Item 1. Business.
General
Rurban Financial Corp., an Ohio corporation (the "Corporation"), is a bank holding company under the Bank Holding Company Act of 1956, as amended, and is subject to regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). The executive officers of the Corporation are located at 401 Clinton Street, Defiance, Ohio 43512.
Through its subsidiaries, The State Bank and Trust Company, Defiance, Ohio ("State Bank"), The Peoples Banking Company, Findlay, Ohio ("Peoples Bank"), The First National Bank of Ottawa ("First National Bank") and The Citizens Savings Bank Company, Pemberville, Ohio ("Citizens Bank"), the Corporation is engaged in the business of commercial banking. The Corporation's subsidiary, Rurbanc Data Services, Inc. ("Rurbanc"), is engaged in the related business of providing data processing services, principally to banks. The Corporation's subsidiary, Rurban Life Insurance Company ("Rurban Life"), is engaged in the related business of accepting life and disability reinsurance ceded in part by USLIFE Credit Life Insurance Company ("USLIFE") from the credit life and disability insurance purchased by customers of State Bank, Peoples Bank, First National Bank and Citizens Bank from USLIFE in connection with revolving credit loans secured by mortgages and with certain installment loans made to such customers by State Bank, Peoples Bank, First National Bank and Citizens Bank.
General Description of Holding Company Group
State Bank
State Bank is an Ohio state-chartered bank. State Bank presently operates seven branch offices in Defiance County, Ohio (six in the city of Defiance and one in Ney), one branch office in adjacent Paulding County, Ohio and three branch offices in Fulton County, Ohio (one in each of Delta, Lyons and Wauseon). At December 31, 1995, State Bank had 119 full-time equivalent employees.
State Bank offers a full range of commercial banking services, including checking and NOW accounts; passbook savings and money market accounts; automatic teller machines; commercial, installment, agricultural and residential mortgage loans (including "Home Value Equity" line of credit loans); personal and corporate trust services; commercial leasing; bank credit card services; safe deposit rentals; and other personalized banking services. In addition, State Bank serves as a correspondent (federal funds investing and check clearing purposes) for five financial institutions in the region (including Peoples Bank and First National Bank).
Peoples Bank
Peoples Bank is an Ohio state-chartered bank. The main office of Peoples Bank is located in Findlay, Ohio. Peoples Bank provides checking and NOW accounts; passbook savings and money market accounts; time certificates of deposit; commercial loans, student loans and real estate mortgage loans; trust services; and safe deposit rental facilities. Peoples Bank also operates full-service branches in Findlay and McComb, Ohio. At December 31, 1995, Peoples Bank had 24 full-time equivalent employees.
First National Bank
First National Bank is a national banking association. The executive offices of First National Bank are located at 405 East Main Street, Ottawa, Ohio. At its present location on Main Street, First National Bank operates four drive-in teller lanes and an automatic teller machine with a traditional banking lobby on the first floor. First National Bank presently operates no branch offices. At December 31, 1995, First National Bank had 15 full-time equivalent employees.
First National Bank offers a full range of commercial banking services, including checking and NOW accounts; passbook savings and money market accounts; automatic teller machines; commercial, installment, agricultural and residential mortgage loans; personal and corporate trust services; commercial leasing; bank credit card services; safe deposit rentals; and other personalized banking services.
Citizens Bank
Citizens Bank is an Ohio state-chartered bank. The main office of Citizens Bank is located in Pemberville, Ohio. Citizens Bank provides checking and NOW accounts; passbook savings and money market accounts; time certificates of deposit; commercial, installment, agricultural and residential loans; personal and corporate trust services; commercial leasing; bank credit card services; safe deposit rentals; and other personalized banking services. Citizens Bank also operates a full-service branch in Gibsonburg, Ohio. At December 31, 1995, Citizens Bank had 28 full-time equivalent employees.
Rurbanc
Substantially all of Rurbanc's business is comprised of providing data processing services to 32 financial institutions primarily in the northwest area of Ohio (including State Bank, Peoples Bank, First National Bank and Citizens Bank), including information processing for financial institution customer services, deposit account information and data analysis. Rurbanc also provides payroll services for customers which are not financial institutions. At December 31, 1995, Rurbanc had 18 full-time equivalent employees.
Rurban Life
Rurban Life commenced its business of transacting insurance as an Arizona life and disability reinsurer in January, 1988. Rurban Life may accept life and disability reinsurance ceded to Rurban Life by an insurance company authorized to write life and disability insurance, provided that the amount accepted does not exceed certain limitations imposed under Arizona law. Rurban Life is not currently authorized to write life and disability insurance on a direct basis. Rurban Life accepts reinsurance ceded in part by USLIFE from the credit life and disability insurance purchased by customers of State Bank, Peoples Bank, First National Bank and Citizens Bank from USLIFE in connection with revolving credit loans secured by mortgages and with certain installment loans made to such customers by State Bank, Peoples Bank, First National Bank and Citizens Bank. The operations of Rurban Life do not materially impact the consolidated results of operations of the Corporation. As of December 31, 1995, Rurban Life has not accepted any other reinsurance. Rurban Life does not currently intend to accept any other reinsurance in the immediate future. At December 31, 1995, Rurban Life had no employees.
Competition
State Bank, Peoples Bank, First National Bank and Citizens Bank experience significant competition in attracting depositors and borrowers. Competition in lending activities comes principally from other commercial banks in the lending areas of State Bank, Peoples Bank, First National Bank and Citizens Bank, and, to a lesser extent, from savings associations, insurance companies, governmental agencies, credit unions, securities brokerage firms and pension funds. The primary factors in competing for loans are interest rates charged and overall banking services.
Competition for deposits comes from other commercial banks, savings associations, money market funds and credit unions as well as from insurance companies and securities brokerage firms. The primary factors in competing for deposits are interest rates paid on deposits, account liquidity and convenience of office location.
Rurbanc also operates in a highly competitive field. Rurbanc competes primarily on the basis of the value and quality of its data processing services, and service and convenience to its customers.
Rurban Life operates in the highly competitive industry of credit life and disability insurance. A large number of stock and mutual insurance companies also operating in this industry have been in existence for longer periods of time and have substantially greater financial resources than does Rurban Life. The principal methods of competition in the credit life and disability insurance industry are the availability of coverages, premium rates and quality of service. The Corporation believes that Rurban Life has a competitive advantage due to the fact that the business of Rurban Life is limited to the accepting of life and disability reinsurance ceded in part by USLIFE from the credit life and disability insurance purchased by loan customers of State Bank, Peoples Bank, First National Bank and Citizens Bank.
Supervision and Regulation
The following is a summary of certain statutes and regulations affecting the Corporation and its subsidiaries. The summary is qualified in its entirety by reference to such statutes and regulations.
