Croghan Bancshares 10-Q 2007 Q3 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 September 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. Yes þ     No o

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 Filer o                    Accelerated Filer o                    Non-Accelerated Filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o     No þ

     1,755,499 common shares, par value $12.50 per share, were outstanding as of October 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 - 14
	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
Signatures			18
EX-31.1
EX-31.2
EX-32

2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CROGHAN BANCSHARES, INC.

Consolidated Balance Sheets (Unaudited)

	September 30			December 31
	2007			2006
	(Dollars in thousands, except par value)
ASSETS
CASH AND CASH EQUIVALENTS	$	12,000			11,843
SECURITIES
Available-for-sale, at fair value		49,307			57,273
Held-to-maturity, at amortized cost, fair value of $526 in 2007 and $1,031 in 2006		506			1,011
Restricted stock		3,629			3,629
Total securities		53,442			61,913
LOANS		345,493			357,278
Less: Allowance for loan losses		3,368			3,600
Net loans		342,125			353,678
Premises and equipment, net		7,811			7,904
Cash surrender value of life insurance		10,128			9,872
Goodwill		10,430			10,430
Core deposit intangible asset, net		303			346
Accrued interest receivable		2,196			2,271
Other assets		801			601
TOTAL ASSETS	$	439,236		$	458,858
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing	$	47,580		$	49,745
Savings, NOW and Money Market deposits		157,899			160,224
Time		151,182			161,225
Total deposits		356,661			371,194
Federal funds purchased and securities sold under repurchase agreements		11,659			15,388
Borrowed funds		14,700			17,600
Dividends payable		544			536
Other liabilities		2,972			2,977
Total liabilities		386,536			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		34,470			31,961
Accumulated other comprehensive loss		(8	)		(206	)
Treasury stock, 158,610 shares in 2007 and 128,403 shares in 2006, at cost		(5,867	)		(4,689	)
Total stockholders’ equity		52,700			51,163
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	439,236		$	458,858

See notes to consolidated financial statements.

3

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

	Three months ended
	September 30
	2007		2006
	(Dollars in thousands,
	except per share data)
INTEREST INCOME
Loans, including fees	$	6,329	$	6,093
Securities:
Obligations of U.S. Government agencies and corporations		304		378
Obligations of states and political subdivisions		189		222
Other		66		63
Federal funds sold		99		37
Total interest income		6,987		6,793
INTEREST EXPENSE
Deposits		2,339		2,243
Other borrowings		263		287
Total interest expense		2,602		2,530
Net interest income		4,385		4,263
PROVISION FOR LOAN LOSSES		—		230
Net interest income, after provision for loan losses		4,385		4,033
NON-INTEREST INCOME
Trust income		240		198
Service charges on deposit accounts		428		364
Other		233		224
Total non-interest income		901		786
NON-INTEREST EXPENSES
Salaries, wages and employee benefits		1,775		1,610
Occupancy of premises		212		193
Amortization of core deposit intangible asset		14		14
Other operating		1,149		1,189
Total non-interest expenses		3,150		3,006
Income before federal income taxes		2,136		1,813
FEDERAL INCOME TAXES		649		529
NET INCOME	$	1,487	$	1,284
Net income per share, based on 1,756,397 shares in 2007 and 1,806,207 shares in 2006	$	0.85	$	0.71
Dividends declared, based on 1,755,499 shares in 2007 and 1,799,313 shares in 2006	$	0.31	$	0.30

See notes to consolidated financial statements.

4

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

	Nine months ended
	September 30
	2007		2006
	(Dollars in thousands,
	except per share data)
INTEREST INCOME
Loans, including fees	$	18,947	$	17,670
Securities:
Obligations of U.S. Government agencies and corporations		1,003		1,373
Obligations of states and political subdivisions		578		685
Other		202		187
Federal funds sold		175		50
Total interest income		20,905		19,965
INTEREST EXPENSE
Deposits		7,047		5,861
Other borrowings		915		1,067
Total interest expense		7,962		6,928
Net interest income		12,943		13,037
PROVISION FOR LOAN LOSSES		—		280
Net interest income, after provision for loan losses		12,943		12,757
NON-INTEREST INCOME
Trust income		665		533
Service charges on deposit accounts		1,122		1,040
Gain (loss) on sale of securities		—		1
Other		692		673
Total non-interest income		2,479		2,247
NON-INTEREST EXPENSES
Salaries, wages and employee benefits		5,378		5,145
Occupancy of premises		620		579
Amortization of core deposit intangible asset		43		43
Other operating		3,462		3,376
Total non-interest expenses		9,503		9,143
Income before federal income taxes		5,919		5,861
FEDERAL INCOME TAXES		1,771		1,722
NET INCOME	$	4,148	$	4,139
Net income per share, based on 1,767,669 shares in 2007 and 1,820,653 shares in 2006	$	2.35	$	2.27
Dividends declared per share	$	0.93	$	0.90

See notes to consolidated financial statements.

