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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2011

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 [ X ]    No [    ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [ X ]    No [    ]

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

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller  reporting company [ X ]

(Do not check if a smaller reporting company)

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

The Registrant had 1,673,380 common shares, par value $12.50 per share, outstanding as of July 29, 2011.

This document contains 34 pages. The Exhibit Index is on page 31 immediately preceding the filed exhibits.

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CROGHAN BANCSHARES, INC.

Index

 

PART I. FINANCIAL INFORMATION				Page(s)
Item 1.		Financial Statements		3 - 19
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		20 - 26
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		26
Item 4.		Controls and Procedures		26
PART II. OTHER INFORMATION
Item 1.		Legal Proceedings		27
Item 1A.		Risk Factors		27
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		27- 28
Item 3.		Defaults Upon Senior Securities		28
Item 4.		[Reserved]		28
Item 5.		Other Information		28
Item 6.		Exhibits		29
Signatures				30

 

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CROGHAN BANCSHARES, INC.

Consolidated Balance Sheets (Unaudited)

 

		June 30				December 31
ASSETS		2011				2010
		(Dollars in thousands,except par value)
CASH AND CASH EQUIVALENTS
Cash and due from banks		$	11,413			$	15,592
Interest-bearing deposits in other banks			13,905				6,264
Total cash and cash equivalents			25,318				21,856
SECURITIES
Available-for-sale, at fair value			154,388				140,279
Held-to-maturity, at amortized cost, fair value of $505 in 2010			-				500
Restricted stock			3,844				3,844
Total securities			158,232				144,623
LOANS			290,081				293,305
Less: Allowance for loan losses			4,605				4,955
Net loans			285,476				288,350
Premises and equipment, net			6,496				6,613
Cash surrender value of life insurance			11,488				11,357
Goodwill			10,430				10,430
Core deposit intangible asset, net			86				115
Accrued interest receivable			2,178				1,980
Other real estate owned			1,816				1,443
Other assets			3,243				2,960
TOTAL ASSETS		$	504,763			$	489,727
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing		$	75,354			$	61,409
Savings, NOW, and Money Market deposits			191,947				189,412
Time			129,647				133,336
Total deposits			396,948				384,157
Federal funds purchased and securities sold under repurchase agreements			22,387				20,989
Federal Home Loan Bank borrowings			22,500				25,500
Dividends payable			535				536
Other liabilities			2,866				2,032
Total liabilities			445,236				433,214
STOCKHOLDERS’ EQUITY
Common stock, $12.50 par value. Authorized 6,000,000 shares; issued 1,914,109 shares			23,926				23,926
Surplus			179				179
Retained earnings			41,287				40,050
Accumulated other comprehensive income			2,360				507
Treasury stock, 240,729 shares in 2011 and 237,729 shares in 2010, at cost			(8,225	)			(8,149	)
Total stockholders’ equity			59,527				56,513
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	504,763			$	489,727

See notes to consolidated financial statements.

 

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CROGHAN BANCSHARES, INC.

Consolidated Statements of Operations (Unaudited)

 

		Three months ended
		June 30
		2011				2010
		(Dollars in thousands,
		except per share data)
INTEREST INCOME
Loans, including fees		$	4,137			$	4,587
Securities:
Obligations of U.S. Government agencies and corporations			712				662
Obligations of states and political subdivisions			543				401
Other			45				53
Interest on deposits due from banks			1				6
Total interest income			5,438				5,709
INTEREST EXPENSE
Deposits			643				954
Other borrowings			185				345
Total interest expense			828				1,299
Net interest income			4,610				4,410
PROVISION FOR LOAN LOSSES			300				600
Net interest income, after provision for loan losses			4,310				3,810
NON-INTEREST INCOME
Gain on sale of loans			30				53
Gain on sale of securities			-				8
Trust income			297				260
Service charges on deposit accounts			334				354
Other			237				212
Total non-interest income			898				887
NON-INTEREST EXPENSES
Salaries, wages, and employee benefits			2,006				1,988
Occupancy of premises			210				198
Amortization of core deposit intangible asset			15				14
Other operating			1,299				1,435
Total non-interest expenses			3,530				3,635
Income before federal income taxes			1,678				1,062
FEDERAL INCOME TAXES			380				219
NET INCOME		$	1,298			$	843
Net income per share, based on 1,673,380 shares in 2011 and 1,697,081 shares in 2010		$	0.78			$	0.50
Dividends declared per share		$	0.32			$	0.32

See notes to consolidated financial statements.

 

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CROGHAN BANCSHARES, INC.

Consolidated Statements of Operations (Unaudited)

 

		Six months ended June 30
		2011				2010
		(Dollars in thousands, except per share data)
INTEREST INCOME
Loans, including fees		$	8,251			$	9,214
Securities:
Obligations of U.S. Government agencies and corporations			1,353				1,355
Obligations of states and political subdivisions			1,070				768
Other			99				109
Interest on deposits due from banks			6				11
Total interest income			10,779				11,457
INTEREST EXPENSE
Deposits			1,408				1,951
Other borrowings			411				686
Total interest expense			1,819				2,637
Net interest income			8,960				8,820
PROVISION FOR LOAN LOSSES			400				1,100
Net interest income, after provision for loan losses			8,560				7,720
NON-INTEREST INCOME
Gain on sale of loans			69				83
Loss on write down of securities			(111	)			-
Gain on sale of securities			-				8
Trust income			581				515
Service charges on deposit accounts			666				693
Other			459				440
Total non-interest income			1,664				1,739
NON-INTEREST EXPENSES
Salaries, wages, and employee benefits			4,101				3,983
Occupancy of premises			442				424
Amortization of core deposit intangible asset			29				28
Other operating			2,751				2,763
Total non-interest expenses			7,323				7,198
Income before federal income taxes			2,901				2,261
FEDERAL INCOME TAXES			594				486
NET INCOME		$	2,307			$	1,775
Net income per share, based on 1,674,176 shares in 2011 and 1,702,518 shares in 2010		$	1.38			$	1.04
Dividends declared per share		$	0.64			$	0.64

See notes to consolidated financial statements.

