##### 



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
   
  CROGHAN BANCSHARES, INC.
 
  Ohio
    
    31-1073048(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)323 Croghan Street, Fremont, Ohio
    
    43420(Address of principal executive offices)
    
    (Zip Code)
  
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
 o þ




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##### 



Page(s)PART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    3  8Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9  14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    14Item 4.
    
    Controls and Procedures
    
    
    14PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    15Item 1A.
    
    Risk Factors
    
    
    15Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    15Item 3.
    
    Defaults Upon Senior Securities
    
    
    16Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    16Item 5.
    
    Other Information
    
    
    16Item 6.
    
    Exhibits
    
    
    16Exhibit 31.1
 Rule 13a-14(a)/15d-14(a) Principal Executive    Officers
Certification
    
    
    19Exhibit 31.2
 Rule 13a-14(a)/15d-14(a) Principal Financial    Officers Certification
    
    
    20Exhibit 32.1
 Section 1350 Principal Executive Officers    Certification
    
    
    21Exhibit 32.2
 Section 1350 Principal Financial Officers    Certification
    
    
    22Signatures
    
    
    
    
    17
 2




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##### 



June 302006
    
    
    December 312005(Dollars in thousands, except par value)ASSETSCASH AND CASH EQUIVALENTS
    
    $
    12,959
    
    
    $
    12,338SECURITIESAvailable-for-sale, at fair value
    
    
    65,138
    
    
    
    76,905Held-to-maturity, at amortized cost, fair value of $1,020 in 2006 and $1,047 in 2005
    
    
    1,018
    
    
    
    1,024Restricted stock
    
    
    3,558
    
    
    
    3,492Total securities
    
    
    69,714
    
    
    
    81,421LOANS
    
    
    343,226
    
    
    
    340,910Less: Allowance for loan losses
    
    
    3,483
    
    
    
    3,624Net loans
    
    
    339,743
    
    
    
    337,286Premises and equipment, net
    
    
    7,322
    
    
    
    7,455Cash surrender value of life insurance
    
    
    9,705
    
    
    
    9,543Goodwill
    
    
    10,430
    
    
    
    10,430Core deposit intangible asset, net
    
    
    374
    
    
    
    403Accrued interest receivable
    
    
    2,096
    
    
    
    2,194Other assets
    
    
    1,061
    
    
    
    829TOTAL ASSETS
    
    $
    453,404
    
    
    $
    461,899LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIESDeposits:Demand, non-interest bearing
    
    $
    44,235
    
    
    $
    50,730Savings, NOW and Money Market deposits
    
    
    150,240
    
    
    
    150,365Time
    
    
    169,170
    
    
    
    167,364Total deposits
    
    
    363,645
    
    
    
    368,459Federal funds purchased and securities sold under repurchase agreements
    
    
    9,970
    
    
    
    10,825Borrowed funds
    
    
    26,300
    
    
    
    29,050Dividends payable
    
    
    544
    
    
    
    535Other liabilities
    
    
    2,797
    
    
    
    3,099Total liabilities
    
    
    403,256
    
    
    
    411,968STOCKHOLDERS EQUITYCommon stock, $12.50 par value. Authorized 6,000,000 shares in 2006
and 3,000,000 in 2005; issued 1,914,109 shares
    
    
    23,926
    
    
    
    23,926Surplus
    
    
    164
    
    
    
    154Retained earnings
    
    
    30,401
    
    
    
    28,640Accumulated other comprehensive loss
    
    
    (720
    )
    
    
    (287
    )Treasury stock, 99,634 shares in 2006 and 69,883 shares in 2005, at cost
    
    
    (3,623
    )
    
    
    (2,502
    )Total stockholders equity
    
    
    50,148
    
    
    
    49,931TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    453,404
    
    
    $
    461,899
  3




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##### 



Three months endedJune 302006
    
    
    2005(Dollars in thousands,except per share data)INTEREST INCOMELoans, including fees
    
    $
    5,910
    
    
    $
    5,553Securities:Obligations of U.S. Government agencies and corporations
    
    
    457
    
    
    
    385Obligations of states and political subdivisions
    
    
    229
    
    
    
    231Other
    
    
    62
    
    
    
    65Federal funds sold
    
    
    12
    
    
    
    41Total interest income
    
    
    6,670
    
    
    
    6,275INTEREST EXPENSEDeposits
    
    
    1,921
    
    
    
    1,460Other borrowings
    
    
    380
    
    
    
    325Total interest expense
    
    
    2,301
    
    
    
    1,785Net interest income
    
    
    4,369
    
    
    
    4,490PROVISION FOR LOAN LOSSES
    
    
    15
    
    
    
    Net interest income, after provision for loan losses
    
    
    4,354
    
    
    
    4,490NON-INTEREST INCOMETrust income
    
    
    176
    
    
    