5

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

	Three months ended
	September 30
	2007			2006
	(Dollars in thousands,
	except per share data)
BALANCE AT BEGINNING OF PERIOD	$	51,544		$	50,148
Comprehensive Income:
Net income		1,487			1,284
Change in net unrealized loss on securities available-for-sale, net of reclassification adjustments and related income taxes		285			543
Total comprehensive income		1,772			1,827
Proceeds from issuance of 340 treasury shares		—			13
Purchase of 1,795 treasury shares in 2007 and 15,502 shares in 2006		(72	)		(584	)
Cash dividends declared, $.31 per share in 2007 and $.30 per share in 2006		(544	)		(540	)
BALANCE AT END OF PERIOD	$	52,700		$	50,864

See note to consolidated financial statements.

	Nine months ended
	September 30
	2007			2006
	(Dollars in thousands,
	except per share data)
BALANCE AT BEGINNING OF PERIOD	$	51,163		$	49,931
Comprehensive Income:
Net income		4,148			4,139
Change in net unrealized loss on securities available-for-sale, net of reclassification adjustments and related income taxes		198			110
Total comprehensive income		4,346			4,249
Proceeds from issuance of treasury shares, 763 shares in 2007 and 1,217 shares in 2006		29			45
Purchase of treasury shares, 30,970 shares in 2007 and 46,130 shares in 2006		(1,199	)		(1,729	)
Cash dividends declared, $.93 per share in 2007 and $.90 per share in 2006		(1,639	)		(1,632	)
BALANCE AT END OF PERIOD	$	52,700		$	50,864

See notes to consolidated financial statements.

6

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

	Nine months ended
	September 30
	2007			2006
	(Dollars in thousands)
NET CASH FLOW FROM OPERATING ACTIVITIES	$	4,726		$	5,129
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities		(5,114	)		(4,970	)
Proceeds from maturities of securities		13,722			21,683
Proceeds from sales of available-for-sale securities		—			1,326
Net decrease (increase) in loans		11,432			(2,724	)
Additions to premises and equipment		(635	)		(798	)
Net cash from investing activities		19,405			14,517
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits		(14,533	)		(1,997	)
Net change in federal funds purchased and securities sold under repurchase agreements		(3,729	)		(3,975	)
Net change in borrowed funds		(2,900	)		(11,250	)
Proceeds from issuance of treasury shares		29			45
Cash dividends paid		(1,631	)		(1,627	)
Purchase of treasury stock		(1,199	)		(1,729	)
Payment of deferred compensation		(11	)		(73	)
Net cash from financing activities		(23,974	)		(20,606	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		157			(960	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		11,843			12,338
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	12,000		$	11,378
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest	$	8,646		$	6,511
Federal income taxes	$	1,825		$	1,645
Transfer of loans to other real estate owned	$	89		$	—

See notes to consolidated financial statements.

7

CROGHAN BANCSHARES, INC.
Notes to Consolidated Financial Statements
September 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 three and nine month periods ended September 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.

8

      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 September 30, 2007 totaled $439,236,000 compared to $458,858,000 at 2006 year end, a decrease of $19,622,000 or 4.3 percent. Total loans decreased $11,785,000 or 3.3 percent to $345,493,000 at September 30, 2007 compared to $357,278,000 at 2006 year end and total securities decreased $8,471,000 or 13.7 percent to $53,442,000 from $61,913,000 at 2006 year end. Total deposits decreased to $356,661,000 from $371,194,000 at 2006 year end.

Net income for the quarter ended September 30, 2007 was $1,487,000 or $.85 per common share, compared to $1,284,000 or $.71 per common share for the same period in 2006. Net income for the nine-month period ended September 30, 2007 was $4,148,000 or $2.35 per common share, compared to $4,139,000 or $2.27 per common share for the same period in 2006. The September 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. Net income for the quarter ended September 30, 2007 was positively impacted by an increase in net interest income when compared to the same period in 2006. Conversely, the third quarter and year-to-date operating results were negatively impacted by an increase in non-interest expenses. Net income for the nine-month period ended September 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 September 30, 2007 to 2006 year end.