The Corporation is a bank holding company under the Bank Holding Company Act of 1956, as amended, which restricts the activities of the Corporation and the acquisition by the Corporation of voting shares or assets of any bank, savings association or other company. The Corporation is also subject to the reporting requirements of, and examination and regulation by, the Federal Reserve Board. Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Act on transactions with affiliates, including any loans or extensions of credit to the bank holding company or any of its subsidiaries, investments in the stock or other securities thereof and the taking of such stock or securities as collateral for loans or extensions of credit to any borrower; the issuance of guarantees, acceptances or letters of credit on behalf of the bank holding company and its subsidiaries; purchases or sales of securities or other assets; and the payment of money or furnishing of services to the bank holding company and other subsidiaries. A bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with extensions of credit and/or the provision of other property or services to a customer by the bank holding company or its subsidiaries.
Bank holding companies are prohibited from acquiring direct or indirect control of more than 5% of any class of voting stock or substantially all of the assets of any bank holding company without the prior approval of the Federal Reserve Board. In addition, acquisitions across state lines are limited to acquiring banks in those states specifically authorizing such interstate acquisitions. However, since September 1995, federal law has permitted interstate acquisitions of banks, if the bank acquired retains its separate charter.
As a national bank, First National Bank is supervised and regulated by the Comptroller of the Currency. As Ohio state-chartered banks, State Bank, Peoples Bank and Citizens Bank are supervised and regulated by the Ohio Division of Banks and the Federal Deposit Insurance Corporation ("FDIC"). The deposits of State Bank, Peoples Bank, First National Bank and Citizens Bank are insured by the FDIC and those entities are subject to the applicable provisions of the Federal Deposit Insurance Act. A subsidiary of a bank holding company can be liable to reimburse the FDIC if the FDIC incurs or anticipates a loss because of a default of another FDIC-insured subsidiary of the bank holding company or in connection with FDIC assistance provided to such subsidiary in danger of default. In addition, the holding company of any insured financial institution that submits a capital plan under the federal banking agencies' regulations on prompt corrective action guarantees a portion of the institution's capital shortfall, as discussed below.
Various requirements and restrictions under the laws of the United States and the State of Ohio affect the operations of State Bank, Peoples Bank, First National Bank and Citizens Bank including requirements to maintain reserves against deposits, restrictions on the nature and amount of loans which may be made and the interest that may be charged thereon, restrictions relating to investments
and other activities, limitations on credit exposure to correspondent banks, limitations on activities based on capital and surplus, limitations on payment of dividends, and limitations on branching. Pursuant to recent federal legislation, First National Bank may branch across state lines, if permitted by the law of the other state. In addition, effective June 1997, such interstate branching by First National Bank will be authorized, unless the law of the other state specifically prohibits the interstate branching authority granted by federal law.
The Federal Reserve Board has adopted risk-based capital guidelines for bank holding companies and for state member banks, such as State Bank and Citizens Bank. The risk-based capital guidelines include both a definition of capital and a framework for calculating weighted risk assets by assigning assets and off-balance sheet items to broad risk categories. The minimum ratio of total capital to weighted risk assets (including certain off-balance sheet items, such as standby letters of credit) is 8%. At least 4.0 percentage points is to be comprised of common stockholders' equity (including retained earnings but excluding treasury stock), noncumulative perpetual preferred stock, a limited amount of cumulative perpetual preferred stock, and minority interests in equity accounts of consolidated subsidiaries, less goodwill and certain other intangible assets ("Tier 1 capital"). The remainder ("Tier 2 capital") may consist, among other things, of mandatory convertible debt securities, a limited amount of subordinated debt, other preferred stock and a limited amount of allowance for loan and lease losses. The Federal Reserve Board also imposes a minimum leverage ratio (Tier 1 capital to total assets) of 4% for bank holding companies and state member banks that meet certain specified conditions, including no operational, financial or supervisory deficiencies, and including having the highest regulatory rating. The minimum leverage ratio is 1.0-2.0% higher for other bank holding companies and state member banks based on their particular circumstances and risk profiles and those experiencing or anticipating significant growth. National bank subsidiaries, such as First National Bank, are subject to similar capital requirements adopted by the Comptroller of the Currency, and state non-member bank subsidiaries, such as Peoples Bank, are subject to similar capital requirements adopted by the FDIC. Under an outstanding proposal of the Comptroller and the FDIC to establish an interest rate risk component, First National Bank, State Bank, Peoples Bank and Citizens Bank may be required to have additional capital if their interest rate risk exposure exceeds acceptable levels provided for in the regulation when adopted.
The Corporation and its subsidiaries currently satisfy all capital requirements. Failure to meet applicable capital guidelines could subject a banking institution to a variety of enforcement remedies available to federal and state regulatory authorities, including the termination of deposit insurance by the FDIC.
The federal banking regulators have established regulations governing prompt corrective action to resolve capital deficient banks. Under these regulations, institutions which become undercapitalized become subject to mandatory regulatory scrutiny and limitations, which increase as capital continues to decrease. Such institutions are also required to file capital plans with their primary federal regulator, and their holding companies must guarantee the capital shortfall up to 5% of the assets of the capital deficient institution at the time it becomes undercapitalized.
The ability of a bank holding company to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends which may be declared by its subsidiary banks and other subsidiaries. However, the Federal Reserve Board expects the Corporation to serve as a source of strength to its subsidiary banks, which may require it to retain capital for further investment in the subsidiaries, rather than for dividends for shareholders of the Corporation. State Bank, Peoples Bank, First National Bank and Citizens Bank may not pay dividends to the Corporation if, after paying such dividends, they would fail to meet the required minimum levels under the risk-based capital guidelines and the minimum leverage ratio requirements. State Bank, Peoples Bank, First National Bank and Citizens Bank must have the approval of their respective regulatory authorities if a dividend in any year would cause the total dividends for that year to exceed the sum of the current year's net profits and the retained net profits for the preceding two years, less required transfers to surplus. Payment of dividends by the bank subsidiaries may be restricted at any time at the discretion of the regulatory authorities, if they deem such dividends to constitute an unsafe and/or unsound banking practice. These provisions could have the effect of limiting the Corporation's ability to pay dividends on its outstanding common shares.
Rurban Life is chartered by the State of Arizona and is subject to regulation, supervision, and examination by the Arizona Department of Insurance. The powers of regulation and supervision of the Arizona Department of Insurance relate generally to such matters as minimum capitalization, the grant and revocation of certificates of authority to transact business, the nature of and limitations on investments, the maintenance of reserves, the form and content of required financial statements, reporting requirements and other matters pertaining to life and disability insurance companies.
Monetary Policy and Economic Conditions
The commercial banking business is affected not only by general economic conditions, but also by the policies of various governmental regulatory authorities, including the Federal Reserve Board. The Federal Reserve Board regulates money and credit conditions and interest rates in order to influence general economic conditions primarily through open market operations in U.S. Government securities, changes in the discount rate on bank borrowings and changes in reserve requirements against bank deposits. These policies and regulations significantly affect the overall growth and distribution of bank loans, investments and deposits, and the interest rates charged on loans as well as the interest rates paid on deposits and accounts.
The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial banks in the past and are expected to continue to have significant effects in the future. In view of the changing conditions in the economy and the money market and the activities of monetary and fiscal authorities, no definitive predictions can be made as to future changes in interest rates, credit availability or deposit levels.
