UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
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For the quarterly period ended March 31, 2010
0-20159
(Commission File Number)
CROGHAN BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
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Ohio
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31-1073048
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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323 Croghan Street, Fremont, Ohio
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43420
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(Address of principal executive offices)
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(Zip Code)
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(419) 332-7301
(Registrants 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
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act
(Check one):
Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting Company
þ
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o
No
þ
The Registrant had 1,703,118 common shares, par value $12.50 per share, outstanding as of April 28,
2010.
This document contains 25 pages. The Exhibit Index is on page 22 immediately preceding the filed
exhibits.
CROGHAN BANCSHARES, INC.
Index
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROGHAN BANCSHARES, INC.
Consolidated Balance Sheets (Unaudited)
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March 31
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December 31
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2010
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2009
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(Dollars in thousands, except par value)
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ASSETS
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CASH AND CASH EQUIVALENTS
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Cash and due from banks
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$
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11,968
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15,928
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Interest-bearing deposits due from banks
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9,743
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796
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Total cash and cash equivalents
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21,711
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16,724
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SECURITIES
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Available-for-sale, at fair value
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108,790
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105,792
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Held-to-maturity, at amortized cost, fair value of $521 in 2010 and $526 in 2009
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502
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502
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Restricted stock
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3,844
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3,844
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Total securities
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113,136
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110,138
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LOANS
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314,139
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324,484
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Less: Allowance for loan losses
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4,896
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4,433
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Net loans
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309,243
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320,051
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Premises and equipment, net
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6,733
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6,863
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Cash surrender value of life insurance
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11,033
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10,946
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Goodwill
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10,430
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10,430
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Core deposit intangible asset, net
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158
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173
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Accrued interest receivable
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2,073
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1,857
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Other real estate owned
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2,330
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2,330
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Other assets
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2,553
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2,476
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TOTAL ASSETS
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$
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479,400
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$
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481,988
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LIABILITIES AND STOCKHOLDERS EQUITY
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LIABILITIES
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Deposits:
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Demand, non-interest bearing
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$
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50,865
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$
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60,072
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Savings, NOW, and Money Market deposits
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168,171
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159,316
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Time
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148,790
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151,331
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Total deposits
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367,826
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370,719
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Federal funds purchased and securities sold under repurchase agreements
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16,736
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16,375
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Federal Home Loan Bank borrowings
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35,500
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35,500
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Dividends payable
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545
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549
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Other liabilities
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2,444
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2,718
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Total liabilities
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423,051
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425,861
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STOCKHOLDERS EQUITY
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Common stock, $12.50 par value. Authorized 6,000,000 shares;
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issued 1,914,109 shares
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23,926
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23,926
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Surplus
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179
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179
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Retained earnings
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38,574
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38,187
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Accumulated other comprehensive income
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1,138
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1,044
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Treasury stock, 210,991 shares in 2010 and 200,232 shares in 2009, at cost
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(7,468
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)
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(7,209
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)
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Total stockholders equity
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56,349
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56,127
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
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$
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479,400
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$
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481,988
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See notes to consolidated financial statements.
3
CROGHAN BANCSHARES, INC.
Consolidated Statements of Operations (Unaudited)
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Three months ended
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March 31
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2010
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2009
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(Dollars in thousands,
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except per share data)
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INTEREST INCOME
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Loans, including fees
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$
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4,627
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$
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5,196
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Securities:
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Obligations of U.S. Government agencies and corporations
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693
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540
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Obligations of states and political subdivisions
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367
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217
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Other
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56
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56
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Deposits in other banks
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5
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5
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Total interest income
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5,748
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6,014
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INTEREST EXPENSE
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Deposits
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|
997
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1,261
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Other borrowings
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341
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384
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Total interest expense
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1,338
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1,645
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Net interest income
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4,410
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4,369
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PROVISION FOR LOAN LOSSES
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500
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|
600
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Net interest income, after
provision for loan losses
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3,910
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3,769
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NON-INTEREST INCOME
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Gain on sale of loans
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30
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|
56
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|
Trust income
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255
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219
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Service charges on deposit accounts
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339
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364
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Other
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228
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214
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Total non-interest income
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852
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|
853
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NON-INTEREST EXPENSES
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Salaries, wages, and employee benefits
|
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1,996
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|
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|
1,939
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|
Occupancy of premises
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|
|
226
|
|
|
|
238
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|
Amortization of core deposit intangible asset
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|
14
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|
|
|
14
|
|
Other operating
|
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|
1,327
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|
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|
1,255
|
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Total non-interest expenses
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|
3,563
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|
|
3,446
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|
|
|
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|
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|
|
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|
Income before federal income taxes
|
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|
1,199
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|
|
|
1,176
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FEDERAL INCOME TAXES
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|
267
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|
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|
305
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|
|
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|
|
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NET INCOME
|
|
$
|
932
|
|
|
$
|
871
|
|
|
|
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|
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|
|
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Net income per share, based on 1,708,015 shares in 2010 and
1,720,659 shares in 2009
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|
$
|
0.55
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$
|
0.51
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|
|
|
|
|
|
|
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|
|
|
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Dividends declared
|
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$
|
0.32
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$
|
0.32
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|
|
|
|
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|
See notes to consolidated financial statements.
