##### 



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 March 31, 2006
 0-20159
 
 (Commission File
Number)
 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 - 7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    8 - 13Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    13Item 4.
    
    Controls and Procedures
    
    13PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    14Item 1A.
    
    Risk Factors
    
    14Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    14Item 3.
    
    Defaults Upon Senior Securities
    
    14Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    15Item 5.
    
    Other Information
    
    15Item 6.
    
    Exhibits
    
    15Exhibit 31.1  Rule
13a-14(a)/15d-14(a) CEOs Certification
    
    18Exhibit 31.2  Rule
13a-14(a)/15d-14(a) Assistant Treasurers Certification
    
    19Exhibit 32.1  Section 1350
CEOs Certification
    
    20Exhibit 32.2  Section 1350
Assistant Treasurers Certification
    
    21Signatures
    
    16
 2




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March 31,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands, except par value)ASSETSCASH AND CASH EQUIVALENTS
    
    $
    10,860
    
    
    $
    12,338SECURITIESAvailable-for-sale, at fair value
    
    
    75,092
    
    
    
    76,905Held-to-maturity, at amortized cost, fair value of $1,031 in 2006 and $1,047 in 2005
    
    
    1,021
    
    
    
    1,024Restricted stock
    
    
    3,525
    
    
    
    3,492Total securities
    
    
    79,638
    
    
    
    81,421LOANS
    
    
    338,298
    
    
    
    340,910Less: Allowance for loan losses
    
    
    3,537
    
    
    
    3,624Net loans
    
    
    334,761
    
    
    
    337,286Premises and equipment, net
    
    
    7,413
    
    
    
    7,455Cash surrender value of life insurance
    
    
    9,623
    
    
    
    9,543Goodwill
    
    
    10,430
    
    
    
    10,430Core deposit intangible asset, net
    
    
    389
    
    
    
    403Accrued interest receivable
    
    
    2,150
    
    
    
    2,194Other assets
    
    
    1,085
    
    
    
    829TOTAL ASSETS
    
    $
    456,349
    
    
    $
    461,899LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIESDeposits:Demand, non-interest bearing
    
    $
    43,859
    
    
    $
    50,730Savings, NOW and Money Market deposits
    
    
    147,218
    
    
    
    150,365Time
    
    
    169,990
    
    
    
    167,364Total deposits
    
    
    361,067
    
    
    
    368,459Federal funds purchased and securities sold under repurchase agreements
    
    
    14,626
    
    
    
    10,825Borrowed funds
    
    
    26,750
    
    
    
    29,050Dividends payable
    
    
    548
    
    
    
    535Other liabilities
    
    
    3,379
    
    
    
    3,099Total liabilities
    
    
    406,370
    
    
    
    411,968STOCKHOLDERS EQUITYCommon stock, $12.50 par value. Authorized 3,000,000 shares;
issued 1,914,109 shares
    
    
    23,926
    
    
    
    23,926Surplus
    
    
    161
    
    
    
    154Retained earnings
    
    
    29,509
    
    
    
    28,640Accumulated other comprehensive loss
    
    
    (516
    )
    
    
    (287
    )Treasury stock, 85,781 shares in 2006 and 69,883 shares in 2005, at cost
    
    
    (3,101
    )
    
    
    (2,502
    )Total stockholders equity
    
    
    49,979
    
    
    
    49,931TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    456,349
    
    
    $
    461,899
 See notes to consolidated financial statements. 3




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##### 



Three months endedMarch 312006
    
    
    2005(Dollars in thousands,except per share data)INTEREST INCOMELoans, including fees
    
    $
    5,667
    
    
    $
    5,470Securities:Obligations of U.S. Government agencies and corporations
    
    
    538
    
    
    
    385Obligations of states and political subdivisions
    
    
    234
    
    
    
    223Other
    
    
    62
    
    
    
    59Federal funds sold
    
    
    1
    
    
    
    11Total interest income
    
    
    6,502
    
    
    
    6,148INTEREST EXPENSEDeposits
    
    
    1,697
    
    
    
    1,348Other borrowings
    
    
    400
    
    
    
