UNITED STATES 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 the quarterly period ended June 30, 2004
0-20159
----------------------------
(Commission File Number)
CROGHAN BANCSHARES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1073048
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
323 Croghan Street, Fremont, Ohio 43420
- ------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
(419) 332-7301
----------------------------------------------------
(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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
1,898,072 common shares were outstanding as of June 30, 2004
This document contains 35 pages.
CROGHAN BANCSHARES, INC.
Index
Page(s)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3 - 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4. Controls and Procedures 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
(a) Exhibit 10 - Employment Agreement for Steven C. Futrell dated April 16, 2004 18
Exhibit 31.1 - Rule 13a-14(a)/15d-14(a) CEO's Certification 32
Exhibit 31.2 - Rule 13a-14(a)/15d-14(a) Treasurer's Certification 33
Exhibit 32.1 - Section 1350 CEO's Certification 34
Exhibit 32.2 - Section 1350 Treasurer's Certification 35
(b) None
Signatures 17
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROGHAN BANCSHARES, INC.
Consolidated Balance Sheets (Unaudited)
June 30 December 31
2004 2003
(Dollars in thousands, except par value)
ASSETS
CASH AND CASH EQUIVALENTS
Cash and due from banks $ 11,457 $ 10,984
Federal funds sold - -
------------ --------------
Total cash and cash equivalents 11,457 10,984
------------ --------------
SECURITIES
Available-for-sale, at fair value 60,873 59,261
Held-to-maturity, at amortized cost, fair value of $1,591 in 2004
and $2,523 in 2003 1,544 2,436
Restricted stock 2,636 2,539
------------ --------------
Total securities 65,053 64,236
------------ --------------
LOANS 316,043 306,292
Less: Allowance for loan losses 3,312 3,387
------------ --------------
Net loans 312,731 302,905
------------ --------------
Premises and equipment, net 7,396 6,911
Cash surrender value of life insurance 9,060 8,876
Goodwill 6,113 6,113
Accrued interest receivable 1,824 1,930
Other assets 655 818
------------ --------------
TOTAL ASSETS $ 414,289 $ 402,773
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing $ 37,469 $ 39,758
Savings, NOW and Money Market deposits 150,738 138,272
Time 133,643 134,377
------------ --------------
Total deposits 321,850 312,407
Federal funds purchased and securities sold under repurchase agreements 13,643 11,176
Federal Home Loan Bank borrowings 28,950 30,000
Dividends payable 531 532
Other liabilities 2,362 2,462
------------ --------------
Total liabilities 367,336 356,577
------------ --------------
STOCKHOLDERS' EQUITY
Common stock, $12.50 par value. Authorized 3,000,000 shares;
issued 1,914,109 shares 23,926 23,926
Surplus 126 122
Retained earnings 23,506 22,097
Accumulated other comprehensive income (loss) (157) 434
Treasury stock, 16,037 shares in 2004 and 14,355 in 2003, at cost (448) (383)
------------ --------------
Total stockholders' equity 46,953 46,196
------------ --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 414,289 $ 402,773
============ ==============
See notes to consolidated financial statements.
3
CROGHAN BANCSHARES, INC.
Consolidated Statements of Operations (Unaudited)
Three months ended
June 30
2004 2003
(Dollars in thousands,
except per share data)
INTEREST INCOME
Loans, including fees $ 4,877 $ 4,833
Securities:
Obligations of U.S. Government agencies and corporations 270 443
Obligations of states and political subdivisions 166 160
Other 47 57
Federal funds sold - 24
------- -------
Total interest income 5,360 5,517
------- -------
INTEREST EXPENSE
Deposits 1,117 1,342
Other borrowings 277 298
------- -------
Total interest expense 1,394 1,640
------- -------
Net interest income 3,966 3,877
PROVISION FOR LOAN LOSSES 115 95
------- -------
Net interest income, after provision for loan losses 3,851 3,782
------- -------
NON-INTEREST INCOME
Trust income 139 137
Service charges on deposit accounts 309 316
Gain on sale of securities 28 165
Other 258 201
------- -------
Total non-interest income 734 819
------- -------
NON-INTEREST EXPENSES
Salaries, wages and employee benefits 1,470 1,400
Additional provision for supplemental retirement benefits 412 -
Occupancy of premises 159 170
Other operating 1,003 953
------- -------
Total non-interest expenses 3,044 2,523
------- -------
Income before federal income taxes 1,541 2,078
FEDERAL INCOME TAXES 441 648
------- -------
NET INCOME $ 1,100 $ 1,430
======= =======
Net income per share, based on 1,897,846 shares in 2004 and 1,900,526 shares in 2003 $ 0.58 $ 0.75
======= =======
Dividends declared, based on 1,898,072 shares in 2004 and 1,899,274 shares in 2003 $ 0.28 $ 0.27
======= =======
See notes to consolidated financial statements.
