ALIENABILITY AND ASSIGNMENT PROHIBITION:
Neither the Executive, nor the Executive's spouse nor any
other beneficiary under this Agreement shall have any power or
right to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber in advance any of the
benefits payable hereunder nor shall any of said benefits be
subject to seizure for the payment of any debts, judgements,
alimony or separate maintenance owed by the Executive or the
Executive's beneficiary, nor be transferable by operation of
law in the event of bankruptcy, insolvency or otherwise. In
the event the Executive or any beneficiary attempts
assignment, commutation, hypothecation, transfer or disposal
of the benefits hereunder, the Bank's liabilities shall
forthwith cease and terminate.
B. BINDING OBLIGATION OF BANK AND ANY SUCCESSOR IN INTEREST:
The Bank expressly agrees that it shall not merge or
consolidate into or with another bank or sell substantially
all of its assets to another bank, firm or person until such
bank, firm or person expressly agrees, in writing, to assume
and discharge the duties and obligations of the Bank under
this Agreement. This Agreement shall be binding upon the
parties hereto, their successors, beneficiary(ies), heirs and
personal representatives.
C. REVOCATION:
It is agreed by and between the parties hereto that, during
the lifetime of the Executive, this Agreement may be amended
or revoked at any time or times, in whole or in part, by the
mutual written assent of the Executive and the Bank.
D. GENDER:
Whenever in this Agreement words are used in the masculine or
neuter gender, they shall be read and construed as in the
masculine, feminine or neuter gender, whenever they should so
apply.
E. EFFECT ON OTHER BANK BENEFIT PLANS:
Nothing contained in this Agreement shall affect the right of
the Executive to participate in or be covered by any qualified
or non-qualified pension, profit-sharing, group, bonus or
other supplemental compensation or fringe
9
<PAGE> 10
benefit plan constituting a part of the Bank's existing or
future compensation structure.
F. HEADINGS:
Headings and subheadings in this Agreement are inserted for
reference and convenience only shall not be deemed a part of
this Agreement.
G. APPLICABLE LAW:
The validity and interpretation of this Agreement shall be
governed by the laws of the State of Ohio.
H. SEVERABILITY:
The invalidity or unenforceability of any provision of this
Agreement, whether in whole or in part, shall not in any way
affect the validity or enforceability of any other provision
of this Agreement. Any invalid or unenforceable provision
shall be deemed severable to the extent of any such invalidity
or unenforceability.
VIII. ERISA PROVISION
A. NAMED FIDUCIARY AND PLAN ADMINISTRATOR:
The "Named Fiduciary and Plan Administrator" of this plan
shall be The Croghan Colonial Bank until its resignation or
removal by the Board. As Named Fiduciary and Administrator,
the Bank shall be responsible for the management, control and
administration of the Executive Supplemental Retirement Plan
Agreement as established herein. 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.
B. CLAIMS PROCEDURE AND ARBITRATION:
In the event a dispute arises over benefits under this
Agreement and benefits are not paid to the Executive (or to
his beneficiary in the case of the Executive's death) and such
claimants feel they are entitled to receive such benefits,
then a written claim must be made to the Named Fiduciary and
Administrator named above within sixty (60) days from the date
payments are refused. The Names Fiduciary and Administrator
and the Bank shall review the written claim and if the claim
is denied, in whole or in part, they shall provide in writing
within sixty (60) days of receipt of such claim their specific
reasons for such denial, reference to the provisions of this
Agreement upon which the denial is based and any
10
<PAGE> 11
additional material of information necessary to perfect the
claim. Such written notice shall further indicate the
additional steps to be taken by claimants if a further review
of the claim denial is desired. A claim shall be deemed denied
if the Named Fiduciary and Administrator fails to take any
action within the aforesaid sixty-day period.
If claimants desire a second review they shall notify the
Named Fiduciary and Administrator in writing within sixty (60)
days of the first claim denial. Claimants may review this
Agreement or any documents relating thereto and submit any
written issues and comments they may feel appropriate. In its
sole discretion, the Named Fiduciary and Administrator shall
then review the second claim and provide a written decision
within sixty (60) days of receipt of such claim. This decision
shall likewise state the specific reasons for the decision and
shall include reference to specific provisions of this
Agreement upon which the decision is based.
If claimants continue to dispute the benefit based upon
completed performance of this Agreement of the meaning and
effect of the terms and conditions thereof, then claimants may
submit the dispute to a Board of Arbitration for final
arbitration. Said Board shall consist of one member selected
by the claimant, one member selected by the Bank, and the
third member selected by the first two members. The Board
shall operate under any generally recognized set of
arbitration rules. The parties hereto agree that they and
their heirs, personal representatives, successors and assigns
shall be bound by the decision of such Board with respect to
any controversy properly submitted to it for determination.
Where a dispute arises as to the Bank's discharge of the
Executive "for cause", such dispute shall likewise be
submitted to arbitration as above described and the parties
hereto agree to be bound by the decision thereunder.
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the original thereof on the 29th day
of April, 1999 and that, upon execution, each has received a conforming copy.
THE CROGHAN COLONIAL BANK
Fremont, Ohio
- ---------------------------- -------------------------------
Witness Bank Officer Title
- ---------------------------- --------------------------------
Witness (Executive Officer)(1)
11
<PAGE> 12
(1) On April 29, 1999 the following Executive Officers of the
Corporation and/or the Bank entered into Executive
Supplemental Retirement Plan Agreements with the Bank, all of
which Agreements have substantially identical terms: James A.
Draeger, William C. Hensley, Thomas F. Hite, Barry F. Luse,
Allan E. Mehlow, James K. Walter.
12
<PAGE> 1
EXHIBIT 13
CROGHAN BANCSHARES, INC.
1999 ANNUAL REPORT
<PAGE> 2
CROGHAN BANCSHARES, INC.
CONTENTS
Financial Highlights 1
Letter to Shareholders 2
Description of the Corporation and Common Stock Data 3
Five Year Summary of Selected Financial Data 4
Management's Discussion and Analysis 5
Independent Auditor's Report 12
Consolidated Financial Statements 13
Directors and Officers 33
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Percent
1999 1998 Change
<S> <C> <C> <C>
For the year:
Net Income $ 3,138,000 $ 3,160,000 (.7)%
Income per common share 1.65 1.66 (.6)%
Dividends per common share .73 .60 21.7%
Return on average assets .91% .94% --
Return on average tangible
stockholders equity 11.75% 13.08% --
At year end:
Assets $350,586,000 $350,144,000 .1%
Loans 239,409,000 239,359,000 --%
Investment securities 77,432,000 76,235,000 1.6%
Deposits 294,587,000 301,456,000 (2.3)%
Stockholders' equity 35,039,000 33,705,000 4.0%
Book value per common share $ 18.36 $ 17.70 3.7%
Stockholders' equity to total assets 9.99% 9.63%
Number of stockholders of record 769 736 4.5%
Number of full-time equivalent 182 190 (4.2)%
employees
</TABLE>
1
<PAGE> 3
TO OUR SHAREHOLDERS
The year 1999 was challenging for Croghan Bancshares, Inc. and its subsidiary,
The Croghan Colonial Bank. The Corporation's net income for the year was
$3,138,000, which was .7 percent below the 1998 level. Return on average assets
was slightly lower than 1998 at .91 percent and return on average tangible
equity was also lower than 1998 at 11.75 percent. Several areas of expenditure
in 1999 were somewhat higher than expected including health care benefits and
costs to comply with regulatory requirements regarding Year 2000 readiness.
Despite the lower than expected net income the Corporation was able to increase
dividends to shareholders by 21.7 percent due to the liquidation of the debt
associated with the acquisition of Union Bancshares Corp.
The national economy came into 1999 with a head of steam but with most
economists predicting a slow down. The Federal Reserve was issuing forecasts of
inflation dangers that would trigger tightening moves. Almost in defiance of
economists' predictions, the Dow Jones Industrial Average closed above 10,000
for the first time on March 29 and, to add emphasis, closed above 11,000 for the
first time on May 3. The Federal Reserve increased managed rates three times in
the last half of 1999, one-quarter percent each time in July, August and
November.
The economy in the Bank's market area was steady during 1999. The retail sector
was similar to previous years. The agriculture industry was mixed. Rain was
spotty throughout the region. Those who received rain had good to above average
crop yields. A geographic band through the region received much less than normal
rainfall and experienced poor yields. Commodity prices were quite low which held
down farm revenues regardless of crop yields. The manufacturing sector was very
strong. Unemployment in Sandusky County hovered just below 5 percent most of the
year and Huron County ranged in the mid to high 6 percent area. H. J. Heinz
Company announced a $40 million expansion project to its Fremont facility in May
adding 175 jobs and announced an additional $15 million expansion later in 1999.
Whirlpool Corporation announced plans to build a 400,000 square foot
distribution center at its Clyde facility adding 62 jobs and costing $12.5
million.
The Corporation's balance sheet was basically flat during 1999. Total assets
grew by .1 percent. The loan categories in total were virtually the same as
year-end 1998. Competition for commercial loans remained very strong.
Shareholder equity remains very strong and at over $35 million at year-end 1999
indicated growth of 4 percent over 1998.
The boards of the Corporation and Bank will experience change after many years.
Clemens J. Szymanowski announced his retirement from both boards effective
December 31, 1999. Mr. Szymanowski was appointed to the Bank board in January
1978 and was a charter member of Croghan Bancshares, Inc. board in December
1983. His quiet counsel will be missed by the board members. Albert C. Nichols
closed out a stellar career in banking by announcing his retirement from both
boards as of January 28, 2000. Mr. Nichols began his banking career in Lima,
Ohio and came to Croghan Bank and Savings Company in July 1952. He was named
President/CEO of the Bank in January 1968 and served in that capacity until his
retirement as an active officer in March 1984. He was named to the Bank board in
January 1964 and was a charter member of the Corporation board in December 1983.
Mr. Nichols' 60 plus years banking experience and his 36 years service to the
Bank's shareholders will be missed. The Bank's officers and staff and the
members of the boards wish both men happiness and health in the future. Claire
F. Johansen was named to replace Mr. Szymanowski and Allan E. Mehlow was named
to replace Mr. Nichols. Ms. Johansen is president/co-owner of Ohio Outdoor
Advertising Corp. and Mr. Mehlow is treasurer of the Corporation and vice
president & COO of the Bank.
Looking forward in 2000 we expect many challenges. The economy bears watching,
competition remains strong, and our own goals will be especially challenging. We
intend to initiate very vigorous reengineering of bank products, delivery
systems, technology and internal operations. Our staff is capable of the
challenge. The work involved in preparing for Y2K brought out the capabilities.
The Year 2000 date change was rendered a non-event due to the efforts of many of
our staff members. We are going to carry that momentum into the future to head
the Bank and your Corporation into a new era of service, which should enhance
our profitability and provide a greater investment return for you, our
shareholders. We invite you to come along with us. Thanks for your trust,
support and encouragement.
/s/ Thomas Hite
Thomas F. Hite
President & CEO
2
<PAGE> 4
CROGHAN BANCSHARES, INC.
DESCRIPTION OF THE CORPORATION
Croghan Bancshares, Inc. (the "Corporation" or "Croghan"), a one bank holding
company, was incorporated in 1983 and has approximately $351,000,000 in total
assets as of December 31, 1999. Its operating subsidiary, The Croghan Colonial
Bank (the "Bank"), was incorporated in 1888 and is headquartered in Fremont,
Ohio.
