Croghan Bancshares 10-Q 2007 Q2 Quarterly report

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 June 30, 2007

0-20159
(Commission File Number)

CROGHAN BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

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)

(419) 332-7301
(Registrant’s 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. Yesþ     Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filero          Accelerated Filero          Non-Accelerated Filerþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yeso     Noþ

1,757,294 common shares, par value $12.50 per share, were outstanding as of July 26, 2007.

This document contains 22 pages. The Exhibit Index is on page 19 immediately preceding the filed exhibits.

CROGHAN BANCSHARES, INC.
Index

		Page(s)
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3 – 8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9 – 13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 4.	Controls and Procedures	14
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	14
Item 1A.	Risk Factors	15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3.	Defaults Upon Senior Securities	16
Item 4.	Submission of Matters to a Vote of Security Holders	16
Item 5.	Other Information	16
Item 6.	Exhibits	17
	Exhibit 31.1 — Rule 13a-14(a)/15d-14(a) Certification — Principal Executive Officer	20
	Exhibit 31.2 — Rule 13a-14(a)/15d-14(a) Certification — Principal Financial Officer	21
	Exhibit 32 — Section 1350 Certification — Principal Executive Officer and Principal Financial Officer	22
Signatures		18
EX-31.1
EX-31.2
EX-32

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CROGHAN BANCSHARES, INC.
Consolidated Balance Sheets (Unaudited)

	June 30			December 31
	2007			2006
	(Dollars in thousands, except par value)
ASSETS
CASH AND CASH EQUIVALENTS
Cash and due from banks	$	12,268			11,843
Federal Funds Sold		1,500			—
Total cash and cash equivalents		13,768			11,843
SECURITIES
Available-for-sale, at fair value		50,061			57,273
Held-to-maturity, at amortized cost, fair value of $520 in 2007 and $1,031 in 2006		506			1,011
Restricted stock		3,629			3,629
Total securities		54,196			61,913
LOANS		347,450			357,278
Less: Allowance for loan losses		3,474			3,600
Net loans		343,976			353,678
Premises and equipment, net		7,945			7,904
Cash surrender value of life insurance		10,050			9,872
Goodwill		10,430			10,430
Core deposit intangible asset, net		317			346
Accrued interest receivable		2,091			2,271
Other assets		839			601
TOTAL ASSETS	$	443,612		$	458,858
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing	$	46,432		$	49,745
Savings, NOW and Money Market deposits		165,327			160,224
Time		151,840			161,225
Total deposits		363,599			371,194
Federal funds purchased and securities sold under repurchase agreements		8,814			15,388
Borrowed funds		16,900			17,600
Dividends payable		545			536
Other liabilities		2,210			2,977
Total liabilities		392,068			407,695
STOCKHOLDERS’ EQUITY
Common stock, $12.50 par value. Authorized 6,000,000 shares; issued 1,914,109 shares		23,926			23,926
Surplus		179			171
Retained earnings		33,527			31,961
Accumulated other comprehensive loss		(293	)		(206	)
Treasury stock, 156,815 shares in 2007 and 128,403 shares in 2006, at cost		(5,795	)		(4,689	)
Total stockholders’ equity		51,544			51,163
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	443,612		$	458,858

See notes to consolidated financial statements.

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CROGHAN BANCSHARES, INC.
Consolidated Statements of Operations (Unaudited)

	Three months ended
	June 30
	2007		2006
	(Dollars in thousands,
	except per share data)
INTEREST INCOME
Loans, including fees	$	6,391	$	5,910
Securities:
Obligations of U.S. Government agencies and corporations		335		457
Obligations of states and political subdivisions		193		229
Other		66		62
Federal funds sold		32		12
Total interest income		7,017		6,670
INTEREST EXPENSE
Deposits		2,347		1,921
Other borrowings		300		380
Total interest expense		2,647		2,301
Net interest income		4,370		4,369
PROVISION FOR LOAN LOSSES		—		15
Net interest income, after provision for loan losses		4,370		4,354
NON-INTEREST INCOME
Trust income		217		176
Service charges on deposit accounts		369		352
Gain on sale of securities		—		1
Other		232		229
Total non-interest income		818		758
NON-INTEREST EXPENSES
Salaries, wages and employee benefits		1,791		1,731
Occupancy of premises		199		185
Amortization of core deposit intangible asset		14		15
Other operating		1,175		1,139
Total non-interest expenses		3,179		3,070
Income before federal income taxes		2,009		2,042
FEDERAL INCOME TAXES		601		605
NET INCOME	$	1,408	$	1,437
Net income per share, based on 1,766,112 shares in 2007 and 1,820,835 shares in 2006	$	0.80	$	0.79
Dividends declared per share, based on 1,757,294 shares in 2007 and 1,814,475 shares in 2006	$	0.31	$	0.30

See notes to consolidated financial statements.