    320Total interest expense
    
    
    2,097
    
    
    
    1,668Net interest income
    
    
    4,405
    
    
    
    4,480PROVISION FOR LOAN LOSSES
    
    
    35
    
    
    
    90Net interest income, after provision for loan losses
    
    
    4,370
    
    
    
    4,390NON-INTEREST INCOMETrust income
    
    
    159
    
    
    
    146Service charges on deposit accounts
    
    
    324
    
    
    
    313Loss on sale of securities
    
    
    
    
    
    
    (42
    )Other
    
    
    220
    
    
    
    240Total non-interest income
    
    
    703
    
    
    
    657NON-INTEREST EXPENSESSalaries, wages and employee benefits
    
    
    1,804
    
    
    
    1,711Occupancy of premises
    
    
    201
    
    
    
    189Amortization of core deposit intangible asset
    
    
    14
    
    
    
    15Other operating
    
    
    1,048
    
    
    
    1,056Total non-interest expenses
    
    
    3,067
    
    
    
    2,971Income before federal income taxes
    
    
    2,006
    
    
    
    2,076FEDERAL INCOME TAXES
    
    
    588
    
    
    
    606NET INCOME
    
    $
    1,418
    
    
    $
    1,470Net income per share, based on 1,835,234 shares in 2006 and 1,892,970 shares in 2005
    
    $
    0.77
    
    
    $
    0.78Dividends declared, based on 1,828,328 shares in 2006 and 1,891,713 shares in 2005
    
    $
    0.30
    
    
    $
    0.29
 See notes to consolidated financial statements. 4




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Three months endedMarch 312006
    
    
    2005(Dollars in thousands,except per share data)BALANCE AT BEGINNING OF PERIOD
    
    $
    49,931
    
    
    $
    48,916Comprehensive Income:Net income
    
    
    1,418
    
    
    
    1,470Change in net unrealized gain (loss) on securities available-for-sale,
net of reclassification adjustments and related income taxes
    
    
    (229
    )
    
    
    (565
    )Total comprehensive income
    
    
    1,189
    
    
    
    905Proceeds from issuance of treasury stock, 602 shares in 2006 and 564 shares in 2005
    
    
    22
    
    
    
    21Purchase of treasury stock, 16,500 shares in 2006 and 2,624 in 2005
    
    
    (615
    )
    
    
    (96
    )Cash dividends declared, $.30 per share in 2006 and $.29 per share in 2005
    
    
    (548
    )
    
    
    (549
    )BALANCE AT END OF PERIOD
    
    $
    49,979
    
    
    $
    49,197
 See notes to consolidated financial statements. 5




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Three months endedMarch 312006
    
    
    2005(Dollars in thousands)NET CASH FLOW FROM OPERATING ACTIVITIES
    
    $
    1,856
    
    
    $
    2,323CASH 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
    
    
    
    
    
    
    (1,520
    )Purchases of restricted stock
    
    
    
    
    
    
    (305
    )Proceeds from maturities of securities
    
    
    1,421
    
    
    
    2,200Proceeds from sales of available-for-sale securities
    
    
    
    
    
    
    6,717Net decrease in loans
    
    
    2,490
    
    
    
    6,409Additions to premises and equipment
    
    
    (185
    )
    
    
    (372
    )Net cash from investing activities
    
    
    3,726
    
    
    
    1,447CASH FLOWS FROM FINANCING ACTIVITIESNet change in deposits
    
    
    (7,392
    )
    
    
    (60
    )Net change in federal funds purchased and securities sold under repurchase agreements
    
    
    3,801
    
    
    
    (3,856
    )Net change in borrowed funds
    
    
    (2,300
    )
    
    
    2,000Proceeds from issuance of treasury shares
    
    
    22
    
    
    
    21Cash dividends paid
    
    
    (535
    )
    
    
    (531
    )Purchase of treasury stock
    
    
    (615
    )
    
    
    (96
    )Payment of deferred compensation
    
    
    (41
    )
    
    
    (60
    )Net cash from financing activities
    
    
    (7,060
    )
    
    
    (2,582
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (1,478
    )
    
    
    1,188CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    12,338
    
    
    