 

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CROGHAN BANCSHARES, INC.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

 

		Three months ended June 30
		2011				2010
		(Dollars in thousands, except per share data)
BALANCE AT BEGINNING OF PERIOD		$	57,444			$	56,349
Comprehensive Income:
Net income			1,298				843
Change in net unrealized gain on securities available-for-sale, net of reclassification adjustments and related income taxes			1,320				478
Total comprehensive income			2,618				1,321
Purchase treasury shares of 10,817 in 2010			-				(277	)
Cash dividends declared, $.32 per share in 2011 and 2010			(535	)			(541	)
BALANCE AT END OF PERIOD		$	59,527			$	56,852
		Six months ended June 30
		2011				2010
		(Dollars in thousands, except per share data)
BALANCE AT BEGINNING OF PERIOD		$	56,513			$	56,127
Comprehensive Income:
Net income			2,307				1,775
Change in net unrealized gain on securities available-for-sale, net of reclassification adjustments and related income taxes			1,853				572
Total comprehensive income			4,160				2,347
Purchase of treasury shares, 3,000 shares in 2011 and 21,576 shares in 2010			(76	)			(536	)
Cash dividends declared, $.64 per share in 2011 and 2010			(1,070	)			(1,086	)
BALANCE AT END OF PERIOD		$	59,527			$	56,852

See notes to consolidated financial statements.

 

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CROGHAN BANCSHARES, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

		Six months ended June 30
		2011				2010
		(Dollars in thousands)
NET CASH FLOW FROM OPERATING ACTIVITIES		$	4,195			$	3,305
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities			18,403				10,855
Proceeds from sale of available-for-sale securities			-				1,996
Purchases of available-for-sale securities			(30,282	)			(28,314	)
Net decrease in loans			1,361				17,594
Additions to premises and equipment			(258	)			(407	)
Net cash provided by (used in) investing activities			(10,776	)			1,724
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits			12,791				(8,881	)
Net change in federal funds purchased and securities sold under agreements to repurchase			1,398				9,531
Payments on Federal Home Loan Bank Borrowings			(3,000	)			-
Cash dividends paid			(1,070	)			(1,093	)
Purchase of treasury stock			(76	)			(536	)
Payment of deferred compensation			-				(72	)
Net cash provided by (used in) financing activities			10,043				(1,051	)
NET INCREASE (DECREASES) IN CASH AND CASH EQUIVALENTS			3,462				3,978
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			21,856				16,724
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	25,318			$	20,702
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest		$	2,830			$	1,902
Federal income taxes		$	160			$	791
NON-CASH OPERATING ACTIVITY:
Change in deferred income taxes on net unrealized gain on available-for-sale securities		$	(954	)		$	(295	)
NON-CASH INVESTING ACTIVITY:
Change in net unrealized gain on available-for-sale securities		$	2,804			$	866
NON-CASH OPERATING AND INVESTING ACTIVITY:
Transfer of loans to other real estate owned		$	1,303			$	52

See notes to consolidated financial statements.

 

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CROGHAN BANCSHARES, INC.

Notes to Consolidated Financial Statements

June 30, 2011

(Unaudited)

NOTE 1 – CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements of Croghan Bancshares, Inc. (“Croghan” or 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 (GAAP) have been omitted. The Corporation’s Annual Report to shareholders for the year ended December 31, 2010 (the “2010 Annual Report), 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, 2011, are not necessarily indicative of the operating results for the full year.

Management evaluated subsequent events through July 29, 2011, the date the financial statements were issued. Events or transactions occurring after June 30, 2011, but prior to when the consolidated financial statements were issued, that provided additional evidence about conditions that existed at June 30, 2011, have been recognized in the consolidated financial statements for the period ended June 30, 2011. Events or transactions that provided evidence about conditions that arose before the financial statements were issued, but did not exist at June 30, 2011, have not been recognized in the financial statements for the period ended June 30, 2011.

During the third quarter of 2011, the Bank anticipates receiving a settlement from a life insurance policy that the Bank holds as collateral on a non-accrual loan that was charged down through the provision for loan losses. The Bank expects to recover past charged off amounts of approximately $750,000, past due interest not accrued of approximately $250,000, and fees and costs associated with the collection of the loan relationship.

On July 25, 2011, the Bank became aware of an Other Than Temporarily Impairment (OTTI) write down of an investment security of approximately $300,000 that will take place during the third quarter of 2011. This will be in addition to the OTTI write down the Bank incurred during the first quarter of 2011 and will negatively impact third quarter and year-to-date income for the Bank.

