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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2006
 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 o 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
    
    15PART 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
    
    17EX-31.1EX-31.2EX-32.1EX-32.2
 2




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September 30
    
    
    December 312006
    
    
    2005(Dollars in thousands, except par value)ASSETSCASH AND CASH EQUIVALENTS
    
    $
    11,378
    
    
    $
    12,338SECURITIESAvailable-for-sale, at fair value
    
    
    58,858
    
    
    
    76,905Held-to-maturity, at amortized cost, fair value of
$1,031 in 2006 and $1,047 in 2005
    
    
    1,014
    
    
    
    1,024Restricted stock
    
    
    3,593
    
    
    
    3,492Total securities
    
    
    63,465
    
    
    
    81,421LOANS
    
    
    343,361
    
    
    
    340,910Less: Allowance for loan losses
    
    
    3,631
    
    
    
    3,624Net loans
    
    
    339,730
    
    
    
    337,286Premises and equipment, net
    
    
    7,572
    
    
    
    7,455Cash surrender value of life insurance
    
    
    9,786
    
    
    
    9,543Goodwill
    
    
    10,430
    
    
    
    10,430Core deposit intangible asset, net
    
    
    360
    
    
    
    403Accrued interest receivable
    
    
    2,293
    
    
    
    2,194Other assets
    
    
    685
    
    
    
    829TOTAL ASSETS
    
    $
    445,699
    
    
    $
    461,899LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIESDeposits:Demand, non-interest bearing
    
    $
    43,963
    
    
    $
    50,730Savings, NOW and Money Market deposits
    
    
    153,069
    
    
    
    150,365Time
    
    
    169,430
    
    
    
    167,364Total deposits
    
    
    366,462
    
    
    
    368,459Federal funds purchased and securities sold under
repurchase agreements
    
    
    6,850
    
    
    
    10,825Borrowed funds
    
    
    17,800
    
    
    
    29,050Dividends payable
    
    
    540
    
    
    
    535Other liabilities
    
    
    3,183
    
    
    
    3,099Total liabilities
    
    
    394,835
    
    
    
    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
    
    
    168
    
    
    
    154Retained earnings
    
    
    31,146
    
    
    
    28,640Accumulated other comprehensive loss
    
    
    (177
    )
    
    
    (287
    )Treasury stock, 114,796 shares in 2006 and 69,883 shares
in 2005, at cost
    
    
    (4,199
    )
    
    
    (2,502
    )Total stockholders equity
    
    
    50,864
    
    
    
    49,931TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    445,699
    
    
    $
    461,899
  3




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Three months endedSeptember 302006
    
    
    2005(Dollars in thousands,except per share data)INTEREST INCOMELoans, including fees
    
    $
    6,093
    
    
    $
    5,691Securities:Obligations of U.S. Government agencies and corporations
    
    
    378
    
    
    
    394Obligations of states and political subdivisions
    
    
    222
    
    
    
    234Other
    
    
    63
    
    
    
    58Federal funds sold
    
    
    37
    
    
    
    27Total interest income
    
    
    6,793
    
    
    
    6,404INTEREST EXPENSEDeposits
    
    
    2,243
    
    
    
    1,528Other borrowings
    
    
    287
    
    
    
    320Total interest expense
    
    
    2,530
    
    
    
    1,848Net interest income
    
    
    4,263
    
    
    
    4,556PROVISION FOR LOAN LOSSES
    
    
    230
    
    
    
    360Net interest income, after provision for loan losses
    
    
    4,033
    
    
    
    4,196NON-INTEREST INCOMETrust income
    
    
    198
    
    
    
    147Service charges on deposit accounts
    
    
    364
    
    
    
    354Loss on sale of securities
    
    
    
    
    
    
    (8
    )Other
    
    
    224
    
    
    
    224Total non-interest income
    
    
    786
    
    
    
    717NON-INTEREST EXPENSESSalaries, wages and employee benefits
    
    
    1,610
    
    
    
    1,729Occupancy of premises
    
    
    193
    
    
    
    204Amortization of core deposit intangible asset
    
    
    14
    
    
    
    14Other operating
    
    
    1,189
    
    
    
    1,102Total non-interest expenses
    
    
    3,006
    
    
    
    3,049Income before federal income taxes
    
    
    1,813
    
    
    
    1,864FEDERAL INCOME TAXES
    
    
    529
    
    
    
    530NET INCOME
    
    $
    1,284
    
    
    $
    1,334Net income per share, based on 1,806,207 shares in 2006 and 1,874,630 shares in 2005
    
