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 September 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		(I.R.S. Employer
incorporation or organization)		Identification No.)
323 Croghan Street, Fremont, Ohio		43420
(Address of principal executive offices)		(Zip Code)

(419) 332-7301

(Registrant’s telephone number, including area code)

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

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

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

Large accelerated filer [  ]		Accelerated filer [  ]	Non-accelerated filer [  ]		Smaller reporting company [X]
		(Do not check if a smaller reporting company)

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

The Registrant had 1,681,380 common shares, par value $12.50 per share, outstanding as of October 27, 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			12 - 17
Item 3.   Quantitative and Qualitative Disclosures About Market Risk			17
Item 4.   Controls and Procedures			18
PART II. OTHER INFORMATION
Item 1.   Legal Proceedings			19
Item 1A. Risk Factors			19
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds			20
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)

		September 30				December 31
ASSETS		2010				2009
		(Dollars in thousands, except par value)
CASH AND CASH EQUIVALENTS
Cash and due from banks		$	11,334			$	15,928
Interest-bearing deposits in other banks			20,792				796
Total cash and cash equivalents			32,126				16,724
SECURITIES
Available-for-sale, at fair value			129,739				105,792
Held-to-maturity, at amortized cost, fair value of $512 in 2010 and $526 in 2009			501				502
Restricted stock			3,844				3,844
Total securities			134,084				110,138
LOANS			302,986				324,484
Less: Allowance for loan losses			5,164				4,433
Net loans			297,822				320,051
Premises and equipment, net			6,729				6,863
Cash surrender value of life insurance			11,216				10,946
Goodwill			10,430				10,430
Core deposit intangible asset, net			130				173
Accrued interest receivable			2,150				1,857
Other real estate owned			2,178				2,330
Other assets			2,594				2,476
TOTAL ASSETS		$	499,459			$	481,988
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing		$	59,529			$	60,072
Savings, NOW, and Money Market deposits			181,571				159,316
Time			138,641				151,331
Total deposits			379,741				370,719
Federal funds purchased and securities sold under repurchase agreements			23,192				16,375
Federal Home Loan Bank borrowings			35,500				35,500
Dividends payable			538				549
Other liabilities			2,447				2,718
Total liabilities			441,418				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			39,554				38,187
Accumulated other comprehensive income			2,404				1,044
Treasury stock, 232,729 shares in 2010 and 200,232 shares in 2009, at cost			(8,022	)			(7,209	)
Total stockholders’ equity			58,041				56,127
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	499,459			$	481,988

See notes to consolidated financial statements.

CROGHAN BANCSHARES, INC.

Consolidated Statements of Operations (Unaudited)

		Three months ended
		September 30
		2010				2009
		(Dollars in thousands,
		except per share data)
INTEREST INCOME
Loans, including fees		$	4,549			$	4,996
Securities:
Obligations of U.S. Government agencies and corporations			668				601
Obligations of states and political subdivisions			444				293
Other			56				59
Interest on deposits in other banks			5				5
Total interest income			5,722				5,954
INTEREST EXPENSE
Deposits			922				1,207
Other borrowings			349				351
Total interest expense			1,271				1,558
Net interest income			4,451				4,396
PROVISION FOR LOAN LOSSES			150				1,250
Net interest income, after provision for loan losses			4,301				3,146
NON-INTEREST INCOME
Gain on sale of loans			87				35
Gain on sale of securities			3				-
Trust income			268				226
Service charges on deposit accounts			374				394
Other			260				189
Total non-interest income			992				844
NON-INTEREST EXPENSES
Salaries, wages, and employee benefits			2,128				1,867
Occupancy of premises			200				203
Amortization of core deposit intangible asset			15				15
Other operating			1,423				1,499
Total non-interest expenses			3,766				3,584
Income before federal income taxes			1,527				406
FEDERAL INCOME TAXES			310				35
NET INCOME		$	1,217			$	371
Net income per share, based on 1,685,535 shares in 2010 and 1,720,330 shares in 2009		$	0.72			$	0.22
Dividends declared per share		$	0.32			$	0.32

See notes to consolidated financial statements.