NOTE 2 – NEW ACCOUNTING PRONOUNCEMENTS

In April 2011, The Financial Accounting Standards Board (FASB) issued ASU 2011-02, A Creditors Determination of whether a Restructuring Is a Troubled Debt Restructuring. The new guidance clarifies when a loan modification or restructuring is considered a troubled debt restructuring (TDR) in order to address current diversity in practice and lead to more consistent application of accounting principles generally accepted in the United States of America. In evaluating whether a restructuring constitutes a TDR, a creditor must separately conclude that the restructuring constitutes a concession and the debtor is experiencing financial difficulties. Additionally, the guidance clarifies that a creditor is precluded from using the effective interest rate test in the debtor’s guidance on restructuring of

 

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payables (paragraph 470-60-55-10) when evaluating whether a restructuring constitutes a TDR. The Corporation has not yet evaluated whether the clarifications provided in ASU 2011-02 will change the amount of its loan modifications or restructurings classified as TDR.

ASU 2011-01, Deferral of the Effective Date of Disclosures about TDR in Update No. 2010-20, deferred additional disclosures regarding TDR required by ASU 2010-20 until ASU 2011-02 was issued. For interim and annual periods beginning after June 15, 2011, entities are required to enhance existing disclosures about the allowance for credit losses and the credit quality of financing receivables to include, at minimum, the nature and extent of a creditor’s TDR and financing receivables modified as TDR retrospectively to the beginning of the annual period of adoption.

In January 2010, FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements, amending ASC Subtopic 820-10 to require disclosure of transfers in and out of levels 1 and 2 fair value measurement categories and activity in level 3 fair value measurement category. Additionally, the guidance amends existing disclosure requirements on level of disaggregation and inputs and valuation techniques. These disclosures are required for fiscal periods beginning after December 15, 2009, and for interim periods within those fiscal years except for activity in level 3 fair value measurement category, which are effective for annual and interim periods beginning after December 15, 2010. The Corporation has provided additional disclosure required by ASU 2010-06 in Note 4.

NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values of recognized financial instruments were as follows:

 

		June 30, 2011								December 31, 2010
		Carrying amount				Estimated fair value				Carrying amount				Estimated fair value
		(Dollars in thousands)
FINANCIAL ASSETS
Cash and cash equivalents		$	25,318			$	25,318			$	21,856			$	21,856
Securities			158,232				158,232				144,623				144,628
Loans, net			285,476				287,620				288,350				290,603
Total		$	469,026			$	471,170			$	454,829			$	457,087
FINANCIAL LIABILITIES
Deposits		$	396,948			$	398,350			$	384,157			$	386,087
Federal funds purchased and securities sold under repurchase agreements			22,387				22,387				20,989				20,989
Federal Home Loan Bank borrowings			22,500				23,309				25,500				26,359
Total		$	441,835			$	444,046			$	430,646			$	433,435

The preceding summary does not include accrued interest receivable, cash surrender value of life insurance, dividends payable, and other liabilities which are also considered financial instruments. The estimated fair value of such items is considered to be their carrying amount.

 

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The Bank also has unrecognized financial instruments which relate to commitments to extend credit and standby letters of credit. The contract amount of such financial instruments was $76,566,000 at June 30, 2011 and $73,324,000 at December 31, 2010. Since many of these commitments are expected to expire without being drawn upon, this total does not necessarily represent future cash requirements.

The following methods and assumptions were used to estimate fair value of each class of financial instruments:

Cash and Cash Equivalents

Fair value is determined to be the carrying amount for these items because they represent cash or mature in 90 days or less and do not represent unanticipated credit concerns.

Securities

The fair value of securities (both available-for-sale and held-to-maturity) is determined based on quoted market prices of the individual securities or, if not available, estimated fair value was obtained by comparison to other known securities with similar risk and maturity characteristics. Such value does not consider possible tax ramifications or estimated transaction costs. The fair value of restricted stock is considered to be its carrying amount.

Loans

Fair value for loans was estimated for portfolios of loans with similar financial characteristics. For adjustable rate loans, which re-price at least annually and generally possess low risk characteristics, the carrying amount is believed to be a reasonable estimate of fair value. For fixed-rate loans, the fair value is estimated based on a discounted cash flow analysis, considering weighted average rates and terms of the portfolio, adjusted for credit and interest rate risk inherent in the loans. Fair value for non-performing loans is based on recent appraisals or estimated discounted cash flows. The estimated value of credit card loans is based on existing loans and does not include the value that relates to estimated cash flows from new loans generated from existing cardholders over the remaining life of the portfolio.

Deposit Liabilities

The fair value of core deposits, including demand deposits, savings deposits, and certain money market deposits, is the amount payable on demand. The fair value of fixed-maturity certificates of deposit is estimated using the rates offered at year-end for deposits of similar remaining maturities. The estimated fair value does not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the marketplace.

Other Financial Instruments

The fair value of federal funds purchased and securities sold under repurchase agreements, as well as Federal Home Loan Bank borrowings, is determined based on a discounted cash flow analysis using current interest rates.

 

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The fair value estimates of financial instruments are made at a specific point in time based on relevant market information. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

NOTE 4 – FAIR VALUE MEASUREMENTS

Assets and liabilities carried at fair value are required to be classified and disclosed according to this process for determining fair value. There are three levels of determining fair value:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 – Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date. Unobservable inputs reflect the Corporation’s own assumptions about what market participants would use to price the asset or liability. The inputs are developed based on the best information available in the circumstances, which might include the Corporation’s own financial data such as internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment.

There were no financial instruments measured at fair value that moved to a lower level in the fair value hierarchy due to the lack of observable quotes in inactive markets for those instruments at June 30, 2011 and December 31, 2010.