The Bank offers a diverse range of commercial and retail banking services
through its nine offices located in Bellevue, Clyde, Fremont, Green Springs, and
Monroeville, Ohio. Products are comprised of traditional banking services such
as consumer, commercial, agricultural and real estate loans, personal and
business checking accounts, savings accounts, time deposit accounts, safe
deposit box services, and trust department services. Additionally, investment
products bearing no FDIC insurance are offered through the Bank's Invest
Division.
MARKET PRICE AND DIVIDENDS ON COMMON STOCK
There is no established public trading market for the Corporation's common
stock, although McDonald & Company of Cleveland, Ohio has functioned as a market
intermediary for the Corporation's stock since July 1, 1992. Solely on the basis
of transactions that have been reported per Bloomberg, the ranges of transaction
prices for shares of its common stock for each quarterly period during 1999 and
1998 were as follows:
1999 1998
First Quarter $28.00 to $29.00 $24.00 to 24.66
Second Quarter $27.00 to $30.50 24.00 to 26.00
Third Quarter $27.75 to $30.13 26.00 to 28.00
Fourth Quarter $22.25 to $29.00 28.00 to 28.25
Dividends declared by the Corporation on its common stock during the past two
years were as follows:
1999 1998
Three-months ended March 31 $.17 $.15
Three-months ended June 30 .18 .15
Three-months ended September 30 .19 .15
Three-months ended December 31 .19 .15
---- ----
$.73 $.60
=== ====
AVAILABILITY OF MORE INFORMATION
To obtain a copy of the Corporation's annual report (Form 10-K) filed with the
Securities and Exchange Commission, please write to:
James K. Walter, Secretary
Croghan Bancshares, Inc.
323 Croghan Street
Fremont, OH 43420
419-332-7301
3
<PAGE> 5
CROGHAN BANCSHARES, INC.
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
(Dollars in thousands, except share data)
<S> <C> <C> <C> <C> <C>
Statements of operations:
Total interest income $ 24,259 $ 25,151 $ 25,056 $ 21,285 $ 18,076
Total interest expense 10,434 11,420 11,228 9,304 7,409
----------- ----------- ----------- ----------- -----------
Net interest income 13,825 13,731 13,828 11,981 10,667
Provision for loan losses 240 240 180 160 120
----------- ----------- ----------- ----------- -----------
Net interest income after provision for
loan losses 13,585 13,491 13,468 11,821 10,547
Total non-interest income 1,972 1,742 1,514 1,314 1,126
Total non-interest expense 10,833 10,424 10,446 8,594 6,960
----------- ----------- ----------- ----------- -----------
Income before federal income taxes 4,724 4,809 4,716 4,541 4,713
Federal income taxes 1,586 1,649 1,609 1,486 1,444
----------- ----------- ----------- ----------- -----------
Net income $ 3,138 $ 3,160 $ 3,107 $ 3,055 $ 3,269
=========== =========== =========== =========== ===========
Per share of common stock:
Net income $ 1.65 $ 1.66 $ 1.63 $ 1.60 $ 1.72
Dividends .73 .60 .60 .60 .55
Book value 18.36 17.70 16.60 15.57 14.66
=========== =========== =========== =========== ===========
Average common shares outstanding 1,906,120 1,903,616 1,903,578 1,903,578 1,903,578
=========== =========== =========== =========== ===========
Year end balances:
Loans receivable, net $ 236,213 $ 235,941 $ 235,558 $ 227,279 $ 157,356
Investment securities 77,432 76,235 69,664 76,481 72,951
Total assets 350,586 350,144 335,040 340,168 245,518
Deposits 294,587 301,456 289,053 295,310 207,876
Stockholders' equity 35,039 33,705 31,590 29,640 27,898
=========== =========== =========== =========== ===========
Average balances:
Loans, receivable, net $ 230,274 $ 229,463 $ 224,378 $ 184,237 $ 152,764
Investment securities 80,203 70,618 72,763 74,058 68,744
Total assets 344,346 337,493 330,879 282,667 238,759
Deposits 294,792 294,225 289,879 245,301 206,097
Stockholders' equity 34,430 32,672 30,520 28,829 26,613
=========== =========== =========== =========== ===========
Selected ratios:
Net yield on average interest-earnings assets 4.37% 4.40% 4.53% 4.53% 4.70%
Return on average total assets .91 .94 .94 1.08 1.37
Return on average stockholders' equity 9.11 9.67 10.18 10.60 12.28
Return on average tangible stockholders' equity 11.75 13.08 14.47 12.34 12.28
Net loan charge-offs (recoveries) as a percent of
average outstanding net loans .20 .15 .01 .06 (.09)
Allowance for loan losses as a percent of
year-end loans 1.33 1.43 1.47 1.46 1.63
Stockholders' equity as a percent of total
year-end assets 9.99 9.63 9.43 8.71 11.36
=========== =========== =========== =========== ===========
</TABLE>
All share data has been adjusted for the 2-for-1 stock split in 1995 and the
3-for-1 stock split in 1998. Amounts for 1996 reflect the August 1, 1996
purchase of Union Bancshares Corp.
4
<PAGE> 6
CROGHAN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion provides additional information pertaining to Croghan's
financial condition and results of operations. This information is presented to
further the reader's understanding of the Consolidated Financial Statements
which appear on pages 13 through 32 of this Annual Report. Where appropriate,
Management has noted their insights into known events and trends that have or
may be expected to have a material effect on Croghan's operations and financial
condition. The information presented may contain forward-looking statements
regarding future financial performance which are not historical facts and
involve various risks and uncertainties. Actual results and performance could
materially differ from those contemplated in such forward-looking statements.
PERFORMANCE SUMMARY
Croghan's net income decreased .7% to $3,138,000 for the year ended December 31,
1999. This compares to net income of $3,160,000 in 1998 and $3,107,000 in 1997.
The decline in 1999 net income was largely due to an increase in health
insurance claims. The improvement in 1998 net income was a result of increases
in all items within the non-interest income category.
The 1999 return on average assets was .91% compared to .94% in 1998 and 1997.
Croghan's return on average tangible stockholders' equity was 11.75% in 1999,
compared to 13.08% in 1998 and 14.47% in 1997. Income per share in 1999 amounted
to $1.65, compared to $1.66 in 1998 and $1.63 in 1997.
Total assets at December 31, 1999 were $350,586,000 or a .1% increase from
1998's total assets of $350,144,000. Total loans were $239,409,000 at December
31, 1999, compared to 1998's total loans of $239,359,000. Total deposits were
$294,587,000 at December 31, 1999 or a decrease of 2.3% from 1998's total
deposits of $301,456,000. Total stockholders' equity at December 31, 1999
amounted to $35,039,000 or a 4.0% increase as compared to $33,705,000 in 1998.
NET INTEREST INCOME
Net interest income, which is the revenue generated from earning assets in
excess of the interest cost of funding those assets, is Croghan's principal
source of income. Net interest income is influenced by market interest rate
conditions and the volume and mix of earning assets and interest-bearing
liabilities. Many external factors affect net interest income and typically
include the strength of customer loan demand, customer preference for individual
deposit account products, competitors' loan and deposit product offerings, the
national and local economic climates, and Federal Reserve monetary policy. The
following table demonstrates the components of net interest income for the years
ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Average interest-earning assets $316,342 $312,140 $305,080
Interest income 24,259 25,151 25,056
Average rate earned 7.67% 8.06% 8.21%
Average interest-bearing liabilities $273,914 $270,167 $268,036
Interest expense 10,434 11,420 11,228
Average rate paid 3.81% 4.23% 4.19%
Net interest income $ 13,825 $ 13,731 $ 13,828
Net interest yield
(net interest income divided by average
interest-earning assets) 4.37% 4.40% 4.53%
</TABLE>
Net interest income in 1999 increased $94,000 to $13,825,000 or .7% above 1998's
level of $13,731,000. This followed a decrease of $97,000 in 1998 or .7% below
1997's net interest income of $13,828,000.
Management believes the Federal Reserve Open Market Committee will likely raise
interest rates during the first half of 2000. Further tightening, resulting in
higher interest rates, may be required if consumer spending does not slow down
after the tightening moves. Such action would translate into higher loan and
deposit rates. Additionally, local market conditions will likely continue to
pressure net interest income in 2000. Management's projections indicate that
2000 net interest income should increase between 2% and 4% from 1999's level,
although a decline in market interest rates or increased competition could
influence actual results.
5
<PAGE> 7
PROVISION FOR LOAN LOSSES AND THE ALLOWANCE FOR LOAN LOSSES
Croghan has implemented a loan policy, which establishes procedures to manage
both credit risk and asset quality. The policy details acceptable lending
guidelines and also stipulates the use of a loan review process. The loan review
process, which is conducted by an outside credit review firm, facilitates the
early identification of problem loans, ensures sound credit decisions, and aids
in determining the amount of the provision for loan losses. Monthly provisions
are made in amounts, which maintain the balance in the allowance for loan losses
at a level considered by management to be adequate for potential losses within
the portfolio. The ultimate goal of Croghan's loan policy is to minimize the
uncertainties associated with the lending function.
In addition to the comprehensive lending guidelines and loan review process,
management monitors numerous factors to determine the adequacy of the allowance
for loan losses including delinquency trends, the status of non-performing
loans, current and historical trends in charged-off loans, existing local and
national economic conditions, and changes within the volume and mix of the
various loan categories. Even though management uses all available information
to provide for possible loan losses, future additions to the allowance may be
required as changes occur in economic conditions and specific borrower
circumstances. Also, the regulatory agencies that periodically review Croghan's
allowance for loan losses may require additions to the allowance or the
charge-off of specific loans based on the information available to them at the
time of their examinations. The following table details factors relating to the
provision and allowance for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
(Dollars in thousands)
<S> <C> <C> <C>
Provision for loan losses charged to expense $ 240 $ 240 $ 180
Net loan charge-offs 462 340 30
Net loan charge-offs as a percent of average outstanding
net loans .20% .15% .01%
Nonaccrual loans $ 392 $ 315 $ 212
Loans contractually past due 90 days or more 2,144 1,086 582
Restructured loans -- -- --
Potential problem loans, other than those past due 90 days
or more, nonaccrual, or restructured 1,176 1,275 1,992
Allowance for loan losses 3,196 3,418 3,518
Allowance for loan losses as a percent of year-end loans 1.33% 1.43% 1.47%
</TABLE>
The provision for loan losses in 1999 was $240,000 compared to $240,000 in 1998
and $180,000 in 1997. A positive trend in the loan portfolio at December 31,
1999 was a $99,000 decrease in other potential problem loans to $1,176,000.
Negative trends include a $77,000 increase in nonaccrual loans and a $1,058,000
increase in loans contractually past due 90 days or more. Management does not
believe the nonaccrual loans in 1999 are impaired under the criteria of FASB
Statement 114 as they consist primarily of consumer and secured residential
loans. Net loan charge-offs in 1999 of $462,000 included $290,000 attributable
to the consumer loan portfolio. Management continues to monitor consumer loan
delinquencies and feels that overall loan portfolio quality remains quite
manageable.
