1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1997
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) Indentification 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 [ ]
634,526 Common shares were outstanding as of September 30, 1997.
This document contains 12 pages.
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CROGHAN BANCSHARES, INC.
Index
PART I. Page(s)
Item 1. Financial Statements 3 - 7
Item 2. Management's Discussion and Analysis 8 - 10
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 - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibit 27 - Financial Data Schedule 12
(b) None
Signatures 11
3
CROGHAN BANCSHARES, INC.
Consolidated Balance Sheets (Unaudited)
September 30 December 31
ASSETS 1997 1996
(Dollars in thousands, except par value)
CASH AND CASH EQUIVALENTS
Cash and due from banks $ 10,332 $ 11,543
Interest-bearing deposits in other banks -- 1
Federal funds sold -- 4,550
-------- --------
Total cash and cash equivalents 10,332 16,094
-------- --------
INVESTMENT SECURITIES
Available-for-sale, at market value 33,419 39,798
Held-to-maturity, at amortized cost, market value of $35,902 in 1997
and $36,716 in 1996 35,788 36,683
-------- --------
Total investment securities 69,207 76,481
-------- --------
LOANS 232,543 230,647
Less: Allowance for possible loan losses 3,559 3,368
-------- --------
Net Loans 228,984 227,279
-------- --------
BANK PREMISES AND EQUIPMENT, NET 8,236 7,769
ACCRUED INTEREST RECEIVABLE 2,782 2,580
INTANGIBLE ASSETS 8,832 9,310
OTHER ASSETS 548 655
-------- --------
TOTAL ASSETS $328,921 $340,168
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing $ 30,993 $ 31,575
Savings, including NOW and Money Market Deposit accounts 106,965 110,664
Time 150,965 153,071
-------- --------
Total deposits 288,923 295,310
Federal funds purchased and securities sold under repurchase agreements 2,523 6,039
Borrowed funds 3,785 6,563
Dividends payable 286 285
Accrued interest, taxes and other expenses 2,237 2,331
-------- --------
Total liabilities 297,754 310,528
-------- --------
STOCKHOLDERS' EQUITY
Common stock, $12.50 par value. Authorized 3,000,000 shares; issued and
outstanding 634,526 shares 7,932 7,932
Surplus 8,989 8,989
Retained earnings 14,158 12,622
Net unrealized holding gain (loss) on securities available-for-sale, net of
related income taxes 88 97
-------- --------
Total stockholders' equity 31,167 29,640
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $328,921 $340,168
======== ========
See notes to consolidated financial statements.
4
CROGHAN BANCSHARES, INC.
Consolidated Statements of Operations
(Unaudited)
Three months ended Nine months ended
September 30 September 30
1997 1996 1997 1996
(Dollars in thousands, (Dollars in thousands,
except per share data) except per share data)
INTEREST INCOME
Interest and fees on loans $ 5,155 $ 4,574 $ 15,206 $ 11,637
Interest and dividends on investment securities:
U.S. Treasury securities 410 559 1,352 1,604
Obligations of U.S. Government agencies and corporations 457 408 1,355 990
Obligations of states and political subdivisions 156 161 486 395
Other securities 53 76 160 227
Interest on federal funds sold 25 47 170 89
------- ------- -------- --------
Total interest income 6,256 5,825 18,729 14,942
------- ------- -------- --------
INTEREST EXPENSE
Interest on deposits 2,706 2,446 8,030 6,102
Interest on other borrowings 108 119 362 254
------- ------- -------- --------
Total interest expense 2,814 2,565 8,392 6,356
------- ------- -------- --------
Net interest income 3,442 3,260 10,337 8,586
PROVISION FOR LOAN LOSSES 45 55 135 85
------- ------- -------- --------
Net interest income after provision for loan losses 3,397 3,205 10,202 8,501
------- ------- -------- --------
NON-INTEREST INCOME
Trust income 85 65 234 198
Service charges on deposit accounts 187 173 550 447
Gain (loss) on sale of investment securities (23) (32) (31) (14)
Other operating income 124 103 388 314
------- ------- -------- --------
Total non-interest income 373 309 1,141 945
------- ------- -------- --------
NON-INTEREST EXPENSES
Salaries, wages and employee benefits 1,305 1,242 4,143 3,390
Net occupancy expense of bank premises 193 137 512 322
Amortization of goodwill and other intangible asset 160 106 479 106
Other operating expenses 912 847 2,581 2,038
------- ------- -------- --------
Total non-interest expenses 2,570 2,332 7,715 5,856
------- ------- -------- --------
Income before federal income taxes 1,200 1,182 3,628 3,590
FEDERAL INCOME TAXES 411 421 1,236 1,172
------- ------- -------- --------
NET INCOME $ 789 $ 761 $ 2,392 $ 2,418
======= ======= ======== ========
Net income per share, based on 634,526 shares $ 1.24 $ 1.20 $ 3.77 $ 3.81
======= ======= ======== ========
Dividends declared, based on 634,526 shares $ .45 $ .45 $ 1.35 $ 1.35
======= ======= ======== ========
See notes to consolidated financial statements.
