<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 2000
0-20159
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(Commission File Number)
CROGHAN BANCSHARES, INC.
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(Exact name of registrant as specified in its charter)
Ohio 31-1073048
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
323 Croghan Street, Fremont, Ohio 43420
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(Address of principal executive offices) (Zip Code)
(419)-332-7301
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
1,910,776 Common shares were outstanding as of June 30, 2000.
This document contains 29 pages.
<PAGE> 2
CROGHAN BANCSHARES, INC.
Index
PART I. Page(s)
Item 1. Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis 9 - 11
Item 3. Quantitative and Qualitative Disclosures About Market
Risk - There have been no material changes from the
information provided in the December 31, 1999 Form 10-K.
PART II.
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders:
(a) The annual meeting of shareholders of Croghan
Bancshares, Inc. was held on May 9, 2000.
(b) Proxies were solicited pursuant to Regulation 14A
of the Securities Exchange Act of 1934. There was
no solicitation in opposition to management's
nominees for Directors and all nominees were elected.
(c) Other matters voted upon - the results are presented as follows:
1. Proposal to adopt an amendment to the Amended Articles of
Incorporation to require a supermajority vote of two-thirds of the
outstanding shares for certain shareholder actions if the Board of
Directors recommends against the approval of such actions.
For Against Abstain
--- ------- -------
1,197,282 273,325 30,070
2. (i) Classification of the Board of Directors into three classes
of four directors each, with terms expiring in successive
years.
For Against Abstain
--- ------- -------
1,228,139 255,640 16,898
(ii) Establishment of advance notice requirements for shareholder
nominations for the Board of Directors.
For Against Abstain
--- ------- -------
1,240,941 243,188 16,548
(iii) The requirement of cause and a vote of the holders of two-
thirds of the outstanding shares of the Corporation to remove
directors and the ability of directors to fill vacancies.
For Against Abstain
--- ------- -------
1,280,209 204,920 15,548
(iv) The increase of the required vote for shareholders to call
meetings of shareholders to 50% of the outstanding shares of
the Corporation.
For Against Abstain
--- ------- -------
1,229,136 252,432 19,109
<PAGE> 3
(v) The expansion of the indemnification available to directors
and officers.
For Against Abstain
--- ------- -------
1,234,089 250,588 16,000
(vi) Certain technical changes and the removal of obsolete
provisions in the Code of Regulations.
For Against Abstain
--- ------- -------
1,418,784 204,457 16,281
(vii) Adoption of the Amended and Restated Code of Regulations in
its entirety.
For Against Abstain
--- ------- -------
1,388,272 229,945 21,305
3. Election of directors.
Directors Term For Withheld Abstain
--------- ---- --- -------- -------
Janet E. Burkett 1 yr. 1,535,619 103,903 0
Daniel W. Lease 1 yr. 1,548,727 90,795 0
John P. Keller 1 yr. 1,527,895 111,627 0
Allan E. Mehlow 1 yr. 1,536,985 102,537 0
Thomas F. Hite 2 yr. 1,539,462 100,060 0
Robert H. Moyer 2 yr. 1,539,462 100,060 0
J. Terrence Wolfe 2 yr. 1,532,570 106,952 0
Gary L. Zimmerman 2 yr. 1,530,046 109,476 0
Claire F. Johansen 3 yr. 1,509,688 129,834 0
Stephen A. Kemper 3 yr. 1,536,056 103,466 0
K. Brian Pugh 3 yr. 1,545,430 94,092 0
Claude E. Young 3 yr. 1,542,308 97,214 0
4. To adopt the Shareholder Proposal requiring confidential voting of
proxies and independent inspectors of election, both monitored by
a third party.
For Against Abstain
--- ------- -------
302,931 1,143,160 54,586
5. To adopt the Shareholder Proposal requiring disclosure to
shareholders of offers to purchase or merge with the Corporation
within 10 days of receipt of such offers by the Corporation.
For Against Abstain
--- ------- -------
309,226 1,139,627 51,824
6. To adopt the Shareholder Proposal prohibiting service on the Board
of Directors of individuals who are 72 or older.
For Against Abstain
--- ------- -------
261,493 1,192,310 46,874
(d) Not applicable.
