UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the fiscal year ended December 31, 2009.
OR
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from ___________ to ______________.
Commission File Number 0-20159
CROGHAN BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
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Ohio
(State or other jurisdiction of
incorporation or organization)
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31-1073048
(I.R.S. Employer Identification No.)
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323 Croghan Street, Fremont, Ohio
(Address of principal executive offices)
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43420
(Zip Code)
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Registrants telephone number, including area code (419) 332-7301
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, Par Value $12.50 Per Share
(Title of class)
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes
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No
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Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
Yes
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No
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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
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No
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Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes
o
No
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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 Registrants 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.
þ
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act
(Check one):
Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller Reporting Company
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
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No
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State the aggregate market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was last sold, or the average bid and
asked price of such common equity, as of the last business day of the Registrants most recently
completed second fiscal quarter: The aggregate market value of the Registrants common shares, par
value $12.50 per share, held by non-affiliates as of June 30, 2009, based on the closing price
quoted on the OTC Bulletin Board was $43,985,177.
The Registrant had 1,703,118 common shares, par value $12.50 per share, outstanding as of February
28, 2010.
This
document contains 103 pages. The Exhibit Index is on pages 34
through 36 and also immediately
preceding the filed exhibits on pages 30 through 32.
DOCUMENTS INCORPORATED BY REFERENCE
1.
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Portions of the Registrants Annual Report to Shareholders for the fiscal year ended December
31, 2009 are incorporated by reference into PART II of this Annual Report on Form 10-K.
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2.
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Portions of the Registrants Proxy Statement for its Annual Meeting of Shareholders to be
held on May 11, 2010 are incorporated by reference into PART III of this Annual Report on Form
10-K.
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2
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 Corporations 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 ten Ohio branch offices in Bellevue, Clyde, Custar, three in Fremont, Green Springs,
Monroeville, Norwalk, and Port Clinton.
The Corporation maintains a website at www.croghan.com (this uniform resource locator, or URL, is
an inactive textual reference only and is not intended to incorporate the Corporations website
into this Annual Report on Form 10-K). The Corporation makes available free of charge on or
through its website, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), as soon as
reasonably practicable after the Corporation electronically files such material with, or furnishes
such material to, the Securities and Exchange Commission (the SEC).
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 Banks Trust and Investment Services Division.
Interest and fees on loans are the Banks primary sources of income. The Banks principal expenses
are interest paid on deposit accounts and borrowed funds, and personnel and operating costs.
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 on page 20 of this Annual Report on Form 10-K.
The Corporations 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 on page 20 of this Annual Report
on Form 10-K.
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 beginning on page 17, and REGULATORY
CAPITAL REQUIREMENTS beginning on page 18 of this Annual Report on Form 10-K.
Because the Corporations activities have been limited primarily to holding the common shares of
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.
4
FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K which are not historical fact are
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. Words such as expects, believes, anticipates, targets, plans, will, would,
should, could, and similar expressions are intended to identify these forward-looking
statements but are not the exclusive means of identifying such statements. Forward-looking
statements are subject to risks and uncertainties that may cause actual results to differ
materially. Factors that might cause such difference include, but are not limited to, the factors
discussed under ITEM 1A RISK FACTORS beginning on
page 21 of this Annual Report on Form 10-K.
Forward-looking statements speak only as of the date on which they are made and, except as required
by law, the Corporation undertakes no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which the statement is made to reflect unanticipated
events. All subsequent written and oral forward-looking statements attributable to the Corporation
or any person acting on its behalf are qualified by these cautionary statements.
LENDING ACTIVITIES
General.
As a commercial bank, the Bank makes a wide variety of different types of loans. Among
the Banks 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 non-residential real estate; construction loans secured by mortgages on the
underlying property; consumer loans which may be on an unsecured basis or secured by vehicles or
other assets of the borrower; and credit card loans which are typically unsecured.
The following table sets forth the composition of the Banks loan portfolio by type of loan at the
dates indicated:
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December 31,
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2009
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2008
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2007
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2006
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2005
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(Dollars in thousands)
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Type of Loan: (1)
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Commercial, financial, and agricultural (2)
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$
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27,311
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$
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32,566
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$
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38,057
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$
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42,846
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$
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40,358
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Real estate mortgage
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276,416
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289,502
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282,407
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277,085
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255,418
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Real estate construction
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5,828
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9,952
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11,427
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13,467
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13,641
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Consumer
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12,333
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14,843
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15,838
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21,111
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28,764
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Credit card and other
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2,596
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2,570
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2,785
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2,769
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2,729
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$
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324,484
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$
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349,433
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$
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350,514
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$
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357,278
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$
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340,910
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(1)
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The Bank made no foreign loans in 2009, 2008, 2007, 2006, or 2005.
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(2)
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Lease financing receivables, included in commercial, financial, and agricultural, were
$859,000 in 2009, $1,065,000 in 2008, $1,268,000 in 2007, $1,721,000 in 2006, and $1,635,000
in 2005.
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Loan Maturity Schedule.
The following table sets forth certain information, as of December
31, 2009, regarding the dollar amount of loans maturing in the Banks portfolio based on their
contractual terms to maturity and the dollar amount of such loans that have fixed or variable rates
within certain maturity ranges after 2009:
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Maturing
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After one
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Within
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but within
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After
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one year
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five years
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five years
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Total
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(Dollars in thousands)
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Commercial,
financial, and agricultural
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$
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923
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$
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17,815
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$
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8,573
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$
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27,311
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Real estate construction
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2,538
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379
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2,911
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5,828
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Total
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$
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3,461
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$
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18,194
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$
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11,484
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$
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33,139
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Interest
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Sensitivity
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Fixed
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Variable
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Rate
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Rate
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(Dollars in thousands)
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Due after one but within five years
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$
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12,564
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$
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5,630
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Due after five years
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2,907
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8,577
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$
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15,471
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$
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14,207
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The above maturity information is based on the contract terms at December 31, 2009, and does
not include any possible rollover at maturity date. In the normal course of business, the Bank
considers and acts upon the borrowers request for renewal of a loan at maturity. Evaluation of
such a request includes a review of the borrowers 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 and other
financial institutions 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 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, 2009, the Bank had $27,311,000, or 8.4% of total loans, invested in commercial,
financial, and agricultural loans, of which $7,000 were nonperforming loans (i.e., those loans in
nonaccrual status or past due 90 days or more).
Real Estate Mortgage Loans.
The Bank makes non-residential real estate loans secured by first
mortgages and/or junior mortgages on non-residential real estate, including retail stores, office
buildings, warehouses, apartment buildings, and residential real estate loans secured by first
mortgages on one-to-four family residences, with a majority being single-family residences.
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Non-Residential Real Estate Loans.
The Banks non-residential 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 non-residential 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 non-residential real estate loans made by the Bank is
80%, subject to certain exceptions.
Non-residential 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 borrowers ability to repay
the loan may be impaired. To reduce such risk, the decision to underwrite a non-residential 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 borrower 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 propertys valuation.
At December 31, 2009, the Bank had $146,485,000, or 45.1% of total loans, invested in
non-residential real estate loans, a majority of which were secured by properties located in the
Northwestern Ohio area. At December 31, 2009, the Bank had $2,821,000 of nonperforming loans of
this type.
Residential Real Estate Loans.
The Banks residential real estate loans have either fixed or
adjustable interest rates (ARMs). Interest rates on ARMs adjust every six months or every five
years based upon the Federal Home Loan Mortgage Company (FHLMC) 15 year rate, plus an additional
margin, that is 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 1% and lifetime caps of 3%. 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 five year balloon program, where the loan is retained and serviced by the Bank, loans are
originated by the Bank and sold into the secondary market (e.g., to Freddie Mac). The Bank retains
the servicing and related support functions on loans that are sold into the secondary market. 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 Banks residential real estate loans amounted to $129,931,000 at December 31, 2009, which
represented 40.0% of total loans. At December 31, 2009, the Bank had $2,228,000 of nonperforming
loans of this type.
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, 2009, the Banks construction loans amounted to $5,828,000, or 1.8% of total loans.
At December 31, 2009, the Bank had $737,000 of nonperforming loans of this type
7
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, 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 vehicles.
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 borrowers 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, 2009, the Bank had $12,333,000, or 3.8% of total loans, invested in consumer loans,
$8,000 of which were nonperforming.
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, 2009, the Bank had $2,596,000, or 0.8% of total loans, invested in credit card and
other loans, $6,000 of which were nonperforming.
Loan Solicitation and Processing.
The Banks loan originations are developed from a number of
sources, including continuing business with depositors, borrowers, real estate developers, periodic
newspaper and radio advertisements, solicitations by the Banks lending staff, walk-in customers,
director referrals, and loan participations purchased from other financial institutions.
For non-residential 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 borrower are obtained as deemed necessary. An environmental study
of the real estate might also be conducted when deemed necessary. Upon the completion of the
appraisal of the non-residential 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 Banks Loan Policy. Additionally, loans
in material amounts as established in the Banks 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 the real estate is conducted only if the appraiser has reason
to believe that an environmental problem may exist. When either a residential or non-residential
real estate loan application is approved, a lawyers 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 borrower also are
generally obtained. Consumer loans are underwritten on the basis of the borrowers credit history
and an analysis of the borrowers 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.
