CHBH Croghan Bancshares Inc (QB)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2010

0-20159

 

(Commission File Number)

CROGHAN BANCSHARES, INC.

 

(Exact name of registrant as specified in its charter)

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

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

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

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

Indicate by check mark whether the registrant 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 o No o

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

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting Company þ

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

The Registrant had 1,692,301 common shares, par value $12.50 per share, outstanding as of July 28, 2010.

This document contains 26 pages. The Exhibit Index is on page 23 immediately preceding the filed exhibits.

 

 

CROGHAN BANCSHARES, INC.
Index

PART I. FINANCIAL INFORMATION			Page(s)
Item 1.    Financial Statements			3 - 12
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations			13 - 18
Item 3.    Quantitative and Qualitative Disclosures About Market Risk			19
Item 4.    Controls and Procedures			19
PART II. OTHER INFORMATION
Item 1.    Legal Proceedings			20
Item 1A.  Risk Factors			20
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds			20 - 21
Item 3.    Defaults Upon Senior Securities			21
Item 4.    [Reserved]			21
Item 5.    Other Information			21
Item 6.    Exhibits			21
Signatures			22
EX-31.1
EX-31.2
EX-32

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CROGHAN BANCSHARES, INC.
Consolidated Balance Sheets (Unaudited)

		June 30				December 31
		2010				2009
		(Dollars in thousands, except par value)
ASSETS
CASH AND CASH EQUIVALENTS
Cash and due from banks			$  10,342				$  15,928
Interest-bearing deposits in other banks			10,360				796
Total cash and cash equivalents			20,702				16,724
SECURITIES
Available-for-sale, at fair value			121,691				105,792
Held-to-maturity, at amortized cost, fair value of $516 in 2010 and $526 in 2009			501				502
Restricted stock			3,844				3,844
Total securities			126,036				110,138
LOANS			306,588				324,484
Less: Allowance for loan losses			5,283				4,433
Net loans			301,305				320,051
Premises and equipment, net			6,869				6,863
Cash surrender value of life insurance			11,104				10,946
Goodwill			10,430				10,430
Core deposit intangible asset, net			144				173
Accrued interest receivable			1,953				1,857
Other real estate owned			1,784				2,330
Other assets			2,274				2,476
TOTAL ASSETS			$482,601				$481,988
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing			$  52,817				$  60,072
Savings, NOW, and Money Market deposits			164,653				159,316
Time			144,367				151,331
Total deposits			361,837				370,719
Federal funds purchased and securities sold under repurchase agreements			25,906				16,375
Federal Home Loan Bank borrowings			35,500				35,500
Dividends payable			542				549
Other liabilities			1,964				2,718
Total liabilities			425,749				425,861
STOCKHOLDERS’ EQUITY
Common stock, $12.50 par value. Authorized 6,000,000 shares; issued 1,914,109 shares			23,926				23,926
Surplus			179				179
Retained earnings			38,876				38,187
Accumulated other comprehensive income			1,616				1,044
Treasury stock, 221,808 shares in 2010 and 200,232 shares in 2009, at cost			(7,745	)			(7,209	)
Total stockholders’ equity			56,852				56,127
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY			$482,601				$481,988

See notes to consolidated financial statements.

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

		Three months ended
		June 30
		2010				2009
		(Dollars in thousands,
		except per share data)
INTEREST INCOME
Loans, including fees			$4,587				$5,213
Securities:
Obligations of U.S. Government agencies and corporations			662				511
Obligations of states and political subdivisions			401				226
Other			53				52
Interest on deposits due from banks			6				11
Total interest income			5,709				6,013
INTEREST EXPENSE
Deposits			954				1,257
Other borrowings			345				345
Total interest expense			1,299				1,602
Net interest income			4,410				4,411
PROVISION FOR LOAN LOSSES			600				500
Net interest income, after provision for loan losses			3,810				3,911
NON-INTEREST INCOME
Gain on sale of loans			53				178
Gain on sale of securities			8				—
Trust income			260				231
Service charges on deposit accounts			354				347
Other			212				273
Total non-interest income			887				1,029
NON-INTEREST EXPENSES
Salaries, wages, and employee benefits			1,988				1,918
Occupancy of premises			198				193
Amortization of core deposit intangible asset			14				14
Other operating			1,435				1,638
Total non-interest expenses			3,635				3,763
Income before federal income taxes			1,062				1,177
FEDERAL INCOME TAXES			219				304
NET INCOME			$   843				$   873
Net income per share, based on 1,697,081 shares in 2010 and 1,720,330 shares in 2009			$  0.50				$  0.51
Dividends declared per share			$  0.32				$  0.32

See notes to consolidated financial statements.

