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1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999. Commission File Number: 0-20159
CROGHAN BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-1073048
(State of Incorporation) (I.R.S. Employer Identification No.)
323 Croghan Street, Fremont, Ohio 43420
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (419) 332-7301
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered under Section 12(g) of the Act:
Common Stock, Par Value $12.50 Per Share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates was
$46,774,199 as of February 29, 2000.
The number of shares outstanding for the registrant's sole class of common
equity as of February 29, 2000 is 1,909,151 shares of common stock, par value
$12.50 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for the fiscal year ended December 31, 1999 - PART
II of Form 10-K.
Portions of Proxy Statement dated March 24, 2000 for the 2000 Annual Meeting of
Shareholders - PART III of Form 10-K.
This document contains 74 pages. The Exhibit Index is on pages 20 and 21.
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INDEX
Part I
Item 1. Description of business 3 - 15
Item 2. Description of property 16
Item 3. Legal proceedings 16
Item 4. Submission of matters to a vote of security holders 16
Part II
Item 5. Market for registrant's common equity and related 17
stockholder matters
Item 6. Selected financial data 17
Item 7. Management's discussion and analysis 17
Item 7a. Quantitative and qualitative disclosures about market risk 17
Item 8. Financial statements and supplementary data 17
Item 9. Changes in and disagreements with accountants on 18
accounting and financial disclosure
Part III
Item 10. Directors and executive officers of the registrant 19
Item 11. Executive compensation 19
Item 12. Security ownership of certain beneficial owners 19
and management
Item 13. Certain relationships and related transactions 19
Part IV
Item 14. Exhibits, financial statements schedules, and reports 20 - 22
on Form 8-K
Signatures 23
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3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Croghan Bancshares, Inc. (the "Corporation") was organized under the laws of the
State of Ohio on September 27, 1983, and is registered as a bank holding company
under the Bank Holding Company Act of 1956, as amended. The Corporation, as the
result of a merger and reorganization effective in 1984, acquired all of the
voting shares of The Croghan Colonial Bank (the "Bank"), an Ohio chartered bank
organized in 1888. The Bank is the only subsidiary of the Corporation, and
substantially all of the Corporation's operations are conducted through the
Bank. The principal offices of both the Corporation and the Bank are located at
323 Croghan Street, Fremont, Ohio. The Bank also operates eight Ohio branch
offices: two in Bellevue, one in Clyde, three in Fremont, one in Green Springs,
and one in Monroeville. The Corporation and the Bank had total consolidated
assets of $350,586,000 at December 31, 1999.
The Corporation, through its subsidiary, the Bank, operates in one industry
segment, the commercial banking industry.
GENERAL
The Bank conducts a general banking business embracing the usual functions of
commercial, retail, and savings banking, including time, savings, money market
and demand deposits; commercial, industrial, agricultural, real estate, consumer
installment and credit card lending; safe deposit box rental; automatic teller
machines; trust department services; and other services tailored for individual
customers. The Bank makes and services secured and unsecured loans to
individuals, firms and corporations. The Bank makes direct loans to individuals
and purchases installment obligations from retailers, both with and without
recourse. The Bank makes a variety of residential, industrial, commercial and
agricultural loans secured by real estate, including interim construction
financing. Additionally, investment products bearing no FDIC insurance are
offered through the Bank's Invest Division.
On a parent company only basis, the Corporation's only source of funds is the
receipt of dividends paid by the Bank subsidiary. The ability of the Bank to pay
dividends is subject to limitations under various laws and regulations, and to
prudent and sound banking principles. Generally, subject to certain minimum
capital requirements, the Bank may declare a dividend without the approval of
the State of Ohio Division of Financial Institutions, unless the total of the
dividends in a calendar year exceeds the total of its net profits for the year
combined with its retained profits of the two preceding years. Management
believes that the future earnings of the Bank will be sufficient to support
anticipated asset growth at the Bank and at the same time provide funds to the
Corporation to service debt and continue dividends at their current level.
