- Annual Report (10-K)

CROGHAN BANCSHARES, INC.

Date: March 13, 2012

/s/ Rick M. Robertson

Rick M. Robertson

President and Chief Executive Officer

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2011.

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission File Number 0-20159

CROGHAN BANCSHARES, INC .

(Exact name of Registrant as specified in its charter)


Ohio		31-1073048
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

323 Croghan Street, Fremont, Ohio		43420
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (419) 332-7301

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Shares, Par Value $12.50 Per Share

(Title of class)

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [ ] No [X]

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

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 Web site, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

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 ]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant’s most recently completed second fiscal quarter: The aggregate market value of the Registrant’s common shares, par value $12.50 per share, held by non-affiliates as of June 30, 2011, based on the closing price quoted on the OTC Bulletin Board on such date was $38,543,595.

The Registrant had 1,673,380 common shares, par value $12.50 per share, outstanding as of February 29, 2012.

This Annual Report on Form 10K contains 116 pages. The Exhibit Index is on pages 36 through 38 and also immediately preceding the filed exhibits on pages 31 through 34.

DOCUMENTS INCORPORATED BY REFERENCE

1.	Portions of the Registrant’s Annual Report to Shareholders for the fiscal year ended December 31, 2011 (the “2011 Annual Report to Shareholders”) are incorporated by reference into PART II of this Annual Report on Form 10-K.

2.	Portions of the Registrant’s Proxy Statement for its Annual Meeting of Shareholders to be held on May 8, 2012 (the “2012 Proxy Statement”) are incorporated by reference into PART III of this Annual Report on Form 10-K.

INDEX


Part I
Item 1.	Business	5 - 22
Item 1A.	Risk Factors	23 - 26
Item 1B.	Unresolved Staff Comments	26
Item 2.	Properties	26
Item 3.	Legal Proceedings	26
Item 4.	Mine Safety Disclosures	26

Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	27
Item 6.	Selected Financial Data	27
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 8.	Financial Statements and Supplementary Data	28
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	28
Item 9A.	Controls and Procedures	28
Item 9B.	Other Information	28

Part I II
Item 10.	Directors, Executive Officers, and Corporate Governance	29
Item 11.	Executive Compensation	29
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	30
Item 13.	Certain Relationships and Related Transactions, and Director Independence	30
Item 14.	Principal Accountant Fees and Services	30

Part IV
Item 15.	Exhibits and Financial Statement Schedules	31 - 34

Signatures		35

PART I

ITEM 1. BUSINESS

GENERAL

Croghan Bancshares, Inc. (the “Corporation”), was organized under the laws of the State of Ohio on September 27, 1983, and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the “BHCA”). As the result of a reorganization effective in 1984, the Corporation acquired all of the voting shares of The Croghan Colonial Bank (the “Bank”), an Ohio chartered bank organized in 1888. The Bank is the only direct subsidiary of the Corporation and substantially all of the Corporation’s operations are conducted through the Bank. The Bank has one wholly-owned insurance company subsidiary, Croghan Insurance Agency LLC (“Croghan Insurance”), which was organized on August 21, 2009 as an Ohio limited liability company for the purpose of allowing the Bank to participate in certain commission revenue generated through its third party insurance agreement. The principal offices of the Corporation, the Bank, and Croghan Insurance are located at 323 Croghan Street, Fremont, Ohio. The Bank operates 13 Ohio branch offices, including one in Bellevue, one in Clyde, one in Custar, four in Fremont, one in Green Springs, one in Monroeville, one in Norwalk, one in Port Clinton, and two in Tiffin.

The Corporation maintains a website at www.croghan.com (this uniform resource locator, or URL, is an inactive textual reference only and is not intended to incorporate the Corporation’s website into this Annual Report on Form 10-K). The Corporation makes available free of charge on or through its website, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after the Corporation electronically files such material with, or furnishes such material to, the Securities and Exchange Commission (the “SEC”).

Through the Bank, the Corporation operates in one industry segment – the commercial banking industry. The Bank conducts a general banking business embracing the usual functions of commercial, retail, and savings banking, including time, savings, money market and demand deposits; commercial, industrial, agricultural, real estate, consumer installment, and credit card lending; safe deposit box rental; automatic teller machines; trust department services; and other services tailored for individual customers. The Bank originates and services secured and unsecured loans to individuals, firms, and corporations. Direct loans are made to individuals and installment obligations are purchased from retailers, both with and without recourse. The Bank makes a variety of residential, industrial, commercial, and agricultural loans secured by real estate, including interim construction financing. Additionally, investment products bearing no Federal Deposit Insurance Corporation (“FDIC”) insurance are offered through the Bank’s Trust and Investment Services Division.

Interest and fees on loans are the Bank’s primary sources of income. The Bank’s principal expenses are interest paid on deposit accounts and borrowed funds, and personnel and operating costs. Operating results are dependent to a significant degree on the “net interest income” of the Bank, which is the difference between the interest income derived from its interest-earning assets, such as loans and securities, and the interest expense paid on its interest-bearing liabilities, consisting of deposits and borrowings. Interest income and interest expense are significantly affected by general economic conditions and the policies of various regulatory authorities. See “EFFECTS OF GOVERNMENT MONETARY POLICY” on page 22 of this Annual Report on Form 10-K.

The Corporation’s only sources of funds are dividends and interest paid by the Bank. The ability of the Bank to pay dividends is subject to limitations under various laws and regulations, and to prudent and sound banking principles. See “DIVIDEND RESTRICTIONS” on page 22 of this Annual Report on Form 10-K.

As a bank holding company, the Corporation is subject to regulation, supervision, and examination by the Board of Governors of the Federal Reserve System (the “FRB”). The deposits of the Bank are insured up to the applicable limits by the FDIC and, therefore, the Bank is subject to regulation, supervision, and examination by the FDIC. As a bank incorporated under the laws of the State of Ohio, the Bank is also subject to regulation, supervision, and examination by the Division of Financial Institutions of the Ohio Department of Commerce (the “Division”). See “REGULATION AND SUPERVISION” beginning on page 18, and “REGULATORY CAPITAL REQUIREMENTS” beginning on page 20 of this Annual Report on Form 10-K.

Because the Corporation’s activities have been limited primarily to holding the common shares of the Bank, the following discussion of operations focuses primarily on the business of the Bank. The following discussion encompasses only domestic operations since neither the Corporation nor the Bank have any foreign operations or foreign loans.

FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-K which are not historical fact are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects”, “believes”, “anticipates”, “targets”, “plans”, “will”, “would”, “should”, “could”, and similar expressions are intended to identify these forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. Factors that might cause such difference include, but are not limited to, the factors discussed under “ITEM 1A – RISK FACTORS” beginning on page 23 of this Annual Report on Form 10-K. Forward-looking statements speak only as of the date on which they are made and, except as required by law, the Corporation undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made to reflect unanticipated events. All subsequent written and oral forward-looking statements attributable to the Corporation or any person acting on its behalf are qualified by these cautionary statements.

LENDING ACTIVITIES

General. As a commercial bank, the Bank makes a wide variety of different types of loans. Among the Bank’s lending activities are the origination of commercial, financial, and agricultural loans, which may be secured by various assets of the borrower or unsecured; loans secured by mortgages on residential and non-residential real estate; construction loans secured by mortgages on the underlying property; consumer loans which may be on an unsecured basis or secured by vehicles or other assets of the borrower; and credit card loans which are typically unsecured.

The following table sets forth the composition of the Bank’s loan portfolio by type of loan at the dates indicated:


	December 31,
	2011		2010		2009		2008		2007

	(Dollars in thousands)
Type of Loan: (1)
Commercial, financial, and agricultural (2)	$	28,963	$	21,576	$	27,311	$	32,566	$	38,057
Real estate – mortgage		253,865		254,371		276,416		289,502		282,407
Real estate – construction		5,237		4,084		5,828		9,952		11,427
Consumer		11,203		10,676		12,333		14,843		15,838
Credit card and other		2,697		2,598		2,596		2,570		2,785

	$	301,965	$	293,305	$	324,484	$	349,433	$	350,514

(1)	The Bank made no foreign loans in 2011, 2010, 2009, 2008, or 2007.

(2)	Lease financing receivables included in commercial, financial, and agricultural, were $311,000 in 2011, $650,000 in 2010, $859,000 in 2009, $1,065,000 in 2008, and $1,268,000 in 2007.

Loan Maturity Schedule. The following table sets forth certain information, as of December 31, 2011, regarding the dollar amount of loans maturing in the Bank’s portfolio based on their contractual terms to maturity and the dollar amount of such loans that have fixed or variable rates within certain maturity ranges after 2011:


	Maturing
			After one
	Within		but within		After
	one year		five years		five years		Total

	(Dollars in thousands)

Commercial, financial, and agricultural		$3,626		$14,108		$11,229		$28,963
Real estate – construction		748		1,791		2,698		5,237

Total		$4,374		$15,899		$13,927		$34,200


	Interest
	Sensitivity
	Fixed		Variable
	Rate		Rate

	(Dollars in thousands)

Due after one but within five years		$14,117		$1,782
Due after five years		1,112		12,815

		$15,229		$14,597

The above maturity information is based on the contract terms at December 31, 2011, and does not include any possible “rollover” at maturity date. In the normal course of business, the Bank considers and acts upon the borrower’s request for renewal of a loan at maturity. Evaluation of such a request includes a review of the borrower’s credit history, the collateral securing the loan, and the purpose for such request.

Commercial, Financial, and Agricultural Loans. The Bank makes loans for commercial purposes, including industrial and professional purposes, to sole proprietorships, partnerships, corporations, limited liability companies, and other business enterprises. The Bank makes agricultural loans for the purpose of financing agricultural production, including all costs associated with growing crops or raising livestock. Commercial, financial, and agricultural loans may be secured, other than by real estate, or unsecured, requiring one single repayment, or on an installment repayment schedule. Commercial, financial, and agricultural loans generally have final maturities of five years or less and are made with interest rates that adjust either daily or annually based upon the national prime rate in effect at the time of the applicable rate change. However, under the current low rate environment there has been a shift to lock in fixed rates to maturity. Such loans typically do not contain any periodic rate adjustment caps or lifetime rate caps.

Commercial lending involves certain risks relating to changes in local and national economic conditions and the resulting effect on the borrowing entities. Such loans are subject to greater risk of default during periods of adverse economic conditions. Because such loans may be secured by equipment, inventory, accounts receivable, and other non-real estate assets, the collateral may not be sufficient to ensure full payment of the loan in the event of a default. To reduce such risk, the Bank may obtain the personal guarantees of one or more of the principals of the borrowers.