The following summarizes financial assets (there were no financial liabilities) measured at fair value as of June 30, 2011 and December 31, 2010, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

 

		Level 1 inputs				Level 2 inputs				Level 3 inputs				Total fair value
		(Dollars in thousands)
June 30, 2011
Recurring:
Securities available-for-sale:
Obligations of U.S. Government agencies and corporations		$	-			$	89,221			$	-			$	89,221
Obligations of states and political subdivisions			-				64,817				-				64,817
Other			-				350				-				350
Total		$	-			$	154,388			$	-			$	154,388
Nonrecurring:
Other real estate owned		$	-			$	-			$	1,816			$	1,816
Impaired loans			-				-				16,648				16,648
Total		$	-			$	-			$	18,464			$	18,464

 

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		Level 1 inputs				Level 2 inputs				Level 3 inputs				Total fair value
		(Dollars in thousands)
December 31, 2010
Recurring:
Securities available-for-sale:
Obligations of U.S. Government agencies and corporations		$	-			$	83,006			$	-			$	83,006
Obligations of states and political subdivisions			-				56,923				-				56,923
Other			-				350				-				350
Total		$	-			$	140,279			$	-			$	140,279
Nonrecurring:
Other real estate owned		$	-			$	-			$	1,443			$	1,443
Impaired loans			-				-				16,041				16,041
Total		$	-			$	-			$	17,484			$	17,484

The following summarizes the changes in other real estate loans measured at fair value on a nonrecurring basis as follows (dollars in thousands):

 

Balance as of December 31, 2010		$	1,443
Transfer of loans			1,303
Impairment			(237	)
Net proceeds from sales			(662	)
Gain on sales			14
Loss on sales			(45	)
Balance as of June 30, 2011		$	1,816

The following summarizes the changes in impaired loans measured at fair value on a nonrecurring basis as follows (dollars in thousands):

 

Balance as of December 31, 2010		$	16,041
Net changes in impaired loans			2,975
Charge off of principal			(737	)
Net principal payments and advances			(1,631	)
Balance as of June 30, 2011		$	16,648

 

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A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, follows.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the corporation’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Corporation’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Corporation’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Securities Available-for-Sale

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would typically include government bonds and exchange traded equities. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include corporate and municipal bonds, mortgage-backed securities, and asset-backed securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. The Corporation did not have any securities classified as Level 1 or Level 3 at June 30, 2011 and December 31, 2010.

Impaired Loans

The Corporation does not record impaired loans at fair value on a recurring basis. However, periodically, a loan is considered impaired and is reported at the fair value of the underlying collateral, less estimated costs to sell, if repayment is expected solely from the collateral. Collateral values are estimated using Level 2 inputs, including recent appraisals and Level 3 inputs based on customized discounting criteria. Due to the significance of the Level 3 inputs, impaired loans have been classified as Level 3.

Other Real Estate Owned

The Corporation values other real estate owned at the estimated fair value of the underlying collateral less expected selling costs. Such values are estimated primarily using appraisals and reflect a market value approach. Due to the significance of the Level 3 inputs, other real estate owned has been classified as Level 3.

 

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NOTE 5 – SECURITIES

Amortized cost and fair value on securities were as follows (dollars in thousands):

 

		June 30, 2011								December 31, 2010
		Amortized cost				Fair value				Amortized cost				Fair value
Obligations of U.S. Government agencies and corporations		$	87,639			$	89,221			$	81,845			$	83,006
Obligations of states and political subdivisions			62,822				64,817				57,316				56,923
Other			350				350				350				350
Total available-for-sale			150,811				154,388				139,511				140,279
Held-to-maturity - corporate debt obligation			-				-				500				505
Restricted stock			3,844				3,844				3,844				3,844
Total		$	154,655			$	158,232			$	143,855			$	144,628

Gross unrealized gains and losses on securities were as follows (dollars in thousands):

 

		June 30, 2011								December 31, 2010
		Gross unrealized gains				Gross unrealized losses				Gross unrealized gains				Gross unrealized losses
Obligations of U.S. Government agencies and corporations		$	1,937			$	355			$	1,558			$	396
Obligations of states and political subdivisions			2,093				98				725				1,119
Total available-for-sale			4,030				453				2,283				1,515
Held-to-maturity - corporate debt obligation			-				-				5				-
Total		$	4,030			$	453			$	2,288			$	1,515

 

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NOTE 6 – LOANS

The following presents the balances and activity in the allowance for loan losses for the period ended June 30, 2011:

 

		Commercial				Residential real estate				Non- residential real Estate				Construction real Estate				Consumer				Credit card				Total
		(Dollars in thousands)
Balance at December 31, 2010		$	542			$	1,857			$	2,049			$	347			$	85			$	75			$	4,955
Provision charged to expense			1				240				56				106				(1	)			(2	)			400
Losses charged off			(19	)			(303	)			(435	)			-				(14	)			(13	)			(784	)
Recoveries			8				2				1				-				17				6				34
Balance at June 30, 2011		$	532			$	1,796			$	1,671			$	453			$	87			$	66			$	4,605

The following presents the balances in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2011:

 

		Commercial				Residential real estate				Non- residential real estate				Construction real estate				Consumer				Credit card				Total
		(Dollars in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment		$	28			$	495			$	543			$	311			$	-			$	-			$	1,377
Collectively evaluated for impairment			504				1,301				1,128				142				87				66				3,228
Total		$	532			$	1,796			$	1,671			$	453			$	87			$	66			$	4,605
Loans:
Loans individually evaluated for impairment		$	819			$	2,372			$	12,118			$	1,339			$	-			$	-			$	16,648
Loans collectively evaluated for impairment			21,606				107,025				126,702				4,287				11,238				2,575				273,433
Total		$	22,425			$	109,397			$	138,820			$	5,626			$	11,238			$	2,575			$	290,081

