10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

     (Mark One)

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

For the fiscal year ended December 31, 2006.

OR

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

For the transition period from                      to                     .

Commission File Number         0-20159

CROGHAN BANCSHARES, INC.

(Exact name of Registrant as specified in its charter)

Ohio (State or other jurisdiction of incorporation or organization)	31-1073048 (I.R.S. Employer Identification No.)
323 Croghan Street, Fremont, Ohio (Address of principal executive offices)	43420 (Zip Code)

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

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

Title of each class
None Name of each exchange on which registered
None

Securities registered pursuant to Section 12(g) of the Act:
Common Shares, Par Value $12.50 Per Share
(Title of class)

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No þ

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

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

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

Large accelerated filer o       Accelerated filer o       Non-accelerated filer 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 aggregate market value of the Registrant’s common shares, par value $12.50 per share, held by non-affiliates as of June 30, 2006, based on the closing price quoted on the OTC Bulletin Board, was $64,204,219.

The Registrant had 1,781,360 common shares, par value $12.50 per share, outstanding as of February 28, 2007.

This document contains 87 pages. The Exhibit Index is on pages 29 through 31 and also immediately preceding the filed exhibits on pages 33 and 34.

DOCUMENTS INCORPORATED BY REFERENCE

1.	Portions of the Registrant’s Annual Report to Shareholders for the fiscal year ended December 31, 2006 are incorporated by reference into PART II of this Annual Report on Form 10-K.
2.	Portions of the Registrant’s Proxy Statement for its Annual Meeting of Shareholders to be held on May 8, 2007 are incorporated by reference into PART III of this Annual Report on Form 10-K.

INDEX

Part I
Item 1.   Business	4 - 21
Item 1A. Risk Factors	22 - 23
Item 1B. Unresolved Staff Comments	23
Item 2.   Properties	23
Item 3.   Legal Proceedings	24
Item 4.   Submission of Matters to a Vote of Security Holders	24
Part II
Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	25
Item 6.   Selected Financial Data	25
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	25 - 26
Item 8.   Financial Statements and Supplementary Data	26
Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	26
Item 9A. Controls and Procedures	26
Item 9B. Other Information	26
Part III
Item 10. Directors, Executive Officers and Corporate Governance	27
Item 11. Executive Compensation	27
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	27 - 28
Item 13. Certain Relationships and Related Transactions, and Director Independence	28
Item 14. Principal Accountant Fees and Services	28
Part IV
Item 15. Exhibits and Financial Statement Schedules	29 - 31
Signatures	32
EX-13
EX-21
EX-23
EX-31.1
EX-31.2
EX-32

3

PART I

ITEM 1. BUSINESS

GENERAL

Croghan Bancshares, Inc. (the “Corporation”), was organized under the laws of the State of Ohio on September 27, 1983, and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the “BHCA”). As the result of a reorganization effective in 1984, the Corporation acquired all of the voting shares of The Croghan Colonial Bank (the “Bank”), an Ohio chartered bank organized in 1888. The Bank is the only subsidiary of the Corporation and substantially all of the Corporation’s operations are conducted through the Bank. The principal offices of both the Corporation and the Bank are located at 323 Croghan Street, Fremont, Ohio. The Bank operates ten Ohio branch offices: one in Bellevue, one in Clyde, one in Custar, three in Fremont, one in Green Springs, one in Monroeville, one in Norwalk, and one in Port Clinton. Effective January 1, 2005, the Corporation acquired The Custar State Bank (“Custar”) with one banking office in Custar, Ohio having assets of $50,536,000.

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

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

Interest and fees on loans are the Bank’s primary sources of income. The Bank’s principal expenses are interest paid on deposit accounts and borrowed funds, and personnel and operating costs. Operating results are dependent to a significant degree on the “net interest income” of the Bank, which is the difference between the interest income derived from its interest-earning assets, such as loans and securities, and the interest expense paid on its interest-bearing liabilities, consisting of deposits and borrowings. Interest income and interest expense are significantly affected by general economic conditions and the policies of various regulatory authorities. See “EFFECTS OF GOVERNMENT MONETARY POLICY” on page 20 of this Annual Report on Form 10-K.

The Corporation’s only sources of funds are dividends and interest paid by the Bank. The ability of the Bank to pay dividends is subject to limitations under various laws and regulations, and to prudent and sound banking principles. See “DIVIDEND RESTRICTIONS” on page 19 of this Annual Report on Form 10-K.

As a bank holding company, the Corporation is subject to regulation, supervision, and examination by the Board of Governors of the Federal Reserve System (the “FRB”). The deposits of the Bank are insured up to the applicable limits by the Federal Deposit Insurance Corporation (the “FDIC”) and, therefore, the Bank is subject to regulation, supervision, and examination by the FDIC. As a bank incorporated under the laws of the State of Ohio, the Bank also is subject to regulation, supervision, and examination by the Division of Financial Institutions of the Ohio Department of Commerce (the “Division”). See “REGULATION AND SUPERVISION” beginning on page 17, and “REGULATORY CAPITAL REQUIREMENTS” beginning on page 18 of this Annual Report on Form 10-K.

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

4

FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-K which are not historical fact are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects”, “believes”, “anticipates”, “targets”, “plans”, “will”, “would”, “should”, “could” and similar expressions are intended to identify these forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. Factors that might cause such difference include, but are not limited to, the factors discussed herein under “Item 1A – Risk Factors” on pages 22 and 23. Forward-looking statements speak only as of the date on which they are made and, except as required by law, the Corporation undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made to reflect unanticipated events. All subsequent written and oral forward-looking statements attributable to the Corporation or any person acting on its behalf are qualified by the cautionary statements in this section.

LENDING ACTIVITIES

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

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

	December 31,
	2006		2005		2004		2003		2002
	(Dollars in thousands)
Type of Loan: (1)
Commercial, financial and agricultural (2)	$	42,846	$	40,358	$	41,970	$	39,814	$	35,913
Real estate – mortgage		277,085		255,418		223,185		213,402		200,373
Real estate – construction		13,467		13,641		17,515		11,564		7,514
Consumer		21,111		28,764		36,992		38,705		41,315
Credit card and other		2,769		2,729		2,827		2,807		2,836
	$	357,278	$	340,910	$	322,489	$	306,292	$	287,951

(1)	The Bank made no foreign loans in 2006, 2005, 2004, 2003 or 2002.
(2)	Lease financing receivables, included in commercial, financial and agricultural, were $1,721,000 in 2006, $1,635,000 in 2005, $1,806,000 in 2004, $1,986,000 in 2003 and $1,213,000 in 2002.

Loan Maturity Schedule. The following table sets forth certain information, as of December 31, 2006, regarding the dollar amount of loans maturing in the Bank’s portfolio based on their contractual terms to maturity and the dollar amount of such loans that have fixed or variable rates within certain maturity ranges after 2006:

	Maturing
			After one
	Within		but within		After
	one year		five years		five years		Total
	(Dollars in thousands)
Commercial, financial and agricultural	$	2,355	$	18,502	$	21,989	$	42,846
Real estate – construction		3,148		2,501		7,818		13,467
Total	$	5,503	$	21,003	$	29,807	$	56,313

5

	Interest
	Sensitivity
	Fixed		Variable
	Rate		Rate
	(Dollars in thousands)
Due after one but within five years	$	7,156	$	13,847
Due after five years		5,008		24,799
	$	12,164	$	38,646

The above maturity information is based on the contract terms at December 31, 2006, and does not include any possible “rollover” at maturity date. In the normal course of business, the Bank considers and acts upon the borrower’s request for renewal of a loan at maturity. Evaluation of such a request includes a review of the borrower’s credit history, the collateral securing the loan, and the purpose for such request.

Commercial, Financial and Agricultural Loans. The Bank makes loans for commercial purposes, including industrial and professional purposes, to sole proprietorships, partnerships, corporations and other business enterprises. The Bank makes financial loans to banks and other financial institutions and financial intermediaries whose business is to accept deposits and extend credit. The Bank makes agricultural loans for the purpose of financing agricultural production, including all costs associated with growing crops or raising livestock. Commercial, financial and agricultural loans may be secured, other than by real estate, or unsecured, requiring one single repayment or on an installment repayment schedule. Commercial, financial and agricultural loans generally have final maturities of five years or less and are made with interest rates that adjust either daily or annually based upon the national prime rate in effect at the time of the applicable rate change. Such loans typically do not contain any periodic rate adjustment caps or lifetime rate caps.

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

At December 31, 2006, the Bank had $42,846,000, or 12.0% of total loans, invested in commercial, financial and agricultural loans, with no such loans in the non-performing category (i.e., those loans in nonaccrual status or past due 90 days or more).

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

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

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

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

6

At December 31, 2006, the Bank had a total of $125,755,000, or 35.2% of total loans, invested in non-residential real estate loans, a majority of which were secured by properties located in the Northwestern Ohio area. At December 31, 2006, the Bank had $3,181,000 of non-performing loans of this type.

Residential Real Estate Loans. The Bank’s residential real estate loans have either fixed or adjustable interest rates. Interest rates on ARMs adjust every six months or every five years based upon the national prime rate in effect at the time of the applicable rate change. The six-month ARMs typically have periodic adjustment caps of .5% and lifetime caps of 5%. The five-year ARMs typically have periodic adjustment caps of 1% and lifetime caps of 3%. The maximum amortization period for such loans is 30 years, although a 20-year term is the most common. The Bank does not engage in the practice of deeply discounting the initial rates on such loans, nor does the Bank engage in the practice of putting payment caps on loans which could lead to negative amortization. In addition to a fixed-rate loan program, where the loan is retained and serviced by the Bank, loans are also originated on behalf of a national provider of residential mortgage loan products. The provider pays a commission to the Bank at the time of closing and then typically sells such loans in the secondary market (e.g., to Freddie Mac or Fannie Mae) while retaining the servicing and related support functions (e.g., tax reporting and escrow accounting). The establishment of this arrangement allows the Bank to maintain its customer relationships by providing very competitive residential real estate loan offerings, while at the same time eliminating the risks associated with long-term fixed-rate mortgage loan financing.

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

The aggregate amount of the Bank’s residential real estate loans equaled $151,330,000 at December 31, 2006, and represented 42.4% of total loans at such date. At December 31, 2006, the Bank had $1,300,000 of non-performing loans of this type.

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

Construction loans involve greater underwriting and default risks than do loans secured by mortgages on improved and developed properties due to the effects of general economic conditions on real estate developments, developers, managers, and builders. In addition, such loans are more difficult to evaluate and monitor. Loan funds are advanced upon the security of the project under construction, which is more difficult to value before the completion of construction. Moreover, because of the uncertainties inherent in estimating construction costs, it is relatively difficult to accurately evaluate the LTVs and the total loan funds required to complete a project. In the event that a default or foreclosure on a construction or land development loan occurs, the Bank must take control of the project and attempt either to arrange for completion of construction or dispose of the unfinished project. At December 31, 2006, a total of $13,467,000, or 3.8% of the Bank’s total loans, consisted of construction loans, with no such loans in the non-performing category.

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

Consumer loans involve a higher risk of default than residential real estate loans, particularly in the case of loans that are unsecured or secured by rapidly depreciating assets, such as vehicles. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage or depreciation, and the remaining deficiency may not warrant further collection efforts against the borrower. In addition, consumer loan collections depend on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, illness, or personal bankruptcy. Various federal and state laws, including federal and state bankruptcy and insolvency laws, may also limit the amount which can be recovered on such loans. At December 31, 2006, the Bank had $21,111,000, or 5.9% of total loans, invested in consumer loans, $14,000 of which were non-performing.

Credit Card and Other Loans. Credit card and other loans are made to individuals for personal expenditures and principally arise from bank credit cards. Such loans generally pose the most risk as they are most frequently unsecured. At December 31, 2006, the Bank had $2,769,000, or 0.8% of total loans, invested in credit card and other loans, $16,000 of which were non-performing.

7

Loan Solicitation and Processing. The Bank’s loan originations are developed from a number of sources, including continuing business with depositors, borrowers and real estate developers, periodic newspaper and radio advertisements, solicitations by the Bank’s lending staff, walk-in customers, director referrals, and loan participations purchased from other financial institutions. For non-residential real estate loans, the Bank obtains information with respect to the credit and business history of the borrower and prior projects completed by the borrower. Personal guarantees of one or more principals of the borrower are obtained as deemed necessary. An environmental study of the real estate might also be conducted when deemed necessary. Upon the completion of the appraisal of the non-residential real estate and the receipt of information on the borrower, the loan application may be submitted to the Loan Committee for approval or rejection if the loan amount is in excess of established limits contained in the Bank’s Loan Policy. Additionally, loans in material amounts as established in the Bank’s Loan Policy must be submitted to the Executive Committee of the Board of Directors for approval or rejection.

In connection with residential real estate loans, the Bank may obtain a credit report, verification of employment and other documentation concerning the creditworthiness of the borrower. An appraisal of the fair market value of the real estate on which the Bank will be granted a mortgage to secure the loan is generally prepared by an independent appraiser approved by the Board of Directors. An environmental study of the real estate is conducted only if the appraiser has reason to believe that an environmental problem may exist. When either a residential or non-residential real estate loan application is approved, a lawyer’s opinion of title or title insurance is obtained with respect to the real estate which will secure the loan. Borrowers are required to carry satisfactory fire and casualty insurance and flood insurance, if applicable, and to name the Bank as an insured mortgagee.

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

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

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

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

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

8

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

	December 31,
	2006		2005		2004		2003		2002
	(Dollars in thousands)
Loans accounted for on a nonaccrual basis (1)	$	3,795	$	3,872	$	933	$	1,589	$	2,137
Loans contractually past due 90 days or more as to principal or interest payments (2)		716		561		459		904		1,489
Loans whose terms have been renegotiated to provide a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower (3)		0		0		0		0		0

(1)	The amount of interest income that would have been recorded had all nonaccrual and renegotiated (of the type specified above) loans been current in accordance with their terms approximated $305,000 in 2006, $151,000 in 2005, $90,000 in 2004, $153,000 in 2003 and $213,000 in 2002. Actual interest included in income on these loans amounted to none in 2006 and 2005, approximately $19,000 in 2004, $125,000 in 2003 and $40,000 in 2002.
(2)	Excludes loans accounted for on a nonaccrual basis.
(3)	Excludes loans accounted for on a nonaccrual basis and loans contractually past due 90 days or more as to principal or interest payments.

In addition to the loan amounts identified in the preceding table, there were approximately $8,199,000 of potential problem loans at December 31, 2006. While these loans are all currently performing, management has some doubt about the ability of the borrowers to continue to comply with all of their present loan repayment terms. Management typically classifies a loan as a potential problem loan, regardless of its collateralization or any contractually obligated guarantors, when a review of the borrower’s financial statements indicates the borrowing entity does not generate sufficient operating cash flow to adequately service its debts.

The Bank’s loans are spread over a broad range of industrial classifications. As of December 31, 2006, the Bank had no significant concentrations of loans (i.e., greater that 10% of total loans) to borrowers engaged in the same or similar industries.

Allowance for Loan Losses. The Bank maintains an allowance for loan losses to provide for loans that might not be repaid. At December 31, 2006, the Bank’s allowance for loan losses totaled $3,600,000. To determine the adequacy of the allowance for loan losses, the Bank performs a detailed quarterly analysis that focuses on delinquency trends within each loan category (i.e., commercial, real estate and consumer loans), the status of non-performing loans (i.e., impaired, nonaccrual and restructured loans, and loans past due 90 days or more), current and historic trends of charged-off loans within each category, existing local and national economic conditions, and changes in the volume and mix within each loan category. Additionally, loans that are identified as impaired are individually evaluated and specific reserves provided to the extent the loan amount exceeds anticipated future cash flows, including cash flows from the sale of the underlying collateral.

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

9

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

	December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands)
Daily average amount of loans	$	341,079		$	343,705		$	313,330		$	289,691		$	280,045
Allowance for loan losses at beginning of year	$	3,624		$	3,431		$	3,387		$	3,689		$	3,346
Acquisition of The Custar State Bank		—			241			—			—			—
		3,624			3,672			3,387			3,689			3,346
Loan charge-offs:
Commercial, financial and agricultural		(93	)		(53	)		(37	)		(107	)		(3	)
Real estate – mortgage		(136	)		(226	)		(209	)		(303	)		(18	)
Real estate – construction		—			—			—			—			—
Consumer		(335	)		(666	)		(641	)		(587	)		(574	)
Credit card and other		(37	)		(66	)		(81	)		(65	)		(37	)
		(601	)		(1,011	)		(968	)		(1,062	)		(632	)
Recoveries of loans previously charged off:
Commercial, financial and agricultural		34			33			35			21			22
Real estate – mortgage		3			3			39			19			3
Real estate – construction		—			—			—			—			—
Consumer		146			211			208			278			211
Credit card and other		14			11			14			12			9
		197			258			296			330			245
Net charge-offs		(404	)		(753	)		(672	)		(732	)		(387	)
Additions to allowance charged to expense		380			705			716			430			730
Allowance for loan losses at end of year	$	3,600		$	3,624		$	3,431		$	3,387		$	3,689
Allowance for loan losses as a percent of year-end loans		1.01	%		1.06	%		1.06	%		1.11	%		1.28	%
Ratio of net charge-offs during the year to average loans outstanding		.12	%		.22	%		.22	%		.26	%		.14	%

The amount of charge-offs and recoveries fluctuate from year to year due to factors relating to the condition of the general economy and specific business segments. The 2002 charge-offs and recoveries presented in the preceding table did not include any significant individual amounts, with the largest charge-off totaling $24,000 and the largest recovery totaling $13,000. With the exception of one real estate-mortgage write-down for $100,000 in 2003, the largest individual charge-off in 2003 totaled $42,000 and the largest individual recovery totaled $17,000. With the exception of one real estate-mortgage write-down for $62,000 in 2004, the largest individual charge-off in 2004 totaled $48,000 and the largest individual recovery totaled $17,000. The 2005 charge-offs and recoveries did not include any significant individual amounts, with the largest charge-off totaling $29,000 and the largest recovery totaling $13,000. With the exception of one commercial loan charge-off for $63,000 in 2006, the largest individual write-down in 2006 totaled $48,000 and the largest individual recovery totaled $14,000. There were no lease financing charge-offs or recoveries in any of the years presented.

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

	December 31, 2006					December 31, 2005
			Percentage					Percentage
			of loans to					of loans to
	Allowance		total loans			Allowance		total loans
	(Dollars in thousands)					(Dollars in thousands)
Commercial, financial and agricultural	$	770		12.0	%	$	774		11.9	%
Real estate – mortgage		2,349		77.5	%		2,248		74.9	%
Real estate – construction		41		3.8	%		17		4.0	%
Consumer		362		5.9	%		458		8.4	%
Credit card and other		78		.8	%		127		.8	%
	$	3,600		100.0	%	$	3,624		100.0	%
	December 31, 2004					December 31, 2003
			Percentage					Percentage
			of loans to					of loans to
	Allowance		total loans			Allowance		total loans
	(Dollars in thousands)					(Dollars in thousands)
Commercial, financial and agricultural	$	784		13.0	%	$	796		13.0	%
Real estate – mortgage		2,055		69.2	%		2,033		69.7	%
Real estate – construction		19		5.4	%		20		3.8	%
Consumer		471		11.5	%		439		12.6	%
Credit card and other		102		.9	%		99		.9	%
	$	3,431		100.0	%	$	3,387		100.0	%
	December 31, 2002
			Percentage
			of loans to
	Allowance		total loans
	(Dollars in thousands)
Commercial, financial and agricultural	$	859		12.5	%
Real estate – mortgage		1,454		69.6	%
Real estate – construction		22		2.6	%
Consumer		1,244		14.3	%
Credit card and other		110		1.0	%
	$	3,689		100.0	%

The Bank decreased its allowance for loan losses to $3,600,000 at December 31, 2006 from $3,624,000 at December 31, 2005. Because the loan loss allowance is based on estimates, it is monitored on an ongoing basis and adjusted as necessary to provide an adequate allowance.

INVESTMENT ACTIVITIES

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

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The following table sets forth the carrying amount of securities, which are presented on the basis of Statement of Financial Accounting Standards No. 115, at December 31, 2006, 2005, and 2004:

	December 31,
	2006		2005		2004
	(Dollars in thousands)
Obligations of U.S. Government agencies and corporations (1)	$	35,418	$	51,500	$	37,569
Obligations of states and political subdivisions (2)		21,505		25,055		19,190
Other securities (2)		4,990		4,866		4,564
	$	61,913	$	81,421	$	61,323

(1)	There were no holdings of U.S. Treasury securities at December 31, 2006, 2005 or 2004.
(2)	There were no securities of any single “issuer” where the aggregate carrying amount of such securities exceeded ten percent of stockholders’ equity.

