CHBH Croghan Bancshares Inc (QB)

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 direct subsidiary of the Corporation and substantially all of the Corporation’s operations are conducted through the Bank. The Bank has one wholly-owned insurance company subsidiary, Croghan Insurance Agency LLC (“Croghan Insurance”), which was organized on August 21, 2009 as an Ohio limited liability company for the purpose of allowing the Bank to participate in certain commission revenue generated through its third party insurance agreement. The principal offices of the Corporation, the Bank, and Croghan Insurance are located at 323 Croghan Street, Fremont, Ohio. The Bank operates 16 Ohio offices, including one in Bellevue, one in Clyde, one in Curtice, five in Fremont, one in Green Springs, one in Monroeville, one in Norwalk, one in Oak Harbor, one in Oregon, one in Port Clinton, and two in Tiffin.

On December 6, 2013, the Corporation completed the acquisition of Indebancorp and its bank subsidiary, National Bank of Ohio (“NBOH”), in a stock and cash merger transaction. Under the terms of the merger agreement, the shareholders of Indebancorp received either $55.00 in cash, 1.63 common shares of the Corporation, or a combination thereof subject to the overall consideration being 70% stock and 30% cash. Based on the closing price of the Corporation’s common shares on December 6, 2013 (i.e., the date of closing), the transaction was valued at $29.15 million and is expected to qualify as a tax-free reorganization. Indebancorp and NBOH were headquartered in Oak Harbor, Ohio, and operated four full-service branches and two loan production offices, all located within 30 miles of its corporate headquarters. In the transaction, the Bank acquired a total of $223,095,000 in total assets, with $163,453,000 in net loans and $22,876,000 in securities, and assumed $194,491,000 in deposits.

In December 2013, the Bank also completed the sale of its Custar Branch to another financial institution. The branch sale included $28,328,000 of assets, including $16,590,000 of cash paid and cash on hand and $11,467,000 of loans, and the transfer of $29,500,000 of liabilities, including $29,483,000 of deposits.

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 Federal Deposit Insurance Corporation (“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 22 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 22 of this Annual Report on Form 10-K.

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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 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 is also 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 18, and “REGULATORY CAPITAL REQUIREMENTS” beginning on page 20 of this Annual Report on Form 10-K.

Because the Corporation’s activities have been limited primarily to holding the common shares of 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.

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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 under “ITEM 1A – RISK FACTORS” beginning on page 24 of this Annual Report on Form 10-K. 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 these cautionary statements.

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:

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Loan Maturity Schedule. The following table sets forth certain information, as of December 31, 2013, 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 2013:

The above maturity information is based on the contract terms at December 31, 2013, 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, limited liability companies, and other business enterprises. 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. However, under the current low rate environment there has been a shift to lock in fixed rates to maturity. 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, 2013, the Bank had $44,134,000, or 9.3% of total loans, invested in commercial, financial, and agricultural loans. At December 31, 2013, the Bank had $188,000 of nonperforming loans of this type (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, apartment buildings, and residential real estate loans secured by first mortgages on one-to-four family residences, with a majority being single-family residences.

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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. The Bank 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. In addition, the Bank may obtain the personal guarantees of one or more of the principals of the borrower.

At December 31, 2013, the Bank had $211,852,000, or 44.6% 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, 2013, the Bank had $2,842,000 of nonperforming loans of this type.

Residential Real Estate Loans. The Bank’s residential real estate loans have either fixed or adjustable interest rates (“ARMs”). Interest rates on ARMs adjust every three or five years based upon the three or five year Constant Treasury Maturity (“CMT”) as published by the Wall Street Journal, plus an additional margin, that is in effect at the time of the applicable rate change. The three and five year ARMs typically have periodic adjustment caps of 2% and lifetime adjustment caps of 6%. The maximum amortization period for such loans is 30 years. 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 the three and five year ARM programs, where the loan is retained and serviced by the Bank, loans are originated by the Bank and sold into the secondary market (e.g., to Freddie Mac and Fannie Mae). The Bank retains the servicing and related support functions on loans that are sold into the secondary market. 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 85%, subject to certain exceptions.