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

		Six months ended
		June 30
		2010				2009
		(Dollars in thousands,
		except per share data)
INTEREST INCOME
Loans, including fees			$ 9,214				$10,409
Securities:
Obligations of U.S. Government agencies and corporations			1,355				1,051
Obligations of states and political subdivisions			768				443
Other			109				108
Interest on deposits due from banks			11				16
Total interest income			11,457				12,027
INTEREST EXPENSE
Deposits			1,951				2,518
Other borrowings			686				729
Total interest expense			2,637				3,247
Net interest income			8,820				8,780
PROVISION FOR LOAN LOSSES			1,100				1,100
Net interest income, after provision for loan losses			7,720				7,680
NON-INTEREST INCOME
Gain on sale of loans			83				234
Gain on sale of securities			8				—
Trust income			515				450
Service charges on deposit accounts			693				711
Other			440				487
Total non-interest income			1,739				1,882
NON-INTEREST EXPENSES
Salaries, wages, and employee benefits			3,983				3,857
Occupancy of premises			424				431
Amortization of core deposit intangible asset			28				28
Other operating			2,763				2,893
Total non-interest expenses			7,198				7,209
Income before federal income taxes			2,261				2,353
FEDERAL INCOME TAXES			486				609
NET INCOME			$ 1,775				$  1,744
Net income per share, based on 1,702,518 shares in 2010 and 1,720,493 shares in 2009			$   1.04				$    1.01
Dividends declared per share			$   0.64				$    0.64

See notes to consolidated financial statements.

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

		Three months ended
		June 30
		2010				2009
		(Dollars in thousands,
		except per share data)
BALANCE AT BEGINNING OF PERIOD		$	56,349			$	55,334
Comprehensive Income:
Net income			843				873
Change in net unrealized gain on securities available-for-sale, net of reclassification adjustments and related income taxes			478				33
Total comprehensive income			1,321				906
Purchase treasury shares, 10,817 in 2010 and none in 2009			(277	)			—
Cash dividends declared, $.32 per share in 2010 and 2009			(541	)			(551	)
BALANCE AT END OF PERIOD		$	56,852			$	55,689

See notes to consolidated financial statements.

		Six months ended
		June 30
		2010				2009
		(Dollars in thousands,
		except per share data)
BALANCE AT BEGINNING OF PERIOD		$	56,127			$	54,819
Comprehensive Income:
Net income			1,775				1,744
Change in net unrealized gain on securities available-for-sale, net of reclassification adjustments and related income taxes			572				241
Total comprehensive income			2,347				1,985
Purchase of treasury shares, 21,576 shares in 2010 and 528 shares in 2009			(536	)			(13	)
Cash dividends declared, $.64 per share in 2010 and 2009			(1,086	)			(1,102	)
BALANCE AT END OF PERIOD		$	56,852			$	55,689

See notes to consolidated financial statements.

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

		Six months ended
		June 30
		2010				2009
		(Dollars in thousands)
NET CASH FLOW FROM OPERATING ACTIVITIES			$   3,305				$   3,324
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities			10,855				12,757
Proceeds from sale of available-for-sale securities			1,996				—
Purchases of available-for-sale securities			(28,314	)			(14,520	)
Net decrease in loans			17,594				14,207
Additions to premises and equipment			(407	)			(558	)
Proceeds from sales of property			—				66
Net cash from investing activities			1,724				11,952
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits			(8,881	)			14,668
Net change in federal funds purchased and securities sold under agreements to repurchase			9,531				(5,321	)
Net change in borrowed funds			—				(4,000	)
Cash dividends paid			(1,093	)			(1,102	)
Purchase of treasury stock			(536	)			(13	)
Payment of deferred compensation			(72	)			(498	)
Net cash from financing activities			(1,051	)			3,734
NET CHANGE IN CASH AND CASH EQUIVALENTS			3,978				19,010
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			16,724				10,132
CASH AND CASH EQUIVALENTS AT END OF PERIOD			$ 20,702				$ 29,142
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest			$   1,902				$   3,033
Federal income taxes			$      791				$      585
NON-CASH OPERATING ACTIVITY:
Change in deferred income taxes on net unrealized gain on available-for-sale securities			$     (295	)			$     (124	)
NON-CASH INVESTING ACTIVITY:
Change in net unrealized gain on available-for-sale securities			$      142				$      365
NON-CASH OPERATING AND INVESTING ACTIVITY:
Transfer of loans to other real estate owned			$        52				$      227

