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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2004
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 ]
1,898,297 common shares were outstanding as of September 30, 2004
This document contains 20 pages.
CROGHAN BANCSHARES, INC.
Index
Page(s)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3 - 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4. Controls and Procedures 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits 15
Exhibit 31.1 - Rule 13a-14(a)/15d-14(a) CEO's Certification 17
Exhibit 31.2 - Rule 13a-14(a)/15d-14(a) Treasurer's Certification 18
Exhibit 32.1 - Section 1350 CEO's Certification 19
Exhibit 32.2 - Section 1350 Treasurer's Certification 20
Signatures 16
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROGHAN BANCSHARES, INC.
Consolidated Balance Sheets (Unaudited)
September 30 December 31
2004 2003
(Dollars in thousands, except par value)
ASSETS
CASH AND CASH EQUIVALENTS
Cash and due from banks $ 10,223 $ 10,984
Federal funds sold - -
------------ -----------
Total cash and cash equivalents 10,223 10,984
------------ -----------
SECURITIES
Available-for-sale, at fair value 59,532 59,261
Held-to-maturity, at amortized cost, fair value of $1,614 in 2004
and $2,523 in 2003 1,541 2,436
Restricted stock 2,656 2,539
------------ -----------
Total securities 63,729 64,236
------------ -----------
LOANS 314,589 306,292
Less: Allowance for loan losses 3,436 3,387
------------ -----------
Net loans 311,153 302,905
------------ -----------
Premises and equipment, net 7,255 6,911
Cash surrender value of life insurance 9,146 8,876
Goodwill 6,113 6,113
Accrued interest receivable 1,977 1,930
Other assets 643 818
------------ -----------
TOTAL ASSETS $ 410,239 $ 402,773
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing $ 36,404 $ 39,758
Savings, NOW and Money Market deposits 148,005 138,272
Time 134,876 134,377
------------ -----------
Total deposits 319,285 312,407
Federal funds purchased and securities sold under repurchase agreements 10,188 11,176
Federal Home Loan Bank borrowings 28,950 30,000
Dividends payable 532 532
Other liabilities 2,934 2,462
------------ -----------
Total liabilities 361,889 356,577
------------ -----------
STOCKHOLDERS' EQUITY
Common stock, $12.50 par value. Authorized 3,000,000 shares;
issued 1,914,109 shares 23,926 23,926
Surplus 128 122
Retained earnings 24,208 22,097
Accumulated other comprehensive income 530 434
Treasury stock, 15,812 shares in 2004 and 14,355 in 2003, at cost (442) (383)
------------ -----------
Total stockholders' equity 48,350 46,196
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 410,239 $ 402,773
============ ===========
See notes to consolidated financial statements.
3
CROGHAN BANCSHARES, INC.
Consolidated Statements of Operations (Unaudited)
Three months ended
September 30
2004 2003
(Dollars in thousands,
except per share data)
INTEREST INCOME
Loans, including fees $4,913 $4,845
Securities:
Obligations of U.S. Government agencies and corporations 316 354
Obligations of states and political subdivisions 174 164
Other 50 59
Federal funds sold - 1
------ ------
Total interest income 5,453 5,423
------ ------
INTEREST EXPENSE
Deposits 1,141 1,224
Other borrowings 294 300
------ ------
Total interest expense 1,435 1,524
------ ------
Net interest income 4,018 3,899
PROVISION FOR LOAN LOSSES 265 110
------ ------
Net interest income, after provision for loan losses 3,753 3,789
------ ------
NON-INTEREST INCOME
Trust income 138 136
Service charges on deposit accounts 333 320
Other 286 237
------ ------
Total non-interest income 757 693
------ ------
NON-INTEREST EXPENSES
Salaries, wages and employee benefits 1,561 1,435
Occupancy of premises 163 156
Other operating 1,040 1,003
------ ------
Total non-interest expenses 2,764 2,594
------ ------
Income before federal income taxes 1,746 1,888
FEDERAL INCOME TAXES 512 576
------ ------
NET INCOME $1,234 $1,312
====== ======
Net income per share, based on 1,898,168 shares in 2004 and 1,899,384 shares in 2003 $ 0.65 $ 0.69
====== ======
Dividends declared, based on 1,898,297 shares in 2004 and 1,899,508 shares in 2003 $ 0.28 $ 0.27
====== ======
See notes to consolidated financial statements.