The following table sets forth the maturities of securities at December 31, 2006 and the weighted average yields of such securities:

	Maturing
						After one					After five
	Within					but within					but within					After
	one year					five years					ten years					ten years
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
								(Dollars in thousands)
Obligations of U.S. Government agencies and corporations	$	7,678		3.58	%	$	7,189		3.74	%	$	3,742		5.02	%	$	16,809		5.16	%
Obligations of states and political subdivisions (1)		1,977		4.86	%		8,072		5.34	%		8,649		5.79	%		2,807		6.53	%
Other securities (2)		504		3.17	%		507		6.22	%		—		—			—		—
	$	10,159		3.81	%	$	15,768		4.64	%	$	12,391		5.56	%	$	19,616		5.36	%

(1)	Weighted average yields on non-taxable obligations have been computed on a fully tax-equivalent basis assuming a tax rate of 34%.
(2)	Excludes equity investments of $3,979,000 which have no stated maturity.

DEPOSITS AND BORROWINGS

General. Deposits have traditionally been the Bank’s primary funding source for use in lending and other investment activities. In addition to deposits, the Bank derives funds from interest and principal repayments on loans and income from other earning assets. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows tend to fluctuate in response to economic conditions and interest rates. The Bank has established lines of credit with its major correspondent banks to purchase federal funds to meet liquidity needs. At December 31, 2006, the Bank had $4,500,000 of federal funds purchased.

The Bank also uses retail repurchase agreements as a source of funds. These agreements essentially represent borrowings by the Bank from customers with maturities of three months or less. Certain securities are pledged as collateral for these agreements. At December 31, 2006, the Bank had $10,888,000 in retail repurchase agreements.

The Corporation had an outstanding balance of $1,600,000 related to a note payable to a correspondent bank as of December 31, 2006. The note, which originated on January 1, 2005 to effect the purchase of Custar, matures on January 1, 2009 with interest indexed to the prime rate minus .50%. Neither the Corporation nor the Bank had any capital lease obligations as of December 31, 2006. The Bank has future operating lease obligations totaling $186,000 at December 31, 2006 related to the following lease arrangements: the Port Clinton banking center, which is located in a retail supermarket

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in the Knollcrest Shopping Center; an ATM site north of Fremont; and the Norwalk banking center located in the downtown business district. Additionally, the Bank has several minor operating lease obligations, with an aggregate total less than $75,000 at December 31, 2006, for photocopying and mail processing equipment.

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

The average daily amount of deposits (all in domestic offices) and average rates paid on such deposits are summarized for 2006, 2005 and 2004 in the following table:

	2006					2005					2004
	Average		Average			Average		Average			Average		Average
	balance		rate paid			balance		rate paid			balance		rate paid
						(Dollars in thousands)
Non-interest bearing demand deposits	$	46,179		—		$	45,866		—		$	38,100		—
Interest-bearing demand deposits		58,831		1.08	%		62,676		.69	%		56,644		.33	%
Savings, including Money Market deposits		92,823		1.48	%		94,160		.75	%		89,348		.59	%
Time deposits		168,428		3.71	%		165,613		2.93	%		134,338		2.85	%
Total	$	366,261				$	368,315				$	318,430

Maturities of time deposits of $100,000 or more outstanding at December 31, 2006 are summarized as follows (dollars in thousands):

3 months or less	$	8,549
Over 3 through 6 months		12,154
Over 6 through 12 months		9,070
Over 12 months		6,124
Total	$	35,897

Borrowings. In addition to repurchase agreements, the Bank has agreements with correspondent banks to purchase federal funds as needed to meet daily liquidity needs. As a member of the Federal Home Loan Bank of Cincinnati (“FHLB”) since 1993, the Bank is authorized to obtain advances from the FHLB provided certain credit standards are met. The Bank had $16,000,000 in FHLB advances outstanding at December 31, 2006.

The following table sets forth the maximum month-end balance for the Bank’s outstanding short-term borrowings (i.e., federal funds purchased and repurchase agreements), along with the average aggregate balances and weighted average interest rates, for 2006, 2005 and 2004:

	2006			2005			2004
	(Dollars in thousands)
Balance at year-end	$	15,388		$	10,825		$	9,794
Maximum balance at any month-end during the period		15,388			10,825			19,190
Average balance		9,027			8,084			10,844
Weighted average interest rate		2.92	%		1.67	%		1.13	%

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The following table sets forth the maximum month-end balance for the Bank’s outstanding long-term borrowings (i.e., FHLB advances and note payable to correspondent bank), along with the average aggregate balances and weighted average interest rates, for 2006, 2005 and 2004:

	2006			2005			2004
	(Dollars in thousands)
Balance at year-end	$	17,600		$	29,050		$	28,950
Maximum balance at any month-end during the period		29,050			32,950			30,000
Average balance		22,865			29,639			28,786
Weighted average interest rate		4.77	%		4.01	%		3.61	%

ASSET/LIABILITY MANAGEMENT

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

The Bank monitors its interest rate risk through a sensitivity analysis, which strives to measure potential changes in future earnings and the fair values of its financial instruments that could result from hypothetical changes in interest rates. The first step in this analysis is to estimate the expected cash flows from the Bank’s financial instruments using the interest rates in effect at December 31, 2006. To arrive at fair value estimates, the cash flows from the Bank’s financial instruments are discounted to their approximated present values. Hypothetical changes in interest rates are applied to those financial instruments, and the cash flows and fair value estimates are then simulated. When calculating the net interest income estimations, hypothetical rates are applied to the financial instruments based upon the assumed cash flows. The Bank applies interest rate “shocks” to its financial instruments of 100 and 200 basis points (1% and 2%) up and down for its net interest income, and 200 basis points (2%) up and down for the value of its equity.

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

	December 31, 2006
	Change in Dollars ($)			Change in Percent (%)
Annual Net Interest Income Impact
For a Change of +100 Basis Points		(1,395	)		(8.0	)
For a Change of - 100 Basis Points		515			3.0
For a Change of +200 Basis Points		(2,748	)		(15.8	)
For a Change of - 200 Basis Points		(125	)		(0.7	)
Impact on the Net Present Value of Equity
For a Change of +200 Basis Points		(6,044	)		(10.2	)
For a Change of - 200 Basis Points		1,732			2.9

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

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The following table sets forth, for the years ended December 31, 2006, 2005 and 2004, the distribution of assets, liabilities and stockholders’ equity, including interest amounts and average rates of major categories of interest-earning assets and interest-bearing liabilities:

	2006								2005								2004
	Average					Yield/			Average					Yield/			Average					Yield/
	Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate
	(Dollars in thousands)
Assets
Interest-earning assets:
Loans (1) (2)		341,079			23,926		7.01	%	$	343,705		$	22,410		6.52	%	$	313,330		$	19,574		6.25	%
Taxable securities		46,188			1,994		4.32	%		48,175			1,909		3.96	%		44,202			1,494		3.38	%
Non-taxable securities		23,902			891		3.73	%		23,956			916		3.82	%		17,976			654		3.64	%
Federal funds sold		1,822			93		5.10	%		4,535			150		3.31	%		179			2		1.12	%
Total interest-earning assets		412,991			26,904		6.51	%		420,371			25,385		6.04	%		375,687			21,724		5.78	%
Non-interest earning assets:
Cash and due from banks		11,708								11,965								11,514
Bank premises and equipment, net		7,542								7,719								7,208
Other assets		23,509								23,199								17,652
Less allowance for loan losses		(3,541	)							(3,547	)							(3,373	)
Total	$	452,209		$	26,904				$	459,707		$	25,385				$	408,688		$	21,724
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Savings, NOW and Money Market deposits		151,654			2,009		1.32	%	$	156,836		$	1,139		.73	%	$	145,992		$	714		.49	%
Time Deposits		168,428			6,250		3.71	%		165,613			4,848		2.93	%		134,338			3,824		2.85	%
Federal funds purchased and securities sold under repurchase agreements		9,027			263		2.91	%		8,084			135		1.67	%		10,844			123		1.13	%
Borrowed funds		22,865			1,091		4.77	%		29,639			1,188		4.01	%		28,786			1,038		3.61	%
Total interest-bearing liabilities		351,974			9,613		2.73	%		360,172			7,310		2.03	%		319,960			5,699		1.78	%
Non-interest-bearing liabilities:
Demand deposits		46,179								45,866								38,100
Other liabilities		3,699								3,617								2,956
		49,878								49,483								41,056
Stockholders’ equity		50,357								50,052								47,672
Total	$	452,209		$	9,613				$	459,707		$	7,310				$	408,688		$	5,699
Net interest income				$	17,291							$	18,075							$	16,025
Net yield on interest-earning assets							4.19	%							4.30	%							4.27	%

(1)	Included in loan interest income are loan fees of $586,000 in 2006, $698,000 in 2005 and $795,000 in 2004.
(2)	Non-accrual loans are included in loan totals and do not have a material impact on the analysis presented.

15

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

	2006 compared to 2005									2005 compared to 2004
	Increase (decrease)									Increase (decrease)
	due to volume/rate (1)									due to volume/rate (1)
	Volume			Rate			Net			Volume			Rate		Net
	(Dollars in thousands)
Interest income:
Loans receivable		($172	)		1,688			1,516		$	1,954			882		2,836
Taxable securities		(81	)		166			85			142			274		416
Non-taxable securities		(2	)		(23	)		(25	)		228			34		262
Federal funds sold		(115	)		58			(57	)		141			6		147
Total interest-earning assets		(370	)		1,889			1,519			2,465			1,196		3,661
Interest expense:
Savings, NOW and Money Market deposits		(39	)		909			870			56			369		425
Time deposits		84			1,318			1,402			913			111		1,024
Federal funds purchased and securities sold under repurchase agreements		17			111			128			(36	)		48		12
Borrowed funds		(300	)		203			(97	)		32			118		150
Total interest-bearing liabilities		(238	)		2,541			2,303			965			646		1,611
Net interest income		($132	)		(652	)		(784	)	$	1,500			550		2,050

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

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

	Year ended December 31,
	2006			2005			2004
Percentage of net income to:
Average total assets		1.21	%		1.24	%		1.25	%
Average stockholders’ equity		10.90	%		11.43	%		10.74	%
Percentage of cash dividends declared per common share to net income per common share		39.60	%		38.03	%		41.48	%
Percentage of average stockholders’ equity to average total assets		11.14	%		10.89	%		11.66	%

COMPETITION

The Bank has active competition in all areas in which it engages. The Bank competes for commercial and individual deposits and/or loans with other commercial banks in Huron, Ottawa, Sandusky, Seneca and Wood counties in Northwestern Ohio, as well as with savings and loan associations in the trade area, credit unions, brokerage firms, mutual funds, and loan production offices and other financial units of non-local bank holding companies. Competition is affected by, among other things, the general availability of lendable funds, general and local economic conditions, current interest rate levels, and other factors that are not readily predictable. The Bank focuses on personalized service, convenience of facilities, pricing of products, community stature, and its local ownership and control in meeting its competition.

The number of financial institutions competing with the Bank is likely to increase as a result of changes in statutes and regulations eliminating various restrictions on interstate and inter-industry branching and acquisitions. Such increased competition may have an adverse effect upon the Bank.

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SUBSIDIARY ACTIVITIES

The Corporation’s only subsidiary is the Bank. The Bank has no subsidiaries.

EMPLOYEES

As of December 31, 2006, the Bank employed 143 full-time employees and 25 part-time employees. The Bank believes that relations with its employees are excellent. The Bank provides a variety of benefits to full-time employees, including health, disability, and life insurance benefits.

REGULATION AND SUPERVISION

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

The FRB has extensive enforcement authority over bank holding companies, including the ability to assess civil money penalties, issue cease and desist orders, and require that a bank holding company divest subsidiaries. In general, the FRB may initiate enforcement actions for activities that are deemed by the FRB to constitute a serious risk to the financial safety, soundness, or stability of a bank holding company, that are inconsistent with sound banking principles, or that are in violation of law. Further, Section 106 of the 1970 Amendments to the BHCA prohibits bank holding companies and their subsidiaries from engaging in certain tying arrangements in connection with any extension of credit or lease or sale of any property or the furnishing of services.

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

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

In November 1999, the Financial Services Modernization Act of 1999, also known as the Gramm-Leach-Bliley Act, was enacted. The Financial Services Modernization Act permits bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized under the prompt corrective action provisions of the Federal Deposit Insurance Corporation Act of 1991, is well managed, and has at least a satisfactory rating under the Community Reinvestment Act, by filing a declaration that the bank holding company wishes to become a financial holding company.

No regulatory approval is required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board. The Financial Services Modernization Act defines “financial in nature” to include:

• securities underwriting, dealing and market making;

• sponsoring mutual funds and investment companies;

• insurance underwriting and agency;

• merchant banking activities; and

• activities that the FRB has determined to be closely related to banking.

Subsidiary banks of a financial holding company must continue to be well capitalized and well managed in order to continue to engage in activities that are financial in nature without regulatory actions or restrictions, which could include divestiture of the financial-in-nature subsidiary or subsidiaries. In addition, a financial holding company or a bank may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company or the bank has a Community Reinvestment Act rating of satisfactory or better.

17

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

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

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

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

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

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

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

REGULATORY CAPITAL REQUIREMENTS

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

Under the guidelines, capital is compared to the relative risk of the balance sheet. To derive the risk included in the

18

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

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

The following table sets forth the Tier 1 Risk-Based Ratio, Total Risk-Based Ratio, and Leverage Ratio for the Corporation and the Bank at December 31, 2006:

	At December 31, 2006
	Corporation					Bank
	Amount		Percent			Amount		Percent
	(Dollars in thousands)
Tier 1 risk-based	$	40,593		11.9	%	$	36,768		10.8	%
Requirement		13,688		4.0			13,674		4.0
Excess	$	26,905		7.9	%	$	23,094		6.8	%
Total risk-based	$	44,193		12.9	%	$	45,368		13.3	%
Requirement		27,377		8.0			27,349		8.0
Excess	$	16,816		4.9	%	$	18,019		5.3	%
Leverage ratio	$	40,593		9.2	%	$	36,768		8.3	%
Requirement		17,711		4.0			17,697		4.0
Excess	$	22,882		5.2	%	$	19,071		4.3	%

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

The Bank’s capital levels at December 31, 2006, met the standards for the highest level, a “well-capitalized” institution.

DIVIDEND RESTRICTIONS

The ability of the Corporation to obtain funds for the payment of dividends on its common shares is largely dependent on the amount of dividends which may be declared and paid by the Bank. The ability of the Bank to pay dividends is subject to various legal limitations and to prudent and sound banking principles. Generally, the Bank may declare a dividend without the approval of the Division, unless the total dividends in a calendar year exceed the total of its net profits for the year plus its retained profits for the preceding two years, less required transfers to surplus. However, the FRB generally considers it to be an unsafe and unsound banking practice for a bank holding company to pay dividends except out of current operating income, although other factors such as overall capital adequacy and projected income may also be relevant in determining whether dividends should be paid. The Bank is prohibited from paying dividends out of its surplus if, after paying these dividends, it would fail to meet the required minimum levels under the risk-based capital guidelines and minimum leverage ratio requirements.

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FDIC DEPOSIT INSURANCE

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

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

In February of 2006, President Bush signed into law the Deposit Insurance Reform Act of 2005 and its companion bill, the Deposit Insurance Reform Conforming Amendments Act of 2005 (collectively, the “Deposit Insurance Reform Acts”), pursuant to which the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF) were merged into a new Deposit Insurance Fund (DIF). The Deposit Insurance Reform Acts provide for several additional changes to the deposit insurance system, including the following:

• Increasing the deposit insurance limit for retirement accounts from $100,000 to $250,000;

• Adjusting the deposit insurance limits (currently $100,000 for most accounts) every five years based on an inflation index, with the first adjustment to be effective on January 1, 2011;

• Providing pass-through deposit insurance for the deposits of employee benefit plans (but prohibiting undercapitalized depository institutions from accepting employee benefit plan deposits);

• Allocating an aggregate of $4.7 billion of one-time credits to offset the premiums of depository institutions based on their assessment bases at the end of 1996;

• Establishing rules for awarding cash dividends to depository institutions, based on their relative contributions to the DIF and its predecessor funds, when the DIF reserve ratio reaches certain levels; and

• Revising the rules and procedures for risk-based premium assessments.

The Corporation’s management does not expect that the Deposit Insurance Reform Acts will have a significant impact on the Corporation or the Bank in 2007.

FRB RESERVE REQUIREMENTS

For 2007, FRB regulations require depository institutions to maintain reserves of 3% of net transaction accounts (primarily demand and NOW accounts) up to and including $45,800,000 (subject to an exemption for the first $8,500,000 of net transaction accounts), and of 10% of net transaction accounts in excess of $45,800,000.

EFFECTS OF GOVERNMENT MONETARY POLICY

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

SARBANES-OXLEY ACT OF 2002

On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The stated goals of the Sarbanes-Oxley Act are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability

20

of corporate disclosures made pursuant to the securities laws. These changes are intended to allow shareholders to monitor the performance of companies and directors more easily and efficiently.

The Sarbanes-Oxley Act generally applies to all companies, both U.S. and non-U.S., that file or are required to file periodic reports with the SEC under the Exchange Act. The Sarbanes-Oxley Act and the rules adopted by the SEC and securities exchanges thereunder include very specific additional disclosure requirements and new corporate governance rules. Among other matters, the Sarbanes-Oxley Act and the rules adopted thereunder address: audit committees; certification of financial statements by the chief executive officer and the chief financial officer; the forfeiture of bonuses and profits made by directors and senior officers in the twelve month period covered by restated financial statements; a prohibition on insider trading during pension plan black out periods; disclosure of off-balance sheet transactions; a prohibition on personal loans to directors and officers (excluding loans by insured depository institutions that are subject to the insider lending restrictions of the Federal Reserve Act); expedited filing requirements for stock transaction reports by officers and directors; the formation of a public accounting oversight board; auditor independence; and various increased criminal penalties for violations of securities laws.

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ITEM 1A. Risk Factors

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

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

Our earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies.

The policies of the FRB impact us significantly. The FRB regulates the supply of money and credit in the United States. Its policies directly and indirectly influence the rate of interest earned on loans and paid on borrowings and interest-bearing deposits and can also affect the value of financial instruments we hold. Those policies determine to a significant extent our cost of funds for lending and investing. Changes in those policies are beyond our control and are difficult to predict. FRB policies can also affect our borrowers, potentially increasing the risk that they may fail to repay their loans. For example, a tightening of the money supply by the FRB could reduce the demand for a borrower’s products and services. This could adversely affect the borrower’s earnings and ability to repay its loan, which could have a material adverse effect on our financial condition and results of operations.

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

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

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

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

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

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

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

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

Government regulation can result in limitations on our operations.

The financial services industry is extensively regulated. The Bank is subject to extensive regulation, supervision and examination by the Division and the FRB. As a holding company, the Corporation is also subject to regulation and oversight by the FRB. Federal and state regulation is designed primarily to protect the deposit insurance funds and consumers, and not to benefit our shareholders. Such regulations can at times impose significant limitations on our operations. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets by the institution and the adequacy of an institution’s allowance for loan losses. Proposals to change the laws governing financial institutions are frequently raised in Congress and before bank regulatory authorities. Changes in applicable laws or policies could materially affect our business, and the likelihood of any major changes in the future and their effects are impossible to determine. Moreover, it is impossible to predict the ultimate form any proposed legislation might take or how it might affect us.

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

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

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

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

ITEM 1B. Unresolved Staff Comments

Not applicable.

ITEM 2. Properties

The Corporation neither owns nor leases any properties. The Bank maintains its main office at 323 Croghan Street, Fremont, Ohio. In addition, the Bank operates one branch office in Bellevue, one in Clyde, one in Custar, three in Fremont, one in Green Springs, one in Monroeville, one in Norwalk, and one in Port Clinton, Ohio. The Bank’s operations center is also located in Fremont, Ohio. With the exception of the Norwalk and Port Clinton offices, which are leased, all premises are owned by the Bank. The Bank completed the construction of a new branch office in Clyde in 2006 and moved the Clyde office to the new location in January 2007.

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ITEM 3. Legal Proceedings

Management is aware of no material pending legal proceedings, other than ordinary routine litigation incidental to the business, in which the Corporation or its subsidiary Bank is a party or of which any of their property is subject. Similarly, management is aware of no material proceedings involving the Corporation or the Bank that are contemplated by any governmental authority.

ITEM 4. Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of shareholders, through the solicitation of proxies or otherwise, during the quarter ended December 31, 2006.

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PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and
Issuer Purchases of Equity Securities

The Corporation’s common shares are quoted on the OTC Bulletin Board under the symbol “CHBH”. The other information required by Items 201(a), 201(b) and 201(c) of SEC Regulation S-K is contained in Financial Statement Footnote No. 14, captioned “Regulatory Matters,” on pages 37 and 38 of the Corporation’s 2006 Annual Report to Shareholders, and in the section captioned “Market Price and Dividends on Common Stock” on page 2 of the Corporation’s 2006 Annual Report to Shareholders, and is incorporated herein by reference.

