Table of Contents

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended September 30, ~~2012~~2013

0-20159

(Commission File Number)

CROGHAN BANCSHARES, INC.

(Exact name of registrant as specified in its charter)


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

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

(419) 332-7301

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x¨ No ¨x

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

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

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

The Registrant had 1,~~673~~678,~~380~~630 common shares, par value $12.50 per share, outstanding as of ~~October 26~~November 14, ~~2012~~2013.

This document contains 4147 pages. The Exhibit Index is on page 3844 immediately preceding the filed exhibits.

CROGHAN BANCSHARES, INC.

Index

PART I. FINANCIAL INFORMATION		Page(s)
Item 1.	Financial Statements	3 - 2826
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2827 - 33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	3435
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3541
Item 3.	Defaults Upon Senior Securities	3541
Item 4.	Mine Safety Disclosures	3541
Item 5.	Other Information	3541
Item 6.	Exhibits	3642
Signatures		3743

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CROGHAN BANCSHARES, INC.

Consolidated Balance Sheets (Unaudited)

ASSETS	September ~~302012~~302013			December ~~312011~~312012
CASH AND CASH EQUIVALENTS	(Dollars in thousands, except par value)
Cash and due from banks	$	915,~~016~~265		$	2119,~~787~~388
Interest-bearing deposits in other banks		~~232~~4,721			3811,~~306~~828
Total cash and cash equivalents		919,~~248~~986			6031,~~093~~216
SECURITIES
Available-for-sale, at fair value		~~249~~230,~~241~~824			~~225~~238,~~282~~221
Restricted stock		4,~~174~~177			34,~~844~~174
Total securities		~~253~~235,~~415~~001			~~229~~242,~~126~~395
LOANS		~~316~~326,~~521~~862			~~301~~321,~~965~~277
Less: Allowance for loan losses		4,~~343~~121			4,~~778~~325
Net loans		~~312~~322,~~178~~741			~~297~~316,~~187~~952
Premises and equipment, net		7,~~655~~218			87,~~215~~514
Cash surrender value of life insurance		11,~~029~~174			1011,~~766~~087
Goodwill		14,629			14,~~675~~629
Core deposit intangible asset, net		~~1,027~~723			~~1,327~~927
Accrued interest receivable		2,~~986~~672			2,~~485~~591
Other real estate owned		~~1,362~~919			1,~~877~~295
Other assets		21,~~670~~987			32,~~900~~346
TOTAL ASSETS	$	~~616~~617,~~199~~050		$	~~629~~630,~~651~~952
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing	$	89100,~~223~~327		$	7789,~~056~~530
Savings, NOW, and Money Market deposits		~~245~~273,~~712~~043			~~231~~261,~~182~~860
Time		~~172~~147,~~142~~717			~~193~~160,~~599~~550
Total deposits		~~507~~521,~~077~~087			~~501~~511,~~837~~940
Federal funds purchased and securities sold under repurchase agreements		1913,~~126~~743			4032,~~861~~344
Borrowed funds		1714,~~973~~357			1815,~~500~~199
Dividends payable		~~535~~537			~~535~~0
Other liabilities		42,~~722~~155			54,~~035~~305
Total liabilities		~~549~~551,~~433~~879			~~566~~563,~~768~~788
STOCKHOLDERS’ EQUITY
Common stock, $12.50 par value. Authorized 6,000,000 shares; issued 1,914,109 shares		23,926			23,926
Surplus		~~248~~185			~~179~~118
Retained earnings		4447,~~645~~412			4245,~~662~~361
Accumulated other comprehensive income		61,~~172~~732			45,~~341~~843
Treasury stock, 240,729 shares in 2012 and 2011, at cost		(8,225	)		(8,225	)
Treasury stock, 235,479 shares in 2013 and 2012, at cost		(8,084	)		(8,084	)
Total stockholders’ equity		6665,~~766~~171			6267,~~883~~164
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	~~616~~617,~~199~~050		$	~~629~~630,~~651~~952

See notes to consolidated financial statements.

CROGHAN BANCSHARES, INC.

Consolidated Statements of Operations (Unaudited)

	Three months endedSeptember 30
	Three months ended September 30
	2012		2011
	2013		2012
	(Dollars in thousands, except per share data)
INTEREST INCOME
Loans, including fees	$	4,~~280~~092	$	4,~~313~~280
Securities:
Obligations of U.S. Government agencies and corporations		~~198~~268		~~649~~198
Obligations of states and political subdivisions		~~757~~773		~~571~~757
Other		5149		4551
Interest on deposits in other banks		4		54
Total interest income		5,~~290~~186		5,~~583~~290
INTEREST EXPENSE
Deposits		~~532~~369		~~583~~532
Other borrowings		~~190~~144		~~176~~190
Total interest expense		~~722~~513		~~759~~722
Net interest income		4,~~568~~673		4,~~824~~568
PROVISION FOR LOAN LOSSES		~~150~~50		~~(100~~150	)
Net interest income, after provision for loan losses		4,~~418~~623		4,~~924~~418
NON-INTEREST INCOME
Gain on sale of securities		0		149
Gain on sale of loans		66		62
Gain on sale of loans		62		25
Trust income		300		300
Loss on write down of securities		0		(283	)
Service charges on deposit accounts		480		448
Trust income		300		260
Other		269		272
Service charges on deposit accounts		448		386
Total non-interest income		1,115		1,082
Other		272		251
Total non-interest income		1,082		788
NON-INTEREST EXPENSES
Salaries, wages, and employee benefits		2,~~129~~343		2,~~058~~129
Occupancy of premises		~~235~~209		~~216~~235
Amortization of core deposit intangible asset		~~100~~68		14100
Other operating		1,~~466~~925		1,~~408~~466
Total non-interest expenses		34,~~930~~545		3,~~696~~930
Income before federal income taxes		1,~~570~~193		21,~~016~~570
FEDERAL INCOME TAXES		~~286~~139		~~475~~286
NET INCOME	$	1,~~284~~054	$	1,~~541~~284
Net income per share, based on 1,673,380 shares in 2012 and 2011	$	0.77	$	0.92
Net income per share
Basic based on 1,678,630 shares in 2013 and 1,673,380 shares in 2012	$	0.63	$	0.77
Diluted based on 1,686,446 shares in 2013 and 1,680,716 shares in 2012	$	0.62	$	0.76
Dividends declared per share	$	0.32	$	0.32

See notes to consolidated financial statements.

CROGHAN BANCSHARES, INC.

Consolidated Statements of Operations (Unaudited)

	Nine months endedSeptember 30
	Nine months ended September 30
	2012		2011
	2013		2012
	(Dollars in thousands,except per share data)
	(Dollars in thousands, except per share data)
INTEREST INCOME
Loans, including fees	$	12,~~579~~194	$	12,~~564~~579
Securities:
Obligations of U.S. Government agencies and corporations		~~937~~833		~~2,002~~937
Obligations of states and political subdivisions		2,~~233~~367		12,~~641~~233
Other		~~145~~151		~~144~~145
Interest on deposits in other banks		1722		1117
Total interest income		15,~~911~~567		1615,~~362~~911
INTEREST EXPENSE
Deposits		1,~~853~~194		1,~~991~~853
Other borrowings		~~581~~440		~~587~~581
Total interest expense		21,~~434~~634		2,~~578~~434
Net interest income		13,~~477~~933		13,~~784~~477
PROVISION FOR LOAN LOSSES		~~325~~275		~~300~~325
Net interest income, after provision for loan losses		13,~~152~~658		13,~~484~~152
NON-INTEREST INCOME
Gain on sale of securities		~~311~~308		~~149~~311
Gain on sale of loans		98254		9498
Loss on write down of securities		0		(394	)
Trust income		930		815
Trust income		815		841
Service charges on deposit accounts		1,352		1,310
Service charges on deposit accounts		1,310		1,052
Other		766		784
Other		784		710
Total non-interest income		3,610		3,318
Total non-interest income		3,318		2,452
NON-INTEREST EXPENSES
Salaries, wages, and employee benefits		67,~~413~~061		6,~~159~~413
Occupancy of premises		~~724~~674		~~658~~724
Amortization of core deposit intangible asset		~~300~~204		43300
Other operating		4,~~702~~996		4,~~159~~702
Total non-interest expenses		12,~~139~~935		1112,~~019~~139
Income before federal income taxes		4,~~331~~333		4,~~917~~331
FEDERAL INCOME TAXES		~~742~~671		~~1,069~~742
NET INCOME	$	3,~~589~~662	$	3,~~848~~589
Net income per share, based on 1,673,380 shares in 2012 and 1,673,907 shares in 2011	$	2.15	$	2.30
Net income per share
Basic based on 1,678,630 shares in 2013 and 1,673,380 shares in 2012	$	2.18	$	2.15
Diluted based on 1,685,983 shares in 2013 and 1,679,934 shares in 2012	$	2.17	$	2.14
Dividends declared per share	$	0.96	$	0.96

See notes to consolidated financial statements.

CROGHAN BANCSHARES, INC.

Consolidated Statements of Comprehensive Income (Unaudited)

	Three months endedSeptember 30
	2012			2011
	2013			2012
	(Dollars in thousands)
NET INCOME	$	1,~~284~~054		$	1,~~541~~284
Other comprehensive income
Unrealized gains (losses) on securities:
Unrealized gains on available-for-sale securities		1,056			1,737
Unrealized holding gains during period		1,737			1,782
Reclassification adjustments for securities gains included in net income		0			0
Reclassification adjustments for (gains) losses included in net income		0			134
Net unrealized gains		1,056			1,737
Other comprehensive income, before income taxes		1,737			1,916
Income tax effect		359			590
Less: Income tax expense related to other comprehensive income		590			652
Other comprehensive income		697			1,147
Other comprehensive income		1,147			1,264
TOTAL COMPREHENSIVE INCOME	$	1,751		$	2,431
Total comprehensive income	$	2,431		$	2,805
	Nine months ended September 30
	Nine months endedSeptember 30
	2013			2012
	2012			2011
	(Dollars in thousands)
NET INCOME	$	3,~~589~~662		$	3,~~848~~589
Other comprehensive income
Unrealized gains (losses) on securities:
Unrealized gains (losses) on available-for-sale securities		(5,921	)		3,085
Unrealized holding gains during period		3,085			4,478
Reclassification adjustments for securities gains included in net income		(308	)		(311	)
Reclassification adjustments for (gains) losses included in net income		(311	)		245
Net unrealized gains (losses)		(6,229	)		2,774
Other comprehensive income, before income taxes		2,774			4,723
Income tax effect		(2,118	)		943
Less: Income tax expense related to other comprehensive income		943			1,606
Other comprehensive income (loss)		(4,111	)		1,831
Other comprehensive income		1,831			3,117
TOTAL COMPREHENSIVE INCOME (LOSS)	$	(449	)	$	5,420
Total comprehensive income	$	5,420		$	6,965

See notes to consolidated financial statements.

CROGHAN BANCSHARES, INC.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

	Three months endedSeptember 30
	Three months ended September 30
	2012			2011
	2013			2012
	(Dollars in thousands,except per share data)
	(Dollars in thousands, except per share data)
BALANCE AT BEGINNING OF PERIOD	$	6463,~~859~~931		$	5964,~~527~~859
Comprehensive Income:
Net income		1,054			1,284
Net income		1,284			1,541
Other comprehensive income (loss)		697			1,147
Change in net unrealized gain on securities available-for-sale, net of reclassification adjustments and related income taxes		1,147			1,264
Stock based compensation		26			11
Total comprehensive income		2,431			2,805
Cash dividends declared, $.32 per share in 2013 and 2012		(537	)		(535	)
Stock based compensation		11			0
BALANCE AT END OF PERIOD	$	65,171		$	66,766
Cash dividends declared, $.32 per share in 2012 and 2011		(535	)		(535	)
	Nine months ended September 30
BALANCE AT END OF PERIOD	$	66,766		$	61,797
	2013			2012
	Nine months endedSeptember 30
	(Dollars in thousands, except per share data)
	2012			2011
BALANCE AT BEGINNING OF PERIOD	$	67,164		$	62,883
	(Dollars in thousands,except per share data)
Net income		3,662			3,589
BALANCE AT BEGINNING OF PERIOD	$	62,883		$	56,513
Other comprehensive income (loss)		(4,111	)		1,831
Comprehensive Income:
Stock based compensation		67			68
Net income		3,589			3,848
Cash dividends declared, $.96 per share in 2013 and 2012		(1,611	)		(1,605	)
Change in net unrealized gain on securities available-for-sale, net of reclassification adjustments and related income taxes		1,831			3,117
BALANCE AT END OF PERIOD	$	65,171		$	66,766
Total comprehensive income		5,420			6,965
Purchase of 3,000 treasury shares in 2011		0			(76	)
Stock based compensation		68			0
Cash dividends declared, $.96 per share in 2012 and 2011		(1,605	)		(1,605	)
BALANCE AT END OF PERIOD	$	66,766		$	61,797

See notes to consolidated financial statements.

CROGHAN BANCSHARES, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

	Nine months endedSeptember 30
	2012			2011
	2013			2012
	(Dollars in thousands)
NET CASH FLOW FROM OPERATING ACTIVITIES	$	108,~~896~~489		$	610,~~973~~726
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of available-for-sale securities		6164,~~263~~861			2661,~~312~~263
Purchases of available-for-sale securities		(9474,~~762~~447	)		(5894,~~991~~762	)
Purchases of restricted stock		(330	)		0
Purchase of restricted stock		(3	)		(330	)
Proceeds from sale of available-for-sale securities		76,~~858~~813			47,~~005~~858
Final settlement payment for branch acquisition		(1,026	)		0
Proceeds from disposal of premises and equipment		79			170
Net (increase) decrease in loans		(15,528	)		14,486
Proceeds from sale of other real estate owned		942			0
Additions to premises and equipment		(177	)		(386	)
Final settlement payment for branch acquisition		0			(1,026	)
Net cash (used in) investing activities		(42,702	)		(14,574	)
Net increase in loans		(6,671	)		(15,528	)
Additions to premises and equipment		(336	)		(177	)
Net cash used in investing activities		(8,762	)		(42,532	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits		49,~~828~~560			164,~~761~~828
Net change in federal funds purchased and securities sold under repurchase agreements		(2118,~~735~~601	)		1(21,~~291~~735	)
Net change in borrowed funds		(~~527~~842	)		(~~13,000~~527	)
Cash dividends paid		(1,~~605~~074	)		(1,~~606~~605	)
Purchase of treasury stock		0			(76	)
Net cash used in financing activities		(10,957	)		(19,039	)
Net cash provided by (used in) financing activities		(19,039	)		3,370
NET CHANGE IN CASH AND CASH EQUIVALENTS		(11,230	)		(50,845	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(50,845	)		(4,231	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		31,216			60,093
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		60,093			21,856
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	19,986		$	9,248
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	9,248		$	17,625
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Cash paid during the period for:
Interest	$	21,~~415~~668		$	2,~~808~~415
Federal income taxes	$	~~250~~580		$	~~490~~250
NON-CASH OPERATING ACTIVITY:
Change in deferred income taxes on net unrealized gain on available-for-sale securities	$	~~(943~~2,118	)	$	(~~1,606~~943	)
NON-CASH INVESTING ACTIVITY:
Change in net unrealized gain on available-for-sale securities	$	2(6,~~774~~229	)	$	42,~~723~~774
NON-CASH OPERATING AND INVESTING ACTIVITY:
Transfer of loans to other real estate owned	$	~~1,023~~636		$	1,~~393~~023

See notes to consolidated financial statements.

