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 the Quarterly Period Ended June 30, 2002
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 [ ]
1,907,752 Common shares were outstanding as of June 30, 2002.
This document contains 12 pages.
CROGHAN BANCSHARES, INC.
Index
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, 2001 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 14, 2002.
(b) Proxies were solicited pursuant to Regulation
14A of the Securities Exchange Act of 1934.
The following directors were elected for terms
expiring in 2005: Steven C. Futrell,
Robert H. Moyer, J. Terrence Wolfe, and
Gary L. Zimmerman. The following Directors
also remain in office with terms expiring in
2003 and 2004: Claire F. Johansen,
Steven A. Kemper, K. Brian Pugh, Claude E. Young,
James E. Bowlus, John P. Keller, Daniel W. Lease,
and Allan E. Mehlow.
(c) Matters voted upon at the annual meeting of
shareholders:
(1) Election of Directors
Nominee For Withheld
-------- --- --------
Nathan G. Danziger 56,310 1,521
Steven C. Futrell 1,417,912 19,020
Robert H. Moyer 1,412,608 24,324
J. Terrence Wolfe 1,416,778 20,154
Gary L. Zimmerman 1,412,927 24,005
(2) Proposal to adopt the Croghan Bancshares, Inc.
2002 Stock Option Plan
For Against Abstain
--- -------- -------
1,254,589 217,177 22,997
(3) Shareholder proposal requesting the Board of
Directors to amend the Articles of
Incorporation to reinstate cumulative voting
in the election of directors
For Against Abstain
--- -------- -------
258,072 1,070,703 19,043
(4) Shareholder proposal urging the Board of
Directors to take the steps necessary to
declassify the Board
For Against Abstain
--- -------- -------
251,015 1,073,818 22,985
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K:
(a) None
(b) None
Signatures 12
2
CROGHAN BANCSHARES, INC.
Consolidated Balance Sheets (Unaudited)
June 30 December 31
ASSETS 2002 2001
(Dollars in thousands, except par value)
CASH AND CASH EQUIVALENTS
Cash and due from banks $ 10,141 $ 13,649
Federal funds sold -- 7,700
---------- ----------
Total cash and cash equivalents 10,141 21,349
---------- ----------
SECURITIES
Available-for sale, at fair value 58,013 45,840
Held-to-maturity, at amortized cost, fair value of $5,832 in 2002
and $5,802 in 2001 5,751 5,724
---------- ----------
Total securities 63,764 51,564
---------- ----------
LOANS 282,498 278,366
Less: Allowance for loan losses 3,550 3,346
---------- ----------
Net loans 278,948 275,020
---------- ----------
Premises and equipment, net 5,975 6,133
Accrued interest receivable 2,250 2,270
Goodwill 6,113 6,113
Other assets 4,287 4,059
---------- ----------
TOTAL ASSETS $ 371,478 $ 366,508
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing $ 31,624 $ 38,453
Savings, NOW and Money Market deposits 124,698 122,651
Time 137,760 133,899
---------- ----------
Total deposits 294,082 295,003
Federal funds purchased and securities sold under repurchase agreements 10,792 12,721
Federal Home Loan Bank borrowings 22,000 16,000
Dividends payable 458 421
Other liabilities 2,494 2,411
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Total liabilities 329,826 326,556
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, $12.50 par value. Authorized 3,000,000 shares;
issued 1,914,109 shares 23,926 23,926
Surplus 117 117
Retained earnings 17,065 15,509
Accumulated other comprehensive income (loss) 708 400
Treasury stock, at cost (164) --
---------- ----------
Total stockholders' equity 41,652 39,952
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 371,478 $ 366,508
========== ==========
See notes to consolidated financial statements.
3
CROGHAN BANCSHARES, INC.
Consolidated Statements of Operations and Comprehensive Income (Unaudited)
Three months ended
June 30
2002 2001
(Dollars in thousands,
except per share data)
INTEREST AND DIVIDEND INCOME
Loans, including fees $ 5,286 $ 5,726
Securities:
U.S. Treasury 10 129
Obligations of U.S. Government agencies and corporations 480 394
Obligations of states and political subdivisions 126 146
Other 72 85
Federal funds sold 28 81
---------- ----------
Total interest and dividend income 6,002 6,561
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INTEREST EXPENSE
Deposits 1,773 2,467
Other borrowings 343 336
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Total interest expense 2,116 2,803
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Net interest income 3,886 3,758
PROVISION FOR LOAN LOSSES 160 120
---------- ----------
Net interest income, after provision for loan losses 3,726 3,638
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NON-INTEREST INCOME
Trust income 134 130
Service charges on deposit accounts 297 234
Other 182 197
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Total non-interest income 613 561
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NON-INTEREST EXPENSES
Salaries, wages and employee benefits 1,370 1,541
Occupancy of premises 163 158
Amortization of goodwill -- 159
Other operating 1,001 934
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Total non-interest expenses 2,534 2,792
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Income before federal income taxes 1,805 1,407
FEDERAL INCOME TAXES 564 479
---------- ----------
NET INCOME $ 1,241 $ 928
========== ==========
Net income per share, based on 1,908,999 shares in 2002 and 1,913,227 shares in 2001 $ 0.65 $ 0.49
========== ==========
Dividends declared, based on 1,907,752 shares in 2002 and 1,913,559 shares in 2001 $ 0.24 $ 0.22
========== ==========
COMPREHENSIVE INCOME $ 1,761 $ 948
========== ==========
See notes to consolidated financial statements.