8
Delinquent Loans, Nonperforming 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 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,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans accounted for on a nonaccrual basis (1)
|
|
$
|
5,903
|
|
|
$
|
1,845
|
|
|
$
|
2,285
|
|
|
$
|
3,795
|
|
|
$
|
3,872
|
|
Loans contractually past due 90 days or more
as to principal or interest payments and
still accruing interest (2)
|
|
|
45
|
|
|
|
334
|
|
|
|
237
|
|
|
|
716
|
|
|
|
561
|
|
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)
|
|
|
3,191
|
|
|
|
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 $375,000 in 2009, $132,000 in 2008, $44,000 in 2007, $305,000 in 2006,
and $151,000 in 2005. Actual interest included in interest income on these loans amounted
to $33,000 in 2009, $39,000 in 2008, $176,000 in 2007, and none in 2006 and 2005.
|
|
(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 was $22,227,000 of
potential problem loans at December 31, 2009. 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. Management typically classifies a loan as a potential problem
loan, regardless of its collateralization or any contractually obligated guarantors, when a review
of the borrowers financial statements indicates the borrowing entity does not generate sufficient
operating cash flow to adequately service its debts.
The Banks loans are spread over a broad range of industrial classifications. As of December 31,
2009, the Bank had no significant concentrations of loans (i.e., greater that 10% of total loans)
to borrowers engaged in the same or similar industries.
Allowance for Loan Losses.
The Bank maintains an allowance for loan losses to provide for loans
that might not be repaid. At December 31, 2009, the Banks allowance for loan losses totaled
$4,433,000. 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 nonperforming 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 in the volume and mix within each loan category. Additionally, loans that are identified
as impaired are individually evaluated and specific reserves provided to the extent the loan amount
exceeds anticipated future cash flows, including cash flows from the sale of the underlying
collateral.
Regular 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 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. The regulatory agencies that periodically review the Banks allowance for
loan losses may also require adjustments to the allowance or the charge-off of specific loans based
upon the information available to them at the time of their examinations.
9
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,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daily average amount of loans
|
|
$
|
334,648
|
|
|
$
|
344,638
|
|
|
$
|
347,445
|
|
|
$
|
341,079
|
|
|
$
|
343,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at beginning of year
|
|
$
|
3,287
|
|
|
$
|
3,358
|
|
|
$
|
3,600
|
|
|
$
|
3,624
|
|
|
$
|
3,431
|
|
Acquisition of The Custar State Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,287
|
|
|
|
3,358
|
|
|
|
3,600
|
|
|
|
3,624
|
|
|
|
3,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
|
(212
|
)
|
|
|
(1,128
|
)
|
|
|
(3
|
)
|
|
|
(93
|
)
|
|
|
(53
|
)
|
Real estate mortgage
|
|
|
(1,594
|
)
|
|
|
(379
|
)
|
|
|
(259
|
)
|
|
|
(136
|
)
|
|
|
(226
|
)
|
Real estate construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
(141
|
)
|
|
|
(152
|
)
|
|
|
(182
|
)
|
|
|
(335
|
)
|
|
|
(666
|
)
|
Credit card and other
|
|
|
(74
|
)
|
|
|
(82
|
)
|
|
|
(55
|
)
|
|
|
(37
|
)
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,021
|
)
|
|
|
(1,741
|
)
|
|
|
(499
|
)
|
|
|
(601
|
)
|
|
|
(1,011
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries of loans previously charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
|
66
|
|
|
|
15
|
|
|
|
38
|
|
|
|
34
|
|
|
|
33
|
|
Real estate mortgage
|
|
|
34
|
|
|
|
17
|
|
|
|
36
|
|
|
|
3
|
|
|
|
3
|
|
Real estate construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
57
|
|
|
|
74
|
|
|
|
70
|
|
|
|
146
|
|
|
|
211
|
|
Credit card and other
|
|
|
10
|
|
|
|
14
|
|
|
|
13
|
|
|
|
14
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167
|
|
|
|
120
|
|
|
|
157
|
|
|
|
197
|
|
|
|
258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(1,854
|
)
|
|
|
(1,621
|
)
|
|
|
(342
|
)
|
|
|
(404
|
)
|
|
|
(753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to allowance charged to expense
|
|
|
3,000
|
|
|
|
1,550
|
|
|
|
100
|
|
|
|
380
|
|
|
|
705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at end of year
|
|
$
|
4,433
|
|
|
$
|
3,287
|
|
|
$
|
3,358
|
|
|
$
|
3,600
|
|
|
$
|
3,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percent of
year-end loans
|
|
|
1.37
|
%
|
|
|
.94
|
%
|
|
|
.96
|
%
|
|
|
1.01
|
%
|
|
|
1.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs during the year to
average loans outstanding
|
|
|
.56
|
%
|
|
|
.47
|
%
|
|
|
.10
|
%
|
|
|
.12
|
%
|
|
|
.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of charge-offs and recoveries fluctuate from year to year due to factors relating
to the condition of the general economy and specific business segments. The 2005 charge-offs and
recoveries did not include any significant individual amounts, with the largest charge-off totaling
$29,000 and the largest recovery totaling $13,000. With the exception of one commercial loan
charge-off of $63,000 in 2006, the largest individual write-down in 2006 totaled $48,000 and the
largest individual recovery totaled $14,000. During 2007 there were five real estate charge-offs
exceeding $25,000 with the largest charge-off being $67,000 and the aggregate being $213,000, and
one consumer loan charge-off of $28,000. Otherwise, there were no individual charge-offs or
recoveries exceeding $25,000 during 2007. During 2008 there were four commercial loan charge-offs
exceeding $25,000 with the two largest being $495,000 and $490,000, both related to the same
borrower, and the aggregate being $1,098,000; four real estate charge-offs exceeding $25,000 with
the largest charge-off being $31,000 and the aggregate being $110,000; and one consumer loan
charge-off of $29,000. There were no other individual charge-offs or recoveries exceeding $25,000
during 2008. During 2009 there were no commercial loan charge-offs exceeding $25,000 however,
there was one recovery that totaled $34,000 that was recovered from a commercial loan that was
charged off in 2008. Also during 2009, there were 15 real estate loan charge-offs individually
exceeding $25,000 with the largest being $518,000, and others including $253,000, $224,000, and
$178,000, respectively. There were no individual recoveries over $25,000 in the real estate loan
category during 2009. There were also two consumer loan charge-offs that individually exceeded
$25,000 during 2009 with the largest being $31,000. There were no lease financing charge-offs or
recoveries in any of the years presented.
10
The Corporation recognized a provision for loan losses of $3,000,000 for the year ended December
31, 2009. The increase in the provision for loan losses in 2009, as compared to 2008, was due to
both an increase in the level of net loan charge-offs in 2009, as compared to 2008, and an increase
in the level of potential problem and nonperforming loans at December 31, 2009, as compared to
December 31, 2008. The Bank experienced increased levels of net loan charge-offs within its real
estate loan portfolio throughout 2009, resulting in $1,594,000 of charge-offs in 2009. The
decrease in commercial loan charge-offs is attributable to the one large credit that was charged
off in 2008 totaling $1,098,000. The Bank will continue to monitor the credit quality of its
entire loan portfolio to maintain the allowance for loan losses at an appropriate level.
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, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
of loans to
|
|
|
|
|
|
of loans to
|
|
|
Allowance
|
|
total loans
|
|
|
Allowance
|
|
total loans
|
|
|
(Dollars in thousands)
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
$
|
526
|
|
|
|
8.4
|
%
|
|
$
|
200
|
|
|
|
9.3
|
%
|
Real estate mortgage
|
|
|
3,649
|
|
|
|
85.2
|
%
|
|
|
2,536
|
|
|
|
82.9
|
%
|
Real estate construction
|
|
|
72
|
|
|
|
1.8
|
%
|
|
|
291
|
|
|
|
2.8
|
%
|
Consumer
|
|
|
115
|
|
|
|
3.8
|
%
|
|
|
196
|
|
|
|
4.3
|
%
|
Credit card and other
|
|
|
71
|
|
|
|
.8
|
%
|
|
|
64
|
|
|
|
.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,433
|
|
|
|
100.0
|
%
|
|
$
|
3,287
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
of loans to
|
|
|
|
|
|
of loans to
|
|
|
Allowance
|
|
total loans
|
|
Allowance
|
|
total loans
|
|
|
(Dollars in thousands)
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
$
|
413
|
|
|
|
10.9
|
%
|
|
$
|
770
|
|
|
|
12.0
|
%
|
Real estate mortgage
|
|
|
2,528
|
|
|
|
80.5
|
%
|
|
|
2,349
|
|
|
|
77.5
|
%
|
Real estate construction
|
|
|
35
|
|
|
|
3.3
|
%
|
|
|
41
|
|
|
|
3.8
|
%
|
Consumer
|
|
|
303
|
|
|
|
4.5
|
%
|
|
|
362
|
|
|
|
5.9
|
%
|
Credit card and other
|
|
|
79
|
|
|
|
.8
|
%
|
|
|
78
|
|
|
|
.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,358
|
|
|
|
100.0
|
%
|
|
$
|
3,600
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
of loans to
|
|
|
Allowance
|
|
total loans
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
$
|
774
|
|
|
|
11.9
|
%
|
Real estate mortgage
|
|
|
2,248
|
|
|
|
74.9
|
%
|
Real estate construction
|
|
|
17
|
|
|
|
4.0
|
%
|
Consumer
|
|
|
458
|
|
|
|
8.4
|
%
|
Credit card and other
|
|
|
127
|
|
|
|
.8
|
%
|
|
|
|
|
|
|
|
$
|
3,624
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
The Bank increased its allowance for loan losses to $4,433,000 at December 31, 2009 from
$3,287,000 at December 31, 2008, largely due to the $3,000,000 provision for loan losses in 2009.
There were no significant specific reserves on individual credits at December 31, 2009. 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.
11
INVESTMENT ACTIVITIES
The Banks investment policy is designed to effectively utilize excess funds and to provide for
liquidity needs as dictated by loan demand and daily operations. The Banks 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 Banks effective tax rate warrants such investments.