CROGHAN BANCSHARES, INC.

Notes to Consolidated Financial Statements

September 30, ~~2012~~2013

(Unaudited)

NOTE 1 - ~~Consolidated~~CONSOLIDATED ~~Financial~~FINANCIAL ~~Statements~~STATEMENTS

The consolidated financial statements of Croghan Bancshares, Inc. (“Croghan” or the “Corporation”) and its wholly-owned subsidiary, The Croghan Colonial Bank (the “Bank”), have been prepared without audit. In the opinion of management, all adjustments (including normal recurring adjustments) necessary to present fairly the Corporation’s consolidated financial position, results of operations, and changes in cash flows have been made.

~~Certain~~Since the unaudited consolidated financial statements have been prepared in accordance with the the instructions to Form 10-Q, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (GAAP) have been omitted. The accompanying unaudited consolidated financial statements should be read in conjunction with the Corporation’s ~~Annual~~consolidated ~~Report~~financial tostatements ~~Shareholders~~and related footnote disclosures for the fiscal year ended December 31, ~~2011~~2012, (which are contained in the ~~“2011 Annual~~Registration ~~Report”~~on Form S-4 (File No. 333-190362) filed by the Corporation with the SEC on August 2, ~~contains~~2013, ~~consolidated~~as ~~financial~~amended ~~statements~~by ~~and~~the ~~related~~Amendment ~~footnote~~No. 1 ~~disclosures~~to ~~which~~Registration ~~should~~Statement beon ~~read~~Form inS-4 ~~conjunction~~filed by the Corporation with the ~~accompanying~~SEC ~~consolidated~~on ~~financial~~September 12, ~~statements~~2013. The results of operations for the period ended September 30, ~~2012~~2013, are not necessarily indicative of the operating results that may be expected for the ~~full~~ year ending December 31, 2013.

~~Management~~NEW ~~evaluated~~ACCOUNTING ~~subsequent~~PRONOUNCEMENT events through October 26, 2012, the date the financial statements were issued. Events or transactions occurring after September 30, 2012, but prior to when the consolidated financial statements were issued, that provided additional evidence about conditions that existed at September 30, 2012, have been recognized in the consolidated financial statements for the period ended September 30, 2012. Events or transactions that provided evidence about conditions that arose before the consolidated financial statements were issued, but did not exist at September 30, 2012, have not been recognized in the consolidated financial statements for the period ended September 30, 2012.

In December 2011, FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities, amending ASC Topic 210 requiring an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on their financial position. In January 2013, the FASB issued ASU 2013-01 clarifying that the scope of ASU 2011-11 was limited to derivatives and other specialized security borrowing and lending transactions that are offset in accordance with ASC 210-20-45 or ASC 815-10-45 or subject to a master netting arrangement. The amendments were effective for interim and annual financial reporting periods beginning on or after January 1, 2013. The adoption of the amendments during the first quarter of 2013 did not have any impact on the Corporation’s consolidated financial statements.

SUBSEQUENT EVENTS

Management evaluated subsequent events through November 14, 2013, the date the financial statements were issued. Events or transactions occurring after September 30, 2013, but prior to when the consolidated financial statements were issued, that provided additional evidence about conditions that existed at September 30, 2013, have been recognized in the consolidated financial statements for the period ended September 30, 2013. Events or transactions that provided evidence about conditions that arose before the consolidated financial statements were issued, but did not exist at September 30, 2013, have not been recognized in the consolidated financial statements for the period ended September 30, 2013.

NOTE 2 – ~~NEW~~SECURITIES ~~ACCOUNTING PRONOUNCEMENTS~~

InAmortized ~~May~~cost 2011, The Financial Accounting Standards Board (FASB) issued ASU 2011-04, Fair Value Measurement, amending ASC Topic 820 which eliminates terminology differences between U.S. generally accepted accounting principles (GAAP) and ~~International Financial Reporting Standards (IFRS) on the measurement of~~ fair value ~~and~~securities ~~related fair value disclosures. While largely consistent with existing fair value measurement principles and disclosures, the changes~~ were ~~made~~ as ~~part~~follows of(dollars ~~the~~in ~~continuing~~thousands): efforts to converge GAAP and IFRS. The adoption of this guidance was effective for interim and annual periods beginning after December 15, 2011, and its adoption did not have a significant impact on the Corporation’s financial statements.

In June 2011, FASB issued ASU 2011-05, Comprehensive Income, amending ASC Topic 220 to require that all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, the guidance requires entities to present, on the face of the financial statements, reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement or statements where the components of net income and the components of other comprehensive income are presented. The option to present components of other comprehensive income as part of the statement of stockholders’ equity was eliminated. In December 2011, FASB issued ASU 2011-12 to defer changes in ASU 2011-05 that relate to the presentation of reclassification adjustments until FASB has time to reconsider the presentation of such adjustments. The remaining portion of ASU 2011-05 was effective for annual periods beginning after December 15, 2011, and its adoption did not have a significant impact on the Corporation’s financial statements.


	September 30, 2013				December 31, 2012
	Amortized cost		Fair Value		Amortized cost		Fair Value
Obligations of U.S. Government agencies and corporations	$	132,088	$	133,719	$	129,591	$	131,990
Obligations of states and political subdivisions		95,762		96,755		99,427		105,881
Other		350		350		350		350

Total available-for-sale		228,200		230,824		229,368		238,221
Restricted stock		4,177		4,177		4,174		4,174

Total	$	232,377	$	235,001	$	233,542	$	242,395


	September 30, 2013				December 31, 2012
	Gross unrealized gains		Gross unrealized losses		Gross unrealized gains		Gross unrealized losses
Obligations of U.S. Government agencies and corporations	$	2,072	$	440	$	2,865	$	466
Obligations of states and political subdivisions		2,691		1,699		6,584		130

Total	$	4,763	$	2,139	$	9,449	$	596

InThere ~~December~~were ~~2011,~~no ~~FASB~~securities ~~issued~~in ~~ASU~~a ~~2011-11,~~loss ~~Disclosures~~position ~~about~~greater ~~Offsetting~~than ~~Assets~~12 ~~and~~months ~~Liabilities,~~as ~~amending ASC Topic 210 requiring an entity to disclose information about offsetting and related arrangements to enable users~~ of ~~its financial statements to understand the effect of those arrangements on its financial position. The amendment is effective for the annual and interim periods beginning on or after January~~September 130, 2013, ~~and~~or ~~the~~December 31 ~~Corporation has not yet determined the financial statement impact~~2012.

In July 2012, FASB issued ASU 2012-02, Intangibles – Goodwill and Other, amending ASC Topic 350 to simplify how an entity tests indefinite-lived intangible assets other than goodwill for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. The amendment permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset other than goodwill is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. The amendment is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012. Management does not expect the amendment to have any effect on the Corporation’s financial statements.

NOTE 3 – ~~FAIR~~LOANS ~~VALUE~~AND OFALLOWANCE ~~FINANCIAL~~FOR ~~INSTRUMENTS~~LOAN LOSSES

The ~~fair~~following ~~values~~is an analysis of ~~recognized~~the ~~financial~~allowance ~~instruments~~for ~~were~~loan aslosses ~~follows~~for the nine-month periods ended September 30, 2013, and 2012 (dollars in thousands):

	September 30, 2012						December 31, 2011
9/30/2013	Commercial			Residentialreal estate			Non- residential real estate			Constructionreal estate		Consumer			CreditCard			Total
	CarryingAmount			Fair Value			CarryingAmount			Fair Value
Balance at December 31, 2012	$	621		$	1,948		$	1,367		$	184	$	127		$	78		$	4,325
	(Dollars in Thousands)
Provision charged to expense		(139	)		247			(90	)		203		53			1			275
Financial Assets
Losses charged off		0			(291	)		(159	)		0		(68	)		(31	)		(549	)
Cash and cash equivalents	$	9,248		$	9,248		$	60,093		$	60,093
Recoveries		10			8			4			0		41			7			70
Securities		253,415			253,415			229,126			229,126
Balance at September 30, 2013	$	492		$	1,912		$	1,122		$	387	$	153		$	55		$	4,121
Loans, net		312,178			319,731			297,187			302,984
9/30/2012	Commercial			Residentialreal estate			Non- residential real estate			Constructionreal estate		Consumer			CreditCard			Total
Total	$	574,841		$	582,394		$	586,406		$	592,203
Balance at December 31, 2011	$	615		$	1,905		$	1,926		$	179	$	84		$	69		$	4,778
Financial Liabilities
Provision charged to expense		5			547			(345	)		21		84			13			325
Deposits	$	507,077		$	508,879		$	501,837		$	503,563
Losses charged off		(2	)		(451	)		(322	)		0		(61	)		(20	)		(856	)
Federal Funds purchased and securities sold under repurchase agreements		19,126			19,261			40,861			39,932
Recoveries		11			22			46			0		12			5			96
Borrowed funds		17,973			19,584			18,500			19,980
Balance at September 30, 2012	$	629		$	2,023		$	1,305		$	200	$	119		$	67		$	4,343
Total	$	544,176		$	547,724		$	561,198		$	563,475

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

The Bank also has unrecognized financial instruments which relate to commitments to extend credit and standby letters of credit. The contract amount of such financial instruments totaled $85,633,000 at September 30, 2012 and $76,793,000 at December 31, 2011. Since many of these commitments are expected to expire without being drawn upon, these contract amounts do not necessarily represent future cash requirements.

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

Cash and Cash Equivalents

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

Securities

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

~~Loans~~The following presents the balances in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2013 and December 31, 2012 (dollars in thousands):

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


9/30/2013	Commercial		Residential real estate		Non- residential real estate		Construction real estate		Consumer		Credit card		Total
Allowance for loan losses:
Ending Balance attributable to loans:
Individually evaluated for impairment	$	0	$	336	$	127	$	0	$	0	$	0	$	463
Collectively evaluated for impairment		492		1,576		995		387		153		55		3,658

Total	$	492	$	1,912	$	1,122	$	387	$	153	$	55	$	4,121


Loans individually evaluated for impairment	$	779	$	2,855	$	3,406	$	0	$	0	$	0	$	7,040
Loans collectively evaluated for impairment		32,962		124,448		132,058		8,441		19,053		2,860		319,822

Total	$	33,741	$	127,303	$	135,464	$	8,441	$	19,053	$	2,860	$	326,862


12/31/2012	Commercial		Residential real estate		Non- residential real estate		Construction real estate		Consumer		Credit card		Total
Allowance for loan losses:
Ending Balance attributable to loans:
Individually evaluated for impairment	$	6	$	283	$	247	$	0	$	0	$	0	$	536
Collectively evaluated for impairment		615		1,665		1,120		184		127		78		3,789

Total	$	621	$	1,948	$	1,367	$	184	$	127	$	78	$	4,325


Loans individually evaluated for impairment	$	909	$	2,642	$	3,606	$	0	$	0	$	0	$	7,157
Loans collectively evaluated for impairment		34,394		125,610		132,331		3,635		15,234		2,916		314,120

Total	$	35,303	$	128,252	$	135,937	$	3,635	$	15,234	$	2,916	$	321,277

Deposit Liabilities

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

Other Financial Instruments

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

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

NOTE 4 – FAIR VALUE MEASUREMENTS

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

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

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

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

~~There~~The ~~were~~following norepresents ~~financial~~loans ~~instruments~~individually ~~measured~~evaluated atfor ~~fair~~impairment ~~value~~by ~~that~~class ~~moved to a lower level in the fair value hierarchy due to the lack~~ of ~~observable~~loans ~~quotes~~as ~~in inactive markets for those instruments at~~ of September 30, ~~2012~~2013 and December 31, ~~2011.~~2012 (dollars in thousands):

The following summarizes financial assets (there were no financial liabilities) measured at fair value as of September 30, 2012 and December 31, 2011, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


9/30/2013
With no related allowance recorded:	Unpaid principal balance		Recorded investment		Allowance for loan loss allocated
Agricultural loans	$	0	$	0	$	0
Commercial loans		720		720		0
Commercial overdraft LOC		60		60		0

Commercial non-profit/political subdivisions		0		0		0
Open-end home equity		174		174		0

1 – 4 family real estate (1^st mortgages)		1,241		1,156		0
1 – 4 family real estate (Jr. mortgages)		9		9		0
Multifamily real estate		280		280		0
Farm real estate		0		0		0
Non-farm/non-residential real estate		1,069		919		0
Construction real estate		0		0		0
Consumer loans – vehicle		0		0		0
Consumer overdraft LOC		0		0		0
Consumer loans – mobile home		0		0		0
Consumer loans – home improvement		0		0		0
Consumer loans – other		0		0		0
MasterCard/VISA		0		0		0
With an allowance recorded:
Agricultural loans		0		0		0
Commercial loans		0		0		0
Commercial overdraft LOC		0		0		0

Commercial non-profit/political subdivisions		0		0		0
Open-end home equity		72		72		63

1 – 4 family real estate (1^st mortgages)		1,334		1,165		273
1 – 4 family real estate (Jr. mortgages)		0		0		0
Multifamily real estate		0		0		0
Farm real estate		0		0		0
Non-farm/non-residential real estate		2,485		2,485		127
Construction real estate		0		0		0
Consumer loans – vehicle		0		0		0
Consumer overdraft LOC		0		0		0
Consumer loans – mobile home		0		0		0
Consumer loans – home improvement		0		0		0
Consumer loans – other		0		0		0
MasterCard/VISA		0		0		0