4

CROGHAN BANCSHARES, INC.
Consolidated Statements of Operations (Unaudited)

	Six months ended
	June 30
	2007		2006
	(Dollars in thousands,
	except per share data)
INTEREST INCOME
Loans, including fees	$	12,618	$	11,577
Securities:
Obligations of U.S. Government agencies and corporations		699		995
Obligations of states and political subdivisions		389		463
Other		136		124
Federal funds sold		76		13
Total interest income		13,918		13,172
INTEREST EXPENSE
Deposits		4,708		3,618
Other borrowings		652		780
Total interest expense		5,360		4,398
Net interest income		8,558		8,774
PROVISION FOR LOAN LOSSES		—		50
Net interest income, after provision for loan losses		8,558		8,724
NON-INTEREST INCOME
Trust income		425		335
Service charges on deposit accounts		694		676
Gain on sale of securities		—		1
Other		459		449
Total non-interest income		1,578		1,461
NON-INTEREST EXPENSES
Salaries, wages and employee benefits		3,603		3,535
Occupancy of premises		408		386
Amortization of core deposit intangible asset		29		29
Other operating		2,313		2,187
Total non-interest expenses		6,353		6,137
Income before federal income taxes		3,783		4,048
FEDERAL INCOME TAXES		1,122		1,193
NET INCOME	$	2,661	$	2,855
Net income per share, based on 1,773,398 shares in 2007 and 1,827,995 shares in 2006	$	1.50	$	1.56
Dividends declared per share	$	0.62	$	0.60

See notes to consolidated financial statements.

5

CROGHAN BANCSHARES, INC.
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

	Three months ended
	June 30
	2007			2006
	(Dollars in thousands,
	except per share data)
BALANCE AT BEGINNING OF PERIOD	$	51,520		$	49,979
Comprehensive Income:
Net income		1,408			1,437
Change in net unrealized gain (loss) on securities available-for-sale, net of reclassification adjustments and related income taxes		(173	)		(204	)
Total comprehensive income		1,235			1,233
Proceeds from issuance of treasury shares, 253 shares in 2007 and 275 shares in 2006		10			10
Purchase of 16,945 treasury shares in 2007 and 14,128 shares in 2006		(676	)		(530	)
Cash dividends declared, $.31 per share in 2007 and $.30 per share in 2006		(545	)		(544	)
BALANCE AT END OF PERIOD	$	51,544		$	50,148

	Six months ended
	June 30
	2007			2006
	(Dollars in thousands,
	except per share data)
BALANCE AT BEGINNING OF PERIOD	$	51,163		$	49,931
Comprehensive Income:
Net income		2,661			2,855
Change in net unrealized gain (loss) on securities available-for-sale, net of reclassification adjustments and related income taxes		(87	)		(433	)
Total comprehensive income		2,574			2,422
Proceeds from issuance of treasury shares, 763 shares in 2007 and 877 shares in 2006		29			32
Purchase of treasury shares, 29,175 shares in 2007 and 30,628 shares in 2006		(1,127	)		(1,145	)
Cash dividends declared, $.62 per share in 2007 and $.60 per share in 2006		(1,095	)		(1,092	)
BALANCE AT END OF PERIOD	$	51,544		$	50,148

See notes to consolidated financial statements.

6

CROGHAN BANCSHARES, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)

	Six months ended
	June 30
	2007			2006
	(Dollars in thousands)
NET CASH FLOW FROM OPERATING ACTIVITIES	$	2,384		$	3,124
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities		—			(4,971	)
Proceeds from maturities of securities		7,454			14,657
Proceeds from sales of available-for-sale securities		—			1,326
Net decrease (increase) in loans		9,670			(2,507	)
Additions to premises and equipment		(509	)		(320	)
Net cash from investing activities		16,615			8,185
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits		(7,595	)		(4,814	)
Net change in federal funds purchased and securities sold under repurchase agreements		(6,574	)		(855	)
Net change in borrowed funds		(700	)		(2,750	)
Proceeds from issuance of treasury shares		29			32
Cash dividends paid		(1,086	)		(1,083	)
Purchase of treasury stock		(1,127	)		(1,145	)
Payment of deferred compensation		(21	)		(73	)
Net cash from financing activities		(17,074	)		(10,688	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		1,925			621
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		11,843			12,338
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	13,768		$	12,959
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest	$	5,716		$	4,323
Federal income taxes	$	1,380		$	980

See notes to consolidated financial statements.