REGULATION AND SUPERVISION
The Corporation, as a registered bank holding company, is subject to regulation
by the Board of Governors of the Federal Reserve System under the Bank Holding
Company Act of 1956, as amended (the "Act"). The Act limits the activities in
which the Corporation and the Bank may engage to those activities that the
Federal Reserve Board finds, by order or regulation, to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto. A
favorable determination by the Federal Reserve Board as to whether any such new
activity by the Corporation or the Bank is in the public interest, taking into
account both the
3
4
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
likely adverse effects and the likely benefits, is also necessary before any
such activity may be engaged in. A bank holding company is prohibited from
acquiring direct or indirect ownership or control of any company that is not a
bank or bank holding company unless its business and activities would be
acceptable for the bank holding company itself. The Federal Reserve Board,
however, is empowered to differentiate between activities which are initiated de
novo by a bank holding company or a subsidiary and activities commenced by
acquisition of a going concern. The Act also requires every bank holding company
to obtain the prior approval of the Federal Reserve Board before acquiring all
or substantially all of the assets of any bank, or acquiring ownership or
control of any voting shares of any other bank, if after such acquisition, it
would own or control such bank. In making such determinations, the Federal
Reserve Board considers the effect of the acquisition on competition, the
financial and managerial resources of the holding company and the convenience
and needs of the affected communities.
The Federal Reserve Board possesses cease and desist powers over bank holding
companies and their non-bank subsidiaries for activities that are deemed by the
Board of Governors to constitute a serious risk to the financial safety,
soundness or stability of a bank holding company, that are inconsistent with
sound banking principles, or that are in violation of law. Further, under
Section 106 of the 1970 Amendments to the Board's regulations, bank holding
companies and their subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit or lease or sale of any
property or the furnishing of services.
The Bank, as an Ohio chartered bank, is supervised by the State of Ohio Division
of Financial Institutions. The Bank is also a member of the Federal Reserve
System and subject to its supervision. As such, the Bank is subject to periodic
examinations by both the Ohio Division of Financial Institutions and the Federal
Reserve Board. These examinations are designed primarily for the protection of
the Bank's depositors and not for its shareholders. The Bank must file
prescribed periodic reports with the Ohio Division of Financial Institutions
containing a full and accurate statement of its affairs.
The Corporation and the Bank are subject to the Community Reinvestment Act of
1977, as amended (the "CRA"), which is designed to encourage financial
institutions to give special attention to the needs of low and moderate income
areas in meeting the credit needs of the communities in which they operate. If
the CRA regulatory evaluation of a bank's activities is less than satisfactory,
regulatory approval of proposed acquisitions, branch openings and other
applications requiring Federal Reserve Board approval may be delayed until a
satisfactory CRA evaluation is achieved. The Bank currently has a CRA regulatory
evaluation of satisfactory.
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley
Act, or the Financial Services Modernization Act of 1999, which will, effective
March 11, 2000, permit bank holding companies to become financial holding
companies and thereby affiliate with securities firms and insurance companies
and engage in other activities that are financial in nature. A bank holding
company may become a financial holding company if each of its subsidiary banks
is well capitalized under the Federal Deposit Insurance Corporation Act of 1991
prompt corrective action provisions, is well managed, and has at least a
satisfactory rating under the Community Reinvestment Act by filing a declaration
that the bank holding company wishes to become a financial holding company. No
regulatory approval will be required for a financial holding company to acquire
a company, other than a bank or savings
4
5
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
association, engaged in activities that are financial in nature or incidental to
activities that are financial in nature, as determined by the Federal Reserve
Board.
The Financial Services Modernization Act defines "financial in nature" to
include: (i) securities underwriting, dealing and market making; (ii) sponsoring
mutual funds and investment companies; (iii) insurance underwriting and agency;
(iv) merchant banking activities; and (v) activities that the Federal Reserve
Board has determined to be closely related to banking.
Subsidiary banks of a financial holding company must continue to be well
capitalized and well managed in order to continue to engage in activities that
are financial in nature without regulatory actions or restrictions, which could
include divestiture of the financial in nature subsidiary or subsidiaries. In
addition, a financial holding company or a bank may not acquire a company that
is engaged in activities that are financial in nature unless each of the
subsidiary banks of the financial holding company or the bank has a Community
Reinvestment Act rating of satisfactory or better.
The specific effects of the enactment of the Financial Services Modernization
Act on the banking industry in general and on the Corporation and the Bank have
yet to be determined due to the fact that the Financial Services Modernization
Act was only recently adopted.
The Corporation and Bank are subject to various regulatory capital requirements
administered by the federal and state banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt, corrective action,
the Corporation and Bank must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices.
The capital amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and Bank to maintain minimum amounts and ratios of total
and Tier I capital to risk-weighted assets, and of Tier I capital to average
assets. Management believes that the Corporation and Bank meet all capital
adequacy requirements to which they are subject. The Corporation's only source
of funds are dividends paid by the Bank. The ability of the Bank to pay
dividends is subject to limitations under various laws and regulations, and to
prudent and sound banking principles. Generally, subject to certain minimum
capital requirements, the Bank may declare a dividend without the approval of
the State of Ohio Division of Financial Institutions, unless the total dividends
in a calendar year exceed the total of its net profits for the year combined
with its retained profits of the two preceding years. The Board of Governors of
the Federal Reserve System generally considers it to be an unsafe and unsound
banking practice for a bank holding company to pay dividends except out of
current operating income, although other factors such as overall capital
adequacy and projected income may also be relevant in determining whether
dividends should be paid.