4
CROGHAN BANCSHARES, INC.
Condensed Consolidated Statements of Stockholders Equity (Unaudited)
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Three months ended
|
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|
March 31
|
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|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands,
|
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|
|
except per share data)
|
|
|
|
|
|
|
|
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|
BALANCE AT BEGINNING OF PERIOD
|
|
$
|
56,127
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|
|
$
|
54,819
|
|
|
|
|
|
|
|
|
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|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
Net income
|
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|
932
|
|
|
|
871
|
|
Change in net unrealized gain on securities
available-for-sale,
|
|
|
|
|
|
|
|
|
net of reclassification adjustments and related
income taxes
|
|
|
94
|
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
1,026
|
|
|
|
1,079
|
|
|
|
|
|
|
|
|
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|
Purchase of 10,759 treasury shares in 2010 and 528 in 2009
|
|
|
(259
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
Cash dividends declared, $.32 per share in 2010 and 2009
|
|
|
(545
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)
|
|
|
(551
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)
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|
|
|
|
|
|
|
|
|
|
|
|
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BALANCE AT END OF PERIOD
|
|
$
|
56,349
|
|
|
$
|
55,334
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
5
CROGHAN BANCSHARES, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
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|
|
|
|
|
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|
Three months ended
|
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|
|
March 31
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOW FROM OPERATING ACTIVITIES
|
|
$
|
1,207
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|
|
$
|
1,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from maturities of securities
|
|
|
4,698
|
|
|
|
6,298
|
|
Purchases of available-for-sale securities
|
|
|
(7,723
|
)
|
|
|
(4,168
|
)
|
Net decrease in loans
|
|
|
10,295
|
|
|
|
9,074
|
|
Additions to premises and equipment
|
|
|
(78
|
)
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from investing activities
|
|
|
7,192
|
|
|
|
11,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net change in deposits
|
|
|
(2,893
|
)
|
|
|
6,408
|
|
Net change in federal funds purchased and securities sold
under agreements to repurchase
|
|
|
361
|
|
|
|
(6,409
|
)
|
Net change in borrowed funds
|
|
|
|
|
|
|
(4,000
|
)
|
Cash dividends paid
|
|
|
(549
|
)
|
|
|
(551
|
)
|
Purchase of treasury stock
|
|
|
(259
|
)
|
|
|
(13
|
)
|
Payment of deferred compensation
|
|
|
(72
|
)
|
|
|
(498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from financing activities
|
|
|
(3,412
|
)
|
|
|
(5,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
4,987
|
|
|
|
7,909
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
16,724
|
|
|
|
10,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
21,711
|
|
|
$
|
18,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW DISCLOSURES
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,394
|
|
|
$
|
1,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income taxes
|
|
$
|
21
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH OPERATING ACTIVITY:
|
|
|
|
|
|
|
|
|
Change in deferred income taxes on net unrealized gain on
available-for-sale securities
|
|
$
|
(48
|
)
|
|
$
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING ACTIVITY:
|
|
|
|
|
|
|
|
|
Change in net unrealized gain on available-for-sale securities
|
|
$
|
142
|
|
|
$
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH OPERATING AND INVESTING ACTIVITY:
|
|
|
|
|
|
|
|
|
Transfer of loans to other real estate owned
|
|
$
|
13
|
|
|
$
|
200
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
6
CROGHAN BANCSHARES, INC.
Notes to Consolidated Financial Statements
March 31, 2010
(Unaudited)
NOTE 1 CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements of Croghan Bancshares, Inc. (Croghan or 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 Corporations 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 U.S. generally accepted accounting principles (GAAP) have been omitted. The
Corporations Annual Report to shareholders for the year ended December 31, 2009, contains
consolidated financial statements and related footnote disclosures which should be read in
conjunction with the accompanying consolidated financial statements. The results of operations for
the period ended March 31, 2010, are not necessarily indicative of the operating results for the
full year.
Management evaluated subsequent events through April 28, 2010, the date the financial statements
were issued. Events or transactions occurring after March 31, 2010, but prior to when the
consolidated financial statements were issued, that provided additional evidence about conditions
that existed at March 31, 2010, have been recognized in the consolidated financial statements for
the period ended March 31, 2010. Events or transactions that provided evidence about conditions
that arose before the financial statements were issued but did not exist at March 31, 2010 have not
been recognized in the financial statements for the period ended March 31, 2010.