<PAGE> 4
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibit 3(ii) - Amended and Restated Code of 13
Regulations
Exhibit 27 - Financial Data Schedule 29
(b) None
Signatures 12
<PAGE> 5
CROGHAN BANCSHARES, INC.
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
June 30 December 31
ASSETS 2000 1999
(Dollars in thousands, except par value)
<S> <C> <C>
CASH AND CASH EQUIVALENTS
Cash and due from banks $ 11,120 $ 13,579
Interest-bearing deposits in other banks -- 14
Federal funds sold -- 2,200
--------- ---------
Total cash and cash equivalents 11,120 15,793
--------- ---------
INVESTMENT SECURITIES
Available-for-sale, at fair value 36,737 37,336
Held-to-maturity, at amortized cost, fair value of $37,804 in 2000
and $39,556 in 1999 38,281 40,096
--------- ---------
Total investment securities 75,018 77,432
--------- ---------
LOANS RECEIVABLE 246,039 239,409
Less: Allowance for loan losses 3,089 3,196
--------- ---------
Net Loans Receivable 242,950 236,213
--------- ---------
PREMISES AND EQUIPMENT, NET 6,977 7,203
ACCRUED INTEREST RECEIVABLE 2,555 2,606
OTHER REAL ESTATE OWNED -- --
GOODWILL, NET 7,070 7,389
OTHER ASSETS 4,060 3,950
--------- ---------
TOTAL ASSETS $ 349,750 $ 350,586
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing $ 33,432 $ 34,040
Savings, NOW and Money Market deposits 113,839 122,143
Time 136,723 138,404
--------- ---------
Total deposits 283,994 294,587
Federal funds purchased and securities sold under repurchase agreements 21,343 11,762
Borrowed funds 6,000 7,000
Dividends payable 382 363
Other liabilities 1,992 1,835
--------- ---------
Total liabilities 313,711 315,547
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, $12.50 par value. Authorized 3,000,000 shares; issued and
outstanding 1,910,776 shares in 2000 and 1,908,208 shares in 1999 23,885 23,853
Surplus 94 74
Retained earnings 12,457 11,477
Accumulated other comprehensive income (loss) (397) (365)
--------- ---------
Total stockholders' equity 36,039 35,039
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 349,750 $ 350,586
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
CROGHAN BANCSHARES, INC.
Consolidated Statements of Operations and Comprehensive Income (Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
2000 1999 2000 1999
(Dollars in thousands, (Dollars in thousands,
except per share data) except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans receivable $ 5,317 $ 4,939 $10,400 $ 9,877
Interest and dividends on investment securities:
U.S. Treasury securities 229 343 482 730
Obligations of U.S. Government agencies and corporations 556 486 1,057 928
Obligations of states and political subdivisions 155 185 314 355
Other securities 75 74 149 115
Interest on federal funds sold 23 19 41 89
------- ------- ------- -------
Total interest income 6,355 6,046 12,443 12,094
------- ------- ------- -------
INTEREST EXPENSE
Interest on deposits 2,385 2,437 4,718 5,026
Interest on other borrowings 264 147 434 250
------- ------- ------- -------
Total interest expense 2,649 2,584 5,152 5,276
------- ------- ------- -------
Net interest income 3,706 3,462 7,291 6,818
PROVISION FOR LOAN LOSSES 100 60 175 120
------- ------- ------- -------
Net interest income after provision for loan losses 3,606 3,402 7,116 6,698
------- ------- ------- -------
NON-INTEREST INCOME
Trust income 118 107 234 216
Service charges on deposit accounts 231 197 453 379
Gain (loss) on sale of investment securities -- -- -- --
Gain (loss) on sale of loans -- 3 -- 4
Other operating income 221 166 436 293
------- ------- ------- -------
Total non-interest income 570 473 1,123 892
------- ------- ------- -------
NON-INTEREST EXPENSES
Salaries, wages and employee benefits 1,540 1,488 3,100 2,956
Net occupancy expense of premises 156 157 329 320
Amortization of goodwill 160 159 319 319
Other operating expenses 960 906 1,861 1,769
------- ------- ------- -------
Total non-interest expenses 2,816 2,710 5,609 5,364
------- ------- ------- -------
Income before federal income taxes 1,360 1,165 2,630 2,226
FEDERAL INCOME TAXES 460 380 886 745
------- ------- ------- -------
NET INCOME $ 900 $ 785 $ 1,744 $ 1,481
======= ======= ======= =======
Net income per share, based on 1,909,471 shares in 2000 and
1,904,488 shares in 1999 $ .47 $ .41 $ .91 $ .78
======= ======= ======= =======
Dividends declared per share $ .20 $ .18 $ .40 $ .35
======= ======= ======= =======
COMPREHENSIVE INCOME $ 953 $ 482 $ 1,712 $ 1,085
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE> 7
CROGHAN BANCSHARES, INC.