Croghan determines its investment in impaired loans on a quarterly basis. A loan
is considered impaired when based on the most current information available it
appears probable that the borrower will not be able to make payments according
to the contractual terms of the loan agreement. Impaired loans are recorded
based upon the observable market price of the loan, the fair value of the
underlying collateral (if the loan is collateral dependent), or the present
value of the expected future cash flows discounted at the loan's effective
interest rate. At December 31, 1999, Croghan's portfolio did not contain any
impaired loans compared to $316,000 at December 31, 1998.
NON-INTEREST INCOME
Non-interest income in 1999 increased $230,000 to $1,972,000 or 13.2% above
1998's total of $1,742,000. This followed an increase of $228,000 in 1998 or
15.1% more than 1997's total of $1,514,000. The following table summarizes
non-interest income for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
(Dollars in thousands)
<S> <C> <C> <C>
Trust income $ 430 $ 373 $ 324
Service charges on deposit accounts 829 747 720
Gain (loss) on sale of investment securities 2 -- (27)
Gain on sale of loans to Freddie Mac 4 35 --
Other operating income 707 587 497
------- ------- -------
Total non-interest income $ 1,972 $ 1,742 $ 1,514
======= ======= =======
</TABLE>
6
<PAGE> 8
Trust income increased $57,000 or 15.3% in 1999 following an increase of $49,000
or 15.1% in 1998. The Trust Department had over $84,000,000 in assets and 510
clients at the end of 1999 compared to $70,000,000 at December 31, 1998. The
Trust Department services include qualified retirement plans (401-K and simple
plans), personal trusts, investment management accounts, and cash management
accounts.
Service charges on deposit accounts increased $82,000 or 11.0% in 1999 following
an increase of $27,000 or 3.8% in 1998. Net investment securities gains amounted
to $2,000 in 1999 compared to no gain in 1998 and net losses of $27,000 in 1997.
A substantial portion of the 1999 net gains and 1997 net losses were realized
upon the sale of U.S. Treasury Notes with approximately one year remaining until
their maturities. Investments due in two years were purchased to replace those
securities that were sold. Significant portions of the reported securities
losses during 1997 were offset by increased investment earnings on the
replacement securities purchased, with such earnings reported as a component of
total interest income.
Net gain on sale of loans to the Federal Home Loan Mortgage Corporation (Freddie
Mac) totalled $4,000 in 1999 compared to $35,000 in 1998. There were no such
gains in 1997. The sale of these loans allowed Croghan to maintain its customer
relationships while at the same time eliminating the risk associated with
long-term fixed-rate mortgage loan financing.
Other operating income increased $120,000 or 20.4% in 1999 following an increase
of $90,000 or 18.1% in 1998. During 1999, the bank paid premiums of $3,094,000
upon entering into split dollar life insurance policies with certain executive
officers to provide supplemental retirement benefits. The cash value of these
policies, aggregating $3,191,000 at December 31, 1999, is included in other
assets in Croghan's consolidated 1999 balance sheet. The 1999 increase in cash
value of the policies of $97,000 is included in other operating income.
Croghan's Invest Division markets non-FDIC insured investment products such as
mutual funds and annuities. Fees generated by the Invest Division amounted to
$88,000 in 1999, $131,000 in 1998 and $142,000 in 1997. Management has
undertaken measures to reverse the adverse trend of declining Invest Division
fees including a new referral program.
Other components of other operating income include ATM surcharge fees (which
increased to $96,000 compared to $66,000 in 1998), Master Card merchant fees,
safe deposit box fees, credit life commissions, and fees from the sale of
official checks and money orders.
NON-INTEREST EXPENSES
Non-interest expenses in 1999 increased $409,000 to $10,833,000 or 3.9% above
1998's total of $10,424,000. This followed a decrease of $22,000 in 1998 or .2%
below 1997's total of $10,446,000. The following table details non-interest
expenses for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
(Dollars in thousands)
<S> <C> <C> <C>
Compensation $ 4,699 $ 4,577 $ 4,482
Benefits 1,385 1,017 1,053
------- ------- -------
Total personnel expense 6,084 5,594 5,535
Net occupancy expense 632 654 672
Equipment expense 805 870 749
Goodwill amortization 638 638 638
State franchise and other taxes 338 359 352
Postage 238 235 224
Stationery and supplies 217 223 228
Advertising and marketing 205 203 210
Examination expense 129 173 150
Telephone 127 136 125
Professional and consulting services 146 107 135
Third party computer processing 111 105 304
Other 1,163 1,127 1,124
------- ------- -------
Total non-interest expenses $10,833 $10,424 $10,446
======= ======= =======
</TABLE>
Total personnel expense increased $490,000 or 8.8% in 1999 compared to an
increase of $59,000 or 1.1% in 1998. The higher personnel expenses are largely
due to an increase in medical insurance claims of $272,000 in 1999 compared to
1998. The increase in medical claims resulted from a number of unexpected claims
occurring throughout the year. Net occupancy expense decreased $22,000 in 1999
and $18,000 in 1998. Equipment expense decreased $65,000 or 7.5% in 1999
following an increase of $121,000 or 16.2% in 1998. Significant portions of the
1998 increase in equipment expense were attributable to the purchase and
maintenance of computer equipment used to deliver accurate and efficient
customer service. Year 2000 compliant mainframe hardware and software was
installed in 1997 and various personal computers were upgraded to Year 2000
compliant status throughout 1998 and 1999.
7
<PAGE> 9
Goodwill amortization, arising from the 1996 purchase of Union Bancshares, Inc.,
was $638,000 in 1999, 1998, and 1997 and is being amortized over a 15 year
period.
State franchise taxes, which are based on Croghan's capital structure, and other
taxes decreased $21,000 or 5.8% in 1999 following a $7,000 or 2.0% increase in
1998. The 1999 reduction resulted from a lower franchise tax rate structure
enacted by the Ohio legislature.
Examination expense decreased $44,000 or 25.4% in 1999 following a $23,000 or
15.3% increase in 1998. Professional and consulting services increased $39,000
or 36.4% in 1999 following a decrease of $28,000 or 20.7% in 1998. Third party
computer processing fees increased $6,000 or 5.7% in 1999 compared to a $199,000
or 65.5% decrease in 1998. The significant decline in 1998 resulted from the
conversion of all offices to a common in-house processing system.
Other operating expenses increased $36,000 or 3.2% in 1999, following a slight
increase of $3,000 in 1998. Major expense categories included in other operating
expenses are Master Card processing and franchise fees, miscellaneous employee
expenses, fidelity and liability insurance, director and committee fees, loan
origination and collection expenses, dues and subscriptions, ATM network fees,
software amortization costs, correspondent bank service charges, and charitable
donations.
FEDERAL INCOME TAXES
Federal income tax expense totalled $1,586,000 in 1999, compared to $1,649,000
in 1998 and $1,609,000 in 1997. The effective tax rate in 1999 decreased to
33.6%, compared to 34.3% in 1998 and 34.1% in 1997. The effective tax rate for
all three years reflects the disallowance of any tax deduction for goodwill
amortization.
INVESTMENT SECURITIES
The investment portfolio is used to enhance net income, provide liquidity, and
diversify financial risk. Croghan currently classifies its securities as either
held-to-maturity (those investments with the intention to be held until
maturity) or available-for-sale. Held-to-maturity securities are reported at
amortized cost, while available-for-sale securities are reported at their fair
values with the net unrealized gain or loss reported as accumulated other
comprehensive income (loss).
Croghan's investment portfolio is comprised primarily of U.S. Treasury and U.S.
Government Agency obligations. The amortized cost of such investments totalled
$57,991,000 at December 31, 1999, compared to $58,596,000 at December 31, 1998.
Croghan also invests in debt obligations of domestic corporations and state and
political subdivisions, and in stock issuances of the Federal Reserve Bank of
Cleveland and the Federal Home Loan Bank of Cincinnati. The amortized cost of
these investments totalled $19,994,000 at December 31, 1999, compared to
$17,375,000 at December 31, 1998.
In 1999, Croghan received $2,000,000 in proceeds from the sale of U.S. Treasury
Notes and U.S. Government Agency obligations prior to their stated maturities.
Croghan did not have any such sales in 1998. A majority of the 1999 sales were
the result of a planned strategy to improve the portfolio's yield without
significantly increasing its average maturity.
TOTAL LOANS RECEIVABLE
Total loans receivable at December 31, 1999 increased $50,000 over December 31,
1998. The following table summarizes total loans and the percent change by major
category as of December 31:
<TABLE>
<CAPTION>
Percent
1999 1998 Change
(Dollars in thousands)
<S> <C> <C> <C>
Commercial, financial and agricultural $ 31,057 $ 32,161 (3.4)%
Real estate - residential mortgage 101,418 103,947 (2.4)%
Real estate - nonresidential mortgage 54,197 51,484 5.3%
Real estate - construction 506 903 (44.0)%
Consumer 49,682 48,327 2.8%
Credit Card 2,549 2,537 .5%
-------- -------- --------
Total loans $239,409 $239,359 --
======== ======== ========
</TABLE>
As noted in the preceding table, consumer, nonresidential real estate, and
credit card loans increased. Conversely, residential and construction real
estate loans, and commercial, financial, and agricultural loans decreased. Total
loan growth was less than projected due to intense competition. Croghan sold
$869,000 of residential real estate loans to Freddie Mac without recourse in
1999 compared to $1,804,000 in 1998. The loans were sold in an effort to
mitigate the interest rate risk associated with long-term mortgage loan
financing. Croghan anticipates loan growth to increase between 3 and 5 percent
for the year 2000, although a change in market interest rates or increased
competition could influence actual results.
8
<PAGE> 10
TOTAL DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Deposits and other interest-bearing liabilities serve as the primary source of
cash flows to fund loan demand and are summarized in the following table as of
December 31:
<TABLE>
<CAPTION>
Percent
1999 1998 Change
(Dollars in thousands)
<S> <C> <C> <C>
Demand, non-interest bearing $ 34,040 $ 34,518 (1.4)%
Savings, NOW and Money Market deposits 122,143 116,887 4.5%
Time deposits 138,404 150,051 (7.8)%
-------- --------
Total deposits 294,587 301,456 (2.3)%
Federal funds purchased 11,762 7,940 48.1%
Securities sold under repurchase agreements -- 1,200 (100.0)%
Borrowed funds 7,000 3,335 109.9%
-------- --------
Total deposits and other interest-bearing
liabilities $313,350 $313,931 (.2)%
======== ========
</TABLE>
The deposit category of Savings, NOW and Money Market increased in 1999, with
demand, non-interest bearing, and time deposits showing a decline during the one
year period. Croghan will closely monitor its deposit product rates throughout
2000 in the wake of continued competition in the bank's market areas and
anticipated loan growth.
Other interest-bearing liabilities at December 31, 1999 increased $6,287,000 to
$18,762,000 from $12,475,000 at December 31, 1998. Federal funds purchased
increased by $3,822,000, while securities sold under repurchase agreements
declined $1,200,000. Borrowed funds at December 31, 1999 increased to $7,000,000
from $3,335,000 in 1998. Borrowed funds at December 31, 1999 were comprised of
advances from the Federal Home Loan Bank of Cincinnati. The proceeds from the
Federal Home Loan Bank advances were obtained in 1999 for general funding needs
and Y2-K liquidity. Borrowed funds at December 31, 1998 were used to assist in
managing interest rate sensitivity associated with Croghan's fixed rate real
estate loan portfolio.
