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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2003.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to _______________.
Commission File Number 0-20159
CROGHAN BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-1073048
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
323 Croghan Street, Fremont, Ohio 43420
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (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 pursuant to 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. [ X ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [ X ]
The aggregate market value of the common stock, par value $12.50 per share, held
by non-affiliates as of June 30, 2003, based on the closing price quoted on the
OTC Bulletin Board, was $51,817,073.
The number of shares outstanding for the registrant's sole class of common
equity as of January 31, 2004 was 1,899,840 shares of common stock, par value
$12.50 per share.
This document contains 87 pages. The Exhibit Index is on pages 25 and 26 and
also immediately preceding the filed exhibits on page 30.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended December 31, 2003 - PART II of Form 10-K.
Portions of Proxy Statement dated April 2, 2004 for the 2004 Annual Meeting of
Shareholders - PART III of Form 10-K.
2
INDEX
Part I
Item 1. Business 4 - 20
Item 2. Properties 21
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder 22
Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data 22
Item 7. Management's Discussion and Analysis 22
of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 22
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants on 22
Accounting and Financial Disclosure
Item 9A. Controls and Procedures 23
Part III
Item 10. Directors and Executive Officers of the Registrant 23
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners 24
and Management
Item 13. Certain Relationships and Related Transactions 24
Item 14. Principal Accountant Fees and Services 24
Part IV
Item 15. Exhibits, Financial Statement Schedules, and Reports 25 - 26
on Form 8-K
Signatures 27
3
PART I
ITEM 1. BUSINESS
GENERAL
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 "BHCA"). As
the result of a reorganization effective in 1984, the Corporation 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 operates eight Ohio
branch offices: one in Bellevue, one in Clyde, three in Fremont, one in Green
Springs, one in Monroeville, and one in Port Clinton.
Through the Bank, the Corporation operates in one industry segment - the
commercial banking industry. 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
originates and services secured and unsecured loans to individuals, firms and
corporations. Direct loans are made to individuals and installment obligations
are purchased 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 Trust and
Investment Services Division.
Interest and fees on loans are the Bank's primary sources of income. The Bank's
principal expense is interest paid on deposit accounts and borrowed funds.
Operating results are dependent to a significant degree on the "net interest
income" of the Bank, which is the difference between the interest income derived
from its interest-earning assets, such as loans and securities, and the interest
expense paid on its interest-bearing liabilities, consisting of deposits and
borrowings. Interest income and interest expense are significantly affected by
general economic conditions and the policies of various regulatory authorities.
See "Effects of Government Monetary Policy".
The Corporation's only sources of funds are dividends and interest 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. See
"Dividend Restrictions".
As a bank holding company, the Corporation is subject to regulation,
supervision, and examination by the Board of Governors of the Federal Reserve
System (the "FRB"). The deposits of the Bank are insured up to the applicable
limits by the Federal Deposit Insurance Corporation (the "FDIC") and, therefore,
the Bank is subject to regulation, supervision, and examination by the FDIC. As
a bank incorporated under the laws of the State of Ohio, the Bank also is
subject to regulation, supervision, and examination by the Division of Financial
Institutions of the Ohio Department of Commerce (the "Division"). See
"Regulation and Supervision" and "Regulatory Capital Requirements".
Because the Corporation's activities have been limited primarily to holding the
shares of common stock in the Bank, the following discussion of operations
focuses primarily on the business of the Bank. The following discussion
encompasses only domestic operations since neither the Corporation nor the Bank
have any foreign operations or foreign loans.
FORWARD-LOOKING STATEMENTS
In addition to the historical financial information included herein, the
following discussion contains forward-looking statements that involve risks and
uncertainties. Economic circumstances and the Corporation's operations and
actual results could differ significantly from those discussed in such
forward-looking statements. Some of the factors that could cause or contribute
to such differences are discussed herein, but also include changes in the
economy and interest rates in the nation and the Corporation's general market
area. See Exhibit 99.1 hereto, "Safe Harbor Under the Private Securities
Litigation Reform Act of 1995", which is incorporated herein by reference.
LENDING ACTIVITIES
GENERAL. As a commercial bank, the Bank makes a wide variety of different types
of loans. Among the Bank's lending activities are the origination of commercial,
financial and agricultural loans, which may be secured by various assets of the
borrower or unsecured; loans secured by mortgages on residential and
nonresidential real estate; construction loans
4
secured by mortgages on the underlying property; consumer loans which may be on
an unsecured basis or secured by automobiles or other assets of the borrower;
and credit card loans which are typically unsecured.
The following table sets forth the composition of the Bank's loan portfolio by
type of loan at the dates indicated:
December 31,
---------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
(Dollars in thousands)
Type of Loan: (1)
Commercial, financial and
agricultural (2) $ 39,814 $ 35,913 $ 32,648 $ 31,040 $ 31,057
Real estate - mortgage 213,402 200,373 184,533 173,447 155,615
Real estate - construction 11,564 7,514 10,762 960 506
Consumer 38,705 41,315 47,831 50,714 49,682
Credit card and other 2,807 2,836 2,592 2,694 2,549
-------- -------- -------- -------- --------
$306,292 $287,951 $278,366 $258,855 $239,409
======== ======== ======== ======== ========
(1) The Bank made no foreign loans in 2003, 2002, 2001, 2000, or 1999.
(2) Lease financing receivables, included in commercial, financial and
agricultural, were $1,986,000 in 2003, $1,213,000 in 2002, $1,176,000 in
2001, $221,000 in 2000, and $290,000 in 1999.
LOAN MATURITY SCHEDULE. The following table sets forth certain information, as
of December 31, 2003, regarding the dollar amount of loans maturing in the
Bank's portfolio based on their contractual terms to maturity and the dollar
amount of such loans that have fixed or variable rates within certain maturity
ranges after 2003:
Maturing
-------------------------------------------------
After one
Within but within After
one year five years five years Total
------- ------- ------- -------
(Dollars in thousands)
Commercial, financial and agricultural $ 1,608 $ 9,680 $28,526 $39,814
Real estate - construction 4,824 2,685 4,055 11,564
------- ------- ------- -------
Total $ 6,432 $12,365 $32,581 $51,378
======= ======= ======= =======
Interest
Sensitivity
---------------------
Fixed Variable
Rate Rate
------- -------
(Dollars in thousands)
Due after one but within five years $ 3,530 $ 8,835
Due after five years 4,925 27,656
------- -------
$ 8,455 $36,491
======= =======
The above maturity information is based on the contract terms at December 31,
2003, 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.
COMMERCIAL, FINANCIAL AND AGRICULTURAL LOANS. The Bank makes loans for
commercial purposes, including industrial and professional purposes, to sole
proprietorships, partnerships, corporations and other business enterprises. The
Bank makes financial loans to banks, depository institutions, other associations
and financial intermediaries whose business is to accept deposits and extend
credit. The Bank makes agricultural loans for the purpose of financing
agricultural production, including all costs associated with growing crops or
raising livestock. Commercial, financial and agricultural loans may be secured,
other than by real estate, or unsecured, requiring one single repayment or on an
installment
5
repayment schedule. Commercial, financial and agricultural loans generally have
final maturities of five years or less and are made with interest rates that
adjust either daily or annually based upon the national prime rate in effect at
the time of the applicable rate change. Such loans typically do not contain any
periodic rate adjustment caps or lifetime rate caps.
Commercial lending involves certain risks relating to changes in local and
national economic conditions and the resulting effect on the borrowing entities.
Such loans are subject to greater risk of default during periods of adverse
economic conditions. Because such loans may be secured by equipment, inventory,
accounts receivable and other non-real estate assets, the collateral may not be
sufficient to ensure full payment of the loan in the event of a default. To
reduce such risk, the Bank may obtain the personal guarantees of one or more of
the principals of the borrowers.
At December 31, 2003, the Bank had $39,814,000, or 13.0% of total loans,
invested in commercial, financial and agricultural loans, $40,000 of which was
non-performing (i.e., those loans in nonaccrual status or past due 90 days or
more).
REAL ESTATE - MORTGAGE LOANS. The Bank makes nonresidential real estate loans
secured by first mortgages and/or junior mortgages on nonresidential real
estate, including retail stores, office buildings, warehouses and apartment
buildings, and residential real estate loans secured by first mortgages on
one-to-four family residences, with a majority being single-family residences.
The Bank's nonresidential real estate loans generally have final maturities of
between 10 and 20 years and are typically made with adjustable interest rates
("ARMs"). Interest rates on the ARMs adjust either daily, annually, every three
years, or every five years based upon the national prime or U.S. Treasury Note
rates in effect at the time of the applicable rate change. Such loans typically
do not contain periodic rate adjustment caps or lifetime rate caps.