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

		Nine months ended
		September 30
		2010				2009
		(Dollars in thousands,
		except per share data)
INTEREST INCOME
Loans, including fees		$	13,763			$	15,405
Securities:
Obligations of U.S. Government agencies and corporations			2,023				1,652
Obligations of states and political subdivisions			1,212				736
Other			165				167
Interest on deposits in other banks			16				21
Total interest income			17,179				17,981
INTEREST EXPENSE
Deposits			2,873				3,725
Other borrowings			1,035				1,080
Total interest expense			3,908				4,805
Net interest income			13,271				13,176
PROVISION FOR LOAN LOSSES			1,250				2,350
Net interest income, after provision for loan losses			12,021				10,826
NON-INTEREST INCOME
Gain on sale of loans			170				269
Gain on sale of securities			11				-
Trust income			783				676
Service charges on deposit accounts			1,067				1,105
Other			700				676
Total non-interest income			2,731				2,726
NON-INTEREST EXPENSES
Salaries, wages, and employee benefits			6,111				5,724
Occupancy of premises			624				634
Amortization of core deposit intangible asset			43				43
Other operating			4,186				4,392
Total non-interest expenses			10,964				10,793
Income before federal income taxes			3,788				2,759
FEDERAL INCOME TAXES			796				644
NET INCOME		$	2,992			$	2,115
Net income per share, based on 1,696,795 shares in 2010 and 1,720,438 shares in 2009		$	1.76			$	1.23
Dividends declared per share		$	0.96			$	0.96

See notes to consolidated financial statements.

CROGHAN BANCSHARES, INC.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

		Three months ended
		September 30
		2010				2009
		(Dollars in thousands,
		except per share data)
BALANCE AT BEGINNING OF PERIOD		$	56,852			$	55,689
Comprehensive Income:
Net income			1,217				371
Change in net unrealized gain on securities available-for-sale, net of reclassification adjustments and related income taxes			787				1,160
Total comprehensive income			2,004				1,531
Purchase of treasury shares, 10,921 in 2010 and none in 2009			(277	)			-
Cash dividends declared, $.32 per share in 2010 and 2009			(538	)			(550	)
BALANCE AT END OF PERIOD		$	58,041			$	56,670
		Nine months ended
		September 30
		2010				2009
		(Dollars in thousands,
		except per share data)
BALANCE AT BEGINNING OF PERIOD		$	56,127			$	54,819
Comprehensive Income:
Net income			2,992				2,115
Change in net unrealized gain on securities available-for-sale, net of reclassification adjustments and related income taxes			1,360				1,401
Total comprehensive income			4,352				3,516
Purchase of treasury shares, 32,497 shares in 2010 and 528 shares in 2009			(813	)			(13	)
Cash dividends declared, $.96 per share in 2010 and 2009			(1,625	)			(1,652	)
BALANCE AT END OF PERIOD		$	58,041			$	56,670

See notes to consolidated financial statements.

CROGHAN BANCSHARES, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

		Nine months ended
		September 30
		2010				2009
		(Dollars in thousands)
NET CASH FLOW FROM OPERATING ACTIVITIES		$	4,932			$	4,664
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of available-for-sale securities			16,577				17,000
Proceeds from sale of available-for-sale securities			1,996				-
Purchases of available-for-sale securities			(41,215	)			(37,237	)
Net decrease in loans			20,240				18,139
Additions to premises and equipment			(447	)			(631	)
Proceeds from sale of property			-				66
Net cash from investing activities			(2,849	)			(2,663	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits			9,022				8,740
Net change in federal funds purchased and securities sold under repurchase agreements			6,817				(2,917	)
Net change in borrowed funds			-				(2,000	)
Cash dividends paid			(1,635	)			(1,653	)
Purchase of treasury stock			(813	)			(13	)
Payment of deferred compensation			(72	)			(498	)
Net cash from financing activities			13,319				1,659
NET CHANGE IN CASH AND CASH EQUIVALENTS			15,402				3,660
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			16,724				10,132
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	32,126			$	13,792
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest		$	5,097			$	5,474
Federal income taxes		$	1,311			$	915
NON-CASH OPERATING ACTIVITY:
Change in deferred income taxes on net unrealized gain on
available-for-sale securities		$	(700	)		$	(722	)
NON-CASH INVESTING ACTIVITY:
Change in net unrealized gain on available-for-sale securities		$	2,060			$	2,123
NON-CASH OPERATING AND INVESTING ACTIVITY:
Transfer of loans to other real estate owned		$	739			$	227

See notes to consolidated financial statements.