 

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The following represents loans individually evaluated for impairment by class of loans as of June 30, 2011:

 

		Unpaid principal balance				Recorded investment				Allowance for loan losses allocated
		(Dollars in thousands)
With no related allowance recorded:
Agricultural loans		$	-			$	-			$	-
Commercial loans			722				722				-
Commercial overdraft LOC			62				62				-
Commercial non-profit/political subdivisions			-				-				-
Open-end home equity			-				-				-
1 – 4 family real estate (1st mortgages)			532				494				-
1 – 4 family real estate (Jr. mortgages)			30				30				-
Multifamily real estate			-				-				-
Farm real estate			-				-				-
Non-farm/non-residential real estate			9,733				8,930				-
Construction real estate			-				-				-
Consumer loans – vehicle			-				-				-
Consumer overdraft LOC			-				-				-
Consumer loans – mobile home			-				-				-
Consumer loans – home improvement			-				-				-
Consumer loans – other			-				-				-
MasterCard/VISA			-				-				-
With an allowance recorded:
Agricultural loans			-				-				-
Commercial loans			36				36				28
Commercial overdraft LOC			-				-				-
Commercial non-profit/political subdivisions			-				-				-
Open-end home equity			17				17				17
1 – 4 family real estate (1st mortgages)			1,901				1,683				415
1 – 4 family real estate (Jr. mortgages)			147				147				63
Multifamily real estate			-				-				-
Farm real estate			-				-				-
Non-farm/non-residential real estate			3,202				3,188				543
Construction real estate			1,709				1,339				311
Consumer loans – vehicle			-				-				-
Consumer overdraft LOC			-				-				-
Consumer loans – mobile home			-				-				-
Consumer loans – home improvement			-				-				-
Consumer loans – other			-				-				-
MasterCard/VISA			-				-				-
Total		$	18,091			$	16,648			$	1,377

 

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Croghan categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Bank uses the following definitions for risk ratings:

 

•

Special Mention – Loans classified special mention possess some credit deficiency or potential weakness that deserves close attention, but which do not yet warrant substandard classification. Such loans pose unwarranted financial risk that, if not corrected, could weaken the loan and increase risk of losses in the future.

 

•

Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard have well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are categorized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

•

Doubtful – Loans classified as doubtful have all of the weaknesses of those classified as substandard. Additionally, however, these weaknesses make collection or liquidation in full based on existing conditions improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. The following presents loans as of June 30, 2011 that are collectively evaluated for impairment and are considered not impaired. Investments in each category found below do not include loans that are deemed impaired and analyzed individually for impairment which were presented previously:

 

		Pass				Special mention				Sub- standard				Doubtful				Not rated
		(Dollars in thousands)
Agricultural loans		$	2,326			$	-			$	-			$	-			$	-
Commercial loans			17,516				262				3				-				-
Commercial overdraft LOC			-				-				-				-				434
Commercial non-profit/political subdivisions			1,065				-				-				-				-
Open-end home equity			22,392				125				226				-				-
1 – 4 family real estate (1st mortgages)			75,724				1,785				2,657				-				-
1 – 4 family real estate (Jr. mortgages)			3,786				41				289				-				-
Multifamily real estate			9,714				-				2,942				-				-
Farm real estate			8,693				-				323				-				-
Non-farm/non-residential real estate			93,649				7,539				3,842				-				-
Construction real estate			3,102				219				966				-				-
Consumer loans – vehicle			3,074				5				14				-				-
Consumer overdraft LOC			-				-				-				-				182
Consumer loans – mobile home			775				25				4				-				-
Consumer loans – home improvement			194				-				-				-				-
Consumer loans – other			6,908				10				47				-				-
MasterCard/VISA			-				-				-				-				2,575
Total		$	248,918			$	10,011			$	11,313			$	-			$	3,191

 

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The following presents the recorded investment by class of loans which are not on nonaccrual and have collectively been evaluated for impairment:

 

		30 – 89 days past due				90+ days past due				Total past due				Not past due				Total
		(Dollars in thousands)
Agricultural loans		$	-			$	-			$	-			$	2,326			$	2,326
Commercial loans			-				-				-				17,781				17,781
Commercial overdraft LOC			-				-				-				434				434
Commercial non-profit/political subdivisions			-				-				-				1,065				1,065
Open-end home equity			160				44				204				22,539				22,743
1 – 4 family real estate (1st mortgages)			1,840				474				2,314				77,852				80,166
1 – 4 family real estate (Jr. mortgages)			16				-				16				4,100				4,116
Multifamily real estate			337				-				337				12,319				12,656
Farm real estate			-				-				-				9,017				9,017
Non-farm/non-residential real estate			114				-				114				104,915				105,029
Construction real estate			-				-				-				4,287				4,287
Consumer loans – vehicle			24				5				29				3,064				3,093
Consumer overdraft LOC			-				-				-				182				182
Consumer loans – mobile home			4				-				4				800				804
Consumer loans – home improvement			1				-				1				193				194
Consumer loans – other			44				-				44				6,921				6,965
MasterCard/VISA			105				14				119				2,456				2,575
Total		$	2,645			$	537			$	3,182			$	270,251			$	273,433

The following presents the recorded investment in loans past due over 90 days, still on accrual, nonaccrual, and troubled debt restructuring by class of loans as of June 30, 2011:

 