4
CROGHAN BANCSHARES, INC.
Consolidated Statements of Operations (Unaudited)
Nine months ended
September 30
2004 2003
(Dollars in thousands,
except per share data)
INTEREST INCOME
Loans, including fees $14,529 $14,653
Securities:
U.S. Treasury - 10
Obligations of U.S. Government agencies and corporations 932 1,289
Obligations of states and political subdivisions 505 472
Other 150 187
Federal funds sold - 45
------- -------
Total interest income 16,116 16,656
------- -------
INTEREST EXPENSE
Deposits 3,388 3,994
Other borrowings 870 922
------- -------
Total interest expense 4,258 4,916
------- -------
Net interest income 11,858 11,740
PROVISION FOR LOAN LOSSES 510 320
------- -------
Net interest income, after provision for loan losses 11,348 11,420
------- -------
NON-INTEREST INCOME
Trust income 411 400
Service charges on deposit accounts 940 920
Gain on sale of securities 93 165
Other 763 659
------- -------
Total non-interest income 2,207 2,144
------- -------
NON-INTEREST EXPENSES
Salaries, wages and employee benefits 4,547 4,287
Additional provision for supplemental retirement benefits 412 -
Occupancy of premises 486 502
Other operating 2,864 2,896
------- -------
Total non-interest expenses 8,309 7,685
------- -------
Income before federal income taxes 5,246 5,879
FEDERAL INCOME TAXES 1,541 1,816
------- -------
NET INCOME $ 3,705 $ 4,063
======= =======
Net income per share, based on 1,898,143 shares in 2004 and 1,900,339 shares in 2003 $ 1.95 $ 2.14
======= =======
Dividends declared, based on 1,898,297 shares in 2004 and 1,899,508 shares in 2003 $ 0.84 $ 0.81
======= =======
See notes to consolidated financial statements.
5
CROGHAN BANCSHARES, INC.
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Three months ended
September 30
2004 2003
(Dollars in thousands,
except per share data)
BALANCE AT BEGINNING OF PERIOD $ 46,953 $ 44,944
Comprehensive Income:
Net income 1,234 1,312
Change in net unrealized gain (loss) on securities available-for-sale,
net of reclassification adjustments and related income taxes 687 (279)
-------- --------
Total comprehensive income 1,921 1,033
Issuance of treasury shares, 225 shares in 2004 and 234 shares in 2003 8 7
Cash dividends declared, $.28 per share in 2004 and $.27 per share in 2003 (532) (513)
-------- --------
BALANCE AT END OF PERIOD $ 48,350 $ 45,471
======== ========
Nine months ended
September 30
2004 2003
(Dollars in thousands,
except per share data)
BALANCE AT BEGINNING OF PERIOD $ 46,196 $ 43,462
Comprehensive Income:
Net income 3,705 4,063
Change in net unrealized gain (loss) on securities available-for-sale,
net of reclassification adjustments and related income taxes 96 (476)
-------- --------
Total comprehensive income 3,801 3,587
Issuance of treasury shares, 743 shares in 2004 and 1,106 shares in 2003 26 31
Purchase of treasury shares, 2,200 shares in 2004 and 2,500 shares in 2003 (78) (70)
Cash dividends declared, $.84 per share in 2004 and $.81 per share in 2003 (1,595) (1,539)
-------- --------
BALANCE AT END OF PERIOD $ 48,350 $ 45,471
======== ========
See notes to consolidated financial statements.