The Bank limits the amount of each nonresidential real estate loan in
relationship to the appraised value of the real estate and improvements at the
time of origination of such loans. The maximum loan-to-value ratio (the "LTV")
on nonresidential real estate loans made by the Bank is 80%, subject to certain
exceptions.
Nonresidential real estate lending is generally considered to involve a higher
degree of risk than residential lending. Such risk is due primarily to the
dependence of the borrower on the cash flow from the property to service the
loan. If the cash flow from the property is reduced due to a downturn in the
economy for example, or due to any other reason, the borrower's ability to repay
the loan may be impaired. To reduce such risk, the decision to underwrite a
nonresidential real estate loan is based primarily on the quality and
characteristics of the income stream generated by the property and/or the
business of the borrower. In addition, the Bank may obtain the personal
guarantees of one or more of the principals of the borrowers and carefully
evaluates the location of the real estate, the quality of the management
operating the property, the debt service ratio, and appraisals supporting the
property's valuation.
At December 31, 2003, the Bank had a total of $91,513,000, or 29.9% of total
loans, invested in nonresidential real estate loans, a majority of which were
secured by properties located in the Northwestern Ohio area. At December 31,
2003, the Bank had $641,000 of non-performing loans of this type.
The Bank's residential real estate loans have either fixed or adjustable
interest rates. Interest rates on ARMs adjust either every six months or every
five years based upon the national prime rate in effect at the time of the
applicable rate change. The six-month ARMs typically have periodic adjustment
caps of .5% and lifetime caps of 5%. The five-year ARMs typically have periodic
adjustment caps of 2% and lifetime caps of 5%. The maximum amortization period
for such loans is 30 years, although a 20-year term is the most common. The Bank
does not engage in the practice of deeply discounting the initial rates on such
loans, nor does the Bank engage in the practice of putting payment caps on loans
which could lead to negative amortization. In addition to a fixed-rate loan
program, where the loan is retained and serviced by the Bank, loans are also
originated on behalf of a national provider of residential mortgage loan
products. The provider pays a commission to the Bank at the time of closing and
then typically sells such loans in the secondary market (e.g., to Freddie Mac or
Fannie Mae) while retaining the servicing and related support functions (e.g.,
tax reporting and escrow accounting). The establishment of this arrangement
allows the Bank to maintain its customer relationships by providing very
competitive residential real estate loan offerings, while at the same time
eliminating the risks associated with long-term fixed-rate mortgage loan
financing.
The Bank limits the amount of each residential real estate loan in relationship
to the appraised value of the real estate and improvements at the time of
origination of a residential real estate loan. The maximum LTV on residential
real estate loans made by the Bank is 90%, subject to certain exceptions.
The aggregate amount of the Bank's residential real estate loans equaled
$121,889,000 at December 31, 2003, and represented 39.8% of total loans at such
date. At December 31, 2003, the Bank had $1,606,000 of non-performing loans of
this type.
6
REAL ESTATE - CONSTRUCTION LOANS. The Bank makes construction loans to finance
land development prior to erecting new structures and the construction of new
buildings or additions to existing buildings. During the construction period,
these loans are structured with either fixed rates or adjustable rates of
interest tied to changes in the national prime interest rate. Many of the
construction loans originated by the Bank are made to owner-occupants for the
construction of single-family homes. Other loans are made to builders and
developers for various projects, including the construction of homes and other
buildings that have not been pre-sold, and the preparation of land for site and
project development.
Construction loans involve greater underwriting and default risks than do loans
secured by mortgages on improved and developed properties due to the effects of
general economic conditions on real estate developments, developers, managers,
and builders. In addition, such loans are more difficult to evaluate and
monitor. Loan funds are advanced upon the security of the project under
construction, which is more difficult to value before the completion of
construction. Moreover, because of the uncertainties inherent in estimating
construction costs, it is relatively difficult to accurately evaluate the LTVs
and the total loan funds required to complete a project. In the event that a
default or foreclosure on a construction or land development loan occurs, the
Bank must take control of the project and attempt either to arrange for
completion of construction or dispose of the unfinished project. At December 31,
2003, a total of $11,564,000, or 3.8% of the Bank's total loans, consisted of
construction loans, with no such loans in the non-performing category.
CONSUMER LOANS. The Bank makes a variety of consumer loans to individuals for
family, household and other personal expenditures. These loans often are made
for the purpose of financing 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 involve a higher risk of default than residential real estate
loans, particularly in the case of loans that are unsecured or secured by
rapidly depreciating assets, such as automobiles. Repossessed collateral for a
defaulted consumer loan may not provide an adequate source of repayment of the
outstanding loan balance as a result of the greater likelihood of damage or
depreciation, and the remaining deficiency may not warrant further collection
efforts against the borrower. In addition, consumer loan collections depend on
the borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, illness, or personal bankruptcy. Various federal
and state laws, including federal and state bankruptcy and insolvency laws, may
also limit the amount which can be recovered on such loans. At December 31,
2003, the Bank had $38,705,000, or 12.6% of total loans, invested in consumer
loans, $182,000 of which were non-performing.
CREDIT CARD AND OTHER LOANS. 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. At
December 31, 2003, the Bank had $2,807,000, or 0.9% of total loans, invested in
credit card and other loans, $24,000 of which were non-performing.
LOAN SOLICITATION AND PROCESSING. The Bank's loan originations are developed
from a number of sources, including continuing business with depositors,
borrowers and real estate developers, periodic newspaper and radio
advertisements, solicitations by the Bank's lending staff, walk-in customers,
director referrals, and loan participations purchased from other financial
institutions. For nonresidential real estate loans, the Bank obtains information
with respect to the credit and business history of the borrower and prior
projects completed by the borrower. Personal guarantees of one or more
principals of the borrowers are obtained as deemed necessary. An environmental
study of such real estate might also be conducted when deemed necessary. Upon
the completion of the appraisal of the nonresidential real estate and the
receipt of information on the borrower, the loan application may be submitted to
the Loan Committee for approval or rejection if the loan amount is in excess of
established limits contained in the Bank's Loan Policy. Additionally, loans in
material amounts as established in the Bank's Loan Policy must be submitted to
the Executive Committee of the Board of Directors for approval or rejection.
In connection with residential real estate loans, the Bank may obtain a credit
report, verification of employment and other documentation concerning the
creditworthiness of the borrower. An appraisal of the fair market value of the
real estate on which the Bank will be granted a mortgage to secure the loan is
generally prepared by an independent appraiser approved by the Board of
Directors. An environmental study of such real estate is conducted only if the
appraiser has reason to believe that an environmental problem may exist. When
either a residential or nonresidential real estate loan application is approved,
a lawyer's opinion of title or title insurance is obtained with respect to the
real estate which will secure the loan. Borrowers are required to carry
satisfactory fire and casualty insurance and flood insurance, if applicable, and
to name the Bank as an insured mortgagee.
Commercial, financial and agricultural loans are underwritten primarily on the
basis of the stability of the income generated by the business and/or property.
The personal guarantees of one or more principals of the borrowers also are
generally obtained. Consumer loans are underwritten on the basis of the
borrower's credit history and an analysis of the
7
borrower's income and expenses, ability to repay the loan and the value of the
collateral, if any. The procedure for approval of real estate - construction
loans is the same as for real estate - mortgage loans, except that an appraiser
evaluates the building plans, construction specifications and estimates of
construction costs. The Bank also evaluates the feasibility of the proposed
construction project and the experience and record of the builder.
LOAN ORIGINATION AND OTHER FEES. The Bank realizes loan origination fees and
other fee income from its lending activities and also realizes income from late
payment charges, application fees, and fees for other miscellaneous services.
Loan origination fees and other fees are a volatile source of income, varying
with the volume of lending, loan repayments and general economic conditions.
Nonrefundable loan origination fees and certain direct loan origination costs
are deferred and recognized as an adjustment to yield over the life of the
related loan.
DELINQUENT LOANS, NON-PERFORMING ASSETS, AND CLASSIFIED ASSETS. When a borrower
fails to make a required payment on a loan, the Bank attempts to cause the
deficiency to be cured by contacting the borrower. In most cases, deficiencies
are cured promptly as a result of these collection efforts.
When a borrower fails to make a timely payment, the borrower will receive a
series of scheduled delinquency notices and possibly follow-up calls from an
employee of the Bank. In most cases, delinquencies are paid promptly. Generally,
if a real estate loan becomes 90 days delinquent, the borrower and collateral
will be assessed to determine whether foreclosure action is required. When
deemed appropriate by management, a foreclosure action will be instituted or a
deed in lieu of foreclosure will be pursued.
Loans are placed into nonaccrual status when, in the opinion of management, full
collection of principal and interest is unlikely. Under-collateralized loans are
then fully or partially charged-off against the allowance for loan losses and
interest is recognized on a cash basis where future collections of principal are
probable.