Statistical Financial Information Regarding the Corporation
The following schedules and tables analyze certain elements of the consolidated balance sheets and statements of income of the Corporation and its subsidiaries, as required under Exchange Act Industry Guide 3 promulgated by the Securities and Exchange Commission, and should be read in conjunction with the narrative analysis presented in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation and the Consolidated Financial Statements of the Corporation and its subsidiaries included at pages 46 through 73 of this Annual Report on Form 10-K.
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL
A. The following are the average balance sheets for the years ending December 31:
1995 1994 1993 ---- ---- ---- ASSETS Interest-earning assets Securities available-for-sale(1) Taxable $64,643,230 $51,347,311 $ - Non-taxable 25,869 - - Securities held-to-maturity Taxable 1,485,961 370,644 - Non-taxable 9,416,228 7,584,860 - Investment securities Taxable - - 55,916,157 Non-taxable - - 8,518,053 Federal funds sold 10,145,738 5,162,152 3,047,975 Loans, net of unearned income and deferred loan fees(2) 282,864,867 249,993,210 225,013,808 ----------- ----------- ----------- Total interest-earning assets 368,581,893 314,458,177 292,495,993 Allowance for loan losses (4,606,629) (4,089,404) (3,461,056) ----------- ----------- ----------- 363,975,264 310,368,773 289,034,937 Noninterest-earning assets Cash and due from banks 17,670,513 11,613,379 13,090,931 Premises and equipment, net 8,857,350 7,766,744 7,031,156 Accrued interest receivable and other assets 8,056,940 5,368,618 5,072,715 ----------- ----------- -----------
$398,560,067 $335,117,514 $314,229,739
LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities Deposits Savings and interest-bearing demand deposits $83,243,571 $70,551,648 $63,445,763 Time deposits 231,640,466 191,533,849 183,162,012 Federal funds purchased and securities sold under agree- ments to repurchase 684,484 2,488,229 1,567,400 ----------- ----------- ----------- Total interest-bearing liabilities 315,568,521 264,573,726 248,175,175
Noninterest-bearing liabilities Demand deposits 41,427,007 37,778,969 33,874,124 Accrued interest payable and other liabilities 3,687,999 2,150,694 2,214,232 ----------- ----------- ----------- 360,683,527 304,503,389 284,263,531
Shareholders' equity(3)(4) 37,876,540 30,614,125 29,966,208 ----------- ----------- -----------
$398,560,067 $335,117,514 $314,229,739
__________________________
(1) Securities available-for-sale are carried at fair value. The average balance includes quarterly average balances of the market value adjustments and daily average balances for the amortized cost of securities. (2) Loan balances include principal balances of nonaccrual loans. (3) Shown net of average net unrealized appreciation (depreciation) on securities available-for-sale, net of tax. (4) Includes common stock subject to repurchase obligation in ESOP.
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)
B. The following tables set forth, for the years indicated, the condensed average balances of interest-earning assets and interest-bearing liabilities, the interest earned or paid on such amounts, and the average interest rates earned or paid thereon.
Average Average Balance Interest Rate ------- -------- ------- INTEREST-EARNING ASSETS Securities(1) Taxable $66,675,224 $3,756,764 5.63% Non-taxable 9,442,097 645,724(2) 6.84(2) Federal funds sold 10,145,738 707,596 6.97 Loans, net of unearned income and deferred loan fees 282,864,867(3) 26,539,689(4) 9.38 ----------- ---------- --------
Total interest-earning assets $369,127,926 31,649,773(2) 8.57%(2) ============
INTEREST-BEARING LIABILITIES Deposits Savings and interest-bearing demand deposits $83,243,571 2,088,899 2.51 Time deposits 231,640,466 12,109,099 5.23 Federal funds purchased and securities sold under agree- ments to repurchase 684,484 40,050 5.85 ----------- ----------
Total interest-bearing liabilities $ 315,568,521 14,238,048 4.51% ============= -------------
Net interest income $17,411,725(2) ==============
Net interest income as a percent of average interest-earning assets 4.72%(2) ======== _________________________
(1) Securities balances represent daily average balances for the amortized cost of securities. (2) Computed on tax equivalent basis for non-taxable securities (34% statutory tax rate in 1995). (3) Loan balances include principal balances of nonaccrual loans. (4) Includes fees on loans of $967,504 in 1995.
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)
Average Average Balance Interest Rate INTEREST-EARNING ASSETS Securities(1) Taxable $52,307,884 $2,485,695 4.75% Non-taxable 7,584,860 524,977(2) 6.92(2) Federal funds sold 5,162,152 220,244 4.27 Loans, net of unearned income and deferred loan fees 249,993,210(3) 20,421,474(4) 8.17 ----------- ----------
Total interest-earning assets $315,048,106 23,652,390(2) 7.51%(2) ============
INTEREST-BEARING LIABILITIES Deposits Savings and interest-bearing demand deposits $70,551,648 1,900,683 2.69 Time deposits 191,533,849 7,586,023 3.96 Federal funds purchased and securities sold under agree- ments to repurchase 2,488,229 125,647 5.05 ----------- ----------
Total interest-bearing liabilities $ 264,573,726 9,612,353 3.63% ============= ------------
Net interest income $14,040,037(2) =========== Net interest income as a percent of average interest-earning assets 4.46%(2) =====
_________________________
(1) Securities balances represent daily average balances for the amortized cost of securities. (2) Computed on tax equivalent basis for non-taxable securities (34% statutory tax rate in 1994). (3) Loan balances include principal balances of nonaccrual loans. (4) Includes fees on loans of $797,957 in 1994.
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)
Average Average Balance Interest Rate INTEREST-EARNING ASSETS Securities(1) Taxable $55,916,157 $2,989,616 5.35% Non-taxable 8,518,053 675,121(2) 7.93(2) Federal funds sold 3,047,975 94,625 3.10 Loans, net of unearned income and deferred loan fees 225,013,808(3) 17,948,466(4) 7.98 ----------- ----------
Total interest-earning assets $292,495,993 21,707,828(2) 7.42%(2) ============
INTEREST-BEARING LIABILITIES Deposits Savings and interest-bearing demand deposits $63,445,763 1,778,120 2.80% Time deposits 183,162,012 7,078,584 3.86 Federal funds purchased and securities sold under agree- ments to repurchase 1,567,400 52,406 3.34 ----------- ----------
Total interest-bearing liabilities $ 248,175,175 8,909,110 3.59% ============= -----------
Net interest income $12,798,718 (2) ===========
Net interest income as a percent of average interest-earning assets 4.38%(2) ===== _________________________
(1) Securities balances represent daily average balances for the amortized cost of securities. (2) Computed on tax equivalent basis for non-taxable securities (34% statutory tax rate in 1993). (3) Loan balances include principal balances of nonaccrual loans. (4) Includes fees on loans of $705,978 in 1993.