NOTE 2 NEW ACCOUNTING PRONOUNCEMENTS
In June 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) No. 2009-01 (formerly FASB No. 168),
The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles
. The Accounting Standards Codification (ASC)
is the single source of authoritative non-governmental U.S. Generally Accepted Accounting
Principles (GAAP). The ASC does not change current GAAP, but is intended to simplify user access
to all authoritative GAAP by providing all the authoritative literature related to a particular
topic in one place. All existing accounting standard documents are superseded and all other
accounting literature not included in the ASC is considered nonauthoritative. The ASC was
effective for financial statements issued for periods ending after September 15, 2009. The
adoption of ASU No. 2009-01 did not have a material impact on the consolidated results of
operations or financial position of the Corporation as it only required changes to GAAP references
in the financial statements.
7
ASC 320-10 amends existing guidance for determining whether impairment is other-than-temporary for
debt securities. The ASC requires an entity to assess whether it intends to sell, or it is more
likely than not that it will be required to sell, a security in an unrealized loss position before
recovery of its amortized cost basis. If either of these criteria is met, the entire difference
between amortized cost and fair value is recognized in earnings. For securities that do not meet
the aforementioned criteria, the amount of impairment recognized in earnings is limited to the
amount related to credit losses, while impairment related to other factors is recognized in other
comprehensive income. Additionally, the ASC expands and increases the frequency of existing
disclosures about other-than-temporary impairments for debt and equity securities. The adoption of
ASC 320-10 in 2009 had no impact on the Corporations consolidated financial statements since the
Bank had no securities considered to have other-than-temporary impairment.
ASC 820-10-65 emphasizes that even if there has been a significant decrease in the volume and level
of activity, the objective of a fair value measurement remains the same. Fair value is the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction
(that is, not a forced liquidation or distressed sale) between market participants. ASC 820-10-65
provides a number of factors to consider when evaluating whether there has been a significant
decrease in the volume and level of activity for an asset or liability in relation to normal market
activity. In addition, when transactions or quoted prices are not considered orderly, adjustments
to those prices based on the weight of available information may be needed to determine the
appropriate fair value. ASC 820-10-65 also requires increased disclosures. ASC 820-10-65 was
effective for interim and annual reporting periods ending after June 15, 2009. There was no impact
on the consolidated financial statements of the Corporation as a result of the adoption of ASC
820-10-65 during the second quarter of 2009.
ASC 860-10 addresses accounting for transfers of financial assets. Among other requirements, the
ASC removes the concept of a qualifying special-purpose entity and removes the exception from
applying consolidation of variable interest entities to qualifying special-purpose entities. The
objective is to improve the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial performance, and
cash flows; and a transferors continuing involvement, if any, in transferred financial assets.
Among other things, ASC 860-10 applies to any transfer of financial assets, which for the
Corporation primarily relates to loan participations sold. The adoption of ASC 860-10 effective
January 1, 2010 did not have any impact on the Corporations March 31, 2010 consolidated financial
statements since the Bank did not sell any loan participations during the quarter.
In January 2010, the FASB issued Accounting Standards Update No. 2010-06,
Fair Value Measurements
and Disclosures
, which provides amendments to ASC 820-10 and is intended to improve disclosure
requirements related to fair value measurements. The Update clarifies that a reporting entity
should provide fair value measurement disclosures for each class of assets and liabilities measured
at fair value. A class is often a subset of assets or liabilities within a line item in the
statement of financial position. Reporting entities should also provide disclosures about the
valuation techniques and inputs used to measure fair value for fair value measurements falling
within Level 2 or 3. The new disclosures and clarifications of existing disclosures are effective
for interim and annual reporting periods beginning after December 15, 2009, except for the
purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010,
and for interim periods within those fiscal years.