Total	$	7,444	$	7,040	$	463

9/30/2012	Level 1inputs		Level 2inputs		Level 3inputs		Total fairvalue
	(Dollars in Thousands)
Recurring
Securities available-for-sale:
Obligations of U.S. Government agencies and corporations	$	0	$	145,589	$	0	$	145,589
Obligations of states and political subdivisions		0		103,302		0		103,302
Other		0		350		0		350
Total	$	0	$	249,241	$	0	$	249,241
Nonrecurring
Other real estate owned	$	0	$	0	$	1,362	$	1,362
Impaired loans		0		0		13,175		13,175
Total	$	0	$	0	$	14,537	$	14,537
12/31/2011	Level 1inputs		Level 2inputs		Level 3inputs		Total fairvalue
	(Dollars in Thousands)
Recurring
Securities available-for-sale:
Obligations of U.S. Government agencies and corporations	$	0	$	137,244	$	0	$	137,244
Obligations of states and political subdivisions		0		87,688		0		87,688
Other		0		350		0		350
Total	$	0	$	225,282	$	0	$	225,282
Nonrecurring
Other real estate owned	$	0	$	0	$	1,877	$	1,877
Impaired loans		0		0		14,681		14,681
Total	$	0	$	0	$	16,558	$	16,558

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


12/31/2012
With no related allowance recorded:	Unpaid principal balance		Recorded investment		Allowance for loan loss allocated
Agricultural loans	$	0	$	0	$	0
Commercial loans		771		771		0
Commercial overdraft LOC		61		61		0

Commercial non-profit/political subdivisions		0		0		0
Open-end home equity		177		177		0

1 – 4 family real estate (1^st mortgages)		1,110		1,103		0
1 – 4 family real estate (Jr. mortgages)		14		14		0
Multifamily real estate		200		200		0
Farm real estate		0		0		0
Non-farm/non-residential real estate		788		638		0
Construction real estate		0		0		0
Consumer loans – vehicle		0		0		0
Consumer overdraft LOC		0		0		0
Consumer loans – mobile home		0		0		0
Consumer loans – home improvement		0		0		0
Consumer loans – other		0		0		0
MasterCard/VISA		0		0		0
With an allowance recorded:
Agricultural loans		0		0		0
Commercial loans		76		76		6
Commercial overdraft LOC		0		0		0

Commercial non-profit/political subdivisions		0		0		0
Open-end home equity		0		0		0

1 – 4 family real estate (1^st mortgages)		1,297		1,133		267
1 – 4 family real estate (Jr. mortgages)		16		16		16
Multifamily real estate		0		0		0
Farm real estate		0		0		0
Non-farm/non-residential real estate		2,968		2,968		247
Construction real estate		—		—		—
Consumer loans – vehicle		0		0		0
Consumer overdraft LOC		0		0		0
Consumer loans – mobile home		0		0		0
Consumer loans – home improvement		0		0		0
Consumer loans – other		0		0		0
MasterCard/VISA		0		0		0

Total	$	7,478	$	7,157	$	536

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

Securities Available-for-Sale

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would typically include certain government bonds and exchange traded equities. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include corporate and municipal bonds, mortgage-backed securities, and asset-backed securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. The Corporation did not have any securities classified as Level 1 or Level 3 at September 30, 2012 and December 31, 2011.

Impaired Loans

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

Other Real Estate Owned

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

~~NOTE~~The 5Bank –categorizes ~~SECURITIES~~loans into risk categories based on relevant information about the ability of the borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, and current economic trends, among other factors. The Bank uses the following definitions for risk ratings:

~~Amortized~~• ~~cost~~Special Mention – Loans classified as “special mention” possess some credit deficiency or potential weakness that deserves close attention, but do not yet warrant substandard classification. Such loans pose unwarranted financial risk that, if not corrected, could weaken the loan and ~~fair~~increase ~~value~~risk ~~securities~~of ~~were~~losses asin ~~follows:~~the future.

	September 30, 2012				December 31, 2011
	Amortizedcost		Fair Value		Amortizedcost		Fair Value
	(Dollars in Thousands)
Obligations of U.S. Government agencies and corporations	$	142,935	$	145,589	$	135,929	$	137,244
Obligations of states and political subdivisions		96,604		103,302		82,426		87,688
Other		350		350		350		350
Total available-for-sale		239,889		249,241		218,705		225,282
Restricted stock		4,174		4,174		3,844		3,844
Total	$	244,063	$	253,415	$	222,549	$	229,126
	September 30, 2012				December 31, 2011
	Grossunrealizedgains		Grossunrealizedlosses		Grossunrealizedgains		Grossunrealizedlosses
	(Dollars in Thousands)
Obligations of U.S. Government agencies and corporations	$	3,113	$	459	$	2,142	$	827
Obligations of states and political subdivisions		6,712		14		5,264		2
Total	$	9,825	$	473	$	7,406	$	829

•

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

•

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

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. The following presents loans as of September 30, 2013, and December 31, 2012, that are collectively evaluated for impairment and are not considered to be impaired. The loan amounts set forth below do not include loans that are deemed impaired and analyzed individually for impairment which were presented previously (dollars in thousands):


9/30/2013	Pass		Special mention		Substandard		Doubtful		Not rated
Agricultural loans	$	2,627	$	0	$	0	$	0	$	0
Commercial loans		27,169		2,268		28		0		0

Commercial overdraft LOC		0		0		0		0		240

Commercial non-profit/political subdivisions		630		0		0		0		0

Open-end home equity		25,097		367		229		0		0

1 – 4 family real estate (1^st mortgages)		89,609		1,493		1,452		0		0

1 – 4 family real estate (Jr. mortgages)		5,994		136		71		0		0

Multifamily real estate		10,691		0		2,349		0		0
Farm real estate		8,262		320		0		0		0

Non-farm/non-residential real estate		96,000		12,059		2,377		0		0

Construction real estate		8,441		0		0		0		0

Consumer loans – vehicle		7,942		41		9		0		0

Consumer overdraft LOC		0		0		0		0		251
Consumer loans – mobile home		396		0		8		0		0
Consumer loans – home improvement		223		0		0		0		0
Consumer loans – other		10,147		31		5		0		0
MasterCard/VISA		0		0		0		0		2,860

Total	$	293,228	$	16,715	$	6,528	$	0	$	3,351

NOTE 6 – LOANS


12/31/2012	Pass		Special mention		Substandard		Doubtful		Not rated
Agricultural loans	$	5,283	$	0	$	0	$	0	$	0
Commercial loans		25,213		2,778		142		0		0

Commercial overdraft LOC		0		0		0		0		245

Commercial non-profit/political subdivisions		733		0		0		0		0

Open-end home equity		25,142		351		272		0		0

1 – 4 family real estate (1^st mortgages)		88,183		1,635		2,034		0		0

1 – 4 family real estate (Jr. mortgages)		7,662		54		277		0		0

Multifamily real estate		7,599		0		2,431		0		0
Farm real estate		9,509		45		0		0		0

Non-farm/non-residential real estate		96,184		14,344		2,219		0		0

Construction real estate		3,007		628		0		0		0

Consumer loans – vehicle		5,249		10		5		0		0

Consumer overdraft LOC		0		0		0		0		454
Consumer loans – mobile home		561		0		0		0		0
Consumer loans – home improvement		220		0		0		0		0
Consumer loans – other		8,722		8		5		0		0
MasterCard/VISA		0		0		0		0		2,916

Total	$	283,267	$	19,853	$	7,385	$	0	$	3,615

The following presents the balances and activity in the allowance for loan losses for the period ended September 30, 2012 and September 30, 2011 (dollars in thousands):

9/30/2012	Commercial			Residentialreal estate			Non- residentialreal estate			Constructionreal estate			Consumer			CreditCard			Total
Balance at December 31, 2011	$	615		$	1,905		$	1,926		$	179		$	84		$	69		$	4,778
Provision charged to expense		5			547			(345	)		21			84			13			325
Losses charged off		(2	)		(451	)		(322	)		0			(61	)		(20	)		(856	)
Recoveries		11			22			46			0			12			5			96
Balance at September 30, 2012	$	629		$	2,023		$	1,305		$	200		$	119		$	67		$	4,343
9/30/2011	Commercial			Residentialreal estate			Non- residential real estate			Constructionreal estate			Consumer			CreditCard			Total
Balance at December 31, 2010	$	542		$	1,857		$	2,049		$	347		$	85		$	75		$	4,955
Provision charged to expense		(212	)		310			188			(8	)		11			11			300
Losses charged off		(56	)		(460	)		(628	)		0			(34	)		(31	)		(1209	)
Recoveries		196			72			523			0			20			7			818
Balance at September 30, 2011	$	470		$	1,779		$	2,132		$	339		$	82		$	62		$	4,864

The following presents the ~~balances~~recorded ininvestment ~~the~~by ~~allowance~~class ~~for~~of ~~loan~~loans ~~losses~~which ~~and~~are ~~the~~not ~~recorded~~on ~~investment~~nonaccrual inand ~~loans by~~have ~~portfolio~~collectively ~~segment~~been ~~and~~evaluated ~~based~~for on impairment ~~method~~ as of September 30, ~~2012~~2013 and December 31, ~~2011~~2012 (dollars in thousands):

9/30/2012	Commercial		Residentialreal estate		Non- residential real estate		Constructionreal estate		Consumer		Creditcard		Total
9/30/2013	30-89 days past due		90+ days past due		Total past due		Not past due		Total
Allowance for loan losses:
Agricultural loans	$	11	$	0	$	11	$	2,616	$	2,627
Ending Balance attributable to loans:
Commercial loans		110		0		110		29,355		29,465
Individually evaluated for impairment	$	25	$	335	$	185	$	0	$	0	$	0	$	545
Commercial overdraft LOC		0		0		0		240		240
Collectively evaluated for impairment		604		1,688		1,120		200		119		67		3,798
Commercial non-profit/political subdivisions		0		0		0		630		630
Total	$	629	$	2,023	$	1,305	$	200	$	119	$	67	$	4,343
Open-end home equity		124		71		195		25,498		25,693
Loans individually evaluated for impairment	$	3,141	$	3,087	$	7,492	$	0	$	0	$	0	$	13,720
1 – 4 family real estate (1st mortgages)		2,143		323		2,466		90,088		92,554
Loans collectively evaluated for impairment		27,249		126,246		127,794		3,663		14,930		2,919		302,801
1 – 4 family real estate (Jr. mortgages)		76		0		76		6,125		6,201
Total	$	30,390	$	129,333	$	135,286	$	3,663	$	14,930	$	2,919	$	316,521
Multifamily real estate		0		0		0		13,040		13,040
12/31/2011	Commercial		Residentialreal estate		Non- residentialreal estate		Constructionreal estate		Consumer		Creditcard		Total
Farm real estate		0		0		0		8,582		8,582
Allowance for loan losses:
Non-farm/non-residential real estate		866		0		866		109,570		110,436
Ending Balance attributable to loans:
Construction real estate		0		0		0		8,441		8,441
Individually evaluated for impairment	$	0	$	496	$	646	$	53	$	0	$	0	$	1,195
Consumer loans – vehicle		53		0		53		7,939		7,992
Collectively evaluated for impairment		615		1,409		1,280		126		84		69		3,583
Consumer overdraft LOC		2		1		3		248		251
Total	$	615	$	1,905	$	1,926	$	179	$	84	$	69	$	4,778
Consumer loans – mobile home		0		0		0		404		404
Loans individually evaluated for impairment	$	685	$	2,912	$	11,220	$	1,059	$	0	$	0	$	15,876
Consumer loans – home improvement		0		0		0		223		223
Loans collectively evaluated for impairment		28,278		124,538		115,195		4,178		11,203		2,697		286,089
Consumer loans – other		48		0		48		10,135		10,183
Total	$	28,963	$	127,450	$	126,415	$	5,237	$	11,203	$	2,697	$	301,965
MasterCard/VISA		56		26		82		2,778		2,860
Total	$	3,489	$	421	$	3,910	$	315,912	$	319,822

The following represents loans individually evaluated for impairment by class of loans as of September 30, 2012 and December 31, 2011 (dollars in thousands):


12/31/2012	30-89 days past due		90+ days past due		Total past due		Not past due		Total
Agricultural loans	$	0	$	0	$	0	$	5,283	$	5,283
Commercial loans		17		0		17		28,116		28,133

Commercial overdraft LOC		0		0		0		245		245
Commercial non-profit/political subdivisions		0		0		0		733		733
Open-end home equity		234		154		388		25,377		25,765

1 – 4 family real estate (1^st mortgages)		1,885		770		2,655		89,197		91,852

1 – 4 family real estate (Jr. mortgages)		141		38		179		7,814		7,993

Multifamily real estate		0		0		0		10,030		10,030
Farm real estate		0		0		0		9,554		9,554

Non-farm/non-residential real estate		389		0		389		112,358		112,747
Construction real estate		0		0		0		3,635		3,635
Consumer loans – vehicle		37		0		37		5,227		5,264
Consumer overdraft LOC		4		1		5		449		454
Consumer loans – mobile home		0		0		0		561		561

Consumer loans – home improvement		0		0		0		220		220
Consumer loans – other		95		0		95		8,640		8,735
MasterCard/VISA		33		4		37		2,879		2,916

Total	$	2,835	$	967	$	3,802	$	310,318	$	314,120

9/30/2012
With no related allowance recorded:	Unpaidprincipalbalance		Recordedinvestment		Allowancefor loanlossallocated
Agricultural loans	$	0	$	0	$	0
Commercial loans		3,000		3,000		0
Commercial overdraft LOC		59		59		0
Commercial non-profit/political subdivisions		0		0		0
Open-end home equity		122		122		0
1 – 4 family real estate (1st mortgages)		1,484		1,419		0
1 – 4 family real estate (Jr. mortgages)		46		46		0
Multifamily real estate		212		212		0
Farm real estate		0		0		0
Non-farm/non-residential real estate		5,007		5,007		0
Construction real estate		0		0		0
Consumer loans – vehicle		0		0		0
Consumer overdraft LOC		0		0		0
Consumer loans – mobile home		0		0		0
Consumer loans – home improvement		0		0		0
Consumer loans – other		0		0		0
MasterCard/VISA		0		0		0
With an allowance recorded:
Agricultural loans		0		0		0
Commercial loans		82		82		25
Commercial overdraft LOC		0		0		0
Commercial non-profit/political subdivisions		0		0		0
Open-end home equity		0		0		0
1 – 4 family real estate (1st mortgages)		1,448		1,288		335
1 – 4 family real estate (Jr. mortgages)		0		0		0
Multifamily real estate		0		0		0
Farm real estate		0		0		0
Non-farm/non-residential real estate		2,635		2,485		185
Construction real estate		0		0		0
Consumer loans – vehicle		0		0		0
Consumer overdraft LOC		0		0		0
Consumer loans – mobile home		0		0		0
Consumer loans – home improvement		0		0		0
Consumer loans – other		0		0		0
MasterCard/VISA		0		0		0
Total	$	14,095	$	13,720	$	545