See notes to consolidated financial statements.

CROGHAN BANCSHARES, INC.
Notes to Consolidated Financial Statements
June 30, 2010
(Unaudited)

NOTE 1 – CONSOLIDATED FINANCIAL STATEMENTS

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

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. The Corporation’s Annual Report to shareholders for the year ended December 31, 2009, contains consolidated financial statements and related footnote disclosures which should be read in conjunction with the accompanying consolidated financial statements. The results of operations for the period ended June 30, 2010 are not necessarily indicative of the operating results for the full year.

Management evaluated subsequent events through July 28, 2010, the date the financial statements were issued. Events or transactions occurring after June 30, 2010, but prior to when the consolidated financial statements were issued, that provided additional evidence about conditions that existed at June 30, 2010, have been recognized in the consolidated financial statements for the period ended June 30, 2010. Events or transactions that provided evidence about conditions that arose before the financial statements were issued but did not exist at June 30, 2010, have not been recognized in the financial statements for the period ended June 30, 2010.

NOTE 2 – NEW ACCOUNTING PRONOUNCEMENTS

ASC 860-10 addresses accounting for transfers of financial assets. Among other requirements, the ASC removes the concept of a qualifying special-purpose entity and removes the exception from applying consolidation of variable interest entities to qualifying special-purpose entities. The objective is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. Among other things, ASC 860-10 applies to any transfer of financial assets, which for the Corporation primarily relates to loan participations sold. The adoption of ASC 860-10 effective January 1, 2010 did not have any impact on the Corporation’s June 30, 2010 consolidated financial statements since the Bank did not sell any loan participations during the six-month period ended June 30, 2010.

In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures , which provides amendments to ASC 820-10 and is intended to improve disclosure requirements related to fair value measurements. The Update clarifies that a reporting entity should provide fair value measurement disclosures for each class of assets and liabilities measured at fair value. A class is often a subset of assets or liabilities within a line item in the statement of financial position. Reporting entities should also provide disclosures about the valuation techniques and inputs used to measure fair value for fair value measurements falling within Level 2 or 3. The new disclosures and clarifications of existing disclosures are effective for interim

and annual reporting periods beginning after December 15, 2009, except for the purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years, and have not had a material impact on the Corporation’s financial position or results of operations.

In July 2010, the FASB issued Accounting Standards Update 2010-20 , Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit losses . The new guidance will increase disclosures made about the credit quality of loans and the allowance for credit losses. The disclosures will provide additional information about the nature of credit risk inherent in the Company’s loans, how credit risk is analyzed and assessed, and the reasons for the change in the allowance for loan losses. The requirements will be effective for the Corporation’s year ended December 31, 2010. The Company has not yet determined the impact the requirements will have on the consolidated financial statements.

NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS

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

		June 30, 2010								December 31, 2009
		Carrying				Estimated fair				Carrying				Estimated fair
		amount				value				amount				value
						(Dollars in thousands)
FINANCIAL ASSETS
Cash and cash equivalents		$	20,702				$  20,702			$	16,724				$  16,724
Securities			126,036				126,039				110,138				110,162
Loans, net			301,305				300,961				320,051				320,047
Total		$	448,043				$447,702			$	446,913				$446,933
FINANCIAL LIABILITIES
Deposits		$	361,837				$362,965			$	370,719				$372,312
Federal funds purchased and securities sold under repurchase agreements			25,906				25,783				16,375				16,327
Federal Home Loan Bank borrowings			35,500				36,915				35,500				37,108
Total		$	423,243				$425,663			$	422,594				$425,747

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 $71,769,000 at June 30, 2010 and $71,275,000 at December 31, 2009.

