##### Table of Contents



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, 2005
 0-20159
 
 (Commission File Number)
 CROGHAN BANCSHARES, INC.
 
  Ohio
    
    31-1073048(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)323 Croghan Street, Fremont, Ohio
    
    43420(Address of principal executive offices)
    
    (Zip Code)
  
  þ o
 o þ
 o þ




---



##### Table of Contents



Page(s)PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    3 -  9Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    10 - 15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    16Item 4. Controls and Procedures
    
    16PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    17Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    17Item 3. Defaults Upon Senior Securities
    
    17Item 4. Submission of Matters to a Vote of Security Holders
    
    17Item 5. Other Information
    
    17Item 6. Exhibits
    
    18Exhibit 31.1  Rule 13a-14(a)/15d-14(a) CEOs Certification
    
    21Exhibit 31.2  Rule 13a-14(a)/15d-14(a) Treasurers Certification
    
    22Exhibit 32.1  Section 1350 CEOs Certification
    
    23Exhibit 32.2  Section 1350 Treasurers Certification
    
    24Signatures
    
    19EX-31.1 CertificationEX-31.2 CertificationEX-32.1 CertificationEX-32.2 Certification
 2




---



##### Table of Contents



September 30
    
    
    December 312005
    
    
    2004(Dollars in thousands, except par value)ASSETSCASH AND CASH EQUIVALENTSCash and due from banks
    
    $
    12,785
    
    
    $
    11,587Federal funds sold
    
    
    6,750
    
    
    
    Total cash and cash equivalents
    
    
    19,535
    
    
    
    11,587SECURITIESAvailable-for-sale, at fair value
    
    
    65,192
    
    
    
    57,109Held-to-maturity, at amortized cost, fair value of $1,056 in 2005 and $1,595 in 2004
    
    
    1,028
    
    
    
    1,538Restricted stock
    
    
    3,459
    
    
    
    2,676Total securities
    
    
    69,679
    
    
    
    61,323LOANS
    
    
    340,891
    
    
    
    322,489Less: Allowance for loan losses
    
    
    3,585
    
    
    
    3,431Net loans
    
    
    337,306
    
    
    
    319,058Premises and equipment, net
    
    
    7,672
    
    
    
    7,166Cash surrender value of life insurance
    
    
    9,463
    
    
    
    9,229Goodwill
    
    
    10,263
    
    
    
    6,113Other intangible asset, net
    
    
    418
    
    
    
    Accrued interest receivable
    
    
    2,202
    
    
    
    1,929Other assets
    
    
    882
    
    
    
    829TOTAL ASSETS
    
    $
    457,420
    
    
    $
    417,234LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIESDeposits:Demand, non-interest bearing
    
    $
    44,084
    
    
    $
    43,658Savings, NOW and Money Market deposits
    
    
    153,449
    
    
    
    147,582Time
    
    
    166,476
    
    
    
    134,853Total deposits
    
    
    364,009
    
    
    
    326,093Federal funds purchased and securities sold under repurchase agreements
    
    
    8,482
    
    
    
    9,794Borrowed funds
    
    
    31,050
    
    
    
    28,950Dividends payable
    
    
    543
    
    
    
    530Other liabilities
    
    
    3,041
    
    
    
    2,951Total liabilities
    
    
    407,125
    
    
    
    368,318STOCKHOLDERS EQUITYCommon stock, $12.50 par value. Authorized 3,000,000 shares;
issued 1,914,109 shares
    
    
    23,926
    
    
    
    23,926Surplus
    
    
    150
    
    
    
    133Retained earnings
    
    
    27,779
    
    
    
    25,091Accumulated other comprehensive income (loss)
    
    
    (115
    )
    
    
    375Treasury stock, 42,236 shares in 2005 and 20,336 shares in 2004, at cost
    
    
    (1,445
    )
    
    
    (609
    )Total stockholders equity
    
    
    50,295
    
    
    
    48,916TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    457,420
    
    
    $
    417,234
  3




---



##### Table of Contents



Three months endedSeptember 302005
    
    
    2004(Dollars in thousands,except per share data)INTEREST INCOMELoans, including fees
    
    $
    5,691
    
    
    $
    4,913Securities:Obligations of U.S. Government agencies and corporations
    
    
    394
    
    
    
    316Obligations of states and political subdivisions
    
    
    234
    
    
    
    174Other
    
    
    58
    
    
    
    50Federal funds sold
    
    
    27
    
    
    
    Total interest income
    
    
    6,404
    
    
    
    5,453INTEREST EXPENSEDeposits
    
    
    1,528
    
    
    
    1,141Other borrowings
    
    
    320
    
    
    
    294Total interest expense
    
    
    1,848
    
    
    