At December 31, 2011, the Bank had $28,963,000, or 9.6% of total loans, invested in commercial, financial, and agricultural loans. At December 31, 2011, the Bank had $88,000 of nonperforming loans of this type (i.e., those loans in nonaccrual status or past due 90 days or more).

Real Estate – Mortgage Loans. The Bank makes non-residential real estate loans secured by first mortgages and/or junior mortgages on non-residential real estate, including retail stores, office buildings, warehouses, apartment buildings, and residential real estate loans secured by first mortgages on one-to-four family residences, with a majority being single-family residences.

Non-Residential Real Estate Loans. The Bank’s non-residential real estate loans generally have final maturities of between 10 and 20 years and are typically made with adjustable interest rates (“ARMs”). Interest rates on the ARMs adjust either daily, annually, every three years, or every five years based upon the national prime or U.S. Treasury Note rates in effect at the time of the applicable rate change. Such loans typically do not contain periodic rate adjustment caps or lifetime rate caps.

The Bank limits the amount of each non-residential real estate loan in relationship to the appraised value of the real estate and improvements at the time of origination of such loans. The maximum loan-to-value ratio (the “LTV”) on non-residential real estate loans made by the Bank is 80%, subject to certain exceptions.

Non-residential real estate lending is generally considered to involve a higher degree of risk than residential lending. Such risk is due primarily to the dependence of the borrower on the cash flow from the property to service the loan. If the cash flow from the property is reduced due to a downturn in the economy for example, or due to any other reason, the borrower’s ability to repay the loan may be impaired. To reduce such risk, the decision to underwrite a non-residential real estate loan is based primarily on the quality and characteristics of the income stream generated by the property and/or the business of the borrower. The Bank carefully evaluates the location of the real estate, the quality of the management operating the property, the debt service ratio, and appraisals supporting the property’s valuation. In addition, the Bank may obtain the personal guarantees of one or more of the principals of the borrower.

At December 31, 2011, the Bank had $126,415,000, or 41.9% of total loans, invested in non-residential real estate loans, a majority of which were secured by properties located in the Northwestern Ohio area. At December 31, 2011, the Bank had $1,054,000 of nonperforming loans of this type.

Residential Real Estate Loans. The Bank’s residential real estate loans have either fixed or adjustable interest rates (“ARMs”). Interest rates on ARMs adjust every six months or every five years based upon the Federal Home Loan Mortgage Company (“FHLMC”) 15 year rate, plus an additional margin, that is in effect at the time of the applicable rate change. The six-month ARMs typically have periodic adjustment caps of 0.5% and lifetime adjustment caps of 5%. The five-year ARMs typically have periodic adjustment caps of 1% and lifetime adjustment caps of 3%. The maximum amortization period for such loans is 30 years, although a 20-year term is the most common. The Bank does not engage in the practice of deeply discounting the initial rates on such loans, nor does the Bank engage in the practice of putting payment caps on loans which could lead to negative amortization. In addition to a five year balloon program, where the loan is retained and serviced by the Bank, loans are originated by the Bank and sold into the secondary market (e.g., to Freddie Mac). The Bank retains the servicing and related support functions on loans that are sold into the secondary market. The establishment of this arrangement allows the Bank to maintain its customer relationships by providing very competitive residential real estate loan offerings, while at the same time eliminating the risks associated with long-term fixed-rate mortgage loan financing.

The Bank limits the amount of each residential real estate loan in relationship to the appraised value of the real estate and improvements at the time of origination of a residential real estate loan. The maximum LTV on residential real estate loans made by the Bank is 90%, subject to certain exceptions.

The Bank’s residential real estate loans amounted to $127,450,000 at December 31, 2011, which represented 42.2% of total loans. At December 31, 2011, the Bank had $3,136,000 of nonperforming loans of this type.

Real Estate – Construction Loans . The Bank makes construction loans to finance land development prior to erecting new structures and the construction of new buildings or additions to existing buildings. During the construction period, these loans are structured with either fixed rates or adjustable rates of interest tied to changes in the national prime interest rate. Many of the construction loans originated by the Bank are made to owner-occupants for the construction of single-family homes. Other loans are made to builders and developers for various projects, including the construction of homes and other buildings that have not been pre-sold, and the preparation of land for site and project development.

Construction loans involve greater underwriting and default risks than do loans secured by mortgages on improved and developed properties due to the effects that general economic conditions have on real estate developments, developers, managers, and builders. In addition, such loans are more difficult to evaluate and monitor. Loan funds are advanced upon the security of the project under construction, which is more difficult to value before the completion of construction. Moreover, because of the uncertainties inherent in estimating construction costs, it is relatively difficult to accurately evaluate the LTVs and the total loan funds required to complete a project. In the event that a default or foreclosure on a construction or land development loan occurs, the Bank must take control of the project and attempt either to arrange for completion of construction or dispose of the unfinished project.

At December 31, 2011, the Bank’s construction loans amounted to $5,237,000, or 1.7% of total loans. At December 31, 2011, the Bank had $1,059,000 of nonperforming loans of this type.

Consumer Loans. The Bank makes a variety of consumer loans to individuals for family, household, and other personal expenditures. These loans often are made for the purpose of financing the purchase of vehicles, furniture, educational expenses, medical expenses, taxes, or vacation expenses. Consumer loans may be secured, other than by real estate, or unsecured, and generally require repayment pursuant to an installment repayment schedule.

Consumer loans involve a higher risk of default than residential real estate loans, particularly in the case of loans that are unsecured or secured by rapidly depreciating assets, such as vehicles. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage or depreciation, and the remaining deficiency may not warrant further collection efforts against the borrower. In addition, consumer loan collections depend on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, illness, or personal bankruptcy. Various federal and state laws, including federal and state bankruptcy and insolvency laws, may also limit the amount which can be recovered on such loans.

At December 31, 2011, the Bank had $11,203,000, or 3.7% of total loans, invested in consumer loans, and less than $1,000 were nonperforming.

Credit Card and Other Loans. Credit card and other loans are made to individuals for personal expenditures and principally arise from bank credit cards. Such loans generally pose the most risk as they are most frequently unsecured.

At December 31, 2011, the Bank had $2,697,000, or 0.9% of total loans, invested in credit card and other loans, and $6,000 of which were nonperforming.

Loan Solicitation and Processing. The Bank’s loan originations are developed from a number of sources, including continuing business with depositors, borrowers, and, real estate developers, periodic newspaper and radio advertisements, solicitations by the Bank’s lending staff, walk-in customers, director referrals, and loan participations purchased from other financial institutions.

For non-residential real estate loans, the Bank obtains information with respect to the credit and business history of the borrower and prior projects completed by the borrower. Personal guarantees of one or more principals of the borrower are obtained as deemed necessary. An environmental study of the real estate might also be conducted when deemed necessary. Upon the completion of the appraisal of the non-residential real estate and the receipt of information on the borrower, the loan application may be submitted to the Loan Committee for approval or rejection if the loan amount is in excess of established limits contained in the Bank’s Loan Policy. Additionally, loans in material amounts as established in the Bank’s Loan Policy must be submitted to the Executive Committee of the Board of Directors for approval or rejection.

In connection with residential real estate loans, the Bank may obtain a credit report, verification of employment and other documentation concerning the creditworthiness of the borrower. An appraisal of the fair market value of the real estate on which the Bank will be granted a mortgage to secure the loan is generally prepared by an independent appraiser approved by the Board of Directors. An environmental study of the real estate is conducted only if the appraiser has reason to believe that an environmental problem may exist.

When either a residential or non-residential real estate loan application is approved, a lawyer’s opinion of title or title insurance is obtained with respect to the real estate which will secure the loan. Borrowers are required to carry satisfactory fire and casualty insurance and flood insurance, if applicable, and to name the Bank as an insured mortgagee.

Commercial, financial, and agricultural loans are underwritten primarily on the basis of the stability of the income generated by the business and/or property. The personal guarantees of one or more principals of the borrower also are generally obtained. Consumer loans are underwritten on the basis of the borrower’s credit history and an analysis of the borrower’s income and expenses, ability to repay the loan and the value of the collateral, if any. The procedure for approval of real estate - construction loans is the same as for real estate - mortgage loans, except that an appraiser evaluates the building plans, construction specifications and estimates of construction costs. The Bank also evaluates the feasibility of the proposed construction project and the experience and record of the builder.

Loan Origination and Other Fees. The Bank realizes loan origination fees and other fee income from its lending activities. The Bank also realizes income from late payment charges, application fees, and fees for other miscellaneous services. Loan origination fees and other fees realized by the Bank are a volatile source of income, and vary with the volume of lending, loan repayments and general economic conditions. Nonrefundable loan origination fees and certain direct loan origination costs are deferred and recognized as an adjustment to yield over the life of the related loan.

Delinquent Loans, Nonperforming Assets, and Classified Assets. When a borrower fails to make a required payment on a loan, the Bank attempts to cause the deficiency to be cured by contacting the borrower. In most cases, deficiencies are cured promptly as a result of these efforts.

When a borrower fails to make a timely payment, the borrower will receive a series of scheduled delinquency notices and possibly follow-up calls from an employee of the Bank. In most cases, delinquencies are paid promptly. Generally, if a real estate loan becomes 90 days delinquent, the borrower and collateral will be assessed to determine whether foreclosure action is required. When deemed appropriate by management, a foreclosure action will be instituted or a deed in lieu of foreclosure will be pursued.

Loans are placed into nonaccrual status when, in the opinion of management, full collection of principal and interest is unlikely. Under-collateralized loans are then fully or partially charged-off against the allowance for loan losses, and interest is recognized on a cash basis where future collections of principal are probable.

The following table presents information concerning the amount of loans which contain certain risk elements at the dates indicated:


	December 31,
	2011		2010		2009		2008		2007

	(Dollars in thousands)

Loans accounted for on a nonaccrual basis including Trouble Debt Restructuring (“TDR”) non-accruing (1)	$	4,671	$	4,127	$	5,903	$	1,845	$	2,285

Loans contractually past due 90 days or more as to principal or interest payments and still accruing interest (2)		672		586		45		334		237

Loans whose terms have been renegotiated to provide a reduction or deferral of principal or interest because of a deterioration in the financial position of the borrower (3)		3,532		4,665		3,191		0		0

(1)

The amount of gross interest income that would have been recorded had all nonaccrual loans been current in accordance with their terms approximated $200,000 in 2011, $270,000 in 2010, $375,000 in 2009, $132,000 in 2008, and $44,000 in 2007. Actual interest included in interest income on these loans amounted to $33,000 in 2011, $36,000 in 2010, $33,000 in 2009, $39,000 in 2008, and $176,000 in 2007.