The following table presents information concerning the amount of loans which
contain certain risk elements at the dates indicated:
December 31,
----------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(Dollars in thousands)
Loans accounted for on a nonaccrual basis (1) $1,589 $2,137 $2,241 $ 628 $ 392
Loans contractually past due 90 days
or more as to principal or interest
payments (2) 904 1,489 771 1,144 2,144
Loans whose terms have been
renegotiated to provide a reduction
or deferral of interest or principal
because of a deterioration in the
financial position of the borrower (3) 0 0 0 0 0
(1) 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 $153,000 in 2003,
$213,000 in 2002, $185,000 in 2001, $76,000 in 2000, and $50,000 in 1999.
Actual interest included in income on these loans amounted to
approximately $125,000 in 2003, $40,000 in 2002, $95,000 in 2001, $24,000
in 2000, and $16,000 in 1999.
(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 in the preceding table, there were
approximately $14,644,000 of potential problem loans at December 31, 2003, 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, 2003, there was no concentration of loans
that exceeded 10% of total loans.
ALLOWANCE FOR LOAN LOSSES. The Bank maintains an allowance for loan losses to
provide for loans that might not be repaid. At December 31, 2003, the Bank's
allowance for loan losses totaled $3,387,000.
To determine the adequacy of the allowance for loan losses, the Bank performs a
detailed quarterly analysis that focuses on delinquency trends within each loan
category (i.e., commercial, real estate and consumer loans), the status of
non-performing loans (i.e., impaired, nonaccrual and restructured loans, and
loans past due 90 days or more), current and historic trends of charged-off
loans within each category, existing local and national economic conditions, and
changes within the volume and mix within each loan category. Additionally, loans
that are graded as special mention, substandard,
8
doubtful, or partially charged off are evaluated for their loss potential. For
loans of $50,000 or more, this evaluation typically includes a review of the
loan's past performance history, a comparison of the estimated collateral value
in relation to the outstanding loan balance, the overall financial strength of
the borrower, industry risks pertinent to the borrower, and competitive trends
that may influence the borrower's future financial performance.
Monthly provisions are made in amounts sufficient to maintain the balance in the
allowance for loan losses at a level considered by management to be adequate for
potential losses within the portfolio. While management believes that it uses
the best information available to determine the allowance for loan losses,
unforeseen market conditions could result in adjustments and net earnings could
be significantly affected if circumstances differ substantially from the
assumptions used in making the final determination. See Exhibit 99.1 hereto,
"Safe Harbor Under the Private Securities Litigation Reform Act of 1995", which
is incorporated herein by reference. The regulatory agencies that periodically
review the Bank's allowance for loan losses may also require additions to the
allowance or the charge-off of specific loans based upon the information
available to them at the time of their examinations.
The following table shows the daily average loan balances, for the periods
indicated, and changes in the allowance for loan losses for such years:
December 31,
-----------------------------------------------------------------
2003 2002 2001 2000 1999
--------- --------- --------- --------- ---------
(Dollars in thousands)
Daily average amount of loans $ 289,691 $ 280,045 $ 268,679 $ 245,938 $ 233,580
========= ========= ========= ========= =========
Allowance for loan losses at
beginning of year $ 3,689 $ 3,346 $ 3,242 $ 3,196 $ 3,418
--------- --------- --------- --------- ---------
Loan charge-offs:
Commercial, financial and
agricultural (107) (3) (46) (39) (35)
Real estate - mortgage (303) (18) (170) (112) (165)
Real estate - construction -- -- -- -- --
Consumer (587) (574) (557) (559) (412)
Credit card and other (65) (37) (56) (36) (18)
--------- --------- --------- --------- ---------
(1,062) (632) (829) (746) (630)
--------- --------- --------- --------- ---------
Recoveries of loans previously charged off:
Commercial, financial and
agricultural 21 22 43 24 27
Real estate - mortgage 19 3 22 64 --
Real estate - construction -- -- -- -- --
Consumer 278 211 159 265 131
Credit card and other 12 9 14 4 10
--------- --------- --------- --------- ---------
330 245 238 357 168
--------- --------- --------- --------- ---------
Net charge-offs (1) (732) (387) (591) (389) (462)
--------- --------- --------- --------- ---------
Additions to allowance
charged to expense 430 730 695 435 240
--------- --------- --------- --------- ---------
Allowance for loan losses at
end of year $ 3,387 $ 3,689 $ 3,346 $ 3,242 $ 3,196
========= ========= ========= ========= =========
Allowance for loan losses as
a percent of year-end loans 1.11% 1.28% 1.20% 1.25% 1.33%
========= ========= ========= ========= =========
Ratio of net charge-offs
during the year to average
loans outstanding .26% .14% .22% .16% .20%
========= ========= ========= ========= =========
(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 1999 charge-offs included five real estate mortgage
loan write-offs amounting to $165,000. The 2000 charge-offs and recoveries
did not include any significant individual amounts, with the largest
charge-off totaling $36,000 and the largest recovery totaling $30,000. The
2001 charge-offs included one real estate-mortgage loan write-off of
$109,000. The 2002 charge-offs and recoveries did not include any
significant individual amounts, with the largest charge-off totaling
$24,000 and the largest recovery totaling $13,000. With the exception of
one real estate-mortgage write-down for $100,000 in 2003, the largest
individual charge-off in 2003 totaled $42,000 and the largest individual
recovery totaled $17,000. There were no lease financing charge-offs or
recoveries in any of the years presented.
9
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:
December 31, 2003 December 31, 2002
------------------------- ---------------------------
Percentage Percentage
of loans to of loans to
Allowance total loans Allowance total loans
--------- ----------- --------- -----------
(Dollars in thousands) (Dollars in thousands)
Commercial, financial and agricultural $ 796 13.0% $ 859 12.5%
Real estate - mortgage 2,033 69.7% 1,454 69.6%
Real estate - construction 20 3.8% 22 2.6%
Consumer 439 12.6% 1,244 14.3%
Credit card and other 99 .9% 110 1.0%
------ ----- ------ -----
$3,387 100.0% $3,689 100.0%
====== ===== ====== =====
December 31, 2001 December 31, 2000
------------------------- ---------------------------
Percentage Percentage
of loans to of loans to
Allowance total loans Allowance total loans
--------- ----------- --------- -----------
(Dollars in thousands) (Dollars in thousands)
Commercial, financial and agricultural $ 483 11.7% $ 448 12.0%
Real estate - mortgage 1,368 66.3% 1,252 67.0%
Real estate - construction -- 3.9% -- .4%
Consumer 1,418 17.2% 1,464 19.6%
Credit card and other 77 .9% 78 1.0%
------ ----- ------ -----
$3,346 100.0% $3,242 100.0%
====== ===== ====== =====
December 31, 1999
-------------------------
Percentage
of loans to
Allowance total loans
--------- -----------
(Dollars in thousands)
Commercial, financial and agricultural $ 528 13.0%
Real estate - mortgage 1,319 65.0%
Real estate - construction -- .2%
Consumer 1,260 20.7%
Credit card and other 89 1.1%
------ -----
$3,196 100.0%
====== =====
The Bank decreased its allowance for loan losses to $3,387,000 at December 31,
2003 from $3,689,000 at December 31, 2002. Because the loan loss allowance is
based on estimates, it is monitored on an ongoing basis and adjusted as
necessary to provide an adequate allowance. See Exhibit 99.1 hereto, "Safe
Harbor Under the Private Securities Litigation Reform Act of 1995," which is
incorporated herein by reference.
10
INVESTMENT ACTIVITIES
The Bank's investment policy is designed to effectively utilize excess funds and
to provide for liquidity needs as dictated by loan demand and daily operations.
The Bank's federal income tax position is also a consideration in its investment
decisions. Investments in tax-exempt securities with maturities of less than 20
years are often desirable when the net yield exceeds that of taxable securities
and the Bank's effective tax rate warrants such investments.
The following table sets forth the carrying amount of securities, which are
presented on the basis of Statement of Financial Accounting Standards No. 115,
at December 31, 2003, 2002, and 2001:
December 31,
---------------------------------
2003 2002 2001
(Dollars in thousands)
U.S. Treasury securities and obligations of U.S.
Government agencies and corporations $41,375 $50,596 $35,658
Obligations of states and political subdivisions (1) 17,886 14,960 10,182
Other securities (1) 4,975 5,881 5,724
------- ------- -------
$64,236 $71,437 $51,564
======= ======= =======
(1) There are no securities of an "issuer" where the aggregate carrying amount
of such securities exceeded ten percent of stockholders' equity.
The following table sets forth the maturities of securities at December 31, 2003
and the weighted average yields of such securities:
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)
U.S. Treasury securities and obligations of U.S. $ 5,064 5.49% $ 7,507 3.59% $ 6,160 5.27% $22,644 5.75%
Government agencies and corporations
Obligations of states and political subdivisions (1) 948 4.78% 3,945 5.34% 9,290 5.39% 3,703 6.45%
Other securities (2) 467 6.23% 1,040 4.79% 511 6.22% -- --
------- ------- ------- -------
$ 6,479 5.44% $12,492 4.25% $15,961 5.37% $26,347 5.85%
======= ==== ======= ==== ======= ==== ======= ====
(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 $2,957,000 which have no stated maturity.