12/31/2011
With no related allowance recorded:	Unpaidprincipalbalance		Recordedinvestment		Allowancefor loanlossallocated
Agricultural loans	$	0	$	0	$	0
Commercial loans		630		630		0
Commercial overdraft LOC		55		55		0
Commercial non-profit/political subdivisions		0		0		0
Open-end home equity		19		19		0
1 – 4 family real estate (1st mortgages)		873		863		0
1 – 4 family real estate (Jr. mortgages)		77		77		0
Multifamily real estate		0		0		0
Farm real estate		0		0		0
Non-farm/non-residential real estate		8,246		8,246		0
Construction real estate		0		0		0
Consumer loans – vehicle		0		0		0
Consumer overdraft LOC		0		0		0
Consumer loans – mobile home		0		0		0
Consumer loans – home improvement		0		0		0
Consumer loans – other		0		0		0
MasterCard/VISA		0		0		0
With an allowance recorded:
Agricultural loans		0		0		0
Commercial loans		0		0		0
Commercial overdraft LOC		0		0		0
Commercial non-profit/political subdivisions		0		0		0
Open-end home equity		0		0		0
1 – 4 family real estate (1st mortgages)		2,097		1,818		433
1 – 4 family real estate (Jr. mortgages)		135		135		63
Multifamily real estate		0		0		0
Farm real estate		0		0		0
Non-farm/non-residential real estate		3,395		2,974		646
Construction real estate		1,059		1,059		53
Consumer loans – vehicle		0		0		0
Consumer overdraft LOC		0		0		0
Consumer loans – mobile home		0		0		0
Consumer loans – home improvement		0		0		0
Consumer loans – other		0		0		0
MasterCard/VISA		0		0		0
Total	$	16,586	$	15,876	$	1,195

The following presents the recorded investment in loans past due 90 days or more still accruing interest, nonaccrual, and Troubled Debt Restructurings (TDR) by class as of September 30, 2013 and December 31, 2012 (dollars in thousands):


9/30/2013	Loans past due 90+ and still accruing		Nonaccrual		TDR
Agricultural loans	$	0	$	0	$	0
Commercial loans		0		134		586
Commercial overdraft LOC		0		0		0

Commercial non-profit/political subdivisions		0		0		0
Open-end home equity		71		100		161

1 – 4 family real estate (1^st mortgages)		323		1,720		813

1 – 4 family real estate (Jr. mortgages)		0		0		9
Multifamily real estate		0		280		280
Farm real estate		0		0		0

Non-farm/non-residential real estate		0		824		3,277
Construction real estate		0		0		0
Consumer loans – vehicle		0		0		0
Consumer overdraft LOC		1		0		0

Consumer loans – mobile home		0		0		0

Consumer loans – home improvement		0		0		0
Consumer loans – other		0		0		0
MasterCard/VISA		26		0		0

Total	$	421	$	3,058	$	5,126


12/31/2012	Loans past due 90+ and still accruing		Nonaccrual		TDR
Agricultural loans	$	0	$	0	$	0
Commercial loans		0		0		848
Commercial overdraft LOC		0		0		0

Commercial non-profit/political subdivisions		0		0		0
Open-end home equity		154		26		150

1 – 4 family real estate (1^st mortgages)		770		1,595		1,038

1 – 4 family real estate (Jr. mortgages)		38		16		14
Multifamily real estate		0		200		0
Farm real estate		0		0		0

Non-farm/non-residential real estate		0		916		3,208
Construction real estate		0		—		—
Consumer loans – vehicle		0		0		0
Consumer overdraft LOC		1		0		0

Consumer loans – mobile home		0		0		0

Consumer loans – home improvement		0		0		0
Consumer loans – other		0		0		0
MasterCard/VISA		4		0		0

Total	$	967	$	2,753	$	5,258

The ~~Bank~~following ~~categorizes~~presents ~~loans~~the ~~into~~recorded ~~risk~~investment ~~categories~~in ~~based~~TDR onloans ~~relevant~~by ~~information~~class, ~~about~~which ~~the~~were ~~ability~~restructured ofduring the ~~borrowers~~nine-months toended ~~service their debt such as: current financial information~~September 30, ~~historical~~2013 ~~payment~~(dollars ~~experience,~~in ~~credit documentation, public information, and current economic trends, among other factors. The Bank uses the following definitions for risk ratings~~thousands):

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


9/30/2013	Number of Contracts		Recorded investment		Allowance for loan losses allocated
Agricultural loans		0	$	0	$	0
Commercial loans		0		0		0

Commercial overdraft LOC		0		0		0

Commercial non-profit/political subdivisions		0		0		0

Open-end home equity		0		0		0

1 – 4 family real estate (1^st mortgages)		0		0		0

1 – 4 family real estate (Jr. mortgages)		1		12		0

Multifamily real estate		1		280		0
Farm real estate		0		0		0

Non-farm/non-residential real estate		2		223		0

Construction real estate		0		0		0

Consumer loans – vehicle		0		0		0

Consumer overdraft LOC		0		0		0

Consumer loans – mobile home		0		0		0
Consumer loans – home improvement		0		0		0

Consumer loans – other		0		0		0
MasterCard/VISA		0		0		0

Total		4	$	515	$	0

•TDR ~~Substandard~~loans –which ~~Loans~~were ~~classified~~restructured asduring ~~“substandard”~~the ~~are~~nine-month ~~inadequately~~period ~~protected~~ended bySeptember 30, ~~the~~2013, ~~current~~consisted ~~net~~of ~~worth~~two non-farm/non-residential ~~and~~loans ~~paying~~with ~~capacity~~a ofrecorded ~~the~~investment ~~obligor~~aggregating or$223,000. Principal payments for both loans ceased for a short period of time. Also during the ~~collateral~~period, ~~pledged~~in the multifamily real estate category, ifthere ~~any.~~was ~~Loans~~a ~~classified~~consolidation asof ~~substandard~~loans with ~~have~~additional ~~well-defined~~collateral ~~weakness~~for orone ~~weaknesses~~borrower that ~~jeopardize~~totaled ~~the~~$280,000, ~~liquidation~~and ofin the ~~debt.~~1 ~~They~~– ~~are~~4 ~~categorized~~family byreal ~~the~~estate ~~distinct~~Jr ~~possibility~~Mortgage ~~that~~category ~~the~~one ~~institution~~loan ~~will~~totaling ~~sustain~~$12,000, ~~some~~which ~~loss~~had ifa ~~the~~monthly ~~deficiencies~~payment ~~are~~reduction. ~~not~~None ~~corrected~~of these loans resulted in any additional allocation to the loan loss category.

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

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. The following presents loans as of September 30, 2012 and December 31, 2011 that are collectively evaluated for impairment and are considered not impaired. Investments in each category found below do not include loans that are deemed impaired and analyzed individually for impairment which were presented previously (dollars in thousands):

9/30/2012	Pass		Specialmention		Substandard		Doubtful		Notrated
Agricultural loans	$	3,365	$	0	$	0	$	0	$	0
Commercial loans		22,833		32		146		0		0
Commercial overdraft LOC		0		0		0		0		107
Commercial non-profit/political subdivisions		766		0		0		0		0
Open-end home equity		25,783		379		307		0		0
1 – 4 family real estate (1st mortgages)		87,670		1,539		2,156		0		0
1 – 4 family real estate (Jr. mortgages)		8,102		46		264		0		0
Multifamily real estate		8,043		0		2,452		0		0
Farm real estate		8,966		295		0		0		0
Non-farm/non-residential real estate		95,079		9,960		2,999		0		0
Construction real estate		2,716		0		947		0		0
Consumer loans – vehicle		5,156		6		3		0		0
Consumer overdraft LOC		0		0		0		0		263
Consumer loans – mobile home		576		0		0		0		0
Consumer loans – home improvement		225		0		0		0		0
Consumer loans – other		8,677		8		16		0		0
MasterCard/VISA		0		0		0		0		2,919
Total	$	277,957	$	12,265	$	9,290	$	0	$	3,289

12/31/2011	Pass		Specialmention		Substandard		Doubtful		Notrated
Agricultural loans	$	3,207	$	0	$	0	$	0	$	0
Commercial loans		23,596		192		10		0		0
Commercial overdraft LOC		0		0		0		0		353
Commercial non-profit/political subdivisions		920		0		0		0		0
Open-end home equity		26,879		449		268		0		0
1 – 4 family real estate (1st mortgages)		83,743		1,233		2,250		0		0
1 – 4 family real estate (Jr. mortgages)		9,416		0		300		0		0
Multifamily real estate		5,973		0		2,856		0		0
Farm real estate		8,645		47		0		0		0
Non-farm/non-residential real estate		80,391		12,279		5,004		0		0
Construction real estate		3,220		0		958		0		0
Consumer loans – vehicle		3,408		3		5		0		0
Consumer overdraft LOC		0		0		0		0		236
Consumer loans – mobile home		706		18		0		0		0
Consumer loans – home improvement		194		0		0		0		0
Consumer loans – other		6,577		36		20		0		0
MasterCard/VISA		0		0		0		0		2,697
Total	$	256,875	$	14,257	$	11,671	$	0	$	3,286

NOTE 4 – STOCK BASED COMPENSATION

In 2002 the Corporation established a Stock Option and Incentive Plan (the “2002 Plan”) which permitted the awarding of stock options and/or stock appreciation rights to directors, managerial, and other key employees of the Corporation. The 2002 Plan, which provided for the issuance of up to 190,951 shares, expired in March 2012.

At the 2012 Annual Meeting of Shareholders, the shareholders of the Corporation adopted the Croghan Bancshares, Inc. 2012 Equity Incentive Plan (the “2012 Plan”), which permits the Corporation to award stock options, stock appreciation rights, restricted stock, and other stock-based and performance-based awards to directors, employees, and other eligible participants. A total of 162,082 shares are authorized for issuance pursuant to the 2012 Plan.

The Corporation issued options to purchase 28,869 during 2011 at an exercise price of $24.99 per share under the 2002 Plan. The options vest over a three-year period on the anniversary date of issuance. At September 30, 2013, a total of 19,246 of these options were vested and exercisable. There were no options granted or exercised during the nine-month period ended September 30, 2013. During the third quarter of 2013, an executive officer retired resulting in the forfeiture of 1,375 options.

Compensation expense related to issued stock options amounted to $26,000 and $68,000 for the nine-month periods ended September 30, 2013, and 2012, respectively. As of September 30, 2013, there was $20,000 of unrecognized compensation expense expected to be recognized over the next seven-month period.

The Corporation also issued a total of 5,250 shares of restricted stock in 2012 with a weighted average grant date fair value of $31.21 per share. Restricted stock awards vest over a five-year period. During the third quarter of 2013, 400 shares were forfeited as a result of the retirement of the aforementioned executive officer.

Compensation expense relating to restricted stock is recognized over the vesting period based on the market value of the shares on the issue date. Compensation expense related to the shares of restricted stock awarded and issued in 2012 totaled $41,000 during the nine-months ended September 30, 2013. As of September 30, 2013, there was $117,000 of total unrecognized compensation cost related to unvested restricted stock awards. The cost is expected to be recognized over a weighted average period of five years.

~~The~~NOTE ~~following~~5 ~~presents~~– ~~the~~FAIR ~~recorded~~VALUE ~~investment~~OF byFINANCIAL ~~class~~INSTRUMENTS ~~of loans which are not on nonaccrual and have collectively been evaluated for impairment as of September 30, 2012 and December 31, 2011 (dollars in thousands):~~

9/30/2012	30-89 dayspast due		90+ dayspast due		Totalpast due		Notpast due		Total
Agricultural loans	$	0	$	0	$	0	$	3,365	$	3,365
Commercial loans		1		0		1		23,010		23,011
Commercial overdraft LOC		0		0		0		107		107
Commercial non-profit/political subdivisions		0		0		0		766		766
Open-end home equity		219		103		322		26,147		26,469
1 – 4 family real estate (1st mortgages)		2,354		281		2,635		88,730		91,365
1 – 4 family real estate (Jr. mortgages)		150		0		150		8,262		8,412
Multifamily real estate		0		0		0		10,495		10,495
Farm real estate		44		0		44		9,217		9,261
Non-farm/non-residential real estate		699		0		699		107,339		108,038
Construction real estate		0		0		0		3,663		3,663
Consumer loans – vehicle		9		0		9		5,156		5,165
Consumer overdraft LOC		8		1		9		254		263
Consumer loans – mobile home		6		0		6		570		576
Consumer loans – home improvement		0		0		0		225		225
Consumer loans – other		76		0		76		8,625		8,701
MasterCard/VISA		43		7		50		2,869		2,919
Total	$	3,609	$	392	$	4,001	$	298,800	$	302,801

The fair values of recognized financial instruments were as follows (dollars in thousands):


	September 30, 2013				December 31, 2012
	Carrying amount		Fair value		Carrying amount		Fair value
Financial Assets
Cash and cash equivalents	$	19,986	$	19,986	$	31,216	$	31,216
Securities		235,001		235,001		242,395		242,395
Loans, net		322,741		327,636		316,952		323,143

Total	$	577,728	$	582,623	$	590,563	$	596,754


Financial Liabilities
Deposits	$	521,087	$	522,939	$	511,940	$	513,710
Federal Funds purchased and securities sold under repurchase agreements		13,743		13,743		32,344		32,344
Borrowed funds		14,357		14,597		15,199		16,642

Total	$	549,187	$	551,279	$	559,483	$	562,696

The Bank also has unrecognized financial instruments which relate to commitments to extend credit and standby letters of credit. The contract amount of such financial instruments totaled $111,331,000 at September 30, 2013 and $94,111,000 at December 31, 2012. Since many of these commitments are expected to expire without being drawn upon, these contract amounts do not necessarily represent future cash requirements.

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

Cash and Cash Equivalents

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

Securities

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

12/31/2011	30-89 dayspast due		90+ dayspast due		Totalpast due		Notpast due		Total
Agricultural loans	$	0	$	0	$	0	$	3,207	$	3,207
Commercial loans		16		0		16		23,782		23,798
Commercial overdraft LOC		0		0		0		353		353
Commercial non-profit/political subdivisions		0		0		0		920		920
Open-end home equity		213		91		304		27,293		27,597
1 – 4 family real estate (1st mortgages)		2,046		566		2,612		84,614		87,226
1 – 4 family real estate (Jr. mortgages)		48		9		57		9,658		9,715
Multifamily real estate		0		0		0		8,829		8,829
Farm real estate		38		0		38		8,655		8,693
Non-farm/non-residential real estate		616		0		616		97,057		97,673
Construction real estate		0		0		0		4,178		4,178
Consumer loans – vehicle		6		0		6		3,410		3,416
Consumer overdraft LOC		9		0		9		227		236
Consumer loans – mobile home		18		0		18		706		724
Consumer loans – home improvement		0		0		0		194		194
Consumer loans – other		41		0		41		6,592		6,633
MasterCard/VISA		30		6		36		2,661		2,697
Total	$	3,081	$	672	$	3,753	$	282,336	$	286,089

Loans

Deposit Liabilities

Other Financial Instruments

Federal funds purchased and securities sold under repurchase agreements are considered to be short-term borrowings and are valued at carrying value. Borrowed funds are typically long-term in nature with fair value determined based on a discounted cash flow analysis using current interest rates.