		Loans past due 90+ days still accruing				Nonaccrual				Troubled debt restructurings
		(Dollars in thousands)
Agricultural loans		$	-			$	-			$	-
Commercial loans			-				71				91
Commercial overdraft LOC			-				-				-
Commercial non-profit/political subdivisions			-				-				-
Open-end home equity			44				17				-
1 – 4 family real estate (1st mortgages)			474				1,773				405
1 – 4 family real estate (Jr. mortgages)			-				66				111
Multifamily real estate			-				-				-
Farm real estate			-				-				-
Non-farm/non-residential real estate			-				1,495				3,548
Construction real estate			-				1,339				-
Consumer loans – vehicle			5				-				-
Consumer overdraft LOC			-				-				-
Consumer loans – mobile home			-				-				-
Consumer loans – home improvement			-				-				-
Consumer loans – other			-				-				-
MasterCard/VISA			14				-				-
Total		$	537			$	4,761			$	4,155

 

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NOTE 7 – OTHER COMPREHENSIVE INCOME

The components of other comprehensive income and related tax effects for the six-month periods ended June 30, 2011 and 2010 were as follows (dollars in thousands):

 

		2011				2010
Unrealized gains on available-for-sale securities		$	3,577			$	2,449
Tax effect			1,217				833
Net-of-tax amount		$	2,360			$	1,616

NOTE 8 – STOCK BASED COMPENSATION

The Corporation established a Stock Option and Incentive Plan (the “Plan”) in 2002, which permits the Corporation to award stock options and/or stock appreciation rights to directors and managerial and other key employees of the Corporation. The awards may be in the form of stock options and/or stock appreciation rights. The Plan provides for the issuance of up to 190,951 shares.

Outstanding Stock Options

Exercisable Stock Options

Exercise Price Range

Number

Weighted Average Exercise Price

Weighted Average Contractual Life (years)

Number

Weighted Average Exercise Price

Weighted Average Contractual Life (years)

$24.99

28,869

$24.99

8

0

N/A

N/A

The Corporation issued 28,869 stock options during the three-month period ended June 30, 2011. The following summarizes stock option activity for the first six months of 2011:

 

Outstanding, January 1, 2011			0
Granted			28,869
Exercised			0
Outstanding, June 30, 2011			28,869
Exercisable, June 30, 2011			0

The fair value of options granted is estimated at the date of grant using the Black Scholes option pricing model. The following shows the weighted-average fair value options granted and the assumptions used in calculating that value for the years indicated:

 

		2011
Weighted-average fair value of options granted		$	3.62
Average dividend yield			5.0	%
Expected volatility			25	%
Risk-free interest rate			2.85	%
Expected term (in years)			8

Compensation expense related to options granted in 2011 is included in salaries and wages in the consolidated statements of income for the six months ended June 30, 2011 amounted to $35,000. Compensation expense is recognized over the three year vesting period of the options. As of June 30, 2011, there is $70,000 of unrecognized compensation expense expected to be recognized over the vesting period.

 

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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 the Corporation contains the insights of management into known events and trends that have or may be expected to have a material effect on the Corporation’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”, “targets”, “will”, “would”, “should”, “could”, and similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, but are not the exclusive means of identifying such statements. 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, changes in FDIC insurance assessment 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, as amended (the “Exchange Act”), 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, 2010 (the “2010 Form 10-K’).

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

Net income for the three-month period ended June 30, 2011 was $1,298,000, or $.78 per common share, compared to $843,000, or $.50 per common share, for the same period in 2010. Net income for the six-month period ended June 30, 2011 was $2,307,000, or $1.38 per common share, compared to $1,775,000, or $1.04 per common share, for the same period in 2010. The results for the second quarter 2011 compared to the second quarter 2010 were positively impacted by an increase of $200,000 in net interest income, a $300,000 decrease in the provision for loan losses, an $11,000 increase in non-interest income, and a decrease of $105,000 in non-interest expenses. Results for the second quarter were adversely impacted by a $161,000 increase to the provision for federal income taxes.

Assets at June 30, 2011 totaled $504,763,000, compared to $489,727,000 at December 31, 2010. Total cash and cash equivalents increased $3,462,000 to $25,318,000 during the six-month period ended June 30, 2011, and total securities increased $13,609,000 to $158,232,000 at June 30, 2011. Total loans decreased $3,224,000 to $290,081,000 at June 30, 2011, from $293,305,000 at 2010 year end. Total deposits increased $12,791,000 to $396,948,000 at June 30, 2011, from $384,157,000 at 2010 year end.

 

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FINANCIAL POSITION

The following comments are based upon a comparison of Croghan’s financial position at June 30, 2011 to December 31, 2010.

Total cash and cash equivalents increased $3,462,000 (15.8%) and total securities increased $13,609,000 (9.4%) during the six-month period ended June 30, 2011. Total loans decreased $3,224,000 (1.1%) to $290,081,000 at June 30, 2011, compared to $293,305,000 at December 31, 2010. During the same period, deposits increased $12,791,000 (3.3%) to $396,948,000 at June 30, 2011, compared to $384,157,000 at December 31, 2010.

The increase in securities during the six-month period ended June 30, 2011 primarily resulted from purchases of available-for sale securities of $30,282,000, with maturities during the period of $18,403,000. There were no security sales during the period. Securities purchases were a direct result of the continued loan balance decline and deposit balance increases which resulted in the excess cash being put into interest-earning securities.

The decrease in total loans during the six-month period ended June 30, 2011 continued to be the result of the sale of fixed-rate mortgages into the secondary market, pay-downs from commercial borrowers partially due to seasonality, the continued slow recovery of the economy, and a continuation of the soft demand in the Bank’s lending markets.