(2)

Excludes loans accounted for on a nonaccrual basis.

(3)

Excludes loans accounted for on a nonaccrual basis and loans contractually past due 90 days or more as to principal or interest payments.

In addition to the loan amounts identified in the preceding table, there was $18,161,000 of potential problem loans at December 31, 2011. While these loans are all currently performing, management has some doubt about the ability of the borrowers to continue to comply with all of their present loan repayment terms. Management typically classifies a loan as a potential problem loan, regardless of its collateralization or any contractually obligated guarantors, when a review of the borrower’s financial statements indicates the borrowing entity does not generate sufficient operating cash flow to adequately service its debts.

The Bank’s loans are spread over a broad range of industrial classifications. As of December 31, 2011, the Bank had no significant concentrations of loans (i.e., greater that 10% of total loans) to borrowers engaged in the same or similar industries.

Allowance for Loan Losses. The Bank maintains an allowance for loan losses to provide for loans that might not be repaid. At December 31, 2011, the Bank’s allowance for loan losses totaled $4,778,000. To determine the adequacy of the allowance for loan losses, the Bank performs a detailed quarterly analysis that focuses on delinquency trends within each loan category (i.e., commercial, real estate, and consumer loans), the status of nonperforming loans (i.e., impaired, nonaccrual and restructured loans, and loans past due 90 days or more), current and historic trends of charged-off loans within each category, existing local and national economic conditions, and changes in the volume and mix within each loan category. Additionally, loans that are identified as impaired are individually evaluated and specific reserves provided to the extent the loan amount exceeds anticipated future cash flows, including cash flows from the sale of the underlying collateral.

Regular provisions are made in amounts sufficient to maintain the balance in the allowance for loan losses at a level considered by management to be adequate for losses within the Bank’s portfolio. While management believes that it uses the best information available to determine the allowance for loan losses, unforeseen market conditions could result in adjustments, and net earnings could be significantly affected if circumstances differ substantially from the assumptions used in making the final determination. The regulatory agencies that periodically review the Bank’s allowance for loan losses may also require adjustments to the allowance or the charge-off of specific loans based upon the information available to them at the time of their examinations.

The following table shows the daily average loan balances, for the periods indicated, and changes in the allowance for loan losses for such years:


	December 31,
	2011		2010		2009		2008		2007

	(Dollars in thousands)

Daily average amount of loans		$286,576		$306,924		$334,648		$344,638		$347,445


Allowance for loan losses at beginning of year		$4,955		$4,433		$3,287		$3,358		$3,600


Loan charge-offs:
Commercial, financial, and agricultural		(56)		(4)		(212)		(1,128)		(3)
Real estate – mortgage		(1,649)		(1,169)		(1,594)		(379)		(259)
Consumer		(38)		(97)		(141)		(152)		(182)
Credit card and other		(43)		(39)		(74)		(82)		(55)

		(1,786)		(1,309)		(2,021)		(1,741)		(499)


Recoveries of loans previously charged off:
Commercial, financial, and agricultural		203		15		66		15		38
Real estate – mortgage		598		93		34		17		36
Consumer		23		42		57		74		70
Credit card and other		10		6		10		14		13

		834		156		167		120		157

Net charge-offs		(952)		(1,153)		(1,854)		(1,621)		(342)


Additions to allowance charged to expense		775		1,675		3,000		1,550		100

Allowance for loan losses at end of year		$4,778		$4,955		$4,433		$3,287		$3,358

Allowance for loan losses as a percent of year-end loans		1.58%		1.69%		1.37%		.94%		.96%

Ratio of net charge-offs during the year to average net loans outstanding during the year		.34%		.38%		.56%		.47%		.10%

The amount of charge-offs and recoveries fluctuate from year to year due to factors relating to the condition of the general economy and specific business segments. During 2007, there were five real estate charge-offs exceeding $25,000, with the largest charge-off being $67,000 and the aggregate being $213,000, and one consumer loan charge-off of $28,000. Otherwise, there were no individual charge-offs or recoveries exceeding $25,000 during 2007. During 2008, there were four commercial loan charge-offs exceeding $25,000, with the two largest being $495,000 and $490,000, both related to the same borrower, and the aggregate being $1,098,000; four real estate charge-offs exceeding $25,000, with the largest charge-off being $31,000 and the aggregate being $110,000; and one consumer loan charge-off of $29,000. There were no other individual charge-offs or recoveries exceeding $25,000 during 2008. During 2009, there were no commercial loan charge-offs exceeding $25,000; however, there was one recovery that totaled $34,000 that was recovered from a commercial loan that was charged off in 2008. Also during 2009, there were 15 real estate loan charge-offs individually exceeding $25,000 with the largest being $518,000, and others including $253,000, $224,000, and $178,000. There were no individual recoveries over $25,000 in the real estate loan category during 2009. There were also two consumer loan charge-offs that individually exceeded $25,000 during 2009 with the largest being $31,000. During 2010, there were no commercial loan charge-offs or recoveries exceeding $25,000. Also during 2010, there were 11 real estate loan charge-offs individually exceeding $25,000 with the largest being $273,000, and others including $180,000, $138,000, and $85,000. There were two individual recoveries over $25,000 in the real estate loan category during 2010. There were no consumer loan charge-offs or recoveries that individually exceeded $25,000 during 2010. During 2011, there was one commercial loan charge-off exceeding $25,000 that totaled $36,000 and there was a recovery from one borrower totaling $169,000. Also during 2011, there were 15 real estate loan charge-offs individually exceeding $25,000 with the largest being $335,000, and others including $308,000, $120,000, $112,000, and $100,000. There were two individual recoveries over $25,000 in the real estate loan category during 2011 totaling $519,000 and $66,000. There were no consumer loan charge-offs or recoveries that individually exceeded $25,000 during 2011. There were no lease financing charge-offs or recoveries in any of the years presented.

The Corporation recognized a provision for loan losses of $775,000 for the year ended December 31, 2011. The decrease in the provision for loan losses in 2011, as compared to 2010, was due to a decrease in the level of net loan charge-offs in 2011, as compared to 2010, which was a result of the Bank experiencing a large recovery in the commercial and real estate – mortgage categories of $754,000 which resulted in overall decrease in net loan charge-offs in 2011 of $201,000. The Bank will continue to monitor the credit quality of its entire loan portfolio to maintain the allowance for loan losses at an appropriate level.

The following table allocates the allowance for loan losses for the periods indicated to each loan category. The allowance has been allocated to the categories of loans noted according to the amount deemed to be reasonably necessary to provide for the possibility of losses being incurred based on specific credit analyses:


	December 31, 2011					December 31, 2010
				Percentage					Percentage
				of loans to					of loans to
		Allowance		total loans			Allowance		total loans

		(Dollars in thousands)					(Dollars in thousands)

Commercial, financial, and agricultural			$615		9.6%			$542		7.4%
Real estate – mortgage			3,831		84.1%			3,906		86.7%
Real estate – construction			179		1.7%			347		1.4%
Consumer			84		3.7%			85		3.6%
Credit card and other			69		.9%			75		.9%

			$4,778		100.0%			$4,955		100.0%


	December 31, 2009					December 31, 2008
				Percentage					Percentage
				of loans to					of loans to
		Allowance		total loans			Allowance		total loans

		(Dollars in thousands)					(Dollars in thousands)

Commercial, financial, and agricultural			$526		8.4%			$200		9.3%
Real estate – mortgage			3,649		85.2%			2,536		82.9%
Real estate – construction			72		1.8%			291		2.8%
Consumer			115		3.8%			196		4.3%
Credit card and other			71		.8%			64		.7%

			$4,433		100.0%			$3,287		100.0%



	December 31, 2007
				Percentage
				of loans to
		Allowance		total loans

		(Dollars in thousands)

Commercial, financial, and agricultural			$413		10.9%
Real estate – mortgage			2,528		80.5%
Real estate – construction			35		3.3%
Consumer			303		4.5%
Credit card and other			79		.8%

			$3,358		100.0%

The Bank decreased its allowance for loan losses to $4,778,000 at December 31, 2011, from $4,955,000 at December 31, 2010. There were specific reserves of $1,195,000 on individual credits at December 31, 2011. Because the loan loss allowance is based on estimates, it is monitored on an ongoing basis and adjusted as necessary to provide an adequate allowance.

INVESTMENT ACTIVITIES

The Bank’s investment policy is designed to effectively utilize excess funds and to provide for liquidity needs as dictated by loan demand and daily operations. The Bank’s federal income tax position is also a consideration in its investment decisions. Investments in tax-exempt securities with maturities of less than 20 years are often desirable when the net yield exceeds that of taxable securities and the Bank’s effective tax rate warrants such investments.

The following sets forth the carrying amount of securities at December 31, 2011, 2010, and 2009:


	December 31,
		2011		2010		2009

		(Dollars in thousands)

Obligations of U.S. Government agencies and corporations (1)			$137,244		$83,006		$66,729
Obligations of states and political subdivisions (2)			87,688		56,923		38,713
Other securities (2)			4,194		4,694		4,696

			$229,126		$144,623		$110,138

(1)	There were no holdings of U.S. Treasury securities at December 31, 2011, 2010, or 2009.

(2)	There were no securities of any single “issuer” where the aggregate carrying amount of such securities exceeded ten percent of stockholders’ equity.

The following sets forth the maturities of securities at December 31, 2011 and the weighted average yields of such securities:


	Maturing
					After one				After five
	Within				but within				but within				After
	one year				five years				ten years				ten years
	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield

	(Dollars in thousands)

Obligations of U.S. Government agencies and corporations		$ -		- %		$7,283		2.74%		$11,285		4.03%		$118,603		3.69%
Obligations of states and political subdivisions (1)		5,178		2.73%		10,610		3.47%		31,273		3.40%		40,700		3.77%

Total (2)		$5,178		2.73%		$17,893		3.17%		$42,558		3.57%		$159,303		3.71%

(1)	Weighted average yields on non-taxable obligations have been computed on a fully tax-equivalent basis assuming a tax rate of 34%.

(2)	Excludes equity investments of $4,194,000 which have no stated maturity.

DEPOSITS AND BORROWINGS

General. Deposits have traditionally been the Bank’s primary funding source for use in lending and other investment activities. In addition to deposits, the Bank derives funds from interest and principal repayments on loans and income from other earning assets. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows tend to fluctuate in response to economic conditions and interest rates. The Bank has established lines of credit with its major correspondent banks to purchase federal funds to meet liquidity needs. At December 31, 2011, the Bank did not have any federal funds purchased, out of the $17,000,000 available under such lines of credit.