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)
C. The following tables set forth the effect of volume and rate changes on interest income and expense for the periods indicated. For purposes of these tables, changes in interest due to volume and rate were determined as follows: Volume Variance - change in volume multiplied by the previous year's rate. Rate Variance - change in rate multiplied by the previous year's volume. Rate/Volume Variance - change in volume multiplied by the change in rate. This variance was allocated to volume variance and rate variance in proportion to the relationship of the absolute dollar amount of the change in each. Interest on non-taxable securities has been adjusted to a fully tax equivalent basis using a statutory tax rate of 34% in 1995, 1994 and 1993.
Total Variance Variance Attributable To 1995/1994 Volume Rate --------- ------ ------- Interest income Securities Taxable $1,271,069 $ 758,382 $ 512,687 Non-taxable 120,747 127,084 (6,337) Federal funds sold 487,352 294,045 193,307 Loans, net of unearned income and deferred loan fees 6,118,215 2,872,531 3,245,684 ---------- ---------- ---------- 7,997,383 4,052,042 3,945,341
Interest expense Deposits Savings and interest-bearing demand deposits 188,216 324,954 (136,738) Time deposits 4,523,076 1,789,516 2,733,560 Federal funds purchased and securities sold under agreements to repurchase (85,597) (102,943) 17,346 ---------- ---------- ---------- 4,625,695 2,011,527 2,614,168 ---------- ---------- ----------
Net interest income $3,371,688 $2,040,515 $1,331,173 ========== ========== ==========
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)
Total Variance Variance Attributable To 1994/1993 Volume Rate --------- ------ ------ Interest income Securities Taxable $ (503,921) $ (185,042) $ (318,879) Non-taxable (150,144) (69,617) (80,527) Federal funds sold 125,619 81,591 44,028 Loans, net of unearned income and deferred loan fees 2,473,008 2,031,958 441,050 ---------- ---------- ---------- 1,944,562 1,858,890 85,672
Interest expense Deposits Savings and interest-bearing demand deposits 122,563 193,417 (70,854) Time deposits 507,439 328,750 178,689 Federal funds purchased and securities sold under agreements to repurchase 73,241 39,196 34,045 ---------- ---------- ---------- 703,243 561,363 141,880 ---------- ---------- ----------
Net interest income $1,241,319 $1,297,527 $ (56,208) ========== ========== ==========
II. INVESTMENT PORTFOLIO
A. The book value of securities available-for-sale as of December 31 are summarized as follows: 1995 1994 1993 ---- ---- ---- U.S. Treasury and U.S. Government agency securities $74,251,501 $50,533,082 $ - Obligations of states and political subdivisions 9,543,395 - - Mortgage-backed securities 5,345,748 8,402,970 - Marketable equity securities 1,189,222 875,803 - ---------- ----------- ----------
$90,329,866 $59,811,855 $ - =========== =========== ==========
The book value of securities held-to-maturity as of December 31 are summarized as follows:
1995 1994 1993 ---- ---- ---- U.S. Treasury and U.S. Government agency securities $ - $ 1,482,576 $ - Obligations of states and political subdivisions - 8,888,336 - ---------- ----------- ----------
$ - $10,370,912 $ - ========== =========== ==========
The book value of investment securities as of December 31 are summarized as follows:
1995 1994 1993 ---- ---- ---- U.S. Treasury and U.S. Government agency securities $ - $ - $32,059,109 Obligations of states and political subdivisions - - 6,527,912 Federal Reserve Bank stock - - 240,000 ---------- ----------- ----------
$ - $ - $38,827,021 ========== =========== ===========
The book value of securities held for sale as of December 31 are summarized as follows:
1995 1994 1993 ---- ---- ---- U.S. Treasury and U.S. Government agency securities $ - $ - $16,424,157 Mortgage-backed securities - - 3,340,691 Marketable equity securities - - 322,292 ---------- ----------- ----------
$ - $ - $20,087,140 ========== =========== ===========
II. INVESTMENT PORTFOLIO (Continued) - ------------------------------------------------------------------------------
B. The maturity distribution and weighted average interest rates of securities available-for-sale at December 31, 1995 are as follows:
------------------Maturing----------------- After One Year Within But Within One Year Five Years -------- -------------- Amount Rate Amount Rate ------ ------ ------ ------ U.S. Treasury and U.S. Government agency securities $25,523,007 5.43% $48,682,150 6.37% Mortgage-backed securities(1) - - 5,345,748 6.61 Obligations of state and political subdivisions(2) 3,958,600 6.13 3,207,024 7.81 ---------- ----------- $29,481,607 5.52% $57,234,922 6.47% =========== ====== =========== ======
------------------Maturing----------------- After Five Years But Within After Ten Years Ten Years ---------------- --------- Amount Rate Amount Rate U.S. Treasury and U.S. Government agency securities $ 10,067 7.05% $ 36,277 6.04% Obligations of state and political subdivisions(2) 2,377,771 8.24 - - Marketable Equity Securities - - 1,189,222 6.00 ---------- ----------- $2,387,838 8.23% $ 1,225,499 6.00% ========== ==== =========== ======
(1) Maturity based upon estimated weighted-average life. (2) Yields are presented on a tax-equivalent basis (34% statutory rate).
The weighted average interest rates are based on coupon rates for securities purchased at par value and on effective interest rates considering amortization or accretion if the securities were purchased at a premium or discount.
C. Excluding those holdings of the investment portfolio in U.S. Treasury securities and other agencies of the U.S. Government, there were no securities of any one issuer which exceeded 10% of the shareholders' equity of the Corporation at December 31, 1995.
III. LOAN PORTFOLIO
B. Maturities and Sensitivities of Loans to Changes in Interest Rates - The following table shows the amounts of commercial, financial and agricultural loans outstanding as of December 31, 1995 which, based on remaining scheduled repayments of principal, are due in the periods indicated. Also, the amounts have been classified according to sensitivity to changes in interest rates for loans due after one year. (Variable-rate loans are those loans with floating or adjustable interest rates.)
Commercial, Financial and Maturing Agricultural ---------------- -------------
Within one year $38,324,128 After one year but within five years 17,123,093 After five years 7,996,815 ----------- $63,444,036
Commercial, Financial and Agricultural
Interest Sensitivity -------------------- Fixed Variable Rate Rate Total ----- -------- ------- Due after one year but within five years $6,281,947 $10,841,146 $17,123,093 Due after five years 1,853,492 6,143,323 7,996,815 ---------- ---------- ----------
$8,135,439 $16,984,469 $25,119,908 ========== =========== ===========
III. LOAN PORTFOLIO (Continued)
C. Risk Elements
1. Nonaccrual, Past Due and Restructured Loans - The following schedule summarizes nonaccrual, past due and restructured loans at December 31.
(1) Includes loans defined as "impaired" under SFAS No. 114.
Management believes the allowance for loan losses balance at December 31, 1995 is adequate to absorb any losses on nonperforming loans, as the allowance balance is maintained by management at a level considered adequate to cover losses that are currently anticipated based on past loss experience, general economic conditions, information about specific borrower situations including their financial position and collateral values, and other factors and estimates which are subject to change over time.