    145Service charges on deposit accounts
    
    
    352
    
    
    
    347Gain (loss) on sale of securities
    
    
    1
    
    
    
    (19
    )Other
    
    
    229
    
    
    
    231Total non-interest income
    
    
    758
    
    
    
    704NON-INTEREST EXPENSESSalaries, wages and employee benefits
    
    
    1,731
    
    
    
    1,703Occupancy of premises
    
    
    185
    
    
    
    177Amortization of core deposit intangible asset
    
    
    15
    
    
    
    14Other operating
    
    
    1,139
    
    
    
    1,152Total non-interest expenses
    
    
    3,070
    
    
    
    3,046Income before federal income taxes
    
    
    2,042
    
    
    
    2,148FEDERAL INCOME TAXES
    
    
    605
    
    
    
    627NET INCOME
    
    $
    1,437
    
    
    $
    1,521Net income per share, based on 1,820,835 shares in 2006 and 1,886,017 shares
in 2005
    
    $
    0.79
    
    
    $
    0.81Dividends declared, based on 1,814,475 shares in 2006 and 1,881,199 shares
in 2005
    
    $
    0.30
    
    
    $
    0.29
  4




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##### 



Six months endedJune 302006
    
    
    2005(Dollars in thousands,except per share data)INTEREST INCOMELoans, including fees
    
    $
    11,577
    
    
    $
    11,023Securities:Obligations of U.S. Government agencies and corporations
    
    
    995
    
    
    
    770Obligations of states and political subdivisions
    
    
    463
    
    
    
    454Other
    
    
    124
    
    
    
    124Federal funds sold
    
    
    13
    
    
    
    52Total interest income
    
    
    13,172
    
    
    
    12,423INTEREST EXPENSEDeposits
    
    
    3,618
    
    
    
    2,808Other borrowings
    
    
    780
    
    
    
    645Total interest expense
    
    
    4,398
    
    
    
    3,453Net interest income
    
    
    8,774
    
    
    
    8,970PROVISION FOR LOAN LOSSES
    
    
    50
    
    
    
    90Net interest income, after provision for loan losses
    
    
    8,724
    
    
    
    8,880NON-INTEREST INCOMETrust income
    
    
    335
    
    
    
    291Service charges on deposit accounts
    
    
    676
    
    
    
    660Gain (loss) on sale of securities
    
    
    1
    
    
    
    (61
    )Other
    
    
    449
    
    
    
    471Total non-interest income
    
    
    1,461
    
    
    
    1,361NON-INTEREST EXPENSESSalaries, wages and employee benefits
    
    
    3,535
    
    
    
    3,414Occupancy of premises
    
    
    386
    
    
    
    366Amortization of core deposit intangible asset
    
    
    29
    
    
    
    29Other operating
    
    
    2,187
    
    
    
    2,208Total non-interest expenses
    
    
    6,137
    
    
    
    6,017Income before federal income taxes
    
    
    4,048
    
    
    
    4,224FEDERAL INCOME TAXES
    
    
    1,193
    
    
    
    1,233NET INCOME
    
    $
    2,855
    
    
    $
    2,991Net income per share, based on 1,827,995 shares in 2006 and 1,889,474 shares
in 2005
    
    $
    1.56
    
    
    $
    1.58Dividends declared per share
    
    $
    0.60
    
    
    $
    0.58
  5




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##### 



Three months endedJune 302006
    
    
    2005(Dollars in thousands,except per share data)BALANCE AT BEGINNING OF PERIOD
    
    $
    49,979
    
    
    $
    49,197Comprehensive Income:Net income
    
    
    1,437
    
    
    
    1,521Change in net unrealized gain (loss) on securities available-for-sale,
net of reclassification adjustments and related income taxes
    
    
    (204
    )
    
    
    471Total comprehensive income
    
    
    1,233
    
    
    
    1,992Proceeds from issuance of treasury stock, 275 shares in 2006 and 334 shares in 2005
    
    
    10
    
    
    
    12Purchase of treasury stock, 14,128 shares in 2006 and 10,848 shares in 2005
    
    
    (530
    )
    
    
    (395
    )Cash dividends declared, $.30 per share in 2006 and $.29 per share in 2005
    
    
    (544
    )
    
    
    (546
    )BALANCE AT END OF PERIOD
    
    $
    50,148
    
    
    $
    50,260
 Six months endedJune 302006
    
    
    2005(Dollars in thousands,except per share data)BALANCE AT BEGINNING OF PERIOD
    
    $
    49,931
    
    
    $
    48,916Comprehensive Income:Net income
    
    
    2,855
    
    
    
    2,991Change in net unrealized gain (loss) on securities available-for-sale,
net of reclassification adjustments and related income taxes
    
    
    (433
    )
    
    
    (94
    )Total comprehensive income
    
    
    2,422
    
    
    