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CROGHAN BANCSHARES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
September 30
1997 1996
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,392 $ 2,418
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 813 420
Provision for loan losses 135 85
Deferred federal income taxes (115) 48
FHLB stock dividend (65) (48)
Net amortization of investment security premiums and discounts 54 66
Loss (gain) on sale of investment securities 31 14
Loss (gain) on sale of equipment 27 9
Decrease (increase) in accrued interest receivable (202) 31
Decrease (increase) in other assets 176 (28)
Increase (decrease) in accrued interest, taxes and other expenses 26 320
-------- --------
Net cash provided by operating activities 3,272 3,335
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Union Bancshares Corp., net of $6,213 cash acquired - (14,087)
Purchases of investment securities:
Available-for-sale (12,477) (6,994)
Held-to-maturity (9,197) (1,803)
Proceeds from maturities of investment securities 23,008 17,788
Proceeds from sales of available-for-sale investment securities 5,958 12,313
Net decrease (increase) in loans (1,910) (5,225)
Capital expenditures (984) (242)
Proceeds from sale of equipment - 2
-------- --------
Net cash provided by (used in) investing activities 4,398 1,752
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in total deposits (6,281) (225)
Increase (decrease) in federal funds purchased and securities sold under repurchase agreements (3,516) (2,936)
Increase (decrease) in borrowed funds (2,778) 4,500
Cash dividends paid (857) (857)
-------- --------
Net cash provided by (used in) financing activities (13,432) 482
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,762) 5,569
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 16,094 7,819
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,332 $ 13,388
======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest $ 8,468 $ 6,363
======== ========
Federal income taxes $ 1,360 $ 1,061
======== ========
Transfer of loans to other real estate $ 70 $ 79
======== ========
See notes to consolidated financial statements.
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CROGHAN BANCSHARES, INC.
Notes to Consolidated Financial Statements
September 30, 1997
(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 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, 1997 are not necessarily indicative of
the operating results for the full year 1997, or any future interim
period.
The consolidated balance sheets include the assets and liabilities of
Union Bancshares Corp. ("Union") as discussed in Note (2). The
consolidated statements of operations and cash flows for the three and
nine-month periods ended September 30, 1996 include the operations of
Union from August 1, 1996 through the respective period.
(2) Acquisition of Union Bancshares Corp.
On August 1, 1996, the Corporation acquired all of the outstanding
shares of Union, the sole shareholder of The Union Bank and Savings
Company, an Ohio banking corporation, for $20,227,000 cash plus $73,000
in acquisition costs pursuant to a Plan and Agreement of Reorganization
dated February 15, 1996, and an Agreement of Merger dated March 27,
1996. The purchase price was deemed representative of the fair market
value of Union and was subject to final adjustment based upon the
results of an audit of Union's financial statements as of July 31,
1996. The transaction was accounted for as a purchase with Union's
assets and liabilities stated at their fair values. The fair values of
the assets acquired totalled $102,276,000 and the fair values of the
liabilities assumed totalled $91,545,000. Goodwill arising from the
purchase of $9,569,000 is being amortized over a period of 15 years.
(3) Impact of Changes in Accounting Principles
FASB Statement No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (Statement 125),
was effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996.
Statement 125 is to be applied prospectively, retroactive application
was not permitted. The adoption of Statement 125 for transactions
occurring after December 31, 1996 has not had any impact on the
Corporation's 1997 financial statements.
In February 1997, FASB Statement No. 128, "Earnings Per Share"
(Statement 128) was issued. Statement 128 supersedes APB Opinion No.
15, "Earnings Per Share" and specifies the computation, presentation,
and disclosure requirements for earnings per share (EPS) for entities
with publicly held common stock or potential common stock. Statement
128 was issued to simplify the computation of EPS and to make the U.S.
standard more compatible with the EPS standards of other countries and
that of the International Accounting Standards Committee. It replaces
the presentation of primary EPS with a presentation of basic EPS and
fully diluted EPS with diluted EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all
entities with complex capital
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structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation.
Statement 128 is effective for financial statements for both interim
and annual periods ending after December 15, 1997. Earlier application
is not permitted. After adoption, all prior-period EPS data presented
shall be restated to conform with Statement 128. Since the Corporation
does not have a complex capital structure, adoption of Statement 128 is
not expected to have any impact on the computation of EPS.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income".