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

Cash and Cash Equivalents

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

Securities

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

Loans

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

Deposit Liabilities

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

Other Financial Instruments

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

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 – SECURITIES

Amortized cost and fair value of available-for-sale securities were as follows (dollars in thousands):

		June 30, 2010								December 31, 2009
		Amortized				Fair				Amortized				Fair
		cost				value				cost				value
Obligations of U.S. Government agencies and corporations		$	72,007			$	73,309			$	65,927			$	66,729
Obligations of states and political subdivisions			46,885				48,032				37,933				38,713
Other			350				350				350				350
Total available-for-sale			119,242				121,691				104,210				105,792
Held-to-maturity — corporate debt obligation			501				516				502				526
Restricted stock			3,844				3,844				3,844				3,844
Total		$	123,587			$	126,051			$	108,556			$	110,162

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

		June 30, 2010								December 31, 2009
		Gross				Gross				Gross				Gross
		unrealized gains				unrealized losses				unrealized gains				unrealized losses
Obligations of U.S. Government agencies and corporations			$1,724				$422				$1,153				$351
Obligations of states and political subdivisions			1,197				50				871				91
Total available-for-sale			2,921				472				2,024				442
Held-to-maturity — corporate debt obligation			15				—				24				—
Total			$2,936				$472				$2,048				$442

NOTE 5 – OTHER COMPREHENSIVE INCOME

The components of other comprehensive income and related tax effects for the six-month periods ended June 30, 2010 and 2009 were as follows (dollars in thousands):

		2010				2009
Unrealized gains on available-for-sale securities			$2,449				$1,078
Tax effect			833				366
Net-of-tax amount			$1,616				$   712

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

Where appropriate, the following discussion relating to Croghan contains the insights of management into known events and trends that have or may be expected to have a material effect on Croghan’s operations and financial condition. The information presented may also contain certain forward-looking statements regarding future financial performance, which are not historical facts and which involve various risks and uncertainties. When used herein, the terms “anticipates”, “believes”, “plans”, “intends”, “expects”, “estimates”, “projects”, “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, 2009.

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

PERFORMANCE SUMMARY

Net income for the three-month period ended June 30, 2010 was $843,000, or $.50 per common share, compared to $873,000, or $.51 per common share, for the same period in 2009. Net income for the six-month period ended June 30, 2010 was $1,775,000, or $1.04 per common share, compared to $1,744,000, or $1.01 per common share, for the same period in 2009. The results for the second quarter 2010 compared to the second quarter 2009 were adversely impacted by a decrease of $1,000 in net interest income, a decrease of $142,000 in non-interest income, and a $100,000 increase in the provision for loan losses. Results for the second quarter were positively impacted by a $128,000 decrease in non-interest expenses and an $85,000 decrease to the provision for federal income taxes.

Assets at June 30, 2010 totaled $482,601,000, compared to $481,988,000 at December 31, 2009. Total cash and cash equivalents increased $3,978,000 to $20,702,000 during the six-month period ended June 30, 2010, and total securities increased $15,898,000 to $126,036,000 at June 30, 2010. Total loans decreased $17,896,000 to $306,588,000 at June 30, 2010, from $324,484,000 at 2009 year end. Total deposits decreased $8,882,000 to $361,837,000 at June 30, 2010, from $370,719,000 at 2009 year end.

FINANCIAL POSITION

The following comments are based upon a comparison of Croghan’s financial position at June 30, 2010 to December 31, 2009.

Total cash and cash equivalents increased $3,978,000 (23.8%) and total securities increased $15,898,000 (14.4%) during the six-month period ended June 30, 2010. Total loans decreased $17,896,000 (5.5%) to $306,588,000 at June 30, 2010, compared to $324,484,000 at December 31, 2009. During the same period, deposits decreased $8,882,000 (2.4%) to $361,837,000 at June 30, 2010, compared to $370,719,000 at December 31, 2009.