6
CROGHAN BANCSHARES, INC.
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended
September 30
2004 2003
(Dollars in thousands)
NET CASH FLOW FROM OPERATING ACTIVITIES $ 5,514 $ 5,472
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities (18,617) (19,103)
Proceeds from maturities of securities 15,234 19,621
Proceeds from sales of available-for-sale securities 3,512 3,775
Purchase of bank-owned life insurance policies - (5,000)
Net decrease (increase) in loans (8,758) (13,168)
Additions to premises and equipment (809) (531)
Proceeds from sale of equipment - -
-------- --------
Net cash from investing activities (9,438) (14,406)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 6,878 2,628
Net change in federal funds purchased and securities sold under repurchase agreements (988) (727)
Net change in Federal Home Loan Bank borrowings (1,050) 6,000
Proceeds from issuance of treasury shares 26 31
Cash dividends paid (1,595) (1,539)
Purchase of treasury stock (78) (70)
Payment of deferred compensation (30) (29)
-------- --------
Net cash from financing activities 3,163 6,294
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (761) (2,640)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,984 13,140
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,223 $ 10,500
======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest $ 4,263 $ 4,983
======== ========
Federal income taxes $ 1,140 $ 1,868
======== ========
See notes to consolidated financial statements.
7
CROGHAN BANCSHARES, INC.
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
(1) Consolidated Financial Statements
The consolidated financial statements of Croghan Bancshares, Inc. ("the
Corporation") and its wholly-owned subsidiary, The Croghan Colonial Bank
("the Bank"), have been prepared without audit. In the opinion of
management, all adjustments (including normal recurring adjustments)
necessary to present fairly the Corporation's consolidated financial
position, results of operations and changes in cash flows have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The results of operations for the
period ended September 30, 2004 are not necessarily indicative of the
operating results for the full year.
(2) Retirement Program
In 1999, the Bank entered into split-dollar life insurance arrangements
with six officers which included agreements to provide supplemental
retirement benefits. Since 1999, the Bank has provided an estimated
liability for accumulated supplemental retirement benefits under the
agreements with such liability being estimated annually by an outside
firm.
In February 2004, bank regulators issued an advisory letter to all
financial institutions regarding the accounting for deferred compensation
agreements, especially those linked to bank-owned life insurance. As a
result of detailed analyses and discussions with various parties, it was
determined in June 2004 that the Bank's estimated liability for
accumulated supplemental retirement benefits should be increased
approximately $412,000 ($272,000 after income taxes). The adjustment,
which represents a charge beyond the normal supplemental retirement
benefit provision, was recorded in June 2004 and is reported separately in
the September 30, 2004 consolidated statements of operations and results
in a decrease in net income of $.14 per share. Because the adjustment is
not considered material to the consolidated financial statements, prior
period financial statements have not been restated.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Where appropriate, the following discussion relating to Croghan Bancshares, Inc.
("Croghan" or "the Corporation") contains the insights of management into known
events and trends that have or may be expected to have a material effect on
Croghan's operations and financial condition. The information presented may also
contain certain forward-looking statements regarding future financial
performance, which are not historical facts and which involve various risks and
uncertainties.
When or if used in any Securities and Exchange Commission filings, or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases: "anticipate",
"would be", "will allow", "intends to", "will likely result", "are expected to",
"will continue", "is anticipated", "is estimated", "is projected", or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Any such
statements are subject to risks and uncertainties that include but are not
limited to: changes in economic conditions in the Corporation's market area,
changes in policies by regulatory agencies, fluctuations in interest rates,
demand for loans in the Corporation's market area, and competition. All or some
of these factors could cause actual results to differ materially from historical
earnings and those presently anticipated or projected.
The Corporation cautions readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and advises
readers that various factors including regional and national economic
conditions, substantial changes in the levels of market interest rates, credit
and other risks associated with lending and investing activities, and
competitive and regulatory factors could affect the Corporation's financial
performance and cause the actual results for future periods to differ materially
from those anticipated or projected. The Corporation does not undertake, and
specifically disclaims any obligation, to update any forward-looking statements
to reflect occurrences or unanticipated events or circumstances after the date
of such statements.