9

Total loans at September 30, 2007 decreased $11,785,000 or 3.3 percent from year-end. The decrease in loans resulted from continued low loan demand in the local market area. Croghan did, however, experience some growth in its commercial real estate loan portfolio during the first nine months of 2007.

Total securities at September 30, 2007 decreased $8,471,000 or 13.7 percent from 2006 year-end. There were no security sales during the nine-month period ended September 30, 2007 and only $5,114,000 of purchases. 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 $14,533,000 or 3.9 percent from 2006 year-end. The liquid deposit category (demand, savings, NOW and money market deposit accounts) decreased $4,490,000 or 2.1 percent and the time deposit category decreased $10,043,000 or 6.2 percent. Competition for core deposits, especially those in the time 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 September 30, 2007 increased to $52,700,000 or $30.02 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 September 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 September 30, 2007, Croghan held $49,307,000 in available-for-sale securities with an unrealized loss of $8,000, 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. 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 166,672 shares have been repurchased as treasury shares. The 158,610 treasury shares held as of September 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 September 11, 2007, payable on October 31, 2007 to shareholders of record as of October 12, 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 $122,000 or 2.9 percent for the quarter ended September 30, 2007 as compared to the same period in 2006. Net interest income decreased $94,000 or .7 percent for the nine-month period ended September 30, 2007 as compared to the same period in 2006. The net interest yield (net interest income divided by average interest-earning assets) was 4.20 percent for the nine-month period ended September 30, 2007 compared to 4.22 percent for the same period in 2006.

10

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 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:

	Nine months ended			Nine months ended
	September 30, 2007			September 30, 2006
	(Dollars in thousands)
Provision for loan losses charged to expense	$	—		$	280
Net loan charge-offs		232			273
Annualized net loan charge-offs as a percent of average outstanding loans		.09	%		.11	%

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

	September 30, 2007			December 31, 2006
	(Dollars in thousands)
Nonaccrual loans	$	3,545		$	3,795
Loans contractually past due 90 days or more and still accruing interest		189			716
Restructured loans		24			—
Potential problem loans, other than those past due 90 days or more, nonaccrual, or restructured		10,787			8,199
Total potential problem and non-performing loans	$	14,545		$	12,710
Allowance for loan losses	$	3,368		$	3,600
Allowance for loan losses as a percent of period-end loans		.97	%		1.01	%

There was no provision for loan losses for the nine-month period ended September 30, 2007, compared to a provision of $280,000 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 $232,000 for the first nine months of 2007 compared to $273,000 during the same period in 2006. Total potential problem and non-performing loans, which are summarized in the preceding table, increased $1,835,000 or 14.4 percent to $14,545,000 at September 30, 2007, compared to $12,710,000 at December 31, 2006. Components of potential problem and non-

11

performing loans that were favorable at September 30, 2007, as compared to December 31, 2006, included a $250,000 decrease in nonaccrual loans and a $527,000 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 $2,588,000 or 31.6 percent during the first nine months of 2007 when compared to December 31, 2006. The increase in this category was caused by several commercial loans that remain current, but their cash flow ratios do not meet Croghan’s credit review standards. As illustrated in the tables below, $9,491,000 or 88.0 percent of total potential problem loans are less than 30 days past due and substantially all 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 $10,787,000 at September 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:

	September 30,		December 31,
	2007		2006
	(Dollars in thousands)
Potential problem loans not currently past due	$	6,270	$	5,260
Potential problem loans past due one day or more but less than 10 days		2,006		843
Potential problem loans past due 10 days or more but less than 30 days		1,215		745
Potential problem loans past due 30 days or more but less than 60 days		985		1,175
Potential problem loans past due 60 days or more but less than 90 days		311		176
Total potential problem loans	$	10,787	$	8,199

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

	September 30,		December 31,
	2007		2006
	(Dollars in thousands)
Collateralized by an interest in real property	$	6,790	$	6,679
Collateralized by an interest in assets other than real property		3,972		1,500
Unsecured		25		20
Total potential problem loans	$	10,787	$	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 September 30, 2007 to be adequate to provide for those losses identified as well as those losses inherent within the loan portfolio.