The following sets forth the carrying amount of securities at December 31, 2009, 2008, and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government agencies and
corporations (1)
|
|
$
|
66,729
|
|
|
$
|
46,481
|
|
|
$
|
27,395
|
|
Obligations of states and political subdivisions (2)
|
|
|
38,713
|
|
|
|
21,917
|
|
|
|
19,599
|
|
Other securities (2)
|
|
|
4,696
|
|
|
|
4,583
|
|
|
|
4,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
110,138
|
|
|
$
|
72,981
|
|
|
$
|
51,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
There were no holdings of U.S. Treasury securities at December 31, 2009, 2008, or 2007.
|
|
(2)
|
|
There were no securities of any single issuer where the aggregate carrying amount of such
securities exceeded ten percent of stockholders equity.
|
The following sets forth the maturities of securities at December 31, 2009 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government agencies and
corporations
|
|
$
|
|
|
|
|
|
%
|
|
$
|
4,078
|
|
|
|
3.32
|
%
|
|
$
|
11,024
|
|
|
|
4.55
|
%
|
|
$
|
51,570
|
|
|
|
4.95
|
%
|
Obligations of states and political subdivisions (1)
|
|
|
1,530
|
|
|
|
3.30
|
%
|
|
|
11,739
|
|
|
|
3.49
|
%
|
|
|
10,757
|
|
|
|
3.70
|
%
|
|
|
14,744
|
|
|
|
4.22
|
%
|
Other securities (2)
|
|
|
|
|
|
|
|
|
|
|
502
|
|
|
|
6.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,530
|
|
|
|
3.30
|
%
|
|
$
|
16,319
|
|
|
|
3.54
|
%
|
|
$
|
21,781
|
|
|
|
4.13
|
%
|
|
$
|
66,314
|
|
|
|
4.79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $4,194,000 which have no stated maturity.
|
DEPOSITS AND BORROWINGS
General.
Deposits have traditionally been the Banks 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. At December 31, 2009, the
Bank did not have any federal funds purchased, out of the $16,500,000 available under such lines.
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, 2009, the Bank had
$16,375,000 in retail repurchase agreements.
12
Neither the Corporation nor the Bank had any capital lease obligations as of December 31, 2009.
The Bank had future
operating lease obligations totaling $290,000 at December 31, 2009 related to the following lease
arrangements: the Port Clinton banking center, located in a retail supermarket in the Knollcrest
Shopping Center, and an ATM site north of Fremont. Additionally, the Bank had various future
operating lease obligations aggregating $76,000 at December 31, 2009, for photocopying and mail
processing equipment.
Deposits.
Deposits are attracted principally from within the Banks 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 Banks
management based on the Banks liquidity requirements, growth goals, and market trends. The Bank
does not use brokers to attract deposits. The amount of deposits from outside the Banks 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 2009, 2008, and 2007 in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
|
balance
|
|
|
rate paid
|
|
|
balance
|
|
|
rate paid
|
|
|
balance
|
|
|
rate paid
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing demand deposits
|
|
$
|
52,480
|
|
|
|
|
|
|
$
|
49,398
|
|
|
|
|
|
|
$
|
48,065
|
|
|
|
|
|
Interest-bearing demand deposits
|
|
|
52,625
|
|
|
|
.08
|
%
|
|
|
57,195
|
|
|
|
.63
|
%
|
|
|
61,219
|
|
|
|
1.46
|
%
|
Savings, including Money Market deposits
|
|
|
98,197
|
|
|
|
.50
|
%
|
|
|
100,016
|
|
|
|
1.02
|
%
|
|
|
100,791
|
|
|
|
1.96
|
%
|
Time deposits
|
|
|
154,890
|
|
|
|
2.78
|
%
|
|
|
150,059
|
|
|
|
3.57
|
%
|
|
|
154,406
|
|
|
|
4.18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
358,192
|
|
|
|
|
|
|
$
|
356,668
|
|
|
|
|
|
|
$
|
364,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities of time deposits of $100,000 or more outstanding at December 31, 2009 are
summarized as follows (dollars in thousands):
|
|
|
|
|
3 months or less
|
|
$
|
13,724
|
|
Over 3 through 6 months
|
|
|
7,793
|
|
Over 6 through 12 months
|
|
|
13,889
|
|
Over 12 months
|
|
|
14,689
|
|
|
|
|
|
Total
|
|
$
|
50,095
|
|
|
|
|
|
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 $35,500,000 in FHLB advances
outstanding at December 31, 2009, and had an additional borrowing capacity of $57,551,000.
The following table sets forth the maximum month-end balance for the Banks outstanding short-term
borrowings (i.e., federal funds purchased and repurchase agreements), along with the average
aggregate balances and weighted average interest rates, for 2009, 2008, and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at year-end
|
|
$
|
16,375
|
|
|
$
|
17,351
|
|
|
$
|
11,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum balance at any month-end during the period
|
|
|
23,404
|
|
|
|
17,351
|
|
|
|
20,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balance
|
|
|
13,482
|
|
|
|
11,294
|
|
|
|
11,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate
|
|
|
.39
|
%
|
|
|
1.75
|
%
|
|
|
3.46
|
%
|
13
The following sets forth the maximum month-end balance for the Banks outstanding long-term
borrowings (i.e., FHLB advances and note payable to a correspondent bank), along with the average
aggregate balances and weighted average interest rates, for 2009, 2008, and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at year-end
|
|
$
|
35,500
|
|
|
$
|
39,500
|
|
|
$
|
24,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum balance at any month-end during the period
|
|
|
39,500
|
|
|
|
39,500
|
|
|
|
24,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balance
|
|
|
37,089
|
|
|
|
29,992
|
|
|
|
17,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate
|
|
|
3.72
|
%
|
|
|
4.06
|
%
|
|
|
4.64
|
%
|
ASSET/LIABILITY MANAGEMENT
The Banks 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 Banks most significant financial exposures. This risk, which is
common to the financial institution sector, is an integral part of the Banks 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 Banks financial instruments using the interest rates in effect at
December 31, 2009. To arrive at fair value estimates, the cash flows from the Banks 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.
However, because interest rates were below 1.0% at December 31, 2009, the sensitivity analysis
could not be performed with respect to a negative 100 and 200 basis point change in market rates.
The following table presents the potential sensitivity in the Banks 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 Banks equity if a sudden and sustained 200 basis-point change in market
interest rates occurred (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
Change in Dollars ($)
|
|
Change in Percent (%)
|
|
|
|
|
|
|
|
|
|
Annual Net Interest Income Impact
|
|
|
|
|
|
|
|
|
For a Change of +100 Basis Points
|
|
|
548
|
|
|
|
3.1
|
|
For a Change of - 100 Basis Points
|
|
|
N/A
|
|
|
|
N/A
|
|
For a Change of +200 Basis Points
|
|
|
554
|
|
|
|
3.1
|
|
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
|
|
|
(10,218
|
)
|
|
|
(9.6
|
)
|
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.
14
The following table sets forth, for the years ended December 31, 2009, 2008, and 2007, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
|
(Dollars in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (1) (2)
|
|
|
334,648
|
|
|
|
20,305
|
|
|
|
6.07
|
%
|
|
|
344,638
|
|
|
|
22,677
|
|
|
|
6.58
|
%
|
|
|
347,445
|
|
|
|
25,168
|
|
|
|
7.24
|
%
|
Taxable securities
|
|
|
55,711
|
|
|
|
2,531
|
|
|
|
4.54
|
%
|
|
|
45,484
|
|
|
|
2,271
|
|
|
|
4.99
|
%
|
|
|
34,689
|
|
|
|
1,598
|
|
|
|
4.61
|
%
|
Non-taxable securities (3)
|
|
|
27,844
|
|
|
|
1,064
|
|
|
|
3.82
|
%
|
|
|
20,910
|
|
|
|
797
|
|
|
|
3.81
|
%
|
|
|
20,318
|
|
|
|
763
|
|
|
|
3.76
|
%
|
Federal funds sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,245
|
|
|
|
71
|
|
|
|
3.16
|
%
|
|
|
4,488
|
|
|
|
223
|
|
|
|
4.97
|
%
|
Interest-earning deposits
|
|
|
10,072
|
|
|
|
26
|
|
|
|
.26
|
%
|
|
|
3,116
|
|
|
|
76
|
|
|
|
2.44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
428,275
|
|
|
|
23,926
|
|
|
|
5.59
|
%
|
|
|
416,393
|
|
|
|
25,892
|
|
|
|
6.22
|
%
|
|
|
406,940
|
|
|
|
27,752
|
|
|
|
6.82
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
13,338
|
|
|
|
|
|
|
|
|
|
|
|
10,549
|
|
|
|
|
|
|
|
|
|
|
|
13,775
|
|
|
|
|
|
|
|
|
|
Bank premises and equipment, net
|
|
|
7,157
|
|
|
|
|
|
|
|
|
|
|
|
7,471
|
|
|
|
|
|
|
|
|
|
|
|
7,948
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
23,219
|
|
|
|
|
|
|
|
|
|
|
|
24,012
|
|
|
|
|
|
|
|
|
|
|
|
23,292
|
|
|
|
|
|
|
|
|
|
Less allowance for loan losses
|
|
|
(3,819
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,139
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,466
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
468,170
|
|
|
$
|
23,926
|
|
|
|
|
|
|
$
|
455,286
|
|
|
$
|
25,892
|
|
|
|
|
|
|
$
|
448,489
|
|
|
$
|
27,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW and Money Market deposits
|
|
|
150,822
|
|
|
|
529
|
|
|
|
.35
|
%
|
|
|
157,211
|
|
|
|
1,384
|
|
|
|
.88
|
%
|
|
|
162,010
|
|
|
|
2,877
|
|
|
|
1.78
|
%
|
Time Deposits
|
|
|
154,890
|
|
|
|
4,313
|
|
|
|
2.78
|
%
|
|
|
150,059
|
|
|
|
5,359
|
|
|
|
3.57
|
%
|
|
|
154,406
|
|
|
|
6,447
|
|
|
|
4.18
|
%
|
Federal funds purchased and securities
sold under repurchase agreements
|
|
|
13,482
|
|
|
|
53
|
|
|
|
.39
|
%
|
|
|
11,294
|
|
|
|
198
|
|
|
|
1.75
|
%
|
|
|
11,808
|
|
|
|
409
|
|
|
|
3.46
|
%
|
Borrowed funds
|
|
|
37,089
|
|
|
|
1,380
|
|
|
|
3.72
|
%
|
|
|
29,992
|
|
|
|
1,219
|
|
|
|
4.06
|
%
|
|
|
17,066
|
|
|
|
791
|
|
|
|
4.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
356,283
|
|
|
|
6,275
|
|
|
|
1.76
|
%
|
|
|
348,556
|
|
|
|
8,160
|
|
|
|
2.34
|
%
|
|
|
345,290
|
|
|
|
10,524
|
|
|
|
3.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
52,480
|
|
|
|
|
|
|
|
|
|
|
|
49,398
|
|
|
|
|
|
|
|
|
|
|
|
48,065
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
3,512
|
|
|
|
|
|
|
|
|
|
|
|
3,512
|
|
|
|
|
|
|
|
|
|
|
|
3,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,992
|
|
|
|
|
|
|
|
|
|
|
|
52,910
|
|
|
|
|
|
|
|
|
|
|
|
51,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
55,895
|
|
|
|
|
|
|
|
|
|
|
|
53,820
|
|
|
|
|
|
|
|
|
|
|
|
52,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
468,170
|
|
|
$
|
6,275
|
|
|
|
|
|
|
$
|
455,286
|
|
|
$
|
8,160
|
|
|
|
|
|
|
$
|
448,489
|
|
|
$
|
10,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
17,651
|
|
|
|
|
|
|
|
|
|
|
$
|
17,732
|
|
|
|
|
|
|
|
|
|
|
$
|
17,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
4.12
|
%
|
|
|
|
|
|
|
|
|
|
|
4.26
|
%
|
|
|
|
|
|
|
|
|
|
|
4.23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Included in loan interest income are loan fees of $498,000 in 2009, $445,000 in 2008, and
$506,000 in 2007.