5
6
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
EFFECTS OF GOVERNMENT MONETARY POLICY
The earnings of the Bank are affected by general and local economic conditions
and by the policies of various governmental regulatory authorities. In
particular, the Federal Reserve Board regulates money and credit conditions and
interest rates in order to influence general economic conditions, primarily
through open market acquisitions or dispositions of United States Government
securities, varying the discount rate on member bank borrowings, and setting
reserve requirements against member and nonmember bank deposits. Federal Reserve
Board monetary policies have had a significant effect on the interest income and
interest expense of commercial banks, including the Bank, and are expected to
continue to do so in the future.
COMPETITION
The Corporation's wholly-owned subsidiary, the Bank, has active competition in
all areas in which it engages. The Bank competes for commercial and individual
deposits and/or loans with other commercial banks in Huron, Sandusky, and Seneca
counties in Northwestern Ohio, as well as with savings and loan associations in
the trade area, credit unions, brokerage firms, mutual funds, and financial
units of non-local bank holding companies. The Bank focuses on personalized
service, convenience of facilities, pricing of products, community stature, and
its local ownership and control in meeting its competition.
EMPLOYEES
The Corporation has no employees and conducts its business through its
wholly-owned subsidiary, the Bank.
As of December 31, 1999, the Bank employed 169 full-time employees and 29
part-time employees to whom it provides a variety of benefits and with whom it
believes relationships are excellent.
The following pages present various statistical disclosures required for bank
holding companies. The information represents only domestic information since
the Corporation has no foreign operations or foreign loans.
6
7
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The following table sets forth, for the years ended December 31, 1999, 1998 and
1997, the distribution of assets, liabilities and stockholders' equity,
including interest amounts and average rates of major categories of
interest-earning assets and interest-bearing liabilities:
1999 1998 1997
-------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
(Dollars in thousands)
Assets
Interest-earning assets:
Loans receivable (1) (2) $233,580 $19,900 8.52% $232,977 $20,639 8.86% $227,900 $20,440 8.97%
Taxable investment securities 65,838 3,613 5.49% 56,618 3,439 6.07% 58,576 3,735 6.38%
Non-taxable investment securities 14,365 616 4.29% 14,000 616 4.40% 14,187 636 4.48%
Federal funds sold 2,559 130 5.08% 8,545 457 5.35% 4,417 245 5.55%
-------- ------- -------- ------- -------- -------
Total interest-earning assets 316,342 24,259 7.67% 312,140 25,151 8.06% 305,080 25,056 8.21%
-------- ------- -------- ------- -------- -------
Non-interest earning assets:
Cash and due from banks 10,512 9,050 9,083
Bank premises and equipment, net 7,554 8,073 7,951
Other assets 13,244 11,744 12,287
Less allowance for loan losses (3,306) (3,514) (3,522)
-------- -------- --------
Total $344,346 $24,259 $337,493 $25,151 $330,879 $25,056
======== ======= ======== ======= ======== =======
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Savings, NOW and Money Market
deposits $117,533 $2,550 2.17% $110,491 $2,771 2.51% $109,158 $2,584 2.37%
Time Deposits 143,520 7,232 5.04% 151,644 8,222 5.42% 150,976 8,169 5.41%
Federal funds purchased and
securities sold under repurchase
agreements 7,161 344 4.80% 5,418 241 4.45% 3,515 136 3.88%
Borrowed funds 5,700 308 5.40% 2,614 186 7.12% 4,386 339 7.73%
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 273,914 10,434 3.81% 270,167 11,420 4.23% 268,035 11,228 4.19%
-------- ------- -------- ------- -------- -------
Non-interest-bearing liabilities:
Demand deposits 33,739 32,090 29,745
Other liabilities 2,263 2,564 2,579
-------- -------- --------
36,002 34,654 32,324
-------- -------- --------
Stockholders' equity 34,430 32,672 30,520
-------- -------- --------
Total $344,346 $10,434 $337,493 $11,420 $330,879 $11,228
======= ====== ======= ====== ======= ======
Net interest income $13,825 $13,731 $13,828
====== ====== ======
Net yield on interest-earning
assets 4.37% 4.40% 4.53%
======= ======= ======
(1) Included in loan interest income are loan fees of $523,187 in 1999,
$446,556 in 1998, and $422,894 in 1997.