DEPOSITS AND BORROWINGS
GENERAL. Deposits have traditionally been the Bank's primary funding source for
use in lending and other investment activities. In addition to deposits, the
Bank derives funds from interest and principal repayments on loans and income
from other earning assets. Loan repayments are a relatively stable source of
funds, while deposit inflows and outflows tend to fluctuate in response to
economic conditions and interest rates. The Bank has established lines of credit
with its major correspondent banks to purchase federal funds to meet liquidity
needs.
The Bank also uses retail repurchase agreements as a source of funds. These
agreements essentially represent borrowings by the Bank from customers with
maturities of three months or less. Certain securities are pledged as collateral
for these agreements. At December 31, 2003, the Bank had $5,926,000 in retail
repurchase agreements.
The Corporation currently has no outstanding debt or lease obligations. The Bank
had no capital lease obligations as of December 31, 2003. The Bank's most
significant operating lease obligation originated when the Port Clinton Banking
11
Center was opened in June, 2002. The Port Clinton Office is located in a retail
supermarket in the Knollcrest Shopping Center, and the office space was obtained
using a lease arrangement. Additionally, the Bank has several minor operating
lease obligations, with an aggregate total less than $75,000, for photocopying
and mail processing equipment.
DEPOSITS. Deposits are attracted principally from within the Bank's designated
market area by offering a variety of deposit instruments, including regular
savings accounts, negotiable order of withdrawal ("NOW") accounts, money market
deposit accounts, term certificate accounts, and individual retirement accounts
("IRAs"). Interest rates paid, maturity terms, service fees, and withdrawal
penalties for the various types of accounts are established periodically by the
Bank's management based on the Bank's liquidity requirements, growth goals, and
market trends. The Bank does not use brokers to attract deposits. The amount of
deposits from outside the Bank's market area is not significant.
The average daily amount of deposits (all in domestic offices) and average rates
paid on such deposits are summarized for 2003, 2002, and 2001 in the following
table:
2003 2002 2001
---- ---- ----
Average Average Average Average Average Average
balance rate paid balance rate paid balance rate paid
(Dollars in thousands)
Non-interest bearing demand deposits $ 35,710 -- $ 33,938 -- $ 34,649 --
Interest-bearing demand deposits 45,617 .25% 43,915 .89% 42,563 1.29%
Savings, including Money Market deposits 89,382 .80% 83,011 1.64% 73,169 2.25%
Time deposits 136,637 3.18% 136,990 3.72% 137,459 5.29%
-------- -------- --------
Total $307,346 $297,854 $287,840
======== ======== ========
Maturities of time deposits of $100,000 or more outstanding at December 31, 2003
are summarized as follows (dollars in thousands):
3 months or less $ 6,275
Over 3 through 6 months 2,902
Over 6 through 12 months 5,075
Over 12 months 13,118
-------
Total $27,370
=======
BORROWINGS. In addition to repurchase agreements, the Bank has agreements with
correspondent banks to purchase federal funds as needed to meet daily liquidity
needs. As a member of the Federal Home Loan Bank of Cincinnati ("FHLB") since
1993, the Bank is authorized to obtain advances from the FHLB provided certain
credit standards are met. The Bank had $30,000,000 in FHLB advances outstanding
at December 31, 2003.
The following table sets forth the maximum month-end balance for the Bank's
outstanding short-term borrowings (i.e., federal funds purchased and repurchase
agreements), along with the average aggregate balances and weighted average
interest rates, for 2003, 2002, and 2001:
2003 2002 2001
---- ---- ----
(Dollars in thousands)
Balance at year-end $11,176 $11,345 $12,721
Maximum balance at any month-end during the 11,176 12,996 12,947
period
Average balance 8,864 9,335 10,084
Weighted average interest rate 1.34% 3.31% 4.49%
12
The following table sets forth the maximum month-end balance for the Bank's
outstanding long-term borrowings (i.e., FHLB advances), along with the average
aggregate balances and weighted average interest rates, for 2003, 2002, and
2001:
2003 2002 2001
------- ------- -------
(Dollars in thousands)
Balance at year-end $30,000 $26,500 $16,000
Maximum balance at any month-end during the 32,500 26,500 16,000
period
Average balance 27,409 23,290 15,033
Weighted average interest rate 4.07% 4.81% 5.39%
ASSET/LIABILITY MANAGEMENT
The Bank's earnings are highly dependent upon its net interest income, which is
the difference between the interest income derived from interest-earning assets,
such as loans and securities, and interest expense paid on interest-bearing
liabilities, consisting of deposits and borrowings. Interest rate risk is one of
the Bank's most significant financial exposures. This risk, which is common to
the financial institution sector, is an integral part of the Bank's operations
and impacts the rate-pricing strategy for essentially all loan and deposit
products.
The Bank monitors its interest rate risk through a sensitivity analysis, which
strives to measure potential changes in future earnings and the fair values of
its financial instruments, that could result from hypothetical changes in
interest rates. The first step in this analysis is to estimate the expected cash
flows from the Bank's financial instruments using the interest rates in effect
at December 31, 2003. To arrive at fair value estimates, the cash flows from the
Bank's financial instruments are discounted to their approximated present
values. Hypothetical changes in interest rates are applied to those financial
instruments, and the cash flows and fair value estimates are then simulated.
When calculating the net interest income estimations, hypothetical rates are
applied to the financial instruments based upon the assumed cash flows. The Bank
applies interest rate "shocks" to its financial instruments of 100 and 200 basis
points (1% and 2%) up and down for its net interest income, and 200 basis points
(2%) up and down for the value of its equity.
The following table presents the potential sensitivity in the Bank's annual net
interest income to 100 and 200 basis-point changes in market interest rates and
the potential sensitivity in the present value of the Bank's equity if a sudden
and sustained 200 basis-point change in market interest rates occurred:
December 31, 2003
Change in Dollars ($) Change in Percent (%)
Annual Net Interest Income Impact
For a Change of +100 Basis Points (583,000) (4.2)
For a Change of - 100 Basis Points (740,000) (5.3)
For a Change of +200 Basis Points (1,477,000) (10.6)
For a Change of - 200 Basis Points N/A N/A
Impact on the Net Present Value of Equity
For a Change of +200 Basis Points (1,326,000) (2.7)
For a Change of - 200 Basis Points N/A N/A
The preceding analysis encompasses the use of a variety of assumptions,
including the relative levels of market interest rates, loan prepayments, and
the possible reaction of depositors to changes in interest rates. The analysis
simulates possible outcomes and should not be relied upon as being indicative of
actual results. Additionally, the analysis does not necessarily contemplate all
of the actions that the Bank could undertake in response to changes in market
interest rates. See Exhibit 99.1 hereto, "Safe Harbor Under the Private
Securities Litigation Reform Act of 1995", which is incorporated herein by
reference.