|
|
(2)
|
|
Non-accrual loans are included in loan totals and do not have a material impact on the
analysis presented.
|
|
(3)
|
|
Interest and yield for non-taxable securities have not been tax-effected for the 34%
exception for federal income taxes.
|
15
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 compared to 2008
|
|
2008 compared to 2007
|
|
|
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
|
|
$
|
(643
|
)
|
|
|
(1,729
|
)
|
|
|
(2,372
|
)
|
|
$
|
(203
|
)
|
|
|
(2,288
|
)
|
|
|
(2,491
|
)
|
Taxable securities
|
|
|
478
|
|
|
|
(218
|
)
|
|
|
260
|
|
|
|
530
|
|
|
|
143
|
|
|
|
673
|
|
Non-taxable securities
|
|
|
265
|
|
|
|
2
|
|
|
|
267
|
|
|
|
22
|
|
|
|
12
|
|
|
|
34
|
|
Federal funds sold
|
|
|
(36
|
)
|
|
|
(35
|
)
|
|
|
(71
|
)
|
|
|
(88
|
)
|
|
|
(64
|
)
|
|
|
(152
|
)
|
Interest-earning deposits
|
|
|
61
|
|
|
|
(111
|
)
|
|
|
(50
|
)
|
|
|
76
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
125
|
|
|
|
(2,091
|
)
|
|
|
(1,966
|
)
|
|
|
337
|
|
|
|
(2,197
|
)
|
|
|
(1,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW, and Money Market deposits
|
|
|
(54
|
)
|
|
|
(801
|
)
|
|
|
(855
|
)
|
|
|
(83
|
)
|
|
|
(1,410
|
)
|
|
|
(1,493
|
)
|
Time deposits
|
|
|
168
|
|
|
|
(1,214
|
)
|
|
|
(1,046
|
)
|
|
|
(177
|
)
|
|
|
(911
|
)
|
|
|
(1,088
|
)
|
Federal funds purchased and securities sold
under repurchase agreements
|
|
|
32
|
|
|
|
(177
|
)
|
|
|
(145
|
)
|
|
|
(17
|
)
|
|
|
(194
|
)
|
|
|
(211
|
)
|
Borrowed funds
|
|
|
270
|
|
|
|
(109
|
)
|
|
|
161
|
|
|
|
536
|
|
|
|
(108
|
)
|
|
|
428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
416
|
|
|
|
(2,301
|
)
|
|
|
(1,885
|
)
|
|
|
259
|
|
|
|
(2,623
|
)
|
|
|
(2,364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
(291
|
)
|
|
|
210
|
|
|
|
(81
|
)
|
|
$
|
78
|
|
|
|
426
|
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of net income to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total assets
|
|
|
.66
|
%
|
|
|
.96
|
%
|
|
|
1.23
|
%
|
Average stockholders equity
|
|
|
5.56
|
%
|
|
|
8.09
|
%
|
|
|
10.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of cash dividends declared per common
share to net income per common share
|
|
|
70.83
|
%
|
|
|
50.87
|
%
|
|
|
39.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of average stockholders equity to average
total assets
|
|
|
11.64
|
%
|
|
|
11.90
|
%
|
|
|
11.71
|
%
|
16
COMPETITION
The Bank faces intense competition in its market areas. The Bank competes for commercial and
individual deposits and/or loans with other commercial banks in Huron, Ottawa, Sandusky, Seneca,
and Wood 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. Many competitors of the Bank have substantially greater
resources and lending limits and can offer services that the Bank does not or cannot provide. The
primary factors in competing for loans are interest rates charged and overall services provided to
borrowers, while the primary factors in competing for deposits are interest rates paid on deposits,
account liquidity, convenience, hours of facilities, and quality of service provided to depositors.
The Bank focuses on personalized service, convenience of facilities, pricing of products,
community stature, and its local ownership and control in meeting its competition.
SUBSIDIARY ACTIVITIES
The Corporations only subsidiary is the Bank. The Bank has no subsidiaries.
EMPLOYEES
As of December 31, 2009, the Bank employed 139 full-time employees and 21 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, bank holding companies and their subsidiaries are prohibited
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.
Subject to certain exceptions, 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
direct or indirect ownership or control of any voting shares of any other bank, if after such
acquisition, the bank holding company 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.
The BHCA also 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.
The Gramm-Leach-Bliley Act of 1999 (the GLB Act) permits qualifying 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.
The Corporation has not elected to become a financial holding company at this time, but intends to
periodically re-evaluate the advantages and disadvantages of becoming a financial holding company.
17
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 institutions unimpaired capital. An Ohio-chartered bank may lend to
one borrower an additional amount not to exceed 10% of the institutions 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.
Sections 23A and 23B of the Federal Reserve Act and the FRBs Regulation W restrict transactions by
banks and their subsidiaries with their affiliates. Generally, Sections 23A and 23B and Regulation
W: (a) limit the extent to which a bank or its subsidiaries may engage in covered transactions
with any one affiliate to an amount equal to 10% of the banks capital stock and surplus (i.e.,
tangible capital); (b) limit the extent to which a bank or its subsidiaries may engage in covered
transactions with all affiliates to 20% of the banks capital stock and surplus, and (c) require
that all such transactions be on terms substantially the same, or at least as favorable to the bank
or subsidiary, as those provided to a non-affiliate. The term covered transactions includes the
making of loans, the purchase of assets, the issuance of a guarantee and other similar types of
transactions.
A banks authority to extend credit to executive officers, directors and greater than 10%
shareholders, as well as entities controlled by such persons, is subject to Sections 22(g) and
22(h) of the Federal Reserve Act and Regulation O promulgated by the FRB. Among other
requirements, these loans must be made on terms substantially the same as those offered to
unaffiliated persons, or be made as part of a benefit or compensation program and on terms widely
available to employees, and must not involve a greater than normal risk of repayment. The amount
of loans a bank may make to these persons is based, in part, on the banks capital position, and
specified approval procedures must be followed in making loans which exceed specified amounts.
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 banks 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.
The Bank is a member of the FHLB of Cincinnati and, therefore, must maintain an investment in the
capital stock of the FHLB. Upon the origination or renewal of a loan or advance, each FHLB is
required by law to obtain and maintain a security interest in certain types of collateral. Each
FHLB is required to establish standards of community investment or service that its members must
maintain for continued access to long-term advances from the FHLB. The standards take into account
a members performance under the CRA and its record of lending to first-time home buyers.
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. Bank holding companies and state member
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 Total Risk-Based Ratio) of 8%. At least half of the minimum-required Total Risk-Based Ratio
(4%) must be composed of Tier 1 capital, which consists of common stockholders equity, minority
interests in certain equity accounts of consolidated subsidiaries, and a limited amount of
perpetual preferred stock and qualified trust preferred securities, less goodwill and certain other
intangibles (the Tier 1 Risk-Based Ratio). The remainder of total risk-based capital (commonly
referred to as Tier 2 risk-based capital) may consist of certain amounts of hybrid capital
instruments, mandatory convertible debt, subordinated
18
debt, preferred stock not qualifying as Tier 1 capital, loan and lease loss allowances, and net
unrealized gains on certain available-for-sale securities, all subject to limitations established
by the guidelines.