(2) Non-accrual loans are included in loan totals and do not have a
material impact on the analysis presented.
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8
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
RESULTING FROM CHANGES IN VOLUME AND CHANGES IN RATE
The following table sets forth, for the periods indicated, a summary of the
changes in interest income and interest expense resulting from changes in volume
and changes in rate:
1999 compared to 1998 1998 compared to 1997
Increase (decrease) Increase (decrease)
due to volume/rate (1) due to volume/rate (1)
--------------------------------- ---------------------------------------
Volume Rate Net Volume Rate Net
(Dollars in thousands)
Interest income:
Loans receivable $54 (793) (739) $450 (251) 199
Taxable investment securities 427 (253) 174 (122) (174) (296)
Non-taxable investment securities 28 (28) (0) (8) (12) (20)
Federal funds sold (307) (20) (327) 221 (9) 212
-------- -------- -------- -------- -------- --------
Total interest-earning assets 202 (1,094) (892) 541 (446) 95
-------- -------- -------- -------- -------- --------
Interest expense:
Savings, NOW and Money Market deposits 198 (419) (221) 32 155 187
Time deposits (427) (563) (990) 36 17 53
Federal funds purchased and securities sold
under repurchase agreements 82 21 103 82 23 105
Borrowed funds 153 (31) 122 (128) (25) (153)
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 7 (993) (986) 22 170 192
-------- -------- -------- -------- -------- --------
Net interest income $195 (101) 94 $519 (616) (97)
======== ======== ======== ======== ======== ========
(1) The change in interest income and interest expense due to changes in
both volume and rate, which cannot be segregated, has been allocated
proportionately to the absolute dollar change due to volume and the
change due to rate.
8
9
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
INVESTMENT PORTFOLIO
The following table sets forth the carrying amount of investment securities,
which are presented on the basis of Statement of Financial Accounting Standards
No. 115, at December 31, 1999, 1998 and 1997:
December 31,
----------------------------------------------------
1999 1998 1997
(Dollars in thousands)
U. S. Treasury securities and obligations of U.S. $57,437 $58,857 $54,713
Government agencies and corporations
Obligations of states and political subdivisions (1) 14,963 15,141 12,307
Other securities 5,032 2,237 2,644
-------------- -------------- --------------
$77,432 $76,235 $69,664
============== ============== ==============
(1) There are no investment securities of an "issuer" where the aggregate
carrying value of such securities exceeded ten percent of stockholders'
equity.
The following table sets forth the maturities of investment securities at
December 31, 1999 and the weighted average yields of such securities:
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. $18,183 5.16% $37,975 5.40% $1,279 6.81% - -
Government agencies and corporations
Obligations of states and political subdivisions 3,949 6.16% 9,188 7.06% 1,099 7.01% 727 6.44%
(1)
Other securities (2) - - 2,546 - - - - -
------- ----- ------- ------ ------ ------ ------- ------
$22,132 5.33% $49,709 5.79% $2,378 6.90% $727 6.44%
======= ===== ======= ======= ====== ====== ======= ======
(1) Weighted average yields on non-taxable obligations have been computed
on a fully tax-equivalent basis assuming a tax rate of 34%.
(2) Excludes equity investments of $2,486,000 which have no stated maturity.
9
10
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
LOAN PORTFOLIO
TYPES OF LOANS
The amounts of gross loans outstanding at December 31, 1999, 1998, 1997, 1996
and 1995 are shown in the following table according to types of loans:
December 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
(Dollars in thousands)
Commercial, financial and agricultural $ 31,057 $ 32,161 $ 32,739 $ 33,574 $ 24,830
Real estate - mortgage 155,615 155,431 156,717 156,846 105,484
Real estate - construction 506 903 3,478 1,239 2,585
Consumer 49,682 48,327 43,609 36,440 25,150
Credit card and other 2,549 2,537 2,533 2,548 1,921
-------- -------- -------- -------- --------
$239,409 $239,359 $239,076 $230,647 $159,970
======== ======== ======== ======== ========
Commercial loans are those made for commercial, industrial, and professional
purposes to sole proprietorships, partnerships, corporations, and other business
enterprises. Financial loans are those made to banks, depository institutions,
other associations and financial intermediaries whose business is to accept
deposits and extend credit. Agricultural loans are for the purpose of financing
agricultural production, including all costs associated with growing crops or
raising livestock. These loans may be secured, other than by real estate, or
unsecured, requiring one single repayment or on an installment repayment
schedule. The loans involve certain risks relating to changes in local and
national economic conditions and the resulting effect on the borrowing entities.
