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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 March 31, 2003
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
1,901,521 common shares were outstanding as of March 31, 2003
This document contains 16 pages.
CROGHAN BANCSHARES, INC.
Index
PART I. Page(s)
Item 1. Financial Statements 3 - 6
Item 2. Management's Discussion and Analysis of Financial Condition 7 - 10
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Item 4. Controls and Procedures 11
PART II.
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and Use of Proceeds - 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) Exhibit 99.1 - Certification Pursuant to 18 U.S.C. 15
Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (President and CEO)
Exhibit 99.2 - Certification Pursuant to 18 U.S.C. 16
Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (Treasurer)
(b) A Form 8-K dated January 23, 2003 was filed on
January 23, 2003 reporting the 2002 annual earnings
for Croghan Bancshares, Inc. and announcing the
continuation of a stock repurchase program
effective on February 1, 2003.
Signatures 12
Certifications by the President and CEO 13
Certifications by the Treasurer 14
2
CROGHAN BANCSHARES, INC.
Consolidated Balance Sheets (Unaudited)
March 31, December 31,
ASSETS 2003 2002
(Dollars in thousands, except par value)
CASH AND CASH EQUIVALENTS
Cash and due from banks $ 12,852 $ 13,140
Federal funds sold 8,400 --
--------- ---------
Total cash and cash equivalents 21,252 13,140
--------- ---------
SECURITIES
Available-for-sale, at fair value 66,787 65,556
Held-to-maturity, at amortized cost, fair value of $5,014 in 2003
and $6,005 in 2002 4,893 5,881
--------- ---------
Total securities 71,680 71,437
--------- ---------
LOANS 278,584 287,951
Less: Allowance for loan losses 3,578 3,689
--------- ---------
Net loans 275,006 284,262
--------- ---------
Premises and equipment, net 5,790 5,743
Accrued interest receivable 1,983 2,366
Goodwill 6,113 6,113
Other assets 4,268 4,269
--------- ---------
TOTAL ASSETS $ 386,092 $ 387,330
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing $ 34,981 $ 35,296
Savings, NOW and Money Market deposits 132,332 130,041
Time 138,034 137,551
--------- ---------
Total deposits 305,347 302,888
Federal funds purchased and securities sold under repurchase agreements 7,697 11,345
Federal Home Loan Bank borrowings 25,500 26,500
Dividends payable 513 513
Other liabilities 2,872 2,622
--------- ---------
Total liabilities 341,929 343,868
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, $12.50 par value. Authorized 3,000,000 shares;
issued 1,914,109 shares 23,926 23,926
Surplus 118 118
Retained earnings 19,547 18,740
Accumulated other comprehensive income (loss) 904 1,027
Treasury stock, 12,588 shares in 2003 and 13,207 shares in 2002, at cost (332) (349)
--------- ---------
Total stockholders' equity 44,163 43,462
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 386,092 $ 387,330
========= =========
See note to consolidated financial statements.
3
CROGHAN BANCSHARES, INC.
Consolidated Statements of Operations and Comprehensive Income (Unaudited)
Three months ended
March 31
2003 2002
(Dollars in thousands,
except per share data)
INTEREST INCOME
Loans, including fees $4,976 $5,354
Securities:
U.S. Treasury 10 10
Obligations of U.S. Government agencies and corporations 492 484
Obligations of states and political subdivisions 147 123
Other 71 76
Federal funds sold 20 24
------ ------
Total interest income 5,716 6,071
------ ------
INTEREST EXPENSE
Deposits 1,428 1,752
Other borrowings 324 310
------ ------
Total interest expense 1,752 2,062
------ ------
Net interest income 3,964 4,009
PROVISION FOR LOAN LOSSES 115 240
------ ------
Net interest income, after provision for loan losses 3,849 3,769
------ ------
NON-INTEREST INCOME
Trust income 127 130
Service charges on deposit accounts 285 226
Other 221 221
------ ------
Total non-interest income 633 577
------ ------
NON-INTEREST EXPENSES
Salaries, wages and employee benefits 1,453 1,446
Occupancy of premises 176 147
Other operating 940 962
------ ------
Total non-interest expenses 2,569 2,555
------ ------
Income before federal income taxes 1,913 1,791
FEDERAL INCOME TAXES 592 559
------ ------
NET INCOME $1,321 $1,232
====== ======
Net income per share, based on 1,901,126 shares in 2003 and 1,912,429 shares in 2002 $ 0.69 $ 0.64
====== ======
Dividends declared, based on 1,901,521 shares in 2003 and 1,909,676 shares in 2002 $ 0.27 $ 0.24
====== ======
COMPREHENSIVE INCOME $1,198 $1,020
====== ======
See note to consolidated financial statements.