The information required by Item 201(e) of SEC Regulation S-K is contained in the section captioned “Performance Graph” on page 3 of the Corporation’s 2006 Annual Report to Shareholders, and is incorporated herein by reference.

The table below includes certain information regarding the Corporation’s purchase of its common shares during the quarterly period ended December 31, 2006:

					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 (1)		per Share		or Programs		or Programs (2)
10/01/06   through 10/31/06	None		None		None			75,224
11/01/06   through 11/30/06		14,000	$	35.73		14,000		61,224
12/01/06   through 12/31/06	None		None		None			61,224

(1)	All share purchases were part of publicly announced plans and all were open-market transactions.
(2)	A stock buy-back program commencing August 1, 2006 and ending on February 1, 2007 was announced on July 18, 2006 in which up to 90,726 shares may be repurchased (with 1,000 shares purchased on November 13, 2006; 4,000 shares purchased on November 20, 2006; 5,000 shares purchased on November 22, 2006; and 4,000 shares purchased on November 30, 2006).

ITEM 6. Selected Financial Data

The information required by this Item 6 is contained under the caption “Five Year Summary of Selected Financial Data” on page 4 of the Corporation’s 2006 Annual Report to Shareholders and is incorporated herein by reference.

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

The information required by this Item 7 is contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 5 through 17 of the Corporation’s 2006 Annual Report to Shareholders and is incorporated herein by reference.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

The discussion of interest rate sensitivity included in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Risk” on page 15 of the Corporation’s 2006 Annual Report to Shareholders is incorporated herein by reference. In addition, the discussion of the Corporation’s contractual obligations, contingent liabilities and commitments, and off-balance sheet arrangements included in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Off-Balance Sheet Arrangements, Contractual Obligations, and Contingent Liabilities and Commitments” on pages 16 and 17 of the Corporation’s 2006 Annual Report to Shareholders, and in Financial Statement Footnote No. 13, captioned “Financial

25

Instruments with Off-Balance Sheet Risk,” on pages 36 and 37 of the Corporation’s 2006 Annual Report to Shareholders, is incorporated herein by reference.

ITEM 8. Financial Statements and Supplementary Data

The following consolidated financial statements (and reports thereon) are set forth on pages 18 through 42 of the Corporation’s 2006 Annual Report to Shareholders and are incorporated herein by reference:

Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets – December 31, 2006 and 2005
Consolidated Statements of Operations – Years ended December 31, 2006, 2005 and 2004
Consolidated Statements of Stockholders’ Equity – Years ended December 31, 2006, 2005 and 2004
Consolidated Statements of Cash Flows – Years ended December 31, 2006, 2005 and 2004
Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements

ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure

There were no changes in or disagreements with accountants during the years ended December 31, 2006 or 2005.

ITEM 9A. Controls and Procedures

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

(a)	information required to be disclosed by the Corporation in this Annual Report on Form 10-K and the other reports which the Corporation files or submits under the Exchange Act would be accumulated and communicated to the Corporation’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure;
(b)	information required to be disclosed by the Corporation in this Annual Report on Form 10-K and the other reports which the Corporation files or submits under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and
(c)	the Corporation’s disclosure controls and procedures are effective as of the end of the period covered by this Annual Report on Form 10-K to ensure that material information relating to the Corporation and its consolidated subsidiary is made known to them, particularly during the period for which the Corporation’s periodic reports, including this Annual Report on Form 10-K, are being prepared.

Changes in Internal Control Over Financial Reporting. There were no changes in the Corporation’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the Corporation’s fiscal quarter ended December 31, 2006, that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

ITEM 9B. Other Information

None

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PART III

ITEM 10. Directors, Executive Officers, and Corporate Governance

The information required by Item 401 of SEC Regulation S-K concerning the directors of the Corporation and the nominees for election as directors of the Corporation at the Annual Meeting of Shareholders to be held on May 8, 2007 (the “2007 Annual Meeting”) is incorporated herein by reference from the disclosure included under the caption “ELECTION OF DIRECTORS” in the Corporation’s definitive Proxy Statement relating to the 2007 Annual Meeting filed pursuant to SEC Regulation 14A (the “Corporation’s 2007 Proxy Statement”). The information required by Item 401 of SEC Regulation S-K concerning the executive officers of the Corporation is incorporated herein by reference from the disclosure included under the caption “EXECUTIVE OFFICERS” in the Corporation’s 2007 Proxy Statement.

The information required by Item 405 of SEC Regulation S-K concerning compliance with Section 16(a) of the Exchange Act is incorporated herein by reference from the disclosure included under the caption “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” in the Corporation’s 2007 Proxy Statement.

The information required by Item 407(c)(3) of SEC Regulation S-K is incorporated herein by reference from the disclosure included under the caption “CORPORATE GOVERNANCE – Director Nominations” in the Corporation’s 2007 Proxy Statement.

The information required by Items 407(d)(4) and 407(d)(5) of SEC Regulation S-K is incorporated herein by reference from the disclosure included under the caption “MEETINGS AND COMMITTEES OF THE BOARD – Audit Committee” in the Corporation’s 2007 Proxy Statement.

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

ITEM 11. Executive Compensation

The information required by Item 402 of SEC Regulation S-K is incorporated herein by reference from the disclosure included under the captions “ELECTION OF DIRECTORS – Compensation of Directors” and “COMPENSATION OF EXECUTIVE OFFICERS” in the Corporation’s 2007 Proxy Statement.

The information required by Item 407(e)(4) of SEC Regulation S-K is incorporated herein by reference from the disclosure included under the caption “MEETINGS AND COMMITTEES OF THE BOARD – Compensation Committee Interlocks and Insider Participation” in the Corporation’s 2007 Proxy Statement.

The information required by Item 407(e)(5) of SEC Regulation S-K is incorporated herein by reference from the disclosure included under the caption “COMPENSATION OF EXECUTIVE OFFICERS – Compensation Committee Report” in the Corporation’s 2007 Proxy Statement.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters

The information required by Item 403 of SEC Regulation S-K is incorporated herein by reference from the disclosure included under the caption “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” in the Corporation’s 2007 Proxy Statement.

EQUITY PLAN INFORMATION

The Croghan Bancshares, Inc. 2002 Stock Option and Incentive Plan was approved by the Corporation’s shareholders at the 2002 Annual Meeting. As of the date of this Annual Report on Form 10-K, no awards had been granted under the 2002 Stock Option and Incentive Plan.

27

The following table provides certain information regarding the Corporation’s equity compensation plans.

	(a)		(b)		(c)
Plan Category	Number of securities to be		Weighted-average exercise		Number of securities remaining
	issued upon exercise of		price of outstanding options,		available for future issuance under
	outstanding options, warrants		warrants and rights		equity compensation plans
	and rights				(excluding securities reflected
					in column (a))
Equity compensation plans approved by security holders		0		0		190,951
Equity compensation plans not approved by security holders (1)		—		—		—
Total		0		0		190,951

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

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

The information required by Item 404 of SEC Regulation S-K is incorporated herein by reference from the disclosure included under the caption “CORPORATE GOVERNANCE – Related Party Transactions” in the Corporation’s 2007 Proxy Statement.

The information required by Item 407(a) of SEC Regulation S-K is incorporated herein by reference from the disclosure included under the caption “CORPORATE GOVERNANCE – Director Independence” in the Corporation’s 2007 Proxy Statement.

ITEM 14. Principal Accountant Fees and Services

The information required by this Item 14 is incorporated herein by reference from the disclosure included under the caption “AUDIT COMMITTEE DISCLOSURE” in the Corporation’s 2007 Proxy Statement.

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PART IV

ITEM 15. Exhibits and Financial Statement Schedules

(a)(1) Financial Statements

The following consolidated financial statements (and reports thereon) are set forth on pages 18 through 42 of the Corporation’s 2006 Annual Report to Shareholders (included as Exhibit 13 to this Annual Report on Form 10-K) and are incorporated herein by reference:

Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets – December 31, 2006 and 2005
Consolidated Statements of Operations – Years ended December 31, 2006, 2005 and 2004
Consolidated Statements of Stockholders’ Equity – Years ended December 31, 2006, 2005 and 2004
Consolidated Statements of Cash Flows – Years ended December 31, 2006, 2005 and 2004
Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements

(a)(2) Financial Statement Schedules

Financial statement schedules have been omitted either because they are not applicable or because the required information is provided in the Consolidated Financial Statements, including the Notes thereto.

(a)(3) Exhibits

The following exhibits are filed with or incorporated by reference (in accordance with Item 601 of SEC Regulation S-K) in this filing:

Exhibit
Number	Description	Location
3.1	Amended Articles of Incorporation of Croghan Bancshares, Inc.	Incorporated herein by reference to Exhibit 3(i) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 (File No. 0-20159)
3.2	Amended Code of Regulations of Croghan Bancshares, Inc.	Incorporated herein by reference to Exhibit 3(ii) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000 (File No. 0-20159)
4.1	Certificate of Registrant’s Common Stock	Incorporated herein by reference to Exhibit 3 to the Registrant’s Form 10 Registration Statement pursuant to Section 12(g) of the Securities Exchange Act of 1934
4.2	Articles Fourth, Fifth and Eighth of Registrant’s Articles of Incorporation	Incorporated herein by reference to Exhibit 3(i) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 (File No. 0-20159)
4.3	Amended Articles II, III, V, VII and VIII of Registrant’s Code of Regulations	Incorporated herein by reference to Exhibit 3(ii) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000 (File No. 0-20159)

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Exhibit
Number	Description	Location
*10.1	Executive Supplemental Retirement Plan Agreement	Incorporated herein by reference to Exhibit 10(ii) to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (File No. 0-20159)
*10.2	Employment Contract, dated April 16, 2004, between The Croghan Colonial Bank and Steven C. Futrell	Incorporated herein by reference to Exhibit 10 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004 (File No. 0-20159)
*10.3	Croghan Bancshares, Inc. 2002 Stock Option and Incentive Plan	Incorporated herein by reference to Exhibit 10(iv) to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (File No. 0-20159)
*10.4	Executive Supplemental Death Benefit Agreement	Incorporated herein by reference to Exhibit 10(v) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003 (File No. 0-20159)
*10.5	Part-Time Employment and Consulting Agreement, dated February 17, 2006, between Croghan Bancshares, Inc. and Allan E. Mehlow	Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed February 21, 2006 (File No. 0-20159)
*10.6	First Amendment to Part-Time Employment and Consulting Agreement, dated May 10, 2006, between Croghan Bancshares, Inc. and Allan E. Mehlow	Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed May 11, 2006 (File No. 0-20159)
*10.7	Second Amendment to Part-Time Employment and Consulting Agreement, dated December 12, 2006, between Croghan Bancshares, Inc. and Allan E. Mehlow	Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed December 13, 2006 (File No. 0-20159)
13	2006 Annual Report to Shareholders	Included with this filing (not deemed filed except for portions thereof which are specifically incorporated by reference into this Annual Report on Form 10-K)
14	Croghan Bancshares, Inc. Code of Business Conduct and Ethics	Incorporation by reference to Exhibit 14 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (File No. 0-20159)
21	Subsidiaries of the Registrant	Included with this filing
23	Consent of Independent Auditor	Included with this filing

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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

* Denotes management contract or compensatory plan or arrangement.

31

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CROGHAN BANCSHARES, INC.
Date: March 13, 2007	/s/ Steven C. Futrell
	Steven C. Futrell, President/CEO

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

/s/ Michael D. Allen Sr.	/s/ Stephen A. Kemper
Michael D. Allen Sr., Director	Stephen A. Kemper, Director
/s/ James E. Bowlus	/s/ Daniel W. Lease
James E. Bowlus, Director	Daniel W. Lease, Director
/s/ Steven C. Futrell	/s/ Allan E. Mehlow
Steven C. Futrell, Director & President/CEO	Allan E. Mehlow, Director
[Principal Executive Officer]
/s/ Kendall W. Rieman	/s/ J. Terrence Wolfe
Kendall W. Rieman, Treasurer	J. Terrence Wolfe, Director
[Principal Financial and Accounting Officer]
	/s/ Thomas W. McLaughlin
	Thomas W. McLaughlin, Director
	/s/ Gary L. Zimmerman
	Gary L. Zimmerman, Director

Date: March 13, 2007

32

EXHIBIT INDEX

Exhibit
Number	Description	Location
3.1	Amended Articles of Incorporation of Croghan Bancshares, Inc.	Incorporated herein by reference to Exhibit 3(i) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 (File No. 0-20159)
3.2	Amended Code of Regulations of Croghan Bancshares, Inc.	Incorporated herein by reference to Exhibit 3(ii) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000 (File No. 0-20159)
4.1	Certificate of Registrant’s Common Stock	Incorporated herein by reference to Exhibit 3 to the Registrant’s Form 10 Registration Statement pursuant to Section 12(g) of the Securities Exchange Act of 1934
4.2	Articles Fourth, Fifth and Eighth of Registrant’s Articles of Incorporation	Incorporated herein by reference to Exhibit 3(i) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 (File No. 0-20159)
4.3	Amended Articles II, III, V, VII and VIII of Registrant’s Code of Regulations	Incorporated herein by reference to Exhibit 3(ii) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000 (File No. 0-20159)
*10.1	Executive Supplemental Retirement Plan Agreement	Incorporated herein by reference to Exhibit 10(ii) to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (File No. 0-20159)
*10.2	Employment Contract, dated April 16, 2004, between The Croghan Colonial Bank and Steven C. Futrell	Incorporated herein by reference to Exhibit 10 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004 (File No. 0-20159)
*10.3	Croghan Bancshares, Inc. 2002 Stock Option and Incentive Plan	Incorporated herein by reference to Exhibit 10(iv) to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (File No. 0-20159)
*10.4	Executive Supplemental Death Benefit Agreement	Incorporated herein by reference to Exhibit 10(v) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003 (File No. 0-20159)

33

Exhibit
Number	Description	Location
*10.5	Part-Time Employment and Consulting Agreement, dated February 17, 2006, between Croghan Bancshares, Inc. and Allan E. Mehlow	Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed February 21, 2006 (File No. 0-20159)
*10.6	First Amendment to Part-Time Employment and Consulting Agreement, dated May 10, 2006, between Croghan Bancshares, Inc. and Allan E. Mehlow	Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed May 11, 2006 (File No. 0-20159)
*10.7	Second Amendment to Part-Time Employment and Consulting Agreement, dated December 12, 2006, between Croghan Bancshares, Inc. and Allan E. Mehlow	Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed December 13, 2006 (File No. 0-20159)
13	2006 Annual Report to Shareholders	Included with this filing (not deemed filed except for portions thereof which are specifically incorporated by reference into this Annual Report on Form 10-K)
14	Croghan Bancshares, Inc. Code of Business Conduct and Ethics	Incorporation by reference to Exhibit 14 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (File No. 0-20159)
21	Subsidiaries of the Registrant	Included with this filing
23	Consent of Independent Auditor	Included with this filing
31.1	Rule 13a-14(a)/15d-14(a) Certification – Principal Executive Officer	Included with this filing
31.2	Rule 13a-14(a)/15d-14(a) Certification – Principal Financial Officer	Included with this filing
32	Section 1350 Certification – Principal Executive Officer and Principal Financial Officer	Included with this filing

* Denotes management contract or compensatory plan or arrangement.

34

EX-13

2 0 0 6 ^{ANNUAL REPORT}

Bancshares, Inc.

www.croghan.com

To Our Shareholders:

     In this era of speed and efficiency, many businesses have lost touch with their clients, making the more impersonal, transactional business the norm. As that’s happened, more and more service industries have become commodities. In the face of this change, we at Croghan have decided to focus not only on the delivery of our services, but also on how we deliver them. We’ve implemented a mission to embrace our clients, actively manage their experience with us, and find ways to help them throughout their financial lives; all this while maintaining quality and keeping costs down.

     I’ll share more details of these efforts as we review the year. However, I first wanted to express how proud I am of the importance we’ve placed on client service and how dedicated we are to the inextricable connection between that service and ongoing sales growth.

Financial Summary

     As illustrated in the Financial Highlights section, the overall economic environment was not conducive to ideal performance in 2006. The increase in market rates exerted pressure on our net interest margin throughout the year, which resulted in a decline in net interest income. We were, however, able to somewhat mitigate the decline as rates began to stabilize near year end. Following are some key points of our 2006 performance:

• Earnings per share declined slightly from $3.05 to $3.03

• Dividends increased over 2005, with a $1.20 per share payout.

• Net income of $5,489,000 produced a return on average assets of 1.21% and return on average equity of 10.90%

• Non-interest income improved by 9.9%

• Non-interest expenses were managed to an increase of $91,000, or .8%.

• The balance sheet showed a 4.8% increase in loans, growth in deposits of .7% with an overall reduction in assets from $461,899,000 at December 31, 2005 to $458,858,000 at December 31, 2006 due to securities decrease of $19,508,000.

• The provision for loan loss, as well as delinquencies and net charge-offs all declined during the year reflecting an improvement in credit quality.

• Another important measure of productivity and our ability to manage expenses was our efficiency ratio of 59.45% for the year.

Year in Review

     One of our goals in 2006 was to improve the level of personal attention we offer our clients. As I discussed earlier, I’m proud of our efforts in that regard. Personal service has emerged as a part of the daily culture at Croghan. That’s not only evident in our daily personal interactions with our clients, but also in the product development initiatives we’ve undertaken.

     Overall, our product marketing has made a transition from high-cost mass marketing to lower-cost client targeting. This requires the repositioning of our message from rate/fee leadership to relationship benefits and pricing. The shift in marketing strategy is reflective of the bank’s focus on being a customer-centric financial partner rather than the commodity most dominant in the mass market.

     Recognizing that commercial clients require a level of flexibility often overlooked by traditional banking services, we led with the enhancement of our non-traditional banking services. We became more active in BusinessNET prospecting as 61% of all BusinessNET clients were gained in 2006. Also, because of some significant client relationships outside of our immediate service area, our Mobile Courier service was also more prevalent. Lastly, to increase communications with and provide value to our commercial clients, we developed the Vital Business Journal, an electronic newsletter targeted to our commercial clients.

     Closely related to Commercial product and service development is Wealth Management and Private Banking. Since these divisions often share a client base, we enhanced those offerings that would build a holistic value for the client. Those efforts included providing insurance coverage assessments, business and personal financial reviews, and workers’ compensation cost analyses.

     On the Retail side, we stayed focused on our existing client base by implementing an internal outreach to existing mortgage clients with no checking account. Also in the Retail product line, we developed the High Yield Savings Account. This was done, in part, to mitigate our rate risk in our money market and CD products, allow for the retention and growth of deposits while reducing our funding cost, and to reward clients with a tiered rate structure favoring higher account balances.

     Another area where our service culture can be seen is in our recent facility projects. We increased our reach in our outlying markets by adding an ATM in Wood County, at our Custar Banking Center, and on Put-In-Bay, where we continue to increase our market share in Ottawa County.

     The largest facility projects, however, were the Main Office remodeling and construction of our new Clyde Banking Center. The overall goal for both projects was to provide our clients the best in-office banking environment possible. Both projects were completed in early 2007.

People

     People are the competitive advantage at Croghan. By developing strong relationships internally, we’re equipped to develop equally strong relationships with our clients. As we move forward, the fundamental difference between Croghan and our competitors will continue to be the commitment from each employee to make a difference in every client relationship.

     In that regard, we were sad to say goodbye to a valued senior staff member and a long time board member in 2006. Al Mehlow, our CFO/COO accepted a job opportunity locally in private industry, but has remained on our Board of Directors. Also, long-time and valued board member, Claude Young, retired after 27 years on the Croghan board. I want to extend my sincere appreciation to both Al and Claude for their years of dedication and service to Croghan.

     We were delighted to welcome Kendall Rieman as our new CFO/COO. With his years of experience and new ideas, we’re grateful for his fresh perspective. We were also pleased to appoint Tom McLaughlin, a CPA from Norwalk, to our board of directors of both Croghan Colonial Bank and Croghan Bancshares, Inc.

Moving Forward

     As we look at 2007, net interest margin pressure will continue to challenge us but not to the extent we experienced in 2006. We will also continue to hold credit quality as a core value. Our growth objective is to continue to focus on organic growth in current markets while leveraging our competitive advantages to selectively pursue merger and acquisition partners. While we face many challenges, I am personally very optimistic about our future.

     Thank you to our employees and the many clients we are fortunate enough to serve every day. As always, thank you also for your support as a Croghan shareholder.

Sincerely,

Steven C. Futrell
President & CEO

Croghan Bancshares, Inc.