Real estate - mortgage loans are secured wholly or substantially by a lien on
real property. Real estate - mortgage loans generally pose the least risk
exposure to the Bank.
Real estate - construction loans are made to finance land development prior to
erecting new structures and the construction of new buildings or additions to
existing buildings. Real estate - construction loans pose more risk than real
estate - mortgage loans, but generally afford adequate security upon completion
of the construction project.
Consumer loans are made to individuals for household, family, and other personal
expenditures. These often include the purchase of vehicles or furniture,
educational expenses, medical expenses, taxes, or vacation expenses. Consumer
loans may be secured, other than by real estate, or unsecured, generally
requiring repayment on an installment repayment schedule. Consumer loans pose
relatively higher risk and are also influenced by local and national economic
conditions.
Credit card and other loans are made to individuals for personal expenditures
and principally arise from bank credit cards. Such loans generally pose the most
risk as they are most frequently unsecured.
There were no foreign loans in 1999, 1998, 1997, 1996, and 1995. Lease financing
receivables, included in commercial, financial and agricultural, were $290,000
in 1999, $128,000 in 1998, $511,000 in 1997, and $515,000 in 1996 (none in years
prior to 1995).
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11
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
LOAN PORTFOLIO
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
The following table shows the amount of commercial, financial and agricultural
loans outstanding as of December 31, 1999 which, based on the contract terms for
repayments of principal, are due in the periods indicated. Also, the amounts due
after one year are classified according to their sensitivity to changes in
interest rates.
Maturing
---------------------------------------------------------
After one
Within but within After
one year five years five years Total
----------- ------------ ------------- --------
(Dollars in thousands)
Commercial, financial and agricultural $4,944 $11,674 $14,439 $31,057
====== ======= ======= =======
Interest
Sensitivity
-------------------------
Fixed Variable
rate rate
(Dollars in thousands)
Due after one but within five years $5,441 $6,233
Due after five years 1,379 13,060
----------- ----------
$6,820 $19,293
====== ======
The above maturity information is based on the contract terms at December 31,
1999 and does not include any possible "rollover" at maturity date. In the
normal course of business, the Bank considers and acts upon the borrower's
request for renewal of a loan at maturity. Evaluation of such a request includes
a review of the borrower's credit history, the collateral securing the loan, and
the purpose for such request.
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12
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
LOAN PORTFOLIO
RISK ELEMENTS
The following table presents information concerning the amount of loans at
December 31, 1999, 1998, 1997, 1996, and 1995 which contain certain risk
elements:
December 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
(Dollars in thousands)
Loans accounted for on a nonaccrual basis (1) $ 392 $315 $212 $649 $845
Loans contractually past due 90 days or more as to 2,144 1,086 582 764 477
principal or interest payments (2)
Loans whose terms have been renegotiated to provide 0 0 0 471 0
a reduction or deferral of interest or principal
because of a deterioration in the financial position
of the borrower
(1) (3)
(1) Loans are placed on nonaccrual status when, in the opinion of
management, full collection of principal and interest is unlikely.
Interest is then recognized on a cash basis where future collections of
principal are probable. The amount of interest income that would have
been recorded had all nonaccrual and renegotiated (of the type
specified above) loans been current in accordance with their terms
approximated $50,000 in 1999, $48,000 in 1998, $100,000 in 1997,
$167,000 in 1996, and $89,000 in 1995. Actual interest included in
income on these loans amounted to approximately $16,000 in 1999,
$25,000 in 1998, $84,000 in 1997, $130,000 in 1996 and $27,000 in 1995.
(2) Excludes loans accounted for on a nonaccrual basis.
(3) Excludes loans accounted for on a nonaccrual basis and loans
contractually past due 90 days or more as to principal or interest
payments.
In addition to the loan amounts identified above, there were approximately
$1,176,000 of potential problem loans at December 31, 1999, none of which relate
to any concentrated risk elements common to all the loans. While these loans are
all currently performing, management has some doubt about the ability of the
borrowers to continue to comply with all of their present loan repayment terms.
As of December 31, 1999, there was no concentration of loans that exceeded 10%
of total loans.