Statement 130 establishes standards for reporting and display of
comprehensive income (as defined) in a full set of general-purpose
financial statements. Statement 130 will require classification of
items of other comprehensive income by their nature in a financial
statement and display of the accumulated balance of other comprehensive
income separately from retained earnings and surplus in the equity
section of the statement of financial position. Statement 130 is
effective for fiscal years beginning after December 15, 1997 and
requires reclassification of financial statements for earlier periods
provided for comparative purposes.
Management does not believe the application of Statement 130 will
materially affect the Corporation's consolidated financial position and
results of operations.
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CROGHAN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERFORMANCE SUMMARY
Assets at September 30, 1997 totalled $328,921,000 compared to $340,168,000 at
1996 year end. Total deposits decreased to $288,923,000 from $295,310,000 at
year end and total loans increased to $232,543,000 from $230,647,000 at year
end.
Net income for the quarter ended September 30, 1997 was $789,000 or $1.24 per
common share compared to $761,000 or $1.20 per common share for the same period
in 1996, and net income for the nine-month period ended September 30, 1997 was
$2,392,000 or $3.77 per common share compared to $2,418,000 or $3.81 per common
share for the same period in 1996. Operating results for 1997 include increases
in the provision for loan losses and the Corporation's effective federal income
tax rate (due primarily to the non-deductibility of goodwill amortization
expense).
DEPOSITS, LOANS, INVESTMENT SECURITIES, AND STOCKHOLDERS' EQUITY
Total deposits at September 30, 1997 decreased $6,387,000 or 2.2 percent from
1996 year end. The liquid deposit category (demand, savings, NOW and money
market deposit accounts) decreased $4,281,000 while the time deposit category
decreased $2,106,000. Total loans increased $1,896,000 or .8 percent from 1996
year end. Total investment securities decreased $7,274,000 or 9.5 percent from
1996 year end due to loan growth combined with a decrease in deposits.
Stockholders' equity at September 30, 1997 increased to $31,167,000 or $49.12
book value per common share compared to $29,640,000 or $46.71 book value per
common share at December 31, 1996. The balance in stockholders' equity at
September 30, 1997 included a net unrealized holding gain on securities
classified as available-for-sale of $88,000 (net of deferred income taxes
totalling $45,000). At December 31, 1996, stockholders' equity included a net
unrealized holding gain on securities classified as available-for-sale of
$97,000 (net of deferred income taxes totalling $50,000). Consistent with the
Corporation's quarterly dividend policy, a dividend of $.45 per share was
declared on September 9, 1997 to be distributed on October 31, 1997.
NET INTEREST INCOME
Net interest income, which represents the excess revenue generated from earning
assets over the interest cost of funding those assets, increased $182,000 for
the quarter ended September 30, 1997 compared to the same period in 1996, and
increased $1,751,000 for the nine-month period ended September 30, 1997 compared
to the same period in 1996. Net interest income for 1997 includes the operations
of the former Union Bancshares Corp. for the entire portion of the respective
periods. Net interest income for 1996 only includes the operations of the former
Union Bancshares Corp. from August 1, 1996 through the respective period end and
thus the comparability of the amounts presented is significantly affected. The
net interest yield (net interest income divided by average earning assets) was
4.53 percent for the quarters ended September 30, 1997 and 1996, and was 4.53
percent for the nine-month period ended September 30, 1997 compared to 4.61
percent for the same period in 1996.
PROVISION FOR LOAN LOSSES AND THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following table details factors relating to the provision and allowance for
loan losses for the periods noted:
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Nine Months Ended Twelve Months Ended
September 30, December 31,
1997 1996
(Dollars in thousands)
Provision for loan losses charged
to expense $ 135 $ 160
Net loan charge-offs (recoveries) (57) 117
Net loan charge-offs (recoveries) as a
percent of average outstanding net loans (.03%) .06%
Nonaccrual loans $ 209 $ 649
Loans past due 90 days or more 616 764
Restructured loans 459 471
Potential problem loans, other than those
past due 90 days or more, nonaccrual,
or restructured 2,190 1,738
Allowance for possible loan losses 3,559 3,368
Allowance for possible loan losses as a
percent of period-end loans 1.53% 1.46%
The provision for loan losses for the first nine months of 1997 appearing in the
Consolidated Statements of Operations totalled $135,000. This provision compares
to $85,000 provided during the same period in 1996. There were net loan
recoveries of $57,000 for the first nine months of 1997 compared to net charge
offs of $72,000 during the same period in 1996.
Nonaccrual loans decreased from $649,000 at December 31, 1996 to $209,000 at
September 30, 1997. Loans past due 90 days or more decreased $148,000 and other
potential problem loans increased $452,000 from December 31, 1996 figures . The
asset quality trends will continue to be monitored throughout 1997 to ensure
adequate provisions for loan losses are calculated and expensed. The
Corporation's allowance for possible loan losses as a percentage of outstanding
loans improved to 1.53 percent at September 30, 1997 compared to 1.46 percent at
December 31, 1996.