Under the guidelines, capital is compared to the relative risk of 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. The capital amounts and classification are also subject to qualitative
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 sets forth the Tier 1 Risk-Based Ratio, Total Risk-Based Ratio, and Leverage Ratio
for the Corporation and the Bank at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
|
Corporation
|
|
|
Bank
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk-based
|
|
$
|
44,470
|
|
|
|
13.3
|
%
|
|
$
|
39,108
|
|
|
|
11.7
|
%
|
Minimum capital requirement
|
|
|
13,350
|
|
|
|
4.0
|
|
|
|
13,336
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess
|
|
$
|
31,120
|
|
|
|
9.3
|
%
|
|
$
|
25,772
|
|
|
|
7.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based
|
|
$
|
48,693
|
|
|
|
14.6
|
%
|
|
$
|
46,331
|
|
|
|
13.9
|
%
|
Minimum capital requirement
|
|
|
26,700
|
|
|
|
8.0
|
|
|
|
26,672
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess
|
|
$
|
21,993
|
|
|
|
6.6
|
%
|
|
$
|
19,659
|
|
|
|
5.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage ratio
|
|
$
|
44,470
|
|
|
|
9.5
|
%
|
|
$
|
39,108
|
|
|
|
8.4
|
%
|
Minimum capital requirement
|
|
|
18,638
|
|
|
|
4.0
|
|
|
|
18,624
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess
|
|
$
|
25,832
|
|
|
|
5.5
|
%
|
|
$
|
20,484
|
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The FRB and other federal banking agencies have established a system of prompt corrective action to
resolve certain problems of capital deficient and otherwise troubled banks under its regulation.
This system is based on five capital level categories for insured depository institutions: well
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized. 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 federal banking agencies have less flexibility in determining how to resolve the
problems of the institution. 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 Banks capital levels at December 31, 2009 met the standards for the highest level, a well
capitalized institution.
19
DIVIDEND RESTRICTIONS
The ability of the Corporation to obtain funds for the payment of dividends on its common shares is
largely dependent on the amount of dividends which may be declared and paid by the Bank. However,
the FRB expects the Corporation to serve as a source of strength to the Bank, which may require the
Corporation to retain capital for further investment in the Bank, rather than pay dividends to the
Corporations shareholders. The ability of the Bank to pay dividends to the Corporation is subject
to various legal limitations and to prudent and sound banking principles. Generally, 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 plus its retained profits for the preceding
two years, less required transfers to surplus. However, the Bank is prohibited from paying
dividends out of its surplus if, after paying these dividends; it would fail to meet the required
minimum levels under the risk-based capital guidelines and minimum leverage ratio requirements.
FDIC DEPOSIT INSURANCE
Insurance premiums for each insured institution, including the Bank, are determined based upon the
institutions capital level and supervisory rating provided to the FDIC by the institutions
primary federal regulatory agency (the FRB in the case of the Bank) and other information the FDIC
deems relevant to the risk posed to the deposit insurance fund by the institution. The assessment
rate determined by considering such information is then applied to the amount of the institutions
deposits to determine the institutions insurance premium. An increase in the assessment rate
could have a material adverse effect on the earnings of the affected institutions, depending on the
amount of the increase.
Insurance of deposits may be terminated by the FDIC upon the finding that the insured institution
has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, rule, order or condition enacted or
imposed by the institutions regulatory agency.
FRB RESERVE REQUIREMENTS
For 2010, FRB regulations require depository institutions to maintain reserves of 3% of net
transaction accounts (primarily demand and NOW accounts) up to and including $55,200,000 (subject
to an exemption for the first $10,700,000 of net transaction accounts), and of 10% of net
transaction accounts in excess of $55,200,000.
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.
SEC REGULATION
The Corporation is subject to the jurisdiction of the SEC and certain state securities authorities
relating to the offering and sale of its securities. The Corporation is subject to the
registration, reporting, and other regulatory requirements of the Securities Act of 1933, as
amended, and the Exchange Act and the rules adopted by the SEC under those acts.
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 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
EFFECT OF ENVIRONMENTAL REGULATION
Compliance with federal, state, and local provisions regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment, has not had a material
effect upon the capital expenditures, earnings, or competitive position of the Corporation and the
Bank. The Corporation believes the nature of the operations of the Bank has little, if any,
environmental impact. The Corporation, therefore, does not anticipate any material capital
expenditures for environmental control facilities for the foreseeable future. The Corporation
believes that its primary exposure to environmental risk is through the lending activities of the
Bank. In the event management believes there exists a potential environmental risk, the Bank
attempts to mitigate the potential risk by requiring environmental site assessments at the time the
loan is originated. In addition, the Bank typically requires an environmental assessment prior to
any foreclosure of non-residential real estate collateral.
ITEM 1A. Risk Factors
Changes in interest rates could have a material adverse effect on our financial condition and
results of operations.
Our operating results are dependent to a significant degree on the difference between the interest
rates earned on interest-earning assets such as loans and investment securities, and the interest
rates paid on interest-bearing liabilities such as deposits and borrowings. These rates are highly
sensitive to many factors beyond our control, including general economic conditions, and the
policies of various governmental and regulatory authorities (in particular, the FRB). Changes in
interest rates will influence the demand for loans, the prepayment of loans, the purchase of
investments, the generation of deposits, and the rates received on loans and investment securities
and paid on deposits and borrowings, and these changes could have a material adverse effect on our
financial condition and results of operations. The impact of these changes may be magnified if we
do not effectively manage the relative sensitivity of our assets and liabilities to changes in
market interest rates. Additional information pertaining to the impact that changes in interest
rates could have on our net income is contained in the section entitled ASSET/LIABILITY
MANAGEMENT under Item 1 of this Annual Report on Form 10-K.
Our earnings are significantly affected by the fiscal and monetary policies of the federal
government and its agencies.
The policies of the FRB impact us significantly. The FRB regulates the supply of money and credit
in the United States. Its policies directly and indirectly influence the rate of interest earned
on loans and paid on borrowings and interest-bearing deposits, and can also affect the value of
financial instruments we hold. Those policies determine to a significant extent our cost of funds
for lending and investing. Changes in those policies are beyond our control and are difficult to
predict. FRB policies can also affect our borrowers, potentially increasing the risk that they may
fail to repay their loans. For example, a tightening of the money supply by the FRB could reduce
the demand for a borrowers products and services. This could adversely affect the borrowers
earnings and ability to repay its loan, which could have a material adverse effect on our financial
condition and results of operations.
Changes in economic and political conditions could adversely affect our financial condition and
results of operations.
Our success depends, to a significant extent, upon economic and political conditions, local and
national, as well as governmental monetary policies. Conditions such as inflation, recession,
unemployment, change in interest rates, money supply, and other factors beyond our control may
adversely affect our asset quality, deposit levels, and loan demand and, therefore, our earnings.
Because we have a significant amount of real estate loans, decreases in real estate values could
adversely affect the value of property used as collateral. Adverse changes in the economy may also
have a negative effect on the ability of our borrowers to make timely repayments of their loans,
which would have an adverse impact on our earnings. In addition, a substantial portion of our
loans are to individuals and businesses located in Northwest Ohio. Consequently, a significant
decline in the economy of this market area could have a materially adverse effect on our financial
condition and results of operations.
We may be adversely affected by current conditions in the capital and credit markets, and economic
conditions in general.
As a consequence of the current U.S. recession, businesses across a wide range of industries face
serious difficulties due to the lack of consumer spending and the lack of liquidity in the global
credit markets. Unemployment has also increased significantly. A sustained weakness or weakening
in business and economic conditions generally or specifically in the markets in which we do
business could adversely affect us, by, among other things, decreasing the demand for loans and
other products and services that we offer, causing impairment of certain intangible assets, such as
goodwill, and increasing the number of borrowers who become delinquent, file for protection under
bankruptcy laws, or default on their loans or other obligations to us.
21
Current levels of market volatility are unprecedented and may adversely affect our financial
condition and results of operations.
The capital and credit markets have been experiencing volatility and disruption for more than a
year and have reached unprecedented levels in recent months. In some cases, the markets have
produced downward pressure on stock prices and credit availability for certain issuers without
regard to those issuers underlying financial strength. If current levels of market disruption and
volatility continue or worsen, there can be no assurance that we will not experience an adverse
effect, which may be material, on our financial condition and results of operations.
Recent developments in the residential mortgage and related markets and the economy may adversely
affect our business.
The residential mortgage market in the United States, including Ohio, has been negatively impacted
recently by decreasing housing values, increased credit standards for borrowers, and other economic
factors. As a result, delinquencies, foreclosures, and losses with respect to residential
construction and mortgage loans have increased and may continue to increase. Additionally, the
lower housing prices and appraisal values may result in additional delinquencies and loan losses.
While the residential real estate loans held in our portfolio are typically originated using
conservative underwriting standards and do not include sub-prime loans, we do originate and hold
fixed and adjustable rate loans and residential construction loans. If the residential loan market
continues to deteriorate, especially in our local markets, our financial condition and results of
operations could be adversely affected.
If our actual loan losses exceed our allowance for loan losses, our net income will decrease.
We maintain an allowance for loan losses based upon a number of relevant factors, including, but
not limited to, trends in the level of nonperforming assets and classified loans, current economic
conditions in the primary lending area, past loss experience, possible losses arising from specific
problem loans, and changes in the composition of the loan portfolio. Regular 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 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 material adjustments, and net earnings could be significantly
adversely affected, if circumstances differ substantially from the assumptions and estimates used
by management to determine the allowance for loan losses.
FDIC insurance premiums may increase materially, which would negatively affect our net income.