    1,435Net interest income
    
    
    4,556
    
    
    
    4,018PROVISION FOR LOAN LOSSES
    
    
    360
    
    
    
    265Net interest income, after provision for loan losses
    
    
    4,196
    
    
    
    3,753NON-INTEREST INCOMETrust income
    
    
    147
    
    
    
    138Service charges on deposit accounts
    
    
    354
    
    
    
    333Gain (loss) on sale of securities
    
    
    (8
    )
    
    
    Other
    
    
    224
    
    
    
    286Total non-interest income
    
    
    717
    
    
    
    757NON-INTEREST EXPENSESSalaries, wages and employee benefits
    
    
    1,729
    
    
    
    1,561Occupancy of premises
    
    
    204
    
    
    
    163Amortization of other intangible asset
    
    
    14
    
    
    
    Other operating
    
    
    1,102
    
    
    
    1,040Total non-interest expenses
    
    
    3,049
    
    
    
    2,764Income before federal income taxes
    
    
    1,864
    
    
    
    1,746FEDERAL INCOME TAXES
    
    
    530
    
    
    
    512NET INCOME
    
    $
    1,334
    
    
    $
    1,234Net income per share, based on 1,874,630 shares in 2005 and 1,898,168 shares in 2004
    
    $
    0.71
    
    
    $
    0.65Dividends declared, based on 1,871,873 shares in 2005 and 1,898,297 shares in 2004
    
    $
    0.29
    
    
    $
    0.28
  4




---



##### Table of Contents



Nine months endedSeptember 302005
    
    
    2004(Dollars in thousands,except per share data)INTEREST INCOMELoans, including fees
    
    $
    16,714
    
    
    $
    14,529Securities:Obligations of U.S. Government agencies and corporations
    
    
    1,164
    
    
    
    932Obligations of states and political subdivisions
    
    
    688
    
    
    
    505Other
    
    
    182
    
    
    
    150Federal funds sold
    
    
    79
    
    
    
    Total interest income
    
    
    18,827
    
    
    
    16,116INTEREST EXPENSEDeposits
    
    
    4,336
    
    
    
    3,388Other borrowings
    
    
    965
    
    
    
    870Total interest expense
    
    
    5,301
    
    
    
    4,258Net interest income
    
    
    13,526
    
    
    
    11,858PROVISION FOR LOAN LOSSES
    
    
    450
    
    
    
    510Net interest income, after provision for loan losses
    
    
    13,076
    
    
    
    11,348NON-INTEREST INCOMETrust income
    
    
    438
    
    
    
    411Service charges on deposit accounts
    
    
    1,014
    
    
    
    940Gain (loss) on sale of securities
    
    
    (69
    )
    
    
    93Other
    
    
    695
    
    
    
    763Total non-interest income
    
    
    2,078
    
    
    
    2,207NON-INTEREST EXPENSESSalaries, wages and employee benefits
    
    
    5,143
    
    
    
    4,547Additional provision for supplemental retirement benefits
    
    
    
    
    
    
    412Occupancy of premises
    
    
    570
    
    
    
    486Amortization of other intangible asset
    
    
    43
    
    
    
    Other operating
    
    
    3,310
    
    
    
    2,864Total non-interest expenses
    
    
    9,066
    
    
    
    8,309Income before federal income taxes
    
    
    6,088
    
    
    
    5,246FEDERAL INCOME TAXES
    
    
    1,763
    
    
    
    1,541NET INCOME
    
    $
    4,325
    
    
    $
    3,705Net income per share, based on 1,884,472 shares in 2005 and 1,898,143 shares in 2004
    
    $
    2.30
    
    
    $
    1.95Dividends declared, based on 1,871,873 shares in 2005 and 1,898,297 shares in 2004
    
    $
    0.87
    
    
    $
    0.84
  5




---



##### Table of Contents



Three months endedSeptember 302005
    
    
    2004(Dollars in thousands,except per share data)BALANCE AT BEGINNING OF PERIOD
    
    $
    50,260
    
    
    $
    46,953Comprehensive Income:Net income
    
    
    1,334
    
    
    
    1,234Change in net unrealized gain (loss) on securities available-for-sale,
net of reclassification adjustments and related income taxes
    
    
    (395
    )
    
    
    687Total comprehensive income
    
    
    939
    
    
    
    1,921Proceeds from issuance of treasury shares, 674 shares in 2005 and 225 shares in 2004
    
    
    25
    
    
    
    8Purchase of 10,000 treasury shares
    
    
    (386
    )
    
    
    Cash dividends declared, $.29 per share in 2005 and $.28 per share in 2004
    
    
    (543
    )
    