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30
2000 1999
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,744 $ 1,481
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 631 633
Provision for loan losses 175 120
Deferred federal income taxes (14) 132
FHLB stock dividend (53) (48)
Net amortization of investment security premiums and discounts 51 44
Loss (gain) on sale of investment securities - -
Loss (gain) on sale of loans - (4)
Loss (gain) on disposal of equipment 1 16
Increase in cash value of life insurance (79) (24)
Decrease (increase) in accrued interest receivable 51 63
Decrease (increase) in other assets (30) 3
Increase (decrease) in other liabilities 186 (216)
-------- --------
Net cash provided by operating activities 2,663 2,200
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities:
Available-for-sale (5,500) (21,751)
Held-to-maturity (713) (7,313)
Proceeds from maturities of investment securities 8,582 20,316
Proceeds from sale of available-for-sale investment securities - 1,000
Proceeds from sale of loans receivable - 869
Net decrease (increase) in loans receivable (6,912) 5,225
Payment of single premiums on split dollar life insurance policies - (3,094)
Capital expenditures (158) (109)
Proceeds from sale of equipment - 5
-------- --------
Net cash provided by (used in) investing activities (4,701) (4,852)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in total deposits (10,523) (11,516)
Increase (decrease) in federal funds purchased and securities sold under
repurchase agreements 9,581 2,644
Increase (decrease) in borrowed funds (1,000) 3,665
Proceeds from issuance of common stock 51 86
Cash dividends paid (744) (609)
-------- --------
Net cash provided by (used in) financing activities (2,635) (5,730)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,673) (8,382)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 15,793 18,634
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,120 $ 10,252
======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest $ 5,247 $ 5,395
======== ========
Federal income taxes $ 760 $ 575
======== ========
Transfer of loans to other real estate $ - $ -
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 8
CROGHAN BANCSHARES, INC.
Notes to Consolidated Financial Statements
June 30, 2000
(Unaudited)
(1) Consolidated Financial Statements
The consolidated financial statements have been prepared by
Croghan Bancshares, Inc. (the "Corporation") without audit. In the
opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the Corporation's
financial position, results of operations and changes in cash flows have
been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The results of operations for the
period ended June 30, 2000 are not necessarily indicative of the operating
results for the full year.
(2) NEW ACCOUNTING PRINCIPLE
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities",
which establishes accounting and reporting standards for derivative
instruments and hedging activities. Under Statement 133, derivatives are
recognized on the balance sheet at fair value as an asset or liability.
Changes in the fair value of derivatives is reported as a component of
other comprehensive income or recognized as earnings through the income
statement depending on the nature of the instrument. Statement 133 was
issued in June 1999, and deferred the effectiveness of Statement 133 to
all quarters of fiscal years beginning after June 15, 2000, with earlier
adoption permitted.
There was no impact on the Corporation's consolidated financial statements
as a result of adopting Statement 133 during the second quarter of
2000 since the Corporation did not hold any derivative instruments or
conduct hedging activities during the period.
<PAGE> 9
CROGHAN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
When or if used in the Corporations's Securities and Exchange Commission filings
or, other public or shareholder communications, or in oral statements made with
the approval of an authorized executive officer, the words or phrases:
"anticipate", "would be", "will allow", "intends to", "will likely result", "are
expected to", "will continue", "is anticipated", "is estimated", "is projected",
or similar expressions are intended to identify "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Any
such statements are subject to risks and uncertainties that include but are not
limited to: changes in economic conditions in the Corporation's market area,
changes in policies by regulatory agencies, fluctuations in interest rates,
demand for loans in the Corporation's market area, and competition. All or some
of these factors could cause actual results to differ materially from historical
earnings and those presently anticipated or projected.