4
CROGHAN BANCSHARES, INC.
Consolidated Statements of Operations and Comprehensive Income (Unaudited)
Six months ended
June 30
2002 2001
(Dollars in thousands,
except per share data)
INTEREST AND DIVIDEND INCOME
Loans, including fees $ 10,640 $ 11,344
Securities:
U.S. Treasury 20 278
Obligations of U.S. Government agencies and corporations 963 818
Obligations of states and political subdivisions 249 284
Other 148 163
Federal funds sold 52 166
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Total interest and dividend income 12,072 13,053
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INTEREST EXPENSE
Deposits 3,524 5,030
Other borrowings 653 650
---------- ----------
Total interest expense 4,177 5,680
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Net interest income 7,895 7,373
PROVISION FOR LOAN LOSSES 400 240
---------- ----------
Net interest income, after provision for loan losses 7,495 7,133
---------- ----------
NON-INTEREST INCOME
Trust income 264 256
Service charges on deposit accounts 523 456
Other 403 392
---------- ----------
Total non-interest income 1,190 1,104
---------- ----------
NON-INTEREST EXPENSES
Salaries, wages and employee benefits 2,815 3,092
Occupancy of premises 311 325
Amortization of goodwill -- 319
Other operating 1,963 1,819
---------- ----------
Total non-interest expenses 5,089 5,555
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Income before federal income taxes 3,596 2,682
FEDERAL INCOME TAXES 1,124 911
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NET INCOME $ 2,472 $ 1,771
========== ==========
Net income per share, based on 1,910,704 shares in 2002 and 1,912,980 shares in 2001 $ 1.29 $ 0.93
========== ==========
Dividends declared, based on 1,907,752 shares in 2002 and 1,913,559 shares in 2001 $ 0.48 $ 0.43
========== ==========
COMPREHENSIVE INCOME $ 2,781 $ 2,068
========== ==========
See notes to consolidated financial statements.
5
CROGHAN BANCSHARES, INC.
Consolidated Statements of Cash Flows (Unaudited)
Six months ended
June 30
2002 2001
(Dollars in thousands)
NET CASH FLOW FROM OPERATING ACTIVITIES $ 3,178 $ 2,606
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities:
Available-for-sale (19,274) (13,716)
Held-to-maturity (499) (514)
Proceeds from maturities of securities 7,772 17,668
Net decrease (increase) in loans (4,328) (10,579)
Additions to premises and equipment (145) (198)
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Net cash from investing activities (16,474) (7,339)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits (921) 450
Net change in federal funds purchased and securities sold under repurchase agreements (1,929) (3,753)
Net change in Federal Home Loan Bank borrowings 6,000 7,000
Proceeds from issuance of common stock 16 23
Cash dividends paid (880) (804)
Purchase of treasury stock (181) --
Payment of deferred compensation (17) --
----------- -----------
Net cash from financing activities 2,088 2,916
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (11,208) (1,817)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 21,349 13,054
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,141 $ 11,237
=========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest $ 4,278 $ 5,864
=========== ===========
Federal income taxes $ 1,195 $ 985
=========== ===========
See notes to consolidated financial statements.
6
CROGHAN BANCSHARES, INC.
Notes to Consolidated Financial Statements
June 30, 2002
(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, 2002 are not necessarily indicative of the
operating results for the full year.
(2) New Accounting Pronouncement
Effective January 1, 2002, the Corporation adopted the provisions of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" (Statement 142). As a result of the adoption of Statement 142,
the amortization of goodwill ceased. This resulted in an increase in
net income for the quarter ended June 30, 2002 of $159,000 and an
increase in net income for the six-month period ended June 30, 2002 of
$319,000. Goodwill is subject to an annual impairment test; however,
based on the results of an independent valuation of the Corporation's
goodwill, there was no initial impairment adjustment as of January 1,
2002.