The Bank also uses retail repurchase agreements as a source of funds. These agreements essentially represent borrowings by the Bank from customers with maturities of three months or less. Certain securities are pledged as collateral for these agreements. At December 31, 2011, the Bank had $40,861,000 in retail repurchase agreements.

Neither the Corporation nor the Bank had any capital lease obligations as of December 31, 2011. The Bank had future operating lease obligations totaling $171,000 at December 31, 2011, related to the following lease arrangements: the Port Clinton banking center located in a retail supermarket in the Knollcrest Shopping Center, and an ATM site north of Fremont. Additionally, the Bank had various future operating lease obligations aggregating $116,000 at December 31, 2011, for photocopying and mail processing equipment.

Deposits. Deposits are attracted principally from within the Bank’s designated market area by offering a variety of deposit instruments, including regular savings accounts, negotiable order of withdrawal (“NOW”) accounts, money market deposit accounts, term certificate accounts, and individual retirement accounts (“IRAs”). Interest rates paid, maturity terms, service fees, and withdrawal penalties for the various types of accounts are established periodically by the Bank’s management based on the Bank’s liquidity requirements, growth goals, and market trends. The Bank does not use brokers to attract deposits. The amount of deposits from outside the Bank’s market area is not significant.

The average daily amount of deposits (all in domestic offices) and average rates paid on such deposits for 2011, 2010, and 2009 as set forth in the following table:


	2011				2010				2009
	Average		Average		Average		Average		Average		Average
	balance		rate paid		balance		rate paid		balance		rate paid

	(Dollars in thousands)

Non-interest bearing demand deposits		$68,977		-		$57,537		-		$52,480		-
Interest-bearing demand deposits		66,335		.07%		60,180		.07%		52,625		.08%
Savings, including Money Market, deposits		133,603		.28%		113,573		.51%		98,197		.50%
Time deposits		131,081		1.67%		143,955		2.16%		154,890		2.78%

Total		$399,996				$375,245				$358,192

Maturities of time deposits of $100,000 or more outstanding at December 31, 2011 were as follows (dollars in thousands):


3 months or less			$12,694
Over 3 through 6 months			9,408
Over 6 through 12 months			11,085
Over 12 months			20,600

Total			$53,787

Borrowings. In addition to repurchase agreements, the Bank has agreements with correspondent banks to purchase federal funds as needed to meet daily liquidity needs. As a member of the Federal Home Loan Bank of Cincinnati (“FHLB”) since 1993, the Bank is authorized to obtain advances from the FHLB provided certain credit standards are met. The Bank had $12,500,000 in FHLB advances outstanding at December 31, 2011, and had an additional borrowing capacity of $78,357,000.

The following table sets forth the maximum month-end balance for the Bank’s outstanding short-term borrowings (i.e., federal funds purchased and repurchase agreements), along with the average aggregate balances and weighted average interest rates, for 2011, 2010, and 2009:


	2011		2010		2009

	(Dollars in thousands)

Balance at year-end		$40,861		$20,989		$16,375

Maximum balance at any month-end during the period		40,861		25,906		23,404

Average balance		23,432		20,002		13,482

Weighted average interest rate		.19%		.24%		.39%

The following sets forth the maximum month-end balance for the Bank’s outstanding long-term borrowings (i.e., FHLB advances and a note payable to a correspondent bank), along with the average aggregate balance and weighted average interest rates, for 2011, 2010, and 2009:


	2011		2010		2009
	(Dollars in thousands)

Balance at year-end	$	18,500	$	25,500	$	35,500

Maximum balance at any month-end during the period		30,500		35,500		39,500

Average balance		20,075		34,815		37,089

Weighted average interest rate		3.44%		3.76%		3.72%

ASSET/LIABILITY MANAGEMENT

The Bank’s earnings are highly dependent upon its net interest income, which is the difference between the interest income derived from interest-earning assets, such as loans and securities, and interest expense paid on interest-bearing liabilities, consisting of deposits and borrowings. Interest rate risk is one of the Bank’s most significant financial exposures. This risk, which is common to the financial institution sector, is an integral part of the Bank’s operations and impacts the rate-pricing strategies for essentially all of the Bank’s loan and deposit products.

The Bank monitors its interest rate risk through a sensitivity analysis, which strives to measure potential changes in future earnings and the fair values of its financial instruments that could result from hypothetical changes in interest rates. The first step in this analysis is to estimate the expected cash flows from the Bank’s financial instruments using the interest rates in effect at December 31, 2011. To arrive at fair value estimates, the cash flows from the Bank’s financial instruments are discounted to their approximated present values. Hypothetical changes in interest rates are applied to those financial instruments, and the cash flows and fair value estimates are then simulated. When calculating the net interest income estimations, hypothetical rates are applied to the financial instruments based upon the assumed cash flows. The Bank applies interest rate “shocks” to its financial instruments of 100, 200, 300, and 400 basis points (1%, 2%, 3%, and 4%) up and down for its net interest income, and 200 basis points (2%) up and down for the value of its equity. However, because interest rates were below 1.0% at December 31, 2011, the sensitivity analysis could not be performed with respect to a negative 100, 200, 300, and 400 basis point change in market rates.

The following table presents the potential sensitivity in the Bank’s annual net interest income to 100, 200, 300, and 400 basis-point changes in market interest rates and the potential sensitivity in the present value of the Bank’s equity if a sudden and sustained 200 basis-point change in market interest rates occurred (dollars in thousands):


	December 31, 2011
	Change in Dollars ($)		Change in Percent (%)

Annual Net Interest Income Impact
For a Change of +100 Basis Points		(170)		(.4)
For a Change of - 100 Basis Points		N/A		N/A
For a Change of +200 Basis Points		1,220		3.0
For a Change of - 200 Basis Points		N/A		N/A
For a Change of +300 Basis Points		2,734		6.8
For a Change of - 300 Basis Points		N/A		N/A
For a Change of +400 Basis Points		4,151		10.4
For a Change of - 400 Basis Points		N/A		N/A

Impact on the Net Present Value of Equity
For a Change of +200 Basis Points		(10,314)		(14.1)
For a Change of - 200 Basis Points		N/A		N/A

The preceding analysis encompasses the use of a variety of assumptions, including the relative levels of market interest rates, loan prepayments, and the possible reaction of depositors to changes in interest rates. The analysis simulates possible outcomes and should not be relied upon as being indicative of actual results. Additionally, the analysis does not necessarily contemplate all of the actions that the Bank could undertake in response to changes in market interest rates. For example, the Bank could enter into derivatives or swaps, which are not included in the model.

The following table sets forth, for the years ended December 31, 2011, 2010, and 2009, the distribution of assets, liabilities, and stockholders’ equity, including interest amounts and average rates of major categories of interest-earning assets and interest-bearing liabilities:


	2011						2010						2009
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate

	(Dollars in thousands)
Assets

Interest-earning assets:
Loans (1) (2)	$	286,576	$	16,632		5.80%	$	306,923	$	18,157		5.92%	$	334,648	$	20,305		6.07%
Taxable securities		98,876		2,724		2.75%		76,954		2,855		3.71%		54,293		2,531		4.66%
Non-taxable securities (3)		64,809		2,254		3.48%		46,831		1,703		3.64%		27,844		1,064		3.82%
Interest-earning deposits		7,327		12		.16%		9,912		24		.24%		10,072		26		.26%

Total interest-earning assets (4)		457,588		21,622		4.73%		440,620		22,739		5.16%		426,857		23,926		5.61%

Non-interest-earning assets:
Cash and due from banks		14,638						16,579						13,338
Unrealized gains on securities		3,389						2,600						1,418
Bank premises and equipment, net		6,568						6,801						7,157
Other assets		28,964						28,456						23,219
Less allowance for loan losses		(4,729)						(4,858)						(3,819)

Total	$	506,418	$	21,622			$	490,198	$	22,739			$	468,170	$	23,926


Liabilities and Stockholders’ Equity

Interest-bearing liabilities:
Savings, NOW and Money Market deposits	$	199,938	$	425		.21%	$	173,754	$	621		.36%	$	150,822	$	529		.35%
Time Deposits		131,081		2,195		1.67%		143,955		3,107		2.16%		154,890		4,313		2.78%
Federal funds purchased and securities sold under repurchase agreements		23,432		44		.19%		20,002		47		.23%		13,482		53		.39%
Borrowed funds		20,075		691		3.44%		34,815		1,310		3.76%		37,089		1,380		3.72%

Total interest-bearing liabilities		374,526		3,355		.90%		372,526		5,085		1.37%		356,283		6,275		1.76%

Non-interest-bearing liabilities:
Demand deposits		68,977						57,537						52,480
Other liabilities		3,294						2,886						3,512

Total non-interest-bearing liabilities		72,271						60,423						55,992

Stockholders’ equity:
Stockholders’ equity		56,232						54,649						54,477
Unrealized gains on securities		3,389						2,600						1,418

Total stockholders’ equity		59,621						57,249						55,895

Total	$	506,418	$	3,355			$	490,198	$	5,085			$	468,170	$	6,275

Net interest income			$	18,267					$	17,654					$	17,651

Net yield on interest-earning assets						3.99%						4.01%						4.14%

(1)	Included in loan interest income are loan fees of $447,000 in 2011, $391,000 in 2010, and $498,000 in 2009.

(2)	Non-accrual loans are included in loan totals and do not have a material impact on the analysis presented.

(3)	Interest and yield for non-taxable securities have not been tax-effected for the 34% exception for federal income taxes.

(4)	Excludes unrealized gains (losses) on taxable and non-taxable securities.

The following table sets forth, for the periods indicated, a summary of the changes in interest income and interest expense resulting from changes in volume and changes in rate:


	2011 compared to 2010 Increase (decrease) due to volume/rate (1)								2010 compared to 2009 Increase (decrease) due to volume/rate (1)
	Volume			Rate		Net			Volume			Rate		Net

	(Dollars in thousands)

Interest income:
Loans receivable		$	(1,187)		$(338)		$	(1,525)		$	(1,650)		$(498)		$	(2,148)
Taxable securities			703		(834)			(131)			912		(588)			324
Non-taxable securities			628		(77)			551			693		(54)			639
Interest-earning deposits			(5)		(7)			(12)			0		(2)			(2)

Total interest-earning assets			139		(1,256)			(1,117)			(45)		(1,142)			(1,187)


Interest expense:
Savings, NOW, and Money Market deposits			82		(278)			(196)			82		10			92
Time deposits			(259)		(653)			(912)			(288)		(918)			(1,206)
Federal funds purchased and securities sold under repurchase agreements			7		(10)			(3)			20		(26)			(6)
Borrowed funds			(516)		(103)			(619)			(85)		15			(70)

Total interest-bearing liabilities			(686)		(1,044)			(1,730)			(271)		(919)			(1,190)

Net interest income			$825		$(212)			$613			$226		$(223)			$3

(1)	The change in interest income and interest expense due to changes in both volume and rate, which cannot be segregated, has been allocated proportionately to the absolute dollar change due to volume and the change due to rate.