13
The following table sets forth, for the years ended December 31, 2003, 2002 and
2001, 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:
2003 2002
-------------------------------- -----------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
(Dollars in thousands)
Assets
Interest-earning assets:
Loans (1)(2) $ 289,691 $ 19,525 6.74% $ 280,045 $ 21,309 7.61%
Taxable securities 54,004 1,865 3.45% 52,023 2,304 4.43%
Non-taxable securities 15,874 595 3.75% 10,762 451 4.19%
Federal funds sold 4,013 48 1.20% 7,359 119 1.62%
------- ------ ------- ------
Total interest-earning assets 363,582 22,033 6.06% 350,189 24,183 6.91%
------- ------ ------- ------
Non-interest earning assets:
Cash and due from banks 11,258 10,162
Bank premises and equipment, net 5,977 5,981
Other assets 14,152 12,482
Less allowance for loan losses (3,553) (3,548)
--------- ---------
Total $ 391,416 $ 22,033 $ 375,266 $ 24,183
========= ========== ========= =========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Savings, NOW and Money Market deposits $ 134,999 $ 830 .61% $ 126,926 $ 1,751 1.38%
Time Deposits 136,637 4,340 3.18% 136,990 5,090 3.72%
Federal funds purchased and securities
sold under repurchase agreements 8,864 119 1.34% 9,335 309 3.31%
Borrowed funds 27,409 1,116 4.07% 23,290 1,121 4.81%
------- ------ ------- ------
Total interest-bearing liabilities 307,909 6,405 2.08% 296,541 8,271 2.79%
------- ------ ------- ------
Non-interest-bearing liabilities:
Demand deposits 35,710 33,938
Other liabilities 2,814 2,916
--------- ---------
38,524 36,854
--------- ---------
Stockholders' equity 44,983 41,871
--------- ---------
Total $ 391,416 $ 6,405 $ 375,266 $ 8,271
========= ========== ========= =========
Net interest income $ 15,628 $ 15,912
========= =========
Net yield on interest-earning assets 4.30% 4.54%
======= ======
2001
-------------------------------------
Average Yield/
Balance Interest Rate
(Dollars in thousands)
Assets
Interest-earning assets:
Loans (1) (2) $ 268,679 $ 22,697 8.45%
Taxable securities 43,792 2,459 5.62%
Non-taxable securities 10,675 476 4.46%
Federal funds sold 5,930 242 4.08%
------- ------
Total interest-earning assets 329,076 25,874 7.86%
------- ------
Non-interest earning assets:
Cash and due from banks 9,706
Bank premises and equipment, net 6,634
Other assets 12,948
Less allowance for loan losses (3,330)
---------
Total $ 355,034 $ 25,874
========= =========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Savings, NOW and Money Market deposits $ 115,732 $ 2,195 1.90%
Time Deposits 137,459 7,266 5.29%
Federal funds purchased and securities
sold under repurchase agreements 10,084 453 4.49%
Borrowed funds 15,033 810 5.39%
------- ------
Total interest-bearing liabilities 278,308 10,724 3.85%
------- ------
Non-interest-bearing liabilities:
Demand deposits 34,649
Other liabilities 3,037
---------
37,686
---------
Stockholders' equity 39,040
---------
Total $ 355,034 $ 10,724
========= =========
Net interest income $ 15,150
=========
Net yield on interest-earning assets 4.60%
=======
(1) Included in loan interest income are loan fees of $871,000 in 2003,
$790,000 in 2002, and $717,000 in 2001.
(2) Non-accrual loans are included in loan totals and do not have a material
impact on the analysis presented.
14
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:
2003 compared to 2002 2002 compared to 2001
Increase (decrease) Increase (decrease)
due to volume/rate (1) due to volume/rate (1)
-------------------------------------- --------------------------------------
Volume Rate Net Volume Rate Net
(Dollars in thousands)
Interest income:
Loans receivable $ 715 (2,499) (1,784) $ 1,031 (2,419) (1,388)
Taxable securities 85 (524) (439) 1,249 (1,404) (155)
Non-taxable securities 196 (52) 144 4 (29) (25)
Federal funds sold (45) (26) (71) 82 (205) (123)
------- ------- ------- ------- ------- -------
Total interest-earning assets 951 (3,101) (2,150) 2,366 (4,057) (1,691)
------- ------- ------- ------- ------- -------
Interest expense:
Savings, NOW and Money Market deposits 105 (1,026) (921) 245 (689) (444)
Time deposits (13) (737) (750) (25) (2,151) (2,176)
Federal funds purchased and securities
sold under repurchase agreements (15) (175) (190) (32) (112) (144)
Borrowed funds 182 (187) (5) 386 (75) 311
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities 259 (2,125) (1,866) 574 (3,027) (2,453)
------- ------- ------- ------- ------- -------
Net interest income $ 692 (976) (284) $ 1,792 (1,030) 762
======= ======= ======= ======= ======= =======
(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.
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:
Year ended December 31,
--------------------------------------
2003 2002 2001
Percentage of net income to:
Average total assets 1.39% 1.37% 1.04%
Average stockholders' equity 12.07% 12.27% 9.46%
Percentage of cash dividends declared per common
share to net income per common share 38.11% 37.17% 45.08%
Percentage of average stockholders' equity to
average total assets 11.49% 11.16% 11.00%
COMPETITION
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, Seneca, and Ottawa counties in Northwestern
Ohio, as well as with savings and loan associations in the trade area, credit
unions, brokerage firms, mutual funds, and loan production offices and other
financial units of non-local bank holding companies. Competition is affected by,
among other things, the general availability of lendable funds, general and
local economic conditions, current interest rate levels, and other factors that
are not readily predictable. The Bank focuses on personalized service,
convenience of facilities, pricing of products, community stature, and its local
ownership and control in meeting its competition.
The number of financial institutions competing with the Bank is likely to
increase as a result of changes in statutes and regulations eliminating various
restrictions on interstate and inter-industry branching and acquisitions. Such
increased competition may have an adverse effect upon the Bank. See Exhibit 99.1
hereto, "Safe Harbor Under the Private Securities Litigation Reform Act of
1995", which is incorporated herein by reference.
15
SUBSIDIARY ACTIVITIES
The Bank has no subsidiaries. The Corporation's only subsidiary is the Bank.
EMPLOYEES
As of December 31, 2003, the Bank employed 132 full-time employees and 23
part-time employees. The Bank believes that relations with its employees are
excellent. The Bank provides a variety of benefits to full-time employees,
including health, disability, and life insurance benefits.
REGULATION AND SUPERVISION
The Corporation is registered as a bank holding company under the BHCA. As a
bank holding company, the Corporation is required to file periodic reports with,
and is subject to regulation, supervision and examination by, the FRB. Such
examination by the FRB determines whether the Corporation is operating in
accordance with various regulatory requirements and in a safe and sound manner.
The FRB has extensive enforcement authority over bank holding companies,
including the ability to assess civil money penalties, issue cease and desist
orders, and require that a bank holding company divest subsidiaries. In general,
the FRB may initiate enforcement actions for activities that are deemed by the
FRB 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, Section 106 of the 1970
Amendments to the BHCA prohibits bank holding companies and their subsidiaries
from engaging in certain tying arrangements in connection with any extension of
credit or lease or sale of any property or the furnishing of services.
The BHCA requires a bank holding company to obtain the prior approval of the FRB
before (a) acquiring all or substantially all of the assets of any bank or bank
holding company, (b) merging or consolidating with any other bank holding
company, or (c) acquiring ownership or control of any voting shares of any other
bank, if after such acquisition, it would own or control more than 5% of the
voting shares of such bank. In making such determinations, the FRB 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.
Section 4 of the BHCA generally prohibits a bank holding company from acquiring
more than 5% of the voting shares of any company that is not a bank and from
engaging in any activities other than banking or managing or controlling banks
or furnishing services to its subsidiaries. The primary exception to this
prohibition allows a bank holding company to own shares in any company the
activities of which the FRB has determined, by order or regulation, to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto.
In November 1999, the Financial Services Modernization Act of 1999, also known
as the Gramm-Leach-Bliley Act, was enacted. The Financial Services Modernization
Act permits 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 prompt corrective action provisions of the Federal Deposit Insurance
Corporation Act of 1991, 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 is required for a financial holding company to acquire a
company, other than a bank or savings 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:
- securities underwriting, dealing and market making;
- sponsoring mutual funds and investment companies;
- insurance underwriting and agency;
- merchant banking activities; and
- activities that the FRB 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.
16
The Financial Services Modernization Act may increase competition within the
banking industry in general, and for the Corporation and the Bank in particular,
as financial institutions increase their range of financial services, which may
have an adverse effect on the Corporation and the Bank. See Exhibit 99.1 hereto,
"Safe Harbor Under the Private Securities Litigation Reform Act of 1995", which
is incorporated herein by reference.
As an Ohio-chartered bank, the Bank is subject to regulation, supervision and
examination by the Division. Chapter 1109 of the Ohio Revised Code imposes
limitations on the amount of certain types of loans and other investments that
an Ohio-chartered bank is permitted to make. In addition, the aggregate amount
that an Ohio-chartered bank can lend to any one borrower is limited by Ohio law
to an amount equal to 15% of the institution's unimpaired capital. An
Ohio-chartered bank may lend to one borrower an additional amount not to exceed
10% of the institution's unimpaired capital, if the additional amount is fully
secured by certain forms of "readily marketable collateral." Real estate is not
considered "readily marketable collateral."
The Division conducts periodic examinations of the Bank, often times on a joint
basis with the FRB examiners. The Division may initiate certain supervisory
measures or formal enforcement actions against an Ohio-chartered bank.
Ultimately, if the grounds provided by law exist, the Division may place an
Ohio-chartered bank in conservatorship or receivership. Any mergers,
acquisitions or changes of control involving an Ohio-chartered bank must be
approved by the Division.
In addition to Ohio laws relating to banks, the Bank is subject to the Ohio
general corporation law to the extent such law does not conflict with the laws
specifically governing banks.
The Bank is also a member of the Federal Reserve System and is subject to
regulation, supervision and examination by the FRB. The FRB issues regulations
governing the operations of state member banks, examines state member banks and
may initiate enforcement actions against state member banks and certain persons
affiliated with them for violations of laws and regulations or for engaging in
unsafe or unsound practices. If the grounds provided by law exist, the FRB may
appoint a conservator or a receiver for a state member bank.