CROGHAN BANCSHARES, INC.
Notes to Consolidated Financial Statements
September 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 September 30, 2010, are not necessarily indicative of the operating results for the full year.

Management evaluated subsequent events through October 27, 2010, the date the financial statements were issued. Events or transactions occurring after September 30, 2010, but prior to when the consolidated financial statements were issued, that provided additional evidence about conditions that existed at September 30, 2010, have been recognized in the consolidated financial statements for the period ended September 30, 2010. Events or transactions that provided evidence about conditions that arose before the financial statements were issued but did not exist at September 30, 2010, have not been recognized in the financial statements for the period ended September 30, 2010.

NOTE 2 – NEW ACCOUNTING PRONOUCEMENTS

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 September 30, 2010 consolidated financial statements since the Bank did not sell any loan participations during the nine-month period ended September 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 2010-06 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 Credt 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 Corporation’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 Corporation 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:

		September 30, 2010								December 31, 2009
		Carrying			Estimated fair					Carrying			Estimated fair
		amount				value				amount				value
		(Dollars in thousands)
FINANCIAL ASSETS
Cash and cash equivalents		$	32,126			$	32,126			$	16,724			$	16,724
Securities			134,084				134,095				110,138				110,162
Loans, net			297,822				302,262				320,051				320,047
Total		$	464,032			$	468,483			$	446,913			$	446,933
FINANCIAL LIABILITIES
Deposits		$	379,741			$	381,991			$	370,719			$	372,312
Federal funds purchased and securities sold under repurchase agreements			23,192				23,192				16,375				16,327
Federal Home Loan Bank borrowings			35,500				36,397				35,500				37,108
Total		$	438,433			$	441,580			$	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 $72,966,000 at September 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):

		September 30, 2010								December 31, 2009
		Amortized				Fair				Amortized				Fair
		cost				value				cost				value
Obligations of U.S. Government agencies and corporations			$74,045				$75,331				$65,927				$66,729
Obligations of states and political subdivisions			51,702				54,058				37,933				38,713
Other			350				350				350				350
Total available-for-sale			126,097				129,739				104,210				105,792
Held-to-maturity - corporate debt obligation			501				512				502				526
Restricted stock			3,844				3,844				3,844				3,844
Total		$	130,442			$	134,095			$	108,556			$	110,162

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

		September 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			$    1,586				$    299				$  1,153			$	351
Obligations of states and political subdivisions			2,362				7				871				91
Total available-for-sale			3,948				306				2,024				442
Held-to-maturity - corporate debt obligation			11				-				24				-
Total			$    3,959				$     306				$  2,048			$	442

NOTE 5 – OTHER COMPREHENSIVE INCOME

The components of other comprehensive income and related tax effects for the nine-month period ended September 30, 2010 and 2009 follows (dollars in thousands):

		2010				2009
Unrealized gains on available-for-sale securities		$	3,642			$	2,836
Tax effect			1,238				964
Net-of-tax amount		$	2,404			$	1,872

	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 September 30, 2010 was $1,217,000, or $.72 per common share, compared to $371,000, or $.22 per common share, for the same period in 2009. Net income for the nine-month period ended September 30, 2010 was $2,992,000, or $1.76 per common share, compared to $2,115,000, or $1.23 per common share, for the same period in 2009. The results for the third quarter 2010 compared to the third quarter 2009 were positively impacted by a $55,000 increase in net interest income, a $1,100,000 decrease in provision for loan losses, and a $148,000 increase to non-interest income. Results were adversely impacted by an increase of $182,000 in non-interest expenses and an increase of $275,000 in federal income tax expense.