CAPITAL
Croghan's stockholders' equity at December 31 is summarized in the following
table :
<TABLE>
<CAPTION>
1999 1998
(Dollars in thousands)
<S> <C> <C>
Common stock $ 23,853 $ 23,797
Surplus 74 3
Retained earnings 11,477 9,731
Accumulated other comprehensive
income (loss) (365) 174
-------- --------
Total stockholders' equity $ 35,039 $ 33,705
======== ========
</TABLE>
Accumulated other comprehensive income (loss) consisted of the net unrealized
gain (loss) on investment securities classified as available-for-sale. At
December 31, 1999, Croghan held $37,336,000 in available-for-sale securities
with a net unrealized loss of $365,000 net of income taxes. This compares to
1998 year-end holdings of $30,493,000 with a net unrealized gain of $174,000 net
of income taxes. The net change of $539,000 was a result of higher market
interest rates for debt securities. Management does not feel that any of the
securities are permanently impaired therefore no charge to operations occurred
in 1999.
Croghan's capital structure is subject to capital requirements as established by
the Federal Reserve Board. To be considered "well capitalized" an institution
must have a Tier I risk-based capital ratio of at least 6% and a total
risk-based capital ratio of at least 10%. At December 31, 1999, Croghan was
deemed "well capitalized" with a Tier I risk-based capital ratio of 12.5% and a
total risk-based capital ratio of 13.7%.
LIQUIDITY
Croghan's primary sources of liquidity are derived from its core deposit base
and stockholders' equity position. Secondary liquidity is provided by actively
managing the investment portfolio, federal funds sold, and the ability to borrow
funds from correspondent banks under established lines of credit. At December
31, 1999, federal funds sold amounted to $ 2,200,000 and available lines of
credit totalled $14,000,000.
9
<PAGE> 11
Croghan maintains a portion of its assets in liquid form to meet anticipated
customer loan demands and fund possible deposit account withdrawals. At December
31, 1999, liquid assets in the form of cash and due from banks totalled
$13,579,000 or 3.9% of total assets. These highly liquid assets, in addition to
an evenly staggered maturity schedule within the investment portfolio and cash
flows from loan repayments, provide adequate liquidity for day-to-day
operations.
The liquidity needs of the Corporation, primarily the need to pay quarterly cash
dividends to shareholders, debt service, and Corporation expenses, are funded by
upstream-dividends from the Bank subsidiary. Dividends paid to the Corporation
by the Bank for such purposes totalled $1,877,000 in 1999, $3,067,000 in 1998,
and $3,102,000 in 1997.
INTEREST RATE RISK
Interest rate risk is one of Croghan's most significant financial exposures.
This risk, which is common to the financial institution sector, is an integral
part of Croghan's operations and impacts the rate pricing strategy for
essentially all loan and deposit products.
Croghan monitors its interest rate risk through a sensitivity analysis, whereby
it measures potential changes in its future earnings and the fair values of its
financial instruments that may result from hypothetical changes in interest
rates. This analysis is performed by estimating the expected cash flows of the
Bank's financial instruments using interest rates in effect at December 31,
1999. For the fair value estimates, the cash flows are then discounted to arrive
at an estimated present value of the Bank's financial instruments. Hypothetical
changes in interest rates are then applied to the financial instruments, and the
cash flows and fair values are again estimated using the hypothetical rates. For
the net interest income estimates, the hypothetical rates are applied to the
financial instruments based on the assumed cash flows. The Bank applies these
interest rate shocks to its financial instruments up and down 200 basis points
for value of equity and up and down 100 basis points for net interest income.
The following table presents an analysis of the potential sensitivity of the
Bank's annual net interest income and present value of the Bank's financial
instruments to sudden and sustained 100 or 200 basis-point changes in market
interest rates:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
$ Year-End % ALCO
1999 Guidelines
(Dollars in Thousands) %
- -------------------------------------------------------------------------------
One Year Net Interest Income Change Change Change Change
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
+ 100 Basis points (97) (.04) (10.0)
- - 100 Basis points 6 .71 (10.0)
- ------------------------------------------------------------------------------
Net Present Value of Equity
- ------------------------------------------------------------------------------
+ 200 Basis points (2,557) (7.62) (30.0)
- - 200 Basis points 1,168 3.48 (30.0)
- ------------------------------------------------------------------------------
</TABLE>
The projected volatility of net interest income to a +/- 100 basis point change
and net present value of equity to a +/- 200 basis point change at December 31,
1999 fall well within the Board of Director's guidelines.
The above analysis is based on numerous assumptions, including relative levels
of market interest rates, loan prepayments and reactions of depositors to
changes in interest rates, and should not be relied upon as being indicative of
actual results. Further, the analysis does not necessarily contemplate all
actions that Croghan may undertake in response to changes in interest rates.
10
<PAGE> 12
YEAR 2000 PREPAREDNESS
A majority of the cost associated with upgrading Croghan's internal hardware and
software was incurred when the mainframe equipment was purchased in 1997.
Additional direct expenditures attributable to Year 2000 internal hardware and
software approximated $25,000 in 1999 and $32,000 in 1998. Costs associated with
the vendor and customer compliance portions of the Year 2000 preparedness plan
are difficult to quantify, but direct costs of the program were estimated at
$25,000 in 1999 and 1998. An even more difficult amount to quantify is the
personnel time required to verify system integrity and assure compliance with
the policies and procedures mandated by the regulatory agencies. Such expense is
estimated to have amounted to approximately $75,000 in 1999 and over $100,000
during the period of 1997 and 1998.
The Bank did not experience any interruptions to the delivery systems of
products through its main office or branch locations as a result of Year 2000.
There was an opportunity cost attributed to year-end cash build up of
approximately $27,000 in 1999. The Bank experienced minimal customer withdrawal
activity during the last quarter of 1999 beyond that of normal business
activity.
11
<PAGE> 13
CLIFTON GUNDERSON LTD.
CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS
INDEPENDENT AUDITOR'S REPORT
Stockholders and Board of Directors
Croghan Bancshares, Inc.
Fremont, Ohio
We have audited the accompanying consolidated balance sheets of Croghan
Bancshares, Inc. and its subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Croghan Bancshares,
Inc. and its subsidiary as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
Toledo, Ohio
January 11, 2000
Members of
NEXIA
International
American Institute
of Certified Public
Accountants
12
<PAGE> 14
CROGHAN BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS 1999 1998
--------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
<S> <C> <C>
CASH AND CASH EQUIVALENTS
Cash and due from banks $ 13,579 $ 10,334
Interest-bearing deposits in other banks 14 --
Federal funds sold 2,200 8,300
--------- ---------
Total cash and cash equivalents 15,793 18,634
--------- ---------
INVESTMENT SECURITIES
Available-for-sale, at fair value 37,336 30,493
Held-to-maturity, at amortized cost, fair
value of $39,556 in 1999 and $45,935 in
1998 40,096 45,742
--------- ---------
Total investment securities 77,432 76,235
--------- ---------
LOANS RECEIVABLE 239,409 239,359
Less: Allowance for loan losses 3,196 3,418
--------- ---------
Net loans receivable 236,213 235,941
--------- ---------
PREMISES AND EQUIPMENT, NET 7,203 7,821
ACCRUED INTEREST RECEIVABLE 2,606 2,752
GOODWILL, NET 7,389 8,027
OTHER ASSETS 3,950 734
--------- ---------
TOTAL ASSETS $ 350,586 $ 350,144
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing $ 34,040 $ 34,518
Savings, NOW and Money Market deposit 122,143 116,887
Time 138,404 150,051
--------- ---------
Total deposits 294,587 301,456
Federal funds purchased and securities sold
under repurchase agreements 11,762 9,140
Borrowed funds 7,000 3,335
Dividends payable 363 285
Other liabilities 1,835 2,223
--------- ---------
Total liabilities 315,547 316,439
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, $12.50 par value. Authorized
3,000,000 shares; issued and outstanding
1,908,208 shares and 1,903,754 shares
in 1999 and 1998, respectively 23,853 23,797
Surplus 74 3
Retained earnings 11,477 9,731
Accumulated other comprehensive income (loss) (365) 174
--------- ---------
Total stockholders' equity 35,039 33,705
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 350,586 $ 350,144
========= =========
</TABLE>
These consolidated financial statements should be read only in connection with
the accompanying summary of significant accounting policies and notes to
consolidated financial statements.
13
<PAGE> 15
CROGHAN BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans receivable $ 19,900 $ 20,639 $ 20,440
Interest and dividends on investment securities:
U.S. Treasury securities 1,315 1,757 1,752
Obligations of U.S. Government agencies
and corporations 1,933 1,499 1,772
Obligations of states and political subdivisions 714 646 636
Other securities 267 153 211
Interest on federal funds sold 130 457 245
---------- ---------- ----------
Total interest income 24,259 25,151 25,056
---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits 9,782 10,993 10,753
Interest on other borrowings 652 427 475
---------- ---------- ----------
Total interest expense 10,434 11,420 11,228
---------- ---------- ----------
Net interest income 13,825 13,731 13,828
PROVISION FOR LOAN LOSSES 240 240 180
---------- ---------- ----------
Net interest income after provision
for loan losses 13,585 13,491 13,648
---------- ---------- ----------
NON-INTEREST INCOME
Trust income 430 373 324
Service charges on deposit accounts 829 747 720
Gain (loss) on sale of investment securities 2 - (27)
Gain on sale of loans 4 35 -
Other operating income 707 587 497
---------- ---------- ----------
Total non-interest income 1,972 1,742 1,514
---------- ---------- ----------
NON-INTEREST EXPENSES
Salaries, wages and employee benefits 6,084 5,594 5,535
Net occupancy expense of premises 632 654 672
Amortization of goodwill 638 638 638
Other operating expenses 3,479 3,538 3,601
---------- ---------- ----------
Total non-interest expenses 10,833 10,424 10,446
---------- ---------- ----------
Income before federal income taxes 4,724 4,809 4,716
FEDERAL INCOME TAXES 1,586 1,649 1,609
---------- ---------- ----------
NET INCOME $ 3,138 $ 3,160 $ 3,107
========== ========== ==========
NET INCOME PER SHARE, based on 1,906,120 shares
in 1999, 1,903,616 shares in
1998 and 1,903,578 shares
in 1997, respectively $ 1.65 $ 1.66 $ 1.63
========== ========== ==========
</TABLE>
These consolidated financial statements should be read only in connection with
the accompanying summary of significant accounting policies and notes to
consolidated financial statements.