7

CROGHAN BANCSHARES, INC.
Notes to Consolidated Financial Statements
June 30, 2007
(Unaudited)

(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, 2006 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 June 30, 2007 are not necessarily indicative of the operating results for the full year.

(2) New Accounting Pronouncements

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Corporation adopted FIN 48 as of January 1, 2007, and the adoption had no impact on the Corporation’s consolidated financial statements.

On February 15, 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Opinion for Financial Assets and Financial Liabilities” (Statement 159). Statement 159 provides an option to report selected financial assets and liabilities at fair value. Statement 159 requires additional information that will help investors and other users of financial statements to more easily understand the effect of an entity’s choice to use fair value on its earnings. Statement 159 also requires entities to display the fair value of those assets and liabilities for which the entity has chosen to use fair value on the face of the balance sheet. Statement 159 does not eliminate disclosure requirements included in other accounting standards.

Statement 159 is effective as of the beginning of the fiscal year for fiscal years beginning after November 15, 2007. Early adoption is permitted provided, among other things, an entity elects to adopt within the first 120 days of that fiscal year. The Corporation does not anticipate adopting Statement 159 before the required implementation date of January 1, 2008. The Corporation has not yet determined the impact Statement 159 might have on its consolidated financial statements upon adoption.

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

Where appropriate, the following discussion relating to Croghan Bancshares, Inc. (“Croghan” or the “Corporation”) contains the insights of management into known events and trends that have or may be expected to have a material effect on Croghan’s 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” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The Corporation’s 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, demand for loans in the Corporation’s 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 Corporation’s filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934, including the disclosure in“Item 1A. Risk Factors” of Part I of Croghan’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

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

Assets at June 30, 2007 totaled $443,612,000 compared to $458,858,000 at 2006 year end. Total cash and cash equivalents increased $1,925,000 during the first six months of 2007, while total loans decreased to $347,450,000 at June 30, 2007 compared to $357,278,000 at 2006 year end. Total securities decreased to $54,196,000 from $61,913,000 at 2006 year end, and total deposits decreased to $363,599,000 from $371,194,000 at 2006 year end.

Net income for the three-month period ended June 30, 2007 was $1,408,000 or $.80 per common share, compared to $1,437,000 or $.79 per common share for the same period in 2006. Net income for the six-month period ended June 30, 2007 was $2,661,000 or $1.50 per common share, compared to $2,855,000 or $1.56 per common share for the same period in 2006. The June 30, 2007 quarterly and year-to-date results were positively impacted by an increase in total non-interest income and from a decrease in the provision for loan losses. Conversely, the second quarter and year-to-date operating results were negatively impacted by an increase in non-interest expenses. Net income for the six-month period ended June 30, 2007 was also negatively impacted by a decrease in net interest income when compared to the same period in 2006.

FINANCIAL POSITION

The following comments are based upon a comparison of Croghan’s financial position at June 30, 2007 to 2006 year end.

Total loans decreased $9,828,000 or 2.75 percent from year-end. The decrease in loans resulted from continued low consumer and residential real estate loan demand in the local market area.

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Croghan did, however, experience some growth in its commercial real estate loan portfolio during the first six months of 2007.

Total securities decreased $7,717,000 or 12.46 percent from 2006 year-end. There were no security purchases or sales during the six-month period ended June 30, 2007. Proceeds from maturities were principally used for daily liquidity purposes to offset the decline in total deposits and to make principal payments on term debt.

Total deposits decreased $7,595,000 or 2.05 percent from 2006 year-end. The liquid deposit category (demand, savings, NOW and money market deposit accounts) increased $1,790,000 or .85 percent and the time deposit category decreased $9,385,000 or 5.82 percent. Competition for core deposits, especially those in the liquid deposit category, from traditional sources (e.g., other banks and credit unions) and non-traditional sources (e.g., brokerage firms) continues to be very intense. Croghan continuously strives to maintain a balance between its deposit needs for funding anticipated loan demand and the necessary deposit pricing structure to maintain interest margin.