PERFORMANCE SUMMARY
Assets totaled $410,239,000 at September 30, 2004 compared to $402,773,000 at
2003 year end. Total loans increased to $314,589,000 at September 30, 2004
compared to $306,292,000 at 2003 year end. Total securities decreased to
$63,729,000 from $64,236,000 at 2003 year end and total deposits increased to
$319,285,000 from $312,407,000 at 2003 year end.
Net income for the quarter ended September 30, 2004 was $1,234,000 or $.65 per
common share compared to $1,312,000 or $.69 per common share for the same period
in 2003. Net income for the nine-month period ended September 30, 2004 was
$3,705,000 or $1.95 per common share compared to $4,063,000 or $2.14 per common
share for the same period in 2003. The September 30, 2004 year-to-date operating
results were negatively impacted by the additional provision of $412,000
($272,000 after income taxes) to adjust the accrual for supplemental retirement
plan benefits. This provision results in a decrease in 2004 net income per share
of $.14.
PENDING TRANSACTION
As noted in the Form 8-K filed with the Securities and Exchange Commission on
August 11, 2004, Croghan executed a definitive agreement on August 10, 2004 to
acquire The Custar State Bank ("Custar"). Under the terms of the agreement,
Croghan has agreed to pay $74.10 in cash in exchange for each outstanding common
share of Custar. As of September 30, 2004, Custar had 187,498 shares issued and
outstanding, resulting in an estimated cost of the transaction, before
acquisition costs, of $13,894,000.
9
Custar currently operates one banking office in Custar, Ohio. Custar had total
assets as of June 30, 2004 of $52,910,000 and total equity of $9,176,000, with
net income of $492,000 for the six-month period ended June 30, 2004. A Merger
Application was filed with the State of Ohio Division of Financial Institutions
and the Federal Reserve Board of Governors in September. It is anticipated that
both regulatory agencies will act upon the application during the fourth quarter
of 2004. Also during the fourth quarter of 2004, the shareholders of Custar are
scheduled to vote on a proposal to approve the transaction. Given positive
outcomes on these matters in a timely manner, the transaction is expected to
close near the end of 2004.
FINANCIAL POSITION
The following comments are based upon a comparison of Croghan's financial
position at September 30, 2004 to 2003 year end.
Total loans increased $8,297,000 or 2.7 percent from 2003 year end. Loan
categories experiencing growth from 2003 year end include a $6,802,000 increase
in residential real estate loans, a $4,398,000 increase in construction real
estate loans, and a $222,000 increase in nonresidential real estate loans. Loan
categories experiencing contraction from 2003 year end include a $2,754,000
decrease in commercial loans, a $195,000 decrease in consumer loans, and a
$176,000 decrease in credit card loans.
Total deposits increased $6,878,000 or 2.2 percent from 2003 year end. The
liquid deposit category (demand, savings, NOW and money market deposit accounts)
increased $6,379,000 or 3.6 percent and the time deposit category increased
$499,000 or 0.4 percent. The competition for core deposits from traditional
sources (e.g., other banks and credit unions) and non-traditional sources (e.g.,
brokerage firms) remains very strong. Croghan continuously monitors its deposit
growth needs to fund ongoing loan demand in relation to the necessary deposit
pricing structure to aid improvements in interest margin.
Stockholders' equity at September 30, 2004 increased to $48,350,000 or $25.47
book value per common share compared to $46,196,000 or $24.32 book value per
common share at December 31, 2003. The balance in stockholders' equity for both
periods included accumulated other comprehensive income consisting of net
unrealized gains on securities classified as available-for-sale. At September
30, 2004, Croghan held $59,532,000 in available-for-sale securities with an
unrealized gain of $530,000, net of income taxes. This compares to 2003 year-end
holdings of $59,261,000 in available-for-sale securities with an unrealized gain
of $434,000, net of income taxes.