(In thousands)
Gross interest income that would have been recorded in 1995 on nonaccrual loans outstanding at December 31, 1995 if the loans had been current, in accordance with their original terms and had been outstanding throughout the period or since origination if held for part of the period ................................................... $ 332
Interest income actually recorded on nonaccrual loans and included in net income for the period ........................................... (41) ------- Interest income not recognized during the period ...................................................... $ 291 =======
III. LOAN PORTFOLIO (Continued)
1. Discussion of the Nonaccrual Policy
The accrual of interest income is discontinued when the collection of a loan or interest, in whole or in part, is doubtful. When interest accruals are discontinued, interest income accrued in the current period is reversed. While loans which are past due 90 days or more as to interest or principal payments are considered for nonaccrual status, management may elect to continue the accrual of interest when the estimated net realizable value of collateral, in management's judgment, is sufficient to cover the principal balance and accrued interest.
2. Potential Problem Loans
As of December 31, 1995, there are approximately $3,815,000 in outstanding loans where known information about possible credit problems of the borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in disclosure of such loans pursuant to Item III. C.1. Consideration was given to loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have not been disclosed in Section 1 above. To the extent that these loans are not included in the $3,815,000 potential problem loans described above, management believes that these loans do not represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity, or capital resources, or management believes that these loans do not represent material credits about which management is aware of any information which causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms.
3. Foreign Outstandings
None
4. Loan Concentrations
At December 31, 1995, loans outstanding related to agricultural operations or collateralized by agricultural real estate aggregated approximately $39,695,000. At December 31, 1995, there were no agriculture loans which were accounted for on a nonaccrual basis; and there are approximately $190,000 of accruing agriculture loans which are contractually past due ninety days or more as to interest or principal payments.
D. Other Interest-Bearing Assets
Other than approximately $320,000 held as other real estate owned, there are no other interest-bearing assets as of December 31, 1995 which would be required to be disclosed under Item III. C.1 or 2 if such assets were loans.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. The following schedule presents an analysis of the allowance for loan losses, average loan data and related ratios for the years ended December 31:
(1) Net of unearned income and deferred loan fees
The allowance for loan losses balance and the provision charged to expense are judgmentally determined by management based upon periodic reviews of the loan portfolio. In addition, management considered the level of charge-offs on loans as well as the fluctuations of charge-offs and recoveries on loans including the factors which caused these changes. Estimating the risk of loss and the amount of loss is necessarily subjective. Accordingly, the allowance is maintained by management at a level considered adequate to cover losses that are currently anticipated based on past loss experience, general economic conditions, information about specific borrower situations including their financial position and collateral values and other factors and estimates which are subject to change over time. The increase in loans charged off in 1995 as compared to 1994 is due largely to the charge off of certain credits which were previously reported on a nonaccrual basis.
IV. SUMMARY OF LOAN LOSS EXPERIENCE (Continued)
B. The following schedule is a breakdown of the allowance for loan losses allocated by type of loan and related ratios.
Allocation of the Allowance for Loan Losses ------------------------------------------- Percentage Percentage of Loans of Loans In Each In Each Category to Category To Allowance Total Allowance Total Amount Loans Amount Loans --------- ----------- --------- --------- December 31, 1995 December 31, 1994 Commercial, financial and agricultural $1,665,000 22.9% $1,764,900 22.4% Real estate mortgage 512,000 54.9 572,400 54.2 Installment loans 1,452,000 22.2 1,621,800 23.4 Lease financing - - - - Unallocated 641,000 N/A 810,900 N/A ---------- --- ---------- ---
$4,270,000 100.0% $4,770,000 100.0% ========== ===== ========== =====
December 31, 1993 December 31, 1992 Commercial, financial and agricultural $1,220,400 22.4% $1,072,000 20.4% Real estate mortgage 372,900 53.7 343,000 54.3 Installment loans 1,084,800 23.9 1,020,443 25.2 Lease financing - - 1,000 .1 Unallocated 711,900 N/A 650,000 N/A ---------- --- ---------- ---
$3,390,000 100.0% $3,086,443 100.0% ========== ===== ========== =====
December 31, 1991 ------------------- Commercial, financial and agricultural $ 835,000 21.2% Real estate mortgage 300,000 54.6 Installment loans 951,835 24.1 Lease financing 15,000 .1 Unallocated 600,000 N/A ---------- ---
$2,701,835 100.0% ========== ======
While management's periodic analysis of the adequacy of the allowance for loan losses may allocate portions of the allowance for specific problem loan situations, the entire allowance is available for any loan charge-offs that occur.
V. DEPOSITS
The average amount of deposits and average rates paid are summarized as follows for the years ended December 31:
Maturities of time certificates of deposit and other time deposits of $100,000 or more outstanding at December 31, 1995 are summarized as follows:
Amount -------- Three months or less ......................................... $14,772,940 Over three months and through six months ..................... 7,529,668 Over six months and through twelve months .................... 6,500,836 Over twelve months ........................................... 4,622,089 ---------- $33,425,533 ===========
VI. RETURN ON EQUITY AND ASSETS
The ratio of net income to average shareholders' equity and average total assets and certain other ratios are as follows:
1995 1994 1993 ---- ---- ----
Average total assets $398,560,067 $335,117,514 $314,229,739 ============ ============ ============
Average shareholders' equity (1) (2) $ 37,876,540 $ 30,614,125 $ 29,966,208 ============ ============ ============
Average shareholders' equity (1) (3) $ 29,792,748 $ 24,588,737 $ 25,412,300 ============ ============ ============
Net income $ 4,094,813 $ 3,910,374 $ 3,874,981 ============ ============ ============
Cash dividends declared $ 1,310,627 $ 1,264,128 $ 1,221,980 ============ ============ ============
Return on average total assets 1.03% 1.17% 1.23% ==== ==== ====
Return on average share- holders' equity (2) 10.81% 12.77% 12.93% ===== ===== =====
Return on average share- holders' equity (3) 13.74% 15.90% 15.25% ===== ===== =====
Dividend payout percentage (4) 32.01% 32.33% 31.54% ===== ===== =====
Average shareholders' equity (2) to average total assets 9.50% 9.14% 9.54% ==== ==== ====
Average shareholders' equity (3) to average total assets 7.48% 7.34% 8.09% ==== ==== ====
(1) Net of average unrealized appreciation or depreciation on securities available-for-sale. (2) Includes common stock subject to repurchase obligation in ESOP. (3) Excludes common stock subject to repurchase obligation in ESOP. (4) Dividends declared divided by net income.
VII. SHORT-TERM BORROWINGS
The Corporation did not have any category of short-term borrowings for which the average balance outstanding during the reported periods was 30 percent or more of shareholders' equity at the end of the reported periods.
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 and its subsidiaries. The Corporation believes that the nature of the operations of its subsidiaries has little, if any, environmental impact. The Corporation, therefore, anticipates no material capital expenditures for environmental control facilities for its current fiscal year or for the foreseeable future. The Corporation's subsidiaries may be required to make capital expenditures for environmental control facilities related to properties which they may acquire through foreclosure proceedings in the future; however, the amount of such capital expenditures, if any, is not currently determinable.