8
NOTE 3 FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of recognized financial instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
|
|
Carrying
|
|
|
Estimated fair
|
|
|
Carrying
|
|
|
Estimated fair
|
|
|
|
amount
|
|
|
value
|
|
|
amount
|
|
|
value
|
|
|
|
(Dollars in thousands)
|
|
FINANCIAL ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
21,711
|
|
|
|
$ 21,711
|
|
|
$
|
16,724
|
|
|
|
$ 16,724
|
|
Securities
|
|
|
113,136
|
|
|
|
113,141
|
|
|
|
110,138
|
|
|
|
110,162
|
|
Loans, net
|
|
|
309,243
|
|
|
|
309,553
|
|
|
|
320,051
|
|
|
|
320,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
444,090
|
|
|
|
$444,405
|
|
|
$
|
446,913
|
|
|
|
$446,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
367,826
|
|
|
|
$369,640
|
|
|
$
|
370,719
|
|
|
|
$372,312
|
|
Federal funds purchased and
securities sold under
repurchase agreements
|
|
|
16,736
|
|
|
|
16,658
|
|
|
|
16,375
|
|
|
|
16,327
|
|
Federal Home Loan Bank
borrowings
|
|
|
35,500
|
|
|
|
37,012
|
|
|
|
35,500
|
|
|
|
37,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
420,062
|
|
|
|
$423,310
|
|
|
$
|
422,594
|
|
|
|
$425,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The preceding summary does not include accrued interest receivable, cash surrender value of
life insurance, dividends payable, and other liabilities which are also considered financial
instruments. The estimated fair value of such items is considered to be their carrying amount.
The Bank also has unrecognized financial instruments which relate to commitments to extend credit
and standby letters of credit. The contract amount of such financial instruments totaled,
$72,421,000 at March 31, 2010 and $71,275,000 at December 31, 2009.
The following methods and assumptions were used to estimate fair value of each class of financial
instruments:
Cash and Cash Equivalents
Fair value is determined to be the carrying amount for these items because they represent cash or
mature in 90 days or less and do not represent unanticipated credit concerns.
Securities
The fair value of securities (both available-for-sale and held-to-maturity) is determined based on
quoted market prices of the individual securities or, if not available, estimated fair value was
obtained by comparison to other known securities with similar risk and maturity characteristics.
Such value does not consider possible tax ramifications or estimated transaction costs. The fair
value of restricted stock is considered to be its carrying amount.
9
Loans
Fair value for loans was estimated for portfolios of loans with similar financial characteristics.
For adjustable rate loans, which re-price at least annually and generally possess low risk
characteristics, the carrying amount is believed to be a reasonable estimate of fair value. For
fixed-rate loans, the fair value is estimated based on a discounted cash flow analysis, considering
weighted average rates and terms of the portfolio, adjusted for credit and interest rate risk
inherent in the loans. Fair value for non-performing loans is based on recent appraisals or
estimated discounted cash flows. The estimated value of credit card loans is based on existing
loans and does not include the value that relates to estimated cash flows from new loans generated
from existing cardholders over the remaining life of the portfolio.
Deposit Liabilities
The fair value of core deposits, including demand deposits, savings accounts, and certain money
market deposits, is the amount payable on demand. The fair value of fixed-maturity certificates of
deposit is estimated using the rates offered at year-end for deposits of similar remaining
maturities. The estimated fair value does not include the benefit that results from the low-cost
funding provided by the deposit liabilities compared to the cost of borrowing funds in the
marketplace.
Other Financial Instruments
The fair value of federal funds purchased and securities sold under repurchase agreements, as well
as Federal Home Loan Bank borrowings, is determined based on a discounted cash flow analysis using
current interest rates.
The fair value estimates of financial instruments are made at a specific point in time based on
relevant market information. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect these estimates.
10
NOTE 4 SECURITIES
Amortized cost and fair value of available-for-sale securities were as follows (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
cost
|
|
|
value
|
|
|
cost
|
|
|
value
|
|
|
Obligations of U.S. Government
agencies and corporations
|
|
$
|
66,941
|
|
|
$
|
67,977
|
|
|
$
|
65,927
|
|
|
$
|
66,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and
political subdivisions
|
|
|
39,775
|
|
|
|
40,463
|
|
|
|
37,933
|
|
|
|
38,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
350
|
|
|
|
350
|
|
|
|
350
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale
|
|
|
107,066
|
|
|
|
108,790
|
|
|
|
104,210
|
|
|
|
105,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity corporate
debt obligation
|
|
|
502
|
|
|
|
521
|
|
|
|
502
|
|
|
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock
|
|
|
3,844
|
|
|
|
3,844
|
|
|
|
3,844
|
|
|
|
3,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
111,412
|
|
|
$
|
113,155
|
|
|
$
|
108,556
|
|
|
$
|
110,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized gains and losses on available-for-sale securities were as follows (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Gross
|
|
|
Gross
|
|
|
|
unrealized
|
|
|
unrealized
|
|
|
unrealized
|
|
|
unrealized
|
|
|
|
gains
|
|
|
losses
|
|
|
gains
|
|
|
losses
|
|
|
Obligations of U.S. Government
agencies and corporations
|
|
$
|
1,266
|
|
|
$
|
230
|
|
|
$
|
1,153
|
|
|
$
|
351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and
political subdivisions
|
|
|
805
|
|
|
|
117
|
|
|
|
871
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale
|
|
|
2,071
|
|
|
|
347
|
|
|
|
2,024
|
|
|
|
442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity corporate
debt obligation
|
|
|
19
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,090
|
|
|
$
|
347
|
|
|
$
|
2,048
|
|
|
$
|
442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
NOTE 5 OTHER COMPREHENSIVE INCOME
The components of other comprehensive income and related tax effects for the three-month period
ended March 31, 2010 and 2009 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on available-for-sale securities
|
|
$
|
1,724
|
|
|
$
|
1,029
|
|
|
|
|
|
|
|
|
|
|
Tax effect
|
|
|
586
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net-of-tax amount
|
|
$
|
1,138
|
|
|
$
|
679
|
|
|
|
|
|
|
|
|
12
|
|
|
ITEM 2.