Stockholders’ equity at June 30, 2007 increased to $51,544,000 or $29.33 book value per common share compared to $51,163,000 or $28.65 book value per common share at December 31, 2006. The balance in stockholders’ equity at June 30, 2007 included an accumulated other comprehensive loss consisting of net unrealized losses on securities classified as available-for-sale, net of related income taxes. At June 30, 2007, Croghan held $50,061,000 in available-for-sale securities with an unrealized loss of $293,000, net of income taxes. This compares to 2006 year-end holdings of $57,273,000 in available-for-sale securities with an unrealized loss of $206,000, net of income taxes.

Beginning in February 2002, Croghan instituted a stock buy-back program, which was subsequently extended through August 4, 2007. On July 17, 2007, the Board of Directors approved the extension of the stock buy-back program through February 1, 2008. Up to 5% of Croghan’s outstanding common shares may periodically be purchased in the over-the-counter market during the six-month period commencing August 1, 2007, depending upon the availability of shares, prevailing market prices, and other possible considerations which might affect the advisability of purchasing shares. Since the inception of the program, a total of 164,877 shares have been repurchased as treasury shares. The 156,815 treasury shares held as of June 30, 2007 and 128,403 shares held as of December 31, 2006 are reported at their acquired cost.

Consistent with the Corporation’s quarterly dividend policy, a cash dividend of $.31 per share was declared on June 12, 2007, payable on July 31, 2007 to shareholders of record as of July 13, 2007.

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 $1,000 for the three-month period ended June 30, 2007 as compared to the same period in 2006. Net interest income decreased $216,000 or 2.46 percent for the six-month period ended June 30, 2007 as compared to the same period in 2006. The net interest yield (net interest income divided by average interest-earning assets) was 4.16 percent for the six-month period ended June 30, 2007 compared to 4.24 percent for the same period in 2006.

PROVISION FOR LOAN LOSSES AND THE ALLOWANCE FOR LOAN LOSSES

Croghan’s comprehensive loan policy provides guidelines for managing credit risk and asset quality. The policy details acceptable lending practices, establishes loan-grading classifications, and stipulates the use of a loan review process. Croghan directly employs two staff members dedicated

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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. Croghan’s loan policy, loan review process, and credit analysis staff facilitate management’s 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:

	Six months ended			Six months ended
	June 30, 2007			June 30, 2006
	(Dollars in thousands)
Provision for loan losses charged to expense	$	—		$	50
Net loan charge-offs		126			191
Annualized net loan charge-offs as a percent of average outstanding loans		.07	%		.11	%

The following table details factors relating to non-performing and potential problem loans as of the dates noted:

	June 30, 2007			December 31, 2006
	(Dollars in thousands)
Nonaccrual loans	$	3,131		$	3,795
Loans contractually past due 90 days or more and still accruing interest		246			716
Restructured loans		27			—
Potential problem loans, other than those past due 90 days or more, nonaccrual, or restructured		9,820			8,199
Total potential problem and non-performing loans	$	13,224		$	12,710
Allowance for loan losses	$	3,474		$	3,600
Allowance for loan losses as a percent of period-end loans		1.00	%		1.01	%

There was no provision for loan losses for the six-month period ended June 30, 2007, compared to $50,000 for the same period in 2006. The decrease in the year-to-date 2007 provision for loan losses as compared to 2006 is attributable to the decline in the loan charge-off activity and general improvement in the overall quality of the loan portfolio as evidenced by the decline in loans contractually past due 90 days or more and nonaccrual loans. Actual net loan charge-offs decreased to $126,000 for the first six months of 2007 compared to $191,000 during the same period in 2006. Total potential problem and non-performing loans, which are summarized in the preceding table, increased $514,000 or 4.04 percent to $13,224,000 at June 30, 2007, compared to $12,710,000 at December 31, 2006. Components of potential problem and non-performing loans that were favorable at June 30, 2007, as compared to December 31, 2006, included a $664,000 decrease in nonaccrual loans and a $470,000 decrease in loans past due 90 days or more and still accruing interest. Potential problem loans, other than those past due 90 days or more, nonaccrual or restructured increased $1,621,000 or 19.77% during the first six months of 2007 when compared to December 31,

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2006. As illustrated in the tables below, $8,222,000 or 83.72 percent of total potential problem loans are less than 30 days past due and 99.81 percent are secured with collateral.