The Bank’s residential real estate loans amounted to $176,084,000 at December 31, 2013, which represented 37.1% of total loans. At December 31, 2013, the Bank had $2,663,000 of nonperforming 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 that general economic conditions have 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, 2013, the Bank’s construction loans amounted to $11,608,000, or 2.5% of total loans. At December 31, 2013, the Bank had no nonperforming loans of this type.

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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, and generally require repayment pursuant to 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, 2013, the Bank had $27,515,000, or 5.8% of total loans, invested in consumer loans, of which $34,000 were nonperforming.

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, 2013, the Bank had $3,555,000, or 0.7% of total loans, invested in credit card and other loans, of which $37,000 were nonperforming.

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. The Bank also realizes income from late payment charges, application fees, and fees for other miscellaneous services. Loan origination fees and other fees realized by the Bank are a volatile source of income and vary 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.

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Delinquent Loans, Nonperforming 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 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.

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

In addition to the loan amounts identified in the preceding table, there was $7,079,000 of potential problem loans at December 31, 2013. 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, 2013, 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, 2013, the Bank’s allowance for loan losses totaled $4,042,000. 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 nonperforming 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 Bank’s 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.

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

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. During 2009, there were no commercial loan charge-offs exceeding $25,000; however, there was one recovery that totaled $34,000 that was recovered from a commercial loan that was charged off in 2008. Also during 2009, there were 15 real estate loan charge-offs individually exceeding $25,000 with the largest being $518,000, and others including $253,000, $224,000, and $178,000. There were no individual recoveries over $25,000 in the real estate loan category during 2009. There were also two consumer loan charge-offs that individually exceeded $25,000 during 2009 with the largest being $31,000. During 2010, there were no commercial loan charge-offs or recoveries exceeding $25,000. Also during 2010, there were 11 real estate loan charge-offs individually exceeding $25,000 with the largest being $273,000, and others including $180,000, $138,000, and $85,000. There were two individual recoveries over $25,000 in the real estate loan category during 2010. There were no consumer loan charge-offs or recoveries that individually exceeded $25,000 during 2010. During 2011, there was one commercial loan charge-off exceeding $25,000 that totaled $36,000 and there was a recovery from one borrower totaling $169,000. Also during 2011, there were 15 real estate loan charge-offs individually exceeding $25,000 with the largest being $335,000, and others including $308,000, $120,000, $112,000, and $100,000. There were two individual recoveries over $25,000 in the real estate loan category during 2011 totaling $519,000 and $66,000. There were no consumer loan charge-offs or recoveries that individually exceeded $25,000 during 2011. During 2012, there were no commercial loan charge-offs or recoveries exceeding $25,000. Also during 2012, there were 15 real estate loan charge-offs individually exceeding $25,000 with the largest being $150,000, and others including $83,000, $65,000, and two each of $59,000. There were no recoveries over $25,000 in the real estate loan category during 2012. There were no consumer loan charge-offs or recoveries that individually exceeded $25,000 during 2012. During 2013, there were no commercial loan charge-offs or recoveries exceeding $25,000, five real estate charge-offs exceeding $25,000 (with the largest charge-off being $159,000 and the aggregate being $305,000), and one consumer loan charge-off of $29,000. There were no other individual charge-offs or recoveries exceeding $25,000 during 2013. There were no lease financing charge-offs or recoveries in any of the years presented.

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The Corporation recognized a provision for loan losses of $275,000 for the year ended December 31, 2013. The decrease in the provision for loan losses in 2013, as compared to 2012, was due to a decrease in the level of specifically analyzed loans in 2013, as compared to 2012, and a reduction in net loan charge-offs of $420,000. The Bank will continue to monitor the credit quality of its entire loan portfolio to maintain the allowance for loan losses at an appropriate level.

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:

The Bank decreased its allowance for loan losses to $4,042,000 at December 31, 2013, from $4,325,000 at December 31, 2012. There were specific reserves of $437,000 on individual credits at December 31, 2013. 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.

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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.

The following sets forth the carrying amount of securities at December 31, 2013, 2012, and 2011:

The following sets forth the maturities of securities at December 31, 2013 and the weighted average yields of such securities:

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, 2013, the Bank did not have any federal funds purchased, out of the $17,000,000 available under such lines of credit.

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, 2013, the Bank had $24,577,000 in retail repurchase agreements.