NOTE 6 – FAIR VALUE MEASUREMENTS

Assets and liabilities carried at fair value are required to be classified under a fair value hierarchy based on valuation inputs that give the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. There are three levels of determining fair value under the fair value hierarchy as follows:

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

~~The~~Level ~~following~~3 ~~presents~~– Unobservable inputs for the ~~recorded~~asset ~~investment~~or inliability ~~loans~~for ~~past~~which ~~due~~there 90is ~~days~~little, if any, market activity at the measurement date. Unobservable inputs reflect the Corporation’s own assumptions about what market participants would use to price the asset or ~~more~~liability. ~~still~~The ~~accruing,~~inputs ~~nonaccrual,~~are developed based on the best information available in the ~~and~~circumstances, ~~Troubled~~which ~~Debt~~might ~~Restructurings~~include ~~(TDR)~~the byCorporation’s ~~class~~own financial data such as ofinternally ~~September 30~~developed pricing models, ~~2012~~discounted ~~and~~cash ~~December 31~~flow methodologies, ~~2011~~as ~~(dollars~~well inas ~~thousands):~~instruments for which the fair value determination requires significant management judgment.

9/30/2012	Loanspast due90+ and stillaccruing		Nonaccrual		TDR
Agricultural loans	$	0	$	0	$	0
Commercial loans		0		11		93
Commercial overdraft LOC		0		0		0
Commercial non-profit/political subdivisions		0		0		0
Open-end home equity		103		17		105
1 – 4 family real estate (1st mortgages)		281		1,864		1043
1 – 4 family real estate (Jr. mortgages)		0		30		15
Multifamily real estate		0		212		0
Farm real estate		0		0		0
Non-farm/non-residential real estate		0		705		3,150
Construction real estate		0		—		—
Consumer loans – vehicle		0		0		0
Consumer overdraft LOC		1		0		0
Consumer loans – mobile home		0		0		0
Consumer loans – home improvement		0		0		0
Consumer loans – other		0		0		0
MasterCard/VISA		7		0		0
Total	$	392	$	2,839	$	4,406
12/31/2011	Loanspast due90+ and stillaccruing		Nonaccrual		TDR
Agricultural loans	$	0	$	0	$	0
Commercial loans		0		88		54
Commercial overdraft LOC		0		0		0
Commercial non-profit/political subdivisions		0		0		0
Open-end home equity		91		19		413
1 – 4 family real estate (1st mortgages)		566		2,338		99
1 – 4 family real estate (Jr. mortgages)		9		113		0
Multifamily real estate		0		0		0
Farm real estate		0		0		0
Non-farm/non-residential real estate		0		1,054		3,569
Construction real estate		0		1,059		692
Consumer loans – vehicle		0		0		0
Consumer overdraft LOC		0		0		0
Consumer loans – mobile home		0		0		0
Consumer loans – home improvement		0		0		0
Consumer loans – other		0		0		0
MasterCard/VISA		6		0		0
Total	$	672	$	4,671	$	4,827

There were no financial instruments measured at fair value that moved to a lower level in the fair value hierarchy due to the lack of observable quotes in inactive markets for those instruments at September 30, 2013 and December 31, 2012.

The following summarizes financial assets (there were no financial liabilities) measured at fair value as of September 30, 2013 and December 31, 2012, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):


9/30/2013	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
Recurring
Securities available-for-sale:
Obligations of U.S. Government agencies and corporations	$	0	$	133,719	$	0	$	133,719
Obligations of states and political subdivisions		0		96,755		0		96,755
Other		0		350		0		350

Total	$	0	$	230,824	$	0	$	230,824


Nonrecurring
Other real estate owned	$	0	$	0	$	919	$	919
Impaired loans		0		0		6,577		6,577

Total	$	0	$	0	$	7,496	$	7,496


12/31/2012	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
Recurring
Securities available-for-sale:
Obligations of U.S. Government agencies and corporations	$	0	$	131,990	$	0	$	131,990
Obligations of states and political subdivisions		0		105,881		0		105,881
Other		0		350		0		350

Total	$	0	$	238,221	$	0	$	238,221


Nonrecurring
Other real estate owned	$	0	$	0	$	1,295	$	1,295
Impaired loans		0		0		6,621		6,621

Total	$	0	$	0	$	7,916	$	7,916

The ~~following~~fair ~~presents~~value ~~the~~of ~~recorded~~impaired ~~investment~~loans inis ~~TDR~~reported ~~loans~~net byof ~~class,~~a ~~which~~valuation ~~occurred~~allowance ~~during~~of ~~the~~$463,000 ~~nine-months ended~~as of September 30, ~~2012~~2013 ~~(dollars~~and in$536,000 ~~thousands):~~as of December 31, 2012.

9/30/2012	Number ofContracts		Recordedinvestment		Allowancefor loanlossesallocated
Agricultural loans		0	$	0	$	0
Commercial loans		1		68		0
Commercial overdraft LOC		0		0		0
Commercial non-profit/political subdivisions		0		0		0
Open-end home equity		1		89		0
1 – 4 family real estate (1st mortgages)		6		581		25
1 – 4 family real estate (Jr. mortgages)		2		15		0
Multifamily real estate		0		0		0
Farm real estate		0		0		0
Non-farm/non-residential real estate		0		0		0
Construction real estate		0		0		0
Consumer loans – vehicle		0		0		0
Consumer overdraft LOC		0		0		0
Consumer loans – mobile home		0		0		0
Consumer loans – home improvement		0		0		0
Consumer loans – other		0		0		0
MasterCard/VISA		0		0		0
Total		10	$	753	$	25

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

~~During~~In ~~the~~general, ~~nine~~fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-~~month~~based ~~period~~parameters. ~~ended~~Valuation ~~September 30~~adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and creditworthiness, ~~2012~~among other things, ~~there~~as ~~was~~well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Corporation’s valuation methodologies may produce a ~~recorded~~fair ~~investment~~value calculation that may not be indicative of ~~restructured~~net ~~loans~~realizable value or reflective of future fair values. While management believes the ~~totaling~~Corporation’s ~~$753,000~~valuation ~~that~~methodologies ~~resulted~~are ~~from~~appropriate ~~TDRs~~and consistent with other market participants, the use of ~~which~~different ~~$25,000~~methodologies ~~was~~or ~~added~~assumptions to determine the ~~Allowance~~fair ~~for~~value ~~Loan~~of ~~Losses~~certain financial instruments could result in a different estimate of fair value at the reporting date.

~~Within~~Securities the TDR loan portfolio, two of the loan modifications resulted in extending the maturity of each loan and a new amortization of the balance of the loan while another two loan modifications resulted in a reduced interest rate. Two modifications had an independent source bring the note current and agree to pay the payments Available-for-Sale a period of time. Also within the TDR portfolio, two loans had a reduction of principal and interest to maturity resulting in a balloon payment at the stated maturity date, one TDR loan had its principal and interest suspended for 11 months, and one had interest only concession for six months.

Impaired Loans

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

Other Real Estate Owned

NOTE 7 – ~~STOCK~~ACQUISITION ~~BASED COMPENSATION~~

~~The~~On June 20, 2013, the Corporation ~~established~~signed a ~~Stock~~definitive ~~Option~~agreement ~~and~~pursuant ~~Incentive~~to ~~Plan~~which ~~(the~~it ~~“2002~~will ~~Plan”)~~acquire ~~in 2002~~Indebancorp, ~~which~~an ~~permitted~~Ohio ~~the Corporation to~~corporation ~~award~~and ~~stock~~bank ~~options~~holding company, and~~/or~~ ~~stock~~its ~~appreciation~~wholly-owned ~~rights~~subsidiary, toNational ~~directors~~Bank ~~and~~of ~~managerial~~Ohio, ~~and~~in ~~other~~a ~~key~~stock ~~employees~~and ofcash ~~the~~merger ~~Corporation~~transaction. ~~The~~Under ~~awards~~terms ~~could~~of bethe inagreement, the ~~form~~shareholders of ~~stock~~Indebancorp ~~options~~will ~~and/or~~receive ~~stock~~either ~~appreciation rights~~$55.00 ~~The~~in ~~2002 Plan~~cash, ~~which~~1.63 ~~provided~~shares ~~for~~of the ~~issuance~~Corporation, ofor upa combination thereof subject to ~~190,951~~the ~~shares,~~overall ~~expired~~consideration inbeing ~~March~~70% ~~2012~~stock and 30% cash. AtBased on the ~~2012~~20 ~~Annual~~day ~~Meeting,~~average ~~the~~closing ~~shareholders~~price of the Corporation’s ~~adopted~~common shares ending June 30, 2013, the ~~Croghan~~transaction ~~Bancshares~~is ~~Inc~~valued at approximately $29.1 ~~2012~~million ~~Equity~~and ~~Incentive~~is ~~Plan~~expected ~~(the~~to ~~“2012~~qualify ~~Plan”),~~as ~~which~~a ~~permits~~tax-free ~~the~~reorganization. ~~Corporation~~Indebancorp ~~to award~~is ~~stock~~headquartered ~~options,~~in ~~stock~~Oak ~~appreciation~~Harbor, ~~rights~~Ohio, ~~restricted~~with ~~stock~~total assets of $232 million as of September 30, 2013 and ~~other~~four ~~stock~~full-~~based~~service branches and ~~performance-based~~two ~~awards~~loan production ~~to directors~~offices, ~~employees,~~all ~~and~~located ~~other~~within ~~eligible~~30 ~~participants~~miles of its corporate headquarters. AThe ~~total~~transaction ofis ~~162,082~~expected ~~shares~~to ~~are~~be ~~available~~completed ~~for~~by ~~issuance~~the ~~pursuant~~end toof the ~~2012 Plan.~~fourth Asquarter of 2013. Professional and other expenses incurred during the nine-month period ended September 30, ~~2012~~2013, norelating ~~awards~~to ~~had~~the ~~yet~~acquisition, ~~been~~amounted ~~granted~~to ~~under~~$288,000 and are included in non-interest expenses in the ~~2012~~2013 ~~Plan~~consolidated statement of operations.

Outstanding Stock Options

Exercisable Stock Options

Exercise pricerange

Number

Weightedaverageexerciseprice

Weightedaveragecontractuallife (years)

Number

Weightedaverageexerciseprice

Weightedaveragecontractuallife (years)

24.99

28,869

24.99

N/A

NOTE 8 – BRANCH SALE

~~The~~On ~~following~~August 7, ~~summarizes~~2013, ~~stock~~Croghan ~~option~~entered ~~activity~~into an agreement to sell its Custar branch operations to Farmers and Merchants State Bank, including cash and due from bank deposits (approximately $16,655,000), loans (approximately $12,302,000), bank premises (approximately $295,000, net of depreciation), and customer deposits (approximately $29,302,000). Under the terms of the agreement, Croghan will receive a 4% premium for all core deposits and as a result expects to recognize a gain, net of tax, from the ~~first~~sale ~~nine~~of ~~months~~approximately $770,000 ($.46 per share). The transaction is expected to be completed during the fourth quarter of ~~2012:~~2013.

Outstanding, January 1, 2012			28,869
Granted			0
Exercised			0
Outstanding, September 30, 2012			28,869
Exercisable, September 30, 2012			9,623

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

	2011
Weighted-average fair value of options granted	$	3.62
Average dividend yield		5	%
Expected volatility		25	%
Risk-free interest rate		2.85	%
Expected term (in years)		8

There were no new options granted during 2012; however compensation expense related to options granted in 2011, which is included in salaries and wages in the consolidated statements of income for the nine months ended September 30, 2012, amounted to $35,000. Compensation expense is recognized over the three year vesting period of the options. As of September 30, 2012, there was $32,000 of unrecognized compensation expense expected to be recognized over the vesting period.

NOTE 8 - BRANCH ACQUISITION

On August 31, 2011, the Bank entered into an agreement to purchase four branch offices of The Home Savings and Loan Company of Youngstown, Ohio, (“HSL”) located in Fremont, Clyde, and Tiffin, Ohio. Under the terms of the agreement, the Bank assumed all related deposits and purchased the related branch premises and certain loans. The transaction was completed on December 16, 2011, with assets acquired and deposits assumed being recorded at their estimated fair values as follows:

	(Dollars inthousands)
Cash	$	83,496
Loans		21,502
Bank premises and equipment		1,801
Goodwill		4,245
Core deposit intangible asset		1,269
Other assets		71
Total assets acquired	$	112,384
Deposits assumed	$	111,072
Other liability – payable to seller		1,312
Total liabilities assumed	$	112,384

The “other liability - payable to seller” represents the changes in the amounts of certain assets acquired and liabilities assumed between the final settlement date and December 16, 2011, the actual closing (transfer) date. Under the terms of the agreement, a final closing statement was prepared by seller within 30 days after closing and received by the Bank on January 15, 2012, and the Bank made final payment to seller based on the final closing statement.

On December 16, 2011, the contractual balance of loans transferred was $21,697,000, and the contractual balance of deposits transferred was $109,970,000. Loans acquired included residential real estate and consumer loans secured by real estate and personal property that management determined to be risk graded as a pass rated loans as defined in Note 6.

The operating results of the acquired branches subsequent to the closing are included in the Corporation’s consolidated financial statements. The core deposit intangible asset is amortized on a sum of digits basis over a period of ten years, the CD market valuation is amortized on a straight-line basis over a two year period, and the discounted loan market valuation is accreted to income on a straight-line basis over a five year period.

Goodwill of $4,245,000 arose in the acquisition of the HSL branches because consideration paid effectively included amounts relating to the benefit of expected synergies, revenue growth, and future market development. These benefits are not recognized separately from goodwill because they do not meet the recognition requirement for identifiable intangible assets. All goodwill arising from this acquisition is expected to be deductible for tax purposes on a straight-line basis over a 15 year period.

The excess cash in the transaction was used to increase the Bank’s investment portfolio and cash balances. Going forward, excess cash will be used in the form of continued investment growth and to fund anticipated loan growth.