Beginning in February, 2002, Croghan instituted a stock buy-back program, which
has subsequently been extended through February 1, 2005. Since the inception of
the program, a total of 19,100 shares have been repurchased as treasury shares.
The 15,812 remaining treasury shares held as of September 30, 2004 and 14,355
shares held as of December 31, 2003 are reported at their acquired cost.
Consistent with the Corporation's quarterly dividend policy, a cash dividend of
$.28 per share was declared on September 14, 2004 payable on October 29, 2004.
NET INTEREST INCOME
Net interest income, which represents the excess revenue generated from
interest-earning assets over the interest cost of funding those assets,
increased $119,000 for the quarter ended September 30, 2004 as compared to the
same period in 2003, and increased $118,000 for the nine-month period ended
September 30, 2004 as compared to the same period in 2003.
The net interest yield (net interest income divided by average interest-earning
assets) was 4.22
10
percent for the quarter ended September 30, 2004 compared to 4.27 percent for
the same period in 2003. Net interest yield was 4.22 percent for the nine-month
period ended September 30, 2004 compared to 4.32 percent for the same period in
2003.
It is anticipated that as future economic conditions improve, both market
interest rates and managed interest rates will likely increase. Three such
managed interest rate increases, totaling 75 basis points, have been instituted
by the Federal Reserve Open Market Committee since June 30, 2004. These gradual
managed interest rate increases help to relieve some of the pressure on interest
margin and afford some opportunity for improvement in net interest income. The
magnitude and timing of any further increases is unknown and thus their effect
on interest margin cannot be accurately determined.
PROVISION FOR LOAN LOSSES AND THE ALLOWANCE FOR LOAN LOSSES
Croghan's comprehensive loan policy provides guidelines for managing credit risk
and asset quality. The policy details acceptable lending practices, establishes
loan-grading classifications, and stipulates the use of a loan review process.
Croghan employs an on-staff Credit Analyst and Credit Analyst Assistant to help
facilitate the early identification of problem loans, to aid in making sound
credit decisions, and to assist in the determination of the allowance for loan
losses. Croghan also employs an outside credit review firm to supplement the
credit analysis function and provide an independent assessment of the loan
review process. Croghan's loan policy, loan review process, and credit analysis
team strive to minimize the uncertainties associated with the lending function
and aid in more readily identifying problem loans so appropriate resolution
measures can be initiated.
The following table details factors relating to the provision and allowance for
loan losses for the periods noted:
Nine months ended Nine months ended
September 30, 2004 September 30, 2003
(Dollars in thousands)
Provision for loan losses charged to expense $ 510 $ 320
Net loan charge-offs 461 576
Net loan charge-offs as a percent of
average outstanding loans .20% .20%
The following table details factors relating to non-performing and potential
problem loans as of the dates noted:
September 30, 2004 December 31, 2003
(Dollars in thousands)
Nonaccrual loans $ 1,270 $ 1,589
Loans contractually past due 90 days or more
and still accruing interest 381 904
Restructured loans - -
Potential problem loans, other than those past due
90 days or more, nonaccrual, or restructured 16,351 14,644
-------------- --------------
Total potential problem and non-performing loans $ 18,002 $ 17,137
============== ==============
Allowance for loan losses $ 3,436 $ 3,387
Allowance for loan losses as a percent
of period-end loans 1.09% 1.11%
11
The provision for loan losses for the first nine months of 2004 totaled $510,000
compared to $320,000 for the same period in 2003. Actual net loan charge-offs
decreased to $461,000 for the first nine months of 2004 compared to $576,000
during the same period in 2003. Total potential problem and non-performing
loans, which are summarized in the preceding table, increased $865,000 or 5.0
percent to $18,002,000 at September 30, 2004 compared to $17,137,000 at December
31, 2003. Positive trends included a decrease in nonaccrual loans of $319,000
between periods and a decrease in loans past due 90 days or more and still
accruing interest of $523,000 between periods. The negative trend was an
increase of $1,707,000 in potential problem loans, other than those past due 90
days or more, nonaccrual, or restructured.