12
13
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
SUMMARY OF LOAN LOSS EXPERIENCE
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
The following table shows the daily average loan balances, for the periods
indicated, and changes in the allowance for possible loan losses for such years:
December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
(Dollars in thousands)
Daily average amount of loans $233,580 $232,977 $227,900 $187,126 $155,253
======== =========== =========== =========== ===========
Allowance for loan losses at beginning of year $3,418 $3,518 $3,368 $2,614 $2,357
Acquisition of Union Bancshares Corp. - - - 711 -
----- ----- ----- ----- -----
3,418 3,518 3,368 3,325 2,357
----- ----- ----- ----- -----
Loan charge-offs:
Commercial, financial and agricultural (35) (6) - (97) (2)
Real estate - mortgage (165) (58) (111) - (25)
Real estate - construction - - - (198) -
Consumer (412) (389) (159) (116) (99)
Credit card and other (18) (22) (17) (17) (12)
----- ----- ----- ----- -----
(630) (475) (287) (428) (138)
----- ----- ----- ----- -----
Recoveries of loans previously charged off:
Commercial, financial and agricultural 27 15 16 80 154
Real estate - mortgage - 15 193 - 88
Real estate - construction - - 1 187 -
Consumer 131 101 45 40 32
Credit card and other 10 4 2 4 1
----- ----- ----- ----- -----
168 135 257 311 275
----- ----- ----- ----- -----
Net recoveries (charge-offs) (1) (462) (340) (30) (117) 137
----- ----- ----- ----- -----
Additions to allowance charged to expense (2) 240 240 180 160 120
----- ----- ----- ----- -----
Allowance for loan losses at end of year $3,196 $3,418 $3,518 $3,368 $2,614
====== ====== ====== ====== ======
Allowance for loan losses as a percent of year-end 1.33% 1.43% 1.47% 1.46% 1.63%
loans
====== ====== ====== ====== ======
Ratio of net charge-offs (recoveries) during the
year to average loans outstanding .20% .15% .01% .06% (.09%)
====== ====== ====== ====== ======
(1) The amount of charge-offs and recoveries fluctuates from year to year
due to factors relating to the condition of the general economy and
specific business segments. The 1995 recoveries included one real
estate-mortgage loan recovery of $63,465 and one commercial loan
recovery of $122,700. The 1996 charge-offs included one real
estate-construction loan write-off of $197,452 and the recoveries
included a $186,769 recovery on the same loan. The 1997 real
estate-mortgage recoveries included a $191,782 recovery. The 1998
charge-offs included one real estate-mortgage loan write-off of
$57,836. The 1999 charge-offs included five real estate mortgage loan
write-offs amounting to $164,991.
(2) The determination of the balance of the allowance for loan losses is
based upon an analysis of the loan portfolio and reflects an amount
which, in management's judgment, is adequate to provide for possible
loan losses. Such analysis is based on the character of the loan
portfolio, current economic conditions, past loan loss experience, and
such other factors as management believes require current recognition
in estimating possible loan losses.
13
14
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
SUMMARY OF LOAN LOSS EXPERIENCE
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
The following table allocates the allowance for loan losses for the periods
indicated to each loan category. The allowance has been allocated to the
categories of loans noted according to the amount deemed to be reasonably
necessary to provide for the possibility of losses being incurred based on
specific credit analyses and the proration of the unallocated allowance to the
loan categories based on actual loss experience:
December 31, 1999 December 31, 1998
----------------------------- --------------------------
Percentage Percentage
of loans to of loans to
Allowance Total loans Allowance Total loans
(Dollars in thousands) (Dollars in thousands)
Commercial, financial and agricultural $ 528 13.0% $ 585 13.4%
Real estate - mortgage 1,319 65.0% 1,415 64.9%
Real estate - construction - .2% - .4%
Consumer 1,260 20.7% 1,322 20.2%
Credit card and other 89 1.1% 96 1.1%
------ ----- ------ -----
$3,196 100.0% $3,418 100.0%
====== ===== ====== =====
December 31, 1997 December 31, 1996
----------------------------- --------------------------
Percentage Percentage
of loans to of loans to
Allowance Total loans Allowance Total loans
(Dollars in thousands) (Dollars in thousands)
Commercial, financial and agricultural $635 13.7% $647 14.6%
Real estate - mortgage 1,517 65.5% 1,216 68.0%
Real estate - construction - 1.5% - .5%
Consumer 1,264 18.2% 1,350 15.8%
Credit card and other 102 1.1% 155 1.1%
------ ----- ------ -----
$3,518 100.0% $3,368 100.0%
====== ===== ====== =====
December 31, 1995
-----------------------------
Percentage
of loans to
Allowance Total loans
(Dollars in thousands)
Commercial, financial and agricultural $1,161 15.5%
Real estate - mortgage 682 66.0%
Real estate - construction - 1.6%
Consumer 682 15.7%
Credit card and other 89 1.2%
------ -----
$2,614 100.0%
====== =====
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15
ITEM 1. DESCRIPTION OF BUSINESS, CONTINUED