On March 12, 2012, the Bank made a payment of $1,026,000 to settle differences between the final settlement statement and the draft settlement statement. The settlement amount reduced the previously reported cash, goodwill, and other liability categories. Goodwill was reduced by $46,000, as result of the final payment, reducing the related goodwill amount to $4,199,000.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Where appropriate, the following discussion relating to the Corporation contains the insights of management into known events and trends that have or may be expected to have a material effect on the Corporation’s operations and financial condition. The information presented may also contain certain forward-looking statements regarding future financial performance, which are not historical facts and which involve various risks and uncertainties. When used herein, the terms “anticipates”, “believes”, “plans”, “intends”, “expects”, “estimates”, “projects”, “targets”, “will”, “would”, “should”, “could”, and similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, but are not the exclusive means of identifying such statements. The Corporation’s actual results may differ materially from those expressed or implied in such forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, changes in regional and/or national economic conditions, changes in policies by regulatory agencies, fluctuations in interest rates, changes in FDIC insurance assessment rates, demand for loans in the Corporation’s market area, and competitive conditions in the financial services industry. Additional information concerning a number of important factors which could cause actual results to differ materially from the forward-looking statements is available in the Corporation’s filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including the disclosure in “Item 1A. Risk Factors” of Part I of Croghan’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (the “2011 Form 10-K”).

The Corporation’s actual results may differ materially from those expressed or implied in such forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, changes in regional and/or national economic conditions, changes in policies by regulatory agencies, fluctuations in interest rates, changes in FDIC insurance assessment rates, demand for loans in the Corporation’s market area, and competitive conditions in the financial services industry. Additional information concerning a number of important factors which could cause actual results to differ materially from the forward-looking statements is available in the Corporation’s filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including the risk factors disclosed in “Item 1A. Risk Factors” of Part II of this Quarterly Report on Form 10-Q.

The Corporation cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Corporation does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements, except to the extent required by law.

PERFORMANCE SUMMARY

Net income for the three-month period ended September 30, ~~2012~~2013 was $1,~~284~~054,000, or $.7763 per common share, compared to $1,~~541~~284,000, or $.9277 per common share, for the same period in ~~2011~~2012. Net income for the nine-month period ended September 30, ~~2012~~2013 was $3,~~589~~662,000, or $2.1518 per common share, compared to $3,~~848~~589,000, or $2.3015 per common share, for the same period in ~~2011~~2012. The results for the third quarter ~~2012~~of 2013 as compared to the third quarter of ~~2011~~2012 were ~~adversely~~positively impacted by aincreases ~~decrease~~ of $~~256~~105,000 (2.3%) in net interest income, aand $~~250~~33,000 ~~increase~~(3.0%) in non-interest income, and decreases of $100,000 in the provision for loan losses and $147,000 in the provision for federal income taxes, and anwere ~~increase~~adversely ofimpacted by a $~~234~~615,000 (15.6%) increase in non-interest expenses. ~~Results~~The results for the ~~third~~nine ~~quarter~~months ended September 30, 2013, as compared to the comparable period for 2012, were positively impacted by aan increases of $~~294~~456,000 ~~increase~~(3.4%) in net interest income and $292,000 (8.8%) in non-interest income, and adecreases of $~~189~~50,000 ~~decrease to~~in the provision for loan losses and $71,000 in the provision for federal income taxes, and adversely impacted by a $796,000 (6.6%) increase in non-interest expenses.

Assets at September 30, 2013 totaled $617,050,000, compared to $630,952,000 at December 31, 2012, a decrease of $13,902,000 (2.2%). Total cash and cash equivalents decreased $11,230,000 and total securities decreased $7,394,000 during the nine-month period ended September 30, 2013. Total loans increased $5,585,000 to $326,862,000 at September 30, 2013. Total deposits increased $9,147,000 to $521,087,000 at September 30, 2013, while federal funds purchased and securities sold under repurchase agreements decreased $18,601,000.

FINANCIAL POSITION

The following comments are based upon a comparison of Croghan’s financial position at September 30, 2013 to December 31, 2012.

Total cash and cash equivalents decreased $11,230,000 (36.0%) and total securities decreased $7,394,000 (3.1%) during the nine-month period ended September 30, 2013. Net loans increased $5,789,000 (1.8%) to $322,741,000 at September 30, 2013, compared to $316,952,000 at December 31, 2012. During the same period, deposits increased $9,147,000 (1.8%) to $521,087,000 at September 30, 2013, compared to $511,940,000 at December 31, 2012, and federal funds purchased and securities sold under repurchase agreements decreased $18,601,000 (57.5%) to $13,743,000 at September 30, 2013.

The decrease in cash was primarily used to fund repayment of securities sold under repurchase agreements. The component of the changes in available-for-sale securities during the period included purchases of $77,447,000, maturities of $64,861,000, and proceeds from the sale of $6,813,000 of securities which resulted in net gains of $308,000.

Net loans increased $5,789,000 during the nine-month period ended September 30, 2013, which included the impact of seasonal changes from certain commercial and non-residential real estate customers and growth in the construction and consumer loan portfolios. Croghan continues to focus on growing the portfolio in its established markets as well as those resulting from the December 2011 four branch acquisition.

~~Assets~~A atprimary ~~September 30,~~source ~~2012~~of ~~totaled~~funding ~~$616,199,000,~~for ~~compared~~Croghan tois ~~$629~~customer deposits,~~651,000~~ atas ~~December 31,~~well ~~2011. Total~~as ~~cash~~federal ~~and~~funds ~~cash~~purchased ~~equivalents~~and securities ~~decreased~~sold ~~$50,844,000~~under agreements to ~~$9,248,000~~repurchase. The net decrease in these funding sources during the nine-month period ended September 30, ~~2012~~2013 was $9,454,000 ~~and~~(1.7%). ~~total~~Components ~~securities~~of ~~increased~~the aforementioned $249,~~289~~147,000 toincrease in deposits included a $~~253~~21,~~415~~980,000 ~~at September~~(6.3%) ~~30,~~increase ~~2012.~~in ~~Total~~the ~~loans~~liquid ~~increased~~deposit ~~$14~~category (demand,~~556~~ savings,~~000 to~~ ~~$316~~NOW,~~521,000~~ atand ~~September 30,~~money ~~2012,~~market ~~from~~deposit accounts) offset by a $~~301~~12,~~965~~833,000 at(8.0%) decrease ~~2011~~in ~~year~~the ~~end~~time deposit category. ~~Total~~The ~~deposits~~decrease ~~increased~~in ~~$5,240,000~~the time deposit category is attributable to ~~$507,077,000~~customers atseeking ~~September 30,~~other ~~2012,~~investment alternatives in the continued low rate environment. The decrease in the federal funds purchased and securities sold under agreements to repurchase category primarily resulted from ~~$501~~cash outflows of certain large deposit customers due to seasonality,~~837,000~~ atas ~~2011~~well ~~year~~as ~~end~~the aforementioned low rate environment. Croghan strives to maintain a strong net interest margin by balancing deposit needs to fund anticipated loan demand and by maintaining the necessary deposit pricing structure.

~~FINANCIAL~~Stockholders’ ~~POSITION~~equity at September 30, 2013 decreased to $65,171,000, or $38.82 book value per common share, compared to $67,164,000, or $40.01 book value per common share, at December 31, 2012. The balance in stockholders’ equity at September 30, 2013 included accumulated other comprehensive income, consisting of net unrealized gains on securities classified as available-for-sale, net of related income taxes. At September 30, 2013, Croghan held $230,824,000 in available-for-sale securities with an unrealized gain, net of income taxes, of $1,732,000 compared to $238,221,000 of available-for-sale securities at December 31, 2012, with an unrealized gain, net of income taxes, of $5,843,000. The significant decrease in net unrealized security gains at September 30, 2013 as compared to December 31, 2012 is attributable to the increases in long-term bond rates that have occurred during the second and third quarters of 2013.

~~The~~Croghan ~~following comments~~declared ~~are~~a ~~based~~cash ~~upon~~dividend aof ~~comparison~~$.32 per share on September 10, 2013, payable on October 31, 2013 to shareholders of ~~Croghan’s~~record ~~financial~~as ~~position~~of atOctober 11, 2013. Year-to-date dividends declared by Croghan through September 30, ~~2012~~2013 amounted to ~~December 31~~$1,611,000, ~~2011~~or $.96 per share.

Total cash and cash equivalents decreased $50,845,000 (84.6%) and total securities increased $24,289,000 (10.6%) during the nine-month period ended September 30, 2012. Total loans increased $14,556,000 (4.8%) to $316,521,000 at September 30, 2012, compared to $301,965,000 at December 31, 2011. During the same period, deposits increased $5,240,000 (1.0%) to $507,077,000 at September 30, 2012, compared to $501,837,000 at December 31, 2011.

The increase in securities during the nine-month period ended September 30, 2012 primarily resulted from purchases of available-for-sale securities of $94,762,000, with maturities during the period of $61,263,000. Also, during the period there were sales of securities totaling $7,858,000. The security balance increase was the result of using the excess cash from the HSL acquisition to purchase securities, as well as the continuation of investing pay downs and maturing securities back into the portfolio. Securities were sold during the second quarter to fund loan growth.

The total loan balance increased during the nine-month period ended September 30, 2012, due to the Bank being able to grow the portfolio through increased customer demand and the new markets gained from the HSL acquisition.

Components of the increase in deposits included a $26,696,000 (8.7%) increase in the liquid deposit category (demand, savings, NOW, and money market deposit accounts), which was partially offset by a $21,457,000 (11.1%) decrease in the time deposit category. Croghan strives to maintain a strong interest margin by balancing deposit needs to fund anticipated loan demand and by maintaining the necessary deposit pricing structure.

Stockholders’ equity at September 30, 2012 increased to $66,766,000, or $39.90 book value per common share, compared to $62,883,000, or $37.58 book value per common share, at December 31, 2011. Stockholders’ equity at September 30, 2012 includes accumulated other comprehensive income, consisting of net unrealized gains on securities classified as available-for-sale, net of related income taxes. At September 30, 2012, Croghan held $249,241,000 of available-for-sale securities with a net unrealized gain of $6,172,000, net of income taxes, compared to $225,282,000 in available-for-sale securities at December 31, 2011, with a net unrealized gain of $4,341,000, net of income taxes.

During the first quarter of 2012, the Board of Directors opted not to renew the stock buy-back program which began in February 2002. During the life span of the program, a total of 248,791 shares were repurchased by Croghan. The 240,729 treasury shares held as of September 30, 2012 and December 31, 2011 are reported at their acquired cost.

A cash dividend of $.32 per share was declared on September 11, 2012, payable on October 31, 2012 to shareholders of record as of October 12, 2012.

NET INTEREST INCOME

Net interest income, which represents the excess revenue generated from interest-earning assets over the interest cost of funding those assets, ~~decreased~~increased $~~256~~105,000 (52.3%) for the three-month period ended September 30, ~~2012~~2013, as compared to the same period in ~~2011.~~2012, ~~Net~~and ~~interest income decreased~~ $~~307~~456,000 (23.24%) for the nine-month period ended September 30, ~~2012,~~2013 as compared to the same period in ~~2011~~2012. ~~Croghan’s~~The net interest ~~margin~~ ~~decreased~~yield increased to 3.1925% ~~percent~~ for the three and nine-month period ended September 30, ~~2012~~2013, compared to 43.0517% ~~percent~~and 3.19% for the same ~~period~~periods in ~~2011~~2012. The increase ~~of $110,027,000~~ in ~~average~~net interest~~-earning~~ ~~assets~~income ~~year-over-year~~ was ~~primarily~~largely ~~due~~attributable to ~~acquisition~~ ~~of cash, loans, and deposits in~~ the ~~HSL~~change ~~branch acquisition. The decrease~~ in ~~net~~mix ~~interest income partially resulted from the Bank recognizing interest~~ of ~~$206,000 during the third quarter of 2011, which resulted from the collection of a loan that had been on non~~interest-~~accrual.~~earning ~~Contributing~~assets toand ~~help offset~~ the ~~decrease is the~~ continued ~~reduction~~decrease in interest ~~average~~expense ~~cost of funds, and, as a result, reduced rates~~ on ~~interest-bearing~~ deposits. ~~This reduction is offset by the decrease in loan yields and the increase in available-for-sale securities which are lower yielding assets.~~

PROVISION FOR LOAN LOSSES AND THE ALLOWANCE FOR LOAN LOSSES

Croghan’s comprehensive loan policy provides guidelines for managing credit risk and asset quality. The policy details acceptable lending practices, establishes loan-grading classifications, and stipulates the use of a loan review process. Croghan ~~directly~~ employs three staff members dedicated to the credit analysis function to ~~aid~~facilitate ~~in facilitating~~ the early identification of problem loans, to help ensure sound credit decisions, and to assist in the determination of the allowance for loan losses. Croghan also engages an outside credit review firm to supplement the credit analysis function and to provide an independent assessment of the loan review process. Croghan’s loan policy, loan review process, and credit analysis staff facilitate management’s evaluation of the credit risk inherent in the lending function.

The following table ~~details~~provides ~~factors~~information relating to the provision and allowance for loan losses for the nine-month periods ~~noted~~ended September 30, 2013 and 2012 (dollars in thousands):

	Nine months endedSeptember 30, 2012			Nine months endedSeptember 30, 2011
	2013			2012
	(Dollars in thousands)
Provision for loan losses charged to expense	$	275		$	325
Provision for loan losses charged to expense	$	325		$	300
Net loan charge-offs		479			760
Net loan charge-offs		760			391
Annualized net loan charge-offs as a percent of average outstanding loans		.20	%		.33	%
Annualized net loan charge-offs as a percent of average outstanding loans		.33	%		.19	%

The following table ~~details~~provides ~~factors~~information relating to non-performing and potential problem loans as of the ~~dates~~ dates noted (dollars in thousands):

	September 30, 2012			December 31, 2011
	September 30, 2013			December 31, 2012
	(Dollars in thousands)
Nonaccrual loans	$	1,855		$	1,837
Nonaccrual loans	$	2,033		$	3,376
Loans contractually past due 90 days or more and still accruing interest		421			967
Loans contractually past due 90 days or more and still accruing interest		392			672
TDR-accruing		3,923			4,342
TDR-accruing		3,600			3,532
TDR-non-accruing		1,203			916
TDR-non-accruing		806			1,295
Total TDR loans		5,126			5,258
Total TDR loans		4,406			4,827
Potential problem loans, other than those past due 90 days or more, nonaccrual, or restructured		6,309			6,542
Potential problem loans, other than those past due 90 days or more, nonaccrual, or restructured		9,027			18,161
Total potential problem and non-performing loans	$	13,711		$	14,604
Total potential problem and non-performing loans	$	15,858		$	27,036
Allowance for loan losses	$	4,121		$	4,325
Allowance for loan losses	$	4,343		$	4,778
Allowance for loan losses as a percent of period-end loans		1.26	%		1.35	%
Allowance for loan losses as a percent of period-end loans		1.37	%		1.58	%

During the third quarter of ~~2012~~2013, the Bank recognized a $~~150~~50,000 provision for loan losses as compared to a ~~negative~~$150,000 provision during the same period a year ago, a decrease of $100,000. ~~during~~The 2013 year-to-date provision for loan losses of $275,000 is $50,000 lower than the ~~same~~comparable ~~period~~periods a year ago. The ~~negative~~decrease ~~provision~~ in the ~~third~~2013 ~~quarter~~year-to-date ~~2011~~provision ~~resulted~~for ~~from~~loan losses is primarily due to the ~~collection~~decrease ofin total potential problem loans, including a ~~loan~~$546,000 ~~that~~decrease ~~was~~in onloans ~~nonaccrual~~past ~~and~~due ~~previously~~90 ~~charged~~days ~~off~~and still accruing. Net loan charge-offs ~~increased~~decreased $~~369~~281,000 to $479,000 during the first nine months of ~~2012~~2013 compared to the same period a year ago. ~~The~~ ~~2012~~Charge-offs ~~third~~for ~~quarter~~the ~~provision~~first ~~was~~nine ~~calculated~~months byof ~~using~~2013 ~~average~~included ~~historical loss rates~~$175,000 asof ~~well~~charge-offs ~~as specific loss estimates on impaired loans, which together are used~~ to ~~calculate certain~~one ~~segments~~non-commercial ~~of loans and their corresponding allowance for~~ loan ~~losses~~customer.