The Corporation cautions readers not to place undue reliance on any such forward
looking statements, which speak only as of the date made, and advises readers
that various factors including regional and national economic conditions,
substantial changes in the levels of market interest rates, credit and other
risks associated with lending and investing activities, and competitive and
regulatory factors could affect the Corporation's financial performance and
could cause the Corporation's actual results for future periods to differ
materially from those anticipated or projected. The Corporation does not
undertake, and specifically disclaims any obligation, to update any
forward-looking statements to reflect occurrences or unanticipated events or
circumstances after the date of such statements.
PERFORMANCE SUMMARY
Assets at June 30, 2000 totalled $349,750,000 compared to $350,586,000 at 1999
year end. Total deposits decreased to $283,994,000 from $294,587,000 at year end
and total loans receivable increased to $246,039,000 from $239,409,000 at year
end.
Net income for the quarter ended June 30, 2000 was $900,000 or $.47 per common
share compared to $785,000 or $.41 per common share for the same period in
1999,and net income for the six-month period ended June 30, 2000 was $1,744,000
or $.91 per common share compared to $1,481,000 or $.78 per common share for the
same period in 1999. Operating results for 2000 continued to be positively
impacted by an increase in the net interest margin and increase in loans
receivable from one year ago levels.
DEPOSITS, LOANS RECEIVABLE, INVESTMENT SECURITIES, OTHER LIABILITIES, AND
STOCKHOLDERS' EQUITY
Total deposits at June 30, 2000 decreased $10,593,000 or 3.6 percent from 1999
year end. The liquid deposit category (demand, savings, NOW and money market
deposit accounts) decreased $8,912,000 while the time deposit category decreased
$1,681,000. Total loans receivable increased $6,630,000 or 2.8 percent from 1999
year end. Total investment securities decreased $2,414,000 or 3.1 percent from
1999 year end as a result of proceeds from maturing securities being used to
fund loan demand. Federal funds purchased and securities sold under repurchase
agreements increased $9,581,000 and represented a source of funding to replace
deposits.
Stockholders' equity at June 30, 2000 increased to $36,039,000 or $18.86
book value per common share compared to $35,039,000 or $18.36 book value per
common share at December 31, 1999. Stockholders' equity at June 30, 2000
included
<PAGE> 10
accumulated other comprehensive loss consisting of the net unrealized loss on
investment securities classified as available-for-sale. At, June 30,
2000, Croghan held $36,737,000 of available-for-sale securities with a net
unrealized loss of $397,000 net of income taxes. This compares to 1999 year-end
holdings of $37,336,000 with a net unrealized loss of $365,000 net of income
taxes. Consistent with the Corporation's quarterly dividend policy, a dividend
of $.20 per share was declared on June 13, 2000 to be paid on July 31, 2000.
NET INTEREST INCOME
Net interest income, which represents the excess revenue generated from earning
assets over the interest cost of funding those assets, increased $244,000 for
the quarter ended June 30, 2000 compared to the same period in 1999, and
increased $473,000 for the six-month period ended June 30, 2000 compared to the
same period in 1999. The net interest yield (net interest income divided by
average earning assets) was 4.62 percent for the quarter ended June 30,
2000 compared to 4.37 percent for the same period in 1999, and was 4.59 percent
for the six-month period ended June 30, 2000 compared to 4.30 percent for the
same period in 1999. The higher margin was a result of an increase in market
loan rates, while maintaining a level cost of funds.
PROVISION FOR LOAN LOSSES AND THE ALLOWANCE FOR LOAN LOSSES
The following table details factors relating to the provision and allowance for
loan losses for the periods noted:
Six Months Ended Twelve Months Ended
June 30, December 31,
2000 1999
(Dollars in thousands)
Provision for loan losses charged
to expense $ 175 $ 240
Net loan charge-offs 282 462
Net loan charge-offs as a percent
of average outstanding net loans .12% .20%
Nonaccrual loans $ 541 $ 392
Loans past due 90 days or more 1,224 2,144
Potential problem loans, other than those
past due 90 days or more, nonaccrual,
or restructured 1,116 1,176
Allowance for loan losses 3,089 3,196
Allowance for loan losses as a
percent of period-end loans receivable 1.26% 1.33%
The provision for loan losses for the first six months of 2000 appearing in
the Consolidated Statements of Operations and Comprehensive Income totalled
$175,000. This provision compares to $120,000 expensed during the same period in
1999. Net loan charge offs were $282,000 for the first six months of 2000
compared to net charge offs of $201,000 during the same period in 1999.