4
CROGHAN BANCSHARES, INC.
Consolidated Statements of Operations (Unaudited)
Six months ended
June 30
2004 2003
(Dollars in thousands,
except per share data)
INTEREST INCOME
Loans, including fees $ 9,616 $ 9,808
Securities:
U.S. Treasury - 10
Obligations of U.S. Government agencies and corporations 616 935
Obligations of states and political subdivisions 331 308
Other 100 128
Federal funds sold - 44
------- -------
Total interest income 10,663 11,233
------- -------
INTEREST EXPENSE
Deposits 2,247 2,770
Other borrowings 576 622
------- -------
Total interest expense 2,823 3,392
------- -------
Net interest income 7,840 7,841
PROVISION FOR LOAN LOSSES 245 210
------- -------
Net interest income, after provision for loan losses 7,595 7,631
------- -------
NON-INTEREST INCOME
Trust income 273 264
Service charges on deposit accounts 607 600
Gain on sale of securities 93 165
Other 477 422
------- -------
Total non-interest income 1,450 1,451
------- -------
NON-INTEREST EXPENSES
Salaries, wages and employee benefits 2,987 2,852
Additional provision for supplemental retirement benefits 412 -
Occupancy of premises 323 346
Other operating 1,823 1,893
------- -------
Total non-interest expenses 5,545 5,091
------- -------
Income before federal income taxes 3,500 3,991
FEDERAL INCOME TAXES 1,029 1,240
------- -------
NET INCOME $ 2,471 $ 2,751
======= =======
Net income per share, based on 1,898,131 shares in 2004 and 1,900,824 shares in 2003 $ 1.30 $ 1.45
======= =======
Dividends declared, based on 1,898,072 shares in 2004 and 1,899,274 shares in 2003 $ 0.56 $ 0.54
======= =======
See notes to consolidated financial statements.
5
CROGHAN BANCSHARES, INC.
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Three months ended
June 30
2004 2003
(Dollars in thousands,
except per share data)
BALANCE AT BEGINNING OF PERIOD $ 47,061 $ 44,163
Comprehensive Income:
Net income 1,100 1,430
Change in net unrealized gain (loss) on securities available-for-sale,
net of reclassification adjustments and related income taxes (690) (73)
-------- --------
Total comprehensive income 410 1,357
Issuance of treasury shares, 376 shares in 2004 and 253 shares in 2003 13 7
Purchase of 2,500 treasury shares - (70)
Cash dividends declared, $.28 per share in 2004 and $.27 per share in 2003 (531) (513)
-------- --------
BALANCE AT END OF PERIOD $ 46,953 $ 44,944
======== ========
Six months ended
June 30
2004 2003
(Dollars in thousands,
except per share data)
BALANCE AT BEGINNING OF PERIOD $ 46,196 $ 43,462
Comprehensive Income:
Net income 2,471 2,751
Change in net unrealized gain (loss) on securities available-for-sale,
net of reclassification adjustments and related income taxes (591) (197)
-------- --------
Total comprehensive income 1,880 2,554
Issuance of treasury shares, 518 shares in 2004 and 872 shares in 2003 17 24
Purchase of treasury shares, 2,200 shares in 2004 and 2,500 shares in 2003 (78) (70)
Cash dividends declared, $.56 per share in 2004 and $.54 per share in 2003 (1,062) (1,026)
-------- --------
BALANCE AT END OF PERIOD $ 46,953 $ 44,944
======== ========
See notes to consolidated financial statements.
6
CROGHAN BANCSHARES, INC.