CONTENTS

President’s Letter	Inside front cover
Financial Highlights		1
Description of the Corporation and Common Stock Information		2
Performance Graph		3
Selected Financial Data		4
Management’s Discussion and Analysis		5
Report of Independent Registered Public Accounting Firm		18
Consolidated Financial Statements		19

FINANCIAL HIGHLIGHTS

	2006			2005			Percent Change
FOR THE YEAR
Net income	$	5,489,000		$	5,721,000			(4.1	)%
Income per common share		3.03			3.05			(0.7	)%
Dividends per common share		1.20			1.16			3.4	%
Return on average assets		1.21	%		1.24	%
Return on average stockholders’ equity		10.90	%		11.43	%
AT YEAR END
Assets	$	458,858,000		$	461,899,000			(0.7	)%
Loans		357,278,000			340,910,000			4.8	%
Securities		61,913,000			81,421,000			(24.0	)%
Deposits		371,194,000			368,459,000			0.7	%
Stockholders’ equity		51,163,000			49,931,000			2.5	%
Book value per common share	$	28.65		$	27.07			5.8	%
Stockholders’ equity to total assets		11.15	%		10.81	%
Number of stockholders of record		758			783			(3.2	)%
Number of full-time equivalent employees		156			158			(1.3	)%

Croghan Bancshares, Inc.

Croghan Bancshares, Inc.

DESCRIPTION OF THE CORPORATION

Croghan Bancshares, Inc., an Ohio corporation (the “Corporation” or “Croghan”), is a bank holding company incorporated in 1983 with $458,858,000 in total assets as of December 31, 2006. Croghan owns all of the outstanding shares of The Croghan Colonial Bank (the “Bank”), an Ohio state-chartered bank incorporated in 1888 and headquartered in Fremont, Ohio.

The Bank offers a diverse range of commercial and retail banking services through its 11 offices located in Bellevue, Clyde, Custar, Fremont, Green Springs, Monroeville, Norwalk, and Port Clinton, Ohio. Effective January 1, 2005, Croghan purchased The Custar State Bank (“Custar”) with one banking office in Custar, Ohio having assets of $50,536,000. The Custar, Ohio office is operated as a branch of the Bank. Products are comprised of traditional banking services such as consumer, commercial, agricultural and real estate loans, personal and business checking accounts, savings accounts, time deposit accounts, safe deposit box services, and trust department services. Investment products bearing no FDIC insurance are offered through the Bank’s Trust and Investment Services Division.

MARKET PRICE AND DIVIDENDS ON COMMON STOCK

The Corporation’s common shares are quoted on the OTC Bulletin Board. Solely on the basis of transactions of which the Corporation has been made aware, the transaction prices for the Corporation’s common shares for each quarterly period during 2006 and 2005 were as follows:

	2006		2005
First Quarter	$	35.75 to 37.50	$	35.50 to 40.50
Second Quarter		35.70 to 39.00	34.00 to 36.80
Third Quarter		35.35 to 37.75	35.70 to 39.00
Fourth Quarter		34.11 to 35.75	37.15 to 39.00

     Dividends declared by the Corporation on its common shares during the past two years were as follows:

	2006		2005
Three-months ended March 31	$	.30	$	.29
Three-months ended June 30		.30		.29
Three-months ended September 30		.30		.29
Three-months ended December 31		.30		.29
	$	1.20	$	1.16

     There were 758 holders of record of the Corporation’s common shares on December 31, 2006.

AVAILABILITY OF MORE INFORMATION

To obtain a copy of the Corporation’s annual report on Form 10-K filed with the Securities and Exchange Commission, please write to:

Croghan Bancshares, Inc.

Barry F. Luse, Secretary

323 Croghan Street

Fremont, OH 43420

Croghan Bancshares, Inc.

Croghan Bancshares, Inc.

PERFORMANCE GRAPH

The following graph is a comparison of the cumulative total shareholder return (change in share price plus reinvested dividends) through December 31, 2006 of an initial $100 investment on December 31, 2001 in (i) the common shares of the Company, (ii) the AMEX Stock Market (American Stock Exchange — U.S. Companies Stock Index), and (iii) the NASDAQ Bank Index. The comparisons in this table are required by the SEC. The cumulative return performance shown on the graph is not intended to forecast or be indicative of future performance.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS

Prepared by the Center for Research in Security Prices
Produced on 01/25/2007 including data to 12/29/2006

Notes:

A. The lines represent monthly index levels derived from compounded daily returns that include all dividends.

B. The indexes are reweighted daily, using the market capitalization on the previous trading day.

C. If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used.

D. The index level for all series was set to $100.00 on 12/31/2001.

3 

Croghan Bancshares, Inc.

FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA

	Years ended December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands, except share data)
Statements of operations:
Total interest income	$	26,904		$	25,385		$	21,724		$	22,033		$	24,183
Total interest expense		9,613			7,310			5,699			6,405			8,271
Net interest income		17,291			18,075			16,025			15,628			15,912
Provision for loan losses		380			705			716			430			730
Net interest income, after provision for loan losses		16,911			17,370			15,309			15,198			15,182
Total non-interest income		3,035			2,761			2,916			2,991			2,638
Total non-interest expenses		12,168			12,077			10,964			10,354			10,333
Income before federal income taxes		7,778			8,054			7,261			7,835			7,487
Federal income taxes		2,289			2,333			2,143			2,407			2,350
Net income	$	5,489		$	5,721		$	5,118		$	5,428		$	5,137
Per share of common stock:
Net income	$	3.03		$	3.05		$	2.70		$	2.86		$	2.69
Dividends		1.20			1.16			1.12			1.09			1.00
Book value		28.65			27.07			25.83			24.32			22.86
Average shares of common stock outstanding		1,814,011			1,877,987			1,897,582			1,900,152			1,907,927
Year end balances:
Loans, net	$	353,678		$	337,286		$	319,058		$	302,905		$	284,262
Securities		61,913			81,421			61,323			64,236			71,437
Total assets		458,858			461,899			417,234			402,773			387,330
Deposits		371,194			368,459			326,093			312,407			302,888
Stockholders’ equity		51,163			49,931			48,916			46,196			43,462
Average balances:
Loans, net	$	337,538		$	340,158		$	309,957		$	286,138		$	276,497
Securities		70,090			72,131			62,178			69,878			62,785
Total assets		452,209			459,707			408,688			391,416			375,266
Deposits		366,261			368,315			318,430			307,346			297,854
Stockholders’ equity		50,357			50,052			47,672			44,983			41,871
Selected ratios:
Net yield on average interest-earning assets		4.19	%		4.30	%		4.27	%		4.30	%		4.54	%
Return on average assets		1.21			1.24			1.25			1.39			1.37
Return on average stockholders’ equity		10.90			11.43			10.74			12.07			12.27
Net loan charge-offs as a percent of average outstanding net loans		.12			.22			.22			.26			.14
Allowance for loan losses as a percent of year-end loans		1.01			1.06			1.06			1.11			1.28
Stockholders’ equity as a percent of total year-end assets		11.15			10.81			11.72			11.47			11.22

Amounts after January 1, 2005 reflect the purchase of The Custar State Bank.

4

Croghan Bancshares, Inc.

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

     The following discussion provides additional information relating to Croghan’s financial condition and results of operations. This information is presented to further the reader’s understanding of Croghan’s Consolidated Financial Statements, which begin on page 19 of this Annual Report.

FORWARD-LOOKING STATEMENTS

     Where appropriate, the following discussion 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 forward-looking statements regarding future financial performance, which are not historical facts and which involve various risks and uncertainties. The Corporation cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and advises readers that various factors including regional and national economic conditions, changes in the levels of market interest rates, and competitive and regulatory issues could affect Croghan’s financial performance and cause the actual results for future periods to differ materially from those anticipated or projected.

     Without limiting the foregoing and by way of example and not by way of limitation, some of the statements in the following referenced sections of this discussion and analysis are forward-looking and are, therefore, subject to such risks and uncertainties:

1.	Management’s discussion of the interest yield curve included under “ Net Interest Income” .
2.	Management’s discussion relating to the determination and assessment of the provision and allowance for loan losses included under “Provision for Loan Losses and the Allowance for Loan Losses”.
3.	Management’s discussion of the consumer loan portfolio included under “Loans”.
4.	Management’s discussion of capital requirements included under “Stockholders’ Equity”.
5.	Management’s discussion relating to the Bank’s liquidity included under “Liquidity”.
6.	Management’s discussion of interest rate risk exposure included under “Interest Rate Risk”.

     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.

ACQUISITION OF THE CUSTAR STATE BANK

     On January 1, 2005, Croghan purchased The Custar State Bank of Custar, Ohio. As a result of this transaction, Croghan further expanded its market presence in northwest Ohio to serve portions of Wood County and the immediate surrounding area. Custar shareholders were paid cash for their shares and the transaction was recorded using the purchase method of accounting. The fair values of Custar’s assets and liabilities on the acquisition date included $16,504,000 in securities, $30,794,000 in net loans, and $40,821,000 in deposits.

     The purchase price, including acquisition costs of $145,000, totaled $14,039,000. The excess of the purchase price over the fair value of the net assets acquired totaled $4,778,000. Of this amount, $461,000 was allocated to a core deposit intangible asset and $4,317,000 was allocated to goodwill. The core deposit intangible asset is currently being amortized on a straight-line basis over a period of eight years. The goodwill created in the Custar transaction has been combined with the goodwill remaining from the 1996 purchase of Union Bancshares Corp. and the resulting total goodwill is tested for impairment each July 1.

     The following table provides the pertinent details relating to the transaction (dollars in thousands):

5

Total purchase price, including acquisition costs of $145				$	14,039
Fair value of assets acquired:
Cash and cash equivalents	$	2,357
Securities		16,504
Loans, net		30,794
Premises and equipment		445
Accrued interest receivable		265
Other assets		171
Total assets			50,536
Fair value of liabilities assumed:
Deposits		40,821
Other liabilities		454
Total liabilities			41,275
Net assets, at fair value					9,261
Excess of purchase price over fair value				$	4,778

PERFORMANCE SUMMARY

     Croghan’s net income for the year ended December 31, 2006 decreased to $5,489,000, compared to net income of $5,721,000 earned in 2005 and $5,118,000 in 2004. The 2006 operating results were negatively impacted by a $784,000 decrease in net interest income which totaled $17,291,000 for the year ended December 31, 2006 compared to $18,075,000 for the same period in 2005.

     The 2006 return on average assets was 1.21%, compared to 1.24% in 2005 and 1.25% in 2004. The return on average stockholders’ equity was 10.90% in 2006,11.43% in 2005 and 10.74% in 2004. Net income per share in 2006 amounted to $3.03, compared to $3.05 in 2005 and $2.70 in 2004.

     Total assets decreased to $458,858,000 at December 31, 2006 compared to $461,899,000 at December 31, 2005 primarily due to a $19,508,000, or 24.0%, decrease in total securities. Total loans increased $16,368,000, or 4.8%, to $357,278,000 at December 31, 2006 compared to $340,910,000 at December 31, 2005. Total deposits at December 31, 2006 increased $2,735,000, or ..7%, to $371,194,000 from $368,459,000 at December 31, 2005. Total stockholders’ equity at December 31, 2006 amounted to $51,163,000, a 2.5% increase as compared to $49,931,000 at December 31, 2005.

NET INTEREST INCOME

     Net interest income, which represents the revenue generated from interest-earning assets in excess of the interest cost of funding those assets, is Croghan’s principal source of income. Net interest income is influenced by market interest rate conditions and the volume and mix of earning assets and interest-bearing liabilities. Many external factors affect net interest income and typically include the strength of customer loan demand, customer preference for individual deposit account products, competitors’ loan and deposit product offerings, the national and local economic climates, and Federal Reserve monetary policy.

     The following table demonstrates the components of net interest income for the years ended December 31:

	2006			2005			2004
	(Dollars in thousands)
Average interest-earning assets	$	412,991		$	420,371		$	375,687
Interest income		26,904			25,385			21,724
Average rate earned		6.51	%		6.04	%		5.78	%
Average interest-bearing liabilities	$	351,974		$	360,172		$	319,960
Interest expense		9,613			7,310			5,699
Average rate paid		2.73	%		2.03	%		1.78	%
Net interest income	$	17,291		$	18,075		$	16,025
Net interest yield (net interest income divided by average interest-earning assets)		4.19	%		4.30	%		4.27	%

6

     2006 vs. 2005.Net interest income for 2006 decreased $784,000, or 4.3%, to $17,291,000, compared to $18,075,000 in 2005. Average interest-earning assets in 2006 decreased $7,380,000 which was a direct result of the reduction in the securities portfolio. Average interest-bearing liabilities decreased $8,198,000 which was a direct result of decreases in other borrowed funds from sources such as the Federal Home Loan Bank of Cincinnati (FHLB). In 2006, Croghan used funds from securities that matured to pay down borrowed funds from the FHLB which were maturing in 2006.

     In the first six months of 2006, the Federal Reserve Open Market Committee (FOMC) raised managed interest rates 100 basis points, or 1.00%. These rate increases helped increase Croghan’s interest yield on assets to 6.51%, but also increased the average rate paid on interest bearing liabilities to 2.73%. Also, throughout 2006 the Treasury yield curve remained inverted which put sustained pressure on Croghan’s net interest yield. The net effect of the FOMC rate increases and inverted yield curve was to decrease the net interest yield in 2006 to 4.19% compared to 4.30% in 2005. The prolonged and current inverted yield curve environment continues to put downward pressure on the net interest yield.

     2005 vs. 2004.Average interest-earning assets and average interest-bearing liabilities for 2005, and net interest income for the year ended December 31, 2005, include the operations of the Custar office; thus, the comparability of the amounts presented is significantly impacted. Net interest income for 2005 increased $2,050,000, or 12.8%, in 2005 to $18,075,000, compared to $16,025,000 in 2004. Average interest-earning assets in 2005 increased $44,684,000 with the growth concentrated in the loan and securities portfolios. Average interest-bearing liabilities increased $40,212,000 as the result of increases in the savings, NOW, and money market deposit categories and in time deposits. In an effort to provide additional stimulus to the national economy, the FOMC raised managed interest rates 200 basis points, or 2.0%, throughout 2005. These rate increases helped improve Croghan’s net interest yield, which increased three basis points to 4.30% in 2005 compared to 4.27% in 2004.

PROVISION FOR LOAN LOSSES AND THE ALLOWANCE FOR LOAN LOSSES

     Croghan’s loan policy provides guidelines for managing both credit risk and asset quality. The policy details acceptable lending practices, establishes loan-grading classifications, and prescribes the use of a loan review process. Croghan employs credit analysis staff 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.

     Croghan performs ongoing reviews to identify potential problem and non-performing loans and also completes in-depth analysis with respect to the quarterly allowance for loan losses calculation. Part of this analysis involves accessing the need for specific reserves relative to impaired loans. This evaluation typically includes a review of the loan’s past performance history, a comparison of the estimated collateral value in relation to the outstanding loan balance, the overall financial strength of the borrower, industry risks pertinent to the borrower, and competitive trends that may influence the borrower’s future financial performance. Loans are considered impaired when, based upon the most current information available, it appears probable that the borrower will not be able to make payments according to the contractual terms of the loan agreement. Impaired loans are then recorded at the observable market price of the loan, the fair value of the underlying collateral (if the loan is collateral dependent), or the present value of the expected future cash flows discounted at the loan’s effective interest rate. Given that Croghan’s impaired loans are typically collateralized by real estate or other borrower assets, the fair value of individual impaired loans is most often based upon the underlying collateral value. Large groups of smaller balance homogenous loans are collectively evaluated for impairment.

     To determine the allowance for loan losses, Croghan prepares a detailed quarterly analysis that focuses on delinquency trends, the status of non-performing loans (i.e., impaired, nonaccrual, and restructured loans, and loans past due 90 days or more), current and historical trends of charged-off loans within each loan category (i.e., commercial, real estate, and consumer), existing local and national economic conditions, and changes within the volume and mix in each loan category. Higher loss rates are applied in calculating the allowance for loan losses relating to potential problem loans. The loss rates are periodically evaluated considering historic loss rates in the respective potential problem loan categories (i.e., special mention, substandard, doubtful) and current trends.

     Regular provisions are made in amounts sufficient to maintain the balance in the allowance for loan losses at a level considered by management to be adequate for losses within the portfolio. Even though management uses all available information to assess possible loan losses, future additions or reductions to the allowance may be required as changes occur in economic conditions and specific borrower circumstances. The regulatory agencies that periodically review Croghan’s allowance for loan losses may also require additions to the allowance or the charge-off of specific loans based upon the information available to them at the time of their examinations.

     The following table details factors relating to the provision and allowance for loan losses for the years ended December 31:

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	2006			2005			2004
	(Dollars in thousands)
Provision for loan losses charged to expense	$	380		$	705		$	716
Net loan charge-offs		404			753			672
Net loan charge-offs as a percent of average outstanding net loans		.12	%		.22	%		.22	%

     Net loan charge-offs decreased $349,000 in 2006, as compared to 2005, mostly due to a $266,000 decrease in consumer loan net charge-offs.

     The following table details additional factors relating to the provision and allowance for loan losses for the years ended December 31:

	2006			2005			2004
	(Dollars in thousands)
Nonaccrual loans	$	3,795		$	3,872		$	933
Loans contractually past due 90 days or more and still accruing interest		716			561			459
Restructured loans		—			—			—
Potential problem loans, other than those past due 90 days or more, nonaccrual, or restructured		8,199			11,810			15,393
Total potential problem and non-performing loans	$	12,710		$	16,243		$	16,785
Allowance for loan losses	$	3,600		$	3,624		$	3,431
Allowance for loan losses as a percent of year-end loans		1.01	%		1.06	%		1 .06	%

     2006 vs. 2005. The 2006 provision for loan losses totaled $380,000, or $325,000 less than the 2005 provision of $705,000. The reduction of the 2006 provision was impacted by a decrease in the level of charge-offs in the consumer, credit card, and real estate loan categories. The reduction of the 2006 provision was also impacted by a reduction in total potential problem and non-performing loans. Total potential problem and non-performing loans decreased $3,533,000, or 21.8% to $12,710,000 at December 31, 2006, compared to $16,243,000 at December 31, 2005.

     Positive portfolio trends came from a $3,611,000 decrease in potential problem loans to $8,199,000 at December 31, 2006, compared to $11,810,000 at December 31, 2005, and also a decrease in nonaccrual loans to $3,795,000 at December 31, 2006 from $3,872,000 at December 31, 2005. A negative portfolio trend was an increase in loans past due 90 days or more and still accruing interest to $716,000 in 2006, compared to $561,000 in 2005. Non-accrual loans included three loans to one borrower aggregating $2,557,000 at December 31, 2006 and $2,688,000 at December 31, 2005. During the third quarter of 2006, the borrower filed for protection under Chapter 11 of the bankruptcy laws and the Bank obtained an updated appraisal. Based on this updated appraisal, an additional provision of $242,000 was recognized in 2006 relating to this credit.

     Croghan typically classifies a loan as a potential problem loan, regardless of its collateralization or any contractually obligated guarantors, when a review of the borrower’s financial statements indicates that the borrower does not generate sufficient operating cash flow to adequately service its debts. The following table provides additional detail pertaining to the past due status of Croghan’s potential problem loans as of December 31, 2006 (dollars in thousands):

Potential problem loans not currently past due	$	5,260
Potential problem loans past due one day or more but less than 10 days		843
Potential problem loans past due 10 days or more but less than 30 days		745
Potential problem loans past due 30 days or more but less than 60 days		1,175
Potential problem loans past due 60 days or more but less than 90 days		176
Total potential problem loans	$	8,199

     The following table provides additional detail pertaining to the collateralization of Croghan’s potential problem loans as of December 31, 2006 (dollars in thousands):

Collateralized by an interest in real property	$	6,679
Collateralized by an interest in assets other than real property		1,500
Unsecured		20
Total potential problem loans	$	8,199

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     2005 vs. 2004.The 2005 provision for loan losses totaled $705,000, or $11,000 less than the 2004 provision of $716,000. The 2005 and 2004 provisions were impacted by an increase in the level of charge-offs in the consumer and credit card loan categories, with charge-offs in both years exceeding the historical averages for those categories. Total potential problem and non-performing loans decreased $542,000, or 3.2%, to $16,243,000 at December 31, 2005, compared to $16,785,000 at December 31, 2004.

     A positive portfolio trend was a $3,583,000 decrease in potential problem loans to $11,810,000 at December 31, 2005, compared to $15,393,000 at December 31, 2004. Negative portfolio trends included a $2,939,000 increase in nonaccrual loans, totaling $3,872,000 at December 31, 2005, compared to $933,000 at December 31, 2004, and a $102,000 increase in loans past due 90 days or more and still accruing interest to $561,000 in 2005, compared to $459,000 in 2004. The 2005 nonaccrual loan total included three loans to one borrower totaling $2,688,000. These loans, which are primarily secured by a parcel of commercial real estate, were all approximately 110 days past due at year-end.