Assets at September 30, 2010 totaled $499,459,000, compared to $481,988,000 at December 31, 2009. Total cash and cash equivalents increased by $15,402,000 to $32,126,000 during the nine-month period ended September 30, 2010 and total securities increased by $23,946,000 to $134,084,000 at September 30, 2010. Total loans decreased by $21,498,000 to $302,986,000 at September 30, 2010 from $324,484,000 at 2009 year end. Total deposits increased by $9,022,000 to $379,741,000 at September 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 September 30, 2010 to December 31, 2009.

Total cash and cash equivalents increased by $15,402,000 (92.1%) to $32,126,000 and total securities increased by $23,946,000 (21.7%) to $134,084,000 during the nine-month period ended September 30, 2010. Total loans decreased by $21,498,000 (6.6%) to $302,986,000 at September 30, 2010, compared to $324,484,000 at December 31, 2009. During the same period, Croghan’s deposits increased by $9,022,000 (2.4%) to $379,741,000 at September 30, 2010, compared to $370,719,000 at December 31, 2009.

The increase in securities during the nine-month period ended September 30, 2010 primarily resulted from purchases of available-for sale-securities of $41,215,000, with maturities during the period of $16,577,000. There was one security that was called resulting in a $3,000 gain, and one security was sold during the second quarter, resulting in a gain of $8,000. Securities purchases were a direct result of the excess cash balances from the continued loan balance decline and deposit balance increase.

The decrease in loans during the nine-month period ended September 30, 2010 is due to many clients looking to become more liquid by paying down debt, coupled with continued stagnant economic growth in our market area and the overall economic conditions. Also, Croghan continues to be increasingly adherent to stricter underwriting standards.

Components of which caused the increase in deposits include the liquid deposit category (demand, savings, NOW, and money market deposit accounts), which increased by $21,712,000 (9.9%), and the time deposit category, which decreased by $12,690,000 (8.4%). Management attributes this growth to customers seeking liquidity, shorter term commitments, and less risky investments. Croghan continuously strives to maintain a balance between its deposit needs for funding future loan demand and the deposit pricing structure necessary to maintain its net interest margin.

Stockholders’ equity increased to $58,041,000, or $34.52 book value per common share at September 30, 2010, compared to $56,127,000 or $32.75 book value per common share at December 31, 2009. The balance in stockholders’ equity at September 30, 2010 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, 2010, Croghan held $129,739,000 in available-for-sale securities with an unrealized gain of $2,404,000, net of income taxes. This compares to 2009 year-end holdings of $105,792,000 in available-for-sale securities with an unrealized gain of $1,044,000, net of income taxes.

Beginning in February 2002, Croghan instituted a stock buy-back program, which has subsequently been extended through February 1, 2011. Since the inception of the program, a total of 240,791 shares have been purchased as treasury shares. The 232,729 treasury shares held as of September 30, 2010 and the 200,232 shares held as of December 31, 2009 are reported at their acquired cost.

A cash dividend of $.32 per share was declared on September 14, 2010, payable on October 29, 2010, to shareholders of record as of October 15, 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 $95,000 (.7%) for the nine-month period ended September 30, 2010, as compared to the same period in 2009. Croghan’s net interest margin decreased to 4.04 percent for the nine-month period ended September 30, 2010, compared to 4.14 percent for the same period in 2009. This decrease is attributable to the continued shift in interest-earning assets from loans, which are typically the highest yielding interest-earning assets, to available-for-sale securities. Croghan has been able to somewhat mitigate the decline by reducing its average cost of funds as a result of lower rates on interest-bearing deposits.

