1
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 June 30, 1998
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 [ ]
1,903,578 Common shares were outstanding as of June 30, 1998.
This document contains 11 pages.
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CROGHAN BANCSHARES, INC.
Index
PART I. Page(s)
Item 1. Financial Statements 3 - 6
Item 2. Management's Discussion and Analysis 7 - 9
Item 3. Quantitative and Qualitative Disclosures About Market
Risk - There have been no material changes from the
information provided in the December 31, 1997 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 12, 1998.
(b) Proxies were solicited pursuant to Regulation 14A
of the Securities Exchange Act of 1934. There was
no solicitation in opposition to management's
nominees for Directors and all nominees were elected.
(c) There were no matters other than the election of
directors voted upon at the meeting, the results of
which were as follows:
Directors For Withheld Abstain
--------- --- -------- -------
Janet E. Burkett 522,857 2,246 0
Thomas F. Hite 524,247 856 0
John P. Keller 517,657 7,446 0
Stephen A. Kemper 521,378 3,725 0
Daniel W. Lease 524,039 1,064 0
Robert H. Moyer 522,649 2,454 0
Albert C. Nichols 522,857 2,246 0
K. Brian Pugh 524,039 1,064 0
Clemens J. Szymanowski 522,857 2,246 0
J. Terrence Wolfe 524,247 856 0
Claude E. Young 524,247 856 0
Gary L. Zimmerman 524,247 856 0
(d) Not applicable.
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibit 27 - Financial Data Schedule 11
(b) A Form 8-K dated May 13, 1998 was filed on May 15, 1998,
reporting a 3-for-1 split of the Registrant's common
shares. A total of 1,269,052 additional shares were
issued on June 5, 1998.
Signatures 10
3
CROGHAN BANCSHARES, INC.
Consolidated Balance Sheets (Unaudited)
June 30 December 31
ASSETS 1998 1997
(Dollars in thousands, except par value)
CASH AND CASH EQUIVALENTS
Cash and due from banks $ 11,401 $ 9,735
Interest-bearing deposits in other banks - -
Federal funds sold 5,950 -
-------- --------
Total cash and cash equivalents 17,351 9,735
-------- --------
INVESTMENT SECURITIES
Available-for-sale, at market value 33,070 34,197
Held-to-maturity, at amortized cost, market value of $34,286 in 1998
and $35,588 in 1997 34,173 35,467
-------- --------
Total investment securities 67,243 69,664
-------- --------
LOANS 233,247 239,076
Less: Allowance for possible loan losses 3,556 3,518
-------- --------
Net Loans 229,691 235,558
-------- --------
BANK PREMISES AND EQUIPMENT, NET 8,109 8,119
ACCRUED INTEREST RECEIVABLE 2,600 2,613
OTHER REAL ESTATE OWNED 70 140
INTANGIBLE ASSETS 8,366 8,672
OTHER ASSETS 841 539
-------- --------
TOTAL ASSETS $334,271 $335,040
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing $ 34,223 $ 30,753
Savings, NOW and Money Market deposits 108,880 106,836
Time 148,944 151,464
-------- --------
Total deposits 292,047 289,053
Federal funds purchased and securities sold under repurchase agreements 4,885 8,663
Borrowed funds 2,375 3,200
Dividends payable 285 285
Accrued interest, taxes and other expenses 2,146 2,249
-------- --------
Total liabilities 301,738 303,450
-------- --------
STOCKHOLDERS' EQUITY
Common stock, $12.50 par value. Authorized 3,000,000 shares; issued and
outstanding 1,903,578 shares in 1998 and 634,526 shares in 1997 23,795 7,932
Surplus - 8,989
Retained earnings 8,666 14,587
Net unrealized holding gain (loss) on securities available-for-sale, net of
related income taxes 72 82
-------- --------
Total stockholders' equity 32,533 31,590
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $334,271 $335,040
======== ========
See notes to consolidated financial statements.
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CROGHAN BANCSHARES, INC.