The increase in securities during the six-month period ended June 30, 2010 primarily resulted from purchases of available-for sale securities of $28,314,000, with maturities during the period of $10,855,000. One security was sold during the period, resulting in a gain of $8,000. Securities purchases were a direct result of the continued loan balance decline, resulting in excess cash being put into interest-earning securities.

The decrease in total loans during the six-month period ended June 30, 2010 resulted from the continuing sale of fixed-rate mortgages into the secondary market, pay-downs from commercial borrowers partially due to seasonality, the continued slow recovery of the economy, and a continuation of the soft demand in the Bank’s lending markets.

Components of the decrease in deposits include the liquid deposit category (demand, savings, NOW, and money market deposit accounts), which decreased $1,918,000 (.9%), and the time deposit category, which decreased $6,964,000 (4.6%). Croghan strives to maintain a strong interest margin by balancing deposit needs to fund anticipated loan demand and by maintaining the necessary deposit pricing structure.

Stockholders’ equity at June 30, 2010 increased to $56,852,000, or $33.59 book value per common share, compared to $56,127,000, or $32.75 book value per common share, at December 31, 2009. Stockholders’ equity includes accumulated other comprehensive income consisting of net unrealized gains on securities classified as available-for-sale, net of related income taxes. At June 30, 2010, Croghan held $121,691,000 of available-for-sale securities with a net unrealized gain of $1,616,000, net of income taxes, compared to $105,792,000 in available-for-sale securities at December 31, 2009 with a net unrealized gain of $1,044,000, net of income taxes.

Beginning in February 2002, Croghan instituted a stock repurchase program, which has subsequently been extended through February 1, 2011. Since the inception of the program, a total of 229,870 shares have been purchased as treasury shares. Shares held in treasury, which totaled 221,808 at June 30, 2010 and 200,232 at December 31, 2009, are reported at their acquired cost.

A cash dividend of $.32 per share was declared on June 8, 2010, payable on July 30, 2010 to shareholders of record as of July 16, 2010.

NET INTEREST INCOME

Net interest income, which represents the excess revenue generated from interest-earning assets over the interest cost of funding those assets, increased $40,000 (.5%) for the six-month period ended June 30, 2010, as compared to the same period in 2009. Croghan’s net interest margin decreased to 4.05 percent for the six-month period ended June 30, 2010, compared to 4.15 percent for the same period in 2009. This decrease is attributable to the shift in interest-earning assets from loans, which is typically the highest yielding interest-earning asset, to available-for-sale securities. Croghan has been able to somewhat mitigate the decline by reducing its average cost of funds as a result of lower rates on interest-bearing deposits.

PROVISION FOR LOAN LOSSES AND THE ALLOWANCE FOR LOAN LOSSES

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

The following table details factors relating to the provision and allowance for loan losses for the periods noted:

		Six months ended				Six months ended
		June 30, 2010				June 30, 2009
		(Dollars in thousands)
Provision for loan losses charged to expense		$	1,100			$	1,100
Net loan charge-offs			250				697
Annualized net loan charge-offs as a percent of average outstanding loans			.16	%			.21	%

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

		June 30, 2010				December 31, 2009
		(Dollars in thousands)
Nonaccrual loans			$  4,406				$  5,903
Loans contractually past due 90 days or more and still accruing interest			293				45
Restructured loans			3,584				3,191
Potential problem loans, other than those past due 90 days or more, nonaccrual, or restructured			23,700				22,227
Total potential problem and non-performing loans			$31,983				$31,366
Allowance for loan losses			$  5,283				$  4,433
Allowance for loan losses as a percent of period-end loans			1.72	%			1.37	%

Croghan recognized a $1,100,000 provision for loan losses for each of the six-month periods ended June 30, 2010, and June 30, 2009. The 2010 second quarter provision was primarily attributable to an increase in the historical loss rates, which are used to calculate the allowance for loan losses. This trend is due to the general deterioration of the economy, which began in the first quarter 2008, causing economic deterioration which results in issues with borrowers fulfilling their payment obligations. The 2009 second quarter provision was due to a $518,000 charge-off with respect to a commercial client that ceased operations during the second quarter of 2009.

