<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K / A
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.
<PAGE> 2
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
ITEM 14. (a) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<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> <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 (6)
13 Annual Report to Shareholders - 1999 (5)
21 Subsidiaries of the Registrant (6)
23 Consent of Independent Auditor (6)
27 Financial Data Schedule (6)
</TABLE>
<PAGE> 3
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).
(5) Independent Auditor's Report and Financial Statements included with
this filing. Other parts previously filed as same numbered exhibit with
Registrant's Annual Report on Form 10-K for fiscal year ending December
31, 1999.
(6) Previously filed as same numbered exhibit with Registrant's Annual
Report on Form 10-K for fiscal year ending December 31, 1999.
<PAGE> 4
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 31, 2000 /s/ Thomas F. Hite
-------------- --------------------------------
Thomas F. Hite, President/CEO
<PAGE> 5
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.
[/s/ CLIFTON GUNDERSON LTD.]
Toledo, Ohio
January 11, 2000
Members of
NEXIA
International
American Institute
of Certified Public
Accountants
12
<PAGE> 6
CROGHAN BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS 1999 1998
---- ----
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
CASH AND CASH EQUIVALENTS
<S> <C> <C>
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> 7
<TABLE>
<CAPTION>
CROGHAN BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
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> 8
<TABLE>
<CAPTION>
CROGHAN BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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> 9
<TABLE>
<CAPTION>
CROGHAN BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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> 10
<TABLE>
<CAPTION>
CROGHAN BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
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> 11
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> 12
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> 13
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> 14
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> 15
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> <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> 16
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> 17
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):
<TABLE>
<S> <C>
2000 $ 101,754
2001 24,855
2002 5,454
2003 4,604
2004 1,493
2005 and after 244
---------
Total $ 138,404
=========
</TABLE>
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> 18
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> 19
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> 20
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> 21
<TABLE>
<CAPTION>
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:
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> 22
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)
<S> <C> <C> <C>
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> 23
NOTE 13 - CONDENSED PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS
OF CASH FLOWS 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> 24
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.
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NOTE 14 - FAIR VLAUE 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.
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