     The following table provides additional detail pertaining to the past due status of Croghan’s potential problem loans as of December 31, 2005 (dollars in thousands):

Potential problem loans not currently past due	$	8,206
Potential problem loans past due one day or more but less than 10 days		1,939
Potential problem loans past due 10 days or more but less than 30 days		605
Potential problem loans past due 30 days or more but less than 60 days		695
Potential problem loans past due 60 days or more but less than 90 days		365
Total potential problem loans	$	11,810

     The following table provides additional detail pertaining to the collateralization of Croghan’s potential problem loans as of December 31, 2005 (dollars in thousands):

Collateralized by an interest in real property	$	8,312
Collateralized by an interest in assets other than real property		3,491
Unsecured		7
Total potential problem loans	$	11,810

NON-INTEREST INCOME

     Non-interest income is comprised of the items in the following table, which summarizes such income for the years ended December 31:

	2006			2005			2004
	(Dollars in thousands)
Trust income	$	768		$	613		$	550
Service charges on deposit accounts		1,394			1,379			1,275
Gain (loss) on sale of securities		(9	)		(141	)		93
Increase in the cash value of life insurance		329			314			353
Commissions received from the origination of loans		13			15			10
Other operating income		540			581			635
Total non-interest income	$	3,035		$	2,761		$	2,916

     2006 vs. 2005. Total non-interest income in 2006 increased to $3,035,000, compared to $2,761,000 earned in 2005, an increase of $274,000 or 9.9%. Trust income increased $155,000, or 25.3%, from the 2005 level. The Trust Department held a total of $134,022,000 in assets for 615 clients at December 31, 2006, compared to $114,157,000 in assets at December 31, 2005. Services offered by the Trust Department include qualified retirement plans (e.g., 401k and simple plans), personal trusts, investment management accounts, cash management accounts, individual retirement accounts, custody accounts, charitable trusts, and charitable gift annuities.

     Service charges on deposit accounts increased $15,000, or 1.1%, from the 2005 level. Net securities losses amounted to $9,000 in 2006, compared to $141,000 in 2005. A portion of the 2005 sales were the result of a planned strategy to fund payments to Custar shareholders and to align the acquired securities portfolio with Croghan’s investment objectives. The net securities losses in 2006 were realized upon the sale of obligations of states and political subdivisions. All of the securities sold were from the available-for-sale portfolio.

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     In 1999, the Bank purchased split-dollar life insurance contracts on behalf of its executive officers. In addition to the cash surrender value of each contract, the Bank will receive 20% of the net insurance proceeds upon the death of the insured party. The increase in the cash value of these policies accumulates on a tax-exempt basis and the tax savings is used to fund supplemental retirement benefits for the named executives. The cash value of these policies totaled $4,203,000 at December 31, 2006 and $4,081,000 at December 31, 2005. In 2003, the Bank purchased an additional $5,000,000 in bank-owned life insurance contracts covering 18 Bank officers. The Bank will receive the cash surrender value of each contract and all of the net insurance proceeds, except for $25,000 to be paid to the insured party’s beneficiaries, upon the death of the named officer. The cash value of these policies totaled $5,669,000 at December 31, 2006 and $5,462,000 at December 31, 2005. The increase in the cash value of all policies is included in non-interest income and totaled $329,000 in 2006, compared to $314,000 in 2005.

     As a result of the low interest rate environment encountered in previous years, Croghan entered into an agreement in 2002 to originate loans on behalf of a national provider of residential mortgage loan products. The provider typically sells such loans in the secondary market (e.g., to Freddie Mac or Fannie Mae) and retains the servicing and related support functions (e.g., tax reporting and escrow accounting). This arrangement allows Croghan to maintain its customer relationships by providing competitive residential real estate loan offerings, while at the same time eliminating much of the risk associated with long-term fixed-rate mortgage loan financing. Commissions received from the origination of residential real estate loans totaled $13,000 in 2006, compared to $15,000 in 2005.

     Other operating income decreased $41,000, or 7.1%, to $540,000 in 2006 from $581,000 reported in 2005. Other operating income includes fees generated by the Investment Department of Croghan’s Trust and Investment Services Division. The Investment Department markets non-FDIC insured investment products, such as mutual funds and annuities. Fees generated by the Investment Department totaled $77,000 in 2006, compared to $97,000 in 2005. Other items of note that comprise other operating income include ATM surcharge fees, MasterCard merchant referral commissions, safe deposit box fees, credit life insurance sales commissions, and fees from the sale of official checks and money orders.

     2005 vs. 2004. Non-interest income for 2005 includes the operations of the Custar office from January 1, 2005; thus, the comparability of the amounts presented is significantly impacted. Total non-interest income in 2005 decreased to $2,761,000, compared to $2,916,000 earned in 2004, a decrease of $155,000 or 5.3%. Trust income increased $63,000, or 11.5%, from the 2004 level. The Trust Department held a total of $114,157,000 in assets for 610 clients at December 31, 2005, compared to $100,484,000 in assets at December 31, 2004.

     Service charges on deposit accounts increased $104,000, or 8.2%, from the 2004 level. Net securities losses amounted to $141,000 in 2005, compared to $93,000 in net securities gains reported in 2004. A portion of the 2005 sales were the result of the aforementioned planned strategy to fund payments to Custar shareholders and to align the acquired securities portfolio with Croghan’s investment objectives. The net securities gains and losses in both years were realized upon the sale of primarily U.S. Government Agency securities. All of the securities sold were from the available-for-sale portfolio.

     The cash value of the split-dollar life insurance and the bank-owned life insurance policies totaled $9,543,000 at December 31, 2005 and $9,229,000 at December 31, 2004. The increase in the cash value of the split-dollar and bank-owned life insurance policies totaled $314,000 in 2005, compared to $353,000 in 2004.

     Commissions received from the origination of residential real estate loans totaled $15,000 in 2005, compared to $10,000 in 2004.

     Other operating income decreased $54,000, or 8.5%, to $581,000 in 2005 from $635,000 reported in 2004. As previously mentioned, the fees generated by the Investment Department of Croghan’s Trust and Investment Services Division are included in non-interest income and totaled $97,000 in 2005, compared to $73,000 in 2004.

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NON-INTEREST EXPENSES

     Non-interest expenses are comprised of the items in the following table, which summarizes such expenses for the years ended December 31:

	2006		2005		2004
	(Dollars in thousands)
Compensation	$	5,497	$	5,340	$	4,821
Benefits		1,390		1,513		1,336
Additional provision for supplemental retirement benefits		—		—		412
Total personnel		6,887		6,853		6,569
Occupancy of premises		765		760		638
Amortization of core deposit intangible asset		57		58		—
Equipment and vehicle		1,053		1,020		814
Professional and consulting services		358		451		325
State franchise and other taxes		473		349		447
Postage		287		275		258
Stationery and supplies		215		234		204
Advertising and marketing		233		223		228
Third party computer processing		228		222		192
Examination fees		151		169		171
MasterCard franchise and processing		153		147		133
Loan collection and repossession fees		114		132		61
ATM network and processing fees		163		131		105
Telephone		99		94		65
Other operating		932		959		754
Total non-interest expenses	$	12,168	$	12,077	$	10,964

     2006 vs. 2005. Total non-interest expenses in 2006 increased to $12,168,000 from $12,077,000 in 2005, an increase of $91,000 or .8%. Total personnel expense increased $34,000 to $6,887,000 in 2006 from $6,853,000 in 2005. During 2006, management received an updated analysis of the Corporation’s obligation under the supplemental retirement plan for executive officers. Based on the results of the analysis, which is prepared periodically by the Corporation’s outside benefit consultants, the Corporation reduced its liability under the plan by $83,000 for the year ending December 31, 2006. The reduction was due to the resignation of an executive officer earlier in the year and adjustments of certain experience factors, including a decrease in anticipated future payments due to retired participants. Full-time equivalent employees totaled 156 at 2006 year-end compared to 158 at 2005 year-end. Other expenses that changed more than $50,000 between 2006 and 2005 included professional and consulting services and state franchise and other taxes.

     Professional and consulting services decreased $93,000, or 20.6%, in 2006. These services include fees paid to various consulting firms that assist with operational and product issues, asset/liability management, compliance training, information technology matters, and business planning. They also include professional fees paid to legal, accounting, and loan review firms. The 2005 total included $45,000 in expenses for an accounting firm to assist in the internal control certification requirements specified by Section 404 of the Sarbanes-Oxley Act (SOX 404) which were not incurred in 2006. After Croghan completed a majority of the work in 2005, the regulatory agencies announced in late 2005 that certifications applicable to companies of Croghan’s size would be delayed until 2007. During the latter part of 2006, the regulatory agencies announced that non-accelerated filers such as Croghan, would be required to report on their controls over financial reporting for years ending after December 15, 2007, but that the external auditors of such filers would not be required to issue their report on controls over financial reporting until years ending after December 15, 2008. As a result, Croghan expects that additional expenses relating to reporting on its controls over financial reporting will be incurred during 2007.

     State franchise taxes, which are based on the Bank’s capital structure, and other taxes increased $124,000, or 35.5%, in 2006. The 2006 increase was a result of the Bank’s higher capital position at the end of 2005.

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     2005 vs. 2004. Non-interest expenses for 2005 include the operations of the Custar office from January 1, 2005; thus, the comparability of the amounts presented is significantly impacted. Total non-interest expenses in 2005 increased to $12,077,000 from $10,964,000 in 2004, an increase of $1,113,000 or 10.2%. Total personnel expense increased $284,000, or 4.3%, between comparable periods. This increase can be attributed to annual salary adjustments and an increase in the number of full-time equivalent employees. Full-time equivalent employees totaled 158 at 2005 year-end compared to 146 at 2004 year-end, with most of the increase related to the addition of the Custar office in January 2005 and the opening of the Norwalk banking center in June 2005. Other expenses that changed more than $50,000 between 2005 and 2004 included occupancy, equipment and vehicle, professional and consulting services, state franchise and other taxes, loan collection and repossession fees, and other operating.

     Occupancy expenses increased $122,000, or 19.1%, in 2005. These expenses include such items as building and contents insurance, utilities, repair and maintenance costs, upkeep of parking lots and grounds, building depreciation, leased facility costs, and real estate taxes. Most of the increase is related to the additional expenses associated with operating the Custar and Norwalk banking centers.

     Equipment expenses increased $206,000, or 25.3%, in 2005. These expenses include such items as the upkeep and operation of vans used for deliveries between banking centers, equipment repair and maintenance, the lease of data lines and photocopying equipment, internet security services, equipment service contracts, and furniture and equipment depreciation.

     Professional and consulting services increased $126,000, or 38.8%, in 2005. As previously mentioned, the 2005 total included $45,000 for an accounting firm to assist in the internal control certification requirements specified by Section 404 of the Sarbanes-Oxley Act.

     State franchise taxes decreased $98,000, or 21.9%, in 2005 as a result of the Bank’s lower capital position at the end of 2004. Loan collection and repossession fees increased $71,000, or 116.4%, in 2005. The 2005 increase represents additional legal fees and expenses related to the use of third-party repossession firms.

     Other operating expenses increased $205,000, or 27.2%, in 2005. The increase is spread amongst multiple expense line items, with many items increasing as the result of Croghan’s addition of two new banking centers in 2005. Significant expense categories that comprise other operating expenses include miscellaneous employee expenses, fidelity and liability insurance, director and committee fees, loan origination expenses, dues and subscriptions, software amortization costs, correspondent bank service charges, and charitable donations.

FEDERAL INCOME TAXES

     Federal income tax expense totaled $2,289,000 in 2006, compared to $2,333,000 in 2005 and $2,143,000 in 2004. The effective tax rate in 2006 was 29.4% compared to 29.0% in 2005 and 29.5% in 2004.

SECURITIES

     Croghan’s securities portfolio is used to enhance net interest income, provide liquidity in the event of unforeseen cash flow needs, and diversify financial risk. At December 31, 2006, Croghan classified $57,273,000, or 92.5%, of its securities as available-for-sale. The remaining securities, totaling $4,640,000, were classified as either held-to-maturity or restricted stock. Available-for-sale securities are reported at their fair values with the net unrealized gain or loss reported as accumulated other comprehensive income (loss). Held-to-maturity securities are reported at amortized cost and restricted stock is reported at cost. All securities are periodically reviewed for impairment.

     Croghan’s available-for-sale investment portfolio is comprised primarily of U.S. Government agency and political subdivision obligations. The fair value of these holdings totaled $56,923,000 at December 31, 2006, compared to $76,555,000 at December 31, 2005. Croghan’s held-to-maturity investment portfolio consists of debt obligations of domestic corporations. The amortized cost of these investments totaled $1,011,000 at December 31, 2006, compared to $1,024,000 at December 31, 2005. Restricted stock is comprised of shares issued by the Federal Reserve Bank of Cleveland, Federal Home Loan Bank of Cincinnati and Bankers Bancshares, Inc. of Gahanna. The cost of these investments, which have no stated maturity, totaled $3,629,000 at December 31, 2006, compared to $3,492,000 at December 31, 2005.

     The aggregate carrying value of all securities at December 31, 2006 totaled $61,913,000, or a decrease of 24.0%, as compared to $81,421,000 at December 31, 2005. Due to the inverted yield curve throughout 2006, Croghan used proceeds from security maturities and sales to repay term debt and fund loan growth rather than purchase new securities.

12

LOANS

     Total loans at December 31, 2006 increased $16,368,000, or 4.8%, over December 31, 2005. The following table summarizes total loans and the percent change by major category as of December 31:

					Percent
	2006		2005		Change
	(Dollars in thousands)
Commercial, financial and agricultural	$	42,846	$	40,358		6.2	%
Real estate — residential mortgage		151,330		154,177		(1.8	)%
Real estate — non-residential mortgage		125,755		101,241		24.2	%
Real estate — construction		13,467		13,641		(1.3	)%
Consumer		21,111		28,764		(26.6	)%
Credit card		2,769		2,729		1.5	%
Total loans	$	357,278	$	340,910		4.8	%

     As noted in the preceding table, increases occurred in the commercial, non-residential mortgage, and credit card categories, with declines occurring in the residential mortgage, construction, and consumer categories. The most significant increase occurred in non-residential mortgage loans, which grew $24,514,000, or 24.2%, in 2006. This increase is the result of several new large loan relationships located in our servicing area, which are doing business in the manufacturing, retail, and hospitality sectors.

     As evident in the preceding table, the loan category experiencing the largest decline in 2006 was consumer loans which declined $7,653,000. This resulted from a comprehensive review of lending standards in early 2005 that was prompted by the rise in consumer loan charge-offs. The adoption of more rigorous credit underwriting standards has significantly reduced the number of qualifying consumer loans since early 2005. The level of consumer loans is expected to continue to decline in 2007, but at a lower rate than what was experienced in 2006.

DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES

     Deposits and other interest-bearing liabilities at December 31, 2006 decreased $4,152,000, or 1.0%, compared to December 31, 2005. Deposits and other interest-bearing liabilities serve as a primary source of cash flows to fund loan demand and are summarized in the following table as of December 31:

					Percent
	2006		2005		Change
	(Dollars in thousands)
Demand, non-interest bearing	$	49,745	$	50,730		(1.9	)%
Savings, NOW and Money Market deposits		160,224		150,365		6.6	%
Time deposits		161,225		167,364		(3.7	)%
Total deposits		371,194		368,459		.7	%
Federal funds purchased and securities sold under repurchase agreements		15,388		10,825		42.2	%
Other borrowings		17,600		29,050		(39.4	)%
Total deposits and other interest-bearing liabilities	$	404,182	$	408,334		(1.0	)%

     As noted in the preceding table, demand, non-interest bearing, time deposits, and other borrowings declined when compared to 2005 totals. The 2006 increase in savings, NOW and money market deposits of $9,859,000, or 6.6% was realized primarily from an increase in the savings deposits. In 2006, Croghan developed a new savings product to compete with short term certificates of deposits in our market, and to help attract new deposits into a lower cost category of deposits. The balance growth in the new savings product helped to offset the loss in balances from time deposits experienced in 2006, and reduce interest paid on deposits.

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     Other interest-bearing liabilities, consisting of federal funds purchased and securities sold under repurchase agreements and other borrowings, decreased $6,887,000 or 17.3% to $32,988,000 at December 31, 2006 from $39,875,000 at December 31, 2005. The 2006 decrease in other borrowings included repayment of $1,150,000 borrowed from Great Lakes Bankers Bank and used to assist in financing the 2005 Custar acquisition. The outstanding balance due Great Lakes Bankers Bank totaled $1,600,000 at December 31, 2006 and $2,750,000 at December 31, 2005. Remaining other borrowings, consisting of interest-bearing secured notes due to the Federal Home Loan Bank decreased $10,300,000, or 39.2% in 2006. As previously noted, funds from security maturities and sales were the primary source of repayment of FHLB borrowings.

STOCKHOLDERS’ EQUITY

     Croghan’s stockholders’ equity at December 31 is summarized in the following table:

	2006			2005
	(Dollars in thousands)
Common stock	$	23,926		$	23,926
Surplus		171			154
Retained earnings		31,961			28,640
Accumulated other comprehensive loss		(206	)		(287	)
Treasury stock		(4,689	)		(2,502	)
Total stockholders’ equity	$	51,163		$	49,931

     Accumulated other comprehensive loss consists of the net unrealized loss on securities classified as available-for-sale. At December 31, 2006, Croghan held $57,273,000 of available-for-sale securities with a net unrealized loss of $206,000, net of income taxes. This compares to holdings at December 31, 2005 of available-for-sale securities totaling $76,905,000 with a net unrealized loss of $287,000, net of income taxes. The $81,000 decrease in the net unrealized loss was the result of holding fewer below market rate securities at December 31, 2006. Since management believes that none of its investment securities are permanently impaired, there were no impairment charges made to operations in either 2006 or 2005.

     Bank holding companies, including Croghan, are subject to minimum capital requirements established by the Federal Reserve Board. Additionally, all insured depository institutions, including the Bank, are subject to the Federal Reserve Board’s capital classification system that assigns institutions into one of the following categories: well capitalized, adequately capitalized, or undercapitalized. Failure of a bank or bank holding company to meet the adequately capitalized or minimum capital standards may result in the initiation of certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material adverse effect on an institution’s financial statements.

     The Federal Reserve Board’s minimum Tier I risk-based and total risk-based capital ratios established for bank holding companies are 4% and 8%, respectively. At December 31, 2006, Croghan had a Tier I risk-based capital ratio of 11.9% and a total risk-based capital ratio of 12.9%. To be considered as “well capitalized” under prompt corrective action provisions, a bank must have a Tier I risk-based capital ratio of at least 6% and a total risk-based capital ratio of at least 10%. At December 31, 2006, the Bank was deemed “well capitalized” with a Tier I risk-based capital ratio of 10.8% and a total risk-based capital ratio of 13.3%. Refer to Note 14, entitled “Regulatory Matters”, in Croghan’s Consolidated Financial Statements for a detailed analysis of Croghan’s and the Bank’s capital amounts and related ratios. Management believes that, as of December 31, 2006 and 2005, Croghan and the Bank met all applicable capital adequacy requirements.

LIQUIDITY

     Croghan’s primary sources of liquidity are derived from its core deposit base and stable stockholders’ equity position. Secondary liquidity is provided by adjusting the daily federal funds sold position (when available), by actively managing the investment portfolio, and by adjusting federal funds purchased (borrowed) under established lines of credit from correspondent banks. The Bank has three federal funds purchased lines of credit, which are readily available on an unsecured short-term basis to meet daily liquidity needs as they arise. The average balance borrowed under these lines during 2006 totaled $2,097,000. At December 31, 2006, Croghan had $4,500,000 in federal funds purchased, to be repaid on a daily basis, as compared to $5,400,000 in federal funds purchased at December 31, 2005. Croghan also has additional borrowing capacity of $71,974,000 available from the Federal Home Loan Bank of Cincinnati. These funds can be drawn upon subject to adequate pledging of Federal Home Loan Bank stock and eligible residential mortgage loans.

14

     Additionally, Croghan maintains a portion of its assets in liquid form to meet anticipated customer loan demands and to fund possible deposit account outflows. At December 31, 2006, liquid assets in the form of cash and due from banks totaled $11,843,000, or 2.6%, of total assets. Croghan believes that these highly liquid assets, in addition to a staggered maturity schedule and principal repayments within the investment portfolio and cash flows from loan repayments, provide adequate liquidity for day-to-day operations.