|
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Where appropriate, the following discussion relating to Croghan contains the insights of management
into known events and trends that have or may be expected to have a material effect on Croghans
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 used herein, the terms anticipates,
believes, plans, intends, expects, estimates, projects, targets, will, would,
should, could, and similar expressions are intended to identify forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995, but are not the
exclusive means of identifying such statements. The Corporations actual results may differ
materially from those expressed or implied in such forward-looking statements. Risks and
uncertainties that could cause or contribute to such material differences include, but are not
limited to, changes in regional and/or national economic conditions, changes in policies by
regulatory agencies, fluctuations in interest rates, changes in FDIC insurance assessment rates,
demand for loans in the Corporations market area, and competitive conditions in the financial
services industry. Additional information concerning a number of important factors which could
cause actual results to differ materially from the forward-looking statements is available in the
Corporations filings with the Securities and Exchange Commission under the Securities Exchange Act
of 1934, as amended (the Exchange Act), including the disclosure in Item 1A. Risk Factors of
Part I of Croghans Annual Report on Form 10-K for the fiscal year ended December 31, 2009.
The Corporation cautions readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. 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, except to
the extent required by law.
PERFORMANCE SUMMARY
Net income for the three-month period ended March 31, 2010 was $932,000, or $.55 per common share,
compared to $871,000, or $.51 per common share for the same period in 2009, an increase of $61,000
(7.0%). The results for the first quarter were positively affected by a $41,000 increase in net
interest income, a $100,000 decrease in the provision for loan losses, and a $38,000 decrease in
federal income taxes. Results were offset by a $117,000 increase in non-interest expenses and a
$1,000 decrease in non-interest income.
Assets at March 31, 2010 totaled $479,400,000 compared to $481,988,000 at December 31, 2009. Total
cash and cash equivalents increased $4,987,000 during the quarter ended March 31, 2010. Total
loans decreased to $314,139,000 from $324,484,000 at 2009 year end. Total securities increased to
$113,136,000 from $110,138,000 at 2009 year end. Total deposits decreased $2,893,000 to
$367,826,000 from $370,719,000 at 2009 year end.
FINANCIAL POSITION
The following comments are based upon a comparison of Croghans financial position at March 31,
2010 to December 31, 2009.
13
Total cash and cash equivalents increased $4,987,000 (29.8%) and total securities increased
$2,998,000 (2.7%) during the three-month period ended March 31, 2010. Total loans decreased
$10,345,000 (3.2%) to $314,139,000 at March 31, 2010, compared to $324,484,000 at December 31,
2009. During the same period, deposits decreased $2,893,000 (0.8%) to $367,826,000 at March 31,
2010, compared to $370,719,000 at December 31, 2009.
The increase in securities during the three-month period ended March 31, 2010 primarily resulted
from purchases of available-for sale securities of $7,723,000, with maturities during the period of
$4,698,000. There were no sales of securities during the period. Securities purchases were a
direct result of the continued loan balance decline.
The decrease in total loans during the three-month period ended March 31, 2010 resulted from the
sale of fixed rate mortgages into the secondary market, pay downs from commercial borrowers, the
general state of the economy, and a continuation of the soft demand in the Banks lending markets.
Components of the decrease in deposits include the liquid deposit category (demand, savings, NOW,
and money market deposit accounts) which decreased $352,000, or .2%, and the time deposit category
which decreased $2,541,000, or 1.7%. Croghan strives to maintain a strong interest margin by
balancing deposit needs to fund anticipated loan demand and by maintaining the necessary deposit
pricing structure.
Stockholders equity at March 31, 2010 increased to $56,349,000 or $33.09 book value per common
share, compared to $56,127,000, or $32.75 book value per common share, at December 31, 2009. The
balance in stockholders equity at March 31, 2010 included accumulated other comprehensive income,
consisting of net unrealized gains on securities classified as available-for-sale, net of related
income taxes. At March 31, 2010, Croghan held $108,790,000 in available-for-sale securities with
an unrealized gain of $1,138,000, net of income taxes. This compares to 2009 year-end holdings of
$105,792,000 in available-for-sale securities with an unrealized gain of $1,044,000, net of income
taxes.