12

NON-INTEREST INCOME

Total non-interest income increased $115,000 or 14.6 percent for the quarter ended September 30, 2007 compared to the same period in 2006, and increased $232,000 or 10.3 percent for the nine-month period ended September 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 $132,000 or 24.8 percent for the nine-month period ended September 30, 2007, and $42,000 or 21.2 percent for the quarter ended September 30, 2007, compared to the same 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 $144,000 or 4.8 percent for the quarter ended September 30, 2007, as compared to the same period in 2006, and increased $360,000 or 3.9 percent for the nine-month period ended September 30, 2007, as compared to the same period in 2006. Salaries, wages and employee benefits increased $165,000 or 10.2 percent between comparable quarterly periods and $233,000 or 4.5 percent between comparable nine-month periods. Occupancy of premises expense increased $19,000 or 9.8 percent between comparable quarterly periods and increased $41,000 or 7.1 percent between comparable nine-month periods. Other operating expenses decreased $40,000 or 3.4 percent between comparable quarterly periods and increased $86,000 or 2.5 percent between comparable nine-month periods.

FEDERAL INCOME TAX EXPENSE

Federal income tax expense increased $120,000 or 22.7 percent between comparable quarterly periods and $49,000 or 2.8 percent between comparable nine-month periods which is in relation to the increase in income before federal income taxes. The Corporation’s effective tax rate for the nine months ended September 30, 2007 was 29.9 percent compared to 29.4 percent for the same period in 2006.

LIQUIDITY AND CAPITAL RESOURCES

Short-term borrowings of federal funds purchased and repurchase agreements averaged $11,692,000 for the nine-month period ended September 30, 2007. This compares to $9,027,000 for the twelve-month period ended December 31, 2006 and $9,255,000 for the nine-month period ended September 30, 2006.

Borrowings from the Federal Home Loan Bank totaled $14,500,000 at September 30, 2007, as compared to $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 $3,800,000 through September 30, 2007, including $1,400,000 during the nine-month period ended September 30, 2007, resulting in an outstanding term loan balance at September 30, 2007 of $200,000.

Capital expenditures for premises and equipment totaled $635,000 for the nine-month period ended September 30, 2007, compared to $798,000 for the same period in 2006. The 2006 and 2007 expenditures included the costs associated with the new Clyde Banking Office and renovations at the Main Office. The new Clyde Banking Office opened in early 2007.

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Loan commitments, including letters of credit, as of September 30, 2007 totaled $75,186,000 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.

      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 DISCLOSURE 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 were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

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

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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.

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 Croghan’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, 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 September 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)
07/01/07 through 07/31/07	None		None		None			60,111
08/01/07 through 08/31/07		1,795	$	39.75		1,795		86,069
09/01/07 through 09/30/07	None		None		None			86,069

(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 announced on January 16, 2007 in which up to 89,286 shares could be repurchased (with a total of 29,175 shares being purchased under such program prior to its expiration). A stock buy-back program commencing August 1, 2007 and ending on February 1, 2008 was announced on July 17, 2007 in which up to 87,864 shares may be repurchased (with 1,795 shares purchased on August 16, 2007).

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS

The following exhibits are filed with or incorporated by reference (in accordance with Item 601 of SEC Regulation S-K) in this filing:

Exhibit
Number	Description	Location
3.1	Amended Articles of Incorporation of Croghan Bancshares, Inc.	Incorporated herein by reference to Exhibit 3(i) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 (File No. 0-20159)
3.2	Amended Code of Regulations of Croghan Bancshares, Inc.	Incorporated herein by reference to Exhibit 3(ii) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000 (File No. 0-20159)
10.1	Employment Agreement, dated as of August 29, 2007, between The Croghan Colonial Bank and Steven C. Futrell	Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed September 5, 2007 (File No. 0-20159)
31.1	Rule 13a-14(a)/15d-14(a) Certification — Principal Executive Officer	Included with this filing
31.2	Rule 13a-14(a)/15d-14(a) Certification — Principal Financial Officer	Included with this filing
32	Section 1350 Certification — Principal Executive Officer and Principal Financial Officer	Included with this filing

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

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EXHIBIT INDEX

Exhibit
Number	Description	Location
3.1	Amended Articles of Incorporation of Croghan Bancshares, Inc.	Incorporated herein by reference to Exhibit 3(i) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 (File No. 0-20159)
3.2	Amended Code of Regulations of Croghan Bancshares, Inc.	Incorporated herein by reference to Exhibit 3(ii) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000 (File No. 0-20159)
10.1	Employment Agreement, dated as of August 29, 2007, between The Croghan Colonial Bank and Steven C. Futrell	Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed September 5, 2007 (File No. 0-20159)
31.1	Rule 13a-14(a)/15d-14(a) Certification — Principal Executive Officer	Included with this filing
31.2	Rule 13a-14(a)/15d-14(a) Certification — Principal Financial Officer	Included with this filing
32	Section 1350 Certification — Principal Executive Officer and Principal Financial Officer	Included with this filing

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