Item 2.

Item 2. Properties.
The following is a listing and brief description of the properties owned or leased by State Bank and used in its business:
1. Its main office is a two-story brick building located at 401 Clinton Street, Defiance, Ohio, which was built in 1971. Including a basement addition built in 1991, it contains 33,400 square feet of floor space. Approximately 1,100 square feet on the second floor and 1,900 on the lower level presently are leased to Rurbanc.
2. A branch office located in downtown Defiance, Ohio containing 3,600 square feet of floor space was built in 1961. It contains a three-bay drive-in, two inside teller locations and a night deposit unit.
3. A full service branch office located on Main Street in Ney, Ohio containing 1,536 square feet of floor space was opened in 1968.
4. A full service branch office located at 1796 North Clinton Street, Defiance, Ohio containing 2,120 square feet of floor space was opened in 1968. It is a free standing structure located in front of a shopping center.
5. A full service branch office located at 1856 East Second Street, Defiance, Ohio containing 2,160 square feet of floor space was opened in 1972. It is a free standing structure located in front of a shopping center.
6. A full service branch office located at 2010 South Jefferson, Defiance, Ohio containing 2,160 square feet of floor space was opened in 1979. It is located in a primarily residential area.
7. A full service branch office located at 220 North Main Street, Paulding, Ohio containing 6,200 square feet of floor space was opened in 1980.
8. A full service branch office located at 312 Main Street, Delta, Ohio containing 3,470 square feet of floor space was acquired from Society Bank & Trust ("Society") in 1992.
9. A full service branch office located at 133 E. Morenci Street, Lyons, Ohio containing 2,578 square feet of floor space was acquired from Society in 1992.
10. A full service branch office located at 515 Parkview, Wauseon, Ohio containing 3,850 square feet of floor space was acquired from Society in 1992.
11. A full service branch located in the Chief Market Square supermarket at 705 Deatrick Street, Defiance, Ohio and containing 425 square feet was opened in 1993. State Bank leases the space in which this branch is located pursuant to a 15-year lease.
The following is a listing and brief description of the properties owned by Peoples Bank and used in its business:
1. The full service main office located at 301 South Main Street, Findlay, Ohio was opened in 1990. It contains approximately 30,000 square feet of floor space, of which 12,000 is used by an unrelated law firm.
2. A full service branch office located at 124 East Main Street, McComb, Ohio was opened in 1990. It contains approximately 3,600 square feet of floor space.
3. A full service branch office located at 1330 North Main Street, Findlay, Ohio, was opened in 1979. It contains approximately 1,500 square feet of floor space.
The only real property owned by First National Bank is the location of the Bank at 405 East Main Street, Ottawa, Ohio. First National Bank's facility is a two-story brick and steel building containing approximately 7,100 square feet of space. The first floor is a traditional banking lobby and the second floor contains proof/bookkeeping and office space.
The following is a listing and brief description of the properties owned by Citizens Bank and used in its business:
1. The full service main office is located at 132 East Front Street, Pemberville, Ohio and contains 6,389 square feet. It was built near the turn of the century and was completely remodeled and added on to in 1992.
2. A full service branch office located at 230 West Madison Street, Gibsonburg, Ohio occupies 2,520 square feet and was built in 1988.
Item 3.

Item 3. Legal Proceedings.
There are no pending legal proceedings to which the Corporation or any of its subsidiaries is a party or to which any of their property is subject, except routine legal proceedings to which the Corporation or any of its subsidiaries is a party incidental to its banking business. None of such proceedings are considered by the Corporation to be material.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Registrant.
The following table lists the names and ages of the executive officers of the Corporation as of the date of this Annual Report on Form 10-K, the positions presently held by each such executive officer and the business experience of each such executive officer during the past five years. Unless otherwise indicated, each person has held his principal occupation(s) for more than five years. All executive officers serve at the pleasure of the Board of Directors of the Corporation.
Position(s) Held with the Corporation and its Subsidiaries Name Age and Principal Occupation(s) ------ ----- -----------------------------------
Thomas C. Williams 47 President and Chief Executive Officer of the Corporation and of State Bank since June 1995; President of FirstMerit Bank, FSB, Clearwater, Florida, from 1994 to June, 1995; Senior Vice President and Managing Officer of the Northern Region of The First National Bank of Ohio, Cleveland, Ohio, from 1990 to 1994; Director of the Corporation, State Bank and Rurbanc.
David E. Manz 46 Executive Vice President, Secretary and Treasurer since 1992, Chief Financial Officer since 1990, and Vice President from 1990 to 1992, of the Corporation; President and Chief Executive Officer of Rurbanc since 1988; Executive Vice President since 1992, Senior Vice Presi- dent from 1991 to 1992, and Vice President from 1983 to 1991, of State Bank; Director of the Corporation and Rurbanc.
Edward L. Yoder 50 Vice President of the Corporation since 1992; Executive Vice President since 1992, Senior Vice President from 1991 to 1992, and Vice President from 1981 to 1991, of State Bank; President and Chief Executive Officer of Rurban Life since 1992; Director of Rurban Life.
Robert W. Constien 43 Vice President of the Corporation since 1994; Executive Vice President since 1994, Senior Vice President from 1991 to 1993, Vice President from 1987 to 1991, and a Trust Officer since 1987, of State Bank.
PART II
Item 5.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The common shares of the Corporation are traded on a limited basis in the over-the-counter market. The table below sets forth the high and low bid quotations for, and the cash dividends declared with respect to, the common shares of the Corporation, for the indicated periods. The bid quotations were obtained from one of the securities dealers who makes a market in the Corporation's common shares (the Corporation is aware of three securities dealers who make a market in its common shares). The bid quotations reflect the prices at which purchases and sales of the Corporation's common shares could be made during each period and not inter-dealer prices. The bid quotations reflect retail mark-ups, but not commissions or retail mark-downs. The bid quotations represent actual transactions in the Corporation's common shares. The per share amounts have been restated for the two-for-one stock split in January 1994.
Per Share Per Share Bid Prices Dividends 1994 High Low Declared ---- ---- --- --------
First Quarter $ 21.00 $ 18.25 $ .15 Second Quarter 23.00 20.00 .15 Third Quarter 24.00 22.00 .15 Fourth Quarter 25.50 24.00 .15
First Quarter $ 25.50 $ 23.75 $ .15 Second Quarter 27.75 25.13 .15 Third Quarter 30.50 27.75 .15 Fourth Quarter 32.38 29.38 .15
There can be no assurance as to the amount of dividends which will be declared with respect to the common shares of the Corporation in the future, since such dividends are subject to the discretion of the Corporation's Board of Directors, cash needs, general business conditions, dividends from the subsidiaries and applicable governmental regulations and policies. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Note 1 of Notes to Consolidated Financial Statements.
The approximate number of holders of outstanding common shares of the Corporation, based upon the number of record holders as of December 31, 1995, is 1,056.
Item 6.

Item 6. Selected Financial Data.