Components of the increase in deposits include the liquid deposit category (demand, savings, NOW, and money market deposit accounts), which increased $16,480,000 (6.6%), and the time deposit category, which decreased $3,689,000 (2.8%). Croghan strives to maintain a strong interest margin by balancing deposit needs to fund anticipated loan demand and by maintaining the necessary deposit pricing structure.

Stockholders’ equity at June 30, 2011 increased to $59,527,000, or $35.57 book value per common share, compared to $56,513,000, or $33.71 book value per common share, at December 31, 2010. Stockholders’ equity at June 30, 2011 includes accumulated other comprehensive income, consisting of net unrealized gains on securities classified as available-for-sale, net of related income taxes. At June 30, 2011, Croghan held $154,388,000 of available-for-sale securities with a net unrealized gain of $2,360,000, net of income taxes, compared to $140,279,000 in available-for-sale securities at December 31, 2010, with a net unrealized gain of $507,000, net of income taxes.

Beginning in February 2002, Croghan instituted a stock buy-back program, which has subsequently been extended through February 1, 2012. Since the inception of the program, a total of 248,791 shares have been repurchased by Croghan. The 240,729 treasury shares held as of June 30, 2011 and the 237,729 shares held as of December 31, 2010 are reported at their acquired cost.

A cash dividend of $.32 per share was declared on June 16, 2011, payable on July 29, 2011 to shareholders of record as of July 15, 2011.

 

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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 $140,000 (1.6%) for the six-month period ended June 30, 2011, as compared to the same period in 2010. Croghan’s net interest margin decreased to 3.97 percent for the six-month period ended June 30, 2011, compared to 4.05 percent for the same period in 2010. This decrease is attributable to the continued shift in interest-earning assets from loans, which is typically the highest yielding interest-earning asset, to available-for-sale securities. Croghan has been able to somewhat mitigate the decline by reducing its average cost of funds as a result of lower rates on interest-bearing deposits.

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 three 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:

 

		Six months ended June 30, 2011				Six months ended June 30, 2010
		(Dollars in thousands)
Provision for loan losses charged to expense			$400				$1,100
Net loan charge-offs			750				250
Annualized net loan charge-offs as a percent of average outstanding loans			.52%				.16%

 

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

 

		June 30, 2011				December 31, 2010
		(Dollars in thousands)
Nonaccrual loans			$  4,761				$  4,127
Loans contractually past due 90 days or more and still accruing interest			537				586
Restructured loans			4,155				4,665
Potential problem loans, other than those past due 90 days or more, nonaccrual, or restructured			19,079				15,873
Total potential problem and non-performing loans			$28,532				$25,251
Allowance for loan losses			$  4,605				$  4,955
Allowance for loan losses as a percent of period-end loans			1.59%				1.69%

Croghan recognized a $400,000 provision for loan losses for the six-month period ended June 30, 2011, compared to $1,100,000 during the same time period ended June 30, 2010. The 2011 second quarter provision was primarily attributable to a decrease in the average historical loss rates which are used to calculate current loss rates in the loan portfolio.

Total potential problem and non-performing loans, which are summarized in the preceding table increased $3,281,000 (13.0%), to $28,532,000 at June 30, 2011, compared to $25,251,000 at December 31, 2010. At June 30, 2011, as compared to December 31, 2010, nonaccrual loans increased $634,000 and potential problem loans (other than those past due 90 days or more, nonaccrual, or restructured) increased $3,206,000, while favorable components of potential problem and non-performing loans included a $49,000 decrease in loans contractually past due 90 days or more and still accruing interest and a $510,000 decrease in restructured loans,

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 Croghan’s potential problem loans, totaling $19,079,000 at June 30, 2011, were less than 90 days past due and a majority of these loans are collateralized by an interest in real property.

 

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

 

		June 30, 2011				December 31, 2010
		(Dollars in thousands)
Potential problem loans not currently past due		$	14,735				$  8,746
Potential problem loans past due one day or more but less than 10 days			212				3,079
Potential problem loans past due 10 days or more but less than 30 days			2,925				3,051
Potential problem loans past due 30 days or more but less than 60 days			711				641
Potential problem loans past due 60 days or more but less than 90 days			496				356
Total potential problem loans		$	19,079				$15,873

Total potential problem loans increased $3,206,000 during the first six months of 2011, which resulted primarily from a $5,989,000 increase in the loans not currently past due. This increase was partially offset by a $2,783,000 decrease in the aggregate amount of potential problem loans past due one day but less than 90 days. Total potential problem loans less than 30 days past due totaled $17,872,000 (93.7%) at June 30, 2011, compared to $14,876,000 (93.7%) of such loans at December 31, 2010.

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

 

		June 30, 2011				December 31, 2010
		(Dollars in thousands)
Collateralized by an interest in real property		$	18,419				$15,427
Collateralized by an interest in assets other than real property			658				438
Unsecured			2				8
Total potential problem loans		$	19,079				$15,873

Management will continue to monitor asset quality trends throughout 2011 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 believes the allowance for loan losses at June 30, 2011 is adequate to provide for those losses identified as well as those losses inherent within the loan portfolio.

 

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NON-INTEREST INCOME

Total non-interest income increased $11,000 (1.2%) for the three-month period ended June 30, 2011, compared to the same period in 2010, and decreased $75,000 (4.3%) for the six-month period ended June 30, 2011, compared to the same period in 2010. During the second quarter of 2011, the Bank had gains on sale of loans of $30,000, which was down compared to $53,000 during the second quarter of 2010, and a decrease of $20,000 in income stemming from service charges on deposit accounts. These decreases were offset by an increase of $37,000 in trust income, and an increase in other income of $25,000. The year-to-date decrease is due to having an Other Than Temporarily Impaired security write down during the first quarter related to one security in the amount of $111,000.