Croghan typically classifies a loan as a potential problem loan, regardless of
its collateralization or any contractually obligated guarantors, when a review
of the borrower's financial statements indicates that the borrowing entity does
not generate sufficient operating cash flow to adequately service its debts. The
above-noted potential problem loans at September 30, 2004 are currently
performing loans and a majority are collateralized by an interest in real
property.
The following table provides additional detail pertaining to the past due status
of Croghan's potential problem loans as of September 30, 2004 (dollars in
thousands):
Potential problem loans not currently past due $13,277
Potential problem loans past due one day or more but less than 10 days 1,578
Potential problem loans past due 10 days or more but less than 30 days 299
Potential problem loans past due 30 days or more but less than 60 days 738
Potential problem loans past due 60 days or more but less than 90 days 459
-------
Total potential problem loans $16,351
=======
The following table provides additional detail pertaining to the
collateralization of Croghan's potential problem loans as of September 30, 2004
(dollars in thousands):
Collateralized by an interest in real property $11,690
Collateralized by an interest in assets other than real property 4,557
Unsecured 104
-------
Total potential problem loans $16,351
=======
The above-noted asset quality trends will continue to be monitored throughout
2004 to ensure adequate provisions for loan losses are made in a timely manner.
It is the Corporation's policy to maintain the allowance for loan losses at a
level sufficient to provide for reasonably foreseeable losses. Management
considers the allowance at September 30, 2004 to be adequate to provide for
those losses identified as well as those losses inherent within the loan
portfolio.
NON-INTEREST INCOME
Total non-interest income increased $64,000 or 9.2 percent for the quarter ended
September 30, 2004 compared to the same period in 2003, and increased $63,000 or
2.9 percent for the nine-month period ended September 30, 2004 compared to the
same period in 2003. Included in year-to-date
12
non-interest income were gains from the sale of securities of $93,000 for the
nine-month period ended September 30, 2004 compared to $165,000 in reported
gains for the comparable 2003 period. The gains were realized upon the sale of
U.S. Government Agency securities with approximately one year remaining until
their stated final maturity. Alternative U.S. Government Agency securities
maturing over longer time horizons (i.e., three to five years) were purchased to
replace those securities that were sold. All of the securities sold were from
the available-for-sale portfolio.
NON-INTEREST EXPENSES
Total non-interest expenses increased $170,000 or 6.6 percent for the quarter
ended September 30, 2004 compared to the same period in 2003, and increased
$624,000 or 8.1 percent for the nine-month period ended September 30, 2004 as
compared to the same period in 2003.
The most significant change in non-interest expenses for the nine-month period
ended September 30, 2004 was a $412,000 additional provision for supplemental
retirement benefits. This provision is more fully discussed in Note 2 to the
financial statements and relates to an advisory letter issued by bank regulators
pertaining to the accounting for deferred compensation agreements. Based upon
the regulators' position and after extensive analyses and discussions with
various external professionals, it was determined in June 2004 that the
estimated liability for accumulated supplemental retirement benefits should be
increased $412,000 ($272,000 after income taxes). This non-recurring adjustment
is over and above Croghan's normal supplemental retirement benefit provision and
results in a decrease in 2004 net income per share of $.14.
Salaries, wages and employee benefits increased $126,000 or 8.8 percent between
comparable quarterly periods and $260,000 or 6.1 percent between comparable
nine-month periods. Occupancy of premises expense increased $7,000 or 4.5
percent between comparable quarterly periods and decreased $16,000 or 3.2
percent between comparable nine-month periods. Other operating expenses
increased $37,000 or 3.7 percent between comparable quarterly periods and
decreased $32,000 or 1.1 percent between comparable nine-month periods.
