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 March 31, 2002
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 [ ]
1,909,676 Common shares were outstanding as of March 31, 2002
This document contains 11 pages.
CROGHAN BANCSHARES, INC.
Index
PART I.
Page(s)
Item 1. Financial Statements 3 - 6
Item 2. Management's Discussion and Analysis 7 - 10
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 - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K:
(a) None
(b) A Form 8-K dated January 25, 2002 was filed on
January 25, 2002 reporting the 2001 annual earnings
for Croghan Bancshares, Inc. and announcing a stock
repurchase program to commence on February 1, 2002.
Signatures 11
2
CROGHAN BANCSHARES, INC.
Consolidated Balance Sheets (Unaudited)
March 31 December 31,
ASSETS 2002 2001
(Dollars in thousands, except par value)
CASH AND CASH EQUIVALENTS
Cash and due from banks $ 9,020 $ 13,649
Federal funds sold 9,200 7,700
--------- ---------
Total cash and cash equivalents 18,220 21,349
--------- ---------
SECURITIES
Available-for-sale, at fair value 52,344 45,840
Held-to-maturity, at amortized cost, fair value of $5,284 in 2002
and $5,802 in 2001 5,237 5,724
--------- ---------
Total securities 57,581 51,564
--------- ---------
LOANS 275,292 278,366
Less: Allowance for loan losses 3,445 3,346
--------- ---------
Net loans 271,847 275,020
--------- ---------
Premises and equipment, net 6,084 6,133
Accrued interest receivable 2,037 2,270
Goodwill 6,113 6,113
Other assets 4,244 4,059
--------- ---------
TOTAL ASSETS $ 366,126 $ 366,508
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing $ 32,587 $ 38,453
Savings, NOW and Money Market deposits 123,360 122,651
Time 136,357 133,899
--------- ---------
Total Deposits 292,304 295,003
Federal funds purchased and securities sold under repurchase agreements 8,265 12,721
Federal Home Loan Bank borrowings 22,000 16,000
Dividends payable 458 421
Other liabilities 2,701 2,411
--------- ---------
Total liabilities 325,728 326,556
--------- ---------
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 16,282 15,509
Accumulated other comprehensive income (loss) 188 400
Treasury stock, at cost (115) -
--------- ---------
Total stockholders' equity 40,398 39,952
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 366,126 $ 366,508
========= =========
See notes to consolidated financial statements.
3
CROGHAN BANCSHARES, INC.
Consolidated Statements of Operations and Comprehensive Income (Unaudited)
Three months ended
March 31
2002 2001
(Dollars in thousands,
except per share data)
INTEREST AND DIVIDEND INCOME
Loans, including fees $5,354 $5,618
Securities:
U.S. Treasury 10 149
Obligations of U.S. Government agencies and corporations 484 424
Obligations of states and political subdivisions 123 138
Other 76 78
Federal funds sold 24 85
------ ------
Total interest and dividend income 6,071 6,492
------ ------
INTEREST EXPENSE
Deposits 1,752 2,563
Other borrowings 310 314
------ ------
Total interest expense 2,062 2,877
------ ------
Net interest income 4,009 3,615
PROVISION FOR LOAN LOSSES 240 120
------ ------
Net interest income, after provision for loan losses 3,769 3,495
------ ------
NON-INTEREST INCOME
Trust income 130 125
Service charges on deposit accounts 226 222
Other 221 195
------ ------
Total non-interest income 577 542
------ ------
NON-INTEREST EXPENSES
Salaries, wages and employee benefits 1,446 1,550
Occupancy of premises 147 167
Amortization of goodwill - 160
Other operating 962 885
------ ------
Total non-interest expenses 2,555 2,762
------ ------
Income before federal income taxes 1,791 1,275
FEDERAL INCOME TAXES 559 432
------ ------
NET INCOME $1,232 $ 843
====== ======
Net income per share, based on 1,912,429 shares in 2002 and 1,912,731 shares in 2001 $ 0.64 $ 0.44
====== ======
Dividends declared, based on 1,909,676 shares in 2002 and 1,913,144 shares in 2001 $ 0.24 $ 0.21
====== ======
COMPREHENSIVE INCOME $1,020 $1,120
====== ======
See notes to consolidated financial statements.