     The liquidity needs of Croghan’s parent holding company, primarily the need to pay quarterly cash dividends to shareholders and make debt service payments to Great Lakes Bankers Bank, are funded by upstream-dividends from the Bank subsidiary. Dividends accrued to the Corporation from the Bank totaled $5,472,000 in 2006, $5,608,000 in 2005 and $12,175,000 in 2004. The 2004 dividends included a special $10,000,000 dividend from the Bank to assist in funding the Custar acquisition. The ability of the Bank to pay dividends is subject to limitations under various laws and regulations and to prudent and sound banking practices. In general, subject to certain minimum capital requirements, the Bank may declare a dividend at any time without the approval from the State of Ohio Division of Financial Institutions provided its dividends in a calendar year do not exceed the total of its net profits for that year combined with its retained profits for the two preceding years. Under these provisions, the Bank had $295,000 available for dividends on January 1, 2007 and projects adequate income throughout 2007 to support cash dividends to shareholders and provide funds to make debt service payments.

INTEREST RATE RISK

     Interest rate risk is one of Croghan’s most significant financial exposures. This risk, which is common to the financial institution sector, is an integral part of Croghan’s operations and impacts the rate pricing strategy for essentially all loan and deposit products. The management and oversight of interest rate risk, including the establishment of acceptable guidelines, is the responsibility of the Asset/Liability Management Committee (ALCO). The ALCO committee, and the associated Asset/Liability Management Policy, seek to quantify and monitor the risk, to adequately provide for liquidity needs, and to maximize net interest income by managing net interest yield.

     Croghan monitors its interest rate risk through a sensitivity analysis, which strives to measure potential changes in future earnings and the fair values of its financial instruments that could result from hypothetical changes in interest rates. The first step in this analysis is to estimate the expected cash flows from Croghan’s financial instruments using the interest rates in effect at December 31, 2006. To arrive at fair value estimates, the cash flows from Croghan’s financial instruments are discounted to their approximated present values.

     Hypothetical changes in interest rates are applied to those financial instruments, and the cash flows and fair value estimations are then simulated. When calculating the net interest income estimations, hypothetical rates are applied to the financial instruments based upon the assumed cash flows. Croghan applies interest rate “shocks” to its financial instruments of 100 and 200 basis points (up and down) for its net interest income, and 200 basis points (up and down) for the value of its equity. The following table presents the potential sensitivity in Croghan’s annual net interest income for a 100 and 200 basis-point (i.e., 1.0% and 2.0%) change in market interest rates and the potential sensitivity in the present value of Croghan’s equity for a sudden and sustained 200 basis-point (i.e., 2.0%) change in market interest rates (dollars in thousands):

	December 31, 2006						ALCO Guidelines
	Change in Dollars			Change in Percent			For the Change
	($)			(%)			in Percent (%)
Annual Net Interest Income Impact
For a Change of + 100 Basis Points		(1,395	)		(8.0	)		(15.0	)
For a Change of – 100 Basis Points		515			3.0			15.0
For a Change of + 200 Basis Points		(2,748	)		(15.8	)		(25.0	)
For a Change of – 200 Basis Points		(125	)		(0.7	)		25.0
Impact on the Net Present Value of Equity
For a Change of + 200 Basis Points		(6,044	)		(10.2	)		(25.0	)
For a Change of – 200 Basis Points		1,732			2.9			25.0

     As indicated in the preceding table, the projected volatility of net interest income and the net present value of equity at December 31, 2006 were within Croghan’s established guidelines. The preceding analysis encompasses the use of a variety of assumptions, including the relative levels of market interest rates, loan prepayments, and the possible reaction of depositors to changes in interest rates. The analysis simulates possible outcomes and should not be relied upon as being indicative of actual results. Additionally, the analysis does not necessarily contemplate all of the actions that Croghan could undertake in response to changes in market interest rates.

15

OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, AND CONTINGENT LIABILITIES AND COMMITMENTS

     The following table summarizes Croghan’s loan commitments, including letters of credit, as of December 31, 2006 (dollars in thousands):

	Amount of Commitment to Expire Per Period
Type of Commitment	Total Amount		Less Than 1 Year		1-3 Years		4-5 Years		Over 5 Years
Commercial lines of credit	$	28,552	$	26,221	$	177	$	2,154	$	—
Real estate lines of credit		32,075		7,741		2,674		324		21,336
Consumer lines of credit		1,182		1,182		—		—		—
Credit card lines of credit		11,630		11,630		—		—		—
Guarantees		—		—		—		—		—
Total Commitments	$	73,439	$	46,774	$	2,851	$	2,478	$	21,336

     As indicated in the preceding table, Croghan had $73,439,000 in total loan commitments at the end of 2006, with $46,774,000 of that amount expiring within one year. All lines of credit represented either fee-paid or legally binding loan commitments for the loan categories noted. Letters of credit are also included in the amounts noted in the table since Croghan requires that each letter of credit be supported by a loan agreement. The commercial and consumer lines represent both unsecured and secured obligations. The real estate lines are secured by mortgages in residential and non-residential property. The credit card lines were made on an unsecured basis. It is anticipated that a significant portion of these lines will expire without being drawn upon, particularly the credit card lines, which represent the maximum amount available to all cardholders. Additionally, $24,172,000 of the commercial lines were due on a demand basis, with many of those lines established for seasonal operating purposes.

     The following table summarizes Croghan’s other contractual obligations as of December 31, 2006 (dollars in thousands):

			Payments Due by Period
Contractual Obligations	Total Amount		Less Than 1 Year		1-3 Years		4-5 Years		Over 5 Years
Long-term debt	$	17,600	$	10,500	$	1,600	$	3,000	$	2,500
Capital leases		—		—		—		—		—
Operating leases		186		63		106		17		—
Unconditional purchase obligations		—		—		—		—		—
Other		819		51		104		104		560
Total Obligations	$	18,605	$	10,614	$	1,810	$	3,121	$	3,060

     The long-term debt noted in the preceding table represented borrowings from Great Lakes Bankers Bank and the Federal Home Loan Bank of Cincinnati. The Great Lakes Bankers Bank note bears a variable rate of interest and requires interest payments on an annual basis with principal due at maturity. The Federal Home Loan Bank notes require payment of interest on a monthly basis with principal due at maturity. The obligations bear both fixed and variable interest rates and stipulate a prepayment penalty if the note’s interest rate exceeds the current market rate for similar borrowings at the time of prepayment. As the notes mature, Croghan evaluates the liquidity and interest-rate circumstances at that point in time to determine whether to pay off or renew the note. The evaluation process typically includes: the strength of current and projected customer loan demand, Croghan’s federal funds sold or purchased position, projected cash flows from maturing investment securities, the current and projected market interest rate environment, local and national economic conditions, and customer demand for Croghan’s deposit product offerings.

     As indicated in the table, Croghan had no capital leases or unconditional purchase obligations as of December 31, 2006. Additionally, the table does not include obligations pertaining to deposits or federal funds purchased and securities sold under repurchase agreements.

16

     Croghan’s operating lease obligations pertained to lease arrangements for the Port Clinton Office, which is located in a retail supermarket in the Knollcrest Shopping Center, an ATM site north of Fremont, and the Norwalk banking center located in the downtown business district. The other contractual obligation noted in the table totaling $819,000 represents the projected payments for the periods indicated to participants in the Bank’s executive supplemental retirement plan. Of this amount, $507,000 has been accrued as a liability as of December 31, 2006. Croghan also had several minor operating lease obligations, with an aggregate total less than $75,000, for photocopying and mail processing equipment which are not included in the table.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

     In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Management has evaluated the impact of adopting FIN 48 in 2007 and does not believe the adoption of FIN 48 will have a significant impact on the Corporation’s consolidated financial statements.

SIGNIFICANT ACCOUNTING POLICIES

     Croghan’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices for the commercial banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements. These estimates, assumptions, and judgments are based upon the information available as of the date of the financial statements.

     The most significant accounting policies followed by Croghan are presented in the Summary of Significant Accounting Policies. These policies, along with the other disclosures presented in the Notes to Consolidated Financial Statements and in Management’s Discussion and Analysis, provide information about how significant assets and liabilities are valued in the financial statements and how those values are determined. Management has identified the determination of the allowance for loan losses and the estimated liability for supplemental retirement benefits as the accounting areas that require the most subjective and complex estimates, assumptions, and judgments and, as such, could be the most subject to revision in the near term as new information becomes available. Additionally, management has identified the determination of the value of goodwill as another accounting area that requires complex estimates, assumptions, and judgments.

     As noted in the section entitled “Provision for Loan Losses and the Allowance for Loan Losses”, Croghan performs a detailed quarterly analysis to assess the adequacy of its allowance for loan losses. This analysis encompasses a variety of factors including the potential loss exposure for individually reviewed loans, the historical loss experience for each loan category (i.e., commercial, real estate, and consumer), the volume of non-performing loans (i.e., loans in nonaccrual status or past due 90 days or more), the volume of loans past due 30 to 89 days, a segmentation of each loan category by internally-assigned risk grades, any significant changes in lending or loan review staff, an evaluation of current and future local and national economic conditions, any significant changes in the volume or mix of loans within each category, a review of the significant concentrations of credit, and any legal, competitive, or regulatory concerns.

     The estimated liability for supplemental retirement benefits is computed annually by an outside consulting firm. This estimate uses assumptions relating to market interest rates and the life expectancies of the participants that are subject to change over time.

     A goodwill evaluation is performed by an outside consulting firm as of July 1 of each year. The evaluation process provides data to substantiate the balance in goodwill by estimating Croghan’s implied market value based upon recent bank merger and acquisition transactions. If the results indicate that Croghan’s estimated implied value is greater than its total stockholder’s equity plus goodwill as of the evaluation date, then no impairment exists. To date, none of Croghan’s goodwill evaluations have revealed the need for an impairment charge.

17

Report of Independent Registered Public Accounting Firm

Stockholders and Board of Directors
Croghan Bancshares, Inc.
Fremont, Ohio

We have audited the accompanying consolidated balance sheets of Croghan Bancshares, Inc. and its subsidiary as of December 31, 2006 and 2005, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2006. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Croghan Bancshares, Inc. and its subsidiary as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

Toledo, Ohio
March 13, 2007

Offices in 15 states and Washington, DC

18

Croghan Bancshares, Inc.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2006			2005
	(Dollars in thousands, except par value)
ASSETS
CASH AND CASH EQUIVALENTS	$	11,843		$	12,338
SECURITIES
Available-for-sale, at fair value		57,273			76,905
Held-to-maturity, at amortized cost, fair value of $1,027 in 2006 and $1,047 in 2005		1,011			1,024
Restricted stock		3,629			3,492
Total securities		61,913			81,421
LOANS		357,278			340,910
Less: Allowance for loan losses		3,600			3,624
Net loans		353,678			337,286
PREMISES AND EQUIPMENT, NET		7,904			7,455
CASH SURRENDER VALUE OF LIFE INSURANCE		9,872			9,543
GOODWILL		10,430			10,430
CORE DEPOSIT INTANGIBLE ASSET, NET		346			403
ACCRUED INTEREST RECEIVABLE		2,271			2,194
OTHER ASSETS		601			829
TOTAL ASSETS	$	458,858		$	461,899
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing	$	49,745		$	50,730
Savings, NOW and Money Market deposits		160,224			150,365
Time		161,225			167,364
Total deposits		371,194			368,459
Federal funds purchased and securities sold under repurchase agreements		15,388			10,825
Borrowed funds		17,600			29,050
Dividends payable		536			535
Other liabilities		2,977			3,099
Total liabilities		407,695			411,968
STOCKHOLDERS’ EQUITY
Common stock, $12.50 par value. Authorized 6,000,000 shares in 2006 and 3,000,000 shares in 2005; issued 1,914,109 shares		23,926			23,926
Surplus		171			154
Retained earnings		31,961			28,640
Accumulated other comprehensive loss		(206	)		(287	)
Treasury stock, 128,403 shares in 2006 and 69,883 shares in 2005, at cost		(4,689	)		(2,502	)
Total stockholders’ equity		51,163			49,931
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	458,858		$	461,899

These consolidated financial statements should be read only in connection with the accompanying
summary of significant accounting policies and notes to consolidated financial statements.

19

Croghan Bancshares, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years ended December 31,
	2006			2005			2004
	(Dollars in thousands, except per share data)
INTEREST INCOME
Loans, including fees	$	23,926		$	22,410		$	19,574
Securities:
Obligations of U.S. Government agencies and corporations		1,742			1,652			1,267
Obligations of states and political subdivisions		891			927			680
Other		252			246			201
Federal funds sold		93			150			2
Total interest income		26,904			25,385			21,724
INTEREST EXPENSE
Deposits		8,259			5,987			4,538
Other borrowings		1,354			1,323			1,161
Total interest expense		9,613			7,310			5,699
Net interest income		17,291			18,075			16,025
PROVISION FOR LOAN LOSSES		380			705			716
Net interest income, after provision for loan losses		16,911			17,370			15,309
NON-INTEREST INCOME
Trust income		768			613			550
Service charges on deposit accounts		1,394			1,379			1,275
Gain (loss) on sale of securities		(9	)		(141	)		93
Other		882			910			998
Total non-interest income		3,035			2,761			2,916
NON-INTEREST EXPENSES
Salaries, wages and employee benefits		6,887			6,853			6,157
Additional provision for supplemental retirement benefits		—			—			412
Occupancy of premises		765			760			638
Amortization of core deposit intangible asset		57			58			—
Other operating		4,459			4,406			3,757
Total non-interest expenses		12,168			12,077			10,964
Income before federal income taxes		7,778			8,054			7,261
FEDERAL INCOME TAXES		2,289			2,333			2,143
NET INCOME	$	5,489		$	5,721		$	5,118
NET INCOME PER SHARE, based on 1,814,011 shares in 2006, 1,877,987 shares in 2005 and 1,897,582 shares in 2004	$	3.03		$	3.05		$	2.70

These consolidated financial statements should be read only in connection with the accompanying summary
of significant accounting policies and notes to consolidated financial statements.

20

Croghan Bancshares, Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Years ended December 31, 2006, 2005 and 2004
								Accumulated
								other
	Common				Retained			comprehensive			Treasury
	Stock		Surplus		earnings			income (loss)			stock			Total
	(Dollars in thousands, except per share data)
BALANCE AT DECEMBER 31, 2003	$	23,926	$	122	$	22,097		$	434		$	(383	)	$	46,196
Comprehensive income:
Net income		—		—		5,118			—			—			5,118
Change in net unrealized gain, net of reclassification adjustments and related income taxes		—		—		—			(59	)		—			(59	)
Total comprehensive income		—		—		—			—			—			5,059
Purchase of 7,200 shares of treasury stock		—		—		—			—			(257	)		(257	)
Proceeds from issuance of 1,219 shares of treasury stock		—		11		—			—			31			42
Cash dividends declared, $1.12 per share		—		—		(2,124	)		—			—			(2,124	)
BALANCE AT DECEMBER 31, 2004		23,926		133		25,091			375			(609	)		48,916
Comprehensive income:
Net income		—		—		5,721			—			—			5,721
Change in net unrealized gain (loss), net of reclassification adjustments and related income taxes		—		—		—			(662	)		—			(662	)
Total comprehensive income		—		—		—			—			—			5,059
Purchase of 51,472 shares of treasury stock		—		—		—			—			(1,943	)		(1,943	)
Proceeds from issuance of 1,925 shares of treasury stock		—		21		—			—			50			71
Cash dividends declared, $1.16 per share		—		—		(2,172	)		—			—			(2,172	)
BALANCE AT DECEMBER 31, 2005		23,926		154		28,640			(287	)		(2,502	)		49,931
Comprehensive income:
Net income		—		—		5,489			—			—			5,489
Change in net unrealized loss, net of reclassification adjustments and related income taxes		—		—		—			81			—			81
Total comprehensive income		—		—		—			—			—			5,570
Purchase of 60,130 shares of treasury stock		—		—		—			—			(2,229	)		(2,229	)
Proceeds from issuance of 1,610 shares of treasury stock		—		17		—			—			42			59
Cash dividends declared, $1.20 per share		—		—		(2,168	)		—			—			(2,168	)
BALANCE AT DECEMBER 31, 2006	$	23,926	$	171	$	31,961		$	(206	)	$	(4,689	)	$	51,163

These consolidated financial statements should be read only in connection with the accompanying summary
of significant accounting policies and notes to consolidated financial statements.

21

Croghan Bancshares, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years ended December 31,
	2006			2005			2004
	(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	5,489		$	5,721		$	5,118
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		963			930			646
Provision for loan losses		380			705			716
Deferred federal income taxes		(40	)		118			29
Federal Home Loan Bank stock dividends		(137	)		(112	)		(77	)
Increase in cash value of life insurance		(329	)		(314	)		(353	)
Net amortization of security premiums and discounts		273			527			863
Provision (credit) for deferred compensation		(83	)		108			472
Loss (gain) on sale of securities		9			141			(93	)
Loss on disposal of equipment		1			6			—
Decrease (increase) in accrued interest receivable		(77	)		—			1
Decrease (increase) in other assets		228			93			(11	)
Increase (decrease) in other liabilities		32			(53	)		49
Net cash provided by operating activities		6,709			7,870			7,360
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of The Custar State Bank, net of $2,357 cash and cash equivalents acquired in 2005		—			(11,682	)		—
Proceeds from maturities of securities		23,229			9,450			17,234
Proceeds from sales of available-for-sale securities		2,883			14,455			3,512
Purchases of securities:
Available-for-sale		(6,626	)		(28,720	)		(18,616	)
Restricted stock		—			(305	)		—
Net decrease (increase) in loans		(16,772	)		11,771			(16,869	)
Additions to premises and equipment		(1,356	)		(685	)		(901	)
Net cash used in investing activities		1,358			(5,716	)		(15,640	)

22

Croghan Bancshares, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

	Years ended December 31,
	2006			2005			2004
	(Dollars in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits	$	2,735		$	1,565		$	13,686
Increase (decrease) in federal funds purchased and securities sold under repurchase agreements		4,563			1,031			(1,382	)
Borrowed funds:
Proceeds		5,000			9,500			10,950
Repayments		(16,450	)		(9,400	)		(12,000	)
Proceeds from issuance of treasury shares		59			71			42
Cash dividends paid		(2,167	)		(2,167	)		(2,126	)
Purchase of treasury stock		(2,229	)		(1,943	)		(257	)
Payment of deferred compensation		(73	)		(60	)		(30	)
Net cash provided by (used in) financing activities		(8,562	)		(1,403	)		8,883
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(495	)		751			603
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		12,338			11,587			10,984
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	11,843		$	12,338		$	11,587
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest	$	9,420		$	6,979		$	5,721
Federal income taxes	$	2,285		$	2,469		$	1,630
Non-cash operating activities:
Change in deferred income taxes on net unrealized gain (loss) on available-for-sale securities	$	(42	)	$	341		$	31
Non-cash investing activities:
Change in net unrealized gain (loss) on available-for-sale securities	$	123		$	(1,003	)	$	(90	)

These consolidated financial statements should be read only in connection with the accompanying summary
of significant accounting policies and notes to consolidated financial statements.

23

Croghan Bancshares, Inc.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Croghan Bancshares, Inc. (the “Corporation”) was incorporated on September 27, 1983 in the state of Ohio. The Corporation is a bank holding company and has one wholly-owned subsidiary, The Croghan Colonial Bank (the “Bank”). The Corporation, through its subsidiary, operates in one industry segment, the commercial banking industry. The Bank, an Ohio chartered bank organized in 1888, has its main office in Fremont, Ohio and has branch offices located in Bellevue, Clyde, Custar, Fremont, Green Springs, Monroeville, Norwalk and Port Clinton, Ohio. The Bank’s primary source of revenue is providing loans to customers primarily located in Sandusky County, Ottawa County, Wood County, the Village of Green Springs and the northwest portion of Huron County, which includes the Cities of Bellevue and Norwalk and the Village of Monroeville. Such customers are predominantly small and middle-market businesses and individuals. See Note 1 regarding the 2005 acquisition of The Custar State Bank (“Custar”).

Significant accounting policies followed by the Corporation are presented below.

USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS

In preparing consolidated financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during each reporting period. Actual results could differ from those estimates. The most significant estimates susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the estimated liability for supplemental retirement benefits.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.

The Bank established a trust department in 1990 and the assets held by the Bank in fiduciary or agency capacities for its customers are not included in the consolidated balance sheets as such items are not assets of the Bank.

CASH AND CASH EQUIVALENTS

For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold which mature overnight or within four days.

RESTRICTIONS ON CASH

The Bank was required to have $275,000 of non-interest bearing cash on hand or on deposit with the Federal Reserve Bank to meet regulatory reserve and clearing requirements at December 31, 2006 and 2005.

SECURITIES

Securities are designated at the time of purchase as either held-to-maturity or available-for-sale. Securities designated as held-to-maturity are carried at amortized cost. Securities designated as available-for-sale are carried at fair value, with unrealized gains and losses, net of applicable income taxes, on such securities recognized as a separate component of stockholders’ equity.

The cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion is included in interest income from securities, principally using the interest method over the terms of the securities. Declines in the fair value of securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses.

Restricted stock consists primarily of Federal Home Loan Bank of Cincinnati and Federal Reserve Bank of Cleveland stock. Such securities are carried at cost and evaluated for impairment on an annual basis.

Gains and losses on sales of securities are recorded on the trade date, using the specific identification method, and are included in non-interest income.

24

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

LOANS

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are stated at their outstanding principal balances, adjusted for charge-offs, the allowance for loan losses, and any deferred loan fees or costs on originated loans. Interest is accrued on the unpaid principal balance. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield of the related loan.

The accrual of interest on real estate and commercial loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Personal loans are typically charged-off no later than 120 days past due and credit card loans are typically charged-off no later than 180 days past due. All interest accrued but not collected for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on nonaccrual loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and secondary components. For loans that are classified as impaired, a specific reserve is established when the discounted cash flow (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers classified (i.e., doubtful, substandard, or special mention) loans which are not impaired, as well as non-classified loans and is generally based on historical loss experience adjusted for qualitative factors. The secondary component is maintained to cover economic and other external factors that could affect management’s estimate of probable losses and considers the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer and residential mortgage loans for impairment disclosures.

25

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FORECLOSED ASSETS

Assets acquired through or in lieu of foreclosure are initially recorded at fair value, less estimated costs to sell, and any loan balance in excess of fair value is charged to the allowance for loan losses. Subsequent valuations are periodically performed and any further write-downs are included in other operating expenses, as are gains or losses upon sale and expenses related to maintenance of the properties.

PREMISES AND EQUIPMENT

Premises and equipment is stated at cost, less accumulated depreciation. Upon the sale or disposition of the assets, the difference between the depreciated cost and proceeds is charged or credited to income. Depreciation is determined based on the estimated useful lives of the individual assets (typically 20 to 40 years for buildings and 3 to 10 years for equipment) and is computed primarily using the straight-line method.

OFF-BALANCE SHEET CREDIT RELATED FINANCIAL INSTRUMENTS

In the ordinary course of business, the Bank has entered into commitments to extend credit, including commitments under credit card arrangements, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded when they are funded.

TRANSFERS OF FINANCIAL ASSETS

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Bank, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

GOODWILL AND CORE DEPOSIT INTANGIBLE ASSET

Goodwill remaining from the 1996 purchase of Union Bancshares Corp. has been combined with the goodwill arising from the 2005 purchase of Custar, described in Note 1. The resulting total goodwill is tested for impairment at least annually to determine if an impairment loss has occurred. The core deposit intangible asset arising from the 2005 purchase of Custar is being amortized over an eight-year period on a straight-line basis.

SUPPLEMENTAL RETIREMENT BENEFITS

Annual provisions are made for the estimated liability for accumulated supplemental retirement benefits under agreements with one active and four retired officers at December 31, 2006.

ADVERTISING COSTS

All advertising costs are expensed as incurred.

FEDERAL INCOME TAXES

Deferred income taxes are provided on temporary differences between financial statement and income tax reporting. Temporary differences are differences between the amounts of assets and liabilities reported for financial statement purposes and their tax bases. Deferred tax assets are recognized for temporary differences that will be deductible in future years’ tax returns and for operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax liabilities are recognized for temporary differences that will be taxable in future years’ tax returns.

The Bank is not currently subject to state and local income taxes.

26

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

COMPREHENSIVE INCOME

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

PER SHARE DATA

Net income per share is computed based on the weighted average number of shares of common stock outstanding during each year. This computation is referred to as “basic earnings per share”.

Dividends per share are based on the number of shares outstanding at the declaration date.

This information is an integral part of the accompanying consolidated financial statements.

27

Croghan Bancshares, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — PURCHASE OF THE CUSTAR STATE BANK

Effective January 1, 2005, the Corporation acquired all of the outstanding shares of Custar, an Ohio banking corporation with one office located in Custar, Ohio. Custar was subsequently merged into the Bank.

The cash purchase price, including $145,000 of acquisition costs, totaled $14,039,000. The acquisition was financed with a $10,000,000 special dividend from the Bank and the proceeds of a $4,000,000 four-year term loan from a correspondent bank, as described in Note 7. The transaction was accounted for as a purchase and, accordingly, the results of operations of Custar are included in the consolidated results of the Corporation beginning on January 1, 2005. For federal income tax purposes, the tax basis of the Custar assets and liabilities carryover and the Corporation gets no tax basis amortization of the goodwill and core deposit intangible asset.

The following table summarizes Custar’s book values and estimated fair values for the assets acquired and liabilities assumed on the date of the acquisition:

	Book		Estimated
	value		fair value
	(Dollars in thousands)
Cash and cash equivalents	$	2,357	$	2,357
Securities		16,504		16,504
Loans, net		30,704		30,794
Premises and equipment		62		445
Goodwill		—		4,317
Core deposit intangible asset		—		461
Accrued interest receivable		265		265
Other assets		3		171
Total assets acquired		49,895		55,314
Deposits		40,801		40,821
Other liabilities		71		454
Total liabilities assumed		40,872		41,275
Net assets acquired	$	9,023	$	14,039

As a result of the above purchase, the Corporation’s goodwill increased $4,317,000 in 2005 and totals $10,430,000 at December 31, 2006 and 2005. The amortization of the core deposit intangible asset amounted to $57,000 in 2006 and $58,000 in 2005, resulting in an unamortized balance of $346,000 at December 31, 2006 and $403,000 at December 31, 2005. Estimated amortization of the core deposit intangible asset for each of the next five years and thereafter is as follows (dollars in thousands):

2007	$	58
2008		58
2009		57
2010		58
2011		58
Thereafter		57
Total	$	346

28

NOTE 2 — SECURITIES

The amortized cost and fair value of securities as of December 31, 2006 and 2005 are as follows:

	2006				2005
	Amortized		Fair		Amortized		Fair
	cost		value		cost		value
	(Dollars in thousands)
Available-for-sale:
Obligations of U.S. Government agencies and corporations	$	35,711	$	35,418	$	51,947	$	51,500
Obligations of states and political subdivisions		21,524		21,505		25,043		25,055
Other equity security		350		350		350		350
Total available-for-sale		57,585		57,273		77,340		76,905
Held-to-maturity – corporate debt obligations		1,011		1,027		1,024		1,047
Restricted stock		3,629		3,629		3,492		3,492
Total	$	62,225	$	61,929	$	81,856	$	81,444

A summary of gross unrealized gains and losses on securities at December 31, 2006 and 2005 follows:

	2006				2005
	Gross		Gross		Gross		Gross
	unrealized		unrealized		unrealized		unrealized
	gains		losses		gains		losses
	(Dollars in thousands)
Available-for-sale:
Obligations of U.S. Government agencies and corporations	$	63	$	356	$	107	$	554
Obligations of states and political subdivisions		113		132		167		155
Total available-for-sale		176		488		274		709
Held-to-maturity – corporate debt obligations		19		3		33		10
Total	$	195	$	491	$	307	$	719

The amortized cost and fair value of securities at December 31, 2006, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available-for-sale				Held-to-maturity
	Amortized		Fair		Amortized		Fair
	cost		value		cost		value
	(Dollars in thousands)
Due in one year or less	$	9,718	$	9,655	$	504	$	501
Due after one year through five years		15,487		15,261		507		526
Due after five years through ten years		12,395		12,391		—		—
Due after ten years		19,635		19,616		—		—
Other equity security having no maturity date		350		350		—		—
Total	$	57,585	$	57,273	$	1,011	$	1,027

Securities with a carrying value of $48,986,000 at December 31, 2006 and $45,423,000 at December 31, 2005 were pledged to secure public deposits and for other purposes as required or permitted by law.

Restricted stock primarily consists of investments in Federal Home Loan Bank of Cincinnati and Federal Reserve Bank of Cleveland stock. The Bank’s investment in Federal Home Loan Bank of Cincinnati stock amounted to $2,451,000 and $2,314,000 at December 31, 2006 and 2005, respectively. The Bank’s investment in Federal Reserve Bank of Cleveland stock amounted to $1,118,000 at December 31, 2006 and 2005.

29

NOTE 2 — SECURITIES (CONTINUED)

Gross gains realized from sales of securities available-for-sale amounted to $6,000 in 2006, $48,000 in 2005 and $98,000 in 2004, with the income tax provision applicable to such gains amounting to $2,000 in 2006, $16,000 in 2005 and $33,000 in 2004. Gross losses realized from sales of securities available-for-sale amounted to $15,000 in 2006, $189,000 in 2005 and $5,000 in 2004, with the income tax provision applicable to such losses amounting to $5,000 in 2006, $64,000 in 2005 and $2,000 in 2004.

The following table presents gross unrealized losses and fair value of securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2006 and 2005:

	Securities in a continuous unrealized loss position
	Less than				12 months
	12 months				or more				Total
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
	losses		value		losses		value		losses		value
	(Dollars in thousands)
2006
Obligations of U.S. Government agencies and corporations	$	4	$	2,996	$	353	$	26,052	$	357	$	29,048
Obligations of states and political subdivisions		6		3,053		125		7,348		131		10,401
Corporate debt obligations		—		—		3		500		3		500
Total temporarily impaired securities	$	10	$	6,049	$	481	$	33,900	$	491	$	39,949
2005
Obligations of U.S. Government agencies and corporations	$	206	$	29,473	$	348	$	12,849	$	554	$	42,322
Obligations of states and political subdivisions		108		10,759		47		1,597		155		12,356
Corporate debt obligations		—		—		10		506		10		506
Total temporarily impaired securities	$	314	$	40,232	$	405	$	14,952	$	719	$	55,184

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

At December 31, 2006, there were 72 securities in an unrealized loss position, 55 of which were in a continuous unrealized loss position for twelve months or more. When evaluating these securities for impairment, management considers the issuer’s financial condition, whether the securities are issued by federally-sponsored government agencies or political subdivisions, whether downgrades by the bond rating agencies have occurred, industry analyst reports, and volatility in the bond market. Management has concluded that the unrealized losses as of December 31, 2006 were primarily the result of customary and expected fluctuations in the bond market related to changes in interest rates. As management has the ability and intent to hold debt securities until maturity, or for the foreseeable future for securities classified as available-for-sale, all security impairments as of December 31, 2006 are considered temporary.

30

NOTE 3 — LOANS

Loans at December 31, 2006 and 2005 consist of the following:

	2006		2005
	(Dollars in thousands)
Commercial, financial and agricultural	$	42,846	$	40,358
Real estate:
Residential mortgage		151,330		154,177
Non-residential mortgage		125,755		101,241
Construction		13,467		13,641
Consumer		21,111		28,764
Credit card		2,769		2,729
Total	$	357,278	$	340,910

Fixed rate loans amounted to $94,299,000 at December 31, 2006 and $96,865,000 at December 31, 2005.

The Bank’s investment in impaired loans amounted to $3,183,000 at December 31, 2006 and $2,939,000 at December 31, 2005. The following information is provided with respect to impaired loans:

	2006		2005		2004
	(Dollars in thousands)
Average investment in impaired loans	$	2,862	$	737	$	919
Interest income recognized on impaired loans	$	—	$	—	$	19
Interest income recognized on a cash basis on impaired loans	$	—	$	—	$	19

At December 31, 2006, impaired loans totaling $3,183,000 have a related allowance for loan losses of $865,000 ($2,939,000 and $426,000, respectively, at December 31, 2005). The following is a summary of the activity in the allowance for loan losses of impaired loans, which is part of the Bank’s overall allowance for loan losses discussed in Note 4, for the years ended December 31, 2006 and 2005:

	2006		2005
	(Dollars in thousands)
Balance at beginning of year	$	426	$	34
Provision charged to operations		439		433
Loans charged-off		—		(41	)
Balance at end of year	$	865	$	426

No additional funds are committed to be advanced in connection with impaired loans.

Loans on nonaccrual of interest amounted to $3,795,000 at December 31, 2006 and $3,872,000 at December 31, 2005. Loans 90 days or more past due and still accruing interest amounted to $716,000 at December 31, 2006 and $561,000 at December 31, 2005.

Certain directors and executive officers, including their immediate families and companies in which they are principal owners, are loan customers of the Bank. Such loans are made in the ordinary course of business in accordance with the Bank’s normal lending policies, including the interest rate charged and collateralization, and do not represent more than a normal collection risk. Such loans amounted to $848,000 and $1,955,000 at December 31, 2006 and 2005, respectively. The following is a summary of activity during 2006 and 2005 for such loans:

31

NOTE 3 — LOANS (CONTINUED)

	Balance at						Balance
	beginning		Additions		Repayments		at end
	(Dollars in thousands)
2006	$	1,955	$	205	$	1,312	$	848
2005	$	2,254	$	5,449	$	5,748	$	1,955

Additions and repayments include loan renewals.

Most of the Bank’s lending activity is with customers primarily located within Sandusky County, Ottawa County, Wood County, the Village of Green Springs, and the northwest portion of Huron County. Credit concentrations, as determined using the North American Industry Classification System, that exceeded 5% of total loans at December 31, 2006 and 2005 included $24,779,000 and $20,628,000, respectively, to borrowers in the construction industry; $33,302,000 and $18,852,000, respectively, to borrowers in the accommodation and food service industry; and $33,471,000 at December 31, 2006 to borrowers in the manufacturing industry.

The construction industry concentration includes loans to residential and commercial contractors who construct or install roads, sewers, bridges, homes, hotels, motels, apartment or commercial buildings, electrical and plumbing infrastructure, and air comfort systems. These loans are generally secured by real property, equipment, and receivables. Repayment is expected from cash flow from providing such services.

The accommodation and food service industry concentration includes loans for the construction, purchase, and operation of hotels, restaurants, lounges, and campgrounds. These loans are generally secured by real property and equipment. Repayment is expected from cash flow from providing accommodations and food service to tourists visiting the Lake Erie region.

The manufacturing industry concentration includes loans to local manufacturers who produce goods for a wide variety of industries, including chemical, automotive, and food processing. These loans are generally secured by real property, equipment, and receivables. Repayment is expected from cash flows generated from these operations.

Credit losses arising from the Bank’s lending experience in these industries compare favorably with the Bank’s loss experience on its loan portfolio as a whole. For these industries, credit evaluation is based on cash flow coverage of principal and interest payments and the adequacy of collateral received.

NOTE 4 — ALLOWANCE FOR LOAN LOSSES

The following represents a summary of the activity in the allowance for loan losses for the years ended December 31, 2006, 2005 and 2004:

	2006			2005			2004
	(Dollars in thousands)
Balance at beginning of year	$	3,624		$	3,431		$	3,387
Provision charged to operations		380			705			716
Addition resulting from the Custar acquisition		—			241			—
Loans charged-off		(601	)		(1,011	)		(968	)
Recoveries of loans charged-off		197			258			296
Balance at end of year	$	3,600		$	3,624		$	3,431

32

NOTE 5 — PREMISES AND EQUIPMENT

The following is a summary of premises and equipment at December 31, 2006 and 2005:

	2006		2005
	(Dollars in thousands)
Land and improvements	$	1,350	$	1,350
Buildings		8,961		8,908
Equipment		5,059		4,770
Construction in-process		1,006		5
		16,376		15,033
Less accumulated depreciation		8,472		7,578
Premises and equipment, net	$	7,904	$	7,455

Construction in-process at December 31, 2006 includes capitalized costs relating to the renovation of the Company’s corporate headquarters, as well as construction of a new branch office in Clyde. The aggregate estimated remaining cost to complete these projects approximated $300,000 at December 31, 2006.

Depreciation of premises and equipment amounted to $906,000 in 2006, $835,000 in 2005 and $646,000 in 2004.

NOTE 6 — DEPOSITS

Time deposits at December 31, 2006 and 2005 include individual deposits of $100,000 and over amounting to $35,897,000 and $38,885,000, respectively. Interest expense on time deposits of $100,000 or more amounted to $1,623,000 for 2006, $1,203,000 for 2005 and $874,000 for 2004.

At December 31, 2006, the scheduled maturities of time deposits were as follows (dollars in thousands):

2007	$	127,652
2008		21,920
2009		6,145
2010		3,012
2011		1,406
Thereafter		1,090
Total	$	161,225

NOTE 7 — BORROWED FUNDS

At December 31, 2006 and 2005, borrowed funds consist of the following:

	2006		2005
	(Dollars in thousands)
Federal Home Loan Bank:
Secured note, with interest at 2.52%, due February 2006	$	—	$	5,000
Secured note, with interest at 4.87%, due February 2006		—		2,000
Secured note, with interest at 3.26%, due June 2006		—		2,650
Secured note, with interest at 4.54%, due June 2006		—		2,650
Secured note, with interest at 4.07%, due July 2006		—		1,500
Secured note, with interest at 4.24%, due July 2006		—		1,500
Secured note, with interest at 5.22%, due February 2007		5,000		—
Secured note, with interest at 4.42%, due July 2007		1,500		1,500
Secured note, with interest at 4.30%, due September 2007		4,000		4,000
Secured note, with interest at 4.32%, due February 2011		3,000		3,000
Secured note, with interest at 4.86%, due December 2012		2,500		2,500
		16,000		26,300
Great Lakes Bankers Bank – secured note with interest payable annually at .50% below prime rate (aggregating 7.75% and 6.75% at December 31, 2006 and 2005, respectively), with principal due in full January 1, 2009		1,600		2,750
Total borrowed funds	$	17,600	$	29,050

33

NOTE 7 — BORROWED FUNDS (CONTINUED)

Scheduled principal payments on borrowed funds at December 31, 2006 are as follows (dollars in thousands):

	Fixed		Floating		Total
2007	$	10,500	$	—	$	10,500
2009		—		1,600		1,600
2011		3,000		—		3,000
2012		2,500		—		2,500
Total	$	16,000	$	1,600	$	17,600

The Federal Home Loan Bank notes stipulate interest payable on a monthly basis. The notes are secured by stock in the Federal Home Loan Bank of Cincinnati and eligible mortgage loans totaling $21,600,000 at December 31, 2006. The Great Lakes Bankers Bank note is secured by the Corporation’s stock ownership in the Bank.

At December 31, 2006, the Bank has available borrowings of $71,974,000 under its line of credit with the Federal Home Loan Bank. In addition, the Bank had $15,000,000 of short-term borrowing availability at December 31, 2006, under lines of credit with three correspondent banks.

NOTE 8 — SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

Securities sold under repurchase agreements, which are classified as secured borrowings, generally mature within one to four days from the transaction date. Securities sold under repurchase agreements are reflected at the amount of cash received in connection with the transactions. The Bank may be required to provide additional collateral based on the fair value of the underlying securities.

NOTE 9 — OTHER COMPREHENSIVE INCOME (LOSS)

The changes in the components of other comprehensive income (loss) and related tax effects are as follows for the years ended December 31, 2006, 2005 and 2004:

	2006		2005			2004
	(Dollars in thousands)
Unrealized gains (losses) on available-for-sale securities	$	114	$	(1,144	)	$	3
Reclassification adjustments for securities losses (gains) included in income		9		141			(93	)
Net unrealized gains (losses)		123		(1,003	)		(90	)
Tax effect		42		341			31
Net-of-tax amount	$	81	$	(662	)	$	(59	)

NOTE 10 — OTHER OPERATING EXPENSES

The following is a summary of other operating expenses for the years ended December 31, 2006, 2005 and 2004:

	2006		2005		2004
	(Dollars in thousands)
Equipment and vehicle	$	1,053	$	1,020	$	814
Professional, consulting and examination		509		620		496
Postage, stationery and supplies		502		509		462
State franchise and other taxes		473		349		447
Advertising and marketing		233		223		228
Third party computer processing		228		222		192
MasterCard franchise and processing		153		147		133
Other		1,308		1,316		985
Total other operating expenses	$	4,459	$	4,406	$	3,757

34

NOTE 11 — FEDERAL INCOME TAXES

The provision for federal income taxes consists of the following for 2006, 2005 and 2004:

	2006			2005		2004
	(Dollars in thousands)
Current	$	2,329		$	2,215	$	2,114
Deferred		(40	)		118		29
Total	$	2,289		$	2,333	$	2,143

The income tax provision attributable to income from operations differs from the amounts computed by applying the U.S. federal income tax rate of 34% to income before federal income taxes as a result of the following:

	2006			2005			2004
	(Dollars in thousands)
Expected tax using statutory tax rate of 34%	$	2,645		$	2,738		$	2,469
Increase (decrease) in tax resulting from:
Tax-exempt income on state and municipal securities and political subdivision loans		(310	)		(310	)		(226	)
Interest expense associated with carrying certain state and municipal securities and political subdivision loans		36			27			18
Increase in cash value of life insurance policies		(112	)		(107	)		(120	)
Other, net		30			(15	)		2
Total	$	2,289		$	2,333		$	2,143

The deferred federal income tax credit of $40,000 in 2006 and provision of $118,000 for 2005 and $29,000 for 2004 resulted from the tax effects of temporary differences. There was no impact for changes in tax laws and rates or changes in the valuation allowance for deferred tax assets.