The ability of state-chartered banks to engage in any state-authorized activity,
or to make any state-authorized investments as principal, is limited if such
activity is conducted or such investment is made in a manner different than that
permitted for, or subject to different terms and conditions than those imposed
on, national banks. Before a state-chartered bank may engage in any such
activity or investment, the activity or investment must be approved by the FRB.
Such approval will not be granted unless certain capital and other requirements
are met.
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 FRB approval may be delayed until a satisfactory CRA
evaluation is achieved. The Bank currently has a CRA regulatory evaluation of
satisfactory.
REGULATORY CAPITAL REQUIREMENTS
The FRB has adopted risk-based capital guidelines for bank holding companies,
such as the Corporation, and for state member banks, such as the Bank. Such
companies and banks must maintain adequate consolidated capital to meet the
minimum ratio of total capital to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) (the "Risk-Based
Ratio") of 8%. At least half of the minimum-required total capital of 8% is to
be composed of Tier 1 Capital, which consists of common stockholders' equity,
minority interests in the equity of consolidated subsidiaries, and a limited
amount of perpetual preferred stock, less goodwill and certain other intangibles
("Tier 1 Risk-Based Ratio"). The remainder of total capital may consist of
mandatory convertible debt, subordinated debt, other preferred stock, and a
limited amount of loan and lease loss allowances.
Under the guidelines, capital is compared to the relative risk related to the
balance sheet. To derive the risk included in the balance sheet, one of four
risk weights (0%, 20%, 50% and 100%) is applied to different balance sheet and
off-balance sheet assets, primarily based on the relative credit risk of the
counterparty. For example, cash and claims guaranteed by the full faith and
credit of the U.S. government are risk-weighted at 0%. Off-balance sheet items,
such as loan commitments and derivative financial instruments, are also assigned
one of the above risk weights after calculating balance sheet equivalent
amounts. For example, certain loan commitments are converted at 50% and then
risk-weighted at 100%. Derivative financial instruments are converted to balance
sheet equivalents based on notional values, replacement costs and remaining
contractual terms. The capital amounts and classification are also subject to
qualitative
17
judgments by the regulators about components, risk weightings and other factors.
The FRB also has established minimum leverage ratio guidelines for bank holding
companies and state member banks. The guidelines provide for a minimum ratio of
Tier 1 Capital to average total assets (excluding the loan and lease loss
allowance, goodwill and certain other intangibles) (the "Leverage Ratio") of 3%
for bank holding companies and state member banks that meet specified criteria,
including having the highest regulatory rating. All other bank holding companies
and state member banks must maintain a Leverage Ratio of 4% to 5%. The
guidelines further provide that bank holding companies and state member banks
making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels.
The following table sets forth the Tier 1 Risk-Based Ratio, Total Risk-Based
Ratio, and Leverage Ratio for the Corporation and the Bank at December 31, 2003:
At December 31, 2003
---------------------------------------------
Corporation Bank
---------------------------------------------
Amount Percent Amount Percent
------- ------- ------- -------
(Dollars in thousands)
Tier 1 risk-based $39,649 13.0 % $34,200 11.2 %
Requirement 12,236 4.0 12,224 4.0
------- ------- ------- -------
Excess $27,413 9.0 % $21,976 7.2 %
======= ======= ======= =======
Total risk-based $43,036 14.1 % $42,587 13.9 %
Requirement 24,472 8.0 24,447 8.0
------- ------- ------- -------
Excess $18,564 6.1 % $18,140 5.9 %
======= ======= ======= =======
Leverage ratio $39,649 10.1 % $34,200 8.7 %
Requirement 15,752 4.0 15,738 4.0
------- ------- ------- -------
Excess $23,897 6.1 % $18,462 4.7 %
======= ======= ======= =======
The FRB has adopted regulations governing prompt corrective action to resolve
the problems of capital deficient and otherwise troubled banks under its
regulation. At each successively lower defined capital category, an institution
is subject to more restrictive and numerous mandatory or discretionary
regulatory actions or limits, and the FRB has less flexibility in determining
how to resolve the problems of the institution. The FRB generally can downgrade
an institution's capital category, notwithstanding its capital level, if, after
notice and opportunity for hearing, the institution is deemed to be engaging in
an unsafe or unsound practice because it has not corrected deficiencies that
resulted in it receiving a less than satisfactory examination rating on matters
other than capital or it is deemed to be in an unsafe or unsound condition. An
undercapitalized institution must submit a capital restoration plan to the FRB
within 45 days after it becomes undercapitalized. Such an institution will be
subject to increased monitoring and asset growth restrictions and will be
required to obtain prior approval for acquisitions, branching, and engaging in
new lines of business. Furthermore, critically undercapitalized institutions
must be placed in conservatorship or receivership within 90 days of reaching
that capitalization level, except under limited circumstances.
The Bank's capital levels at December 31, 2003, met the standards for the
highest level, a "well-capitalized" institution.
Federal law prohibits a financial institution from making a capital distribution
to anyone or paying management fees to any person having control of the
institution if, after such distribution or payment, the institution would be
undercapitalized. In addition, each holding company controlling an
undercapitalized institution must guarantee that the institution will comply
with its capital restoration plan until the institution has been adequately
capitalized on an average during each of the four preceding calendar quarters
and must provide adequate assurances of performance. The aggregate liability
pursuant to such guarantee is limited to the lesser of (a) an amount equal to 5%
of the institution's total assets at the time it became undercapitalized or (b)
the amount necessary to bring the institution into compliance with all capital
standards applicable to such institution at the time the institution fails to
comply with its capital restoration plan.
18
DIVIDEND RESTRICTIONS
The Corporation's only sources of funds are dividends and interest paid by the
Bank. The ability of the Bank to pay dividends is subject to various legal
limitations 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 Division, 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 FRB 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.
FDIC DEPOSIT INSURANCE AND ASSESSMENTS
The FDIC is an independent federal agency which insures the deposits, up to
prescribed statutory limits, of federally-insured banks and savings associations
and safeguards the safety and soundness of the financial institution industry.
Two separate insurance funds are maintained and administered by the FDIC. In
general, banking institutions, such as the Bank, are members of the "BIF", and
savings associations are "SAIF" members.
Insurance premiums for SAIF and BIF members are determined during each
semi-annual assessment period based upon the members' respective categorization
as well capitalized, adequately capitalized, or undercapitalized. The FDIC
assigns banks to one of three supervisory subgroups within each capital group.
The supervisory subgroup to which a bank is assigned is based on a supervisory
evaluation provided to the FDIC by the bank's primary federal regulator and
information which the FDIC determines to be relevant to the bank's financial
condition and the risk posed to the deposit insurance funds (which may include,
if applicable, information provided by the bank's state supervisor).
A bank's assessment rate depends on the capital category and supervisory
category to which it is assigned. Effective January 1, 2000, the BIF assessment
rate and the SAIF assessment rate became the same. The Bank currently is paying
an assessment rate (which includes the FICO assessment) of 1.54 cents per $100
of domestic deposits. An increase in this assessment rate could have a material
adverse effect on the earnings of the Bank, depending on the amount of the
increase. See Exhibit 99.1 hereto, "Safe Harbor Under the Private Securities
Litigation Reform Act of 1995", which is incorporated herein by reference.
FRB RESERVE REQUIREMENTS
FRB regulations currently require depository institutions to maintain reserves
of 3% of net transaction accounts (primarily demand and NOW accounts) up to
$45,400,000 of such accounts (subject to an exemption of up to $6,600,000), and
of 10% of net transaction accounts in excess of $45,400,000.
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. See Exhibit 99.1 hereto, "Safe Harbor Under the
Private Securities Litigation Reform Act of 1995", which is incorporated herein
by reference.
FEDERAL TAXATION
The Corporation and the Bank file a consolidated federal income tax return on a
calendar year basis. The Corporation is subject to the federal tax laws and
regulations which apply to corporations generally. With certain exceptions, the
Bank is also subject to the federal tax laws and regulations that apply to
corporations generally. One such exception permits a bank (other than a bank
with the total average adjusted bases of assets which exceed $500 million or, if
the bank is a member of a consolidated group, the total average adjusted bases
of all assets of the group which exceed $500 million) to deduct a reasonable
addition to the reserve for bad debts in lieu of any deduction for bad debts
allowable to other corporations. The deductible addition that a bank may make to
its reserve can only be based on the experience method whereby generally it will
be permitted to add to its bad debt reserve the amount called for on the basis
of its actual experience as shown by losses for the current year and the five
preceding tax years.
The amount determined under the experience method for a tax year is the amount
necessary to increase the balance of the reserve for losses on loans at the end
of the tax year to the amount that bears the same ratio to loans outstanding at
19
the close of the tax year as the total bad debts sustained during such tax year
and the five preceding tax years, adjusted for recoveries of bad debts during
such period bears to the sum of the loans outstanding at the close of such six
tax years.