DEPOSITS
The average daily amount of deposits (all in domestic offices) and average rates
paid on such deposits is summarized for the years 1999, 1998 and 1997 in the
following table :
1999 1998 1997
----------------------- ---------------------- -------------------------
Average Average Average Average Average Average
balance rate paid balance rate paid balance rate paid
(Dollars in thousands)
Non-interest bearing demand deposits $33,784 - $ 32,090 -% $ 29,745 -%
Interest-bearing demand deposits 40,543 1.47% 37,186 1.97% 35,034 2.02%
Savings, including Money Market deposits 76,990 2.54% 73,305 2.77% 74,124 2.53%
Time deposits 143,520 5.04% 151,644 5.42% 150,976 5.41%
-------- -------- --------
Total $294,837 $294,225 $289,879
======== ======== ========
Maturities of time deposits of $100,000 or more outstanding at December 31, 1999
are summarized as follows (Dollars in thousands):
3 months or less $ 6,458
Over 3 through 6 months 2,703
Over 6 through 12 months 7,926
Over 12 months 6,272
--------
Total $23,359
========
RETURN ON EQUITY AND ASSETS
The ratio of net income to daily average total assets and average stockholders'
equity, and certain other ratios, for the periods noted are as follows:
Year ended December 31,
--------------------------------------------
1999 1998 1997
Percentage of net income to:
Average total assets .91% .94% .94%
Average stockholders' equity 9.11% 9.67% 10.18%
Percentage of cash dividends declared per common 44.24% 36.14% 36.76%
share to net income per common share
Percentage of average stockholders' equity to 10.00% 9.68% 9.22%
average total assets
15
16
ITEM 2. DESCRIPTION OF PROPERTY
The Corporation neither owns nor leases any properties. The Bank maintains its
main office at 323 Croghan Street, Fremont, Ohio. In addition, the Bank operates
two branch offices in Bellevue, one in Clyde, three in Fremont, one in Green
Springs, and one in Monroeville. The Bank's operations center is also located in
Fremont, Ohio. All of such premises are owned by the Bank, are in satisfactory
condition, and are suitable for their intended use.
ITEM 3. LEGAL PROCEEDINGS
Corporation management is aware of no material pending or threatened litigation
in which the Corporation or its subsidiary Bank faces potential loss or
exposure, which could materially affect the consolidated financial statements.
The Corporation is not aware of any proceedings involving the Corporation that a
governmental authority is contemplating.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of shareholders, through the solicitation of
proxies or otherwise, during the quarter ended December 31, 1999.
16
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The number of holders of record of the Corporation's common stock at December
31, 1999 is 769.
Information relating to dividend restrictions is contained on pages 27 and 28 in
Financial Statement Footnote No. 12 captioned "Regulatory Matters" of the 1999
Annual Report to Shareholders of Croghan Bancshares, Inc. and is incorporated
herein by reference.
Other information required by this Item is contained on page 3 under the caption
"Market Price and Dividends on Common Stock" of the 1999 Annual Report to
Shareholders of Croghan Bancshares, Inc. and is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this Item is contained on page 4 under the caption "Five
Year Summary of Selected Financial Data" of the 1999 Annual Report to
Shareholders of Croghan Bancshares, Inc. and is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Information required by this Item is contained on pages 5 through 11 under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" of the 1999 Annual Report to Shareholders of Croghan Bancshares,
Inc. and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this Item is contained on page 10 under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Interest Rate Risk " of the 1999 Annual Report to Shareholders of
Croghan Bancshares, Inc. and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information required by this Item is contained on pages 12 through
32 in the 1999 Annual Report to Shareholders of Croghan Bancshares, Inc. and is
incorporated herein by reference:
Independent Auditor's Report
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Operations - Years ended December 31, 1999, 1998 and
1997
Consolidated Statements of Stockholders' Equity - Years ended December 31, 1999,
1998 and 1997
Consolidated Statements of Cash Flows - Years ended December 31, 1999, 1998 and
1997
Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements
17
18
PART II
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants during the years
ended December 31, 1999 or 1998.
18
19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Directors and Executive Officers of the Corporation is
contained on pages 17 and 18 under the caption "Election of Directors", and on
pages 19 and 20 under the caption "Executive Officers" in the Corporation's
Definitive Proxy Statement dated March 24, 2000, for the Annual Meeting of
Shareholders to be held on May 9, 2000, and is incorporated herein by reference.