The ratio of net income to daily average total assets and average stockholders’ equity, and certain other ratios, for the periods noted are as follows:


	Year ended December 31,
	2011		2010		2009

Percentage of net income to:
Average total assets		.94%		.82%		.66%
Average stockholders’ equity		7.97%		7.03%		5.56%

Percentage of cash dividends declared per common share to net income per common share		45.06%		53.70%		70.83%

Percentage of average stockholders’ equity to average total assets		11.77%		11.68%		11.94%

COMPETITION

The Bank faces intense competition in its market areas. The Bank competes for commercial and individual deposits and/or loans with other commercial banks in Huron, Ottawa, Sandusky, Seneca, and Wood counties in Northwestern Ohio, as well as with savings and loan associations in the trade area, credit unions, brokerage firms, mutual funds, and loan production offices and other financial units of non-local bank holding companies. Many competitors of the Bank have substantially greater resources and lending limits and can offer services that the Bank does not or cannot provide. The primary factors in competing for loans are interest rates charged and overall services provided to borrowers, while the primary factors in competing for deposits are interest rates paid on deposits, account liquidity, convenience, hours of facilities, and quality of service provided to depositors. The Bank focuses on personalized service, convenience of facilities, pricing of products, community stature, and its local ownership and control in meeting its competition.

SUBSIDIARY ACTIVITIES

The Corporation’s only subsidiary is the Bank. The Bank’s only subsidiary is Croghan Insurance, which engages in activities related to the sale of insurance and, as a licensed insurance agency, receives commissions from insurance sales.

EMPLOYEES

As of December 31, 2011, the Corporation and its subsidiaries employed 153 full-time employees and 8 part-time employees. The Corporation and its subsidiaries believe that relations with its employees are excellent. The Corporation and its subsidiaries provide a variety of benefits to full-time employees, including health, disability, and life insurance benefits.

REGULATION AND SUPERVISION

The Corporation is registered as a bank holding company under the BHCA. As a bank holding company, the Corporation is required to file periodic reports with, and is subject to regulation, supervision and examination by, the FRB. Such examination by the FRB determines whether the Corporation is operating in accordance with various regulatory requirements and in a safe and sound manner.

The FRB has extensive enforcement authority over bank holding companies, including the ability to assess civil money penalties, issue cease and desist orders, and require that a bank holding company divest subsidiaries. In general, the FRB may initiate enforcement actions for activities that are deemed by the FRB to constitute a serious risk to the financial safety, soundness, or stability of a bank holding company, that are inconsistent with sound banking principles, or that are in violation of law. Further, bank holding companies and their subsidiaries are prohibited from engaging in certain tying arrangements in connection with any extension of credit or lease or sale of any property or the furnishing of services.

Subject to certain exceptions, the BHCA requires a bank holding company to obtain the prior approval of the FRB before (a) acquiring all or substantially all of the assets of any bank or bank holding company, (b) merging or consolidating with any other bank holding company, or (c) acquiring direct or indirect ownership or control of any voting shares of any other bank, if after such acquisition, the bank holding company would own or control more than 5% of the voting shares of such bank. In making such determinations, the FRB considers the effect of the acquisition on competition, the financial and managerial resources of the holding company, and the convenience and needs of the affected communities.

The BHCA also prohibits a bank holding company from acquiring more than 5% of the voting shares of any company that is not a bank and from engaging in any activities other than banking or managing or controlling banks or furnishing services to its subsidiaries. The primary exception to this prohibition allows a bank holding company to own shares in any company the activities of which the FRB has determined, by order or regulation, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.

The Gramm-Leach-Bliley Act of 1999 (the “GLB Act”) permits qualifying bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized under the prompt corrective action provisions of the Federal Deposit Insurance Corporation Act of 1991, is well managed, and has at least a satisfactory rating under the Community Reinvestment Act, by filing a declaration that the bank holding company wishes to become a financial holding company. The Corporation has not elected to become a financial holding company at this time, but intends to periodically re-evaluate the advantages and disadvantages of becoming a financial holding company.

As an Ohio-chartered bank, the Bank is further subject to regulation, supervision, and examination by the Division. Chapter 1109 of the Ohio Revised Code imposes limitations on the amount of certain types of loans and other investments that an Ohio-chartered bank is permitted to make. In addition, the aggregate amount that an Ohio-chartered bank can lend to any one borrower is limited by Ohio law to an amount equal to 15% of the institution’s unimpaired capital. An Ohio-chartered bank may lend to one borrower an additional amount not to exceed 10% of the institution’s unimpaired capital, if the additional amount is fully secured by certain forms of “readily marketable collateral.” Real estate is not considered “readily marketable collateral.”

The Division conducts periodic examinations of the Bank, often times on a joint basis with the FRB examiners. The Division may initiate certain supervisory measures or formal enforcement actions against an Ohio-chartered bank. Ultimately, if the grounds provided by law exist, the Division may place an Ohio-chartered bank in conservatorship or receivership. Any mergers, acquisitions, or changes of control involving an Ohio-chartered bank must be approved by the Division.

In addition to Ohio laws relating to banks, the Bank is subject to the Ohio general corporation law to the extent such law does not conflict with the laws specifically governing banks.

Croghan Insurance, the Bank’s wholly-owned insurance agency subsidiary, is also subject to the insurance laws and regulations of the State of Ohio and the Ohio Department of Insurance. The insurance laws and regulations require education and licensing of agencies and individual agents, require reports, and impose business conduct rules.

The Bank is also a member of the Federal Reserve System and is subject to regulation, supervision, and examination by the FRB. The FRB issues regulations governing the operations of state member banks, examines state member banks, and may initiate enforcement actions against state member banks and certain persons affiliated with them for violations of laws and regulations or for engaging in unsafe or unsound practices. If the grounds provided by law exist, the FRB may appoint a conservator or a receiver for a state member bank.

Sections 23A and 23B of the Federal Reserve Act and the FRB’s Regulation W restrict transactions by banks and their subsidiaries with their affiliates. Generally, Sections 23A and 23B and Regulation W: (a) limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of the bank’s capital stock and surplus (i.e., tangible capital); (b) limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with all affiliates to 20% of the bank’s capital stock and surplus; and (c) require that all such covered transactions be on terms substantially the same, or at least as favorable to the bank or subsidiary, as those provided to a non-affiliate. The term “covered transactions” includes the making of loans, the purchase of assets, the issuance of a guarantee, and other similar types of transactions.

A bank’s authority to extend credit to executive officers, directors, and greater than 10% shareholders, as well as entities controlled by such persons, is subject to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated by the FRB. Among other requirements, these loans must be made on terms substantially the same as those offered to unaffiliated persons, or be made as part of a benefit or compensation program and on terms widely available to employees, and must not involve a greater than normal risk of repayment. The amount of loans a bank may make to these persons is based, in part, on the bank’s capital position, and specified approval procedures must be followed in making loans which exceed specified amounts.

The Corporation and the Bank are subject to the Community Reinvestment Act of 1977, as amended (the “CRA”), which is designed to encourage financial institutions to give special attention to the needs of low and moderate income areas in meeting the credit needs of the communities in which they operate. If the CRA regulatory evaluation of a bank’s activities is less than satisfactory, regulatory approval of proposed acquisitions, branch openings, and other applications requiring FRB approval may be delayed until a satisfactory CRA evaluation is achieved. The Bank currently has a CRA regulatory evaluation of satisfactory.

The Bank is a member of the FHLB of Cincinnati and, therefore, must maintain an investment in the capital stock of the FHLB. Upon the origination or renewal of a loan or advance, each FHLB is required by law to obtain and maintain a security interest in certain types of collateral. Each FHLB is required to establish standards of community investment or service that its members must maintain for continued access to long-term advances from the FHLB. The standards take into account a member’s performance under the CRA and its record of lending to first-time home buyers.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) was enacted into law on July 21, 2010. The Dodd-Frank Act is significantly changing the regulation of financial institutions and the financial services industry. Because the Dodd-Frank Act requires various federal agencies to adopt a broad range of regulations with significant discretion, many of the details of the new law and the effects they will have on the Corporation will not be known for months and even years.

Among the provisions already implemented pursuant to the Dodd-Frank Act, the following provisions have or may have an effect on the business of the Corporation and/or the Bank:

•

a new Consumer Financial Protection Bureau has been formed with broad powers to adopt and enforce consumer protection regulations;

•

the federal law prohibiting the payment of interest on commercial demand deposit accounts was eliminated effective in July 2011;

•

the standard maximum amount of deposit insurance per customer was permanently increased to $250,000 and non-interest-bearing transaction accounts have unlimited insurance through December 31, 2012;

•

the assessment base for determining deposit insurance premiums has been expanded from domestic deposits to average assets minus average tangible equity; and

•

public companies in all industries are or will be required to provide shareholders the opportunity to cast a non-binding advisory vote on executive compensation.

Additional provisions not yet implemented that may have an effect on the Corporation and/or the Bank include the following:

•

new capital regulations for bank holding companies will be adopted, which may impose stricter requirements, and any new trust preferred securities issued after May 19, 2010 will no longer constitute Tier I capital; and

•

new corporate governance requirements applicable generally to all public companies in all industries will require new compensation practices and disclosure requirements, including requiring companies to “claw back” incentive compensation under certain circumstances, to consider the independence of compensation advisors, and to make additional disclosures in proxy statements with respect to compensation matters.

Many provisions of the Dodd-Frank Act have not yet been implemented and will require interpretation and rule making by federal regulators. As a result, the ultimate effect of the Dodd-Frank Act on the Corporation cannot yet be determined. However, it is likely that the implementation of these provisions will increase compliance costs and fees paid to regulators, along with possibly restricting the operations of the Corporation and the Bank.

REGULATORY CAPITAL REQUIREMENTS

The FRB has adopted risk-based capital guidelines for bank holding companies, such as the Corporation, and for state member banks, such as the Bank. Bank holding companies and state member banks must maintain adequate consolidated capital to meet the minimum ratio of total capital to risk-weighted assets (including certain off-balance sheet items such as standby letters of credit) (the “Total Risk-Based Ratio”) of 8%. At least half of the minimum-required Total Risk-Based Ratio (4%) must be composed of “Tier 1” capital, which consists of common stockholders’ equity, minority interests in certain equity accounts of consolidated subsidiaries, and a limited amount of perpetual preferred stock and qualified trust preferred securities, less goodwill and certain other intangibles. The remainder of total risk-based capital (commonly referred to as “Tier 2” risk-based capital) may consist of certain amounts of hybrid capital instruments, mandatory convertible debt, subordinated debt, preferred stock not qualifying as Tier 1 capital, loan and lease loss allowances, and net unrealized gains on certain available-for-sale securities, all subject to limitations established by the guidelines.