14
<PAGE> 16
CROGHAN BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON RETAINED COMPREHENSIVE
STOCK SURPLUS EARNINGS INCOME (LOSS) TOTAL
------ ------- -------- ------------- -----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 $ 7,932 $ 8,989 $ 12,622 $ 97 $ 29,640
--------
Comprehensive income:
Net income -- -- 3,107 -- 3,107
Reclassification adjustment for losses
included in net income, net of
tax of $9 -- -- -- 18 18
Change in net unrealized
gain (loss), net of
related income taxes -- -- -- (33) (33)
--------
Total comprehensive
income 3,092
--------
Cash dividends declared,
$.60 per share -- -- (1,142) -- (1,142)
-------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1997 7,932 8,989 14,587 82 31,590
--------
Comprehensive income:
Net income -- -- 3,160 -- 3,160
Change in net unrealized
gain (loss), net of
related income taxes -- -- -- 92 92
--------
Total comprehensive
income -- -- -- -- 3,252
--------
Transfer for three-for-one stock split 15,863 (8,989) (6,874) -- --
Issuance of common stock 2 3 -- -- 5
Cash dividends declared,
$.60 per share -- -- (1,142) -- (1,142)
-------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1998 23,797 3 9,731 174 33,705
--------
Comprehensive income:
Net income -- -- 3,138 -- 3,138
Change in net unrealized
gain (loss), net of
related income taxes -- -- -- (539) (539)
--------
Total comprehensive
income -- -- -- -- 2,599
--------
Issuance of common stock 56 71 -- -- 127
Cash dividends declared,
$.73 per share -- -- (1,392) -- (1,392)
-------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1999 $ 23,853 $ 74 $ 11,477 $ (365) $ 35,039
======== ======== ======== ======== ========
</TABLE>
These consolidated financial statements should be read only in connection with
the accompanying summary of significant accounting policies and notes to
consolidated financial statements.
15
<PAGE> 17
CROGHAN BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,138 $ 3,160 $ 3,107
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,268 1,227 1,100
Provision for loan losses 240 240 180
Deferred federal income taxes 156 63 (48)
FHLB stock dividends (99) (94) (88)
Increase in cash value of split dollar life
insurance policies (97) -- --
Net amortization of investment security
premiums and discounts 96 11 66
Provision for deferred compensation 25 -- --
Loss (gain) on sale of investment securities (2) -- 27
Gain on sale of loans (4) (35) --
Loss on disposal of equipment 16 3 114
Decrease (increase) in accrued
interest receivable 146 (139) (33)
Decrease (increase) in other assets (25) (38) 115
Decrease in other liabilities (290) (136) (26)
-------- -------- --------
Net cash provided by operating activities 4,568 4,262 4,514
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities 30,827 36,761 32,314
Proceeds from sales of available-for-sale
investment securities 2,000 -- 7,011
Proceeds from sale of loans receivable 869 1,805 --
Proceeds from sale of equipment 5 6 12
Payment of single premiums on split dollar
life insurance policies (3,094) -- --
Purchases of investment securities:
Available-for-sale (26,749) (10,018) (17,522)
Held-to-maturity (8,088) (33,052) (14,947)
Net increase in loans receivable (1,383) (2,408) (8,599)
Capital expenditures (168) (476) (1,145)
-------- -------- --------
Net cash used in investing activities (5,781) (7,382) (2,876)
-------- -------- --------
</TABLE>
16
<PAGE> 18
CROGHAN BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ (6,728) $ 12,544 $ (6,116)
Increase in federal funds purchased and securities
sold under repurchase agreements 2,622 477 2,623
Borrowed funds:
Proceeds 5,000 2,000 --
Repayments (1,335) (1,865) (3,362)
Proceeds from issuance of common stock 127 5 --
Cash dividends paid (1,314) (1,142) (1,142)
-------- -------- --------
Net cash provided by (used in)
financing activities (1,628) 12,019 (7,997)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (2,841) 8,899 (6,359)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 18,634 9,735 16,094
-------- -------- --------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 15,793 $ 18,634 $ 9,735
======== ======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest $ 10,732 $ 11,610 $ 11,434
======== ======== ========
Federal income taxes $ 1,445 $ 1,495 $ 1,810
======== ======== ========
Non-cash operating activities:
Change in deferred income taxes on net unrealized
gain (loss) on available-for-sale securities $ (278) $ 48 $ (8)
======== ======== ========
Non-cash investing activities:
Transfer of loans to other real estate $ -- $ -- $ 140
======== ======== ========
Change in net unrealized gain (loss)
on available-for-sale securities $ (817) $ 140 $ (23)
======== ======== ========
</TABLE>
These consolidated financial statements should be read only in connection with
the accompanying summary of significant accounting policies and notes to
consolidated financial statements.
17
<PAGE> 19
CROGHAN BANCSHARES, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Croghan Bancshares, Inc. (the "Corporation") was incorporated on September 27,
1983 in the state of Ohio. The Corporation is a bank holding company and has one
wholly-owned subsidiary, The Croghan Colonial Bank (the "Bank"). The
Corporation, through its subsidiary, operates in one industry segment, the
commercial banking industry. The Bank, an Ohio chartered bank organized in 1888,
has its main office in Fremont, Ohio and has branch offices located in Fremont,
Bellevue, Clyde, Green Springs, and Monroeville, Ohio. The Bank's primary source
of revenue is providing loans to customers primarily located in Sandusky County,
the Village of Green Springs, and the northwest portion of Huron County which
includes the City of Bellevue and Village of Monroeville. Such customers are
predominantly small and middle-market businesses and individuals.
Significant accounting policies followed by the Corporation are presented below.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during each reporting period. The
most significant areas involving the use of management's estimates and
assumptions are the allowance for loan losses, and the carrying value and
amortization of goodwill. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Corporation
and its wholly-owned subsidiary. All significant intercompany balances and
transactions have been eliminated in consolidation.
The Bank established a trust department in 1990 and the assets held by the Bank
in fiduciary or agency capacities for its customers are not included in the
consolidated balance sheets as such items are not assets of the Bank.
CASH AND CASH EQUIVALENTS
The Bank is required to maintain certain daily reserve balances on hand in
accordance with Federal Reserve Board requirements. The average reserve balance
for the years ended December 31, 1999 and 1998 amounted to $3,348,300 and
$3,274,000, respectively.
For purposes of the statements of cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, and federal funds sold which mature
overnight or within three days.
INVESTMENT SECURITIES
The Bank's investment securities are designated at the time of purchase as
either held-to-maturity or available-for-sale. Securities designated as
held-to-maturity are carried at their amortized cost. Securities designated as
available-for-sale are carried at fair value, with unrealized gains and losses,
net of applicable income taxes, on such securities recognized in other
comprehensive income.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization and accretion is included in interest
and dividends on investment securities.
Gains and losses on sales of investment securities are accounted for on a
completed transaction basis, using the specific identification method, and are
included in non-interest income.
The Bank does not hold any derivative financial instruments.
18
<PAGE> 20
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS RECEIVABLE
Loans receivable are stated at their principal amount, adjusted for loan fees
and costs and net of an allowance for loan losses. Interest is accrued as earned
based upon the daily outstanding principal balance.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related loan.
The allowance for loan losses is determined based on an analysis of the loan
portfolio and reflects an amount which, in management's judgment, is adequate to
provide for possible loan losses. Such analysis, which is done on a quarterly
basis, is based on the character of the loan portfolio, value of any underlying
collateral, current economic conditions, past loan loss experience, and such
other factors as management believes requires current recognition in estimating
loan losses. Various regulatory agencies, as part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.
Loans are generally placed on a nonaccrual basis when, in the opinion of
management, full collection of principal and interest is unlikely. At the time a
loan is placed on nonaccrual status, interest previously accrued, but not
collected, is charged against current interest income. Income on such loans is
then recognized only to the extent that cash is received and where future
collections of principal are probable.
A loan is considered impaired when, based on current information and events, it
is probably that the Bank will be unable to collect the scheduled payments of
principal and interest when due according to the contractual terms of the loan
agreement. Factors considered by management in determining impairment include
payment status and collateral value. Loans that experience insignificant payment
delays and shortfalls are generally not classified as impaired. Large groups of
smaller balance homogenous loans, such as residential real estate, consumer, and
credit card are collectively evaluated for impairment and the Bank does not
separately identify such loans individually for impairment disclosures.
OTHER REAL ESTATE OWNED
Other real estate owned represents property acquired through foreclosure or
deeded to the Bank in lieu of foreclosure on real estate mortgage loans on which
the borrowers have defaulted as to payment of principal and interest. Other real
estate owned is recorded at the lower of cost or fair value, less estimated
costs to sell, and any loan balance in excess of fair value is charged to the
allowance for loan losses. Subsequent write-downs are included in other
operating expense, as are gains or losses upon sale and expenses related to
maintenance of the properties.
PREMISES AND EQUIPMENT
Premises and equipment is stated at cost, less accumulated depreciation. Upon
the sale or disposition of the assets, the difference between the depreciated
cost and proceeds is charged or credited to income. Depreciation is determined
based on the estimated useful lives of the individual assets (typically 20 to 40
years for buildings and 3 to 10 years for equipment) and is computed using both
accelerated and straight-line methods.
GOODWILL
Goodwill arising from the 1996 purchase of Union Bancshares Corp. is being
amortized on a straight-line basis over a period of 15 years.
ADVERTISING COSTS
All advertising costs are expensed as incurred.
19
<PAGE> 21
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES
Deferred income taxes are provided on temporary differences between financial
statement and income tax reporting. Temporary differences are differences
between the amounts of assets and liabilities reported for financial statement
purposes and their tax bases. Deferred tax assets are recognized for temporary
differences that will be deductible in future years' tax returns and for
operating loss and tax credit carryforwards. Deferred tax assets are reduced by
a valuation allowance if it is deemed more likely than not that some or all of
the deferred tax assets will not be realized. Deferred tax liabilities are
recognized for temporary differences that will be taxable in future years' tax
returns.
The Corporation and the Bank are not currently subject to state and local income
taxes.
COMPREHENSIVE INCOME
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" in June 1997.
Statement 130 establishes standards for reporting and display of comprehensive
income (as defined) in a full set of general-purpose financial statements.
Statement 130 requires classification of items of other comprehensive income by
their nature in a financial statement and display of the accumulated balance of
other comprehensive income separately from retained earnings and surplus in the
equity section of the balance sheet. The Corporation has only one item of other
comprehensive income and has elected to report comprehensive income in the
consolidated statements of stockholders' equity.
PER SHARE DATA
Net income per share is computed based on the weighted average number of shares
of common stock outstanding during each year, after restatement for stock
dividends. Under Financial Accounting Standards Board's Statement No. 128,
"Earnings Per Share", which was effective in 1997, this computation is referred
to as "basic earnings per share".
Dividends per share are based on the number of shares outstanding at the
declaration date, after restatement for stock dividends.
This information is an integral part of the accompanying consolidated financial
statements
20
<PAGE> 22
CROGHAN BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INVESTMENT SECURITIES
At December 31, 1999, a net unrealized loss of $365,000, net of federal income
taxes of $188,000, was reported with respect to carrying available-for-sale
investment securities at fair value. At December 31, 1998, such accounting
resulted in a net unrealized gain of $174,000, net of federal income taxes of
$90,000. Such amounts are reported as accumulated other comprehensive income
(loss).