PROVISION FOR LOAN LOSSES AND THE ALLOWANCE FOR LOAN LOSSES

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

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

		Nine months ended				Nine months ended
		September 30, 2010				September 30, 2009
		(Dollars in thousands)
Provision for loan losses charged to expense		$	1,250			$	2,350
Net loan charge-offs			519				1,001
Annualized net loan charge-offs as a percent of average outstanding loans			.23%				.40%

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

		September 30, 2010				December 31, 2009
		(Dollars in thousands)
Nonaccrual loans			$  3,593				$  5,903
Loans contractually past due 90 days or more and still accruing interest			685				45
Restructured loans			5,656				3,191
Potential problem loans, other than those past due 90 days or more, nonaccrual, or restructured			24,812				22,227
Total potential problem and non-performing loans			$34,746				$31,366
Allowance for loan losses			$  5,164				$  4,433
Allowance for loan losses as a percent of period-end loans			1.70%				1.37%

There was a $150,000 provision for loan losses for the three-month period ended September 30, 2010 and a $1,250,000 provision for loan losses for the nine-month period ended September 30, 2010, compared to a provision of $1,250,000 and $2,350,000, respectively, for the same periods in 2009. The 2010 provision was attributable to the continuation of the 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. The economic deterioration negatively impacted borrower’s abilities to fulfill their payment obligations. The 2010 third quarter provision was also attributable to the increased amount in net loan charge-offs of $392,000 compared to the second quarter 2010. The increased charge-off amount was primarily due to a $238,000 charge-off of a commercial real estate client whose loan was charged down and then transferred to Other Real Estate Owned. The 2009 provision included the impact of the significant increase in non-accrual loans, with the outstanding balance totaling $6,401,000 at September 30, 2009.

The allowance for loan losses, as a percent of total loans, increased from 1.37% at December 31, 2009 to 1.70% at September 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 increased by $3,380,000 (10.8%) to $34,746,000 at September 30, 2010, compared to $31,366,000 at December 31, 2009. A component of potential problem and non-performing loans that was favorable at September 30, 2010, as compared to December 31, 2009, included a $2,310,000 decrease in nonaccrual loans. This favorable component was offset by increases of $640,000 in loans contractually past due 90 days or more and still accruing interest, an increase of $2,465,000 in the restructured loan category, and an increase of $2,585,000 in the potential problem loans, other than those past due 90 days or more, nonaccrual, or restructured category.

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 $24,812,000, were less than 90 days past due at September 30, 2010, and a majority are collateralized by an interest in real property.

The following provides additional detail pertaining to the past due status of Croghan’s potential problem loans as of the dates noted:

		September 30,				December 31,
		2010				2009
		(Dollars in thousands)
Potential problem loans not currently past due			$20,004				$16,453
Potential problem loans past due one day or more but less than 10 days			2,162				186
Potential problem loans past due 10 days or more but less than 30 days			1,863				4,833
Potential problem loans past due 30 days or more but less than 60 days			472				528
Potential problem loans past due 60 days or more but less than 90 days			311				227
Total potential problem loans			$24,812				$22,227

Total potential problem loans increased by $2,585,000 (11.6%) at September 30, 2010, as compared to December 31, 2009. The increase was attributable to a $5,527,000 (33.2%) increase in potential problem loans not past due and loans past due one day but less than 10. However, despite the overall increase in potential problem loans, the aggregate amount of potential problem loans past due 10 days or more but less than 90 days decreased $2,942,000 (52.6%).

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

		September 30,				December 31,
		2010				2009
		(Dollars in thousands)
Collateralized by an interest in real property			$24,163				$21,622
Collateralized by an interest in assets other than real property			643				600
Unsecured			6				5
Total potential problem loans			$24,812				$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 September 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 increased $148,000 (17.5%) for the three-month period ended September 30, 2010, compared to the same period in 2009, and increased $5,000 (.2%) for the nine-month period ended September 30, 2010, compared to the same period in 2009. During the third quarter of 2010, the Bank had gains on sale of loans of $87,000 which was up $52,000 compared to $35,000 during the third quarter of 2009, an increase of $42,000 in trust income, and an increase of $71,000 in other income partially due to sales of OREO property. Some of these increases were offset by a decrease of $20,000 in deposit service charges.