Consolidated Statements of Cash Flows (Unaudited)
Six months ended
June 30
2004 2003
(Dollars in thousands)
NET CASH FLOW FROM OPERATING ACTIVITIES $ 3,631 $ 3,458
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities (17,943) (19,103)
Proceeds from maturities of securities 12,417 10,532
Proceeds from sales of available-for-sale securities 3,512 3,775
Net decrease (increase) in loans (10,071) (1,158)
Additions to premises and equipment (779) (242)
Proceeds from sale of equipment - -
---------- --------
Net cash from investing activities (12,864) (6,196)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 9,443 7,654
Net change in federal funds purchased and securities sold under repurchase agreements 2,467 (4,403)
Net change in Federal Home Loan Bank borrowings (1,050) (1,000)
Proceeds from issuance of treasury shares 17 24
Cash dividends paid (1,063) (1,027)
Purchase of treasury stock (78) (69)
Payment of deferred compensation (30) (29)
---------- --------
Net cash from financing activities 9,706 1,150
---------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 473 (1,588)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,984 13,140
---------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,457 $ 11,552
========== ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest $ 2,885 $ 3,487
========== ========
Federal income taxes $ 780 $ 1,318
========== ========
See notes to consolidated financial statements.
7
CROGHAN BANCSHARES, INC.
Notes to Consolidated Financial Statements
June 30, 2004
(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 (including normal recurring adjustments)
necessary to present fairly the Corporation's consolidated 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, 2004 are not necessarily indicative of the operating
results for the full year.
(2) Retirement Program
In 1999, the Bank entered into split-dollar life insurance arrangements
with six officers which included agreements to provide supplemental
retirement benefits. Since 1999, the Bank has provided an estimated
liability for accumulated supplemental retirement benefits under the
agreements. Such estimated liability was provided annually by an outside
firm.
In February 2004, bank regulators issued an advisory letter to all
financial institutions regarding the accounting for deferred compensation
agreements, especially those linked to bank-owned life insurance. As a
result of detailed analyses and discussions with various parties, it was
determined in June 2004 that the Bank's estimated liability for
accumulated supplemental retirement benefits should be increased by
approximately $412,000 ($272,000 after income taxes). The adjustment,
which represents a charge beyond the normal supplemental retirement
benefit provision, is reported separately in the June 30, 2004
consolidated statements of operations and resulted in a decrease in second
quarter and year-to-date 2004 net income per share of $.14. Because the
adjustment is not considered material to the consolidated financial
statements, prior period financial statements are not being restated.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Where appropriate, the following discussion relating to Croghan Bancshares, Inc.
("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 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 totaled $414,289,000 at June 30, 2004 compared to $402,773,000 at 2003
year end. Total loans increased to $316,043,000 at June 30, 2004 compared to
$306,292,000 at 2003 year end. Total securities increased to $65,053,000 from
$64,236,000 at 2003 year end and total deposits increased to $321,850,000 from
$312,407,000 at 2003 year end.
Net income for the quarter ended June 30, 2004 was $1,100,000 or $.58 per common
share compared to $1,430,000 or $.75 per common share for the same period in
2003. Net income for the six-month period ended June 30, 2004 was $2,471,000 or
$1.30 per common share compared to $2,751,000 or $1.45 per common share for the
same period in 2003. The June 30, 2004 quarterly and year-to-date operating
results were negatively impacted by the additional provision of $412,000 to
adjust the accrual for supplemental retirement plan benefits. Such provision
resulted in a decrease in second quarter and year-to-date 2004 net income per
share of $.14.
FINANCIAL POSITION
The following comments are based upon a comparison of Croghan's financial
position at June 30, 2004 to 2003 year end.
Total loans increased $9,751,000 or 3.2 percent from 2003 year end. Loan
categories experiencing growth from 2003 year end include a $3,826,000 increase
in residential real estate loans, a $2,534,000 increase in nonresidential real
estate loans, a $3,710,000 increase in construction real
9
estate loans, and a $723,000 increase in consumer loans. Loan categories
experiencing contraction from 2003 year end include an $801,000 decrease in
commercial loans and a $241,000 decrease in credit card loans.
Total deposits increased $9,443,000 or 3.0 percent from 2003 year end. The
liquid deposit category (demand, savings, NOW and money market deposit accounts)
increased $10,177,000 or 5.7 percent and the time deposit category decreased
$734,000 or 0.5 percent. The competition for core deposits from traditional
sources (e.g., other banks and credit unions) and non-traditional sources (e.g.,
brokerage firms) remains very strong. Croghan continuously monitors its deposit
growth needs to fund ongoing loan demand in relation to the necessary deposit
pricing to relieve the rate pressure exerted on interest margin.