Consolidated Statements of Operations and Comprehensive Income (Unaudited)
Three months ended Six months ended
June 30 June 30
1998 1997 1998 1997
(Dollars in thousands, (Dollars in thousands,
except per share data) except per share data)
INTEREST INCOME
Interest and fees on loans $ 5,192 $ 5,137 $ 10,331 $ 10,052
Interest and dividends on investment securities:
U.S. Treasury securities 448 453 875 942
Obligations of U.S. Government agencies and corporations 372 476 748 898
Obligations of states and political subdivisions 152 164 294 329
Other securities 37 53 80 107
Interest on federal funds sold 116 62 192 145
-------- -------- -------- --------
Total interest income 6,317 6,345 12,520 12,473
-------- -------- -------- --------
INTEREST EXPENSE
Interest on deposits 2,764 2,652 5,513 5,324
Interest on other borrowings 107 116 216 254
-------- -------- -------- --------
Total interest expense 2,871 2,768 5,729 5,578
-------- -------- -------- --------
Net interest income 3,446 3,577 6,791 6,895
PROVISION FOR LOAN LOSSES 60 45 120 90
-------- -------- -------- --------
Net interest income after provision for loan losses 3,386 3,532 6,671 6,805
-------- -------- -------- --------
NON-INTEREST INCOME
Trust income 92 76 179 149
Service charges on deposit accounts 191 187 359 363
Gain (loss) on sale of investment securities - (1) - (8)
Gain (loss) on sale of loans 20 - 32 -
Other operating income 123 124 276 264
-------- -------- -------- --------
Total non-interest income 426 386 846 768
-------- -------- -------- --------
NON-INTEREST EXPENSES
Salaries, wages and employee benefits 1,397 1,415 2,799 2,838
Net occupancy expense of bank premises 161 155 321 319
Amortization of goodwill and other intangible asset 161 159 321 319
Other operating expenses 878 826 1,750 1,669
-------- -------- -------- --------
Total non-interest expenses 2,597 2,555 5,191 5,145
-------- -------- -------- --------
Income before federal income taxes 1,215 1,363 2,326 2,428
FEDERAL INCOME TAXES 418 463 802 825
-------- -------- -------- --------
NET INCOME $ 797 $ 900 $ 1,524 $ 1,603
======== ======== ======== ========
Net income per share, based on 1,903,578 shares $ .42 $ .47 $ .80 $ .84
======== ======== ======== ========
Dividends declared, based on 1,903,578 shares $ .15 $ .15 $ .30 $ .30
======== ======== ======== ========
COMPREHENSIVE INCOME $ 797 $ 1,065 $ 1,514 $ 1,545
======== ======== ======== ========
See notes to consolidated financial statements.
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CROGHAN BANCSHARES, INC.
Consolidated Statements of Cash Flows (Unaudited)
Six months ended
June 30
1998 1997
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,524 $ 1,603
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 594 522
Provision for loan losses 120 90
Deferred federal income taxes (10) (31)
FHLB stock dividend (46) (42)
Net amortization of investment security premiums and discounts 9 39
Loss (gain) on sale of investment securities - 8
Loss (gain) on sale of loans (32) -
Loss (gain) on sale of equipment 4 -
Decrease (increase) in accrued interest receivable 13 (29)
Decrease (increase) in other assets (231) (123)
Increase (decrease) in accrued interest, taxes and other expenses (88) (108)
-------- --------
Net cash provided by operating activities 1,857 1,929
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities:
Available-for-sale (4,998) (10,480)
Held-to-maturity (9,903) (8,941)
Proceeds from maturities of investment securities 17,377 18,341
Proceeds from sales of available-for-sale investment securities - 3,994
Proceeds from sale of loans 1,581 -
Net decrease (increase) in loans 4,182 3,948
Capital expenditures (376) (425)
Proceeds from sale of equipment 6 -
-------- --------
Net cash provided by (used in) investing activities 7,869 6,437
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in total deposits 3,064 (4,013)
Increase (decrease) in federal funds purchased and securities sold under repurchase agreements (3,778) (4,141)
Repayments of borrowed funds (825) (2,688)
Cash dividends paid (571) (571)
-------- --------
Net cash provided by (used in) financing activities (2,110) (11,413)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,616 (3,047)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,735 16,094
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,351 $ 13,047
======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest $ 5,891 $ 5,684
======== ========
Federal income taxes $ 635 $ 785
======== ========
Transfer of loans to other real estate $ - $ -
======== ========
See notes to consolidated financial statements.
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CROGHAN BANCSHARES, INC.
Notes to Consolidated Financial Statements
June 30, 1998
(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, 1998 are not necessarily indicative of the operating results
for the full year or any future interim period.