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Neither the Corporation nor the Bank had any capital lease obligations as of December 31, 2013. The Bank had future operating lease obligations totaling $85,000 at December 31, 2013, related to the following lease arrangements: the Port Clinton banking center located in a retail supermarket in the Knollcrest Shopping Center, an ATM site north of Fremont, a loan production office in Perrysburg Ohio, and an ATM and Night Drop box in two separate locations on the Put In Bay Islands. Additionally, the Bank had various future operating lease obligations aggregating $47,000 at December 31, 2013, 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 for 2013, 2012, and 2011 as set forth in the following table:

Maturities of time deposits of $100,000 or more outstanding at December 31, 2013 were as follows (dollars in thousands):

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 $10,276,000 in FHLB advances outstanding at December 31, 2013 and had an additional borrowing capacity of $43,033,000.

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 2013, 2012, and 2011:

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The following sets forth the maximum month-end balance for the Bank’s outstanding long-term borrowings (i.e., FHLB advances and a note payable to a correspondent bank), along with the average aggregate balance and weighted average interest rates, for 2013, 2012, and 2011:

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 strategies for essentially all of the Bank’s 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, 2013. 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, 200, 300, and 400 basis points (1%, 2%, 3%, and 4%) up and down for its net interest income, and 200 basis points (2%) up and down for the value of its equity. However, because interest rates were below 1.0% at December 31, 2013, the sensitivity analysis could not be performed with respect to a negative 200, 300, and 400 basis point changes in market rates.

The following table presents the potential sensitivity in the Bank’s annual net interest income to 100, 200, 300, and 400 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):

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. For example, the Bank could enter into derivatives or swaps, which are not included in the model.

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The following table sets forth, for the years ended December 31, 2013, 2012, and 2011, 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:

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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:

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:

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COMPETITION

The Bank faces intense competition in its market areas. The Bank competes for commercial and individual deposits and/or loans with other commercial banks in Huron, Lucas, 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. Many competitors of the Bank have substantially greater resources and lending limits and can offer services that the Bank does not or cannot provide. The primary factors in competing for loans are interest rates charged and overall services provided to borrowers, while the primary factors in competing for deposits are interest rates paid on deposits, account liquidity, convenience, hours of facilities, and quality of service provided to depositors. The Bank focuses on personalized service, convenience of facilities, pricing of products, community stature, and its local ownership and control in meeting its competition.

SUBSIDIARY ACTIVITIES

The Corporation’s only subsidiary is the Bank. The Bank’s only subsidiary is Croghan Insurance, which engages in activities related to the sale of insurance and, as a licensed insurance agency, receives commissions from insurance sales.

EMPLOYEES

As of December 31, 2013, the Corporation and its subsidiaries employed 174 full-time employees and 35 part-time employees. The Corporation and its subsidiaries believe that relations with its employees are excellent. The Corporation and its subsidiaries provide 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, bank holding companies and their subsidiaries are prohibited 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.

Subject to certain exceptions, 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, the bank holding company 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.

The Gramm-Leach-Bliley Act of 1999 (the “GLB Act”) permits qualifying 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. The Corporation has not elected to become a financial holding company at this time, but intends to periodically re-evaluate the advantages and disadvantages of becoming a financial holding company.

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As an Ohio-chartered bank, the Bank is further 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.

Croghan Insurance, the Bank’s wholly-owned insurance agency subsidiary, is also subject to the insurance laws and regulations of the State of Ohio and the Ohio Department of Insurance. The insurance laws and regulations require education and licensing of agencies and individual agents, require reports, and impose business conduct rules.

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 covered transactions be on terms substantially the same, or at least as favorable to the bank or 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 controlled by such persons, is subject to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated by the FRB. Among other requirements, 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. 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.

The Bank is a member of the FHLB of Cincinnati and, therefore, must maintain an investment in the capital stock of the FHLB. Upon the origination or renewal of a loan or advance, each FHLB is required by law to obtain and maintain a security interest in certain types of collateral. Each FHLB is required to establish standards of community investment or service that its members must maintain for continued access to long-term advances from the FHLB. The standards take into account a member’s performance under the CRA and its record of lending to first-time home buyers.