Stockholders' equity at June 30, 2004 increased to $46,953,000 or $24.74 book
value per common share compared to $46,196,000 or $24.32 book value per common
share at December 31, 2003. The balance in stockholders' equity at June 30, 2004
included an other comprehensive loss consisting of net unrealized losses on
securities classified as available-for-sale. This compared to accumulated other
comprehensive income as of December 31, 2003 consisting of net unrealized gains
on securities classified as available-for-sale. At June 30, 2004, Croghan held
$60,873,000 in available-for-sale securities with an unrealized loss of
$157,000, net of income taxes. This compares to 2003 year-end holdings of
$59,261,000 in available-for-sale securities with an unrealized gain of
$434,000, net of income taxes.
Beginning in February, 2002, Croghan instituted a stock buy-back program, which
has subsequently been extended through February 1, 2005. Since the inception of
the program, a total of 19,100 shares have been repurchased as treasury shares.
The 16,037 remaining treasury shares held as of June 30, 2004 and 14,355 shares
held as of December 31, 2003 are reported at their acquired cost. Consistent
with the Corporation's quarterly dividend policy, a cash dividend of $.28 per
share was declared on June 15, 2004 payable on July 30, 2004.
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 $89,000 for the quarter ended June 30, 2004 as compared to the same
period in 2003. Net interest income decreased by only $1,000 for the six-month
period ended June 30, 2004 as compared to the same period in 2003.
The net interest yield (net interest income divided by average interest-earning
assets) was 4.26 percent for the quarter ended June 30, 2004 compared to a like
percentage, 4.26 percent, for the same period in 2003. Net interest yield was
4.23 percent for the six-month period ended June 30, 2004 compared to 4.34
percent for the same period in 2003.
It is anticipated that as future economic conditions improve, both market
interest rates and managed interest rates will likely increase. One such managed
interest rate increase, of 25 basis points, was instituted by the Federal
Reserve Open Market Committee on June 30, 2004. Gradual managed interest rate
increases will help to relieve some of the pressure on interest margin and
should afford an opportunity for improvement. The magnitude and timing of any
further increases is unknown and thus their effect on interest margin cannot be
accurately determined.
PROVISION FOR LOAN LOSSES AND THE ALLOWANCE FOR LOAN LOSSES
Croghan's comprehensive loan policy provides guidelines for managing credit risk
and asset quality. The policy details acceptable lending practices, establishes
loan-grading classifications, and
10
stipulates the use of a loan review process. Croghan employs an on-staff Credit
Analyst and Credit Analyst Assistant to help facilitate the early identification
of problem loans, to aid in making sound credit decisions, and to assist in the
determination of the allowance for loan losses. Croghan also employs an outside
credit review firm to supplement the credit analysis function and provide an
independent assessment of the loan review process. Croghan's loan policy, loan
review process, and credit analysis team strive to minimize the uncertainties
associated with the lending function and aid in more readily identifying problem
loans so appropriate resolution measures can be initiated.
The following table details factors relating to the provision and allowance for
loan losses for the periods noted:
Six months ended Six months ended
June 30, 2004 June 30, 2003
(Dollars in thousands)
Provision for loan losses charged to expense $ 245 $ 210
Net loan charge-offs 320 336
Net loan charge-offs as a percent of
average outstanding loans .10% .12%
The following table details factors relating to non-performing and potential
problem loans as of the dates noted:
June 30, 2004 December 31, 2003
(Dollars in thousands)
Nonaccrual loans $ 1,236 $ 1,589
Loans contractually past due 90 days or more
and still accruing interest 394 904
Restructured loans - -
Potential problem loans, other than those past due
90 days or more, nonaccrual, or restructured 16,833 14,644
-------- --------
Total potential problem and non-performing loans $ 18,463 $ 17,137
======== ========
Allowance for loan losses $ 3,312 $ 3,387
Allowance for loan losses as a percent
of period-end loans 1.05% 1.11%
The provision for loan losses for the first six months of 2004 totaled $245,000
compared to $210,000 for the same period in 2003. Actual net loan charge-offs
decreased to $320,000 for the first six months of 2004 compared to $336,000
during the same period in 2003. Total potential problem and non-performing
loans, which are summarized in the preceding table, increased $1,326,000 or 7.7
percent to $18,463,000 at June 30, 2004 compared to $17,137,000 at December 31,
2003. Positive trends included a decrease in nonaccrual loans of $353,000
between periods and a decrease in loans past due 90 days or more and still
accruing interest of $510,000 between periods. The negative trend was an
increase of $2,189,000 in potential problem loans, other than those past due 90
days or more, nonaccrual, or restructured.
