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, 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, 2008.
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
Assets at March 31, 2009 totaled $456,906,000 compared to $460,476,000 at December 31, 2008. Total cash and cash equivalents increased $7,909,000 during the quarter ended March 31, 2009. Total loans decreased to $340,056,000 from $349,433,000 at 2008 year end. Total securities decreased to $71,133,000 from $72,981,000 at 2008 year end. Total deposits increased $6,408,000 to $351,485,000 from $345,077,000 at 2008 year end.
Net income for the three-month period ended March 31, 2009 was $871,000, or $.51 per common share, compared to $812,000, or $.47 per common share for the same period in 2008, an increase of $59,000 or 7.3%. The March 31, 2009 results were positively affected by an $86,000 increase in net interest income, a $23,000 increase in non-interest income, and a $50,000 decrease in the provision for loan losses, offset by an $87,000 increase in non-interest expenses and a $13,000 increase in federal income taxes.
FINANCIAL POSITION
The following comments are based upon a comparison of Croghan's financial position at March 31, 2009 to December 31, 2008.
Total cash and cash equivalents increased $7,909,000 or 78.1% compared to December 31, 2008, due to modest deposit growth and declining loan demand.

Total loans at March 31, 2009 decreased $9,377,000, or 2.7 percent compared to December 31, 2008. The decrease in loans resulted from the general state of the economy, seasonal reductions from certain commercial borrowers, and continued soft demand in the Bank's lending markets.
Total securities decreased $1,848,000 or 2.5 percent during the first quarter of 2009. Purchases of available-for-sale securities amounted to $4,168,000 and maturities amounted to $6,298,000. There were no securities sales. Proceeds from maturities were principally used to purchase new securities.
Total deposits increased $6,408,000 or 1.9 percent from year-end. The liquid deposit category (demand, savings, NOW, and money market deposit accounts) increased $2,928,000 or 1.5 percent and the time deposit category increased $3,480,000 or 2.3 percent. Croghan continuously strives to maintain a balance between its deposit needs for funding anticipated loan demand and the necessary deposit pricing structure to maintain interest margin.
Stockholders' equity at March 31, 2009 increased to $55,334,000 or $32.16 book value per common share compared to $54,819,000 or $31.86 book value per common share at December 31, 2008. The balance in stockholders' equity at March 31, 2009 included accumulated other comprehensive income consisting of net unrealized gains on securities classified as available-for-sale, net of related income taxes. At March 31, 2009, Croghan held $66,901,000 in available-for-sale securities with an unrealized gain of $679,000, net of income taxes. This compares to 2008 year-end holdings of $68,748,000 in available-for-sale securities with an unrealized gain of $471,000, net of income taxes. Beginning in February 2002, Croghan instituted a stock buy-back program, which has subsequently been extended through August 1, 2009. Since the inception of the program, a total of 201,841 shares have been repurchased as treasury shares. The 193,779 treasury shares held as of March 31, 2009 and the 193,251 shares held as of December 31, 2008 are reported at their acquired cost. A cash dividend of $.32 per share was declared on March 10, 2009, payable on April 30, 2009 to shareholders of record as of April 10, 2009.
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 $86,000 or 2.0 percent for the three-month period ended March 31, 2009 as compared to the same period in 2008. The net interest yield increased to 4.13 percent for the three-month period ended March 31, 2009 compared to 4.10 percent for the same period in 2008, and interest-earning assets increased $10,501,000, mostly in the interest-bearing deposits due from banks.
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:

                                                                   Three months ended         Three months ended
                                                                     March 31, 2009             March 31, 2008
                                                                            (Dollars in thousands)
Provision for loan losses charged to expense                      $            600           $            650
Net loan charge-offs                                                            71                        947
Annualized net loan charge-offs as a percent of average
outstanding loans                                                              .02 %                      .28 %

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

                                                                   March 31, 2009        December 31, 2008
                                                                          (Dollars in thousands)
Nonaccrual loans                                                  $        4,132        $           1,845
Loans contractually past due 90 days or more and still
accruing interest                                                            390                      334
Restructured loans                                                             -                        -
Potential problem loans, other than those past due 90 days
or more, nonaccrual, or restructured                                      10,762                   13,140



Total potential problem and non-performing loans                  $       15,284        $          15,319



Allowance for loan losses                                         $        3,816        $           3,287

Allowance for loan losses as a percent of period-end loans                  1.12 %                    .94 %

During the first quarter of 2009, the Bank recognized a $600,000 provision for loan losses as compared to a $650,000 provision during the same period a year ago. The 2009 provision primarily is due to specific reserves provided for a commercial customer identified as an impaired loan during the first quarter of 2009 due to cash flow issues. Loans to this customer were placed on nonaccrual of interest during the quarter and account for most of the $2,287,000 increase in nonaccrual loans at March 31, 2009 as compared to December 31, 2008. The first quarter 2009 provision was also attributable to an increase in the loss rates used to calculate the allowance for loan losses. The first quarter 2008 provision was due to a $900,000 charge-off relating to a commercial customer. Net loan charge-offs decreased to $71,000 for the first three months of 2009 compared to $947,000 during the same period in 2008.
Total potential problem and non-performing loans, which are summarized in the preceding table, decreased $35,000 or .2% to $15,284,000 at March 31, 2009, compared to $15,319,000 at December 31, 2008. Favorable components at March 31, 2009, as compared to December 31, 2008, included a $2,378,000 decrease in potential problem loans, other than those past due 90 days or more, nonaccrual, or restructured, as these loans migrated into the nonaccrual loans category. Unfavorable components included a $56,000 increase in loans contractually past due more than 90 days and still accruing interest and the aforementioned $2,287,000 increase in nonaccrual loans. As illustrated in the following table, $8,524,000 or 79.2 percent of total potential problem loans are less than 30 days past due and $10,749,000 or 99.9 percent are secured with collateral.

