<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 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 [ ]
1,912,188 Common shares were outstanding as of September 30, 2000.
This document contains 13 pages.
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CROGHAN BANCSHARES, INC.
Index
<TABLE>
<CAPTION>
<S> <C>
PART I.
Page(s)
Item 1. Financial Statements 3 - 7
Item 2. Management's Discussion and Analysis 8 - 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 - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibit 27 - Financial data schedule 13
(b) A Form 8-K dated August 14, 2000 was filed on August 14, 2000,
reporting the intended retirement of Thomas F. Hite, President &
Chief Executive Officer of Croghan Bancshares, Inc.
Signatures 12
</TABLE>
2
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CROGHAN BANCSHARES, INC.
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
( Dollars in thousands, except par value)
<S> <C> <C>
CASH AND CASH EQUIVALENTS
Cash and due from banks $ 10,180 $ 13,579
Interest-bearing deposits in other banks 16 14
Federal funds sold 8,000 2,200
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Total cash and cash equivalents 18,196 15,793
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INVESTMENT SECURITIES
Available-for sales, at fair value 31,847 37,336
Held-to-maturity, at amortized cost, fair value of $36,674 in 2000
and $39,556 in 1999 36,927 40,096
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Total investment securities 68,774 77,432
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LOANS RECEIVABLE 251,795 239,409
Less: Allowance for loan losses 3,188 3,196
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Net loans receivable 248,607 236,213
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PREMISES AND EQUIPMENT, NET 6,838 7,203
ACCRUED INTEREST RECEIVABLE 3,017 2,606
OTHER REAL ESTATE OWNED - -
GOODWILL, NET 6,911 7,389
OTHER ASSETS 3,920 3,950
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TOTAL ASSETS $356,263 $350,586
============= =============
LIABILITES AND STOCKHOLDERS' EQUITY
LIABILITES
Deposits:
Demand, non-interest bearing $ 33,324 $ 34,040
Savings, NOW and Money Market deposits 109,266 122,143
Time 135,493 138,404
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Total Deposits 278,083 294,587
Federal funds purchased and securities sold under repurchase agreements 22,881 11,762
Borrowed funds 16,000 7,000
Dividends payable 401 363
Other liabilities 2,122 1,835
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Total liabilities 319,487 315,547
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STOCKHOLDERS' EQUITY
Common stock, $12.50 par value. Authorized 3,000,000 shares; issued and
outstanding 1,912,188 shares in 2000 and 1,908,208 in 1999 23,902 23,853
Surplus 101 74
Retained Earnings 12,997 11,477
Accumulated other comprehensive income (loss) (224) (365)
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Total stockholders' equity 36,776 35,039
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $356,263 $350,586
============= =============
</TABLE>
3
See notes to consolidated financial statements.
<PAGE> 4
CROGHAN BANCSHARES, INC.
Consolidated Statements of Operations and Comprehensive Income (Unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30
2000 1999
(Dollars in thousands,
except per share data)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans receivable $ 5,564 $ 4,983
Interest and dividends on investment securities:
U.S. Treasury securities 215 306
Obligations of U.S. Government agencies and corporations 551 503
Obligations of states and political subdivisions 148 181
Other securities 78 77
Interest on federal funds sold 2 23
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Total interest income 6,558 6,073
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INTEREST EXPENSE
Interest on deposits 2,480 2,390
Interest on other borrowings 430 202
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Total interest expense 2,910 2,592
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Net interest income 3,648 3,481
PROVISION FOR LOAN LOSSES 120 60
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Net interest income after provision for loan losses 3,528 3,421
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NON-INTEREST INCOME
Trust income 121 107
Service charges on deposit accounts 236 216
Gain (loss) on sale of investment securities - 1
Gain (loss) on sale of loans - -
Other operating income 240 209
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Total non-interest income 597 533
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NON-INTEREST EXPENSES
Salaries, wages and employee benefits 1,471 1,539
Net occupancy expense of premises 150 158
Amortization of goodwill 160 159
Other operating expenses 917 858
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Total non-interest expenses 2,698 2,714
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Income before federal income taxes 1,427 1,240
FEDERAL INCOME TAXES 486 421
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NET INCOME $ 941 % 819
============= =============
Net income per share, based on 1,911,561 shares in 2000 and 1,907,436 shares in 1999 $ 0.49 $ 0.43
============= =============
Dividends declared, based on 1,912,188 shares in 2000 and 1,907,799 shares in 1999 $ 0.21 $ 0.19
============= =============
COMPREHENSIVE INCOME $ 1,113 $ 822
============= =============
</TABLE>
See notes to consolidated financial statements.