Croghan typically classifies a loan as a potential problem loan, regardless of
its collateralization or any contractually obligated guarantors, when a review
of the borrower's financial statements indicates that the borrowing entity does
not generate sufficient operating cash flow to adequately service its
11
debts. The above-noted potential problem loans at June 30, 2004 are currently
performing loans and a majority are collateralized by an interest in real
property.
The following table provides additional detail pertaining to the past due status
of Croghan's potential problem loans as of June 30, 2004 (dollars in thousands):
Potential problem loans not currently past due $11,605
Potential problem loans past due one day or more but less than 10 days 3,591
Potential problem loans past due 10 days or more but less than 30 days 615
Potential problem loans past due 30 days or more but less than 60 days 766
Potential problem loans past due 60 days or more but less than 90 days 256
-------
Total potential problem loans $16,833
=======
The following table provides additional detail pertaining to the
collateralization of Croghan's potential problem loans as of June 30, 2004
(dollars in thousands):
Collateralized by an interest in real property $11,980
Collateralized by an interest in assets other than real property 4,753
Unsecured 100
-------
Total potential problem loans $16,833
=======
The above-noted asset quality trends will continue to be monitored throughout
2004 to ensure adequate provisions for loan losses are made in a timely manner.
It is the Corporation's policy to maintain the allowance for loan losses at a
level sufficient to provide for reasonably foreseeable losses. Management
considers the allowance at June 30, 2004 to be adequate to provide for those
losses identified as well as those losses inherent within the loan portfolio.
NON-INTEREST INCOME
Total non-interest income decreased $85,000 or 10.4 percent for the quarter
ended June 30, 2004 compared to the same period in 2003, and decreased by only
$1,000 for the six-month period ended June 30, 2004 compared to the same period
in 2003. The most significant factor contributing to the quarterly decrease was
gains from the sale of securities, which totaled $28,000 for the three-month
period ended June 30, 2004 compared to $165,000 in reported gains for the
comparable 2003 period. The gains were realized upon the sale of U.S. Government
Agency securities with approximately one year remaining until their stated final
maturity. Alternative U.S. Government Agency securities maturing over longer
time horizons (i.e., three to five years) were purchased to replace those
securities that were sold. All of the securities sold were from the
available-for-sale portfolio.
NON-INTEREST EXPENSES
Total non-interest expenses increased $521,000 or 20.7 percent for the quarter
ended June 30, 2004 compared to the same period in 2003, and increased $454,000
or 8.9 percent for the six-month period ended June 30, 2004 as compared to the
same period in 2003.
The most significant change in non-interest expenses for the quarterly and
six-month periods ended June 30, 2004 is a $412,000 additional provision for
supplemental retirement benefits. This expense item is fully discussed in Note 2
to the financial statements and relates to an advisory letter issued by
12
the banking regulators pertaining to the accounting for deferred compensation
agreements. Based upon the regulators' position and after extensive analyses and
discussions with various parties, it was determined in June 2004 that the
estimated liability for accumulated supplemental retirement benefits should be
increased by $412,000 ($272,000 after income taxes). This non-recurring
adjustment is over and above Croghan's normal supplemental retirement benefit
provision and resulted in a decrease in second quarter and year-to-date 2004 net
income per share of $.14.
Salaries, wages and employee benefits increased $70,000 or 5.0 percent between
comparable quarterly periods and $135,000 or 4.7 percent between comparable
six-month periods. Occupancy of premises expense decreased $11,000 or 6.5
percent between comparable quarterly periods and $23,000 or 6.6 percent between
comparable six-month periods. Other operating expenses increased $50,000 or 5.2
percent between comparable quarterly periods and decreased $70,000 or 3.7
percent between comparable six-month periods.
FEDERAL INCOME TAX EXPENSE
Federal income tax expense decreased $207,000 or 31.9 percent between comparable
quarterly periods and $211,000 or 17.0 percent between comparable six-month
periods. The decrease is directly related to lower income before federal income
taxes in both periods. The Corporation's effective tax rate for the six months
ended June 30, 2004 was 29.4 percent compared to 31.1 percent for the same
period in 2003.
LIQUIDITY AND CAPITAL RESOURCES
Short-term borrowings of federal funds purchased and repurchase agreements
averaged $12,177,000 for the six-month period ended June 30, 2004. This compares
to $8,388,000 for the six-month period ended June 30, 2003 and $8,864,000 for
the twelve-month period ended December 31, 2003. Borrowings from the Federal
Home Loan Bank totaled $28,950,000 at June 30, 2004 as compared to $30,000,000
at December 31, 2003.