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(1) Per share data restated for 1994 two-for-one stock split and 1992 15% stock dividend. (2) Includes common shares subject to repurchase obligation in ESOP.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.
Earnings Summary
Consolidated net income for the Corporation for 1995 was $4,095,000, up from $3,910,000 in 1994 and $3,875,000 in 1993. Net income per share was $1.87 in 1995, a decrease of 1% from $1.89 in 1994. The 1994 net income per share results represented a 1% decrease from $1.91 in 1993. Cash dividends declared per share amounted to $.60 in 1995, 1994 and 1993. Per share data has been adjusted to reflect the two-for-one stock split paid in January of 1994.
Results Of Operations
1995 Compared With 1994
Net interest income for 1995 was $17,192,000, an increase of $3,331,000 (24%) over 1994. The increase is primarily due to the additional net interest income resulting from a 13% increase in the average balance of total loans, net of unearned income and deferred loan fees. Net interest income was significantly impacted by the acquisition of Citizens Bank in October of 1994. For the year ended December 31, 1994, approximately three months of net interest income was recorded for Citizens Bank in the Corporation's consolidated net interest income as compared to a full year of net interest income for December 31, 1995. Net interest income was also favorably impacted by a 121 basis point increase in the average yield on loans due to higher average rates charged on loans resulting from an upward movement of interest rates during 1995. This contributed to a 26 basis point increase in average tax equivalent net interest margin from 4.46% in 1994 to 4.72% in 1995. The tax equivalent yield on average balances of interest-earning assets increased from 7.51% for 1994 to 8.57% in 1995 due to the upward movement of interest rates during 1995.
The average rate on interest-bearing liabilities for 1995 was 4.51%, an increase of 88 basis points from 3.63% for 1994. This increase was primarily the result of an increase in interest rates paid on time deposits when the interest rates were rising during the early part of 1995.
At December 31, 1995, net loans amounted to $273,095,000, a decrease of 1% over net loans of $275,647,000 at December 31, 1994. This decrease is primarily due to the lower demand for consumer loans in 1995 compared to 1994. With the recent decrease in interest rates, management expects increased refinancing activity may lead to net mortgage loan growth if the Corporation is able to refinance loans currently held by other financial institutions. Lower rates are expected to boost the growth of small businesses by lowering borrowing costs. Management expects this to lead to increased demand for commercial, financial and agricultural loans.
At December 31, 1995, approximately $2.9 million of real estate mortgage loans were held for sale in the secondary market. During 1995, approximately $10.4 million of real estate mortgage loans were originated for sale and approximately $12.2 million were sold in the secondary market. This represents a decrease of $325,000 (3%) in loans sold in 1995 as compared to 1994. Mortgage loans originated for sale decreased $2.1 million in 1995, as compared to 1994, primarily due to increasing interest rates in the early part of 1995 which slowed the demand for mortgage loan refinancings. Net gains on loan sales for 1995 totaled $84,000, a decrease of $28,000 (25%) as compared to 1994. The Corporation continues to retain the servicing of these loans as a fee generating service. Primarily, loans originated for sale are fixed rate mortgage loans. Management anticipates an increase in the volume of loans originated for sale in 1996 as compared to 1995 based on the lowering of interest rates in the first quarter of 1996.
Securities totaled $90,330,000 at December 31, 1995 which represented an increase of $20,147,000 (29%) from total securities of $70,183,000 at December 31, 1994. The increase in securities is primarily due to a growing deposit base, outpacing loan demand, as customers take advantage of the deposit services being offered by the Corporation. In November 1995, the Financial Accounting Standards Board ("FASB") issued its Special Report, A Guide to Implementation of SFAS No. 115 on Accounting for Certain Investments in Debt and Equity Securities ("Guide"). As permitted by the Guide, on December 31, 1995, the Corporation made a one-time reassessment and transferred securities from the held-to-maturity portfolio to the available-for-sale portfolio. At the date of transfer, these securities had an amortized cost of $10,854,000 and the transfer increased the unrealized gain on securities available-for-sale by $211,000 and shareholders' equity by $139,000, net of tax of $72,000. As of December 31, 1995, all securities of the Corporation consisted of available-for-sale securities. The available-for-sale securities represent those securities the Corporation may decide to sell if needed for liquidity, asset/liability management or other reasons. These securities are reported at fair value with unrealized gains and losses included as a separate component of shareholders' equity, net of tax. This resulted in a net addition to shareholders' equity of approximately $449,000 at December 31, 1995.
Total deposits at December 31, 1995 amounted to $367,797,000, an increase of $13,151,000 (4%) over total deposits of $354,646,000 at December 31, 1994. The increase of deposits is believed to have occurred as a result of increased deposit services and flexibility of products offered. Management believes that customers continue to place a value on federal insurance on deposit accounts and that, to the extent the Corporation continues to pay competitive rates on deposits and continues to provide flexibility of deposit products, the Corporation will be able to maintain its deposit levels.
The provision for loan losses which was charged to operations was based on the amount of net losses incurred and management's estimation of future losses based on an evaluation of portfolio risk and economic factors. The provision for loan losses was $1,452,000 in 1995 compared to $701,000 in 1994. The increased provision and decrease in the allowance in 1995 as compared to 1994 is due largely to the charge off of certain credits which were previously reported on a nonaccrual basis. The amount of allowance acquired through the acquisition of Citizens Bank in 1994 was $1.1 million. The allowance at December 31, 1995 was $4,270,000 or 1.54% of total loans, net of deferred loan fees, compared to $4,770,000 or 1.70% of total loans, net of deferred loan fees, at December 31, 1994.
Management adopted Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118, effective January 1, 1995, which requires recognition of loan impairment. Loans are considered impaired if full principal or interest payments are not anticipated in accordance with the contractual loan terms. Impaired loans are carried at the present value of expected future cash flows discounted at the loan's effective interest rate or at the fair value of the collateral if the loan is collateral dependent. Under this guidance, the carrying value of impaired loans is periodically adjusted to reflect cash payments, revised estimates of future cash flows and increases in the present value of expected cash flows due to the passage of time. A portion of the allowance for loan losses is allocated to impaired loans. The effect of adopting these standards in 1995 was not material.
Smaller-balance homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by one-to-four family residences, residential construction loans, and automobile, home equity and second mortgage loans. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. When analysis of borrower operating results and financial condition indicates that underlying cash flows of the borrower's business are not adequate to meet its debt service requirements, the loan is evaluated for impairment. Often this is associated with a delay or shortfall in payments of 30 days or more. Commercial loans are rated on a scale of 1 to 5, with 1 being satisfactory, 2 watch, 3 substandard, 4 doubtful, and 5 as loss which are then charged off. Loans graded a 4 or worse are considered for impairment. Loans are generally moved to nonaccrual status when 90 days or more past due. These loans are often considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible. This typically occurs when the loan is 120 days or more past due. At December 31, 1995, the Corporation classified four loan relationships as impaired, totaling $1,835,000. Management allocated $643,000 of the allowance for loan losses to impaired loans at December 31, 1995.