The FDIC insures deposits at FDIC-insured financial institutions, including the Bank. The FDIC
charges insured financial institutions premiums to maintain the Deposit Insurance Fund at a certain
level. Current economic conditions have increased bank failures and expectations for further
failures, in which case the FDIC insures payment of deposits up to insured limits from the Deposit
Insurance Fund. In late 2008, the FDIC announced an increase in insurance premium rates by seven
basis points for the first quarter of 2009. On May 22, 2009, the FDIC adopted a final rule that
imposed a special assessment for the second quarter of 2009 of five basis points on each insured
depository institutions assets minus its Tier 1 capital as of June 30, 2009, which was collected
on September 30, 2009. The Corporation expensed $214,000 during the second quarter for this
special assessment.
On November 12, 2009, the FDIC adopted a final rule requiring that insured depository institutions
prepay their estimated quarterly risk-based assessments to the FDIC for the fourth quarter of 2009
and for all of 2010, 2011, and 2012. The prepaid assessments were collected on December 30, 2009,
along with the regular risk-based assessment for the third quarter of 2009. For the fourth quarter
of 2009 and for all of 2010, the prepaid assessment rate was based on each institutions total base
assessment rate in effect on September 30, 2009, modified to assume that the assessment rate in
effect for the institution on September 30, 2009, was in effect for the entire third quarter of
2009. On September 29, 2009, the FDIC increased annual assessment rates uniformly by three basis
points beginning in 2011. As a result, an institutions total base assessment rate for purposes of
estimating an institutions assessment for 2011 and 2012 was increased by three basis points. Each
institutions prepaid assessment base was calculated using its third quarter 2009 assessment base,
adjusted quarterly for an estimated five percent annual growth rate in the assessment base through
the end of 2012. The amount of the Corporations prepaid assessment in December 2009 was
$1,797,000. The Bank will be assessed quarterly premiums by the FDIC commencing with the March 31,
2010 quarter and such assessments will be charged to the prepaid assessment until such time as the
prepaid asset has been fully expensed, at which point the Bank will resume paying premiums to the
FDIC.
In general, we are unable to control the amount of premiums that we are required to pay for FDIC
insurance. If there are additional failures of FDIC-insured institutions, we may be required to
pay even higher FDIC premiums. The announced increases and any future increases in FDIC insurance
premiums may materially adversely affect our results of operations and our ability to continue to
pay dividends on our common shares.
22
We may not be able to pay dividends in the future in accordance with past practice.
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. In the event that the Bank was unable to pay dividends to us, we in turn would
likely have to reduce or stop paying dividends on our common shares. Our failure to pay dividends
on our common shares could, in turn, have a material adverse effect on the market price of our
common shares.
Our credit standards and on-going process of credit assessment might not protect us from
significant credit losses.
We take credit risk by virtue of making loans. Our exposure to credit risk is managed through the
use of consistent and conservative underwriting standards. Our credit administration function
employs risk management techniques to ensure that loans adhere to corporate policy and problem
loans are promptly identified. While these procedures are designed to provide us with the
information needed to implement policy adjustments where necessary, and to take proactive
corrective actions, there can be no assurance that such measures will be effective in avoiding
undue credit risk.
We depend upon the accuracy and completeness of information about customers.
In deciding whether to extend credit or enter into other transactions with customers, we may rely
on information provided to us by customers, including financial statements and other financial
information. We may also rely on representations of customers as to the accuracy and completeness
of that information and, with respect to financial statements, on reports of independent
accountants. For example, in deciding whether to extend credit to a business, we may assume that
the customers financial statements conform with generally accepted accounting principles and
present fairly, in all material respects, the financial condition, results of operations, and cash
flows of the customer. We may also rely on the reports of accounting firms issuing an opinion or
other assurances on those financial statements. Our financial condition and results of operation
could be negatively impacted to the extent we rely on financial statements that do not comply with
generally accepted accounting principles or that are materially misleading.
Government regulation can result in limitations on our operations.
The financial services industry is extensively regulated. We are subject to extensive state and
federal regulation, supervision and legislation that govern almost
all aspects of our business. The
Bank is subject to extensive regulation, supervision, and examination by the Division and the FRB.
As a holding company, the Corporation is also subject to regulation and oversight by the FRB.
Federal and state laws and regulations are designed primarily to protect the deposit insurance
funds and consumers, and not to benefit our shareholders. Such laws and regulations can at times
impose significant limitations on our operations. Regulatory authorities have extensive discretion
in connection with their supervisory and enforcement activities, including the imposition of
restrictions on the operation of an institution, the classification of assets by the institution,
and the adequacy of an institutions allowance for loan losses. In light of current conditions in
the global financial markets and the global economy, regulators have increased their focus on the
regulation of the financial services industry. Most recently, the government has intervened on an
unprecedented scale in responding to the stresses experienced in the global financial markets. Some
of the measures subject us and other institutions to additional restrictions, oversight or costs
that may have an impact on our business, results of operations, or the trading price of our common
shares.
Proposals for legislation that could substantially intensify the regulation of the financial
services industry have been introduced in the United States Congress and in state legislatures.
The agencies regulating the financial services industry also frequently adopt changes to their
regulations. Substantial regulatory and legislative initiatives, including a comprehensive
overhaul of the regulatory system in the United States, are possible in the years ahead. We are
unable to predict whether any of these initiatives will succeed, which form they will take, or
whether any additional changes to statutes or regulations will occur in the future. Any such action
could significantly affect us and could have a material adverse effect on our business, financial
condition, and results of operations. Additional information regarding the regulatory environment
in which we operate is contained in the section entitled REGULATION AND SUPERVISION under Item 1
Business of Part I of this Annual Report on Form 10-K.
We operate in an extremely competitive market, and we will suffer if we are unable to compete
effectively.
In our market area, we encounter significant competition from other commercial banks, as well as
from savings and loan associations, credit unions, brokerage firms, mutual funds, and loan
production offices and other financial units of non-local bank holding companies. The increasingly
competitive environment is a result primarily of changes in regulation, changes in technology,
product delivery systems, and the accelerating pace of consolidation among financial service
providers. Many of our competitors have substantially greater resources and lending limits than we
do and may offer services that we do not or cannot provide. Our ability to maintain our history of
strong financial performance will depend in part on our continued ability to compete
23
successfully in our market area and on our ability to expand our scope of available financial
services as needed to meet the needs and demands of our customers.
There is a limited trading market for our common shares, and thus the ability to sell or purchase
our common shares may be limited.
The ability to sell our common shares or purchase additional common shares largely depends upon the
existence of an active market for our common shares. Although our common shares are quoted on the
OTC Bulletin Board, they are not listed on any securities exchange and the volume of trading has
been limited historically. As a result, it may be difficult to sell or purchase our common shares
at the volume, time, and price that is desired. In addition, a fair valuation of the purchase or
sales price of our common shares also depends upon an active trading market, and thus the price
received for a thinly traded stock, such as our common shares, may not reflect its true value.
The preparation of our financial statements requires the use of estimates that may vary from actual
results.
The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires management to make significant estimates that
affect the financial statements. Our most critical estimate is the level of the allowance for loan
losses. Because of the inherent nature of this estimate, we cannot provide complete assurance that
we will not be required to charge earnings for significant unexpected loan losses. For additional
information on this estimate, refer to the Notes to Consolidated Financial Statements included in
our 2009 Annual Report.
Changes in accounting standards could impact our results of operations.
The accounting standard setters, including the Financial Accounting Standards Board, the SEC, and
other regulatory bodies, periodically change the financial accounting and reporting standards that
govern the preparation of our consolidated financial statements. These changes can be difficult to
predict and can materially affect how we record and report our financial condition and results of
operations. In some cases, we could be required to apply a new or revised standard retroactively,
which would result in the restatement of our financial statements for prior periods.
Our continued success depends upon our ability to attract and retain key personnel.
Our success depends, in large part, upon the continued service of our senior management team and
our ability to attract and retain qualified personnel. There is significant competition for
qualified personnel in the financial services industry. We cannot assure you that we will be able
to retain our existing key personnel or attract new or additional qualified personnel if and when
needed. If we lose the services of our key personnel, or are unable to attract new or additional
qualified personnel, our financial condition and results of operations could be adversely affected.
We may be a defendant from time to time in a variety of litigation and other actions, which could
have a material adverse effect on our financial condition and results of operations.
The Corporation and the Bank may be involved from time to time in a variety of litigation arising
out of our business. Our insurance may not cover all claims that may be asserted against us, and
any claims asserted against us may harm our reputation regardless of the merit or eventual outcome
of such claims. If the ultimate judgments or settlements in any litigation exceed our insurance
coverage, they could have a material adverse effect on our financial condition and results of
operation.
Unauthorized disclosure of sensitive or confidential client or customer information, whether
through a breach of our computer systems or otherwise, could severely harm our business.
As part of our financial institution business, we collect, process, and retain sensitive and
confidential client and customer information on behalf of our subsidiaries and other third parties.
Despite the security measures we have in place, our facilities and systems, and those of our
third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer
viruses, misplaced or lost data, programming and/or human errors, or other similar events. If
information security is breached, information can be lost or misappropriated, resulting in
financial loss or costs to us. Any security breach involving confidential client or customer
information, whether by us or by our vendors, could severely damage our reputation, expose us to
the risks of litigation and liability, or disrupt operations, and have a material adverse effect on
our business.
24
ITEM 1B. Unresolved Staff Comments
Not applicable.
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 banking center in Bellevue,
one in Clyde, one in Custar, three in Fremont, one in Green Springs, one in Monroeville, one in
Norwalk, and one in Port Clinton, Ohio. The Banks operations center is also located in Fremont,
Ohio. With the exception of the Port Clinton banking center and an ATM site north of Fremont,
which are leased, all premises are owned by the Bank.
ITEM 3. Legal Proceedings
Management is aware of no pending legal proceedings to which the Corporation or the Bank is a
party or of which any of their property is subject, other than ordinary routine litigation to which
the Bank is a party incidental to its banking business. The Corporation considers none of those
proceedings to be material. Similarly, management is aware of no material proceedings involving
the Corporation or the Bank that are contemplated by any governmental authority.