    
    (532
    )BALANCE AT END OF PERIOD
    
    $
    50,295
    
    
    $
    48,350
 Nine months endedSeptember 302005
    
    
    2004(Dollars in thousands,except per share data)BALANCE AT BEGINNING OF PERIOD
    
    $
    48,916
    
    
    $
    46,196Comprehensive Income:Net income
    
    
    4,325
    
    
    
    3,705Change in net unrealized gain (loss) on securities available-for-sale,
net of reclassification adjustments and related income taxes
    
    
    (490
    )
    
    
    96Total comprehensive income
    
    
    3,835
    
    
    
    3,801Proceeds from issuance of treasury shares, 1,572 shares in 2005 and 743 shares in 2004
    
    
    57
    
    
    
    26Purchase of treasury shares, 23,472 shares in 2005 and 2,200 shares in 2004
    
    
    (877
    )
    
    
    (78
    )Cash dividends declared, $.87 per share in 2005 and $.84 per share in 2004
    
    
    (1,636
    )
    
    
    (1,595
    )BALANCE AT END OF PERIOD
    
    $
    50,295
    
    
    $
    48,350
  6




---



##### Table of Contents



Nine months endedSeptember 302005
    
    
    2004(Dollars in thousands)NET CASH FLOW FROM OPERATING ACTIVITIES
    
    $
    5,894
    
    
    $
    5,514CASH 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
    
    
    (11,507
    )
    
    
    (18,617
    )Purchases of restricted stock
    
    
    (305
    )
    
    
    Proceeds from maturities of securities
    
    
    7,099
    
    
    
    15,234Proceeds from sales of available-for-sale securities
    
    
    11,702
    
    
    
    3,512Net decrease (increase) in loans
    
    
    12,028
    
    
    
    (8,758
    )Additions to premises and equipment
    
    
    (676
    )
    
    
    (809
    )Net cash from investing activities
    
    
    6,659
    
    
    
    (9,438
    )CASH FLOWS FROM FINANCING ACTIVITIESNet change in deposits
    
    
    (2,890
    )
    
    
    6,878Net change
in federal funds purchased and securities sold under repurchase
agreements
    
    
    (1,312
    )
    
    
    (988
    )Net change in borrowed funds
    
    
    2,100
    
    
    
    (1,050
    )Proceeds from issuance of treasury shares
    
    
    57
    
    
    
    26Cash dividends paid
    
    
    (1,623
    )
    
    
    (1,595
    )Purchase of treasury stock
    
    
    (877
    )
    
    
    (78
    )Payment of deferred compensation
    
    
    (60
    )
    
    
    (30
    )Net cash from financing activities
    
    
    (4,605
    )
    
    
    3,163NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    7,948
    
    
    
    (761
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    11,587
    
    
    
    10,984CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    19,535
    
    
    $
    10,223SUPPLEMENTAL DISCLOSURESCash paid during the year for:Interest
    
    $
    5,108
    
    
    $
    4,263Federal income taxes
    
    $
    1,784
    
    
    $
    1,140
  7




---



##### Table of Contents



(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
Corporations Annual Report to shareholders for the year ended December 31, 2004, 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 September 30, 2005 are not necessarily indicative of the
operating results for the full year.The September 30, 2005 consolidated balance sheet includes the assets and liabilities of The
Custar State Bank (Custar) and the consolidated statements of operations, stockholders
equity and cash flows include the operations of Custar from January 1, 2005 as discussed in
Note 2.The Corporation does not believe the adoption of any recently issued pronouncements by the
Financial Accounting Standards Board will have a significant impact on its consolidated
financial statements.
 (2)
    
    Purchase of The Custar State Bank
 Effective January 1, 2005, the Corporation acquired all
of the outstanding shares of Custar, an
Ohio banking corporation with one office located in Custar, Ohio. Custar was subsequently
merged into the Bank.The cash purchase price, including $145,000 of acquisition costs paid through September 30,
2005, totaled $14,039,000. The acquisition was financed with a $10,000,000 special dividend
from the Bank and the proceeds of a $4,000,000 four-year term loan from a correspondent
bank with interest indexed to the prime rate minus .5 percent (aggregating 6.25 percent at
September 30, 2005). Interest payments on the loan are due annually with principal due in
full by the end of the four-year term. The transaction was accounted for as a purchase and,
accordingly, the results of operations of Custar are included in the 2005 consolidated
results of the Corporation beginning on January 1, 2005.
 8




---



##### Table of Contents



(2)
    