    $
    0.71
    
    
    $
    0.71Dividends declared, based on 1,799,313 shares in 2006 and 1,871,873 shares in 2005
    
    $
    0.30
    
    
    $
    0.29
  4




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Nine months endedSeptember 302006
    
    
    2005(Dollars in thousands,except per share data)INTEREST INCOMELoans, including fees
    
    $
    17,670
    
    
    $
    16,714Securities:Obligations of U.S. Government agencies and corporations
    
    
    1,373
    
    
    
    1,164Obligations of states and political subdivisions
    
    
    685
    
    
    
    688Other
    
    
    187
    
    
    
    182Federal funds sold
    
    
    50
    
    
    
    79Total interest income
    
    
    19,965
    
    
    
    18,827INTEREST EXPENSEDeposits
    
    
    5,861
    
    
    
    4,336Other borrowings
    
    
    1,067
    
    
    
    965Total interest expense
    
    
    6,928
    
    
    
    5,301Net interest income
    
    
    13,037
    
    
    
    13,526PROVISION FOR LOAN LOSSES
    
    
    280
    
    
    
    450Net interest income, after provision for loan losses
    
    
    12,757
    
    
    
    13,076NON-INTEREST INCOMETrust income
    
    
    533
    
    
    
    438Service charges on deposit accounts
    
    
    1,040
    
    
    
    1,014Gain (loss) on sale of securities
    
    
    1
    
    
    
    (69
    )Other
    
    
    673
    
    
    
    695Total non-interest income
    
    
    2,247
    
    
    
    2,078NON-INTEREST EXPENSESSalaries, wages and employee benefits
    
    
    5,145
    
    
    
    5,143Occupancy of premises
    
    
    579
    
    
    
    570Amortization of core deposit intangible asset
    
    
    43
    
    
    
    43Other operating
    
    
    3,376
    
    
    
    3,310Total non-interest expenses
    
    
    9,143
    
    
    
    9,066Income before federal income taxes
    
    
    5,861
    
    
    
    6,088FEDERAL INCOME TAXES
    
    
    1,722
    
    
    
    1,763NET INCOME
    
    $
    4,139
    
    
    $
    4,325Net income per share, based on 1,820,653 shares in 2006 and 1,884,472 shares in 2005
    
    $
    2.27
    
    
    $
    2.30Dividends declared per share
    
    $
    0.90
    
    
    $
    0.87
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Three months endedSeptember 302006
    
    
    2005(Dollars in thousands,except per share data)BALANCE AT BEGINNING OF PERIOD
    
    $
    50,148
    
    
    $
    50,260Comprehensive Income:Net income
    
    
    1,284
    
    
    
    1,334Change in net unrealized gain (loss) on securities available-for-sale,
net of reclassification adjustments and related income taxes
    
    
    543
    
    
    
    (395
    )Total comprehensive income
    
    
    1,827
    
    
    
    939Proceeds from issuance of treasury shares, 340 shares in 2006 and 674 shares in 2005
    
    
    13
    
    
    
    25Purchase of 15,502 treasury shares in 2006 and 10,000 shares in 2005
    
    
    (584
    )
    
    
    (386
    )Cash dividends declared, $.30 per share in 2006 and $.29 per share in 2005
    
    
    (540
    )
    
    
    (543
    )BALANCE AT END OF PERIOD
    
    $
    50,864
    
    
    $
    50,295
 Nine months endedSeptember 302006
    
    
    2005(Dollars in thousands,except per share data)BALANCE AT BEGINNING OF PERIOD
    
    $
    49,931
    
    
    $
    48,916Comprehensive Income:Net income
    
    
    4,139
    
    
    
    4,325Change in net unrealized gain (loss) on securities available-for-sale,
net of reclassification adjustments and related income taxes
    
    
    110
    
    
    
    (490
    )Total comprehensive income
    
    
    4,249
    
    
    
    3,835Proceeds from issuance of treasury shares, 1,217 shares in 2006 and 1,572 shares in 2005
    
    
    45
    
    
    
    57Purchase of treasury shares, 46,130 shares in 2006 and 23,472 shares in 2005
    
    
    (1,729
    )
    
    
    (877
    )Cash dividends declared, $.90 per share in 2006 and $.87 per share in 2005
    
    
    (1,632
    )
    
    
    (1,636
    )BALANCE AT END OF PERIOD
    
    $
    50,864
    
    
    $
    50,295
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Nine months endedSeptember 302006
    
    
    2005(Dollars in thousands)NET CASH FLOW FROM OPERATING ACTIVITIES
    
    $
    5,129
    
    
    $
    5,894CASH 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
    
    
    (4,970
    )
    