Total potential problem and non-performing loans, which are summarized in the preceding table, decreased $11893,~~178,~~000, or 416.31%, to $1513,~~858~~711,000 at September 30, ~~2012~~2013, compared to $2714,~~036~~604,000 at December 31, ~~2011~~2012. Favorable components included a $9,134,000 decrease in potential problem loans other than those past due 90 days or more, nonaccrual, or restructured. This decrease was partially the result of one large commercial borrower having significant financial improvement, which allowed the Bank to upgrade this credit. Other favorable components included a $1,343,000 decrease in nonaccrual loans, a $280,000 decrease in loans contractually past due 90 days or more and still accruing interest, and a $421,000 decrease in the total TDR loan category.

AsCroghan ~~illustrated~~typically inclassifies ~~the~~credits ~~following~~as ~~table,~~potential $7problem loans,~~968,000,~~ regardless of collateralization or ~~88.3%~~the existence of contractually obligated guarantors, when a review of ~~total~~the borrower’s financial statements indicates that the borrowing entity does not generate sufficient operating cash flow to adequately service its debts. All potential problem loans at September 30, 2013 were performing loans (less than 3090 days past due) ~~and~~with ~~$9,022,000,~~approximately or 99.9%~~, were~~ ~~secured~~of ~~with~~outstanding ~~collateral~~borrowings atcollateralized ~~September 30,~~by ~~2012~~an interest in real property.

Croghan typically classifies credits as potential problem loans, regardless of collateralization or the existence of contractually obligated guarantors, when a review of the borrower’s financial statements indicates that the borrowing entity does not generate sufficient operating cash flow to adequately service its debts. All of the potential problem loans at September 30, 2012, totaling $9,027,000, are currently performing loans (less than 90 days past due) and a majority are collateralized by an interest in real property.

The following table provides additional detail pertaining to the past due status of Croghan’s potential problem loans as of the dates noted (dollars in thousands):

	September 30,2012		December 31,2011
	September 30, 2013		December 31, 2012
	(Dollars in thousands)
Potential problem loans not currently past due	$	2,399	$	4,777
Potential problem loans not currently past due	$	6,509	$	16,984
Potential problem loans past due one day or more but less than 10 days		342		406
Potential problem loans past due one day or more but less than 10 days		187		91
Potential problem loans past due 10 days or more but less than 30 days		2,407		755
Potential problem loans past due 10 days or more but less than 30 days		1,272		167
Potential problem loans past due 30 days or more but less than 60 days		598		130
Potential problem loans past due 30 days or more but less than 60 days		878		342
Potential problem loans past due 60 days or more but less than 90 days		563		474
Potential problem loans past due 60 days or more but less than 90 days		181		577
Total potential problem loans	$	6,309	$	6,542
Total potential problem loans	$	9,027	$	18,161

~~Total~~As ~~potential~~illustrated ~~problem~~in ~~loans~~the ~~not~~table, ~~currently past due decreased~~ $105,~~475~~148,000 ~~during the first nine months of 2012~~, ~~which resulted~~or ~~primarily from one commercial borrower being upgraded~~81. ~~This decrease was partially offset by a $1~~6%,~~341,000~~ ~~increase in the aggregate amount~~ of total potential problem loans inwere ~~the~~less than 30 days past due ~~categories~~.

~~The~~Management ~~following~~will ~~table~~continue ~~provides~~to ~~additional~~monitor ~~detail~~asset ~~pertaining~~quality totrends throughout the ~~collateralization~~remainder of 2013 to ensure adequate provisions for loan losses are made in a timely manner. It is Croghan’s ~~potential~~policy ~~problem~~to ~~loans~~maintain asthe ofallowance for loan losses at a level sufficient to provide for losses inherent in the ~~dates~~portfolio. ~~noted:~~Management believes the allowance for loan losses at September 30, 2013 is adequate to provide for those losses identified as well as those losses inherent within the loan portfolio.

	September 30,2012		December 31,2011
	(Dollars in thousands)
Collateralized by an interest in real property	$	8,861	$	17,582
Collateralized by an interest in assets other than real property		161		575
Unsecured		5		4
Total potential problem loans	$	9,027	$	18,161

Management will continue to monitor asset quality trends throughout 2012 to ensure adequate provisions for loan losses are made in a timely manner. It is Croghan’s policy to maintain the allowance for loan losses at a level sufficient to provide for losses inherent in the portfolio. Management believes the allowance for loan losses at September 30, 2012 is adequate to provide for those losses identified as well as those losses inherent within the loan portfolio.

NON-INTEREST INCOME

Total non-interest income increased $~~294~~33,000 (~~37.~~3.0%) for the three-month period ended September 30, ~~2012~~2013, compared to the same period in ~~2011~~2012, and increased $~~866~~292,000 (358.38%) for the nine-month period ended September 30, ~~2012~~2013, compared to the same period in ~~2011~~2012. ~~During~~The ~~the~~quarterly ~~third~~increase ~~quarter~~was ofprimarily ~~2012,~~attributable ~~the~~to ~~Bank~~a ~~had~~$32,000 ~~gains~~increase onin ~~sale~~service ofcharges ~~loans~~on ofdeposit accounts. ~~$62,000,~~The ~~which~~increase ~~was~~in upnon-interest ~~$37,000 compared~~income tofor the ~~third~~comparable ~~quarter~~nine-month ofperiods ~~2011;~~was anlargely ~~increase~~attributable to increases of $40156,000 in ~~trust~~gains ~~income;~~on ansale ~~increase~~ of loans and $62115,000 in trust income. ~~stemming~~The ~~from~~increase ~~service~~in ~~charges~~trust onincome ~~deposit~~was ~~accounts;~~largely ~~and~~attributable anto ~~increase~~a one-time infee ~~other~~for ~~income~~an ofestate ~~$21,000.~~settlement ~~Comparatively,~~ during the ~~third~~first quarter of ~~2011,~~ ~~the~~2013. ~~Bank~~The ~~had~~increase in gains on sale of ~~securities~~loans ofresulted ~~$149,000~~from ~~compared~~significant tomortgage ~~none~~loan ~~during~~refinancing ~~the third quarter of 2012. Also~~activity, especially during the ~~third~~first quarter of ~~2011~~2013, ~~the~~in ~~Bank~~response ~~had an Other Than Temporarily Impaired security write down related~~ to ~~one~~the ~~security~~decrease in ~~the~~ ~~amount~~long-term ofinterest ~~$283,000~~rates.

NON-INTEREST EXPENSES

Total non-interest expenses increased $615,000 (15.6%) for the three-month period ended September 30, 2013, as compared to the same period in 2012, and increased $796,000 (6.6%) for the nine-month period ended September 30, 2013, as compared to the same period in 2012. Salaries, wages, and employee benefits increased $214,000 (10.1%) between comparable three-month periods and $648,000 (10.1%) between comparable nine-month periods. Occupancy of premises expense decreased $26,000 (11.1%) between comparable three-month periods and $50,000 (6.9%) between comparable nine-month periods. Amortization of core deposit intangible assets decreased $32,000 between comparable three-month periods and $96,000 between comparable nine-month periods. Other operating expenses increased $459,000 (31.3%) between comparable three-month periods and $294,000 (6.3%) between comparable nine-month periods. The increase in salaries, wages, and employee benefits is attributable to certain employees hired in mid-2012, including mortgage loan originators hired to meet increased demand, as well as a commercial and real estate lender for the Bank’s Tiffin operations. The decrease in the core deposit intangible asset amortization is attributable to accelerated amortization methods used for the December 2011 four branch acquisition. The increases in other operating expenses on both a quarterly and year-over-year basis are a result of one-time expenses attributable to the pending merger transaction with Indebancorp.

NON-INTEREST EXPENSES

Total non-interest expenses increased $234,000 (6.3%) for the three-month period ended September 30, 2012, as compared to the same period in 2011, and increased $1,120,000 (10.2%) for the nine-month period ended September 30, 2012, as compared to the same period in 2011. Salaries, wages, and employee benefits increased $71,000 (3.4%) between comparable three-month periods and $254,000 (4.1%) between comparable nine-month periods. Occupancy of premises expense increased $19,000 (8.8%) between comparable three-month periods and increased $66,000 (10.0%) between comparable nine-month periods. Amortization of core deposit intangible increased $86,000 between comparable three-month periods, and increased $257,000 between comparable nine-month periods due to the core deposit intangible that resulted from the HSL acquisition. Other operating expenses increased $58,000 (4.1%) between comparable three-month periods and $543,000 (13.1%) between comparable nine-month periods. These increases are a result of the HSL acquisition.

Within the other operating expense category is the FDIC insurance expense. During the nine-month period ended September 30, 2012, the FDIC insurance expense was $297,000, compared to $293,000 during the same period in 2011. The Bank prepaid the amount of $1,797,000 in December 2009 and had a remaining prepaid balance of $601,000 at September 30, 2012. This prepaid assessment amount is included in “Other assets” of the Corporation. Future quarterly assessments will be charged against the prepaid asset until such time as the prepaid asset has been full expensed, at which point the Bank will resume paying premiums to the FDIC.

FEDERAL INCOME TAX EXPENSE

Federal income tax expense decreased $~~189~~147,000 (3951.84%) between comparable three-month periods and $~~327~~71,000 (309.6%) between comparable nine-month periods. ~~The Corporation~~Croghan’s effective tax rate for the third quarter of 2013 was 11.7% compared to 18.2% for the third quarter of 2012, and was 15.5% for the nine months ended September 30, ~~2012 was~~2013 ~~17.1 percent,~~ compared to 2117.81% ~~percent~~ for the same period in ~~2011~~2012. The decrease in the effective tax rate isfor athe ~~result~~third quarter of an2013 ~~increase~~as incompared ~~tax~~to ~~exempt~~the ~~interest~~third ~~income~~quarter ~~from~~of ~~investment~~2012 ~~securities,~~was asprimarily ~~well~~attributable asto atax ~~decrease~~exempt insecurity income ~~before~~comprising ~~federal~~64.8% of pre-tax income ~~taxes~~ in 2013 compared to 48.2% in 2012.

LIQUIDITY AND CAPITAL RESOURCES

Short-term borrowings of federal funds purchased and repurchase agreements averaged $2317,~~724~~235,000 for the nine-month period ended September 30, ~~2012.~~2013 ~~This~~compared ~~compares~~ to $2223,~~514~~724,000 for the nine-month period ended September 30, ~~2011~~2012, and $23,~~433~~552,000 for the ~~twelve-month~~year ~~period~~ ended December 31, ~~2011~~2012.

~~Borrowings~~Borrowed funds consist of borrowings from the Federal Home Loan Bank of Cincinnati (FHLB) and Great Lakes Bankers Bank ~~totaled~~(GLBB) and totaled $1714,~~973~~357,000 at September 30, ~~2012,~~2013 compared to $1815,~~500~~199,000 at December 31, ~~2011,~~2012. ~~and~~The ~~$12,500,000~~only atborrowed ~~September 30,~~funds ~~2011~~activity for the first nine months of 2013 was scheduled payments on the GLBB term loan.

Capital expenditures for premises and equipment totaled $~~177~~336,000 for the nine-month period ended September 30, ~~2012~~2013, compared to $~~386~~177,000 for the same period in ~~2011~~2012. ~~The~~Capital ~~2012~~ expenditures for the 2013 period included ~~improvements~~ property purchased in the Port Clinton area, upgrades to the ~~acquired~~Bank’s ~~HSL~~firewall ~~banking~~system ~~centers,~~and ATM ~~upgrades~~machines, and annew ~~air~~web ~~conditioning~~hosting ~~unit upgrade~~software.

Loan commitments, including letters of credit, as of September 30, ~~2012~~2013, totaled $85111,~~633~~331,000 compared to $7694,~~793~~111,000 at December 31, ~~2011~~2012. Since many of these commitments are expected to expire without being drawn upon, these totals do not necessarily represent future cash requirements.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~There~~Not have been no material changes in the quantitative and qualitative information about market risk from the information provided in Croghan’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (the “2011 Form 10-K”)applicable.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF CONTROLS AND PROCEDURES

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

(a)

information required to be disclosed by the Corporation in this Quarterly Report on Form 10-Q and the other reports which the Corporation files or submits under the Exchange Act would be accumulated and communicated to the Corporation’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure;

(b)

information required to be disclosed by the Corporation in this Quarterly Report on Form 10-Q and the other reports which the Corporation files or submits under the Exchange Act would be recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and

(c)	the Corporation’s disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in the Corporation’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the Corporation’s fiscal quarter ended September 30, ~~2012~~2013, that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Management is not aware of any pending legal proceedings, except for routine legal proceedings to which the Corporation’s subsidiary Bank is a party incidental to its banking business. Management considers none of those proceedings to be material.