FEDERAL INCOME TAX EXPENSE
Federal income tax expense decreased $64,000 or 11.1 percent between comparable
quarterly periods and $275,000 or 15.1 percent between comparable nine-month
periods. The decreases are directly related to lower income before federal
income taxes in both periods. The Corporation's effective tax rate for the nine
months ended September 30, 2004 was 29.4 percent compared to 30.9 percent for
the same period in 2003.
LIQUIDITY AND CAPITAL RESOURCES
Short-term borrowings of federal funds purchased and repurchase agreements
averaged $11,666,000 for the nine-month period ended September 30, 2004. This
compares to $8,953,000 for the nine-month period ended September 30, 2003 and
$8,864,000 for the twelve-month period ended December 31, 2003. Borrowings from
the Federal Home Loan Bank totaled $28,950,000 at September 30, 2004 as compared
to $30,000,000 at December 31, 2003.
Capital expenditures for premises and equipment totaled $809,000 for the
nine-month period ended September 30, 2004 compared to $531,000 for the same
period in 2003. The 2004 expenditures include approximately $425,000 for new
reader-sorter equipment with check imaging capabilities.
13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the quantitative and qualitative
information about market risk provided in the December 31, 2003 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF CONTROLS AND PROCEDURES
With the participation of our management, including our chief executive officer
and treasurer, we have evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) as of the end of the period covered by
this Quarterly Report on Form 10-Q. Based upon that evaluation, our chief
executive officer and treasurer have concluded that:
(a) information required to be disclosed by Croghan in this Quarterly Report
on Form 10-Q would be accumulated and communicated to Croghan's
management, including its chief executive officer and treasurer, as
appropriate, to allow timely decisions regarding required disclosure;
(b) information required to be disclosed by Croghan in this Quarterly Report
on Form 10-Q would be recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms; and
(c) Croghan's disclosure controls and procedures are effective as of the end
of the period covered by this Quarterly Report on Form 10-Q to ensure that
material information relating to Croghan and its consolidated subsidiaries
is made known to them, particularly during the period for which our
periodic reports, including this Quarterly Report on Form 10-Q, are being
prepared.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes during the period covered by this Quarterly Report on Form
10-Q in our internal control over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act) that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) None
(b) None
(c) The table below includes certain information regarding Croghan's purchase
of Croghan common shares during the quarterly period ended September 30,
2004:
Total Number of Maximum Number
Shares Purchased of Shares that May
Total Number Average as Part of Publicly Yet Be Purchased
of Shares Price Paid Announced Plans Under the Plans
Period Purchased (1) per Share or Programs or Programs (2)
07/01/04
through None None None Expired
07/31/04
08/01/04
through None None None 94,904
08/31/04
09/01/04
through None None None 94,904
09/30/04
(1) There were no shares purchased during the quarter.
(2) A stock buy-back program commencing on February 1, 2004 and ending on
August 1, 2004 was announced on January 21, 2004 in which up to 94,992
shares could be repurchased (2,200 shares were purchased on February 3,
2004). A stock buy-back program commencing on August 1, 2004 and ending on
February 1, 2005 was announced on July 16, 2004 in which up to 94,904
shares could be repurchased.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
ITEM 5. OTHER INFORMATION - None
ITEM 6. EXHIBITS
EXHIBIT 31.1 - Rule 13a-14(a)/15d-14(a) CEO's Certification
EXHIBIT 31.2 - Rule 13a-14(a)/15d-14(a) Treasurer's Certification
EXHIBIT 32.1 - Section 1350 CEO's Certification
EXHIBIT 32.2 - Section 1350 Treasurer's Certification
15
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 27, 2004 /s/ Steven C. Futrell
-----------------------------------
Steven C. Futrell, President & CEO
Date: October 27, 2004 /s/ Allan E. Mehlow
-----------------------------------
Allan E. Mehlow, Treasurer
16