4
CROGHAN BANCSHARES, INC.
Consolidated Statements of Cash Flows (Unaudited)
Three months ended
March 31
2002 2001
(Dollars in thousands)
NET CASH FLOW FROM OPERATING ACTIVITIES $ 2,174 $ 1,613
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities:
Available-for-sale (10,241) (7,033)
Held-to-maturity -- (514)
Proceeds from maturities of securities 3,815 12,194
Net decrease (increase) in loans 2,933 (3,506)
Additions to premises and equipment (102) (139)
-------- --------
Net cash from investing activities (3,595) 1,002
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (2,699) 3,654
Increase (decrease) in federal funds purchased and securities sold
under repurchase agreements (4,456) (3,511)
Increase (decrease) in Federal Home Loan Bank borrowings 6,000 7,000
Proceeds from issuance of common stock 14 14
Cash dividends paid (421) (402)
Purchase of treasury stock (129) --
Payment of deferred compensation (17) --
-------- --------
Net cash from financing activities (1,708) 6,755
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,129) 9,370
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 21,349 13,054
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,220 $ 22,424
======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 2,154 $ 2,647
======== ========
Federal income taxes $ - $ -
======== ========
See notes to consolidated financial statements.
5
CROGHAN BANCSHARES, INC.
Notes to Consolidated Financial Statements
March 31, 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 March 31, 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, resulting in an increase in net
income for the quarter ended March 31, 2002 of $160,000. 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.
6
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 March 31, 2002 totaled $366,126,000 compared to $366,508,000 at 2001
year end. Total loans decreased to $275,292,000 from $278,366,000 at year end
and total deposits decreased to $292,304,000 from $295,003,000 at year end.
Net income for the quarter ended March 31, 2002 was $1,232,000 or $.64 per
common share compared to $843,000 or $.44 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 March 31, 2002 decreased by a modest $2,699,000 or 0.9 percent
from 2001 year end. The liquid deposit category (demand, savings, NOW and money
market deposit accounts) decreased $5,157,000 while the time deposit category
increased $2,458,000. 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).
Total loans decreased $3,074,000 or 1.1 percent from 2001 year end. Much of the
decrease is concentrated in the nonresidential real estate and consumer loan
portfolios. Total securities increased by $6,017,000 or 11.7 percent from 2001
year end. Given a slowing in loan demand during
7
the first quarter of 2002, available funds have been directed into investment
securities.
Stockholders' equity at March 31, 2002 increased to $40,398,000 or $21.15 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 March 31,
2002 included accumulated other comprehensive income that consisted of a net
unrealized gain on securities classified as available-for-sale. At March 31,
2002, Croghan held $52,344,000 in available-for-sale securities with a net
unrealized gain of $188,000, 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 5,000 shares having been repurchased during the first quarter of
2002. Treasury shares still being held as of March 31, 2002 are reported at a
cost of $115,000. Consistent with the Corporation's quarterly dividend policy, a
cash dividend of $.24 per share was declared on March 12, 2002 payable on April
30, 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 $394,000 for the quarter ended March 31, 2002 compared to the same
period in 2001. The net interest yield (net interest income divided by average
earning assets) was 4.75 percent for the quarter ended March 31, 2002 compared
to 4.56 percent for the quarter ended March 31, 2001.