Capital expenditures for premises and equipment totaled $779,000 for the
six-month period ended June 30, 2004 compared to $242,000 for the same period in
2003. The 2004 expenditures include approximately $425,000 for new reader-sorter
equipment with check imaging capabilities.
13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the quantitative and qualitative
information about market risk provided in the December 31, 2003 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF CONTROLS AND PROCEDURES
With the participation of our management, including our chief executive officer
and treasurer, we have evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) as of the end of the period covered by
this Quarterly Report on Form 10-Q. Based upon that evaluation, our chief
executive officer and treasurer have concluded that:
(a) information required to be disclosed by Croghan in this Quarterly Report
on Form 10-Q would be accumulated and communicated to Croghan's
management, including its chief executive officer and treasurer, as
appropriate, to allow timely decisions regarding required disclosure;
(b) information required to be disclosed by Croghan in this Quarterly Report
on Form 10-Q would be recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms; and
(c) Croghan's disclosure controls and procedures are effective as of the end
of the period covered by this Quarterly Report on Form 10-Q to ensure that
material information relating to Croghan and its consolidated subsidiaries
is made known to them, particularly during the period for which our
periodic reports, including this Quarterly Report on Form 10-Q, are being
prepared.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes during the period covered by this Quarterly Report on Form
10-Q in our internal control over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act) that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF
EQUITY SECURITIES
(a) None
(b) None
(c) None
(d) None
(e) The table below includes certain information regarding Croghan's purchase
of Croghan common shares during the quarterly period ended June 30, 2004:
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 (1) per Share or Programs or Programs (2)
04/01/04
through None None None 92,792
04/30/04
05/01/04
through None None None 92,792
05/31/04
06/01/04
through None None None 92,792
06/30/04
(1) There were no shares purchased during the quarter.
(2) A stock buy-back program commencing on February 1, 2004 and ending on
August 1, 2004 was announced on January 21, 2004 in which up to 94,992
shares could be repurchased (2,200 shares were purchased on February 3,
2004). A stock buy-back program commencing on August 1, 2004 and ending on
February 1, 2005 was announced on July 16, 2004 in which up to 94,904
shares could be repurchased.
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 11, 2004.
(b) Proxies were solicited pursuant to Regulation 14A of the Securities
Exchange Act of 1934.
15
The following directors were elected for terms expiring in 2007: James E.
Bowlus, John P. Keller, Daniel W. Lease, and Allan E. Mehlow. The
following Directors also remain in office with terms expiring in 2005 and
2006: Steven C. Futrell, Robert H. Moyer, J. Terrence Wolfe, Gary L.
Zimmerman, Michael D. Allen, Sr., Claire F. Johansen, Stephen A. Kemper,
and Claude E. Young.
(c) Matters voted upon at the annual meeting of shareholders:
(1) Election of Directors
Nominee For Withheld
- ------------------ --------- --------
James E. Bowlus 1,189,638 6,413
Nathan G. Danziger 22,341 0
John P. Keller 1,173,838 22,213
Daniel W. Lease 1,171,058 24,993
Allan E. Mehlow 1,156,997 16,713
(2) Shareholder proposal requesting the Board of Directors to take
the steps necessary to declassify the Board
For Against Abstain
- ------- ------- -------
144,490 984,381 66,718
(3) Shareholder proposal requesting the Board of Directors to
establish a performance-based senior executive compensation
system
For Against Abstain
- ------- --------- -------
136,769 1,044,364 14,456
(4) Shareholder proposal requesting the Board of Directors to adopt
a policy to elect an independent Chairman of the Board
For Against Abstain
- ------- --------- -------
105,912 1,076,795 12,882
ITEM 5. OTHER INFORMATION - None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 10 - Employment Agreement for Steven C. Futrell dated April 16, 2004
EXHIBIT 31.1 - Rule 13a-14(a)/15d-14(a) CEO's Certification
EXHIBIT 31.2 - Rule 13a-14(a)/15d-14(a) Treasurer's Certification
EXHIBIT 32.1 - Section 1350 CEO's Certification
EXHIBIT 32.2 - Section 1350 Treasurer's Certification
REPORTS ON FORM 8-K - None
16
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 29, 2004 /s/ Steven C. Futrell
----------------------------------
Steven C. Futrell, President & CEO
Date: July 29, 2004 /s/ Allan E. Mehlow
----------------------------------
Allan E. Mehlow, Treasurer
17