The amortized cost and fair value of investment securities as of December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ----- --------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities $20,002 $19,895 $28,010 $28,245
Obligations of U.S. Government
agencies and corporations 17,785 17,338 2,115 2,141
Obligations of states and
political subdivisions 102 103 104 107
------- ------- ------- -------
Total available-for-sale 37,889 37,336 30,229 30,493
------- ------- ------- -------
Held-to-maturity:
Obligations of U.S. Government
agencies and corporations 20,204 19,818 28,471 28,463
Obligations of states and
political subdivisions 14,860 14,811 15,034 15,235
Other securities 5,032 4,927 2,237 2,237
------- ------- ------- -------
Total held-to-maturity 40,096 39,556 45,742 45,935
------- ------- ------- -------
Total $77,985 $76,892 $75,971 $76,428
======= ======= ======= =======
</TABLE>
A summary of unrealized gains and losses on investment securities at December
31, 1999 and 1998 follows:
<TABLE>
<CAPTION>
1999 1998
---------------- --------------------
GROSS GROSS GROSS GROSS
UNREALIZED UNREALIZED UNREALIZED UNREALIZED
GAINS LOSSES GAINS LOSSES
---------- --------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities $ 2 $ 109 $ 239 $ 4
Obligations of U.S. Government
agencies and corporations 4 451 27 1
Obligations of states and political subdivisions 1 -- 3 --
------- ------- ------- -------
Total available- for-sale 7 560 269 5
------- ------- ------- -------
Held-to-maturity:
Obligations of U.S. Government
agencies and corporations -- 386 73 81
Obligations of states and political subdivisions 19 68 202 1
Other securities -- 105 -- --
------- ------- ------- -------
Total held-to-maturity 19 559 275 82
------- ------- ------- -------
Total $ 26 $ 1,119 $ 544 $ 87
======= ======= ======= =======
</TABLE>
21
<PAGE> 23
CROGHAN BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INVESTMENT SECURITIES (CONTINUED)
The amortized cost and fair value of investment securities at December 31, 1999,
by contractual maturity, are shown below. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------ ----------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ----- --------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $ 10,011 $ 9,984 $ 12,148 $ 12,055
Due after one year through five years 26,744 26,220 23,489 23,059
Due after five years through ten years 1,032 1,029 1,349 1,338
Due after ten years 102 103 624 618
Other securities having no maturity date - - 2,486 2,486
----------- ----------- ----------- -----------
Total $ 37,889 $ 37,336 $ 40,096 $ 39,556
=========== =========== =========== ===========
</TABLE>
Investment securities with an amortized cost of $50,360,000 at December 31, 1999
and $36,588,000 at December 31, 1998 were pledged to secure public deposits and
for other purposes as required or permitted by law.
Proceeds from sales of investment securities during 1999 and 1997 all related to
available-for-sale securities. Proceeds from such sales amounted to $2,000,000
in 1999 resulting in gross realized gains of $2,000. Proceeds from such sales
amounted to $7,011,000 in 1997, resulting in gross realized gains and losses of
$8,000 and $35,000, respectively. There were no sales of investment securities
during 1998.
Other securities primarily consists of corporate obligations and investments in
Federal Home Loan Bank of Cincinnati and Federal Reserve Bank of Cleveland
stock. The Bank's investment in Federal Home Loan Bank stock amounted to
$1,471,000 and $1,372,000 at December 31, 1999 and 1998, respectively. The
Bank's investment in Federal Reserve Bank of Cleveland stock amounted to
$697,000 at December 31, 1999 and 1998.
NOTE 2 - LOANS RECEIVABLE
Loans receivable at December 31, 1999 and 1998 consist of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agricultural $ 31,057 $ 32,161
Real estate - residential mortgage 101,418 103,947
Real estate - non-residential mortgage 54,197 51,484
Real estate - construction 506 903
Consumer 49,682 48,327
Credit card 2,549 2,537
------------ ------------
Total $ 239,409 $ 239,359
============ ============
</TABLE>
Fixed rate loans amounted to $129,981,000 at December 31, 1999 and $128,406,000
at December 31, 1998.
The Bank's investment in impaired loans amounted to $316,000 at December 31,
1998 (none at December 31, 1999), including $148,000 of such loans for which an
allowance for loan losses has been provided. The following is a summary of the
activity in the allowance for loan losses for impaired loans, which is included
in the Bank's total allowance for loan losses, for the years ended December 31,
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
(DOLLARS IN THOUSANDS)
<S> <C>
Balance at beginning of year $148 $71
Reduction for charge-offs (148) -
Addition for provision - 77
Balance at end of year $ 0 $148
</TABLE>
22
<PAGE> 24
NOTE 2 - LOANS RECEIVALBE (CONTINUED)
The average recorded investment in impaired loans for the years ended December
31, 1999 and 1998 amounted to $164,000 and $432,000, respectively. Interest
income on impaired loans is accrued based on the principal amounts outstanding.
The accrual of interest is discontinued when an impaired loan becomes 90 days
delinquent unless it is well collateralized and in the process of collection.
For nonaccrual loans, interest income is recorded on a cash basis as long as
future collections of principal are probable. Interest income recognized on
impaired loans for the years ended December 31, 1998 and 1997 amounted to
$27,000 and $90,000, respectively, including $27,000 and $46,000, respectively,
which was recognized on a cash basis. There was no interest income recognized on
impaired loans for the year ended December 31, 1999.
The amount of loans on a nonaccrual of interest at December 31, 1999 and 1998
amounted to $392,000 and $315,000, respectively. The impact on interest income
of such nonaccrual loans was not significant. None of the loans on nonaccrual of
interest at December 31, 1999 or 1998 were to directors and executive officers.
Certain directors and executive officers, including their immediate families and
companies in which they are principal owners, are loan customers of the Bank.
Such loans are made in the ordinary course of business in accordance with the
Bank's normal lending policies, including the interest rate charged and
collateralization, and do not represent more than a normal collection risk. Such
loans amounted to $8,186,000 and $7,347,000 at December 31, 1999 and 1998,
respectively. The following is a summary of activity during 1999 and 1998 for
such loans:
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING ADDITIONS REPAYMENTS AT END
---------- --------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1999 $ 7,347 $ 5,579 $ 4,740 $ 8,186
========= =========== =========== =========
1998 $ 8,020 $ 7,258 $ 7,931 $ 7,347
========= =========== =========== =========
</TABLE>
Additions and repayments include loan renewals.
Most of the Bank's lending activity is with customers primarily located within
Sandusky County, the Village of Green Springs, and the northwest portion of
Huron County. As of December 31, 1999 and 1998, the Bank's loans from borrowers
in the agriculture industry represent the single largest industry and amounted
to $10,835,000 and $10,056,000, respectively. Agricultural loans are generally
secured by property, equipment, and crop income. Repayment is expected from cash
flow from the harvest and sale of crops. The agricultural customers are subject
to the risks of weather and market prices of crops which could have an impact on
their ability to repay their loans. Credit losses arising from the Bank's
lending experience in the agriculture industry compare favorably with the Bank's
loss experience on its loan portfolio as a whole. Credit evaluation of
agricultural lending is based on an evaluation of cash flow coverage of
principal and interest payments and the adequacy of collateral received.
NOTE 3 - ALLOWANCE FOR LOAN LOSSES
The following represents a summary of the activity in the allowance for loan
losses for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 3,418 $ 3,518 $ 3,368
Provision charged to operations 240 240 180
Loans charged-off (630) (475) (287)
Recoveries of loans charged-off 168 135 257
------- ------- -------
Balance at end of year $ 3,196 $ 3,418 $ 3,518
======= ======= =======
</TABLE>
23
<PAGE> 25
NOTE 4 - PREMISES AND EQUIPMENT
The following is a summary of premises and equipment at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land and improvements $ 1,013 $ 1,028
Buildings 7,879 8,056
Equipment 3,667 3,551
---------- ----------
12,559 12,635
Accumulated depreciation 5,356 4,814
---------- ----------
Premises and equipment, net $ 7,203 $ 7,821
========== ==========
</TABLE>
Depreciation expense amounted to 765,000 in 1999, $766,000 in 1998 and $669,000
in 1997.
NOTE 5 - DEPOSITS
Time deposits at December 31, 1999 and 1998 include individual deposits of
$100,000 and over amounting to $23,359,000 and $24,487,000, respectively.
Interest expense on time deposits of $100,000 or more amounted to $1,267,000 for
1999, $1,476,000 for 1998 and $1,590,000 for 1997.
At December 31, 1999, the scheduled maturities of time deposits were as follows
(dollars in thousands):
2000 $101,754
2001 24,855
2002 5,454
2003 4,604
2004 1,493
2005 and after 244
--------
Total $138,404
========
NOTE 6 - BORROWED FUNDS
At December 31, 1999 and 1998, borrowed funds consist of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
(DOLLARS IN THOUSANDS)
Federal Home Loan Bank:
<S> <C> <C>
Secured note, with interest at 7.00%, due April 1, 1999 $ 0 $1,000
Secured note, with interest at 5.14%, due October 2005 2,000 2,000
Secured note, with interest at 5.89%, due January 2000 5,000 --
------ ------
7,000 3,000
====== ======
NBD Bank:
Term note, with interest at a variable rate
(7.25% at December 31, 1998) -- 335
------ ------
Total borrowed funds $7,000 $3,335
====== ======
</TABLE>
Interest is payable monthly on the Federal Home Loan Bank notes which are
secured by stock in the Federal Home Loan Bank of Cincinnati and all eligible
mortgage loans. The NBD Bank term note was repaid during 1999.
NOTE 7 - COMMON STOCK
On May 12, 1998, the Board of Directors declared a three-for-one stock split
(stock split effected in the form of a 200% stock dividend) to shareholders of
record as of May 29, 1998, payable on June 5, 1998. Since the par value of the
shares was not adjusted, the stock dividend was recorded at the par value of the
additional 1,269,052 shares issued (amounting to $15,863,000) through a transfer
to common stock of the balance of the Corporation's surplus ($8,989,000) and a
charge to retained earnings ($6,874,000).
24
<PAGE> 26
CROGHAN BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - OTHER OPERATING EXPENSES
The following is a summary of other operating expenses for the years ended
December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Equipment $ 805 $ 870 $ 749
Postage, stationery and supplies 455 458 452
State franchise and other taxes 338 359 352
Professional and examination fees 275 280 285
MasterCard franchise and processing fees 322 293 277
Other 1,284 1,278 1,486
--------- -------- ---------
Total other operating expenses $ 3,479 $ 3,538 $ 3,601
========= ======== =========
</TABLE>
NOTE 9 - FEDERAL INCOME TAXES
Total federal income tax expense for 1999, 1998 and 1997 was allocated as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income from operations $ 1,586 $ 1,649 $ 1,609
Stockholders' equity (278) 48 (8)
--------- -------- ---------
Total $ 1,308 $ 1,697 $ 1,601
========= ======== =========
</TABLE>
Federal income tax expense allocated to operations consisted of the following
for 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current expense $ 1,430 $ 1,586 $ 1,657
Deferred expense (credit) 156 63 (48)
--------- -------- ---------
Total $ 1,586 $ 1,649 $ 1,609
========= ======== =========
</TABLE>
Income tax expense attributable to income from operations differed from the
amounts computed by applying the U.S. federal income tax rate of 34% to income
before federal income taxes as a result of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Expected tax using statutory tax rate of 34% $ 1,606 $ 1,635 $ 1,604
Increase (decrease) in tax resulting from:
Tax-exempt income on state and municipal securities
and political subdivision loans (240) (242) (250)
Interest expense associated with carrying certain state and
municipal securities and political subdivision loans 34 37 37
Amortization of goodwill 217 217 217
Increase in cash value of life insurance policies (33) - -
Other, net 2 2 1
--------- -------- ---------
Total $ 1,586 $ 1,649 $ 1,609
========= ======== =========
</TABLE>
25
<PAGE> 27
CROGHAN BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - FEDERAL INCOME TAXES (CONTINUED)
The deferred federal income tax expense (credit) of $156,000 for 1999, $63,000
for 1998 and ($48,000) for 1997 resulted from the tax effects of temporary
differences. There was no impact for changes in tax laws and rates or changes in
the valuation allowance for deferred tax assets.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1999 and
1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Unrealized loss on securities available-for-sale $ 188 $ --
Allowance for loan losses 666 742
Accrued vacation and medical insurance expenses 56 109
Other 36 29
------- -------
Total deferred tax assets 946 880
------- -------
Deferred tax liabilities:
Unrealized gain on securities available-for-sale -- (90)
Purchase accounting basis difference (608) (600)
Depreciation of premises and equipment (206) (217)
Federal Home Loan Bank stock dividends (166) (133)
Deferred loan costs (158) (158)
Other (43) (39)
------- -------
Total deferred tax liabilities (1,181) (1,237)
------- -------
Net deferred tax liabilities $ (235) $ (357)
======= =======
</TABLE>
The net deferred tax liabilities at December 31, 1999 and 1998 are included in
other liabilities in the consolidated balance sheets.