Beginning in February 2002, Croghan instituted a stock buy-back program, which has subsequently
been extended through August 1, 2010. Since the inception of the program, a total of 219,053
shares have been repurchased as treasury shares. The 210,991 treasury shares held as of March 31,
2010 and the 200,232 shares held as of December 31, 2009 are reported at their acquired cost.
A cash dividend of $.32 per share was declared on March 9, 2010, payable on April 30, 2010 to
shareholders of record as of April 9, 2010.
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 $41,000, or .9%, for the three-month
period ended March 31, 2010 as compared to the same period in 2009. The net interest yield
decreased to 4.06% for the three-month period ended March 31, 2010 compared to 4.13% for the same
period in 2009. The increase of $11,588,000 in interest-earning assets year-over-year was
primarily due to the increase in the security portfolio, which was funded by a $12,959,000 increase
in interest-bearing deposits.
PROVISION FOR LOAN LOSSES AND THE ALLOWANCE FOR LOAN LOSSES
Croghans comprehensive loan policy provides guidelines for managing credit risk and asset
quality. The policy details acceptable lending practices, establishes loan-grading
classifications, and
14
stipulates the use of a loan review process. Croghan directly employs two staff
members dedicated to the credit analysis function to aid in facilitating the early identification
of problem loans, to help ensure sound credit decisions, and to assist in the determination of the
allowance for loan losses. Croghan also engages an outside credit review firm to supplement the
credit analysis function and to provide an independent assessment of the loan review process.
Croghans loan policy, loan review process, and credit analysis staff facilitate managements
evaluation of the credit risk inherent in the lending function.
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, 2010
|
|
March 31, 2009
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Provision for loan losses charged to expense
|
|
$
|
500
|
|
|
$
|
600
|
|
Net loan charge-offs
|
|
|
37
|
|
|
|
71
|
|
Annualized net loan charge-offs as a percent
of average outstanding loans
|
|
|
.01
|
%
|
|
|
.02
|
%
|
The following table details factors relating to non-performing and potential problem loans for as
of the dates noted:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans
|
|
|
$3,812
|
|
|
|
$5,903
|
|
Loans contractually past due 90 days or more
and still accruing interest
|
|
|
437
|
|
|
|
45
|
|
Restructured loans
|
|
|
3,604
|
|
|
|
3,191
|
|
Potential problem loans, other than those past due
90 days or more, nonaccrual, or restructured
|
|
|
22,341
|
|
|
|
22,227
|
|
|
|
|
|
|
|
|
|
|
Total potential problem and non-performing loans
|
|
|
$30,194
|
|
|
|
$31,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
$4,896
|
|
|
|
$4,433
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percent
of period-end loans
|
|
|
1.56
|
%
|
|
|
1.37
|
%
|
During the first quarter of 2010, the Bank recognized a $500,000 provision for loan losses as
compared to a $600,000 provision during the same period a year ago. The 2010 first quarter
provision was primarily attributable to an increase in the historical loss rates which are used to
calculate the allowance for loan losses. Historical loss rates have increased since the 2008 first
quarter, which was due to the general deteriorating state of the economy. The 2009 first quarter
provision was attributable to specific reserves provided for a commercial customer identified as an
impaired loan due to cash flow issues.
Total potential problem and non-performing loans, which are summarized in the preceding table,
decreased $1,172,000, or 3.7%, to $30,194,000 at March 31, 2010, compared to $31,366,000 at
December 31, 2009. Favorable components at March 31, 2010, as compared to December 31, 2009,
included a $2,091,000 decrease in nonaccrual loans which was attributable to two commercial real
15
estate clients that were paid off during the first quarter 2010. Unfavorable components included a
$114,000 increase in potential problem loans, other than those past due 90 days or more,
nonaccrual, or restructured, a $413,000 increase in the restructured loan category, and a $392,000
increase in loans contractually past due 90 days or more and still accruing interest. As
illustrated in the following table, $21,144,000, or 94.6%, of total potential problem loans are
less than 30 days past due and $22,334,000, or 99.9%, are secured with collateral.
Croghan typically classifies credits as potential problem loans, regardless of collateralization or
the existence of contractually obligated guarantors, when a review of the borrowers financial
statements indicates that the borrowing entity does not generate sufficient operating cash flow to
adequately service its debts. All of the potential problem loans at March 31, 2010, totaling
$22,341,000, are currently performing loans (less than 90 days past due) and a majority are
collateralized by an interest in real property.