The allowance for loan losses, as a percent of total loans, increased from 1.37% at December 31, 2009 to 1.72% at June 30, 2010. Croghan’s allowance for loan losses is determined based on a detailed analysis of the portfolio which considers delinquency trends, the status of non-performing loans, current and historic trends of loan charge-offs within each loan category, existing local and national economic conditions, and changes within the volume and mix of each loan category.

Total potential problem and non-performing loans, which are summarized in the preceding table increased $617,000 (2.0%), to $31,983,000 at June 30, 2010, compared to $31,366,000 at December 31, 2009. At June 30, 2010, as compared to December 31, 2009, nonaccrual loans decreased by $1,497,000, while unfavorable components of potential problem and non-performing loans included a $248,000 increase in loans contractually past due 90 days or more and still accruing interest, a $393,000 increase in restructured loans, and a $1,473,000 increase in potential problem loans other than those past due 90 days or more, nonaccrual, or restructured.

Croghan typically classifies a loan as a potential problem loan, regardless of its collateralization or the existence of contractually obligated guarantors, when a review of the borrower’s financial statements indicates that the borrowing entity does not generate sufficient operating cash flow to adequately service its debts. All of Croghan’s potential problem loans, totaling $23,700,000 at June 30, 2010, were less than 90 days past due and a majority of these loans are collateralized by an interest in real property.

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

		June 30,				December 31,
		2010				2009
		(Dollars in thousands)
Potential problem loans not currently past due		$	19,182				$16,453
Potential problem loans past due one day or more but less than 10 days			2,338				186
Potential problem loans past due 10 days or more but less than 30 days			1,159				4,833
Potential problem loans past due 30 days or more but less than 60 days			409				528
Potential problem loans past due 60 days or more but less than 90 days			612				227
Total potential problem loans		$	23,700				$22,227

Total potential problem loans increased slightly during the second quarter of 2010, which resulted primarily from a $4,881,000 increase in the loans not currently past due and potential problem loans past due one day but less than 10 days. This increase was partially offset by a $3,408,000 decrease in the aggregate amount of potential problem loans past due 10 days but less than 90 days. Total potential problem loans less than 30 days past due totaled $22,679,000 (95.7%) at June 30, 2010, compared to $21,472,000 (96.6) percent of such loans at December 31, 2009.

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

		June 30,				December 31,
		2010				2009
		(Dollars in thousands)
Collateralized by an interest in real property		$	23,010				$21,622
Collateralized by an interest in assets other than real property			683				600
Unsecured			7				5
Total potential problem loans		$	23,700				$22,227

Management will continue to monitor asset quality trends throughout 2010 to ensure adequate provisions for loan losses are made in a timely manner. It is Croghan’s policy to maintain the allowance for loan losses at a level sufficient to provide for losses inherent in the portfolio. Management believes the allowance for loan losses at June 30, 2010 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 decreased $142,000 (13.8%) for the three-month period ended June 30, 2010, compared to the same period in 2009, and $143,000 (7.6%) for the six-month period ended June 30, 2010, compared to the same period in 2009. During the second quarter of 2010, the Bank had gains on sale of loans of $53,000, which was down compared to $178,000 during the second quarter of 2009, and a decrease of $61,000 in other fee income. Some of these decreases were offset by an increase of $29,000 in trust income, an increase of $7,000 in deposit service charges, and gain on sale of securities of $8,000.

NON-INTEREST EXPENSES

Total non-interest expenses decreased $128,000 (3.4%) for the three-month period ended June 30, 2010, as compared to the same period in 2009, and $11,000 (.2%) for the six-month period ended June 30, 2010, as compared to the same period in 2009. Salaries, wages, and employee benefits increased $70,000 (3.6%) between comparable three-month periods and $126,000 (3.3%) between comparable six-month periods. Occupancy of premises expense increased $5,000 (2.6%) between comparable three-month periods and decreased $7,000 (1.6%) between comparable six-month periods. Other operating expenses decreased $203,000 (12.4%) between comparable three-month periods and $130,000 (4.5%) between comparable six-month periods.