ITEM 4. Reserved
25
PART II
ITEM 5. Market for Registrants Common Equity, Related Stockholder Matters, and
Issuer Purchases of Equity Securities
The Corporations common shares are quoted on the OTC Bulletin Board under the symbol CHBH.
The other information required by Items 201(a), 201(b) and 201(c) of SEC Regulation S-K is
contained in Financial Statement Note 17, captioned REGULATORY MATTERS, on pages 42 through 44 of
the Corporations 2009 Annual Report to Shareholders, in the section captioned DIVIDEND
RESTRICTIONS in Part 1 of this Annual Report on Form 10-K, and in the section captioned MARKET
PRICE AND DIVIDENDS ON COMMON SHARES on page 4 of the Corporations 2009 Annual Report to
Shareholders, and is incorporated herein by reference.
The table below includes certain information regarding the Corporations purchase of its common
shares during the quarterly period ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
Maximum Number
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
of Shares that May
|
|
|
Total Number
|
|
Average
|
|
as Part of Publicly
|
|
Yet Be Purchased
|
|
|
of Shares
|
|
Price Paid
|
|
Announced Plans
|
|
Under the Plans
|
Period
|
|
Purchased
|
|
per Share
|
|
or Programs
|
|
or Programs (1)
|
10/01/09
through
10/31/09
|
|
None
|
|
None
|
|
None
|
|
|
86,016
|
|
11/01/09
through
11/30/09
|
|
|
6,453
|
|
|
$
|
24.50
|
|
|
|
6,453
|
|
|
|
79,563
|
|
12/01/09
through
12/31/09
|
|
None
|
|
None
|
|
None
|
|
|
79,563
|
|
Total
|
|
|
6,453
|
|
|
$
|
24.50
|
|
|
|
6,453
|
|
|
|
79,563
|
|
|
|
|
(1)
|
|
A stock buy-back program commencing August 1, 2009 and ending on February 1,
2010 was announced on July 14, 2009 in which up to 86,016 shares may be repurchased (with
6,453 shares purchased on November 11, 2009).
|
ITEM 6. Selected Financial Data
The information required by this Item 6 is contained under the caption FIVE YEAR SUMMARY OF
SELECTED FINANCIAL DATA on page 5 of the Corporations 2009 Annual Report to Shareholders and is
incorporated herein by reference.
ITEM 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this Item 7 is contained under the caption MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS on pages 6 through 19 of
the Corporations 2009 Annual Report to Shareholders and is incorporated herein by reference.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
The discussion of interest rate sensitivity included in the section captioned MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTEREST RATE RISK on
page 17 of the Corporations 2009 Annual Report to Shareholders is incorporated herein by
reference. In addition, discussions of the Corporations contractual obligations, contingent
liabilities and commitments, and off-balance sheet arrangements included in the section captioned
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, AND CONTINGENT LIABILITIES AND
COMMITMENTS on page 18 of the Corporations 2009 Annual Report to Shareholders, and in Financial
Statement Note 16, captioned FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK, on page 42 of the
Corporations 2009 Annual Report to Shareholders, are incorporated herein by reference.
26
ITEM 8. Financial Statements and Supplementary Data
The following consolidated financial statements (and reports thereon) are set forth on pages
21 through 50 of the Corporations 2009 Annual Report to Shareholders and are incorporated herein
by reference:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets December 31, 2009 and 2008
Consolidated Statements of Operations Years ended December 31, 2009, 2008, and 2007
Consolidated Statements of Stockholders Equity Years ended December 31, 2009, 2008, and 2007
Consolidated Statements of Cash Flows Years ended December 31, 2009, 2008, and 2007
Notes to Consolidated Financial Statements
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable
ITEM 9A(T). Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
With the participation of the Corporations
principal executive officer and principal financial officer, the Corporations management has
evaluated the effectiveness of the Corporations disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on
Form 10-K. Based upon that evaluation, the Corporations principal executive officer and principal
financial officer have concluded that:
(a)
|
|
information required to be disclosed by the Corporation in this Annual Report on Form 10-K
and the other reports which the Corporation files or submits under the Exchange Act would be
accumulated and communicated to the Corporations management, including its principal
executive officer and principal financial officer, as appropriate, to allow timely decisions
regarding required disclosure;
|
|
(b)
|
|
information required to be disclosed by the Corporation in this Annual Report on Form 10-K
and the other reports which the Corporation files or submits under the Exchange Act would be
recorded, processed, summarized, and reported within the time periods specified in the SECs
rules and forms; and
|
|
(c)
|
|
the Corporations disclosure controls and procedures were effective as of the end of the
period covered by this Annual Report on Form 10-K.
|
Managements Annual Report on Internal Control Over Financial Reporting.
The MANAGEMENTS REPORT
ON INTERNAL CONTROL OVER FINANCIAL REPORTING on page 20 of the Corporations 2009 Annual Report to
Shareholders is incorporated herein by reference.
Changes in Internal Control Over Financial Reporting.
There were no changes in the Corporations
internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act)
that occurred during the Corporations fiscal quarter ended December 31, 2009, that have materially
affected, or are reasonably likely to materially affect, the Corporations internal control over
financial reporting.
ITEM 9B. Other Information
None
27
PART III
ITEM 10. Directors, Executive Officers, and Corporate Governance
Directors and Executive Officers
The information required by Item 401 of SEC Regulation S-K concerning the directors of the
Corporation and the nominees for election as directors of the Corporation at the Annual Meeting of
Shareholders to be held on May 11, 2010 (the 2010 Annual Meeting) is incorporated herein by
reference from the disclosure included under the caption PROPOSAL 1 ELECTION OF DIRECTORS in
the Corporations definitive Proxy Statement relating to the 2010 Annual Meeting filed pursuant to
SEC Regulation 14A (the Corporations 2010 Proxy Statement). The information required by Item
401 of SEC Regulation S-K concerning the executive officers of the Corporation is incorporated
herein by reference from the disclosure included under the caption EXECUTIVE OFFICERS in the
Corporations 2010 Proxy Statement.
Compliance With Section 16(a) of the Exchange Act
The information required by Item 405 of SEC Regulation S-K is incorporated herein by reference from
the disclosure included under the caption SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
in the Corporations 2010 Proxy Statement.
Nominating Procedures for Directors
The information required by Item 407(c)(3) of SEC Regulation S-K is incorporated herein by
reference from the disclosure included under the caption CORPORATE GOVERNANCE Director
Nominations in the Corporations 2010 Proxy Statement.
Audit Committee
The information required by Items 407(d)(4) and 407(d)(5) of SEC Regulation S-K is incorporated
herein by reference from the disclosure included under the caption MEETINGS AND COMMITTEES OF THE
BOARD Audit Committee in the Corporations 2010 Proxy Statement.
Code of Ethics
The Corporation has 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 Corporations principal
executive officer and principal financial officer. The Code of Ethics is included in Exhibit 14 to
this Annual Report on Form 10-K.
ITEM 11. Executive Compensation
The information required by this Item 11 is incorporated herein by reference from the
disclosure included under the captions PROPOSAL 1 ELECTION OF DIRECTORS Compensation of
Directors and COMPENSATION OF EXECUTIVE OFFICERS in the Corporations 2010 Proxy Statement.
28
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
Beneficial Ownership Information
The information required by Item 403 of SEC Regulation S-K is incorporated herein by reference from
the disclosure included under the caption SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT in the Corporations 2010 Proxy Statement.
Equity Plan Information
The Croghan Bancshares, Inc. 2002 Stock Option and Incentive Plan was approved by the Corporations
shareholders at the 2002 Annual Meeting. As of the date of this Annual Report on Form 10-K, no
awards had been granted under the 2002 Stock Option and Incentive Plan.
The following table provides certain information regarding the Corporations equity compensation
plans as of December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
(a)
|
|
|
|
|
|
Number of securities remaining
|
|
|
Number of securities to be
|
|
(b)
|
|
available for future issuance under
|
|
|
issued upon exercise of
|
|
Weighted-average exercise
|
|
equity compensation plans
|
|
|
outstanding options, warrants
|
|
price of outstanding options,
|
|
(excluding securities reflected
|
Plan Category
|
|
and rights
|
|
warrants and rights
|
|
in column (a))
|
Equity compensation plans
approved by security
holders
|
|
|
0
|
|
|
|
0
|
|
|
|
190,951
|
|
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
Corporations shareholders.
|
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
Related Party Transactions
The information required by Item 404 of SEC Regulation S-K is incorporated herein by reference from
the disclosure included under the caption CORPORATE GOVERNANCE Related Party Transactions in
the Corporations 2010 Proxy Statement.
Director Independence
The information required by Item 407(a) of SEC Regulation S-K is incorporated herein by reference
from the disclosure included under the caption CORPORATE GOVERNANCE Director Independence in
the Corporations 2010 Proxy Statement.
ITEM 14. Principal Accountant Fees and Services
The information required by this Item 14 is incorporated herein by reference from the
disclosure included under the caption AUDIT COMMITTEE DISCLOSURE in the Corporations 2010 Proxy
Statement.