The Corporation believes it is more likely than not that the benefit of deferred
tax assets will be realized. Therefore, no valuation allowance for deferred tax
assets is deemed necessary as of December 31, 1999 and 1998.
NOTE 10 - RETIREMENT PLANS
The Bank sponsors the Croghan Colonial Bank 401(k) Profit Sharing Plan, a
defined contribution plan which includes both a profit sharing and employer
matching contribution. In 1998, the Plan elected to permit investing in the
Corporation's stock subject to various limitations. The Bank's profit sharing
and matching contributions to the 401(k) profit sharing plan for the years ended
December 31, 1999, 1998 and 1997 amounted to $279,000, $278,000, and $272,000,
respectively.
During 1999, the Bank entered into split dollar life insurance policies with
certain executive officers to provide for supplemental retirement benefits. Such
policies required the payment of single premiums aggregating $3,094,000,
resulting in a December 31, 1999 cash value of $3,191,000. Such amount is
included in other assets in the 1999 consolidated balance sheet.
In connection with the policies, the Bank has provided a liability for estimated
supplemental retirement benefits accumulated through December 31, 1999. Such
liability amounts to $25,000 and is included in other liabilities in the 1999
consolidated balance sheet.
No other postretirement benefits are offered to retirees.
26
<PAGE> 28
NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments are primarily loan commitments to extend credit and
letters of credit. These instruments involve, to varying degrees, elements of
credit risk in excess of the amounts recognized in the consolidated balance
sheets. The contract amount of these instruments reflects the extent of
involvement the Bank has in these financial instruments.
The Bank's exposure to credit loss in the event of the nonperformance by the
other party to the financial instruments for loan commitments to extend credit
and letters of credit is represented by the contractual amounts of these
instruments. The Bank uses the same credit policies in making loan commitments
as it does for on-balance sheet loans.
Financial instruments whose contract amount represents credit risk totalled the
following amounts at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
CONTRACT AMOUNT
--------------------------
1999 1998
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commitments to extend credit $ 50,017 $ 47,942
=========== ===========
Letters of credit $ 1,366 $ 1,352
=========== ===========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amount does not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained if deemed
necessary by the Bank upon extension of credit is based on management's credit
evaluation of the customer. Collateral held varies but may include accounts
receivable; inventory; property, plant, and equipment; and income-producing
commercial properties.
Letters of credit are written conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party and are reviewed for
renewal at expiration. At December 31, 1999, letters of credit totalling
$901,000 expire in 2000; $400,000 expire in 2001; and $65,000 expire in 2002.
The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers. The Bank requires collateral
supporting these commitments when deemed necessary. The extent of collateral on
these commitments at December 31, 1999 and 1998 approximates 100% of the
commitments.
NOTE 12 - REGULATORY MATTERS
The Corporation and Bank are subject to various regulatory capital requirements
administered by the federal and state banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation and Bank must meet specific capital guidelines that involve
quantitative measures of the assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital to
average assets (as defined). Management believes, as of December 31, 1999 and
1998, that the Corporation and Bank meet all capital adequacy requirements to
which they are subject.
As of December 31, 1999, the most recent notification from federal and state
banking agencies categorized the Corporation and Bank as "well capitalized"
under the regulatory framework for prompt corrective action. To be categorized
as "well capitalized", an institution must maintain minimum total risk-based,
Tier I risk-based and Tier I leverage ratios as set forth in the table. There
are no conditions or events since that notification that management believes
have changed the category.
27
<PAGE> 29
CROGHAN BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - REGULATORY MATTERS (CONTINUED)
The actual capital amounts and ratios are also presented in the following table:
<TABLE>
<CAPTION>
MINIMUM TO BE
MINIMUM "WELL CAPITALIZED"
CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL REQUIREMENT ACTION PROVISIONS
------------------ ------------------- ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to Risk-
Weighted Assets)
Consolidated $ 30,829 13.7% $ 17,991 8.0% $ N/A
Bank 30,541 13.6% 17,969 8.0% 22,461 10.0%
Tier I Capital (to Risk-
Weighted Assets)
Consolidated $ 28,013 12.5% $ 8,995 4.0% $ N/A
Bank 27,729 12.4% 8,984 4.0% 13,477 6.0%
Tier I Capital (to
Average Assets)
Consolidated $ 28,013 8.3% $ 13,551 4.0% N/A
Bank 27,729 8.2% 13,541 4.0% 16,926 5.0%
As of December 31, 1998:
Total Capital (to Risk-
Weighted Assets)
Consolidated $ 28,235 13.0% $ 17,434 8.0% N/A
Bank 28,523 13.1% 17,430 8.0% 21,788 10.0%
Tier I Capital (to Risk-
Weighted Assets)
Consolidated $ 25,502 11.7% $ 8,717 4.0% N/A
Bank 25,791 11.8% 8,715 4.0% 13,073 6.0%
Tier I Capital (to
Average Assets)
Consolidated $ 25,502 7.6% $ 13,441 4.0% N/A
Bank 25,791 7.7% 13,441 4.0% 16,801 5.0%
</TABLE>
On a parent company only basis, the Corporation's only source of funds are
dividends paid by the Bank. The ability of the Bank to pay dividends is subject
to limitations under various laws and regulations, and to prudent and sound
banking principles. Generally, subject to certain minimum capital requirements,
the Bank may declare a dividend without the approval of the State of Ohio
Division of Financial Institutions, unless the total dividends in a calendar
year exceed the total of its net profits for the year combined with its retained
profits of the two preceding years. Under these provisions, approximately
$1,480,000 was available for dividends on January 1, 2000, without the need to
obtain the approval of the State of Ohio Division of Financial Institutions.
The Board of Governors of the Federal Reserve System generally considers it to
be an unsafe and unsound banking practice for a bank holding company to pay
dividends except out of current operating income, although other factors such as
overall capital adequacy and projected income may also be relevant in
determining whether dividends should be paid.
28
<PAGE> 30
NOTE 13 - CONDENSED PARENT COMPANY FINANCIAL INFORMATION
A summary of condensed financial information of the parent company as of
December 31, 1999 and 1998 and for each of the three years in the period ended
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS 1999 1998
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Assets:
Cash $ 13 $ 18
Dividends receivable from subsidiary 363 285
Investment in subsidiary 34,755 33,994
Investment security - held-to-maturity, at amortized
cost (fair value of $250,000) 250 -
Other assets 21 45
----------- -----------
Total assets $ 35,402 $ 34,342
=========== ===========
Liabilities:
Borrowed funds $ - $ 335
Dividends payable 363 285
Other liabilities - 17
----------- -----------
Total liabilities 363 637
----------- -----------
Stockholders' equity:
Common stock 23,853 23,797
Surplus 74 3
Retained earnings 11,477 9,731
Accumulated other comprehensive
Income (loss) (365) 174
----------- -----------
Total stockholders' equity 35,039 33,705
----------- -----------
Total liabilities and stockholders' equity $ 35,402 $ 34,342
=========== ===========
CONDENSED STATEMENTS
OF OPERATIONS 1999 1998 1997
---- ---- ----
(DOLLARS IN THOUSANDS)
Income - dividends from subsidiary $ 1,877 $ 3,067 $ 3,102
Expenses - Interest, professional fees and other
expenses, net of federal income tax benefit 39 87 172
---------- ----------- -----------
Income before equity in undistributed
net income of subsidiary 1,838 2,980 2,930
Equity in net income of subsidiary, less dividends 1,300 180 177
---------- ----------- -----------
Net income $ 3,138 $ 3,160 $ 3,107
========== =========== ===========
</TABLE>
29
<PAGE> 31
NOTE 13 - CONDENSED PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS
OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $3,138 $3,160 $3,107
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in net income of subsidiary,
less dividends (1,300) (180) (177)
Increase in dividends receivable (78) - -
Decrease in other assets 24 44 10
Decrease in other liabilities (17) (13) (23)
---------- ---------- -----------
Net cash provided by
operating activities 1,767 3,011 2,917
---------- ---------- -----------
Cash flows from investing activities:
Purchase of held-to-maturity investment security (250) - -
---------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 127 5 -
Repayments of borrowed funds (335) (1,865) (1,863)
Cash dividends paid (1,314) (1,142) (1,142)
---------- --------- -----------
Net cash used in financing activities (1,522) (3,002) (3,005)
---------- --------- -----------
Net increase (decrease) in cash (5) 9 (88)
Cash at beginning of the year 18 9 97
---------- --------- -----------
Cash at end of the year $ 13 $ 18 $ 9
========== ========= ===========
</TABLE>
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial Instruments",
requires that the estimated fair value of financial instruments, as defined by
the Statement, be disclosed. Statement 107 also requires disclosure of the
methods and significant assumptions used to estimate the fair value of financial
instruments.
The estimated fair values of recognized financial instruments at December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------- --------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents $ 15,793 $ 15,793 $ 18,634 $ 18,634
Investment securities 77,432 76,892 76,235 76,428
Loans receivable, net 236,213 236,623 235,941 239,182
------------ ------------- ------------ ------------
Total $ 329,438 $ 329,308 $ 330,810 $ 334,244
============= ============= ============== =============
FINANCIAL LIABILITIES
Deposits $ 294,587 $ 294,628 $ 301,456 $ 301,682
Federal funds purchased
and securities sold
under repurchase
agreements 11,762 11,762 9,140 9,140
Borrowed funds 7,000 7,000 3,335 3,335
------------ ------------- -------------- -------------
Total $ 313,349 $ 313,390 $ 313,931 $ 314,157
============ ============= ============== =============
</TABLE>
30
<PAGE> 32
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The above summary does not include accrued interest receivable, dividends
payable, and other liabilities which are also considered financial instruments.
The estimated fair value of such items is considered to be their carrying
amount.
The Bank also has unrecognized financial instruments at December 31, 1999 and
1998. These financial instruments relate to commitments to extend credit and
letters of credit. The contract amount of such financial instruments amounts to
$51,383,000 at December 31, 1999 and $49,294,000 at December 31, 1998. Such
amounts are also considered to be the estimated fair values.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments shown above:
Cash and cash equivalents:
Fair value is determined to be the carrying amount for these items (which
include cash on hand, due from banks, interest bearing deposits in other banks,
and federal funds sold) because they represent cash or mature in 90 days or less
and do not represent unanticipated credit concerns.