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The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) was enacted into law on July 21, 2010. The Dodd-Frank Act is significantly changing the regulation of financial institutions and the financial services industry. Because the Dodd-Frank Act requires various federal agencies to adopt a broad range of regulations with significant discretion, many of the details of the new law and the effects they will have on the Corporation will not be known for months and even years. The following summarizes significant aspects of the Dodd-Frank Act that may affect the Corporation and the Bank:

Many provisions of the Dodd-Frank Act have not yet been implemented and will require interpretation and rule making by federal regulators. As a result, the ultimate effect of the Dodd-Frank Act on the Corporation cannot yet be determined. However, it is likely that the implementation of these provisions will increase compliance costs and fees paid to regulators, along with possibly restricting the operations of the Corporation and the Bank.

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 remainder of total risk-based capital (commonly referred to as “Tier 2” risk-based capital) may consist of certain amounts of hybrid capital instruments, mandatory convertible debt, subordinated debt, preferred stock not qualifying as Tier 1 capital, loan and lease loss allowances, and net unrealized gains on certain available-for-sale securities, all subject to limitations established by the guidelines.

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

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The following sets forth the Tier 1 Risk-Based Ratio, Total Risk-Based Ratio, and Leverage Ratio for the Corporation and the Bank at December 31, 2013:

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, 2013 met the standards for the highest level, a “well capitalized” institution.

In December 2010, the Basel Committee on Banking Supervision, an international forum for cooperation on banking supervisory matters, announced the “Basel III” capital standards, which proposed new capital requirements for banking organizations. On July 2, 2013, the Federal Reserve Board adopted a final rule implementing a revised capital framework based in part on the Basel III capital standards and, on July 9, 2013, the Office of the Comptroller of the Currency also adopted a final rule and the FDIC adopted an interim final rule implementing a revised capital framework based in part on the Basel III capital standards. The rule will not begin to phase in until January 1, 2014 for larger institutions and January 1, 2015 for smaller, less complex banking organizations such as the Corporation. The rule will be fully phased in by January 1, 2019.

The implementation of the final rule will lead to higher capital requirements and more restrictive leverage and liquidity ratios than those currently in place. Specifically, the rule imposes the following minimum capital requirements on federally insured financial institutions: (1) a new minimum common equity tier 1 capital to risk-weighted assets ratio of 4.5%; (2) a leverage capital ratio of 4%; (3) a tier 1 risk-based capital ratio of 6%; and (4) a total risk-based capital ratio of 8%. Under the rule, common equity generally consists of common stock, retained earnings and limited amounts of minority interests in the form of common stock. In addition, in order to avoid limitations on capital distributions, such as dividend payments and certain bonus payments to executive officers, the rule requires insured financial institutions to hold a capital conservation buffer of common equity tier 1 capital above its minimum risk-based capital requirements. The capital conservation buffer will be phased in over time, becoming effective on January 1, 2019, and will consist of an additional amount of common equity equal to 2.5% of risk-weighted assets. The rule will also revise the regulatory agencies’ prompt corrective action framework by incorporating the new regulatory capital minimums and updating the definition of common equity. Until the rule is fully phased in, we cannot predict the ultimate impact it will have upon the financial condition or results of operations of the Corporation.

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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 to the Corporation. However, the FRB expects the Corporation to serve as a source of strength to the Bank, which may require the Corporation to retain capital for further investment in the Bank, rather than pay dividends to the Corporation’s shareholders. The ability of the Bank to pay dividends to the Corporation is subject to various legal limitations and to prudent and sound banking principles. Generally, 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 Bank is prohibited from paying dividends out of its surplus if, after paying such dividends, it would fail to meet the required minimum Total Risk-Based Ratio requirements and minimum Leverage Ratio requirements under the FRB guidelines.

FDIC DEPOSIT INSURANCE

The FDIC is an independent federal agency which insures the deposits of federally-insured banks and savings associations up to certain prescribed limits and safeguards the safety and soundness of financial institutions. The deposits of the Bank are subject to the deposit insurance assessments of the FDIC. Under the FDIC’s deposit insurance assessment system, the assessment rate for any insured institution may vary according to regulatory capital levels of the institution and other factors such as supervisory evaluations.