29
PART IV
ITEM 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements
The following consolidated financial statements (and reports thereon) are set forth on pages
18 through 44 of the Corporations 2009 Annual Report to Shareholders (Exhibit 13 to this Annual
Report on Form 10-K) and are incorporated herein by reference:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets December 31, 2009 and 2008
Consolidated Statements of Operations Years ended December 31, 2009, 2008, and 2007
Consolidated Statements of Stockholders Equity Years ended December 31, 2009, 2008, and 2007
Consolidated Statements of Cash Flows Years ended December 31, 2009, 2008, and 2007
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 SEC Regulation S-K) in this filing:
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Location
|
|
|
|
|
|
3.1(a)
|
|
Amended Articles of
Incorporation of Croghan
Bancshares, Inc.
|
|
Incorporated herein by
reference to Exhibit 3(i)
to the Registrants
Quarterly Report on Form
10-Q for the quarterly
period ended June 30, 1997
(File No. 0-20159)
|
|
|
|
|
|
3.1(b)
|
|
Certificate of Amendment to
Articles of Incorporation
of Croghan Bancshares, Inc.
as filed with the Ohio
Secretary of State on May
12, 2006
|
|
Incorporated herein by
reference to Exhibit 3.1(b)
to the Registrants Annual
Report on Form 10-K for the
fiscal year ended December
31, 2007 (File No. 0-20159)
|
|
|
|
|
|
3.2
|
|
Amended Code of Regulations
of Croghan Bancshares, Inc.
|
|
Incorporated herein by
reference to Exhibit 3(ii)
to the Registrants
Quarterly Report on Form
10-Q for the quarterly
period ended June 30, 2000
(File No. 0-20159)
|
30
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Location
|
|
|
|
|
|
4.1
|
|
Agreement to furnish instruments and
agreements defining rights of holders of
long-term debt
|
|
Included in this filing
|
|
|
|
|
|
*10.1(a)
|
|
Executive Supplemental Retirement Plan
Agreement
|
|
Incorporated herein by
reference to Exhibit
10(ii) to the
Registrants Annual
Report on Form 10-K for
the fiscal year ended
December 31, 1999 (File
No. 0-20159)
|
|
|
|
|
|
*10.1(b)
|
|
First Amendment to Supplemental Retirement
Plan Agreement, dated as of November 21,
2008, between The Croghan Colonial Bank and
Barry F. Luse
|
|
Incorporated herein by
reference to Exhibit
10.1(b) to the
Registrants Annual
Report on Form 10-K for
the fiscal year ended
December 31, 2008 (File
No. 0-20159)
|
|
|
|
|
|
*10.2(a)
|
|
Employment Agreement, dated as of August 29,
2007, between The Croghan Colonial Bank and
Steven C. Futrell
|
|
Incorporated herein by
reference to Exhibit
10.1 to the Registrants
Current Report on Form
8-K filed September 5,
2007 (File No. 0-20159)
|
|
|
|
|
|
*10.2(b)
|
|
First Amendment to The Croghan Colonial Bank
Employment Agreement with Steven C. Futrell,
dated as of December 8, 2008
|
|
Incorporated herein by
reference to Exhibit
10.2(b) to the
Registrants Annual
Report on Form 10-K for
the fiscal year ended
December 31, 2008 (File
No. 0-20159)
|
|
|
|
|
|
*10.3
|
|
Croghan Bancshares, Inc. Amended and Restated
2002 Stock Option and Incentive Plan
|
|
Incorporated herein by
reference to Exhibit
10.3 to the Registrants
Annual Report on Form
10-K for the fiscal year
ended December 31, 2008
(File No. 0-20159)
|
|
|
|
|
|
*10.4
|
|
Executive Supplemental Death Benefit Agreement
|
|
Incorporated herein by
reference to Exhibit
10(v) to the
Registrants Quarterly
Report on Form 10-Q for
the quarterly period
ended September 30, 2003
(File No. 0-20159)
|
31
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Location
|
|
|
|
|
|
*10.5
|
|
Retirement Agreement and General Release,
dated as of December 14, 2009, between
Croghan Bancshares, Inc. and Steven C.
Futrell
|
|
Included in this filing
|
|
|
|
|
|
13
|
|
2009 Annual Report to Shareholders
|
|
Included with this
filing (not deemed filed
except for portions
thereof which are
specifically
incorporated by
reference into this
Annual Report on Form
10-K)
|
|
|
|
|
|
14
|
|
Croghan Bancshares, Inc. Code of Business
Conduct and Ethics
|
|
Included 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) Certification
Principal Executive Officer
|
|
Included with this filing
|
|
|
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification
Principal Financial Officer
|
|
Included with this filing
|
|
|
|
|
|
32
|
|
Section 1350 Certification Principal
Executive Officer and Principal Financial
Officer
|
|
Included with this filing
|
|
|
|
*
|
|
Denotes management contract or compensatory plan or arrangement.
|
32
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, 2010
|
/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/ Stephen A. Kemper
|
|
|
|
Michael D. Allen Sr., Director
|
|
Stephen A. Kemper, Director
|
|
|
|
/s/ James E. Bowlus
|
|
/s/ Daniel W. Lease, Director
|
|
|
|
James E. Bowlus, Director
|
|
Daniel W. Lease, Director
|
|
|
|
/s/ James R. Faist
|
|
/s/ Thomas W. McLaughlin
|
|
|
|
James R. Faist, Director
|
|
Thomas W. McLaughlin, Director
|
|
|
|
/s/ Steven C. Futrell
|
|
/s/ Allan E. Mehlow
|
|
|
|
Steven C. Futrell,
Director & President/CEO
|
|
Allan E. Mehlow, Director
|
[Principal Executive Officer]
|
|
|
|
|
|
/s/ Claire F. Johansen
|
|
/s/ Kendall W. Rieman
|
|
|
|
Claire F. Johansen, Director
|
|
Kendall W. Rieman, Treasurer
[Principal Financial and Accounting Officer]
|
|
|
|
|
|
/s/ Gary L. Zimmerman
|
|
|
|
|
|
Gary L. Zimmerman, Director
|
Date: March 9, 2010
33
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Location
|
|
|
|
|
|
3.1(a)
|
|
Amended Articles of
Incorporation of Croghan
Bancshares, Inc.
|
|
Incorporated herein by
reference to Exhibit 3(i) to
the Registrants Quarterly
Report on Form 10-Q for the
quarterly period ended June 30,
1997 (File No. 0-20159)
|
|
|
|
|
|
3.1(b)
|
|
Certificate of Amendment
to Articles of
Incorporation of Croghan
Bancshares, Inc. as filed
with the Ohio Secretary of
State on May 12, 2006
|
|
Incorporated herein by
reference to Exhibit 3.1(b) to
the Registrants Annual Report
on Form 10-K for the fiscal
year ended December 31, 2007
(File No. 0-20159)
|
|
|
|
|
|
3.2
|
|
Amended Code of
Regulations of Croghan
Bancshares, Inc.
|
|
Incorporated herein by
reference to Exhibit 3(ii) to
the Registrants Quarterly
Report on Form 10-Q for the
quarterly period ended June 30,
2000 (File No. 0-20159)
|
|
|
|
|
|
4.1
|
|
Agreement to furnish
instruments and agreements
defining rights of holders
of long-term debt
|
|
Included with this filing
|
|
|
|
|
|
*10.1(a)
|
|
Executive Supplemental Retirement Plan Agreement
|
|
Incorporated herein by
reference to Exhibit 10(ii) to
the Registrants Annual Report
on Form 10-K for the fiscal
year ended December 31, 1999
(File No. 0-20159)
|
|
|
|
|
|
*10.1(b)
|
|
First Amendment to
Supplemental Retirement
Plan Agreement, dated as
of November 21, 2008,
between The Croghan
Colonial Bank and Barry F.
Luse
|
|
Incorporated herein by
reference to Exhibit 10.1(b) to
the Registrants Annual Report
on Form 10-K for the fiscal
year ended December 31, 2008
(File No. 0-20159)
|
|
|
|
|
|
*10.2(a)
|
|
Employment Agreement,
dated as of August 29,
2007, between The Croghan
Colonial Bank and Steven
C. Futrell
|
|
Incorporated herein by
reference to Exhibit 10.1 to
the Registrants Current Report
on Form 8-K filed September 5,
2007 (File No. 0-20159)
|
34
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Location
|
|
|
|
|
|
*10.2(b)
|
|
First Amendment to The Croghan Colonial Bank
Employment Agreement with Steven C. Futrell,
dated as of December 8, 2008
|
|
Incorporated herein by
reference to Exhibit
10.2 to the Registrants
Annual Report on Form
10-K for the fiscal year
ended December 31, 2008
(File No. 0-20159)
|
|
|
|
|
|
*10.3
|
|
Croghan Bancshares, Inc. Amended and Restated
2002 Stock Option and Incentive Plan
|
|
Incorporated herein by
reference to Exhibit
10.3 to the Registrants
Annual Report on Form
10-K for the fiscal year
ended December 31, 2008
(File No. 0-20159)
|
|
|
|
|
|
*10.4
|
|
Executive Supplemental Death Benefit Agreement
|
|
Incorporated herein by
reference to Exhibit
10(v) to the
Registrants Quarterly
Report on Form 10-Q for
the quarterly period
ended September 30, 2003
(File No. 0-20159)
|
|
|
|
|
|
*10.5
|
|
Retirement Agreement and General Release,
dated as of December 14, 2009, between
Croghan Bancshares, Inc. and Steven C.
Futrell
|
|
Included with this filing
|
|
|
|
|
|
13
|
|
2009 Annual Report to Shareholders
|
|
Included with this
filing (not deemed filed
except for portions
thereof which are
specifically
incorporated by
reference into this
Annual Report on Form
10-K)
|
|
|
|
|
|
14
|
|
Croghan Bancshares, Inc. Code of Business
Conduct and Ethics
|
|
Included 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) Certification
Principal Executive Officer
|
|
Included with this filing
|
|
|
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification
Principal Financial Officer
|
|
Included with this filing
|
35
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Location
|
|
|
|
|
|
32
|
|
Section 1350 Certification Principal
Executive Officer and Principal Financial
Officer
|
|
Included with this filing
|
|
|
|
*
|
|
Denotes management contract or compensatory plan or arrangement.
|
36
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