Under the guidelines, capital is compared to the relative risk of the balance sheet. To derive the risk included in the balance sheet, one of four risk weights (0%, 20%, 50%, and 100%) is applied to different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The FRB also has established minimum leverage ratio guidelines for bank holding companies and state member banks. The guidelines provide for a minimum ratio of Tier 1 capital to average total assets (excluding the loan and lease loss allowance, goodwill, and certain other intangibles) (the “Leverage Ratio”) of 3% for bank holding companies and state member banks that meet specified criteria, including having the highest regulatory rating. All other bank holding companies and state member banks must maintain a Leverage Ratio of 4% to 5%. The guidelines further provide that bank holding companies and state member banks making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels.

The following sets forth the Tier 1 Risk-Based Ratio, Total Risk-Based Ratio, and Leverage Ratio for the Corporation and the Bank at December 31, 2011:


	At December 31, 2011
	Corporation				Bank
	Amount		Percent		Amount		Percent
		(Dollars in thousands)

Tier 1 risk-based		$ 42,527		12.1%		$ 48,122		13.7%
Minimum capital requirement		14,097		4.0		14,083		4.0

Excess		$ 28,430		8.1%		$ 34,039		9.7%


Total risk-based		$ 46,942		13.3%		$ 52,537		14.9%
Minimum capital requirement		28,195		8.0		28,167		8.0

Excess		$ 18,747		5.3%		$ 24,370		6.9%


Leverage ratio		$ 42,527		8.4%		$ 48,122		9.6%
Minimum capital requirement		20,164		4.0		20,150		4.0

Excess		$ 22,363		4.4%		$ 27,972		5.6%

The FRB and other federal banking agencies have established a system of prompt corrective action to resolve certain problems of capital deficient and otherwise troubled banks under its regulation. This system is based on five capital level categories for insured depository institutions: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” At each successively lower defined capital category, an institution is subject to more restrictive and numerous mandatory or discretionary regulatory actions or limits, and the federal banking agencies have less flexibility in determining how to resolve the problems of the institution. An undercapitalized institution must submit a capital restoration plan to the FRB within 45 days after it becomes undercapitalized. Such an institution will be subject to increased monitoring and asset growth restrictions and will be required to obtain prior approval for acquisitions, branching, and engaging in new lines of business. Furthermore, critically undercapitalized institutions must be placed in conservatorship or receivership within 90 days of reaching that capitalization level, except under limited circumstances.

The Bank’s capital levels at December 31, 2011 met the standards for the highest level, a “well capitalized” institution.

DIVIDEND RESTRICTIONS

The ability of the Corporation to obtain funds for the payment of dividends on its common shares is largely dependent on the amount of dividends which may be declared and paid by the Bank to the Corporation. However, the FRB expects the Corporation to serve as a source of strength to the Bank, which may require the Corporation to retain capital for further investment in the Bank, rather than pay dividends to the Corporation’s shareholders. The ability of the Bank to pay dividends to the Corporation is subject to various legal limitations and to prudent and sound banking principles. Generally, the Bank may declare a dividend without the approval of the Division, unless the total dividends in a calendar year exceed the total of its net profits for the year plus its retained profits for the preceding two years, less required transfers to surplus. However, the Bank is prohibited from paying dividends out of its surplus if, after paying such dividends, it would fail to meet the required minimum Total Risk-Based Ratio requirements and minimum Leverage Ratio requirements under the FRB guidelines.

FDIC DEPOSIT INSURANCE

Insurance premiums for each insured institution, including the Bank, are determined based upon the institution’s capital level and supervisory rating provided to the FDIC by the institution’s primary federal regulatory agency (the FRB in the case of the Bank) and other information the FDIC deems relevant to the risk posed to the deposit insurance fund by the institution. The assessment rate determined by considering such information is then applied to the amount of the institution’s assets to determine the institution’s insurance premium. An increase in the assessment rate could have a material adverse effect on the earnings of the affected institutions, depending on the amount of the increase.

Insurance of deposits may be terminated by the FDIC upon the finding that the insured institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition enacted or imposed by the institution’s regulatory agency.

FRB RESERVE REQUIREMENTS

For 2012, FRB regulations require depository institutions to maintain reserves of 3% of net transaction accounts (primarily demand and NOW accounts) up to and including $71,000,000 (subject to an exemption for the first $11,500,000 of net transaction accounts), and of 10% of net transaction accounts in excess of $71,000,000.

EFFECTS OF GOVERNMENT MONETARY POLICY

The business and earnings of the Bank are affected by general and local economic conditions and by the policies of various governmental regulatory authorities. In particular, the FRB regulates money and credit conditions and interest rates in order to influence general economic conditions, primarily through open market acquisitions or dispositions of United States Government securities, varying the discount rate on member bank borrowings, and setting reserve requirements against member and nonmember bank deposits. FRB monetary policies have had a significant effect on the interest income and interest expense of commercial banks, including the Bank, and are expected to continue to do so in the future.

SEC REGULATION

The Corporation is subject to the jurisdiction of the SEC and certain state securities authorities relating to the offering and sale of the Corporation’s securities. The Corporation is subject to the registration, reporting, and other regulatory requirements of the Securities Act of 1933, as amended, the Exchange Act, and the rules adopted by the SEC under those Acts.

EFFECT OF ENVIRONMENTAL REGULATION

Compliance with federal, state, and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect upon the capital expenditures, earnings, or competitive position of the Corporation or the Bank. The Corporation believes the nature of the operations of the Bank has little, if any, environmental impact. The Corporation, therefore, does not anticipate any material capital expenditures for environmental control facilities for the foreseeable future. The Corporation believes that its primary exposure to environmental risk is through the lending activities of the Bank. In the event management believes there exists a potential environmental risk, the Bank attempts to mitigate the potential risk by requiring environmental site assessments at the time the loan is originated. In addition, the Bank typically requires an environmental assessment prior to any foreclosure of non-residential real estate collateral.

ITEM 1A. Risk Factors

Set forth below is a description of risk factors related to the Corporation’s business, provided to enable investors to assess, and be appropriately apprised of, certain risks and uncertainties the Corporation faces in conducting its business. An investor should carefully consider the risks described below and elsewhere in this report, which could materially and adversely affect the Corporation’s business, results of operations, or financial condition. The risks and uncertainties discussed below are also applicable to forward-looking statements contained in this report and in other reports filed by the Corporation with the Securities and Exchange Commission. Given these risks and uncertainties, investors are cautioned not to place undue reliance on forward-looking statements.

Changes in interest rates could have a material adverse effect on our financial condition and results of operations.

Our operating results are dependent to a significant degree on the difference between the interest rates earned on interest-earning assets such as loans and investment securities, and the interest rates paid on interest-bearing liabilities such as deposits and borrowings. These rates are highly sensitive to many factors beyond our control, including general economic conditions, and the policies of various governmental and regulatory authorities (in particular, the FRB). Changes in interest rates will influence the demand for loans, the prepayment of loans, the purchase of investments, the generation of deposits, and the rates received on loans and investment securities and paid on deposits and borrowings, and these changes could have a material adverse effect on our financial condition and results of operations. The impact of these changes may be magnified if we do not effectively manage the relative sensitivity of our assets and liabilities to changes in market interest rates. Additional information pertaining to the impact that changes in interest rates could have on our net income is contained in the section entitled “ASSET/LIABILITY MANAGEMENT” under Item 1 of this Annual Report on Form 10-K.

Changes in economic and political conditions could adversely affect our financial condition and results of operations.

Our success depends, to a significant extent, upon economic and political conditions, local and national, as well as governmental fiscal and monetary policies. Conditions such as inflation, recession, unemployment, change in interest rates, money supply, and other factors beyond our control may adversely affect our asset quality, deposit levels, and loan demand, and, therefore, our earnings. Because we have a significant amount of real estate loans, further decreases in real estate values could adversely affect the value of property used as collateral. Adverse changes in the economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings. In addition, a substantial portion of our loans are to individuals and businesses located in Northwest Ohio. Consequently, a significant continued decline in the economy of this market area could have a materially adverse effect on our financial condition and results of operations.

If our actual loan losses exceed our allowance for loan losses, our net income will decrease.

We maintain an allowance for loan losses based upon a number of relevant factors, including, but not limited to, trends in the level of nonperforming assets and classified loans, current economic conditions in the primary lending area, past loss experience, possible losses arising from specific problem loans, and changes in the composition of the loan portfolio. Regular provisions are made in amounts sufficient to maintain the balance in the allowance for loan losses at a level considered by management to be adequate for losses within the portfolio. While management believes that it uses the best information available to determine the allowance for loan losses, unforeseen market conditions could result in material adjustments, and net earnings could be significantly adversely affected, if circumstances differ substantially from the assumptions and estimates used by management to determine the allowance for loan losses.

FDIC insurance premiums may increase materially, which would negatively affect our net income.

The FDIC insures deposits at FDIC-insured financial institutions, including the Bank. The FDIC charges insured financial institutions premiums to maintain the Deposit Insurance Fund at a certain level. The costs of resolving bank failures have increased during the last few years and decreased the Deposit Insurance Fund. The FDIC collected a special assessment in 2009 to replenish the Deposit Insurance Fund and also required a prepayment of an estimated amount of future deposit insurance premiums. If the costs of future bank failures increase, deposit insurance premiums may also increase.

We may not be able to pay dividends in the future in accordance with past practice.

The ability of the Bank to pay dividends to the Corporation is subject to various legal limitations and to prudent and sound banking principles. Generally, subject to certain minimum capital requirements, the Bank may declare a dividend without the approval of the Division, unless the total dividends in a calendar year exceed the total of the Bank’s net profits for the year combined with the Bank’s retained profits of the two preceding years. In the event that the Bank was unable to pay dividends to us, we in turn would likely have to reduce or stop paying dividends on our common shares. Our failure to pay dividends on our common shares could, in turn, have a material adverse effect on the market price of our common shares.

Our credit standards and on-going process of credit assessment might not protect us from significant credit losses.

We take credit risk by virtue of making loans. Our exposure to credit risk is managed through the use of consistent and conservative underwriting standards. Our credit administration function employs risk management techniques to ensure that loans adhere to corporate policy and problem loans are promptly identified. While these procedures are designed to provide us with the information needed to implement policy adjustments where necessary, and to take proactive corrective actions, there can be no assurance that such measures will be effective in avoiding undue credit risk.