Information concerning the failure of a director of the Corporation to comply
with share beneficial ownership reporting requirements under Section 16(a) of
the Securities Exchange Act of 1934, as amended, is contained on page 30 under
the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Corporation's Definitive Proxy Statement dated March 24, 2000, for the Annual
Meeting of Shareholders to be held on May 9, 2000, and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning compensation of directors and executive compensation is
contained on page 19 under the caption "Election of Directors", on pages 20 and
21 under the captions "Executive Compensation" and "Compensation Committee
Report" in the Corporation's Definitive Proxy Statement dated March 24, 2000,
for the Annual Meeting of Shareholders to be held on May 9, 2000, and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is contained on pages 3, 17 and 18 under the captions "Voting
Securities and Principal Holders Thereof" and "Election of Directors" in the
Corporation's Definitive Proxy Statement dated March 24, 2000, for the Annual
Meeting of Shareholders to be held on May 9, 2000, and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning related party transactions is contained on page 30 under
the caption "Indebtedness of and Transactions with Officers and Directors" in
the Corporation's Definitive Proxy Statement dated March 24, 2000, for the
Annual Meeting of Shareholders to be held on May 9, 2000, and is incorporated
herein by reference.
19
20
PART IV
ITEM 14. (a) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following financial statements are filed as a part of this report and are
contained on pages 12 through 32 of Exhibit 13 (the 1999 Annual Report to
Shareholders of Croghan Bancshares, Inc.):
Independent Auditor's Report
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Operations - Years ended December 31, 1999, 1998
and 1997
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years ended
December 31, 1999, 1998 and 1997
Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements
Financial statement schedules have been omitted because they are not applicable
or because the required information is provided in the Consolidated Financial
Statements, including the Notes thereto.
The following exhibits are filed with or incorporated by reference (in
accordance with Item 601 of Regulation S-K) in this filing:
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) Code of Regulations of Croghan Bancshares, Inc. (2)
4.1 Certificate of Registrant's Common Stock (3)
4.2 Articles Fourth, Fifth and Eighth of Registrant's Articles of Incorporation (1)
4.3 Articles II, III, V, VII and VIII of Registrant's Code of Regulations (2)
10(i) The Croghan Colonial Bank 401 (k) Plan (4)
10(ii) Executive Supplemental Retirement Plan Agreement Included with
This filing
13 Annual Report to Shareholders - 1999 Included with
This filing
21 Subsidiaries of the Registrant Included with
This filing
23 Consent of Independent Auditor Included with
This filing
27 Financial Data Schedule Included with
This filing
20
21
ITEM 14. (a) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES, CONTINUED
(1) This document was previously filed as Exhibit 3(i) to the Registrant's
June 30, 1997 quarterly report on Form 10-QSB and is incorporated
herein by reference.
(2) This document was previously filed as Exhibit 2 to the Registrant's
Form 10 registration statement pursuant to Section 12(g) of the
Securities Exchange Act of 1934 and is incorporated herein by
reference.
(3) This document was previously filed as Exhibit 3 to the Registrant's
Form 10 registration statement pursuant to Section 12(g) of the
Securities Exchange Act of 1934 and is incorporated herein by
reference.
(4) Included herein by reference to the Registrant's registration statement
on Form S-8 dated May 19, 1998 (Reg. No. 333-53075)
21
22
ITEM 14. (b) REPORTS ON FORM 8-K
None were filed during the quarter ended December 31, 1999.
22
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CROGHAN BANCSHARES, INC.
Date: March 14, 2000 /s/ Thomas F. Hite
------------------- ------------------------------------
Thomas F. Hite, President/CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the date indicated:
/s/ Allan E. Mehlow /s/ Robert H. Moyer
- ---------------------------------------- ----------------------------
Allan E. Mehlow, Treasurer/ Robert H. Moyer, Director
Director
/s/ Janet E. Burkett /s/ Thomas F. Hite
- ---------------------------------------- ----------------------------
Janet E. Burkett, Director Thomas F. Hite, Director
/s/ Claire F. Johansen /s/ K. Brian Pugh
- ---------------------------------------- ----------------------------
Claire F. Johansen, Director K. Brian Pugh, Director
/s/ J. Terrence Wolfe
- ---------------------------------------- ----------------------------
John P. Keller, Director J. Terrence Wolfe, Director
/s/ Stephen A. Kemper /s/ Claude E. Young
- ---------------------------------------- ----------------------------
Stephen A. Kemper, Director Claude E. Young, Director
/s/ Daniel W. Lease /s/ Gary L. Zimmerman
- ---------------------------------------- ----------------------------
Daniel W. Lease, Director Gary L. Zimmerman, Director
Date: March 14, 2000
-------------------
23