    Purchase of The Custar State Bank (continued)
 The fair values of assets acquired and liabilities assumed totaled $50,477,000 and
$41,048,000, respectively. Major assets acquired included securities of $16,504,000 and net
loans of $30,794,000, and the major liability assumed was deposits of $40,821,000. The
excess of the purchase price, including acquisition costs, over the fair value of the net
assets acquired totaled $4,610,000. Of this amount, $461,000 was allocated to a core deposit
intangible asset and $4,149,000 was allocated to goodwill. Acquisition costs expected to be
incurred in connection with the acquisition approximate $155,000, including $145,000 paid
through September 30, 2005. The termination of the Custar defined benefit pension plan has
not been settled as of September 30, 2005. It is estimated the final plan settlement will
result in an additional liability of $200,000, net of income taxes, which will result in an
additional allocation to goodwill.
 (3)
    
    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 resulted in a decrease in net
income of $.14 per share.
 9




---



##### Table of Contents



10




---



##### Table of Contents



11




---



##### Table of Contents



Nine months ended
    
    Nine months endedSeptember 30, 2005
    
   September 30, 2004(Dollars in thousands)Provision for loan losses charged to expense
    
    $ 450
    
    $ 510Net loan charge-offs
    
    537
    
    461Annualized net loan charge-offs as a percent
of average outstanding loans
    

.21 %
    

.20 %
 12




---



##### Table of Contents



September 30, 2005
    
    
    December 31, 2004(Dollars in thousands)Nonaccrual loans
    
    $
    1,053
    
    
    $
    933Loans contractually past due 90 days or more
and still accruing interest
    
    
    761
    
    
    
    459Restructured loans
    
    
    
    
    
    
    Potential problem loans, other than those past due
90 days or more, nonaccrual, or restructured
    
    
    14,869
    
    
    
    15,393Total potential problem and non-performing loans
    
    $
    16,683
    
    
    $
    16,785Allowance for loan losses
    
    $
    3,585
    
    
    $
    3,431Allowance for loan losses as a percent
of period-end loans
    
    
    1.05
    %
    
    
    1.06
    %
    September 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Potential problem loans not currently past due
    
    $
    7,501
    
    
    $
    7,897Potential problem loans past due one day or more but less than 10 days
    
    
    3,333
    
    
    
    5,732Potential problem loans past due 10 days or more but less than 30 days
    
    
    3,406
    
    
    
    691Potential problem loans past due 30 days or more but less than 60 days
    
    
    521
    
    
    
    477Potential problem loans past due 60 days or more but less than 90 days
    
    
    108
    
    
    
    596Total potential problem loans
    
    $
    14,869
    
    
    $
    15,393
 13




---



##### Table of Contents



September 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Collateralized by an interest in real property
    
    $
    10,258
    
    
    $
    10,968Collateralized by an interest in assets other than real property
    
    
    4,568
    
    
    
    4,331Unsecured
    
    
    43
    
    
    
    94Total potential problem loans
    
    $
    14,869
    
    
    $
    15,393
         14




---



##### Table of Contents



15




---



##### Table of Contents



(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 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 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 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.
   16




---



##### Table of Contents



(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, 2005:
 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)07/01/05
through
07/31/05
    
    
    10,000
    
    
    $
    38.60
    
    
    
    10,000
    
    
    Expired08/01/05
through
08/31/05
    
    None
    
    None
    
    None
    
    
    94,05909/01/05
through
09/30/05
    
    None
    
    None
    
    None
    
    
    94,059
 (1)
    
    All share purchases were part of publicly announced plans and all were open-market
transactions.
 (2)
    
    A stock buy-back program commencing February 1, 2005 and ending on August 1, 2005 was
announced on January 19, 2005 in which up to 94,688 shares could be repurchased (with 2,624
shares purchased on February 22, 2005; 6,600 shares purchased on May 5, 2005; 4,248 shares
purchased on May 26, 2005; and 10,000 shares purchased on July 29, 2005). A stock buy-back
program commencing on August 1, 2005 and ending on February 1, 2006 was announced on July 15,
2005 in which up to 94,059 shares may be repurchased.
 
  
  
  17




---



##### Table of Contents



18




---



##### Table of Contents



Date: October 25, 2005
    
    /s/ Steven C. FutrellSteven C. Futrell, President & CEODate: October 25, 2005
    
    /s/ Allan E. MehlowAllan E. Mehlow, Treasurer
 19




---



##### Table of Contents



Exhibit Number
    
    Description
    
    Exhibit Location31.1
    
    Rule 13a-14(a)/15d-14(a) CEOs Certification
    
    Filed herewith31.2
    
    Rule 13a-14(a)/15d-14(a) Treasurers
Certification
    
    Filed herewith32.1
    
    Section 1350 CEOs Certification
    
    Filed herewith32.2
    
    Section 1350 Treasurers Certification
    
    Filed herewith
 20