7
CROGHAN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Where appropriate, the following discussion relating to Croghan Bancshares, Inc.
(referred to as "Croghan" or the "Corporation") contains the insights of
management into known events and trends that have or may be expected to have a
material effect on Croghan's operations and financial condition. The information
presented may also contain certain forward-looking statements regarding future
financial performance, which are not historical facts and which involve various
risks and uncertainties. When or if used in any 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 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, 2002 totaled $371,478,000 compared to $366,508,000 at 2001
year end. Total loans increased to $282,498,000 from $278,366,000 at year end
and total deposits decreased to $294,082,000 from $295,003,000 at year end.
Net income for the quarter ended June 30, 2002 was $1,241,000 or $.65 per common
share compared to $928,000 or $.49 per common share for the same period in 2001.
Net income for the six-month period ended June 30, 2002 was $2,472,000 or $1.29
per common share compared to $1,771,000 or $.93 per common share for the same
period in 2001. Operating results for 2002 were positively impacted by increased
net interest income, improved non-interest income, and the elimination of
goodwill amortization.
DEPOSITS, LOANS, SECURITIES, AND STOCKHOLDERS' EQUITY
Total deposits at June 30, 2002 decreased by $921,000 or 0.3 percent from 2001
year end. The liquid deposit category (demand, savings, NOW and money market
deposit accounts) decreased $4,782,000 while the time deposit category increased
$3,861,000. Croghan continues to experience active competition for core deposits
from traditional sources (e.g., other banks and credit unions) and
non-traditional sources (e.g., brokerage firms).
8
Total loans increased $4,132,000 or 1.5 percent from 2001 year end. Much of the
increase is concentrated in the nonresidential real estate and commercial loan
portfolios. Total securities increased by $12,200,000 or 23.7 percent from 2001
year end. Given the rather soft loan demand coupled with a relatively stable
interest rate environment, available funds have been directed into investment
securities.
Stockholders' equity at June 30, 2002 increased to $41,652,000 or $21.83 book
value per common share compared to $39,952,000 or $20.87 book value per common
share at December 31, 2001. The balance in stockholders' equity at June 30, 2002
included accumulated other comprehensive income that consisted of a net
unrealized gain on securities classified as available-for-sale. At June 30,
2002, Croghan held $58,013,000 in available-for-sale securities with a net
unrealized gain of $708,000, net of income taxes. This compares to 2001 year-end
holdings of $45,840,000 with a net unrealized gain of $400,000, net of income
taxes. As announced in January, 2002, Croghan initiated a stock buy-back
program, with a total of 7,000 shares having been repurchased during the first
six months of 2002. Treasury shares held as of June 30, 2002 are reported at
their acquired cost of $164,000. Consistent with the Corporation's quarterly
dividend policy, a cash dividend of $.24 per share was declared on June 11, 2002
payable on July 31, 2002.
NET INTEREST INCOME
Net interest income, which represents the excess revenue generated from
interest-earning assets over the interest cost of funding those assets,
increased $128,000 for the quarter ended June 30, 2002 compared to the same
period in 2001, and increased $522,000 for the six-month period ended June 30,
2002 compared to the same period in 2001. The net interest yield (net interest
income divided by average earning assets) was 4.49 percent for the quarter ended
June 30, 2002 compared to 4.60 percent for the quarter ended June 30, 2001, and
was 4.62 percent for the six-month period ended June 30, 2002 compared to 4.55
percent for the same period in 2001. Downward pressure on net interest yield is
anticipated to continue throughout the remainder of 2002.
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, 2002 December 31, 2001
(Dollars in thousands)
Provision for loan losses charged to expense $ 400 $ 695
Net loan charge-offs 196 591
Net loan charge-offs as a percent of
average outstanding loans .07% .22%
Nonaccrual loans $ 1,943 $ 2,241
Loans contractually past due 90 days or more 812 771
Restructured loans -- --
Potential problem loans, other than those
past due 90 days or more, nonaccrual,
or restructured 6,499 5,949
Allowance for loan losses 3,550 3,346
Allowance for loan losses as a percent
of period-end loans 1.26% 1.20%
9
The provision for loan losses for the first six months of 2002 totaled $400,000
compared to $240,000 expensed during the same period in 2001. Actual net loan
charge offs were $196,000 for the first six months of 2002 compared to $35,000
during the same period in 2001. The higher provision in 2002 was a result of
continued uncertainty in the local and national economies and trends within the
loan portfolio.