We depend upon the accuracy and completeness of information about customers.

In deciding whether to extend credit or enter into other transactions with customers, we may rely on information provided to us by customers, including financial statements and other financial information. We may also rely on representations of customers as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent accountants. For example, in deciding whether to extend credit to a business, we may assume that the customer’s financial statements conform with generally accepted accounting principles and present fairly, in all material respects, the financial condition, results of operations, and cash flows of the customer. We may also rely on the reports of accounting firms issuing an opinion or other assurances on those financial statements. Our financial condition and results of operation could be negatively impacted to the extent we rely on financial statements that do not comply with generally accepted accounting principles or that are materially misleading.

Government regulation can result in limitations on our operations.

The financial services industry is extensively regulated. We are subject to extensive state and federal regulation, supervision, and legislation that govern almost all aspects of our business. The Bank is subject to extensive regulation, supervision, and examination by the Division and the FRB. As a holding company, the Corporation is also subject to regulation and oversight by the FRB. Federal and state laws and regulations are designed primarily to protect the deposit insurance funds and consumers, and not to benefit our shareholders. Such laws and regulations can at times impose significant limitations on our operations. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets by the institution, and the adequacy of an institution’s allowance for loan losses. In light of current conditions in the global financial markets and the global economy, regulators have increased their focus on the regulation of the financial services industry. Most recently, the federal government has intervened on an unprecedented scale in responding to the stresses experienced in the global financial markets. Some of the laws enacted by Congress and regulations promulgated by the federal banking regulators subject us, and other financial institutions, to additional restrictions, oversight or costs that may have an impact on our business, results of operations, or the trading price of our common shares.

The Dodd-Frank Act may adversely impact our results of operations and financial condition.

On July 21, 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act represents a comprehensive overhaul of the financial services industry within the United States. There are a number of reform provisions that are likely to significantly impact the ways in which banks and bank holding companies, including the Corporation and the Bank, do business. Many provisions of the Dodd-Frank Act will not be implemented immediately and will require interpretation and rule making by federal regulators. The Corporation is closely monitoring all relevant sections of the Dodd-Frank Act to ensure continued compliance with laws and regulations. While the ultimate effect of the Dodd-Frank Act on the Corporation and the Bank cannot currently be determined, the law and its implemented rules and regulations are likely to result in increased compliance costs and fees paid to regulators, along with possible restrictions on the operations of the Corporation and the Bank, all of which may have a material adverse effect on the Corporation’s operating results and financial condition.

We may elect or be compelled to seek additional capital in the future, but that capital may not be available when it is needed.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. If we experience increased loan losses, additional capital may need to be infused. In addition, we may elect to raise additional capital to support our business or to finance acquisitions, or we may otherwise elect or be required to raise additional capital. Our ability to raise additional capital, if needed, will depend on our financial performance, conditions in the capital markets, economic conditions, and a number of other factors, many of which are outside our control. Accordingly, there can be no assurance that we can raise additional capital if needed or on terms acceptable to us. If we cannot raise additional capital when needed, it may have a material adverse effect on our financial condition and results of operations.

We operate in an extremely competitive market, and we will suffer if we are unable to compete effectively.

In our market area, we encounter significant competition from other commercial banks, as well as from savings and loan associations, credit unions, brokerage firms, mutual funds, and loan production offices and other financial units of non-local bank holding companies. The increasingly competitive environment is a result primarily of changes in regulation, changes in technology, product delivery systems, and the accelerating pace of consolidation among financial service providers. Many of our competitors have substantially greater resources and lending limits than we do and may offer services that we do not or cannot provide. Our ability to maintain our history of strong financial performance will depend in part on our continued ability to compete successfully in our market area and on our ability to expand our scope of available financial services as needed to meet the needs and demands of our customers.

There is a limited trading market for our common shares, and thus the ability to sell or purchase our common shares may be limited.

The ability to sell our common shares or purchase additional common shares largely depends upon the existence of an active market for our common shares. Although our common shares are quoted on the OTC Bulletin Board, they are not listed on any securities exchange and the volume of trading of our common shares has been limited historically. As a result, it may be difficult to sell or purchase our common shares at the volume, time, and price that is desired. In addition, a fair valuation of the purchase or sales price of our common shares also depends upon an active trading market, and thus the price received for a thinly traded stock, such as our common shares, may not reflect its true value.

Changes in accounting standards could impact our results of operations.

The accounting standard setters, including the Financial Accounting Standards Board, the SEC, and other regulatory bodies, periodically change the financial accounting and reporting standards that govern the preparation of our consolidated financial statements. These changes can be difficult to predict and can materially affect how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, which would result in the restatement of our financial statements for prior periods.

Our continued success depends upon our ability to attract and retain key personnel.

Our success depends, in large part, upon the continued service of our senior management team and our ability to attract and retain qualified personnel. There is significant competition for qualified personnel in the financial services industry. We cannot assure you that we will be able to retain our existing key personnel or attract new or additional qualified personnel if and when needed. If we lose the services of our key personnel, or are unable to attract new or additional qualified personnel, our financial condition and results of operations could be adversely affected.

We may be a defendant from time to time in a variety of litigation and other actions, which could have a material adverse effect on our financial condition and results of operations.

The Corporation and the Bank may be involved from time to time in a variety of litigation arising out of our business. Our insurance may not cover all claims that may be asserted against us, and any claims asserted against us may harm our reputation regardless of the merit or eventual outcome of such claims. If the ultimate judgments or settlements in any litigation exceed our insurance coverage, they could have a material adverse effect on our financial condition and results of operation.

Unauthorized disclosure of sensitive or confidential client or customer information, whether through a breach of our computer systems or otherwise, could severely harm our business.

As part of our financial institution business, we collect, process, and retain sensitive and confidential client and customer information. Despite the security measures we have in place, our facilities and systems, and those of our third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events. If information security is breached, information can be lost or misappropriated, resulting in financial loss or costs to us. Any security breach involving confidential client or customer information, whether by us or by our vendors, could severely damage our reputation, expose us to the risks of litigation and liability, or disrupt operations, and have a material adverse effect on our business.

ITEM 1B. Unresolved Staff Comments

Not applicable.

ITEM 2. Properties

The Corporation neither owns nor leases any properties. The principal offices of the Corporation, the Bank, and Croghan Insurance are located at 323 Croghan Street, Fremont, Ohio. In addition, the Bank operates 13 banking centers, including one in Bellevue, one in Clyde, one in Custar, four in Fremont, one in Green Springs, one in Monroeville, one in Norwalk, one in Port Clinton, and two in Tiffin Ohio. The Bank’s operations center is also located in Fremont, Ohio. With the exception of the Port Clinton banking center and an ATM site north of Fremont, which are leased, all premises are owned by the Bank.

ITEM 3. Legal Proceedings

Management is aware of no pending legal proceedings to which the Corporation, the Bank, or Croghan Insurance is a party or of which any of their property is subject, other than ordinary routine litigation to which the Bank is a party incidental to its banking business. The Corporation considers none of those proceedings to be material. Similarly, management is aware of no material proceedings involving the Corporation, the Bank, or Croghan Insurance that are contemplated by any governmental authority.

ITEM 4. Mine Safety Disclosures

Not applicable

PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and

Issuer Purchases of Equity Securities

The Corporation’s common shares are quoted on the OTC Bulletin Board under the symbol “CHBH”. The other information required by Items 201(a), 201(b) and 201(c) of SEC Regulation S-K is contained in (a) Financial Statement Note 18, captioned “REGULATORY MATTERS,” on pages 52 through 53 of the 2011 Annual Report to Shareholders, (b) the section captioned “DIVIDEND RESTRICTIONS”, in Item 1 of Part 1 of this Annual Report on Form 10-K, and (c) the section captioned “MARKET PRICE AND DIVIDENDS ON COMMON SHARES” on page 4 of the 2011 Annual Report to Shareholders, and each of (a), (b) and (c) is incorporated herein by reference.

ITEM 6. Selected Financial Data

The information required by this Item 6 is contained under the caption “FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA” on page 5 of the 2011 Annual Report to Shareholders and is incorporated herein by reference.

ITEM 7. Management’s Discussion and Analysis of Financial Condition and

Results of Operations

The information required by this Item 7 is contained under the caption “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” on pages 6 through 20 of the 2011 Annual Report to Shareholders and is incorporated herein by reference.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

The information required by this Item 7A is contained in the discussion of interest rate sensitivity included in the section captioned “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - INTEREST RATE RISK” on beginning on page 17 of the 2011 Annual Report to Shareholders and is incorporated herein by reference, and in the section captioned “ASSET/LIABILITY MANAGEMENT” in Item 1 of Part I of this Form 10-K. In addition, discussions of the Corporation’s contractual obligations, contingent liabilities and commitments, and off-balance sheet arrangements is included in the section captioned “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, AND CONTINGENT LIABILITIES AND COMMITMENTS” on page 18 and 19 of the 2011 Annual Report to Shareholders, and in Financial Statement Note 17, captioned “FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK” on page 51 of the 2011 Annual Report to Shareholders, and both are incorporated herein by reference.

ITEM 8. Financial Statements and Supplementary Data

The following consolidated financial statements (and reports thereon) are set forth on pages 22 through 60 of the 2011 Annual Report to Shareholders and are incorporated herein by reference:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets – December 31, 2011 and 2010

Consolidated Statements of Operations – Years ended December 31, 2011, 2010, and 2009

Consolidated Statements of Stockholders’ Equity – Years ended December 31, 2011, 2010, and 2009

Consolidated Statements of Cash Flows – Years ended December 31, 2011, 2010, and 2009

Notes to Consolidated Financial Statements

ITEM 9. Changes in and Disagreements with Accountants on

Accounting and Financial Disclosure

Not applicable

ITEM 9A. 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 Annual Report on Form 10-K. 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K.

Management’s Annual Report on Internal Control Over Financial Reporting. The “MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING” included on page 21 of the 2011 Annual Report to Shareholders is incorporated herein by reference.

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 December 31, 2011, that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

ITEM 9B. Other Information

None

PART III

ITEM 10. Directors, Executive Officers, and Corporate Governance

Directors and Executive Officers

The information required by Item 401 of SEC Regulation S-K concerning the directors of the Corporation and the nominees for election as directors of the Corporation at the Annual Meeting of Shareholders to be held on May 8, 2012 (the “2012 Annual Meeting”) is incorporated herein by reference from the disclosure included under the caption “PROPOSAL 1 - ELECTION OF DIRECTORS” in the 2012 Proxy Statement. The information required by Item 401 of SEC Regulation S-K concerning the executive officers of the Corporation is incorporated herein by reference from the disclosure included under the caption “EXECUTIVE OFFICERS” in the 2012 Proxy Statement.