Croghan typically classifies a loan as a potential problem loan, regardless of its collateralization or the existence of contractually obligated guarantors, when a review of the borrower’s financial statements indicates that the borrowing entity does not generate sufficient operating cash flow to adequately service its debts. All of the above-noted potential problem loans totaling $9,820,000 at June 30, 2007, 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 Croghan’s potential problem loans as of the dates noted:

	June 30,		December 31,
	2007		2006
	(Dollars in thousands)
Potential problem loans not currently past due	$	5,080	$	5,260
Potential problem loans past due one day or more but less than 10 days		2,438		843
Potential problem loans past due 10 days or more but less than 30 days		704		745
Potential problem loans past due 30 days or more but less than 60 days		561		1,175
Potential problem loans past due 60 days or more but less than 90 days		1,037		176
Total potential problem loans	$	9,820	$	8,199

The following table provides additional detail pertaining to the collateralization of Croghan’s potential problem loans as of the dates noted:

	June 30,		December 31,
	2007		2006
	(Dollars in thousands)
Collateralized by an interest in real property	$	7,144	$	6,679
Collateralized by an interest in assets other than real property		2,657		1,500
Unsecured		19		20
Total potential problem loans	$	9,820	$	8,199

The aforementioned asset quality trends will continue to be monitored throughout 2007 to ensure adequate provisions for loan losses are made in a timely manner. It is Croghan’s policy to maintain the allowance for loan losses at a level sufficient to provide for losses inherent in the portfolio. Management considers the allowance at June 30, 2007 to be adequate to provide for those losses identified as well as those losses inherent within the loan portfolio.

NON-INTEREST INCOME

Total non-interest income increased $60,000 or 7.92 percent for the three-month period ended June 30, 2007 compared to the same period in 2006, and increased $117,000 or 8.01 percent for the six-month period ended June 30, 2007, compared to the same period in 2006. Increases in non-interest income were due primarily to increases in trust income and service charges on deposit accounts. Trust income increased $90,000 or 26.87 percent for the six-month period ended June 30, 2007, and $41,000 or 23.30 percent for the three-month period ended June 30, 2007, compared to the same

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period in 2006. The increases in trust income were due to an increase in fees and assets under management as well as fees from estate settlements.

NON-INTEREST EXPENSES

Total non-interest expenses increased $109,000 or 3.55 percent for the three-month period ended June 30, 2007, as compared to the same period in 2006, and total non-interest expenses increased $216,000 or 3.52 percent for the six-month period ended June 30, 2007, as compared to the same period in 2006. Salaries, wages and employee benefits increased $60,000 or 3.47 percent between comparable three-month periods and increased $68,000 or 1.92 percent between comparable six-month periods. Occupancy of premises expense increased $14,000 or 7.57 percent between comparable three-month periods and increased $22,000 or 5.70 percent between comparable six-month periods. Other operating expenses increased $36,000 or 3.16 percent between comparable three-month periods and increased $126,000 or 5.76 percent between comparable six-month periods.

FEDERAL INCOME TAX EXPENSE

Federal income tax expense decreased $4,000 between comparable three-month periods and $71,000 or 5.95 percent between comparable six-month periods which is in relation to the decrease in income before federal income taxes of 6.55 percent. The Corporation’s effective tax rate for the six months ended June 30, 2007 was 29.7 percent compared to 29.5 percent for the same period in 2006.

LIQUIDITY AND CAPITAL RESOURCES

Short-term borrowings of federal funds purchased and repurchase agreements averaged $12,299,000 for the six-month period ended June 30, 2007. This compares to $9,027,000 for the twelve-month period ended December 31, 2006 and $10,424,000 for the six-month period ended June 30, 2006.

Borrowings from the Federal Home Loan Bank totaled $16,000,000 at June 30, 2007, as compared to $24,300,000 at June 30, 2006 and $16,000,000 at December 31, 2006. Croghan obtained a $4,000,000 term loan in January 2005 from a correspondent bank with the loan proceeds used to facilitate the purchase of The Custar State Bank. While the loan only stipulates annual payments of interest with principal due in full by the loan’s maturity date of January 1, 2009, Croghan has made voluntary principal reductions of $3,100,000 through June 30, 2007, including $700,000 during the six-month period ended June 30, 2007, resulting in an outstanding term loan balance at June 30, 2007 of $900,000.