4
CROGHAN BANCSHARES, INC.
Consolidated Statements of Cash Flows (Unaudited)
Three months ended
March 31
2003 2002
(Dollars in thousands)
NET CASH FLOW FROM OPERATING ACTIVITIES $ 2,497 $ 2,174
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of available-for-sale securities (6,400) (10,241)
Proceeds from maturities of securities 5,749 3,815
Net decrease (increase) in loans 9,141 2,933
Additions to premises and equipment (161) (102)
-------- --------
Net cash from investing activities 8,329 (3,595)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 2,459 (2,699)
Net change in federal funds purchased and securities sold under repurchase agreements (3,648) (4,456)
Net change in Federal Home Loan Bank borrowings (1,000) 6,000
Proceeds from issuance of common stock 17 14
Cash dividends paid (513) (421)
Purchase of treasury stock -- (129)
Payment of deferred compensation (29) (17)
-------- --------
Net cash from financing activities (2,714) (1,708)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 8,112 (3,129)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,140 21,349
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 21,252 $ 18,220
======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 1,774 $ 2,154
======== ========
Federal income taxes $ 58 $ --
======== ========
See note to consolidated financial statements.
5
CROGHAN BANCSHARES, INC.
Notes to Consolidated Financial Statements
March 31, 2003
(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, 2003 are not necessarily indicative of the
operating results for the full year.
6
ITEM 2. 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, 2003 totaled $386,092,000 compared to $387,330,000 at 2002
year end. The most substantial change in assets occurred in the federal funds
sold category which increased to $8,400,000 at March 31, 2003 compared to none
at year end. Total loans decreased to $278,584,000 from $287,951,000 at year end
and total deposits increased to $305,347,000 from $302,888,000 at year end.
Net income for the period ended March 31, 2003 was $1,321,000 or $.69 per common
share compared to $1,232,000 or $.64 per common share for the same period in
2002. Operating results in 2003 have been positively impacted by an increase in
non-interest income and a reduction in the provision for loan losses.
DEPOSITS, LOANS, SECURITIES, AND STOCKHOLDERS' EQUITY
Total deposits at March 31, 2003 increased $2,459,000 or 0.8 percent from 2002
year end. The liquid deposit category (demand, savings, NOW and money market
deposit accounts) increased $1,976,000 and the time deposit category increased
$483,000. Even though there is active competition for core deposits from
traditional sources (e.g., other banks and credit unions) and non-traditional
sources (e.g., brokerage firms), Croghan has benefited from the apparent
consumer preference for the safety of FDIC-insured bank deposit products.
7
Total loans decreased $9,367,000 or 3.3 percent from 2002 year end. Every loan
category, except construction real estate loans, experienced a decline from 2002
year end. Much of the decline is attributed to the continued weakness in the
national and local economies. The economic climate seems to have produced
uncertainties that make businesses and consumers quite tentative about their
spending and borrowing plans.
Total securities increased just slightly, by $243,000, from 2002 year end. Given
the soft loan demand coupled with an increase in deposits, available funds have
been temporarily invested in highly liquid federal funds sold. As loan and
investment security opportunities arise throughout 2003, these available funds
will be deployed into those higher earning asset categories.