Croghan typically classifies credits as potential problem loans, regardless of collateralization or the existence of contractually obligated guarantors, when a review of the borrower's financial statements indicates that the borrowing entity does not generate sufficient operating cash flow to adequately service its debts. All of the potential problem loans at March 31, 2009, totaling $10,762,000, are currently performing loans (less than 90 days past due) and a majority are collateralized by an interest in real property.
The following table provides additional detail pertaining to the past due status of Croghan's potential problem loans as of the dates noted:

                                                                   March 31,          December 31,
                                                                     2009                 2008
                                                                       (Dollars in thousands)

Potential problem loans not currently past due                    $     4,532        $       10,139
Potential problem loans past due one day or more but less
than 10 days                                                              157                 2,193
Potential problem loans past due 10 days or more but less
than 30 days                                                            3,835                   487
Potential problem loans past due 30 days or more but less
than 60 days                                                            2,206                   224
Potential problem loans past due 60 days or more but less
than 90 days                                                               32                    97

Total potential problem loans $ 10,762 $ 13,140

Despite the overall decrease in potential problem loans during the quarter, the aggregate amount of potential problem loans past due 10 days or more but less than 30 days and past due 30 days or more but less than 60 days increased $5,330,000. These increases are a result of several large commercial clients becoming past due on their contractual loan obligations. The following table provides additional detail pertaining to the collateralization of Croghan's potential problem loans as of the dates noted:

                                                                       March 31,          December 31,
                                                                         2009                 2008
                                                                           (Dollars in thousands)

Collateralized by an interest in real property                        $    10,529        $       12,381
Collateralized by an interest in assets other than real property              220                   747
Unsecured                                                                      13                    12

Total potential problem loans $ 10,762 $ 13,140

The aforementioned asset quality trends will continue to be monitored throughout 2009, especially the increase in past due loans within the potential problem loan category, to ensure potential credit losses are identified and provided for in a timely manner through the provision for loan losses. 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 considers the allowance at March 31, 2009 to be 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 $23,000 or 2.8 percent for the three-month period ended March 31, 2009, compared to the same period in 2008. During the first quarter of 2009, the Bank commenced selling fixed rate residential mortgage loans resulting in gains on sale of loans of $56,000 during the quarter. Within the non-interest income category, this increase, as well as a $9,000 increase in trust income, was partially offset by a decrease in deposit account service charges.
NON-INTEREST EXPENSES
Total non-interest expenses increased $87,000 or 2.6 percent for the three-month period ended March 31, 2009, as compared to the same period in 2008. Salaries, wages and employee benefits increased $103,000 or 5.6 percent between comparable three-month periods primarily due to increased health insurance costs. Occupancy of premises expense increased $4,000 or 1.7 percent between comparable three-month periods. Other operating expenses decreased $20,000 or 1.6 percent between comparable three-month periods.
Croghan's FDIC insurance expense was mitigated during the first quarters of 2009 and 2008 due to available premium credits. Croghan will exhaust its remaining credits during the second quarter of 2009 and the FDIC has announced significant rate increases for the regular insurance assessment. In addition, the FDIC originally announced a one-time special assessment of 20 basis points which would be due September 30, 2009. While the FDIC has since announced that it will likely cut or possibly even eliminate the special assessment, management nevertheless expects that Croghan's FDIC insurance expense will be significantly higher than the levels experienced during the first quarter of 2009. Future increases may also be assessed which could have a further negative impact on Croghan's net income.
FEDERAL INCOME TAX EXPENSE
Federal income tax expense increased $13,000 or 4.5 percent between comparable three-month periods which is in relation to the increase in income before federal income taxes of 6.5 percent. The Corporation's effective tax rate for the three months ended March 31, 2009 was 25.9 percent compared to 26.4 percent for the same period in 2008.
LIQUIDITY AND CAPITAL RESOURCES
Short-term borrowings of federal funds purchased and repurchase agreements averaged $13,482,000 for the three-month period ended March 31, 2009. This compares to $12,952,000 for the three-month period ended March 31, 2008 and $11,294,000 for the twelve-month period ended December 31, 2008.
Borrowings from the Federal Home Loan Bank totaled $35,500,000 at March 31, 2009 compared to $24,500,000 at March 31, 2008 and $39,500,000 at December 31, 2008. Capital expenditures for premises and equipment totaled $76,000 for the three-month period ended March 31, 2009, compared to $130,000 for the same period in 2008. The 2009 expenditures included new personal computers and scanning equipment.
Loan commitments, including letters of credit, as of March 31, 2009 totaled $81,900,000 compared to $74,079,000 at December 31, 2008. Since many of these commitments are expected to expire without being drawn upon, this total does not necessarily represent future cash requirements.