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:
Three Months Ended Twelve Months Ended
March 31, 2002 December 31, 2001
(Dollars in thousands)
Provision for loan losses charged to expense $ 240 $ 695
Net loan charge-offs 141 591
Net loan charge-offs as a percent of
average outstanding loans .05% .22%
Nonaccrual loans $2,218 $2,241
Loans contractually past due 90 days or more 819 771
Restructured loans - -
Potential problem loans, other than those
past due 90 days or more, nonaccrual,
or restructured 7,072 5,949
Allowance for loan losses 3,445 3,346
Allowance for loan losses as a percent
of period-end loans 1.25% 1.20%
The provision for loan losses for the first three months of 2002 totaled
$240,000 compared to $120,000 expensed during the same period in 2001. Actual
net loan charge offs were $141,000 for the first three months of 2002 compared
to $24,000 during the same period in 2001. The higher provision was a result of
continued uncertainty in the local and national economies and emerging trends
within the loan portfolio.
8
Nonaccrual loans decreased to $2,218,000 at March 31, 2002 from $2,241,000 at
December 31, 2001, loans contractually past due 90 days or more increased to
$819,000 at March 31, 2002 from $771,000 at December 31, 2001, and potential
problem loans increased to $7,072,000 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 loans include one nonresidential real estate loan
of $3,318,000. 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 March
31, 2002 to be adequate to provide for losses inherent to the loan portfolio.
NON-INTEREST INCOME
Total non-interest income increased $35,000 or 6.5 percent for the quarter ended
March 31, 2002 compared to the same period in 2001. Trust department fee income
increased $5,000 between comparable quarterly periods and service charges on
deposit accounts increased $4,000 between comparable quarterly periods.
Other operating income increased $26,000 or 13.3 percent between comparable
quarterly periods. Included in the 2002 figure is a net gain on the sale of
other real estate totaling $27,000. There was no such gain reported during the
first quarter of 2001.
NON-INTEREST EXPENSES
Total non-interest expenses decreased $207,000 or 7.5 percent for the quarter
ended March 31, 2002 compared to the same period in 2001. Salaries, wages and
employee benefits decreased $104,000 between comparable quarterly periods
resulting from a 10% reduction in full-time equivalent employees that occurred
in November 2001.
The occupancy expense of premises decreased by $20,000 between comparable
quarterly periods and other operating expenses increased $77,000 between
comparable quarterly 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 the quarter ended March 31, 2002 as compared to $160,000 in the
comparable quarter in 2001.
FEDERAL INCOME TAX EXPENSE
Federal income tax expense increased $127,000 or 29.4 percent between quarterly
periods, from $432,000 in 2001 to $559,000 in 2002. The Corporation's effective
tax rate for the quarter ended March 31, 2002 was 31.2 percent compared to 33.9
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.
9
LIQUIDITY AND CAPITAL RESOURCES
An average federal funds sold position of $5,972,000 was maintained for the
quarterly period ended March 31, 2002. This compares to $6,761,000 for the
quarterly period ended March 31, 2001.
Short-term borrowings of federal funds purchased and repurchase agreements
averaged $9,030,000 for the quarterly period ended March 31, 2002. This compares
to $10,950,000 for the quarterly period ended March 31, 2001.
Borrowings from the Federal Home Loan Bank totaled $22,000,000 at March 31, 2002
compared to $16,000,000 at December 31, 2001. The additional borrowings will be
used to fund anticipated loan growth throughout 2002 and were drawn at a time
when the low-rate environment for such borrowings was considered advantageous
for future planning purposes.
Capital expenditures for premises and equipment totaled $102,000 for the quarter
ended March 31, 2002. This compares to $139,000 for the same period in 2001.
PLANNED BRANCH EXPANSION
The Board of Directors recently analyzed a report detailing possible market
opportunities and branch office alternatives in the Port Clinton, Ohio area. The
study contained information pertaining to the market area's attractiveness along
with suggested locations. The Board has authorized management to pursue a
suitable location in the market area and file any applicable requisite branch
application documents. A timeline has been established with a tentative opening
date sometime during the coming summer months.
10
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: April 16, 2002 /s/ Steven C. Futrell
---------------------------------------
Steven C. Futrell, President
Date: April 16, 2002 /s/ Allan E. Mehlow
---------------------------------------
Allan E. Mehlow, Treasurer
11