The following table provides additional detail pertaining to the past due status of Croghans
potential problem loans as of the dates noted:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Potential problem loans not currently past due
|
|
$
|
18,149
|
|
|
|
$16,453
|
|
Potential problem loans past due one day or more but less than 10 days
|
|
|
276
|
|
|
|
186
|
|
Potential problem loans past due 10 days or more but less than 30 days
|
|
|
2,719
|
|
|
|
4,833
|
|
Potential problem loans past due 30 days or more but less than 60 days
|
|
|
880
|
|
|
|
528
|
|
Potential problem loans past due 60 days or more but less than 90 days
|
|
|
317
|
|
|
|
227
|
|
|
|
|
|
|
|
|
|
|
Total potential problem loans
|
|
$
|
22,341
|
|
|
|
$22,227
|
|
|
|
|
|
|
|
|
|
Total potential problem loans increased slightly during the quarter, which resulted primarily from
a $1,696,000 increase in the loans not currently past due. This increase was partially offset by a
$1,582,000 decrease in the aggregate amount of potential problem loans in the past due categories.
The following table provides additional detail pertaining to the collateralization of Croghans
potential problem loans as of the dates noted:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Collateralized by an interest in real property
|
|
$
|
21,747
|
|
|
|
$21,622
|
|
Collateralized by an interest in assets other than real property
|
|
|
587
|
|
|
|
600
|
|
Unsecured
|
|
|
7
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Total potential problem loans
|
|
$
|
22,341
|
|
|
|
$22,227
|
|
|
|
|
|
|
|
|
|
Management will continue to monitor asset quality trends throughout 2010 to ensure adequate
provisions for loan losses are made in a timely manner. It is Croghans policy to maintain the
allowance for loan losses at a level sufficient to provide for losses inherent in the portfolio.
Management believes the allowance for loan losses at March 31, 2010 is adequate to provide for
those losses identified as well as those losses inherent within the loan portfolio.
16
NON-INTEREST INCOME
Total non-interest income decreased $1,000, or .1%, for the three-month period ended March 31,
2010, compared to the same period in 2009. During the first quarter of 2010, the Bank had gains on
sale of loans of $30,000, which is down compared to $56,000 during the first quarter 2009. Also
within the non-interest income category, trust income increased $36,000 during the first quarter
2010 compared to 2009. These increases, however, were offset by a decrease in deposit account
service charges.
NON-INTEREST EXPENSES
Total non-interest expenses increased $117,000, or 3.4%, for the three-month period ended March 31,
2010, as compared to the same period in 2009. Salaries, wages, and employee benefits increased
$57,000, or 2.9%, between comparable three-month periods. Occupancy of premises expense decreased
$12,000, or 5.0%, between comparable three-month periods. Other operating expenses increased
$72,000, or 5.7%, between comparable three-month periods.
Within the other operating expense category is the FDIC insurance expense. During the first
quarter 2010, the FDIC insurance expense was $153,000, compared to $15,000 during the same period
in 2009. Pursuant to a final rule adopted by the FDIC in November 2009, the Bank was required to
prepay its estimated quarterly risk-based assessments to the FDIC for the fourth quarter of 2009
and for all of 2010, 2011, and 2012. The Bank prepaid the amount of $1,797,000 in December 2009
and had a remaining balance of $1,656,000 at March 31, 2010. These prepaid assessment amounts are
included in other assets of the Corporation. The Bank will be assessed quarterly premiums by the
FDIC commencing with the March 31, 2010 quarter, and such assessments will be charged against the
prepaid asset until such time as the prepaid asset has been full expensed, at which point the Bank
will resume paying premiums to the FDIC.
FEDERAL INCOME TAX EXPENSE
Federal income tax expense decreased $38,000 or 12.5% between comparable three-month periods. The
Corporations effective tax rate for the three months ended March 31, 2010 was 22.3% compared to
25.9% for the same period in 2009.
LIQUIDITY AND CAPITAL RESOURCES
Short-term borrowings of federal funds purchased and repurchase agreements averaged $18,701,000 for
the three-month period ended March 31, 2010. This compares to $13,482,000 for the three-month
period ended March 31, 2009 and $13,482,000 for the twelve-month period ended December 31, 2009.
Borrowings from the Federal Home Loan Bank totaled $35,500,000 at March 31, 2010, March 31, 2009,
and December 31, 2009.
Capital expenditures for premises and equipment totaled $78,000 for the three-month period ended
March 31, 2010, compared to $76,000 for the same period in 2009. The 2010 expenditures included
software relating to ATM conversion, drive-up tube system, and a generator for the operations
center.
Loan commitments, including letters of credit, as of March 31, 2010 totaled $72,421,000 compared to
$71,275,000 at December 31, 2009. Since many of these commitments are expected to expire without
being drawn upon, this total does not necessarily represent future cash requirements.