    
    (11,507
    )Purchases of restricted stock
    
    
    
    
    
    
    (305
    )Proceeds from maturities of securities
    
    
    21,683
    
    
    
    7,099Proceeds from sales of available-for-sale securities
    
    
    1,326
    
    
    
    11,702Net decrease (increase) in loans
    
    
    (2,724
    )
    
    
    12,028Additions to premises and equipment
    
    
    (798
    )
    
    
    (676
    )Net cash from investing activities
    
    
    14,517
    
    
    
    6,659CASH FLOWS FROM FINANCING ACTIVITIESNet change in deposits
    
    
    (1,997
    )
    
    
    (2,890
    )Net change in federal funds purchased and securities sold under repurchase agreements
    
    
    (3,975
    )
    
    
    (1,312
    )Net change in borrowed funds
    
    
    (11,250
    )
    
    
    2,100Proceeds from issuance of treasury shares
    
    
    45
    
    
    
    57Cash dividends paid
    
    
    (1,627
    )
    
    
    (1,623
    )Purchase of treasury stock
    
    
    (1,729
    )
    
    
    (877
    )Payment of deferred compensation
    
    
    (73
    )
    
    
    (60
    )Net cash from financing activities
    
    
    (20,606
    )
    
    
    (4,605
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (960
    )
    
    
    7,948CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    12,338
    
    
    
    11,587CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    11,378
    
    
    $
    19,535SUPPLEMENTAL DISCLOSURESCash paid during the year for:Interest
    
    $
    6,511
    
    
    $
    5,108Federal income taxes
    
    $
    1,645
    
    
    $
    1,784
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Nine months ended
    
    Nine months endedSeptember 30, 2006
    
    September 30, 2005(Dollars in thousands)Provision for loan losses charged to expense
    
    $
    280
    
    
    $
    450Net loan charge-offs
    
    
    273
    
    
    
    537Annualized net loan charge-offs as a percent
of average outstanding loans
    
    
    .11
    %
    
    
    .21
    %
  11




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September 30, 2006
    
    
    December 31, 2005(Dollars in thousands)Nonaccrual loans
    
    $
    3,613
    
    
    $
    3,872Loans contractually past due 90 days or more
and still accruing interest
    
    
    191
    
    
    
    561Restructured loans
    
    
    
    
    
    
    Potential problem loans, other than those past due
90 days or more, nonaccrual, or restructured
    
    
    8,909
    
    
    
    11,810Total potential problem and non-performing loans
    
    $
    12,713
    
    
    $
    16,243Allowance for loan losses
    
    $
    3,631
    
    
    $
    3,624Allowance for loan losses as a percent
of period-end loans
    
    
    1.06
    %
    
    
    1.06
    %
    September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Potential problem loans not currently past due
    
    $
    4,951
    
    
    $
    8,206Potential problem loans past due one day or more but less than 10 days
    
    
    789
    
    
    
    1,939Potential problem loans past due 10 days or more but less than 30 days
    
    
    1,378
    
    
    
    605Potential problem loans past due 30 days or more but less than 60 days
    
    
    436
    
    
    
    695Potential problem loans past due 60 days or more but less than 90 days
    
    
    1,355
    
    
    
    365Total potential problem loans
    
    $
    8,909
    
    
    $
    11,810
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September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Collateralized by an interest in real property
    
    $
    7,236
    
    
    $
    8,312Collateralized by an interest in assets other than real property
    
    
    1,649
    
    
    
    3,491Unsecured
    
    
    24
    
    
    
    7Total potential problem loans
    
    $
    8,909
    
    
    $
    11,810
      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.
   
  
   
   
    15




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(c)
    
    The table below includes certain information regarding Croghans purchase of Croghan common
shares during the quarterly period ended September 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)07/01/06
through
    
    None
    
    None
    
    None
    
    
    61,58507/31/0608/01/06
through
    
    
    15,502
    
    
    $
    37.71
    
    
    
    15,502
    
    
    
    75,22408/31/0609/01/06
through
    
    None
    
    None
    
    None
    
    
    75,22409/30/06
 
 (1)
    
    All share purchases were part of publicly announced programs 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 a total
of 30,628 shares being purchased under such program prior to its expiration). 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 (with 9,632 shares purchased on
August 4, 2006; 3,500 shares purchased on August 7, 2006; and 2,370 shares purchased on August
24, 2006).
 
   
   
   
      16




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CROGHAN BANCSHARES, INC.RegistrantDate: October 26, 2006
    By:
    /s/  Steven C. FutrellSteven C. Futrell, President and CEO(Principal Executive Officer)Date: October 26, 2006
    By:
    /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