Nonaccrual loans totalled $541,000 at June 30, 2000 compared to $392,000
at December 31, 1999. Loans past due 90 days or more at June 30, 2000 decreased
by $920,000 and other potential problem loans decreased $60,000 from December
31, 1999 figures. The asset quality trends are being monitored throughout 2000
to ensure adequate provisions for loan losses are calculated and expensed.
The Corporation's allowance for loan losses as a percentage of outstanding
loans dropped to 1.26 percent for June 30, 2000 compared to 1.33 percent on
December 31, 1999.
It is the Corporation's policy to maintain the allowance for loan losses at
a level to provide for reasonably foreseeable losses. To accomplish
this objective, a loan review process is conducted by an outside consulting
firm which facilitates the early identification of problem loans and ensures
sound credit decisions. Management considers the balance at June 30, 2000 to be
<PAGE> 11
adequate to provide for losses inherent to the loan portfolio.
NON-INTEREST INCOME
Total non-interest income increased $97,000 or 20.5 percent for the quarter
ended June 30, 2000 compared to the same period in 1999, and increased
$231,000 or 25.9 percent for the six-month period ended June 30, 2000 compared
to the same period in 1999. Trust department fee income increased $11,000
between comparable quarterly periods and $18,000 between comparable six-month
periods. Service charges on deposit accounts increased $34,000 between
comparable quarterly periods and increased $74,000 between comparable six-month
periods.
Gains on the sale of loans to the Federal Home Loan Mortgage Corporation
(Freddie Mac) totalled $3,000 for the quarterly period ended June 30, 1999 and
$4,000 for the first six months of 1999. There were no such gains during the
first six months of 2000. Other operating income increased $55,000 between
comparable quarterly periods and increased $143,000 between comparable
six-month periods. The primary source of this increase was an increase in the
cash value of officers' life insurance and fees generated from the Bank's
Invest Department.
NON-INTEREST EXPENSES
Total non-interest expenses increased $106,000 or 3.9 percent for the quarter
ended June 30, 2000 compared to the same period in 1999, and increased $245,000
or 4.6 percent for the six-month period ended June 30, 2000 compared to the same
period in 1999. Salaries, wages and employee benefits increased $52,000 between
comparable quarterly periods and $144,000 between comparable six-month periods.
Net occupancy expense of premises decreased $1,000 between comparable quarterly
periods and increased $9,000 between comparable six-month periods. Goodwill
amortization is related to the August 1, 1996 purchase of Union Bancshares Corp.
Other operating expenses increased $54,000 or 6.0 percent between quarterly
periods and increased $92,000 or 5.2 percent between comparable six-month
periods.
FEDERAL INCOME TAX EXPENSE
Federal income tax expense increased $80,000 or 21.1 percent between
comparable quarterly periods, and $141,000 or 18.9 percent between comparable
six-month periods due to an increase in income before federal income taxes.
The Corporation's effective tax rate for the six months ended June 30,
2000 increased to 33.7 percent compared to 33.5 percent for the same period in
1999.
LIQUIDITY AND CAPITAL RESOURCES
Average federal funds sold positions of $1,457,000 and $1,358,000 were
maintained for the quarterly and six-month periods, respectively, ended June
30, 2000. Short-term borrowings of federal funds purchased and repurchase
agreements averaged $13,456,000 and $11,497,000 for the quarterly and six-month
periods, respectively.
Federal Home Loan Bank borrowings totalled $6,000,000 at June 30, 2000
with $2,000,000 due in September and November of 2000, and $2,000,000 is due
in October 2005.
Capital expenditures for premises and equipment totalled $158,000 for the
six-month period ended June 30, 2000. This compares to $109,000 for same period
in 1999. Projected 2000 capital expenditures total $350,000.
<PAGE> 12
SIGNATURES
Pursuant to the requirements 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
-------------------------------
Registrant
Date: July 27, 2000 /s/ Thomas F. Hite
------------------------ -------------------------------
Thomas F. Hite, President
Date: July 27, 2000 /s/ Joseph W. Berger
------------------------ -------------------------------
Joseph W. Berger, Treasurer/
Principal Financial Officer