(2) Common Stock
On May 12, 1998, the Corporation announced a 3-for-1 split of its
outstanding common shares, par value $12.50 per share, for shareholders of
record May 29, 1998. As a result of the split, two additional common shares
were issued on June 5, 1998 for each share owned by shareholders of record
on May 29, 1998, resulting in the number of issued and outstanding shares
increasing from 634,526 to 1,903,578. Since the par value of the common
stock was not changed, the recording of the stock split resulted in an
increase of $15,863,000 in common stock and decreases of $8,989,000 in
surplus and $6,874,000 in retained earnings.
(3) Reporting of Comprehensive Income
The Corporation adopted Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income, effective January 1, 1998.
Comprehensive income represents net income and "other comprehensive income"
as defined in Statement No. 130. The Corporation's only other comprehensive
income component is its unrealized gains on investment securities.
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CROGHAN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERFORMANCE SUMMARY
Assets at June 30, 1998 totalled $334,271,000 compared to $335,040,000 at 1997
year end. Total deposits increased to $292,047,000 from $289,053,000 at year end
and total loans decreased to $233,247,000 from $239,076,000 at year end.
Net income for the quarter ended June 30, 1998 was $797,000 or $.42 per common
share compared to $900,000 or $.47 per common share for the same period in 1997,
and net income for the six-month period ended June 30, 1998 was $1,524,000 or
$.80 per common share compared to $1,603,000 or $.84 per common share for the
same period in 1997. Operating results for 1998 include increases in the
provision for loan losses and interest on deposits (primarily interest on money
market accounts as Croghan implemented a more competitive rate structure in an
effort to maintain the market share of its core deposit base).
DEPOSITS, LOANS, INVESTMENT SECURITIES, AND STOCKHOLDERS' EQUITY
Total deposits at June 30, 1998 increased $2,994,000 or 1.0 percent from 1997
year end. The liquid deposit category (demand, savings, NOW and money market
deposit accounts) increased $5,514,000 while the time deposit category decreased
$2,520,000. Total loans decreased $5,829,000 or 2.4 percent from 1997 year end.
Total investment securities decreased $2,421,000 or 3.5 percent from 1997 year
end.
Stockholders' equity at June 30, 1998 increased to $32,533,000 or $17.09 book
value per common share compared to $31,590,000 or $16.60 book value per common
share at December 31, 1997 (as adjusted for a 3-for-1 stock split declared on
May 12, 1998 and distributed on June 5, 1998). The balance in stockholders'
equity at June 30, 1998 included a net unrealized holding gain on securities
classified as available-for-sale of $72,000 (net of deferred income taxes
totalling $37,000). At December 31, 1997, stockholders' equity included a net
unrealized holding gain on securities classified as available-for-sale of
$82,000 (net of deferred income taxes totalling $42,000). Consistent with the
Corporation's quarterly dividend policy, a dividend of $.15 per share was
declared on June 9, 1998 to be distributed on July 31, 1998.
NET INTEREST INCOME
Net interest income, which represents the excess revenue generated from earning
assets over the interest cost of funding those assets, decreased $131,000 for
the quarter ended June 30, 1998 compared to the same period in 1997, and
decreased $104,000 for the six-month period ended June 30, 1998 compared to the
same period in 1997. The net interest yield (net interest income divided by
average earning assets) was 4.43 percent for the quarter ended June 30, 1998
compared to 4.72 percent for the same period in 1997, and was 4.39 percent for
the six-month period ended June 30, 1998 compared to 4.53 percent for the same
period in 1997.
PROVISION FOR LOAN LOSSES AND THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following table details factors relating to the provision and allowance for
possible loan losses for the periods noted:
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Six Months Ended Twelve Months Ended
June 30, December 31,
1998 1997
(Dollars in thousands)
Provision for loan losses charged
to expense $ 120 $ 180
Net loan charge-offs 82 30
Net loan charge-offs as a percent
of average outstanding net loans .04% .01%
Nonaccrual loans $ 211 $ 212
Loans past due 90 days or more 1,521 582
Potential problem loans, other than those
past due 90 days or more, nonaccrual,
or restructured 857 1,992
Allowance for possible loan losses 3,556 3,518
Allowance for possible loan losses as a
percent of period-end loans 1.52% 1.47%
The provision for loan losses for the first six months of 1998 appearing in the
Consolidated Statements of Operations and Comprehensive Income totalled
$120,000. This provision compares to $90,000 expensed during the same period in
1997. Net loan charge offs were $82,000 for the first six months of 1998
compared to net recoveries of $163,000 during the same period in 1997.