In addition to the regular income tax, the Corporation and the Bank may be
subject to an alternative minimum tax. An alternative minimum tax is imposed at
a minimum tax rate of 20% on "alternative minimum taxable income" (which is the
sum of a corporation's regular taxable income, with certain adjustments, and tax
preference items), less any available exemption. Such tax preference items
include interest on certain tax-exempt bonds issued after August 7, 1986. In
addition, 75% of the amount by which a corporation's "adjusted current earnings"
exceeds its alternative minimum taxable income computed without regard to this
preference item and prior to reduction by net operating losses, is included in
alternative minimum taxable income. Net operating losses can offset no more than
90% of alternative minimum taxable income. The alternative minimum tax is
imposed to the extent it exceeds the corporation's regular income tax. Payments
of alternative minimum tax may be used as credits against regular tax
liabilities in future years.
OHIO TAXATION
The Corporation is subject to the Ohio corporation franchise tax and has elected
to be treated as a "Qualifying Holding Company". This election is available to
holding companies that meet all of the following requirements:
- The intangible assets ratio must equal or exceed 90%. This is the
ratio of the Corporation's net book value of its intangible assets
to its total assets (excluding real property used as the
Corporation's headquarters).
- The investment in related members ratio must equal or exceed 50%.
This is the ratio of the Corporation's net book value of its
investment in related members to its total assets.
- The gross income from intangible assets ratio must equal or exceed
90%. This is the ratio of the Corporation's gross income from
intangible assets to its total gross income.
As a Qualifying Holding Company, the Corporation is subject to only the net
income portion of the Ohio corporation franchise tax, not the net worth portion.
For tax years beginning after December 31, 1998, the rate of tax is 5.1% on the
first $50,000 of computed Ohio taxable income and 8.5% of computed Ohio taxable
income in excess of $50,000.
A special litter tax is also applicable to all corporations, including the
Corporation, subject to the Ohio corporation franchise tax other than "financial
institutions". If the franchise tax is paid on the net income basis, the litter
tax is equal to .11% of the first $50,000 of computed Ohio taxable income and
..22% of computed Ohio taxable income in excess of $50,000.
The Bank is a "financial institution" for State of Ohio tax purposes. As such,
it is subject to the Ohio corporate franchise tax on "financial institutions,"
which is imposed annually at a rate of 1.3% of the taxable book net worth of the
Bank determined in accordance with generally accepted accounting principles. As
a "financial institution", the Bank is not subject to any tax based upon net
income or net profits imposed by the State of Ohio.
SARBANES-OXLEY ACT OF 2002
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002
(the "Sarbanes-Oxley Act"). The stated goals of the Sarbanes-Oxley Act are to
increase corporate responsibility, to provide for enhanced penalties for
accounting and auditing improprieties at publicly traded companies and to
protect investors by improving the accuracy and reliability of corporate
disclosures made pursuant to the securities laws. These changes are intended to
allow shareholders to monitor the performance of companies and directors more
easily and efficiently.
The Sarbanes-Oxley Act generally applies to all companies, both U.S. and
non-U.S., that file or are required to file periodic reports with the SEC under
the Exchange Act. The Sarbanes-Oxley Act and the rules adopted by the SEC and
securities exchanges thereunder include very specific additional disclosure
requirements and new corporate governance rules. Among other matters, the
Sarbanes-Oxley Act and the rules adopted thereunder address: audit committees;
certification of financial statements by the chief executive officer and the
chief financial officer; the forfeiture of bonuses and profits made by directors
and senior officers in the twelve month period covered by restated financial
statements; a prohibition on insider trading during pension plan black out
periods; disclosure of off-balance sheet transactions; a prohibition on personal
loans to directors and officers (excluding loans by insured depository
institutions that are subject to the insider lending restrictions of the Federal
Reserve Act); expedited filing requirements for stock transaction reports by
officers and directors; the formation of a public accounting oversight board;
auditor independence; and various increased criminal penalties for violations of
securities laws.
20
ITEM 2. PROPERTIES
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
one branch office in Bellevue, one in Clyde, three in Fremont, one in Green
Springs, one in Monroeville, and one in Port Clinton, Ohio. The Bank's
operations center is also located in Fremont, Ohio. With the exception of the
Port Clinton office, which is leased, all premises are owned by the Bank. All
premises are suitable for their intended use, except for the Clyde office. The
Bank has been researching alternative locations for its Clyde facility since the
fourth quarter of 2001 and is striving to identify an appropriate site.
ITEM 3. LEGAL PROCEEDINGS
Management is aware of no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, in which the Corporation
or its subsidiary Bank is a party or in which any of their property is subject.
The Corporation is not aware of any proceedings involving the Corporation or the
Bank 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, 2003.
21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
The number of holders of record of the Corporation's common stock at January 31,
2004 totaled 788.
There were no purchases of securities by the Issuer during the quarterly period
ended December 31, 2003.
Information relating to dividend restrictions is contained in Financial
Statement Footnote No. 14 captioned "Regulatory Matters" in the 2003 Annual
Report to Shareholders of Croghan Bancshares, Inc. and is incorporated herein by
reference.
Other information required by this Item is contained under the caption "Market
Price and Dividends on Common Stock" in the 2003 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 under the caption "Five Year
Summary of Selected Financial Data" in the 2003 Annual Report to Shareholders of
Croghan Bancshares, Inc. and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information required by this Item is contained under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
2003 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 under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Interest Rate Risk " in the 2003 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 in the 2003 Annual
Report to Shareholders of Croghan Bancshares, Inc. and is incorporated herein by
reference:
Independent Auditor's Report
Consolidated Balance Sheets - December 31, 2003 and 2002
Consolidated Statements of Operations - Years ended December 31, 2003, 2002
and 2001
Consolidated Statements of Stockholders' Equity - Years ended December 31,
2003, 2002 and 2001
Consolidated Statements of Cash Flows - Years ended December 31, 2003, 2002
and 2001
Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements
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, 2003 or 2002.
22
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. With the participation of
management, including our chief executive officer and treasurer, we have
evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-5 and 15d-15 of the Securities Exchange Act of 1934 (the
"Exchange Act") as of the end of the period covered by this Annual Report on
Form 10-K. Based upon that evaluation, our chief executive officer and treasurer
have concluded that such disclosure controls and procedures are effective as of
the end of the period covered by this Annual Report on Form 10-K to ensure that
material information relating to the Corporation and its subsidiary is made
known to them, particularly during the period for which our periodic reports,
including this Annual Report on Form 10-K, are being prepared.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. There were no significant
changes during the quarter ended December 31, 2003 in our internal control over
financial reporting (as defined in Rules 13a-15 and 15d-15 of the Exchange Act)
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item concerning Directors and Executive Officers of
the Corporation is contained under the captions "Election of Directors" and
"Executive Officers" in the Corporation's Definitive Proxy Statement dated April
2, 2004 for the Annual Meeting of Shareholders to be held on May 11, 2004, and
is incorporated herein by reference.
Information required by this Item concerning the Corporation's Audit Committee
is contained under the caption "Audit Committee" in the Corporation's Definitive
Proxy Statement dated April 2, 2004 for the Annual Meeting of Shareholders to be
held on May 11, 2004, and is incorporated herein by reference.
Information required by this Item concerning the Corporation's procedures for
the nomination of Directors is contained under the caption "Nomination of
Directors" in the Corporation's Definitive Proxy Statement dated April 2, 2004
for the Annual Meeting of Shareholders to be held on May 11, 2004, and is
incorporated herein by reference.
Information required by this Item concerning compliance with Section 16(a) of
the Securities Exchange Act of 1934, as amended, is contained under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Corporation's
Definitive Proxy Statement dated April 2, 2004, for the Annual Meeting of
Shareholders to be held on May 11, 2004, and is incorporated herein by
reference.
On October 14, 2003, the Corporation adopted a Code of Business Conduct and
Ethics (the "Code of Ethics") that is applicable to all employees of the
Corporation and the Bank, including the Corporation's principal executive
officer and principal financial and accounting officer. A copy of the Code of
Ethics is included as Exhibit 14 to this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item concerning executive compensation is contained
under the captions "Compensation of Executive Officers and Directors" and
"Compensation Committee Interlocks and Insider Participation" in the
Corporation's Definitive Proxy Statement dated April 2, 2004, for the Annual
Meeting of Shareholders to be held on May 11, 2004, and is incorporated herein
by reference. Neither the Report of the Compensation Committee of the Board of
Directors on Executive Compensation nor the Performance Graph included in the
Corporation's Definitive Proxy Statement dated April 2, 2004, for the Annual
Meeting of shareholders to be held on May 11, 2004, shall be deemed to be
incorporated herein by reference.
23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item concerning security ownership of certain
beneficial owners and management is contained under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Corporation's
Definitive Proxy Statement dated April 2, 2004, for the Annual Meeting of
Shareholders to be held on May 11, 2004, and is incorporated herein by
reference.