Investment securities:
The fair value of investment securities (both available-for-sale and
held-to-maturity) is determined based on quoted market prices of the individual
securities or, if not available, estimated fair value was obtained by comparison
to other known securities with similar risk and maturity characteristics. Such
value does not consider possible tax ramifications or estimated transaction
costs.
Loans receivable:
Fair value for loans receivable was estimated for portfolios of loans with
similar financial characteristics. For adjustable rate loans, which re-price at
least annually and generally possess low risk characteristics, the carrying
amount is believed to be a reasonable estimate of fair value. For fixed rate
loans the fair value is estimated based on secondary market quotes from various
dealers, considering weighted average rates and terms of the portfolio, adjusted
for credit and interest rate risk inherent in the loans. Fair value for
nonperforming loans is based on recent appraisals or estimated discounted cash
flows. The estimated value of credit card loans is based on existing loans and
does not include the value that relates to estimated cash flows from new loans
generated from existing cardholders over the remaining life of the portfolio.
Deposit liabilities:
The fair value of core deposits, including demand deposits, savings accounts,
and certain money market deposits, is the amount payable on demand. The fair
value of fixed-maturity certificates of deposit is estimated using the rates
offered at year end for deposits of similar remaining maturities. The estimated
fair value does not include the benefit that results from the low-cost funding
provided by the deposit liabilities compared to the cost of borrowing funds in
the marketplace.
Other financial instruments:
The fair value of commitments to extend credit and letters of credit is
determined to be the contract amount since these financial instruments generally
represent commitments at existing rates. The fair value of federal funds
purchased and securities sold under repurchase agreements is determined to be
the carrying amount since these financial instruments represent obligations
which are due on demand. The fair value of borrowed funds is determined to be
the carrying amount since the interest rates on such borrowings closely
approximate current year end rates.
31
<PAGE> 33
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The fair value estimates of financial instruments are made at a specific point
in time based on relevant market information. These estimates do not reflect any
premium or discount that could result from offering for sale at one time the
entire holdings of a particular financial instrument over the value of
anticipated future business and the value of assets and liabilities that are not
considered financial instruments. Since no ready market exists for a significant
portion of the financial instruments, fair value estimates are largely based on
judgments after considering such factors as future expected credit losses,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore cannot
be determined with precision. Changes in assumptions could significantly affect
these estimates.
NOTE 15 - CONTINGENT LIABILITIES
In the normal course of business, the Corporation and its subsidiary may be
involved in various legal actions, but in the opinion of management and its
legal counsel, the ultimate disposition of such matters is not expected to have
a material adverse effect on the consolidated financial statements.
NOTE 16 - YEAR 2000
Like most entities, the Bank may be exposed to risks associated with Year 2000
dating problems. This problem affects computer software and hardware;
transactions with customers, vendors and other entities; and equipment dependent
upon microchips. The Bank recognizes that Year 2000 dating problems pose a risk
beyond January 1, 2000 as errors may not become evident until after that date.
The Bank has performed the remediation steps it believes necessary to address
Year 2000 dating problems. It is not possible for any entity to guarantee the
results of its own remediation efforts or to accurately predict the impact of
Year 2000 dating problems on third parties with which the Bank does business. If
remediation efforts of the Bank or third parties with which it does business are
not successful, it is possible the Year 2000 dating problem could negatively
impact the Corporation's consolidated financial condition and results of
operations. The Corporation does not believe any significant Year 2000 dating
problems have occurred.
This information is an integral part of the accompanying
consolidated financial statements.
32
<PAGE> 34
DIRECTORS AND OFFICERS OF CROGHAN BANCSHARES, INC.
DIRECTORS-----------------------------------------------------------------------
JANET E. BURKETT ALBERT C. NICHOLS
Treasurer Chairman of the Board of Directors
Burkett Industries, Inc. The Croghan Colonial Bank
THOMAS F. HITE K. BRIAN PUGH
President & Chief Executive Officer President & CEO
The Croghan Colonial Bank Clyde Parts Company
JOHN P. (PHIL) KELLER CLEMENS J. SZYMANOWSKI
Vice President, Keller-Ochs-Koch Retired
Funeral Home, Inc.
STEPHEN A. KEMPER J. TERRENCE WOLFE
Owner Retired
Kemper Iron & Metal Company
DANIEL W. LEASE CLAUDE E. YOUNG
President Chairman
Wahl Refractories, Inc. Progress Plastic Products, Inc.
ROBERT H. MOYER GARY L. ZIMMERMAN
Chairman Vice President
Mosser Construction, Inc. Swint-Reineck Hardware, Inc.
OFFICERS------------------------------------------------------------------------
ALBERT C. NICHOLS THOMAS F. HITE
Chairman of the Board of Directors President
JAMES K. WALTER ALLAN E. MEHLOW
Vice President, Secretary Treasurer
33
<PAGE> 35
DIRECTORS AND OFFICERS OF THE CROGHAN COLONIAL BANK
DIRECTORS-----------------------------------------------------------------------
JANET E. BURKETT ALBERT C. NICHOLS
Treasurer Chairman of the Board of Directors
Burkett Industries, Inc. The Croghan Colonial Bank
THOMAS F. HITE K. BRIAN PUGH
President & Chief Executive Officer President & CEO
The Croghan Colonial Bank Clyde Parts Company
JOHN P. (PHIL) KELLER CLEMENS J. SZYMANOWSKI
Vice President, Keller-Ochs-Koch Retired
Funeral Home, Inc.
STEPHEN A. KEMPER J. TERRENCE WOLFE
Owner Retired
Kemper Iron & Metal Company
DANIEL W. LEASE CLAUDE E. YOUNG
President Chairman
Wahl Refractories, Inc. Progress Plastic Products, Inc.
ROBERT H. MOYER GARY L. ZIMMERMAN
Chairman Vice President
Mosser Construction, Inc. Swint-Reineck Hardware, Inc.
Directors Emeriti
T. L. HILTY D. W. MILLER D. B. SLESSMAN
OFFICERS------------------------------------------------------------------------
ADMINISTRATIVE
ALBERT C. NICHOLS
Chairman of the Board of Directors
THOMAS F. HITE
President & Chief Executive
Officer
CHIEF LENDING OFFICER CHIEF OPERATING OFFICER
WILLIAM C. HENSLEY ALLAN E. MEHLOW
Vice President Vice President
COMMERCIAL AND REAL ESTATE LOANS CONSUMER LOANS
JAMES K. WALTER GREGG C. COLEMAN
Senior Vice President Loan Officer
OIC Commercial Loans OIC Consumer Loans
JAMES A. DRAEGER JACQUELINE L. LILLY
Vice President/OIC R. E. Loans Assistant Vice President
Agricultural Administrator Consumer Loans
JAMES R. WALTERS JEFF D. WILSON
Vice President Real Estate Loans Loan Officer
JEFFREY L. GEARY MICHAEL S. WISE
Assistant Vice President Loan Officer
Commercial Loans
JEFFERY C. HUBER BURKHART W. TISCHLER
Assistant Vice President Loan Officer
Commercial Loans
SUSAN K. STRAUBE
Loan Officer
MARK A. LOHRBACH TRUST DEPARTMENT
Loan Officer BARRY F. LUSE
Vice President/Trust Officer
NANCY C. RODDY RICHARD G. STEIN
Loan Officer Assistant Vice President/
Trust Officer
ACCOUNTING
JOSEPH W. BERGER
Vice President
Chief Financial Officer
34
<PAGE> 36
LAWRENCE R. FULK COMPLIANCE AND SECURITY
Vice President/Controller SANDRA S. REED
Compliance/Security Officer
HUMAN RESOURCE MAIN OFFICE
PAMELA J. SWINT JUDITH A. GANGWER
Human Resource Manager Branch Manager
AUDIT WEST SIDE OFFICE
JOHN C. HOFFMAN JOSEPHINE L. WEYER
Auditor Branch Manager
OPERATIONS EAST SIDE OFFICE
MICHAEL J. HARTENSTEIN RONALD T. GOEHRING
Operations Officer Branch Manager
TERRY A. SCHROEDER COLEEN O. MILLER
Information Systems Manager Assistant Cashier/
Assistant Branch Manager
DEPOSIT ADMINISTRATOR BALLVILLE OFFICE
ROBERT L. OVERMYER JAMI L. SEVERS
Assistant Vice President Branch Manager
Deposit Administrator
GREEN SPRINGS OFFICE
THEODORE J. RUTHERFORD
Branch Manager/
Agricultural Representative
MARILYN J. HUMBERT
Assistant Cashier/
Agricultural Representative
BELLEVUE OFFICE
DEE A. BLACKBURN
Branch Manager
CLYDE OFFICE
RICHARD E. LAWRIE
Branch Manager
MONROEVILLE OFFICE
DAVID M. SABO
Branch Manager
35
<PAGE> 1
Exhibit 21
CROGHAN BANCSHARES, INC.
Subsidiaries of the Registrant
State of Percentage of
Subsidiary Incorporation securities owned
The Croghan Colonial Bank (1) Ohio 100%
(1) The subsidiary's principal office is located in Fremont, Ohio.
<PAGE> 1
Exhibit 23
----------
CONSENT OF INDEPENDENT AUDITOR
The Board of Directors
Croghan Bancshares, Inc.:
We consent to incorporation by reference in the registration statement (No.
333-53075) on Form S-8 of Croghan Bancshares, Inc. of our report dated January
11, 2000, relating to the consolidated balance sheets of Croghan Bancshares,
Inc. and its subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of opertions, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999, which report
appears in the December 31, 1999 annual report on Form 10-K of Croghan
Bancshares, Inc.
/s/ CLIFTON GUNDERSON LTD.
Toledo, Ohio
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 13,579
<INT-BEARING-DEPOSITS> 14
<FED-FUNDS-SOLD> 2,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 37,336
<INVESTMENTS-CARRYING> 40,096
<INVESTMENTS-MARKET> 39,556
<LOANS> 239,409
<ALLOWANCE> 3,196
<TOTAL-ASSETS> 350,586
<DEPOSITS> 294,587
<SHORT-TERM> 16,762
<LIABILITIES-OTHER> 2,198
<LONG-TERM> 2,000
0
0
<COMMON> 23,853
<OTHER-SE> 11,186
<TOTAL-LIABILITIES-AND-EQUITY> 350,586
<INTEREST-LOAN> 19,900
<INTEREST-INVEST> 4,229
<INTEREST-OTHER> 130
<INTEREST-TOTAL> 24,259
<INTEREST-DEPOSIT> 9,782
<INTEREST-EXPENSE> 10,434
<INTEREST-INCOME-NET> 13,825
<LOAN-LOSSES> 240
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 10,833
<INCOME-PRETAX> 4,724
<INCOME-PRE-EXTRAORDINARY> 3,138
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,138
<EPS-BASIC> 1.65
<EPS-DILUTED> 1.65
<YIELD-ACTUAL> 4.37
<LOANS-NON> 392
<LOANS-PAST> 2,144
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,176
<ALLOWANCE-OPEN> 3,418
<CHARGE-OFFS> 630
<RECOVERIES> 168
<ALLOWANCE-CLOSE> 3,196
<ALLOWANCE-DOMESTIC> 3,196
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