    2,897Proceeds from issuance of treasury stock, 877 shares in 2006 and 898 shares in 2005
    
    
    32
    
    
    
    33Purchase of treasury stock, 30,628 shares in 2006 and 13,472 shares in 2005
    
    
    (1,145
    )
    
    
    (491
    )Cash dividends declared, $.60 per share in 2006 and $.58 per share in 2005
    
    
    (1,092
    )
    
    
    (1,095
    )BALANCE AT END OF PERIOD
    
    $
    50,148
    
    
    $
    50,260
  6




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##### 



Six months endedJune 302006
    
    
    2005(Dollars in thousands)NET CASH FLOW FROM OPERATING ACTIVITIES
    
    $
    3,124
    
    
    $
    3,788CASH FLOWS FROM INVESTING ACTIVITIESPurchase of The Custar State Bank, net of $2,357 cash and cash equivalents acquired
    
    
    
    
    
    
    (11,682
    )Purchases of available-for-sale securities
    
    
    (4,971
    )
    
    
    (9,060
    )Purchases of restricted stock
    
    
    
    
    
    
    (305
    )Proceeds from maturities of securities
    
    
    14,657
    
    
    
    4,720Proceeds from sales of available-for-sale securities
    
    
    1,326
    
    
    
    10,209Net decrease (increase) in loans
    
    
    (2,507
    )
    
    
    10,387Additions to premises and equipment
    
    
    (320
    )
    
    
    (564
    )Net cash from investing activities
    
    
    8,185
    
    
    
    3,705CASH FLOWS FROM FINANCING ACTIVITIESNet change in deposits
    
    
    (4,814
    )
    
    
    (2,262
    )Net change in federal funds purchased and securities sold under repurchase agreements
    
    
    (855
    )
    
    
    (1,804
    )Net change in borrowed funds
    
    
    (2,750
    )
    
    
    (1,150
    )Proceeds from issuance of treasury shares
    
    
    32
    
    
    
    33Cash dividends paid
    
    
    (1,083
    )
    
    
    (1,079
    )Purchase of treasury stock
    
    
    (1,145
    )
    
    
    (491
    )Payment of deferred compensation
    
    
    (73
    )
    
    
    (60
    )Net cash from financing activities
    
    
    (10,688
    )
    
    
    (6,813
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    621
    
    
    
    680CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    12,338
    
    
    
    11,587CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    12,959
    
    
    $
    12,267SUPPLEMENTAL DISCLOSURESCash paid during the year for:Interest
    
    $
    4,323
    
    
    $
    3,335Federal income taxes
    
    $
    980
    
    
    $
    1,114
  7




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##### 



8




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##### 



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
        9




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##### 



10




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##### 



Six months ended
    
    
    Six months endedJune 30, 2006
    
    
    June 30, 2005(Dollars in thousands)Provision for loan losses charged to expense
    
    $
    50
    
    
    $
    90Net loan charge-offs
    
    
    191
    
    
    
    355Annualized net loan charge-offs as a percent
of average outstanding loans
    
    
    .11
    %
    
    
    .20
    %
  June 30, 2006
    
    
    December 31, 2005(Dollars in thousands)Nonaccrual loans
    
    $
    3,461
    
    
    $
    3,872Loans contractually past due 90 days or more
and still accruing interest
    
    
    468
    
    
    
    561Restructured loans
    
    
    
    
    
    
    Potential problem loans, other than those past due
90 days or more, nonaccrual, or restructured
    
    
    7,640
    
    
    
    11,810
 11




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##### 



Total potential problem and non-performing loans
    
    $
    11,569
    
    
    $
    16,243Allowance for loan losses
    
    $
    3,483
    
    
    $
    3,624Allowance for loan losses as a percent
of period-end loans
    
    
    1.01
    %
    
    
    1.06
    %
    June 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Potential problem loans not currently past due
    
    $
    4,465
    
    
    $
    8,206Potential problem loans past due one day or more but less than 10 days
    
    
    791
    
    
    
    1,939Potential problem loans past due 10 days or more but less than 30 days
    
    
    677
    
    
    
    605Potential problem loans past due 30 days or more but less than 60 days
    
    
    471
    
    
    
    695Potential problem loans past due 60 days or more but less than 90 days
    
    
    1,236
    
    
    
    365Total potential problem loans
    
    $
    7,640
    
    
    $
    11,810
  June 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Collateralized by an interest in real property
    
    $
    5,855
    
    
    $
    8,312Collateralized by an interest in assets other than real property
    
    
    1,764
    
    
    
    3,491Unsecured
    
    
    21
    
    
    