ITEM 1A. RISK FACTORS

~~There~~Set ~~are~~forth ~~certain~~below ~~risks~~is ~~and~~a ~~uncertainties~~description inof ~~our~~risk ~~business~~factors ~~that~~related ~~could~~to ~~cause~~the ~~our~~Corporation’s ~~actual~~business, ~~results~~provided to ~~differ~~enable ~~materially~~investors ~~from~~to ~~those~~assess, ~~anticipated.~~and Inbe ~~addition to~~appropriately ~~the~~apprised ~~other~~of, ~~information~~certain ~~set~~risks ~~forth~~and inuncertainties ~~this~~the ~~Quarterly~~Corporation ~~Report~~faces onin ~~Form~~conducting ~~10-Q,~~its ~~you~~business. An investor should carefully consider the ~~risk~~risks ~~factors~~described ~~discussed~~below and elsewhere in ~~“Item~~this ~~1A.~~report, ~~Risk~~which ~~Factors”~~could ofmaterially ~~Part~~and Iadversely ofaffect the Corporation’s ~~2011 Form 10-K~~business, ~~which~~results ~~could~~of ~~materially~~operations, ~~affect~~or ~~our business,~~ financial condition,. The risks and~~/or~~ ~~operating~~uncertainties ~~results.~~discussed ~~There~~below ~~have~~are ~~been~~also noapplicable ~~material~~to ~~changes~~forward-looking ~~from~~statements ~~those~~contained ~~risk~~in ~~factors~~this ~~previously~~report ~~disclosed~~and in ~~“Item~~other ~~1A.~~reports ~~Risk~~filed ~~Factors”~~by ofthe ~~Part~~Corporation Iwith ofthe Securities and Exchange Commission (the ~~2011~~“SEC”). ~~Form~~Given 10these risks and uncertainties, investors are cautioned not to place undue reliance on forward-Klooking statements.

Changes in interest rates could have a material adverse effect on the Corporation’s financial condition and results of operations.

The Corporation’s 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 the Corporation’s control, including general economic conditions, and the policies of various governmental and regulatory authorities (in particular, the Board of Governors of the Federal Reserve System). 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 the Corporation’s financial condition and results of operations. The impact of these changes may be magnified if the Corporation does not effectively manage the relative sensitivity of its assets and liabilities to changes in market interest rates.

Changes in economic and political conditions could adversely affect the Corporation’s financial condition and results of operations.

The Corporation’s 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 the Corporation’s control may adversely affect its asset quality, deposit levels, and loan demand and, therefore, its earnings. Because the Corporation has 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 the Corporation’s borrowers to make timely repayments of their loans, which would have an adverse impact on the Corporation’s earnings. In addition, a substantial portion of the Corporation’s 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 the Corporation’s financial condition and results of operations.

The Corporation’s loan portfolio is concentrated in Northwest Ohio, and changes in the economic conditions and real estate valuations in this market area could adversely impact results of operations, financial condition and cash flows.

The Corporation’s lending and deposit gathering activities are concentrated in Huron, Ottawa, Sandusky, Seneca and Wood Counties in Northwest Ohio. The Corporation’s success has and will continue to depend on the general economic conditions in Northwest Ohio, particularly given that a significant portion of the Corporation’s lending relates to real estate located in this area. Real estate values in these Ohio communities have been negatively impacted by the recent economic crisis. Although there has been some improvement recently in some economic measures, including home prices and unemployment rates in Ohio, adverse changes in the economic conditions in the Northwest Ohio markets could impair the Corporation’s ability to collect payments on loans, increase loan delinquencies, increase problem assets and foreclosures, increase claims and lawsuits, increase devaluations recognized within the Corporation’s OREO portfolio, decrease the demand for the Corporation’s products and services and decrease the value of collateral for loans, especially real estate values, which could have a material adverse effect on the Corporation’s financial condition, results of operations and cash flows.

If actual loan losses exceed the allowance for loan losses, the Corporation’s net income will decrease.

The Corporation maintains 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 the Corporation’s 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 the Corporation’s net income.

The Federal Deposit Insurance Corporation (“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.

The Corporation’s businesses have been and may continue to be adversely affected by conditions in the financial markets and economic conditions generally.

The capital and credit markets have been experiencing unprecedented levels of volatility since 2008. As a consequence of the U.S. economic recession, business activity across a wide range of industries has faced serious difficulties due to the lack of consumer spending and the extreme lack of liquidity in the global credit markets. Unemployment has also increased significantly. A sustained weakness or weakening in business and economic conditions generally or specifically in the markets in which the Corporation does business could have one or more of the following adverse effects on its businesses:

•

A decrease in the demand for loans and other products and services offered by the Corporation.

•

An impairment of certain intangible assets, such as goodwill.

•

An increase in the number of clients who become delinquent, file for protection under bankruptcy laws or default on their loans or other obligations to the Corporation. An increase in the number of delinquencies, bankruptcies or defaults could result in a higher level of nonperforming assets, net charge-offs, provision for loan losses, and valuation adjustments on loans held for sale.

Legislative or regulatory changes or actions could adversely impact the Corporation’s business.

The financial services industry is extensively regulated. Banking laws and regulations are primarily intended for the protection of consumers, depositors and the deposit insurance fund, not to benefit our shareholders. Changes to laws and regulations or other actions by regulatory agencies may negatively impact the Corporation, possibly limiting the services it provides, increasing the ability of non-banks to compete with it, or requiring it to change the way it operates. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the ability to impose restrictions on the operation of an institution and the ability to determine the adequacy of an institution’s allowance for loan losses. Failure to comply with applicable laws, regulations and policies could result in sanctions being imposed by the regulatory agencies, including the imposition of civil money penalties, which could have a material adverse effect on the Corporation’s operations and financial condition.

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. Recently, Congress and the federal bank regulators have acted 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 federal bank regulators subject the Corporation, and other financial institutions, to additional restrictions, oversight and costs that may have an impact on the Corporation’s business and results of operations.

The Dodd-Frank Act was signed into law on July 21, 2010 and, although it became generally effective in July 2010, many of its provisions have extended implementation periods and delayed effective dates and will require extensive rulemaking by regulatory authorities. The Dodd-Frank Act, including future rules implementing its provisions and the interpretation of those rules, could result in a number of adverse impacts. The levels of capital and liquidity with which the Corporation must operate may be subject to more stringent capital requirements. In addition, the Corporation may be subjected to higher deposit insurance premiums to the FDIC. The Corporation may also be subject to additional regulations under the newly established Consumer Financial Protection Bureau, which was given broad authority to implement new consumer protection regulations. These and other provisions of the Dodd-Frank Act may place significant additional costs on the Corporation, impede its growth opportunities and place it at a competitive disadvantage.

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

As a bank holding company, the Corporation’s principal source of funds to pay dividends on its common shares is dividends from the Bank. In the event that the Bank is unable to pay dividends, the Corporation may not be able to pay dividends on its common shares.

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 of Financial Institutions of the Ohio Department of Commerce, 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 is unable to pay dividends, the Corporation in turn would likely have to reduce or stop paying dividends on its common shares. The Corporation’s failure to pay dividends on its common shares could, in turn, have a material adverse effect on the market price of the Corporation’s common shares.

The Corporation’s credit standards and on-going process of credit assessment might not protect it from significant credit losses.

The Corporation takes credit risk by virtue of making loans. The Corporation’s exposure to credit risk is managed through the use of consistent and conservative underwriting standards. The Corporation’s 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 the Corporation 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.

The Corporation depends upon the accuracy and completeness of information about customers.

In deciding whether to extend credit or enter into other transactions with customers, the Corporation may rely on information provided by customers, including financial statements and other financial information. The Corporation 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, the Corporation 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. The Corporation may also rely on the reports of accounting firms issuing an opinion or other assurances on those financial statements. The Corporation’s financial condition and results of operation could be negatively impacted to the extent it relies on financial statements that do not comply with generally accepted accounting principles or that are materially misleading.

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

The Corporation and the Bank are required by federal and state regulatory authorities to maintain adequate levels of capital to support their operations. If the Bank experiences increased loan losses, additional capital may need to be infused. In addition, the Corporation may elect to raise additional capital to support its business or to finance acquisitions, or it may otherwise elect or be required to raise additional capital. The Corporation’s ability to raise additional capital, if needed, will depend on its financial performance, conditions in the capital markets, economic conditions and a number of other factors, many of which are outside its control. Accordingly, there can be no assurance that the Corporation can raise additional capital if needed or on acceptable terms. If the Corporation cannot raise additional capital when needed, it may have a material adverse effect on the Corporation’s financial condition and results of operations. In addition, the Corporation’s issuance of additional common shares, preferred shares or other equity securities to raise additional capital may have a dilutive effect on our existing shareholders and could lead to a decline in the price of our common shares.

The Corporation operates in an extremely competitive market and the Corporation will suffer if it is unable to compete effectively.

In the Corporation’s market area, it encounters 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 the Corporation’s competitors have substantially greater resources and lending limits than it does and may offer services that it does not or cannot provide. The Corporation’s ability to maintain its history of strong financial performance will depend in part on its continued ability to compete successfully in its market area and on its ability to expand its scope of available financial services as needed to meet the needs and demands of its customers.

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

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

Changes in accounting standards could impact the Corporation’s 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 the Corporation’s consolidated financial statements. These changes can be difficult to predict and can materially affect how the Corporation records and reports its financial condition and results of operations. In some cases, the Corporation could be required to apply a new or revised standard retroactively, which would result in the restatement of its financial statements for prior periods.

Changes in tax laws could adversely affect the Corporation’s results of operations

The Corporation is subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, franchise, withholding and ad valorem taxes. Changes to the Corporation’s taxes could have a material adverse effect on its results of operations. In addition, the Corporation’s customers are subject to a wide variety of federal, state and local taxes. Changes in taxes paid by the Corporation’s customers may adversely affect their ability to purchase homes or consumer products, which could adversely affect their demand for loans and deposit products. In addition, such negative effects on the Corporation’s customers could result in defaults on the loans made by the Bank and decrease the value of mortgage-backed securities in which the Bank has invested.

The Corporation relies heavily on its management team and the unexpected loss of key management may adversely affect its business and financial results.

The Corporation’s success to date has been strongly influenced by its ability to attract and to retain senior management experienced in banking in the markets that the Corporation serves. The Corporation’s ability to retain executive officers and the current management team will continue to be important to successful implementation of its strategies. The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on the Corporation’s business and financial results.

The Corporation must stay current on technological changes in order to compete effectively and meet customer demands.

The financial services market, including banking services, is undergoing rapid changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and may enable the Corporation to reduce costs. The Corporation’s future success will depend, in part, on its ability to use technology to provide products and services that provide convenience to customers and to create additional efficiencies in its operations. Some of the Corporation’s competitors have substantially greater resources to invest in technological improvements. The Corporation may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers.

The Corporation’s information systems may experience an interruption or security breach.

The Corporation relies heavily on communications and information systems to conduct its business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in the Corporation’s customer relationship management, general ledger, deposit, loan and other systems. While the Corporation has policies and procedures designed to prevent or limit the effect of the possible failure, interruption or security breach of its information systems, there can be no assurance that any such failure, interruption or security breach will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failure, interruption or security breach of the Corporation’s information systems could damage the Corporation’s reputation, result in a loss of customer business, subject the Corporation to additional regulatory scrutiny, or expose the Corporation to civil litigation and possible financial liability.

The Corporation may be the subject of litigation which could result in legal liability and damage to its business and reputation.

From time to time, the Corporation and the Bank may be subject to claims or legal action from customers, employees or others. Financial institutions like the Corporation and the Bank are facing a growing number of significant class actions, including those based on the manner of calculation of interest on loans and the assessment of overdraft fees. Future litigation could include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. The Corporation and the Bank are also involved from time to time in other reviews, investigations and proceedings (both formal and informal) by governmental and other agencies regarding their businesses. These matters also could result in adverse judgments, settlements, fines, penalties, injunctions or other relief. Like other financial institutions, the Corporation and the Bank are also subject to risk from potential employee misconduct, including non-compliance with policies and improper use or disclosure of confidential information. Substantial legal liability or significant regulatory action against the Corporation could materially adversely affect its business, financial condition or results of operations and/or cause significant reputational harm to its business.

The effect of changes to the healthcare laws in the United States may increase the number of employees who choose to participate in the Corporation’s healthcare plans, which may significantly increase the Corporation’s healthcare costs and negatively impact financial results.

The Corporation offers healthcare coverage to its eligible employees with part of the cost subsidized by the company. With recent changes to the healthcare laws in the United States becoming effective in 2014, more of the Corporation’s employees may choose to participate in the Corporation’s health insurance plans, which could increase the Corporation’s costs for such coverage and material adversely impact the Corporation’s cost of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

3541

ITEM 6. EXHIBITS

Exhibit Number		Description and Exhibit Location
31.1		Rule 13a-14(a)/15d-14(a) Certification – Principal Executive Officer (included with this filing)
31.2		Rule 13a-14(a)/15d-14(a) Certification – Principal Financial Officer (included with this filing)
32		Section 1350 Certification – Principal Executive Officer and Principal Financial Officer (included with this filing)
101		The following materials from Croghan Bancshares, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, ~~2012~~2013, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of September 30, ~~2012~~2013 (unaudited) and December 31, ~~2011~~2012; (ii) the Consolidated Statements of Operations for the three and nine months ended September 30, ~~2012~~2013 and ~~2011~~2012 (unaudited); (iii) the Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, ~~2012~~2013 and ~~2011~~2012 (unaudited); (iv) the Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, ~~2012~~2013 and ~~2011~~2012 (unaudited); (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012 (unaudited); and (vi) the Notes to Unaudited Consolidated Financial Statements ~~tagged as blocks of text and in detail~~ (included with this filing)*

*42 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.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CROGHAN BANCSHARES, INC.
		Registrant
Date: October 26, 2012	By:	/s/ Rick M. Robertson
Date: November 14, 2013	By:	/s/ Rick M. Robertson
		Rick M. Robertson, President and CEO (Principal Executive Officer)
Date: October 26, 2012	By:	/s/ Kendall W. Rieman
Date: November 14, 2013	By:	/s/ Kendall W. Rieman
		Kendall W. Rieman, Treasurer (Principal Financial Officer)

3743

EXHIBIT INDEX

Exhibit Number	Description	Exhibit Location
31.1	Rule 13a-14(a)/15d-14(a) Certification – Principal Executive Officer	Filed herewith
31.2	Rule 13a-14(a)/15d-14(a) Certification – Principal Financial Officer	Filed herewith
32	Section 1350 Certification – Principal Executive Officer and Principal Financial Officer	Filed herewith
101	The following materials from Croghan Bancshares, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, ~~2012~~2013, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of September 30, ~~2012~~2013 (unaudited) and December 31, ~~2011~~2012; (ii) the Consolidated Statements of Operations for the three and nine months ended September 30, ~~2012~~2013 and ~~2011~~2012 (unaudited); (iii) the Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, ~~2012~~2013 and ~~2011~~2012 (unaudited); (iv) the Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, ~~2012~~2013 and ~~2011~~2012 (unaudited); (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2012~~2013 and ~~2011~~2012 (unaudited); and (vi) the Notes to Unaudited Consolidated Financial Statements tagged as blocks of text and in detail*	Filed herewith

*44 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.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

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