Within the other operating expense category is the FDIC insurance expense. During the six-month period ended June 30, 2010, the FDIC insurance expense was $278,000, compared to $400,000 during the same period in 2009, which included a one-time special assessment of $215,000 that occurred in June of 2009. Pursuant to a final rule adopted by the FDIC in November 2009, the Bank was required to prepay its estimated quarterly risk-based assessments to the FDIC for the fourth quarter of 2009 and for all of 2010, 2011, and 2012. The Bank prepaid the amount of $1,797,000 in December 2009 and had a remaining prepaid balance of $1,519,000 at June 30, 2010. These prepaid assessment amounts are included in other assets of the Corporation. Future quarterly assessments will be charged against the prepaid asset until such time as the prepaid asset has been full expensed, at which point the Bank will resume paying premiums to the FDIC.

FEDERAL INCOME TAX EXPENSE

Federal income tax expense decreased $85,000 (28.0%) between comparable three-month periods and $123,000 (20.2%) percent between comparable six-month periods. The Corporation’s effective tax rate for the six months ended June 30, 2010 was 21.4 percent, compared to 25.8 percent for the same period in 2009.

LIQUIDITY AND CAPITAL RESOURCES

Short-term borrowings of federal funds purchased and repurchase agreements averaged $19,220,000 for the six-month period ended June 30, 2010, compared to $13,482,000 for the twelve-month period ended December 31, 2009 and $12,294,000 for the six-month period ended June 30, 2009.

Borrowings from the Federal Home Loan Bank totaled $35,500,000 at June 30, 2010, June 30, 2009, and December 31, 2009.

Capital expenditures for premises and equipment totaled $407,000 for the six-month period ended June 30, 2010, compared to $558,000 for the same period in 2009. Capital expenditures in 2010 included software relating to virtualization and the ATM/POS conversion, drive-up tube system at the Fremont West banking center, a generator for the operations center, a new roof for the Custar banking center, and new furniture at the main office.

As of June 30, 2010, Loan commitments including letters of credit totaled $71,769,000 compared to $71,275,000 at December 31, 2009. Since many of these commitments are expected to expire without being drawn upon, this total does not necessarily represent future cash requirements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the quantitative and qualitative disclosures about market risk from the information provided in Croghan’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (the “2009 Form 10-K”).

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF CONTROLS AND PROCEDURES

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

(a)		information required to be disclosed by the Corporation in this Quarterly Report on Form 10-Q and the other reports which the Corporation files or submits under the Exchange Act would be accumulated and communicated to the Corporation’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure;
(b)		information required to be disclosed by the Corporation in this Quarterly Report on Form 10-Q and the other reports which the Corporation files or submits under the Exchange Act would be recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and
(c)		the Corporation’s disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in the Corporation’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the Corporation’s fiscal quarter ended June 30, 2010, 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 are certain risks and uncertainties in our business that could cause our actual results to differ materially from those anticipated. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in “Item 1A. Risk Factors” of Part I of the 2009 Form 10-K, which could materially affect our business, financial condition, and/or operating results. There have been no material changes from those risk factors previously disclosed in “Item 1A. Risk Factors” of Part I of the 2009 Form 10-K.

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

(a)		Not applicable
(b)		Not applicable
(c)		The table below includes certain information regarding Croghan’s repurchase of its common shares during the quarterly period ended June 30, 2010:

Total Number of

Maximum Number

Shares Purchased

of Shares that May

Total Number

Average

as Part of Publicly

Yet Be Purchased

of Shares

Price Paid

Announced Plans

Under the Plans

Period

Purchased

per Share

or Programs

or Programs (1)

04/01/10 through

None

None

None

74,934

04/30/10

05/01/10 through

10,817

$25.60

10,817

64,117

05/31/10

06/01/10 through

None

None

None

64,117

06/30/10

(1)

An extension of Croghan’s stock repurchase program commencing February 1, 2010 and ending August 1, 2010 was announced on January 28, 2010, in which up to 85,693 shares may be repurchased (with 10,759 shares purchased in the first quarter of 2010, 6,012 shares purchased on May 5, 2010, 2,705 shares purchased on May 12, 2010, and 2,100 shares purchased on May 28, 2010). Another extension of Croghan’s stock repurchase program was approved on July 13, 2010, in which up to 84,615 shares could be repurchased from August 1, 2010 to February 1, 2011.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. [RESERVED]

ITEM 5. OTHER INFORMATION

Not applicable.

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)

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.

EXHIBIT INDEX

Exhibit
Number				Description		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

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