It is the Corporation's policy to maintain the allowance for possible loan
losses at a level to provide for reasonably foreseeable losses. To accomplish
this objective, a loan review process is employed to facilitate the early
identification of problem loans and to ensure sound credit decisions. Management
considers the balance at September 30, 1997 to be adequate to provide for losses
inherent to the loan portfolio.
NON-INTEREST INCOME
Total non-interest income increased $64,000 or 20.7 percent for the quarter
ended September 30, 1997 compared to the same period in 1996, and increased
$196,000 or 20.7 percent for the nine-month period ended September 30, 1997
compared to the same period in 1996. Non-interest income for 1997 includes the
operations of the former Union Bancshares Corp. for the entire portion of the
respective periods. Non-interest income for 1996 only includes the operations of
the former Union Bancshares Corp. from August 1, 1996 through the respective
period end and thus the comparability of the amounts presented is significantly
affected.
Included in non-interest income for the nine months ended September 30, 1997 are
realized losses of $31,000 on the sale of investment securities that were
classified as available-for-sale. This compares to realized losses of $14,000 on
the sale of investment securities during the same period in 1996.
Trust department fee income increased $20,000 between comparable quarterly
periods and $36,000 between comparable nine-month periods. Service charges on
deposit accounts increased $14,000 between comparable quarterly periods and
$103,000 between comparable nine-month periods.
Other operating income increased $21,000 between comparable quarterly periods
and $74,000 between comparable nine-month periods. Included in other operating
income for the first nine months of 1997 are $115,000 in fees generated by the
Specialized Investments Division which markets products that are not FDIC
insured (e.g., mutual funds and annuities). This compares to $87,000 in fees
earned
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during the same period in 1996.
NON-INTEREST EXPENSES
Total non-interest expenses increased $238,000 or 10.2 percent for the quarter
ended September 30, 1997 compared to the same period in 1996, and increased
$1,859,000 or 31.7 percent for the nine-month period ended September 30, 1997
compared to the same period in 1996. Non-interest expenses for 1997 include the
operations of the former Union Bancshares Corp. for the entire portion of the
respective periods. Non-interest expenses for 1996 only include the operations
of the former Union Bancshares Corp. from August 1, 1996 through the respective
period end and thus the comparability of the amounts presented is significantly
affected.
Salaries, wages and employee benefits increased $63,000 between comparable
quarterly periods and $753,000 between comparable nine-month periods. Net
occupancy expense of bank premises increased $56,000 between comparable
quarterly periods and $190,000 between comparable nine-month periods.
Other operating expenses increased $65,000 between comparable quarterly periods
and $543,000 between comparable nine-month periods. Goodwill amortization
associated with the August 1, 1996 purchase of Union Bancshares Corp. totalled
$160,000 for the quarter ended September 30, 1997 and $479,000 for the
nine-month period ended September 30, 1997. This compares to $106,000 for the
quarterly and nine-month periods in 1996.
FEDERAL INCOME TAX EXPENSE
Federal income tax expense decreased $10,000 or 2.4 percent between comparable
quarterly periods, and increased $64,000 or 5.5 percent between comparable
nine-month periods. The Corporation's effective tax rate for the nine months
ended September 30, 1997 increased to 34.1 percent compared to 32.6 percent for
the same period in 1996. The increase in the effective tax rate for 1997 is
attributable to the inability to deduct the amortization of goodwill.
LIQUIDITY AND CAPITAL RESOURCES
Average federal funds sold positions for the quarterly and nine-month periods
ended September 30, 1997 were $1,608,000 and $4,025,000 respectively. Short-term
borrowings of federal funds purchased and repurchase agreements averaged
$3,329,000 and $3,107,000 for the quarterly and nine-month periods,
respectively.
Long-term borrowings due to the Federal Home Loan Bank in 1999 totalled
$1,000,000 at September 30, 1997. Borrowings from NBD Bank advanced to fund the
purchase of Union Bancshares Corp. totalled $2,785,000 at September 30, 1997.
The NBD loan is due on July 31, 1999 and is repayable in quarterly installments
of principal plus interest, with the principal payments based upon a ten-year
amortization schedule.
Capital expenditures for bank premises and equipment totalled $984,000 for the
nine-month period ended September 30, 1997. This compares to $242,000 for the
same period in 1996. Projected 1997 capital expenditures total $1,050,000 with a
majority of that amount budgeted for the purchase of new computer processing
equipment. A significant portion of the equipment was installed in July, with
the remainder of the equipment to be installed prior to the end of the year.
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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 17, 1997 /s/ Thomas Hite
------------------------ ------------------------------
Thomas F. Hite, President
Date: October 17, 1997 /s/ Allan E. Mehlow
------------------------ -------------------------------
Allan E. Mehlow, Treasurer/
Principal Financial Officer