Compliance With Section 16(a) of the Exchange Act

The information required by Item 405 of SEC Regulation S-K is incorporated herein by reference from the disclosure included under the caption “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” in the 2012 Proxy Statement.

Nominating Procedures for Directors

The information required by Item 407(c)(3) of SEC Regulation S-K is incorporated herein by reference from the disclosure included under the caption “CORPORATE GOVERNANCE – Director Nominations” in the 2012 Proxy Statement.

Audit Committee

The information required by Items 407(d)(4) and 407(d)(5) of SEC Regulation S-K is incorporated herein by reference from the disclosure included under the caption “MEETINGS AND COMMITTEES OF THE BOARD – Audit Committee” in the 2012 Proxy Statement.

Code of Ethics

The Corporation has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) that is applicable to all employees of the Corporation and the Bank, including the Corporation’s principal executive officer and principal financial officer. The Code of Ethics is included in Exhibit 14 to this Annual Report on Form 10-K.

ITEM 11. Executive Compensation

The information required by this Item 11 is incorporated herein by reference from the disclosure included under the captions “PROPOSAL 1 – ELECTION OF DIRECTORS – Compensation of Directors” and “COMPENSATION OF EXECUTIVE OFFICERS” in the 2012 Proxy Statement.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

and Related Stockholder Matters

Beneficial Ownership Information

The information required by Item 403 of SEC Regulation S-K is incorporated herein by reference from the disclosure included under the caption “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” in the 2012 Proxy Statement.

Equity Plan Information

The Croghan Bancshares, Inc. Amended and Restated 2002 Stock Option and Incentive Plan (the “Plan”) was previously approved by the Corporation’s shareholders at the 2002 Annual Meeting. The Plan permitted the Corporation to award stock options and/or stock appreciation rights to directors and managerial and other key employees of the Corporation. The Plan expired in March 2012 and it is proposed to be replaced by a new 2012 Equity Incentive Plan, which will be considered and voted upon at the 2012 Annual Meeting. At the time of its expiration, a total of 162,082 common shares remained available for issuance under the Plan. A total of 28,869 stock options were granted under the Plan prior to its expiration.

The following table provides certain information regarding the Corporation’s equity compensation plans as of December 31, 2011.


	(a)	(b)	(c)
Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants, and rights	Weighted-average exercise price of outstanding options, warrants, and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	28,869	24.99	162,082 (2)

Equity compensation plans not approved by security holders (1)	-	-	-


Total	28,869	24.99	162,082 (2)

(1)	The Corporation has no equity compensation plans that have not been approved by the Corporation’s shareholders.

(2)	The Plan expired in March 2012 and no further awards may be granted under the Plan.

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

Related Party Transactions

The information required by Item 404 of SEC Regulation S-K is incorporated herein by reference from the disclosure included under the caption “CORPORATE GOVERNANCE – Related Party Transactions” in the 2012 Proxy Statement.

Director Independence

The information required by Item 407(a) of SEC Regulation S-K is incorporated herein by reference from the disclosure included under the caption “CORPORATE GOVERNANCE – Director Independence” in the 2012 Proxy Statement.

ITEM 14. Principal Accountant Fees and Services

The information required by this Item 14 is incorporated herein by reference from the disclosure included under the caption “AUDIT COMMITTEE DISCLOSURE” in the 2012 Proxy Statement

PART IV

ITEM 15. Exhibits and Financial Statement Schedules

(a)(1) Financial Statements

The following consolidated financial statements (and reports thereon) are set forth on pages 22 through 60 of the Corporation’s 2011 Annual Report to Shareholders (included as Exhibit 13 to this Annual Report on Form 10-K) and are incorporated herein by reference:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets – December 31, 2011 and 2010

Consolidated Statements of Operations – Years ended December 31, 2011, 2010, and 2009

Consolidated Statements of Stockholders’ Equity – Years ended December 31, 2011, 2010, and 2009

Consolidated Statements of Cash Flows – Years ended December 31, 2011, 2010, and 2009

Notes to Consolidated Financial Statements

(a)(2) Financial Statement Schedules

Financial statement schedules have been omitted either because they are not applicable or because the required information is provided in the consolidated financial statements, or in the notes thereto.

(a)(3) Exhibits

The following exhibits are filed with or incorporated by reference in this Annual Report on Form 10-K:


Exhibit Number	Description	Location

3.1(a)	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)

3.1(b)	Certificate of Amendment to Articles of Incorporation of Croghan Bancshares, Inc. as filed with the Ohio Secretary of State on May 12, 2006	Incorporated herein by reference to Exhibit 3.1(b) to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (File No. 0-20159)

3.2	Amended and Restated 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)



4.1	Agreement to furnish instruments and agreements defining rights of holders of long-term debt	Included in this filing

*10.1	Croghan Bancshares, Inc. Amended and Restated 2002 Stock Option and Incentive Plan	Incorporated herein by reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (File No. 0-20159)

*10.2	Executive Supplemental Death Benefit Agreement	Incorporated herein by reference to Exhibit 10(v) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003 (File No. 0-20159)

*10.3(a)	Retirement Agreement and General Release, dated as of December 14, 2009, between Croghan Bancshares, Inc. and Steven C. Futrell	Incorporated by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (File No. 0-20159)

*10.3(b)	Amendment to Retirement Agreement and General Release, dated as of August 31, 2010, between Croghan Bancshares, Inc. and Steven C. Futrell	Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed September 7, 2010 (File No. 0-20159)

*10.4	Employment Agreement, dated as of November 9, 2010, between The Croghan Colonial Bank and Rick M. Robertson	Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed November 16, 2010 (File No. 0-20159)

*10.5	Amendment to Employment Agreement, dated as of July 21, 2011, between The Croghan Colonial Bank and Rick M. Robertson	Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011 (File No. 0-20159)



*10.6	Form of Incentive Stock Option Award Agreement to be used in connection with grants under the Croghan Bancshares, Inc. Amended and Restated 2002 Stock Option and Incentive Plan	Incorporated by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (File No. 0-20159)

13	2011 Annual Report to Shareholders	Included with this filing (not deemed filed except for portions thereof which are specifically incorporated by reference into this Annual Report on Form 10-K)

14	Croghan Bancshares, Inc. Code of Business Conduct and Ethics	Included with this filing

21	Subsidiaries of the Registrant	Included with this filing

23	Consent of Independent Registered Public Accounting Firm	Included with this filing

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 2011 Annual Report and incorporated therefrom in Croghan Bancshares, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of December 31, 2011 and 2010; (ii) the Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009; (iii) the Consolidated Statements Stockholders’ Equity for the years ended December 31, 2011, 2010 and 2009; (iv) the Consolidated Statements of	Filed herewith



		Cash Flows for the years ended December 31, 2011, 2010 and 2009; and (v) the Notes to Consolidated Financial Statements*

		*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.

* Denotes management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the date indicated:


Signature		Title(s)

/s/ Rick M. Robertson		President and Chief Executive Officer (Principal Executive Officer) and Director
Rick M. Robertson

/s/ Kendall W. Rieman		Treasurer (Principal Financial Officer and Principal Accounting Officer)
Kendall W. Rieman

/s/ Michael D. Allen Sr.		Director
Michael D. Allen Sr.

/s/ James E. Bowlus		Director
James E. Bowlus

/s/ James R. Faist		Director
James R. Faist

/s/ Claire F. Johansen		Director
Claire F. Johansen

/s/ Stephen A. Kemper		Director
Stephen A. Kemper

/s/ Daniel W. Lease		Director
Daniel W. Lease

/s/ Thomas W. McLaughlin		Director
Thomas W. McLaughlin

/s/ Allan E. Mehlow		Director
Allan E. Mehlow

/s/ Gary L. Zimmerman		Director
Gary L. Zimmerman

Date: March 13, 2012

EXHIBIT INDEX


Exhibit Number	Description	Location

3.1(a)	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)

3.1(b)	Certificate of Amendment to Articles of Incorporation of Croghan Bancshares, Inc. as filed with the Ohio Secretary of State on May 12, 2006	Incorporated herein by reference to Exhibit 3.1(b) to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (File No. 0-20159)

3.2	Amended and Restated 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)

4.1	Agreement to furnish instruments and agreements defining rights of holders of long-term debt	Included with this filing

*10.1	Croghan Bancshares, Inc. Amended and Restated 2002 Stock Option and Incentive Plan	Incorporated herein by reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (File No. 0-20159)

*10.2	Executive Supplemental Death Benefit Agreement	Incorporated herein by reference to Exhibit 10(v) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003 (File No. 0-20159)

*10.3(a)	Retirement Agreement and General Release, dated as of December 14, 2009, between Croghan Bancshares, Inc. and Steven C. Futrell	Incorporated by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (File No. 0-20159)


Exhibit Number	Description	Location

*10.3(b)	Amendment to Retirement Agreement and General Release, dated as of August 31, 2010, between Croghan Bancshares, Inc. and Steven C. Futrell	Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed September 7, 2010 (File No. 0-20159)

*10.4	Employment Agreement, dated as of November 9, 2010, between The Croghan Colonial Bank and Rick M. Robertson	Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed November 16, 2010 (File No. 0-20159)

*10.5	Amendment to Employment Agreement, dated as of July 21, 2011, between The Croghan Colonial Bank and Rick M. Robertson	Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011 (File No. 0-20159)

*10.6	Form of Incentive Stock Option Award Agreement to be used in connection with grants under the Croghan Bancshares, Inc. Amended and Restated 2002 Stock Option and Incentive Plan	Incorporated by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (File No. 0-20159)

13	2011 Annual Report to Shareholders	Included with this filing (not deemed filed except for portions thereof which are specifically incorporated by reference into this Annual Report on Form 10-K)

14	Croghan Bancshares, Inc. Code of Business Conduct and Ethics	Included with this filing

21	Subsidiaries of the Registrant	Included with this filing

23	Consent of Independent Registered Public Accounting Firm	Included with this filing

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


Exhibit Number	Description	Location

32	Section 1350 Certification – Principal Executive Officer and Principal Financial Officer	Included with this filing

101	The following materials from Croghan Bancshares, Inc.’s 2011 Annual Report and incorporated therefrom in Croghan Bancshares, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of December 31, 2011 and 2010; (ii) the Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009; (iii) the Consolidated Statements Stockholders’ Equity for the years ended December 31, 2011, 2010 and 2009; (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009; and (v) the Notes to Consolidated Financial Statements* *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