NON-INTEREST EXPENSES

Total non-interest expenses increased $182,000 (5.1%) for the three-month period ended September 30, 2010, as compared to the same period in 2009, and $171,000 (1.6%) for the nine-month period ended September 30, 2010, as compared to the same period in 2009. Salaries, wages, and employee benefits increased $261,000 (14.0%) between comparable three-month periods and $387,000 (6.8%) between comparable nine-month periods, with the increase partially due to the costs associated with the process of hiring Croghan’s new President and CEO, and expenses related to the Bank’s Performance Compensation for Stakeholders program totaling $116,000. Occupancy of premises expense decreased $3,000 (1.5%) between comparable three-month periods and decreased $10,000 (1.6%) between comparable nine-month periods. Other operating expenses decreased $76,000 (5.1%) between comparable three-month periods and $206,000 (4.7%) between comparable nine-month periods.

Within the other operating expense category is the FDIC insurance expense. During the nine-month period ended September 30, 2010, the FDIC insurance expense was $399,000, compared to $537,000 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 $1,398,000 at September 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 increased $275,000 (785.7%) between comparable three-month periods, and $152,000 (23.6%) between comparable nine-month periods, which is in relation to the increase in income before federal income taxes. Federal income tax expense was offset by a $43,000 income tax refund during the third quarter of 2010. The Corporation’s effective tax rate for the nine-month period ended September 30, 2010 was 21.0 percent compared to 23.3 percent for the same period in 2009.

LIQUIDITY AND CAPITAL RESOURCES

Short-term borrowings of federal funds purchased and repurchase agreements averaged $19,275,000 for the nine-month period ended September 30, 2010. This compares to $13,482,000 for the twelve-month period ended December 31, 2009 and $12,933,000 for the nine-month period ended September 30, 2009.

Borrowed funds, principally consisting of Federal Home Loan Bank borrowings, totaled $35,500,000 at September 30, 2010, as compared to $37,500,000 at September 30, 2009 and $35,500,000 at December 31, 2009.

Capital expenditures for premises and equipment totaled $447,000 for the nine-month period ended September 30, 2010, compared to $631,000 for the same period in 2009. Capital expenditures in 2010 include software relating to virtualization, 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, a partial new roof at the Main banking center, new furniture at the main office, and refurnishing of the Ballville banking center.

Loan commitments, including letters of credit, as of September 30, 2010 totaled $72,966,000 compared to $71,275,000 at December 31, 2009. Many of these commitments are expected to expire without being drawn upon. Therefore, the total of these commitments does not necessarily represent future cash requirements.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the quantitative and qualitative 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 September 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. A detailed discussion of our risk factors is included in “Item 1A. Risk Factors” of Part I of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009. The following information updates certain of our risk factors and should be read in conjunction with the risk factors disclosed in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009.

The enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act may significantly affect the business activities of the Corporation and the Bank.

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Dodd-Frank Act represents a sweeping reform of the regulatory framework for U.S. financial institutions. The Dodd-Frank Act includes a broad range of legislation intended to strengthen oversight and regulation of banks and nonbank financial institutions, enhance regulation of over-the-counter derivatives and asset-backed securities, imposes corporate governance and executive compensation reforms on all public companies, creates new requirements for hedge fund and private equity fund advisers and establishes new rules for credit rating agencies. Certain of the provisions of the Dodd-Frank Act may significantly affect the business activities of the Corporation and the Bank. However, the Dodd-Frank Act is the most far-reaching financial services law ever signed into law, and its enactment marks only the beginning of a process that will take months, if not years, to fully develop. Many of the significant provisions of the Dodd-Frank Act have extended implementation periods and delayed effective dates, and will require regulatory action and rulemaking by federal regulatory authorities to either implement the standards set out in the legislation or adopt new standards. As a result, the full scope and effect of the Dodd-Frank Act on the U.S. financial system may not be known for several years, and the Corporation cannot predict the extent to which the business activities of the Corporation and the Bank could be affected by this legislation.

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

(a)		Not applicable
(b)		Not applicable
(c)		The table below includes certain information regarding Croghan’s repurchase of its common shares during the quarterly period ended September 30, 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)
07/01/10   through 07/31/10		None		None		None		64,117
08/01/10   through 08/31/10		10,921		25.40		10,921		73,694
09/01/10   through 09/30/10		None		None		None		73,694

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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