4
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CROGHAN BANCSHARES, INC.
Consolidated Statements of Operations and Comprehensive Income (Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30
2000 1999
(Dollars in thousands,
except per share data)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans receivable $ 15,964 $ 14,860
Interest and dividends on investment securities:
U.S. Treasury securities 696 1,036
Obligations of U.S. Government agencies and corporations 1,608 1,431
Obligations of states and political subdivisions 462 537
Other securities 227 192
Interest on federal funds sold 44 112
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Total interest income 19,001 18,168
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INTEREST EXPENSE
Interest on deposits 7,199 7,416
Interest on other borrowings 864 452
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Total interest expense 8,063 7,868
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Net interest income 10,938 10,300
PROVISION FOR LOAN LOSSES 295 180
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Net interest income after provision for loan losses 10,643 10,120
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NON-INTEREST INCOME
Trust income 356 322
Service charges on deposit accounts 689 595
Gain (loss) on sale of investment securities - 2
Gain (loss) on sale of loans - 4
Other operating income 676 501
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Total non-interest income 1,721 1,424
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NON-INTEREST EXPENSES
Salaries, wages and employee benefits 4,571 4,495
Net occupancy expense of premises 479 478
Amortization of goodwill 479 479
Other operating expenses 2,778 2,626
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Total non-interest expenses 8,307 8,078
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Income before federal income taxes 4,057 3,466
FEDERAL INCOME TAXES 1,372 1,166
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NET INCOME $ 2,685 $ 2,300
============= =============
Net income per share, based on 1,910,172 shares in 2000 and 1,905,482 shares in 1999 $ 1.41 $ 1.21
============= =============
Dividends declared, based on 1,912,188 shares in 2000 and 1,907,799 shares in 1999 $ 0.61 $ 0.54
============= =============
COMPREHENSIVE INCOME $ 2,826 $ 1,907
============= =============
</TABLE>
See notes to consolidated financial statements.
5
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CROGHAN BANCSHARES, INC.
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30
2000 1999
(Dollars in thousands,
except per share data)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,685 $ 2,300
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 968 948
Provision for loan losses 295 180
Cumulative effect of accounting change - -
Deferred federal income taxes (14) 83
FHLB stock dividends (82) (74)
Increase in cash value of split dollar life insurance policies (117) (61)
Net amortization of investment security premiums and discounts 71 70
Loss (gain) on sale of investment activities - -
Loss (gain) on sale of loans - (3)
Loss (gain) on disposal of equipment 1 16
Decrease (increase) in accrued interest receivable (411) (119)
Decrease (increase) in other assets 147 (51)
Increase (decrease) in other liabilities 239 (341)
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Net cash provided by operating activities 3,782 2,948
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities:
Available-for-sale (5,500) (23,752)
Held-to-maturity (713) (7,563)
Proceeds from maturities of investment securities 15,084 25,158
Proceeds from sales of available-for-sale investment securities - 2,000
Proceeds from sale of loans receivable - 869
Net decrease (increase) in loans receivable (12,689) 4,177
Payment of single premiums on split dollar life insurance policies - (3,094)
Capital expenditures (207) (144)
Proceeds from sale of equipment 0 5
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Net cash provided by (used in) investing activities (4,025) (2,344)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (16,423) (9,526)
Increase (decrease) in federal funds purchased and securities sold under repurchase
agreements 11,119 1,156
Increase (decrease) in borrowed funds 9,000 3,665
Proceeds from issuance of common stock 76 117
Cash dividends paid (1,126) (953)
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Net cash provided by (used in) financing activities 2,646 (5,541)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,403 (4,937)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 15,793 18,634
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,196 $ 13,697
============= =============
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest $ 8,016 $ 7,988
============= =============
Federal income taxes $ 1,275 $ 1,035
============= =============
Transfer of loans to other real estate $ - $ -
============= =============
</TABLE>
6
See notes to consolidated financial statements.