NON-INTEREST EXPENSES

Total non-interest expenses decreased $105,000 (2.9%) for the three-month period ended June 30, 2011, as compared to the same period in 2010, and increased $125,000 (1.7%) for the six-month period ended June 30, 2011, as compared to the same period in 2010. Salaries, wages, and employee benefits increased $18,000 (.9%) between comparable three-month periods and $118,000 (3.0%) between comparable six-month periods. Occupancy of premises expense increased $12,000 (6.1%) between comparable three-month periods and increased $18,000 (4.2%) between comparable six-month periods. Other operating expenses decreased $136,000 (9.5%) between comparable three-month periods and $12,000 (.4%) between comparable six-month periods.

Within the other operating expense category is the FDIC insurance expense. During the six-month period ended June 30, 2011, the FDIC insurance expense was $211,000, compared to $278,000 during the same period in 2010. The decrease resulted from a change in the way the FDIC calculates the expense, starting during the second quarter 2011. The new calculation is based on average asset size rather than domestic deposits, and will continue to be calculated this way going forward. The Bank prepaid the amount of $1,797,000 in December 2009 and had a remaining prepaid balance of $1,058,000 at June 30, 2011. These prepaid assessment amounts are included in other assets of the Corporation. Future quarterly assessments will be charged against the prepaid asset until such time as the prepaid asset has been full expensed, at which point the Bank will resume paying premiums to the FDIC.

FEDERAL INCOME TAX EXPENSE

Federal income tax expense increased $161,000 (73.5%) between comparable three-month periods and $108,000 (22.2%) between comparable six-month periods. The Corporation’s effective tax rate for the six months ended June 30, 2011 was 20.5 percent, compared to 21.4 percent for the same period in 2010.

LIQUIDITY AND CAPITAL RESOURCES

Short-term borrowings of federal funds purchased and repurchase agreements averaged $21,719,000 for the six-month period ended June 30, 2011, compared to $20,002,000 for the twelve-month period ended December 31, 2010 and $19,220,000 for the six-month period ended June 30, 2010.

Borrowings from the Federal Home Loan Bank totaled $22,500,000 at June 30, 2011, compared to $35,500,000 at June 30, 2010, and $25,500,000 at December 31, 2010.

 

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Capital expenditures for premises and equipment totaled $258,000 for the six-month period ended June 30, 2011, compared to $407,000 for the same period in 2010. Capital expenditures in 2011 included the purchase of an office building, land, and an ATM in the Tiffin, Ohio market as we look to expand our geographical footprint. Also included in capital expenditures was a new telephone system for our Green Springs banking center, and new roofs for two buildings.

As of June 30, 2011, loan commitments including letters of credit totaled $76,566,000 compared to $73,324,000 at December 31, 2010. Since many of these commitments are expected to expire without being drawn upon, this total 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 disclosures about market risk from the information provided in Croghan’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (the “2010 Form 10-K”).

ITEM 4.    CONTROLS AND PROCEDURES

EVALUATION OF CONTROLS AND PROCEDURES

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

 

(a)

information required to be disclosed by the Corporation in this Quarterly Report on Form 10-Q and the other reports which the Corporation files or submits under the Exchange Act would be accumulated and communicated to the Corporation’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 the Corporation in this Quarterly Report on Form 10-Q and the other reports which the Corporation 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)	the Corporation’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 the Corporation’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the Corporation’s fiscal quarter ended June 30, 2011, that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

 

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Management is not aware of any pending legal proceedings, except for 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

There are certain risks and uncertainties in our business that could cause our actual results to differ materially from those anticipated. 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 2010 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 2010 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, 2011:

 

Period		Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
04/01/11 through 04/30/11		None		None		None		80,819
05/01/11 through 05/31/11		None		None		None		80,819
06/01/11 through 06/30/11		None		None		None		80,819

 

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(1)

An extension of Croghan’s stock repurchase program commencing February 1, 2011 and ending August 1, 2011 was announced on January 28, 2011, in which up to 83,819 shares may be repurchased (with 3,000 shares purchased in the first quarter of 2011). Another extension of Croghan’s stock repurchase program was approved on July 12, 2011, in which up to 83,669 shares may be repurchased from August 1, 2011 to February 1, 2012.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. [RESERVED]

ITEM 5. OTHER INFORMATION

Not applicable.

 

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ITEM 6. EXHIBITS

 

Exhibit Number		Description and Exhibit Location
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)
101		The following materials from Croghan Bancshares, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010; (ii) the Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010 (unaudited); (iii) the Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2011 and 2010 (unaudited); (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (unaudited); and (v) the Notes to Unaudited Consolidated Financial Statements tagged as blocks of text (included with this this filing)*   * Pursuant to Rule 406T of SEC Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are furnished and not deemed filed or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those Sections

 

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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 29, 2011		By:		/s/ Rick M. Robertson
				Rick M. Robertson, President and CEO
				(Principal Executive Officer)
Date:    July 29, 2011		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
101		The following materials from Croghan Bancshares, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010; (ii) the Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010 (unaudited); (iii) the Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2011 and 2010 (unaudited); (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (unaudited); and (v) the Notes to Unaudited Consolidated Financial Statements tagged as blocks of text*   * Pursuant to Rule 406T of SEC Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are furnished and not deemed filed or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those Sections.		Filed herewith

 

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