Capital expenditures for premises and equipment totaled $509,000 for the six-month period ended June 30, 2007, compared to $320,000 for the same period in 2006. The 2007 expenditures included completion of the new Clyde Banking Center and renovations at the Main Office. The new Clyde Banking Office opened in early 2007.

Loan commitments, including letters of credit, as of June 30, 2007 totaled $74,749,000 compared to $73,439,000 at December 31, 2006. Many of these commitments are expected to expire without being drawn upon. Therefore, the total of these commitments does not necessarily represent future cash requirements.

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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 Croghan’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (the “2006 Form 10-K”).

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF CONTROLS AND PROCEDURES

With the participation of Croghan’s principal executive officer and principal financial officer, Croghan’s management has evaluated the effectiveness of Croghan’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, Croghan’s principal executive officer and principal financial officer have concluded that:

(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.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in Croghan’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, Croghan’s internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Management is not aware of any pending legal proceedings, except for an ongoing shareholder dispute regarding the inspection of the books and records of account of the Corporation and its subsidiary Bank and routine legal proceedings to which the Corporation’s subsidiary Bank is a party incidental to its banking business. Management considers none of those proceedings to be material.

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ITEM 1A. RISK FACTORS

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 2006 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 2006 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 Croghan’s repurchase of its common shares during the quarterly period ended June 30, 2007:

					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 (1)		per Share		or Programs		or Programs (2)
04/01/07 through 04/30/07	None		None		None			77,056
05/01/07 through 05/31/07		16,945	$	39.91		16,945		60,111
06/01/07 through 06/30/07	None		None		None			60,111

(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 4, 2007 and ending on August 4, 2007 was approved on January 16, 2007 in which up to 89,286 shares could be repurchased (with 2,988 shares purchased on February 9, 2007; 1,800 shares purchased on February 21, 2007; 7,442 shares purchased on February 28, 2007; 5,403 shares purchased on May 9, 2007; 5,542 shares purchased on May 17, 2007; 2,300 shares purchased on May 29, 2007; and 3,700 shares purchased on May 31, 2007). A stock buy-back program commencing August 1, 2007 and ending February 1, 2008 was approved on July 17, 2007 in which up to 87,864 shares may be repurchased.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a)	The annual meeting of shareholders of Croghan Bancshares, Inc. was held on May 8, 2007.
(b)	Proxies were solicited pursuant to Regulation 14A of the Securities Exchange Act of 1934. At the annual meeting, Thomas W. McLaughlin was elected, as a director for a term expiring in 2009, and the following directors were elected for terms expiring in 2010: James E. Bowlus, James R. Faist, Daniel W. Lease, and Allan E. Mehlow. The following Directors also remain in office with terms expiring in 2008 and 2009: Michael D. Allen Sr., Steven C. Futrell, Claire F. Johansen, Stephen A. Kemper, J. Terrence Wolfe, and Gary L. Zimmerman.
(c)	Matters voted upon at the annual meeting of shareholders:

(1) Election of one Director for a term expiring in 2009:

Nominee	For		Withheld
Thomas W. McLaughlin		1,226,988		68,899

(2) Election of four directors for terms expiring in 2010:

Nominee	For		Withheld
James E. Bowlus		1,286,630		9,257
Nathan G. Danziger		35,435		0
James R. Faist		1,286,630		9,257
Daniel W. Lease		1,286,630		9,257
Allan E. Mehlow		1,251,195		9,257

(3) Shareholder proposal urging the Board of Directors to take the steps necessary to declassify the Board (defeated)

For	Against		Abstain
55,198		867,756		27,890

(4) Shareholder proposal urging the Board of Directors to adopt a policy to elect an independent Chairman of the Board (defeated)

For	Against		Abstain
57,359		868,496		24,989

(5) Shareholder proposal to amend the Company’s Code of Regulations to add a new provision relating to shareholder nominees for election to the Board (defeated)

For	Against		Abstain
52,749		874,075		24,020

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. 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

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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: July 26, 2007	By:	/s/ Steven C. Futrell
		Steven C. Futrell, President and CEO
		(Principal Executive Officer)
Date: July 26, 2007	By:	/s/ Kendall W. Rieman
		Kendall W. Rieman, Treasurer
		(Principal Financial Officer)

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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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