<PAGE> 7
CROGHAN BANCSHARES, INC.
Notes to Consolidated Financial Statements
September 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 September 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 137 was issued in June 1999, and deferred the
effective date 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.
7
<PAGE> 8
CROGHAN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
When or if used in the Corporation'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 September 30, 2000 totalled $356,263,000 compared to $350,586,000 at
1999 year end. Total deposits decreased to $278,083,000 from $294,587,000 at
year end and total loans increased to $251,795,000 from $239,409,000 at year
end.
Net income for the quarter ended September 30, 2000 was $941,000 or $.49 per
common share compared to $819,000 or $.43 per common share for the same period
in 1999, and net income for the nine-month period ended September 30, 2000 was
$2,685,000 or $1.41 per common share compared to $2,300,000 or $1.21 per common
share for the same period in 1999. Operating results for 2000 have been
positively impacted by steady loan growth, enhanced net interest margin, and the
increase in non-interest income.
DEPOSITS, LOANS, INVESTMENT SECURITIES, AND STOCKHOLDERS' EQUITY
Total deposits at September 30, 2000 decreased $16,504,000 or 5.6 percent from
1999 year end. The liquid deposit category (demand, savings, NOW and money
market deposit accounts) decreased $13,593,000 while the time deposit category
decreased $2,911,000. Loans receivable increased $12,386,000 or 5.2 percent from
1999 year end. Total investment securities decreased $8,658,000 or 11.2% from
1999 year end.
Stockholders' equity at September 30, 2000 increased to $36,776,000 or $19.23
book value per common share compared to $35,039,000 or $18.36 book value per
common share at December 31, 1999. The balance in stockholders' equity at
September 30, 2000 included accumulated other comprehensive income (loss)
consisting of the net unrealized gain (loss) on investment securities classified
as available -for- sale. At September 30, 2000, Croghan held $31,847,000 in
available-for-
8
<PAGE> 9
sale securities with a net unrealized loss of $224,000 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 $.21 per share was declared on September 13, 2000
to be distributed on October 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 $167,000 for
the quarter ended September 30, 2000 compared to the same period in 1999, and
increased $638,000 for the nine-month period ended September 30, 2000 compared
to the same period in 1999. The net interest yield (net interest income divided
by average earning assets) was 4.54 percent for the quarter ended September 30,
2000 compared to 4.40 percent for the same period in 1999, and was 4.58 percent
for the nine-month period ended September 30, 2000 compared to 4.33 percent for
the same period in 1999.
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:
<TABLE>
<CAPTION>
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Nine Months Ended Twelve Months Ended
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September 30, December 31,
2000 1999
(Dollars in thousands)
<S> <C> <C>
Provision for loan losses charged to expense $ 295 $ 240
Net loan charge-offs 303 462
Net loan charge-offs as a percent of
average outstanding net loans .12% .20%
Nonaccrual loans $ 353 $ 392
Loans past due 90 days or more 1,855 2,144
Potential problem loans, other than those
past due 90 days or more, nonaccrual,
or restructured 1,166 1,176
Allowance for loan losses 3,188 3,196
Allowance for loan losses as a
percent of period-end loans 1.27% 1.33%
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</TABLE>
The provision for loan losses for the first nine months of 2000 appearing in the
Consolidated Statements of Operations and Comprehensive Income totalled
$295,000. This provision compares to $180,000 expensed during the same period in
1999. Net loan charge offs were $353,000 for the first nine months of 2000
compared to net loan charge offs of $342,000 during the same period in 1999.