Nonaccrual loans decreased to $1,943,000 at June 30, 2002 from $2,241,000 at
December 31, 2001 with loans contractually past due 90 days or more increasing
to $812,000 at June 30, 2002 from $771,000 at December 31, 2001 and potential
problem loans increasing to $6,499,000 at June 30, 2002 from $5,949,000 at
December 31, 2001. The 2002 nonaccrual amount includes one nonresidential real
estate loan of $794,000 and the 2002 potential problem loan total includes one
nonresidential real estate loan of $3,286,000. Both loans are collateralized by
commercial real estate with appraised values well in excess of the loan amounts.
Additionally, the potential problem loan is not currently past due and, since
origination, has never been more than 10 days past due. All of the above-noted
asset quality trends will continue to be monitored throughout 2002 to ensure
adequate provisions are made in a timely manner.
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 is designed to facilitate the early identification of problem loans and to
help ensure sound credit decisions. Management considers the allowance at June
30, 2002 to be adequate to provide for losses inherent to the loan portfolio.
NON-INTEREST INCOME
Total non-interest income increased $52,000 or 9.3 percent for the quarter ended
June 30, 2002 compared to the same period in 2001, and increased $86,000 or 7.8
percent for the six-month period ended June 30, 2002 compared to the same period
in 2001. Trust department fee income increased $4,000 between comparable
quarterly periods and $8,000 between comparable six-month periods.
Service charges on deposit accounts increased $63,000 or 26.9 percent between
comparable quarterly periods and $67,000 or 14.7 percent between comparable
six-month periods. Other operating income decreased $15,000 or 7.6 percent
between comparable quarterly periods and increased $11,000 or 2.8 percent
between comparable six-month periods.
NON-INTEREST EXPENSES
Total non-interest expenses decreased $258,000 or 9.2 percent for the quarter
ended June 30, 2002 compared to the same period in 2001, and decreased $466,000
or 8.4 percent for the six-month period ended June 30, 2002 compared to the same
period in 2001. Salaries, wages and employee benefits decreased $171,000 between
comparable quarterly periods and $277,000 between comparable six-month periods
resulting from a 10% reduction in full-time equivalent employees that occurred
in November 2001.
The occupancy expense of premises increased $5,000 between comparable quarterly
periods and decreased by $14,000 between comparable six-month periods. Other
operating expenses increased $67,000 or 7.2 percent between comparable quarterly
periods and $144,000 or 7.9 percent between comparable six-month periods. On
January 1, 2002, Croghan adopted the provisions of Financial Accounting
Standards Board Statement No. 142, "Goodwill and Other Intangible Assets". Under
the provisions of Statement 142, goodwill resulting from the 1996 acquisition of
Union Bancshares, Inc., is now tested on an annual basis for impairment and no
longer amortized. Accordingly, there was no goodwill amortization for either the
quarter or six-month period ended June 30, 2002 as compared to
10
$159,000 in the comparable quarter in 2001 and $319,000 in the comparable
six-month period in 2001.
FEDERAL INCOME TAX EXPENSE
Federal income tax expense increased $85,000 or 17.7 percent between comparable
quarterly periods, and $213,000 or 23.4 percent between comparable six-month
periods. The Corporation's effective tax rate for the six-month period ended
June 30, 2002 was 31.3 percent compared to 34.0 percent for the same period in
2001. The lower effective tax rate in 2002 is primarily the result of the
elimination of non-deductible goodwill amortization.
LIQUIDITY AND CAPITAL RESOURCES
An average federal funds sold position of $5,916,000 was maintained for the
six-month period ended June 30, 2002. This compares to $6,613,000 for the
six-month period ended June 30, 2001.
Short-term borrowings of federal funds purchased and repurchase agreements
averaged $8,781,000 for the six-month period ended June 30, 2002. This compares
to $10,257,000 for the six-month period ended June 30, 2001.
Borrowings from the Federal Home Loan Bank totaled $22,000,000 at June 30, 2002
compared to $16,000,000 at December 31, 2001. The additional borrowings will be
used to fund anticipated loan growth throughout the remainder of 2002 and were
drawn at a time when the rate environment for such borrowings was considered
advantageous for future planning purposes.
Capital expenditures for premises and equipment totaled $145,000 for the
six-month period ended June 30, 2002. This compares to $198,000 for the same
period in 2001.
BRANCH EXPANSION
A branch office located inside Bassett's Supermarket at 3994 East Harbor Road,
Port Clinton, Ohio officially opened for business on June 24, 2002. The office
is currently staffed with a Sales Manager, Service Manager, and two customer
service associates.
11
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 23, 2002 /s/ Steven C. Futrell
-----------------------------
Steven C. Futrell, President
Date: July 23, 2002 /s/ Allan E. Mehlow
-----------------------------
Allan E. Mehlow, Treasurer
12