Nonaccrual loans totalled $211,000 at June 30, 1998 compared to $212,000 at
December 31, 1997. Loans past due 90 days or more at June 30, 1998 increased by
$939,000 and other potential problem loans decreased $1,135,000 from December
31, 1997 figures. The asset quality trends are being monitored throughout 1998
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 1.52 percent at June 30, 1998 compared to 1.47 percent at
December 31, 1997.
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 conducted by an outside consulting firm
which facilitates the early identification of problem loans and ensures sound
credit decisions. Management considers the balance at June 30, 1998 to be
adequate to provide for losses inherent to the loan portfolio.
NON-INTEREST INCOME
Total non-interest income increased $40,000 or 10.4 percent for the quarter
ended June 30, 1998 compared to the same period in 1997, and increased $78,000
or 10.2 percent for the six-month period ended June 30, 1998 compared to the
same period in 1997. Included in non-interest income for the six-month period
ended June 30, 1997 were realized losses of $8,000 on the sale of investment
securities that were classified as available-for-sale. There were no such losses
during the same period in 1998.
Trust department fee income increased $16,000 between comparable quarterly
periods and $30,000 between comparable six-month periods. Service charges on
deposit accounts increased $4,000 between comparable quarterly periods and
decreased $4,000 between comparable six-month periods.
Gains on the sale of loans to the Federal Home Loan Mortgage Corporation
(Freddie Mac) totalled $20,000 for the quarterly period ended June 30, 1998, and
$32,000 for the first six months of 1998. There were no such gains during the
same periods in 1997. Other operating income decreased $1,000 between comparable
quarterly periods and increased $12,000 between comparable six-month periods.
NON-INTEREST EXPENSES
Total non-interest expenses increased $42,000 or 1.6 percent for the quarter
ended June 30, 1998 compared to the same period in 1997, and increased $46,000
or .9 percent for the six-month period ended June 30, 1998 compared to the same
period in 1997. Salaries, wages and employee benefits decreased $18,000 between
comparable quarterly periods and $39,000 between comparable six-month periods.
Net occupancy expense of bank premises increased $6,000 between
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comparable quarterly periods and $2,000 between comparable six-month periods.
Goodwill amortization associated with the August 1, 1996 purchase of Union
Bancshares Corp. was basically unchanged for the comparable quarterly and six-
month periods while other operating expenses increased $52,000 or 6.3 percent
between quarterly periods and $81,000 or 4.9 percent between comparable six-
month periods.
FEDERAL INCOME TAX EXPENSE
Federal income tax expense decreased $45,000 or 9.7 percent between comparable
quarterly periods, and $23,000 or 2.8 percent between comparable six-month
periods due to lower income before taxes. The Corporation's effective tax rate
for the six months ended June 30, 1998 increased to 34.5 percent compared to
34.0 percent for the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Average federal funds sold positions of $8,365,000 and $7,084,000 were
maintained for the quarterly and six-month periods, respectively, ended June 30,
1998. Short-term borrowings of federal funds purchased and repurchase agreements
averaged $5,330,000 and $5,324,000 for the quarterly and six-month periods,
respectively.
Borrowings due to the Federal Home Loan Bank in 1999 totalled $1,000,000 at
June 30, 1998. Borrowings from NBD Bank advanced to fund the purchase of Union
Bancshares Corp. totalled $1,375,000 at June 30, 1998. 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 $376,000 for the
six-month period ended June 30, 1998. This compares to $425,000 for same period
in 1997. Projected 1998 capital expenditures total $550,000. Of the projected
1998 expenditure amount, approximately $200,000 is allocated to the relocation
and furnishing of the Trust Department within the Main Office complex.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities. The Statement is
effective for all fiscal quarters of all years beginning after June 15, 1999.
The Corporation does not believe the adoption of Statement No. 133 will have any
material impact to the consolidated financial statements.
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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
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Registrant
Date: July 17, 1998 /s/ Thomas Hite
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Thomas F. Hite, President
Date: July 17, 1998 /s/ Allan E. Mehlow
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Allan E. Mehlow, Treasurer/
Principal Financial Officer