Stockholders' equity at March 31, 2003 increased to $44,163,000 or $23.23 book
value per common share compared to $43,462,000 or $22.86 book value per common
share at December 31, 2002. The balance in stockholders' equity at March 31,
2003 included accumulated other comprehensive income consisting of net
unrealized gains on securities classified as available-for-sale. At March 31,
2003, Croghan held $66,787,000 in available-for-sale securities with an
unrealized gain of $904,000, net of income taxes. This compares to 2002 year-end
holdings of $65,556,000 in available-for-sale securities with an unrealized gain
of $1,027,000, net of income taxes.
Beginning in February, 2002, Croghan instituted a stock buy-back program. This
program has subsequently been extended through August 1, 2003. Since the
inception of the program, a total of 14,400 shares have been repurchased as
treasury shares. The 12,588 treasury shares held as of March 31, 2003 and 13,207
shares held as of December 31, 2002 are reported at their acquired cost.
Consistent with the Corporation's quarterly dividend policy, a cash dividend of
$.27 per share was declared on March 11, 2003 payable on April 30, 2003.
NET INTEREST INCOME
Net interest income, which represents the excess revenue generated from
interest-earning assets over the interest cost of funding those assets,
decreased $45,000 for the period ended March 31, 2003 compared to the same
period in 2002. The net interest yield (net interest income divided by average
earning assets) was 4.42 percent for the period ended March 31, 2003 compared to
4.75 percent for the period ended March 31, 2002. Continued downward pressure on
net interest yield is anticipated throughout the remainder of 2003.
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 Three Months Ended
March 31, 2003 March 31, 2002
(Dollars in thousands)
Provision for loan losses charged to expense $ 115 $ 240
Net loan charge-offs 227 141
Net loan charge-offs as a percent of
average outstanding loans .08% .05%
8
The following table details additional factors relating to the provision and
allowance for loan losses at the dates indicated:
March 31, 2003 December 31, 2002
(Dollars in thousands)
Nonaccrual loans $ 2,119 $ 2,137
Loans contractually past due 90 days or more
and still accruing interest 1,821 1,489
Restructured loans - -
Potential problem loans, other than those
past due 90 days or more, nonaccrual,
or restructured 7,563 7,791
------- -------
Total problem or non-performing loans $11,503 $11,417
======= =======
Allowance for loan losses $ 3,578 $ 3,689
Allowance for loan losses as a percent
of period-end loans 1.28% 1.28%
The provision for loan losses for the first three months of 2003 totaled
$115,000 compared to $240,000 for the same period in 2002. Actual net loan
charge offs were $227,000 for the first three months of 2003 compared to
$141,000 during the same period in 2002. The lower provision in 2003 resulted
from stabilizing trends within the loan portfolio coupled with a more moderate
outlook for the local and national economies.
Total problem or non-performing loans amounted to $11,503,000 at March 31, 2003
compared to $11,417,000 at December 31, 2002, an increase of $86,000 or 0.8%.
The various components of problem or non-performing loans are summarized in the
preceding table. Nonaccrual amounts include one nonresidential real estate loan
of $794,000 at March 31, 2003 and December 31, 2002. Potential problem loan
totals include one nonresidential real estate loan with an outstanding balance
of $3,186,000 at March 31, 2003 and $3,221,000 at December 31, 2002. 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 2003 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 to provide for reasonably foreseeable losses and a loan review process is
conducted by an outside consulting firm to help achieve this objective. To
further strengthen the loan review function, Croghan added a Credit Analyst to
its staff in December, 2002. This additional staff member supplements the loan
review process and aids in the early identification of problem loans. The
combination of Croghan's loan policy, loan review process, and Credit Analyst
staff position work together to more readily identify problem loans and initiate
measures for resolution. Management considers the allowance at March 31, 2003 to
be adequate to provide for losses inherent in the loan portfolio.