    11,587CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    10,860
    
    
    $
    12,775SUPPLEMENTAL DISCLOSURESCash paid during the period for:Interest
    
    $
    2,192
    
    
    $
    1,591Federal income taxes
    
    $
    50
    
    
    $
    184
 See notes to consolidated financial statements.
 6




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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, 2005, 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, 2006 are not necessarily indicative of the
operating results for the full year.The consolidated balance sheets include 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.
  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, 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. Interest on the term loan is payable annually at .50 percent below prime rate (aggregating 7.25 percent at March 31,
2006), with principal due in full January 1, 2009. The transaction was accounted for as a
purchase and, accordingly, the results of operations of Custar are included in the
consolidated results of the Corporation since January 1, 2005.The fair values of assets acquired and liabilities assumed totaled $50,536,000 and
$41,275,000, 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 $4,778,000. Of this amount, $461,000 was allocated to a core deposit
intangible asset and $4,317,000 was allocated to goodwill.
 7




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
        8




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9




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Three months ended
    
    Three months endedMarch 31, 2006
    
    March 31, 2005(Dollars in thousands)Provision for loan losses charged to expense
    
    $
    35
    
    
    $
    90Net loan charge-offs
    
    
    122
    
    
    
    196Annualized net loan charge-offs as a percent
of average outstanding loans
    
    
    .15
    %
    
    
    .24
    %
  March 31, 2006
    
    
    December 31, 2005(Dollars in thousands)Nonaccrual loans
    
    $
    3,672
    
    
    $
    3,872Loans contractually past due 90 days or more
and still accruing interest
    
    
    772
    
    
    
    561Restructured loans
    
    
    
    
    
    
    Potential problem loans, other than those past due
90 days or more, nonaccrual, or restructured
    
    
    9,516
    
    
    
    11,810Total potential problem and non-performing loans
    
    $
    13,960
    
    
    $
    16,243Allowance for loan losses
    
    $
    3,537
    
    
    $
    3,624Allowance for loan losses as a percent
of period-end loans
    
    
    1.05
    %
    
    
    1.06
    %
 10




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March 31,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Potential problem loans not currently past due
    
    $
    5,958
    
    
    $
    8,206Potential problem loans past due one day or more but less than 10 days
    
    
    922
    
    
    
    1,939Potential problem loans past due 10 days or more but less than 30 days
    
    
    1,159
    
    
    
    605Potential problem loans past due 30 days or more but less than 60 days
    
    
    1,299
    
    
    
    695Potential problem loans past due 60 days or more but less than 90 days
    
    
    178
    
    
    
    365Total potential problem loans
    
    $
    9,516
    
    
    $
    11,810
  March 31,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Collateralized by an interest in real property
    
    $
    7,550
    
    
    $
    8,312Collateralized by an interest in assets other than real property
    
    
    1,961
    
    
    
    3,491Unsecured
    
    
    5
    
    
    
    7Total potential problem loans
    
    $
    9,516
    
    
    $
    11,810
  11




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12




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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 chief executive officer and assistant
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 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.
   13




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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 March 31, 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)01/01/06
through 01/31/06
    
    None
    
    None
    
    None
    
    Expired02/01/06
through 02/28/06
    
    
    16,500
    
    
    $
    37.27
    
    
    
    16,500
    
    
    
    75,71303/01/06
through 03/31/06
    
    None
    
    None
    
    None
    
    
    75,713
 
 (1)
    
    All share purchases were part of publicly announced plans and all were open-market
transactions.(2)
    
    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 could be repurchased. A stock
buy-back program commencing 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 and 5,000 shares purchased on February 14, 2006).  14




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15




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Date: April 21, 2006
    
    /s/ Steven C. FutrellSteven C. Futrell, President & CEODate: April 21, 2006
    
    /s/ John C. HoffmanJohn C. Hoffman, Assistant Treasurer
 16




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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) Assistant
Treasurers Certification
    
    Filed herewith32.1
    
    
    Section 1350 CEOs Certification
    
    Filed herewith32.2
    
    
    Section 1350 Assistant Treasurers
Certification
    
    Filed herewith
 17