The tax effects of temporary differences that give rise to significant portions of the deferred tax liabilities and deferred tax assets at December 31, 2006 and 2005 are presented below:

	2006		2005
	(Dollars in thousands)
Deferred tax liabilities:
Purchase accounting basis difference	$	365	$	408
Depreciation of premises and equipment		249		339
Federal Home Loan Bank stock dividends		421		374
Direct financing leases		500		396
Deferred loan costs		42		67
Total deferred tax liabilities		1,577		1,584
Deferred tax assets:
Unrealized loss on securities available-for-sale		106		148
Allowance for loan losses		816		830
Accrued expenses and other		491		444
Total deferred tax assets		1,413		1,422
Net deferred tax liabilities	$	164	$	162

The net deferred tax liabilities at December 31, 2006 and 2005 are included in other liabilities in the consolidated balance sheets.

Management believes it is more likely than not that the benefit of deferred tax assets will be realized. Consequently, no valuation allowance for deferred tax assets is deemed necessary as of December 31, 2006 and 2005.

35

NOTE 12 — EMPLOYEE BENEFITS

The Bank sponsors the Croghan Colonial Bank 401(k) Profit Sharing Plan, a defined contribution plan which provides for both profit sharing and employer matching contributions. The Plan permits the investing in the Corporation’s stock subject to various limitations. The Bank’s profit sharing and matching contributions to the 401(k) Profit Sharing Plan for the years ended December 31, 2006, 2005 and 2004 amounted to $316,000, $297,000 and $264,000, respectively. The issuance of shares from treasury in 2006, 2005 and 2004, represented shares purchased by the Plan. As of December 31, 2006, the Plan holds 16,697 shares of the Corporation’s common stock.

The Custar employees were covered by a noncontributory defined benefit retirement plan (the “Custar Plan”) at the time of the acquisition. Subject to final regulatory approvals, the Custar Plan benefit accruals ceased as of February 1, 2005 and the plan was terminated effective July 1, 2005. The Corporation has provided for the estimated remaining funding liability in accounting for the purchase of Custar.

The Bank has entered into various split-dollar life insurance arrangements, including agreements with certain officers of the Bank to provide for supplemental retirement benefits. The Bank has also entered into other split-dollar life insurance arrangements for investment purposes. All split-dollar policies required the payment of single premiums. The cash value of all split-dollar policies amounted to $9,872,000 and $9,543,000 at December 31, 2006 and 2005, respectively.

In connection with the officer agreements, the Bank has provided an estimated liability for accumulated supplemental retirement benefits. Such liability amounted to $507,000 at December 31, 2006 and $663,000 at December 31, 2005 and is included in other liabilities in the accompanying consolidated balance sheets. The provision (credit) for deferred compensation amounted to $(83,000) for 2006, $108,000 for 2005 and $472,000 for 2004. The 2006 credit resulted from the resignation in 2006 of an officer of the Company who was covered under an agreement. The 2004 provision included an additional provision of $412,000 resulting from a detailed analysis of the estimated liability under such agreements.

No other postretirement or postemployment benefits are offered to retirees or employees.

The stockholders of the Corporation have approved the adoption of a stock option and incentive plan. However, no options or incentives have been awarded under the plan.

NOTE 13 — FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are primarily loan commitments to extend credit and letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the consolidated balance sheets. The contract amount of these instruments reflects the extent of involvement the Bank has in these financial instruments.

The Bank’s exposure to credit loss in the event of the nonperformance by the other party to the financial instruments for loan commitments to extend credit and letters of credit is represented by the contractual amounts of these instruments. The Bank uses the same credit policies in making loan commitments as it does for on-balance sheet loans.

The following financial instruments whose contract amount represents credit risk were outstanding at December 31, 2006 and 2005:

	Contract amount
	2006		2005
	(Dollars in thousands)
Commitments to extend credit, including commitments to grant loans and unfunded commitments under lines of credit	$	71,283	$	70,334
Standby letters of credit	$	2,156	$	2,481

36

NOTE 13 — FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based on management’s credit evaluation of the customer. Collateral held varies but may include accounts receivable; inventory; property, plant, and equipment; and income-producing commercial properties.

Standby letters of credit are written conditional commitments issued by the Bank to guarantee the performance of a customer to a third party and are reviewed for renewal at expiration. At December 31, 2006, standby letters of credit aggregating $151,000 expire in 2007; $112,000 expire in 2008; $40,000 expire in 2009; and $1,853,000 expire in 2010. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. The Bank requires collateral supporting these commitments when deemed necessary.

NOTE 14 — REGULATORY MATTERS

The Corporation (on a consolidated basis) and Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital to average assets (as defined). Management believes, as of December 31, 2006 and 2005, that the Corporation and Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2006, the most recent notification from federal and state banking agencies categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized”, an institution must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

37

NOTE 14 — REGULATORY MATTERS (CONTINUED)

The actual capital amounts and ratios of the Corporation and Bank as of December 31, 2006 and 2005 are also presented in the following table:

											Minimum to be
											well capitalized
						Minimum					under prompt
						capital					corrective
	Actual					requirement					action provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of December 31, 2006
Total Capital (to Risk-Weighted Assets)
Consolidated	$	44,193		12.9	%	$	27,377		³8.0	%		N/A		N/A
Bank		45,368		13.3	%		27,349		³8.0	%	$	34,186		³10.0	%
Tier I Capital (to Risk-Weighted Assets)
Consolidated		40,593		11.9	%		13,688		³4.0	%		N/A		N/A
Bank		36,768		10.8	%		13,674		³4.0	%		20,511		³ 6.0	%
Tier I Capital (to Average Assets)
Consolidated		40,593		9.2	%		17,711		³4.0	%		N/A		N/A
Bank		36,768		8.3	%		17,697		³4.0	%		22,122		³ 5.0	%
As of December 31, 2005
Total Capital (to Risk-Weighted Assets)
Consolidated	$	43,009		13.1	%	$	26,259		³8.0	%		N/A		N/A
Bank		45,271		13.8	%		26,231		³8.0	%	$	32,788		³10.0	%
Tier I Capital (to Risk-Weighted Assets)
Consolidated		39,385		12.0	%		13,129		³4.0	%		N/A		N/A
Bank		36,647		11.2	%		13,115		³4.0	%		19,673		³ 6.0	%
Tier I Capital (to Average Assets)
Consolidated		39,385		8.7	%		18,061		³4.0	%		N/A		N/A
Bank		36,647		8.1	%		18,047		³4.0	%		22,559		³ 5.0	%

On a parent company only basis, the Corporation’s primary source of funds are dividends paid by the Bank. The ability of the Bank to pay dividends is subject to limitations under various laws and regulations, and to prudent and sound banking principles. Generally, subject to certain minimum capital requirements, the Bank may declare a dividend without the approval of the State of Ohio Division of Financial Institutions, unless the total dividends in a calendar year exceed the total of its net profits for the year combined with its retained profits of the two preceding years. Under these provisions, approximately $295,000 was available for dividends on January 1, 2007, without the need to obtain the approval of the State of Ohio Division of Financial Institutions.

The Board of Governors of the Federal Reserve System generally considers it to be an unsafe and unsound banking practice for a bank holding company to pay dividends except out of current operating income, although other factors such as overall capital adequacy and projected income may also be relevant in determining whether dividends should be paid.

38

NOTE 15 — CONDENSED PARENT COMPANY FINANCIAL INFORMATION

A summary of condensed financial information of the parent company as of December 31, 2006 and 2005 and for each of the three years in the period ended December 31, 2006 are as follows:

CONDENSED BALANCE SHEETS	2006			2005
	(Dollars in thousands)
Assets:
Cash	$	23		$	200
Dividends receivable from subsidiary		636			535
Investment in subsidiary		47,337			47,193
Subordinated note receivable from subsidiary, including accrued interest of $101 in 2006 and $75 in 2005		5,101			5,075
Security, at cost which approximates fair value		350			350
Other assets		24			62
Total assets	$	53,471		$	53,415
Liabilities:
Borrowed funds	$	1,600		$	2,750
Dividends and other payables		708			734
Total liabilities		2,308			3,484
Stockholders’ equity:
Common stock		23,926			23,926
Surplus		171			154
Retained earnings		31,961			28,640
Accumulated other comprehensive loss		(206	)		(287	)
Treasury stock		(4,689	)		(2,502	)
Total stockholders’ equity		51,163			49,931
Total liabilities and stockholders’ equity	$	53,471		$	53,415

CONDENSED STATEMENTS OF OPERATIONS	2006			2005			2004
	(Dollars in thousands)
Income – dividends from subsidiary	$	5,472		$	5,608		$	12,175
Interest income on subordinated note from subsidiary		200			200			200
Professional fees, interest and other expenses		(270	)		(381	)		(131	)
Income before income taxes and equity in undistributed net income of subsidiary		5,402			5,427			12,244
Federal income tax provision (credit)		(24	)		(62	)		24
Income before equity in undistributed net income of subsidiary		5,426			5,489			12,220
Equity in net income of subsidiary, less dividends		63			232			(7,102	)
Net income	$	5,489		$	5,721		$	5,118

39

NOTE 15 — CONDENSED PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)

CONDENSED STATEMENTS OF CASH FLOWS	2006			2005			2004
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	5,489		$	5,721		$	5,118
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in net income of subsidiary, less dividends		(63	)		(232	)		7,102
Decrease (increase) in dividends receivable		(101	)		9,995			(9,998	)
Decrease (increase) in accrued interest receivable		(26	)		(44	)		95
Decrease (increase) in other assets		38			37			(99	)
Increase (decrease) in other liabilities		(27	)		28			127
Net cash provided by operating activities		5,310			15,505			2,345
Cash flows from investing activities – purchase of Custar		—			(14,039	)		—
Cash flows from financing activities:
Borrowed funds:
Proceeds		—			4,000			—
Repayments		(1,150	)		(1,250	)		—
Proceeds from issuance of treasury shares		59			71			42
Cash dividends paid		(2,167	)		(2,167	)		(2,126	)
Purchase of treasury stock		(2,229	)		(1,943	)		(257	)
Net cash used in financing activities		(5,487	)		(1,289	)		(2,341	)
Net increase (decrease) in cash		(177	)		177			4
Cash at beginning of year		200			23			19
Cash at end of year	$	23		$	200		$	23

Under a program initially approved by the Board of Directors in 2002, the Corporation periodically purchases shares of its common stock in the over-the-counter market. Continuation of the program is approved by the Board of Directors on a regular basis.

The decision whether to purchase shares, the number of shares to be purchased and the price to be paid depends upon the availability of shares, prevailing market prices, and other possible considerations which might affect the advisability of purchasing shares. Since the February 2002 inception of the stock buy-back program, the Corporation has repurchased 135,702 common shares in the open market, with 128,403 remaining as treasury stock at December 31, 2006.

40

NOTE 16 — FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of recognized financial instruments at December 31, 2006 and 2005 are as follows:

	2006				2005
			Estimated				Estimated
	Carrying		fair		Carrying		fair
	amount		value		amount		value
	(Dollars in thousands)
FINANCIAL ASSETS
Cash and cash equivalents	$	11,843	$	11,843	$	12,338	$	12,338
Securities		61,913		61,929		81,421		81,444
Loans, net		353,678		350,836		337,286		336,395
Total	$	427,434	$	424,608	$	431,045	$	430,177
FINANCIAL LIABILITIES
Deposits	$	371,194	$	371,181	$	368,459	$	368,515
Federal funds purchased and securities sold under repurchase agreements		15,388		14,790		10,825		10,825
Borrowed funds		17,600		17,319		29,050		28,791
Total	$	404,182	$	403,290	$	408,334	$	408,131

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, $73,439,000 at December 31, 2006 and $72,815,000 at December 31, 2005, is considered to be the fair value since they represent commitments at current interest rates.

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 nonperforming 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.

41

NOTE 16 — FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

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 is determined to be the carrying amount since they represent obligations which are due on demand. The fair value of borrowed funds is determined based on a discounted cash flow analysis.

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 17 — CONTINGENT LIABILITIES

In the normal course of business, the Corporation and its subsidiary may be involved in various legal actions, but in the opinion of management and its legal counsel, the ultimate disposition of such matters is not expected to have a material adverse effect on the consolidated financial statements.

NOTE 18 — QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of selected quarterly financial data (unaudited) for the years ended December 31, 2006 and 2005:

	Interest		Net interest		Net		Net income per
	income		income		income		common share
	(Dollars in thousands, except per share data)
2006
First quarter	$	6,502	$	4,405	$	1,418	$	.77
Second quarter		6,670		4,369		1,437		.79
Third quarter		6,793		4,263		1,284		.71
Fourth quarter		6,939		4,254		1,350		.76
2005
First quarter	$	6,148	$	4,480	$	1,470	$	.78
Second quarter		6,275		4,490		1,521		.81
Third quarter		6,404		4,556		1,334		.71
Fourth quarter		6,558		4,549		1,396		.75

NOTE 19 — NEW ACCOUNTING STANDARD

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Management has evaluated the impact of adopting FIN 48 in 2007 and does not believe the adoption of FIN 48 will have a significant impact on the Corporation’s consolidated financial statements.

This information is an integral part of the accompanying consolidated financial statements.

42

In an intensely competitive market place, Croghan Colonial Bank delivered; but it is our superior relationship that is by far the most important. Maurice O. Clark Vice President of Finance Atlas Industries, Inc. Fremont, Ohio

43

Directors Emeriti Croghan Bancshares, Inc.

Janet E. Burkett

Ted L. Hilty

Thomas F. Hite

Don W. Miller

Robert H. Moyer

Albert C. Nichols

Clemens J. Szymanowski

Claude E. Young

Officers Croghan Bancshares, Inc.

Thomas J. Elder, Jr.
Vice President

Steven C. Futrell
President & Chief Executive Officer

Barry F. Luse
Vice President & Secretary

Kendall W. Rieman
Vice President & Treasurer

Officers The Croghan Colonial Bank

Jodi A. Albright
VP/Retail Services Manager

Linda C. Bechstein
Market Manager

Elaine J. Blackmore
AVP/Private Banking Manager

Betsy J. Copley
Security Officer and
Facilities Manager

Thomas J. Elder, Jr.
VP/Chief Lending Officer

Christopher S. Elfring
OIC Consumer Loans

Carolyn S. Farrar
Market Manager

John M. Fey
VP/Commercial Loan Officer

Marty C. Folger
VP/Commercial Loan Officer

Steven C. Futrell
President/Chief Executive Officer

Nora E. Gallagher
AVP/Trust and Investment Officer

Judith A. Gangwer
Office Manager

Jeffrey L. Geary
VP/OIC Commercial Loans

Ronald T. Goehring
Collection Supervisor

Michael J. Hartenstein
VP/Technology and
Operations Officer

John C. Hoffman
Controller

Dean W. King
VP/Commercial Loan Officer

Shantel M. Laird
Market Manager

Richard E. Lawrie
Relationship Banker

Barry F. Luse
VP/Trust Officer

Michelle R. McGovern
Marketing Director

Coleen O. Miller
Office Manager

Cheryl L. Most
Compliance Officer

Robert L. Overmyer
AVP/Deposit Administrator

Gary L. Pollock
OIC Real Estate Loans

Margaret V. Ramirez
Deposit Services Manager

Sandra S. Reed
Credit Services Manager

Valerie L. Reed
Market Manager

Kendall W. Rieman
VP/Chief Financial and
Operations Officer

Nancy C. Roddy
Real Estate Loan Officer

David M. Sabo
VP/Commercial Loan Officer

Daniel N. Schloemer
VP/Commercial Loan Officer

Terry A. Schroeder
Information Systems Manager

Dale D. Schubert
Credit Analyst

Dennis P. Schwab
VP/Loan Officer

Lou Anne Sitterly
Market Manager

Dianne M. Staib
Private Banker/Investment
Representative

Richard G. Stein
AVP/Trust Officer

Susan K. Straube
Mortgage Administrative
Assistant

Pamela J. Swint
AVP/Human Resources
Manager

Josephine L. Weyer
Market Manager

Jeff D. Wilson
Consumer Loan Officer

44

Directors Strength in Vision Michael D. Allen, Sr. James E. Bowlus Steven C. Futrell Claire F. Johansen John P. Keller Daniel W. Lease Thomas McLaughlin Allan E. Mehlow J. Terrence Wolfe Gary L. Zimmerman Senior Managers Strength in Leadership Jodi A. Albright Thomas J. Elder, Jr. Steven C. Futrell Michael J. Hartenstein Barry F. Luse Kendall W. Rieman Pamela J. Swint Stephen A. Kemper Croghan Bancshares, Inc.

45

MAIN CLYDE            GREEN SPRINGS 419.332.7301 419.547.9525 419.639.2323 323 Croghan Street 100 North Main Street 200 North Broadway Street Fremont, Ohio 43420 Clyde, Ohio 43410 Green Springs, Ohio 44836 Shantel M. Laird Carolyn S. Farrar            Brenda L. Rando Market Manager Market Manager            Office Manager Judith A. Gangwer Bonnie L. Pruitt            Karen S. Riehl Office Manager Office Assistant            Office Assistant EAST PORT CLINTON            CUSTAR 419.355.2341 419.732.7563 419.669.2801 1315 East State Street 3994 East Harbor Road 22973 Defiance Pike Fremont, Ohio 43420 Port Clinton, Ohio 43452 Custar, Ohio 43511 Shantel M. Laird Marty C. Folger            Linda C. Bechstein Market Manager Commercial Loan Officer            Market Manager Coleen O. Miller Chrystal L. Petersen            Alice C. Perry Office Manager Office Manager            Office Assistant BALLVILLE BELLEVUE            NORWALK 419.355.2362 419.483.2541 419.668.2507 1600 River Street One Union Square 27 East Main Street Fremont, Ohio 43420 Bellevue, Ohio 44811 Norwalk, Ohio 44857 Josephine L. Weyer Lou Anne Sitterly            Daniel N. Schloemer Market Manager Market Manager            Commercial Loan Officer Laurie A. Zyski Betty L. Moyer            Jennie L. Hipp Office Assistant Office Assistant            Office Manager WEST MONROEVILLE 419.355.2351 419.465.2596 2001 West State Street 11 Monroe Street Fremont, Ohio 43420 Monroeville, Ohio 44847 Valerie L. Reed Darlene D. Tyler Market Manager Office Manager Philip K. Nieset Linda S. Scheid Office Manager Office Assistant Croghan Bancshares, Inc. www.croghan.com

46

EX-21

Exhibit 21

CROGHAN BANCSHARES, INC.

Subsidiaries of the Registrant

	State of	Percentage of
Subsidiary	Incorporation	securities owned
The Croghan Colonial Bank (1)	Ohio		100	%

(1) The subsidiary’s principal office is located in Fremont, Ohio.

EX-23

Exhibit 23

CROGHAN BANCSHARES, INC.

Consent of Independent Auditor

The Board of Directors
Croghan Bancshares, Inc.:

We consent to the incorporation by reference in the Registration Statement (No. 333-53075) on Form S-8 of Croghan Bancshares, Inc. of our report dated March 13, 2007, relating to the consolidated balance sheets of Croghan Bancshares, Inc. and its subsidiary as of December 31, 2006 and 2005, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2006, which report appears in the December 31, 2006 annual report on Form 10-K of Croghan Bancshares, Inc.

/s/ CLIFTON GUNDERSON LLP

Toledo, Ohio
March 26, 2007

EX-31.1

Exhibit 31.1

RULE 13a-14(a)/15d-14(a) CERTIFICATION

     I, Steven C. Futrell, certify that:

1.	I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2006 of Croghan Bancshares, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 23, 2007	/s/ Steven C. Futrell
	Steven C. Futrell, President and CEO
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

RULE 13a-14(a)/15d-14(a) CERTIFICATION

     I, Kendall W. Rieman, certify that:

1.	I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2006 of Croghan Bancshares, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 23, 2007	/s/ Kendall W. Rieman
	Kendall W. Rieman, Treasurer
	(Principal Financial Officer)

EX-32

Exhibit 32

SECTION 1350 CERTIFICATION*

In connection with the Annual Report of Croghan Bancshares, Inc. (the “Corporation”) on Form 10-K for the fiscal year ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Steven C. Futrell, President and CEO of the Corporation, and Kendall W. Rieman, Treasurer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)	The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Corporation and its subsidiary.

/s/ Steven C. Futrell Steven C. Futrell, President and CEO	/s/ Kendall W. Rieman Kendall W. Rieman, Treasurer
(Principal Executive Officer)	(Principal Financial Officer)
Date: March 23, 2007	Date: March 23, 2007

* This certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Corporation specifically incorporates this certification by reference.