NON-INTEREST INCOME
Total non-interest income increased $56,000 or 9.7 percent for the period ended
March 31, 2003
9
compared to the same period in 2002. Trust department fee income decreased
slightly, by $3,000, between comparable periods and other operating income was
unchanged between comparable periods. Service charges on deposit accounts
increased $59,000 or 26.1 percent between comparable periods. Much of the
increase can be attributed to fee adjustments for overdraft and non-sufficient
charges that became effective on April 1, 2002.
NON-INTEREST EXPENSES
Total non-interest expenses increased $14,000 or 0.5 percent for the period
ended March 31, 2003 compared to the same period in 2002. Salaries, wages and
employee benefits increased $7,000 between comparable periods and other
operating expenses decreased $22,000 between comparable periods. Occupancy
expense of premises increased $29,000 or 19.7% between comparable periods. Much
of the increase can be attributed to the harsh 2003 winter, which resulted in
additional expenses for utilities and snow removal.
FEDERAL INCOME TAX EXPENSE
Federal income tax expense increased $33,000 or 5.9 percent between comparable
periods. This increase is primarily the result of a 6.8 percent increase in
Croghan's income before federal income taxes between comparable three-month
periods. The Corporation's effective tax rate for the quarterly period ended
March 31, 2003 was 30.9 percent and remained comparable to the 31.2 percent for
the same period in 2002.
LIQUIDITY AND CAPITAL RESOURCES
An average federal funds sold position of $6,779,000 was maintained for the
three-month period ended March 31, 2003. This compares to $5,972,000 for the
three-month period ended March 31, 2002 and $7,359,000 for the twelve-month
period ended December 31, 2002.
Short-term borrowings of federal funds purchased and repurchase agreements
averaged $8,258,000 for the three-month period ended March 31, 2003. This
compares to $9,030,000 for the three-month period ended March 31, 2002 and
$9,535,000 for the twelve-month period ended December 31, 2002. Borrowings from
the Federal Home Loan Bank totaled $25,500,000 at March 31, 2003 compared to
$26,500,000 at December 31, 2002.
Capital expenditures for premises and equipment totaled $161,000 for the
three-month period ended March 31, 2003. This compares to $102,000 for the same
period in 2002. Projected expenditures in 2003 include $325,000 for new
mainframe computer hardware and approximately $900,000 for upgrades to the Union
Square Banking Center in Bellevue, Ohio.
10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the information provided in the
December 31, 2002 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF CONTROLS AND PROCEDURES
Croghan's chief executive officer and its treasurer are charged with making an
evaluation of Croghan's disclosure controls and procedures. These controls and
procedures are designed to ensure that information required to be disclosed in
reports mandated by the Securities Exchange Act of 1934 is recorded,
communicated to management, and accurately reported within the required time
periods. Croghan's chief executive officer and treasurer have concluded, based
upon an evaluation of these controls and procedures within the 90-day period
prior to the filing of this report, that Croghan's disclosure controls and
procedures are effective.
CHANGES IN INTERNAL CONTROLS
There have been no significant changes in Croghan's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CROGHAN BANCSHARES, INC
-------------------------------
Registrant
Date: April 25, 2003 /s/ Steven C. Futrell
------------------------------------
Steven C. Futrell, President & CEO
Date: April 25, 2003 /s/ Allan E. Mehlow
------------------------------------
Allan E. Mehlow, Treasurer
12
CERTIFICATIONS
I, Steven C. Futrell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Croghan
Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: April 25, 2003 /s/ Steven C. Futrell
----------------------------------
Steven C. Futrell, President & CEO
13
CERTIFICATIONS
I, Allan E. Mehlow, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Croghan
Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: April 25, 2003 /s/ Allan E. Mehlow
------------------------------
Allan E. Mehlow, Treasurer
14