EQUITY PLAN INFORMATION
The Croghan Bancshares, Inc. 2002 Stock Option and Incentive Plan was approved
by the Corporation's shareholders at the 2002 Annual Meeting. As of the date of
this report, no awards had been granted under the 2002 Stock Option and
Incentive Plan.
The following table provides certain information regarding the Corporation's
equity compensation plans.
(a) (b) (c)
Plan Category Number of securities to be Weighted-average exercise Number of securities remaining
issued upon exercise of price of outstanding options, available for future issuance under
outstanding options, warrants warrants and rights equity compensation plans
and rights (excluding securities reflected
in column (a))
Equity compensation plans 0 0 190,951
approved by security
holders
Equity compensation plans -- -- --
not approved by security
holders (1)
--- --- -------
Total 0 0 190,951
=== === =======
(1) The Corporation has no equity compensation plans that have not been
approved by the Corporation's shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item concerning related party transactions is
contained under the caption "Transactions Involving Management" in the
Corporation's Definitive Proxy Statement dated April 2, 2004, for the Annual
Meeting of Shareholders to be held on May 11, 2004, and is incorporated herein
by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this Item concerning principal accountant fees and
services is contained under the caption "Information Concerning Independent
Auditors" in the Corporation's Definitive Proxy Statement dated April 2, 2004,
for the Annual Meeting of Shareholders to be held on May 11, 2004, and is
incorporated herein by reference.
24
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following financial statements are filed as a part of this report and are
set forth in Exhibit 13 of this report which contains the 2003 Annual Report to
Shareholders of Croghan Bancshares, Inc.:
Independent Auditor's Report
Consolidated Balance Sheets - December 31, 2003 and 2002
Consolidated Statements of Operations - Years ended December 31, 2003, 2002
and 2001
Consolidated Statements of Stockholders' Equity - Years ended December 31,
2003, 2002 and 2001
Consolidated Statements of Cash Flows - Years ended December 31, 2003, 2002
and 2001
Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULES
Financial statement schedules have been omitted either because they are not
applicable or because the required information is provided in the Consolidated
Financial Statements, including the Notes thereto.
(a)(3) EXHIBITS
The following exhibits are filed with or incorporated by reference (in
accordance with Item 601 of Regulation S-K) in this filing:
Regulation Reference to Prior
S-K Exhibit Document Filing of Exhibit
Number Or of the Exhibit's
Inclusion in this Filing
3(i) Amended Articles of Incorporation of Croghan Bancshares, Inc. (1)
3(ii) Amended 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 Amended 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 (5)
10(iii)* Employment Contract for Steven C. Futrell dated April 16, 2001 (6)
10(iv)* Croghan Bancshares, Inc. 2002 Stock Option and Incentive Plan (7)
10(v)* Executive Supplemental Death Benefit Agreement (8)
13 Annual Report to Shareholders - 2003 (not deemed filed except for portions Included with
thereof which are specifically incorporated by reference into this Annual this filing
Report on Form 10-K)
14 Croghan Bancshares, Inc. Code of Business Conduct and Ethics Included with
this filing
* Indicates management contracts, compensatory plans or other arrangements.
25
Regulation Document Reference to Prior
S-K Exhibit Filing of Exhibit
Number Or of the Exhibit's
Inclusion in this Filing
21 Subsidiaries of the Registrant Included with
this filing
23 Consent of Independent Auditor Included with
this filing
31.1 Rule 13a-14(a)/15d-14(a) CEO's Certification Included with
this filing
31.2 Rule 13a-14(a)/15d-14(a) Treasurer's Certification Included with
this filing
32.1 Section 1350 CEO's Certification Included with
this filing
32.2 Section 1350 Treasurer's Certification Included with
this filing
99.1 Safe Harbor Under the Private Securities Litigation Reform Act of 1995 Included with
this filing
- ----------
(1) This document was previously filed as Exhibit 3(i) to the Registrant's June
30, 1997 quarterly report on Form 10-Q (File No. 0-20159) and is
incorporated herein by reference.
(2) This document was previously filed as Exhibit 3(ii) to the Registrant's
June 30, 2000 quarterly report on Form 10-Q (File No. 0-20159) 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) This document was previously filed as Exhibit 10(ii) to the Registrant's
Annual Report on Form 10-K for fiscal year ending December 31, 1999 (File
No. 0-20159).
(6) This document was previously filed as Exhibit 10(iii) to the Registrant's
June 30, 2001 quarterly report on Form 10-Q (File No. 0-20159).
(7) This document was previously filed as Exhibit 10(iv) to the Registrant's
Annual Report on Form 10-K for fiscal year ending December 31, 2002 (File
No. 0-20159).
(8) This document was previously filed as Exhibit 10(v) to the Registrant's
September 30, 2003 quarterly report on Form 10-Q (File No. 0-20159).
(b) REPORTS ON FORM 8-K
A Form 8-K dated October 15, 2003 was filed on October 15, 2003 reporting the
appointment of Thomas J. Elder to Vice President/Chief Lending Officer of The
Croghan Colonial Bank, a wholly-owned subsidiary of Croghan Bancshares, Inc.,
effective on October 14, 2003.
26
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 9, 2004 /s/ Steven C. Futrell
--------------- ------------------------------------
Steven C. Futrell, 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/ Michael D. Allen Sr. /s/ Daniel W. Lease
- -------------------------------------------- -----------------------------
Michael D. Allen Sr., Director Daniel W. Lease, Director
/s/ James E. Bowlus /s/ Allan E. Mehlow
- -------------------------------------------- -----------------------------
James E. Bowlus, Director Allan E. Mehlow, Director &
Treasurer
/s/ Steven C. Futrell /s/ Robert H. Moyer
- -------------------------------------------- -----------------------------
Steven C. Futrell, Director & President/CEO Robert H. Moyer, Director
/s/ Claire F. Johansen /s/ J. Terrence Wolfe
- -------------------------------------------- -----------------------------
Claire F. Johansen, Director J. Terrence Wolfe, Director
/s/ John P. Keller /s/ Claude E. Young
- -------------------------------------------- -----------------------------
John P. Keller, Director Claude E. Young, Director
/s/ Stephen A. Kemper /s/ Gary L. Zimmerman
- -------------------------------------------- -----------------------------
Stephen A. Kemper, Director Gary L. Zimmerman, Director
Date: March 9, 2004
-------------
27
Regulation
S-K Exhibit Exhibit Index Reference to Prior
Number Filing of Exhibit
Document Or of the Exhibit's
Inclusion in this Filing
3(i) Amended Articles of Incorporation of Croghan Bancshares, Inc. (1)
3(ii) Amended 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 Amended 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 (5)
10(iii)* Employment Contract for Steven C. Futrell dated April 16, 2001 (6)
10(iv)* Croghan Bancshares, Inc. 2002 Stock Option and Incentive Plan (7)
10(v)* Executive Supplemental Death Benefit Agreement (8)
13 Annual Report to Shareholders - 2003 (not deemed filed
except for portions thereof which are specifically Included with
incorporated by reference in this Annual Report this filing
on Form 10-K)
14 Croghan Bancshares, Inc. Code of Business Conduct and Ethics Included with
this filing
21 Subsidiaries of the Registrant Included with
this filing
23 Consent of Independent Auditor Included with
this filing
31.1 Rule 13a-14(a)/15d-14(a) CEO's Certification Included with
this filing
31.2 Rule 13a-14(a)/15d-14(a) Treasurer's Certification Included with
this filing
32.1 Section 1350 CEO's Certification Included with
this filing
32.2 Section 1350 Treasurer's Certification Included with
this filing
99.1 Safe Harbor Under the Private Securities Litigation Reform Act of 1995 Included with
this filing
* Indicates management contracts, compensatory plans or other arrangements.
(1) This document was previously filed as Exhibit 3(i) to the Registrant's June
30, 1997 quarterly report on Form 10-Q (File No. 0-20159) and is
incorporated herein by reference.
(2) This document was previously filed as Exhibit 3(ii) to the Registrant's
June 30, 2000 quarterly report on Form 10-Q (File No. 0-20159) and is
incorporated herein by reference.
28
(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) This document was previously filed as Exhibit 10(ii) to the Registrant's
Annual Report on Form 10-K for fiscal year ending December 31, 1999 (File
No. 0-20159).
(6) This document was previously filed as Exhibit 10(iii) to the Registrant's
June 30, 2001 quarterly report on Form 10-Q (File No. 0-20159).
(7) This document was previously filed as Exhibit 10(iv) to the Registrant's
Annual Report on Form 10-K for fiscal year ending December 31, 2002 (File
No. 0-20159).
(8) This document was previously filed as Exhibit 10(v) to the Registrant's
September 30, 2003 quarterly report on Form 10-Q (File No. 0-20159).
29