The FDIC is authorized to prohibit any insured institution from engaging in any activity that poses a serious threat to the insurance fund and may initiate enforcement actions against a bank, after first giving the institution’s primary regulatory authority an opportunity to take such action. The FDIC may also terminate the deposit insurance of any institution that has engaged in or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, order or condition imposed by the FDIC.

On February 7, 2011, the FDIC approved a final rule that changed the deposit insurance assessment base, as required by the Dodd-Frank Act. As adopted, the final rule changed the deposit insurance assessment base from domestic deposits to average assets minus average tangible equity. In addition, the final rule also adopted a new large-bank pricing assessment scheme and established a target size for the Deposit Insurance Fund. The final rule went into effect beginning with the second quarter of 2011.

FRB RESERVE REQUIREMENTS

For 2013, FRB regulations required depository institutions to maintain reserves of 3% of net transaction accounts (primarily demand and NOW accounts) up to and including $79,500,000 (subject to an exemption for the first $12,400,000 of net transaction accounts), and of 10% of net transaction accounts in excess of $79,500,000. For 2014, the applicable threshold for net transaction accounts have been increased by the FRB to $89,000,000 (subject to an exemption for the first $13,300,000 of net transaction accounts).

EFFECTS OF GOVERNMENT MONETARY POLICY

The business and earnings of the Bank are affected by general and local economic conditions and by the policies of various governmental regulatory authorities. In particular, the FRB 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. FRB 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.

SEC REGULATION

Through the third quarter of 2012, the Corporation was an SEC-reporting company and filed reports, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, with the SEC under the Exchange Act. The Corporation was also required to comply with regulations governing proxy solicitations and certain shareholders were required to file security ownership reports. In April 2012, the JOBS Act was signed into law and amended Sections 12(g) and 15(d) of the Exchange Act to increase the holders of record threshold for banks and bank holding companies to terminate the proxy solicitation and security ownership reports and to suspend their obligations to file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. With respect to the Corporation, the JOBS Act increased the holder of record threshold from 300 to 1,200. Because the Corporation had fewer than 700 holders of record of its common shares at the time of the adoption of the JOBS Act, the Corporation became eligible to suspend and terminate those obligations. Due to the expense associated with preparing and filing periodic reports with the SEC and the historically low trading volume of the

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Corporation’s common shares, among other reasons, the Board of Directors of the Corporation approved deregistration of the Corporation’s common shares under Section 12(g) of the Exchange Act and the suspension of the Corporation’s reporting obligations under Section 15(d) of the Exchange Act during the fourth quarter of 2012. The Corporation subsequently filed with the SEC Form 15 on November 13, 2012 to terminate the registration of its common shares under Section 12(g) and Form 15 on March 27, 2013 to suspend its reporting obligations under Section 15(d).

Because the common shares issued to shareholders of Indebancorp in the merger that was completed in December 2013 were being registered with the SEC pursuant to a Registration Statement on Form S-4, the Corporation was required to recommence filing reports with the SEC under Section 15(d) of the Exchange Act beginning with the filing of the Corporation’s Quarterly Report on Form 10-Q for the quarterly period ending September 30, 2013. The Corporation’s obligation to file reports under Section 15(d) of the Exchange Act continues through the filing of this Annual Report on Form 10-K for the fiscal year ending December 31, 2013 (which is the year in which the Registration Statement on Form S-4 became effective) and will then automatically terminate because the Corporation had fewer than 1,200 holders of record as of the first day of the 2014 fiscal year. As a result, the Corporation intends to suspend its reporting obligations under Section 15(d) of the Exchange Act following the filing of this Annual Report on Form 10-K.

EFFECT OF ENVIRONMENTAL REGULATION

Compliance with federal, state, and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect upon the capital expenditures, earnings, or competitive position of the Corporation or the Bank. The Corporation believes the nature of the operations of the Bank has little, if any, environmental impact. The Corporation, therefore, does not anticipate any material capital expenditures for environmental control facilities for the foreseeable future. The Corporation believes that its primary exposure to environmental risk is through the lending activities of the Bank. In the event management believes there exists a potential environmental risk, the Bank attempts to mitigate the potential risk by requiring environmental site assessments at the time the loan is originated. In addition, the Bank typically requires an environmental assessment prior to any foreclosure of non-residential real estate collateral.

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