    7Total potential problem loans
    
    $
    7,640
    
    
    $
    11,810
 12




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##### 



13




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##### 



(a)
    
    information required to be disclosed by Croghan in this Quarterly Report on Form 10-Q and the
other reports which Croghan files or submits under the Exchange Act would be accumulated and
communicated to Croghans 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 Croghan in this Quarterly Report on Form 10-Q and the
other reports which Croghan files or submits under the Exchange Act 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 subsidiary 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.
   14




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##### 



(a)
    
    None(b)
    
    None(c)
    
    The table below includes certain information regarding Croghans purchase of Croghan common
shares during the quarterly period ended June 30, 2006:
 Total Number of
    
    Maximum NumberShares Purchased
    
    of Shares that MayTotal Number
    
    Average
    
    as Part of Publicly
    
    Yet Be Purchasedof Shares
    
    Price Paid
    
    Announced Plans
    
    Under the PlansPeriod
    
    Purchased (1)
    
    per Share
    
    or Programs
    
    or Programs (2)04/01/06through
    
    None
    
    None
    
    None
    
    75,71304/30/0605/01/06through
    
    14,128
    
    $37.46
    
    14,128
    
    61,58505/31/0606/01/06through
    
    None
    
    None
    
    None
    
    61,58506/30/06
 (1)
    
    All share purchases were part of publicly announced plans and all were open-market
transactions.(2)
    
    A stock buy-back program commencing on February 1, 2006 and ending on August 1, 2006 was
announced on January 18, 2006 in which up to 92,213 shares could be repurchased (with 11,500
shares purchased on February 8, 2006; 5,000 shares purchased on February 14, 2006; 3,500
shares purchased on May 8, 2006; 4,165 shares purchased on May 10, 2006; 3,600 shares
purchased on May 16, 2006; 2,200 shares purchased on May 19, 2006; and 663 shares purchased on
May 23, 2006). A stock buy-back program commencing August 1, 2006 and ending on February 1,
2007 was announced on July 18, 2006 in which up to 90,726 shares may be repurchased.
 
 15




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##### 



(a)
    
    The annual meeting of shareholders of Croghan Bancshares, Inc. was held on May 9, 2006.(b)
    
    Proxies were solicited pursuant to Regulation 14A of the Securities Exchange Act of 1934.
The following directors were elected for terms expiring in 2009: Michael D. Allen, Sr.,
Claire F. Johansen, Stephen A. Kemper, and Claude E. Young. The following Directors also
remain in office with terms expiring in 2007 and 2008: James E. Bowlus, Steven C. Futrell,
John P. Keller, Daniel W. Lease, Allan E. Mehlow, J. Terrence Wolfe, and Gary L. Zimmerman.(c)
    
    Matters voted upon at the annual meeting of shareholders:
 (1)
    
    Election of Directors
 Nominee
    
    For
    
    WithheldMichael D. Allen, Sr.
    
    
    1,469,361
    
    
    
    18,925Nathan G. Danziger
    
    
    13,921
    
    
    
    0Claire F. Johansen
    
    
    1,445,511
    
    
    
    42,775Stephen A. Kemper
    
    
    1,463,429
    
    
    
    24,857Claude E. Young
    
    
    1,441,810
    
    
    
    46,476
 (2)
    
    Proposal to amend the Articles of Incorporation to increase
the number of common shares, par value $12.50 per share, from 3,000,000 to 6,000,000 (passed)
 For
    
    Against
    
    Abstain1,366,322
    
    104,354
    
    31,540
 (3)
    
    Shareholder proposal urging the Board of Directors to take the steps
necessary to declassify the Board (defeated)
 For
    
    Against
    
    Abstain132,293
    
    1,093,387
    
    30,457
 (4)
    
    Shareholder proposal urging the Board of Directors to adopt a
policy to
elect an independent Chairman of the Board (defeated)
 For
    
    Against
    
    Abstain128,609
    
    
    1,104,095
    
    
    
    23,523
 (5)
    
    Shareholder proposal urging the Board of Directors to
establish a
performance-based senior executive compensation system (defeated)
 For
    
    Against
    
    Abstain148,899
    
    
    1,072,429
    
    
    
    35,035
   
 16




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##### 



Date: July 21, 2006
    
    /s/ Thomas J. ElderThomas J. Elder, Vice
President
(Principal Executive Officer)Date: July 21, 2006
    
    /s/ Kendall W. RiemanKendall W. Rieman, Treasurer
(Principal Financial Officer)
 17




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##### 



Exhibit Number
    
    Description
    
    Exhibit Location31.1
    
    Rule 13a-14(a)/15d-14(a) Principal
Executive Officers Certification
    
    Filed herewith31.2
    
    Rule 13a-14(a)/15d-14(a) Principal
Financial Officers Certification
    
    Filed herewith32.1
    
    Section 1350 Principal Executive
Officers Certification
    
    Filed herewith32.2
    
    Section 1350 Principal Financial
Officers Certification
    
    Filed herewith
 18