Nonaccrual loans totalled $353,000 at September 30, 2000 compared to $392,000 at
December 31, 1999. Loans past due 90 days or more decreased $289,000 and other
potential problem loans decreased $10,000 from the December 31, 1999 figures.
The asset quality trends will continue to be monitored throughout 2000 to ensure
adequate provisions are calculated and expensed. The Corporation's allowance for
loan losses as a percentage of outstanding loans declined to 1.27 percent at
September 30, 2000 compared to 1.33 percent at December 31, 1999 due to the
aforementioned loan growth. 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
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<PAGE> 10
ensures sound credit decisions. Management considers the allowance at September
30, 2000 to be adequate to provide for losses inherent to the loan portfolio.
NON-INTEREST INCOME
Total non-interest income increased $64,000 or 12.0 percent for the quarter
ended September 30, 2000 compared to the same period in 1999, and increased
$297,000 or 20.9 percent for the nine-month period ended September 30, 2000
compared to the same period in 1999. Trust department fee income increased
$14,000 between comparable quarterly periods and $34,000 between comparable
nine-month periods. Service charges on deposit accounts increased $20,000
between comparable quarterly periods and $94,000 between comparable nine-month
periods.
Other operating income increased $31,000 between quarterly periods and $175,000
between comparable nine-month periods. Other operating income includes increase
in cash value of split dollar life insurance policies of $117,000 for the
nine-month period ended September 30, 2000 compared to $61,000 for the same
period in 1999. Also included in other operating income for the first nine
months of 2000 were $98,000 in fees generated from the Invest Division which
markets products that are not FDIC insured (e.g., mutual funds and annuities)
compared to $63,000 in fees earned during the same period in 1999.
NON-INTEREST EXPENSES
Total non-interest expenses decreased $16,000 or .6 percent for the quarter
ended September 30, 2000 compared to the same period in 1999, and increased
$229,000 or 2.8% for the nine-month period ended September 30, 2000 compared to
the same period in 1999. Salaries, wages and employee benefits decreased $68,000
or 4.4 percent between quarterly periods and increased $76,000 or 1.7 percent
between comparable nine-month periods. These fluctuations were primarily a
result of changes in staffing levels. Net occupancy expense of bank premises
decreased $8,000 between quarterly periods and increased $1,000 between
comparable nine-month periods.
Goodwill amortization associated with the August 1, 1996 purchase of Union
Bancshares Corp. was basically unchanged for the comparable quarterly and
nine-month periods while other operating expenses increased $59,000 or 6.9
percent between quarterly periods and $152,000 or 5.8 percent between comparable
nine-month periods.
FEDERAL INCOME TAX EXPENSE
Federal income tax expense increased $65,000 or 15.4 percent between quarterly
periods, and increased $206,000 or 17.7 percent between comparable nine-month
periods. The increase is due primarily to higher income before federal income
taxes. The Corporation's effective tax rate for the nine months ended September
30, 2000 increased to 33.8 percent compared to 33.6 percent for the quarter
ended September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Average federal funds sold position of $56,000 and $921,000 were maintained for
the quarterly and nine-month periods, respectively, ended September 30, 2000.
Short-term borrowings of federal funds purchased and repurchase agreements
averaged $15,912,000 and $12,979,000 for the quarterly and nine-month periods,
respectively.
10
<PAGE> 11
Borrowings from the Federal Home Loan Bank totalled $16,000,000 at September 30,
2000 compared to $7,000,000 at December 31, 1999. The increases in Federal Home
Loan Bank borrowings of $9,000,000 have been used to fund loan growth and cover
the shrinkage of total deposits.
Capital expenditures for bank premises and equipment totalled $207,000 for the
nine-month period ended September 30, 2000. This compares to $144,000 for same
period in 1999. Projected 2000 capital expenditures total $350,000.
11
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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: October 26, 2000 /s/ Thomas Hite
------------------------ -----------------------------
Thomas F. Hite, President
Date: October 26, 2000 /s/ Joseph W. Berger
------------------------ -----------------------------
Joseph W. Berger, Treasurer
12