17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the quantitative and qualitative information about market
risk from the information provided in Croghans Annual Report on Form 10-K for the fiscal year
ended December 31, 2009 (the 2009 Form 10-K).
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF CONTROLS AND PROCEDURES
With the participation of the Corporations principal executive officer and principal financial
officer, the Corporations management has evaluated the effectiveness of the Corporations
disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the
end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the
Corporations principal executive officer and principal financial officer have concluded that:
(a)
|
|
information required to be disclosed by the Corporation in this Quarterly Report on Form 10-Q
and the other reports which the Corporation files or submits under the Exchange Act would be
accumulated and communicated to the Corporations management, including its principal executive
officer and principal financial officer, as appropriate, to allow timely decisions regarding
required disclosure;
|
|
(b)
|
|
information required to be disclosed by the Corporation in this Quarterly Report on Form 10-Q
and the other reports which the Corporation files or submits under the Exchange Act would be
recorded, processed, summarized, and reported within the time periods specified in the SECs rules
and forms; and
|
|
(c)
|
|
the Corporations disclosure controls and procedures were effective as of the end of the period
covered by this Quarterly Report on Form 10-Q.
|
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in the Corporations internal control over financial reporting (as defined in
Rule 13a-15(f) under the Exchange Act) that occurred during the Corporations fiscal quarter ended
March 31, 2010, that have materially affected, or are reasonably likely to materially affect, the
Corporations internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Management is not aware of any pending legal proceedings, except for routine legal proceedings
to which the Corporations subsidiary Bank is a party incidental to its banking business.
Management considers none of those proceedings to be material.
18
ITEM 1A. RISK FACTORS
There are certain risks and uncertainties in our business that could cause our actual results to
differ materially from those anticipated. In addition to the other information set forth in this
Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in Item
1A. Risk Factors of Part I of the 2009 Form 10-K, which could materially affect our business,
financial condition, and/or operating results. There have been no material changes from those risk
factors previously disclosed in Item 1A. Risk Factors of Part I of the 2009 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)
|
|
Not applicable
|
|
(b)
|
|
Not applicable
|
|
(c)
|
|
The table below includes certain information regarding Croghans repurchase of its common
shares during the quarterly period ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
per Share
|
|
or Programs
|
|
or Programs (1)
|
|
|
|
|
|
|
|
|
|
01/01/10
through
01/31/10
|
|
None
|
|
None
|
|
None
|
|
79,563
|
|
|
|
|
|
|
|
|
|
02/01/10
through
02/28/10
|
|
10,759
|
|
$24.03
|
|
10,759
|
|
74,934
|
|
|
|
|
|
|
|
|
|
03/01/10
through
03/31/10
|
|
None
|
|
None
|
|
None
|
|
74,934
|
(1)
|
|
An extension of Croghans stock repurchase program was approved on July 14, 2009, in which up
to 86,016 shares could be repurchased from August 1, 2009 to February 1, 2010 (with a total of
6,453 shares being repurchased prior to its expiration). An extension of Croghans stock
repurchase program commencing February 1, 2010 and ending August 1, 2010 was announced on
January 28, 2010, in which up to 85,693 shares may be repurchased (with 9,609 shares purchased
on February 10, 2010 and 1,150 shares purchased on February 19, 2010).
|
19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. OTHER INFORMATION
Not applicable.
ITEM 5. EXHIBITS
EXHIBIT 31.1 Rule 13a-14(a)/15d-14(a) Certification Principal Executive Officer
EXHIBIT 31.2 Rule 13a-14(a)/15d-14(a) Certification Principal Financial Officer
EXHIBIT 32 Section 1350 Certification Principal Executive Officer and Principal Financial Officer
20
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 28, 2010
|
By:
|
/s/ Steven C. Futrell
|
|
|
|
Steven C. Futrell, President and CEO
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
Date: April 28, 2010
|
By:
|
/s/ Kendall W. Rieman
|
|
|
|
Kendall W. Rieman, Treasurer
|
|
|
|
(Principal Financial Officer)
|
|
|
21
EXHIBIT INDEX
|
|
|
|
|
|
|
Exhibit Number
|
|
Description
|
|
Exhibit Location
|
|
|
|
|
|
|
|
|
31.1
|
|
|
Rule 13a-14(a)/15d-14(a)
Certification Principal Executive
Officer
|
|
Filed herewith
|
|
|
|
|
|
|
|
|
31.2
|
|
|
Rule 13a-14(a)/15d-14(a)
Certification Principal Financial
Officer
|
|
Filed herewith
|
|
|
|
|
|
|
|
|
32
|
|
|
Section 1350 Certification
Principal Executive Officer and
Principal Financial Officer
|
|
Filed herewith
|
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