Management allocated approximately 39% of the allowance for loan losses to commercial, financial and agricultural loans; 34% to installment loans; and 12% to real estate mortgage loans at December 31, 1995, leaving a balance of 15% unallocated. Nonperforming loans decreased to $3,114,000 at December 31, 1995 from $4,736,000 at December 31, 1994. The decrease in nonperforming loans relates primarily to the charge off of certain nonperforming loans in 1995. Management believes the allowance for loan losses balance at December 31, 1995 is adequate to absorb losses on these and other loans, as the allowance balance is maintained by management at a level considered adequate to cover losses that are currently anticipated based on past loss experience, general economic conditions, information about specific borrower situations including their financial position and collateral values, and other factors and estimates which are subject to change over time.
Total noninterest income increased $440,000 (8%) to $5,753,000 in 1995 from $5,313,000 in 1994, primarily due to increases in three areas. The Corporation's service charges on deposits increased $163,000 (16%) to $1,185,000 in 1995 compared to $1,022,000 in 1994, trust department income increased $161,000 (9%) to $1,946,000 in 1995 from $1,785,000 in 1994 and data processing fees increased $107,000 (6%) to $2,039,000 in 1995 compared to $1,932,000 in 1994. A significant factor in the increase in noninterest income was the addition of Citizens Bank in the fourth quarter of 1994, resulting in a full year of noninterest income for Citizens Bank in 1995 as compared to approximately three months of noninterest income in 1994.
Total noninterest expense increased $2,608,000 (21%) to $15,272,000 in 1995, from $12,664,000 in 1994, primarily due to the following factors. Salaries and employee benefits increased $1,173,000 (20%) to $6,909,000 in 1995 compared to $5,736,000 in 1994. This increase is due to normal annual salary increases and the inclusion of Citizen Bank's salary and employee benefits for the entire year for 1995 compared to approximately three months in 1994. Equipment rentals, depreciation and maintenance expenses increased $638,000 (51%) to $1,890,000 in 1995 compared to $1,252,000 in 1994. This increase is largely due to depreciation on the new data processing equipment at Rurbanc, which was placed in service in the last quarter of 1994, resulting in a full year of depreciation in 1995. Other expenses increased $716,000 (15%) primarily due to increases in professional fees of $244,000, increases in the amortization of intangible assets of $417,000 and a general increase in all operating expenses, partially offset by a decrease in FDIC insurance expense. Another significant factor in the increase in other expenses was the addition of Citizens Bank in the fourth quarter of 1994, resulting in a full year of other expenses for Citizens Bank in 1995 as compared to approximately three months of other expenses in 1994.
Income tax expense for the year ended December 31, 1995 was $2,127,000, an increase of $228,000 (12%) from 1994. This increase was primarily attributable to an increase in income before income tax expense.
Several new accounting standards have been issued by the FASB that will apply in 1996. SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets To Be Disposed Of", requires a review of long-term assets for impairment of recorded value and resulting write-downs if the value is impaired. SFAS No. 122, "Accounting for Mortgage Servicing Rights", requires recognition of an asset when servicing rights are retained on in-house originated loans that are sold. These statements are not expected to have a material effect on the Corporation's consolidated financial position or results of operations.
1994 Compared With 1993
Net interest income for 1994 was $13,862,000, an increase of $1,292,000 (10%) over 1993. The increase was primarily due to the additional net interest income resulting from an 11% increase in the average balance of total loans, net of unearned income and deferred loan fees. Approximately one-third of this increase was attributable to the acquisition of Citizens Bank, located in Pemberville, Ohio, in October of 1994. Net interest income was also favorably impacted by a 19 basis point increase in the average yield on loans. This contributed to an 8 basis point increase in average tax equivalent net interest margin from 4.38% in 1993 to 4.46% in 1994. The tax equivalent yield on average balances of interest-earning assets increased from 7.42% for 1993 to 7.51% in 1994 due to increasing interest rates during most of 1994.
The average rate on interest-bearing liabilities for 1994 was 3.63%, an increase of 4 basis points from 3.59% for 1993. This increase was primarily the result of an increase in interest rates paid on time deposits.
At December 31, 1994, net loans amounted to $275,647,000, an increase of 23% over net loans of $224,258,000 at December 31, 1993. The increase in loans was primarily funded by an increase of 25% in total deposits from 1993 to 1994. Of the $51,389,000 increase in net loans, approximately $35 million was attributable to the acquisition of Citizens Bank.
At December 31, 1993, approximately $4.7 million of real estate mortgage loans were held for sale. During 1994, approximately $12.5 million of real estate mortgage loans were originated for sale and approximately $12.5 million were sold in the secondary market. This represented a decrease of $28.9 million (70%) in loans sold in 1994 as compared to 1993. Net gains realized on loan sales for 1994 totaled $112,000, a decrease of $318,000 (74%) as compared to 1993. The Corporation continued to retain the servicing of these loans as a fee generating service. As of December 31, 1994, loans held for sale in the secondary market totaled approximately $4.7 million. Mortgage loans originated for sale decreased $32.1 million in 1994, as compared to 1993, primarily due to increasing interest rates and the resulting decrease in customer refinancings throughout most of 1994. Primarily, loans originated for sale were fixed rate mortgage loans.
Securities totaled $70,183,000 at December 31, 1994 which represented an increase of $11,269,000 (19%) from total securities of $58,914,000 at December 31, 1993. The increase in securities was primarily due to securities acquired in the acquisition of Citizens Bank. On January 1, 1994, the Corporation adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". As a result, the Corporation classified $59,812,000 of securities as available-for-sale and $10,371,000 of securities as held-to-maturity at December 31, 1994. The available-for-sale securities represent those securities the Corporation may decide to sell if needed for liquidity, asset liability management or other reasons. These securities are reported at fair value with unrealized gains and losses included as a separate component of shareholders' equity, net of tax. This resulted in a net reduction to shareholders' equity of $1,170,000 at December 31, 1994. The held-to-maturity securities represent those securities which the Corporation has the positive intent and ability to hold to maturity, and are reported at amortized cost.
Total deposits at December 31, 1994 amounted to $354,646,000, an increase of $71,043,000 (25%) over total deposits of $283,603,000 at December 31, 1993. The acquisition of Citizens Bank brought in approximately $56 million in deposits. The additional increase of deposits was believed to have occurred as a result of increased deposit services and flexibility of products offered.
The provision for loan losses which was charged to operations was based on the growth of the loan portfolio, the amount of net losses incurred and management's estimation of future losses based on an evaluation of portfolio risk and economic factors. The provision for loan losses was $701,000 in 1994 compared to $795,000 in 1993. The amount of allowance for loan losses acquired through the acquisition of Citizens Bank was $1.1 million. The allowance at December 31, 1994 was $4,770,000 or 1.70% of total loans, net of deferred loan fees, compared to $3,390,000 or 1.49% of total loans, net of deferred loan fees, at December 31, 1993.
Management allocated approximately 37% of the allowance for loan losses to commercial, financial and agricultural loans; 34% to installment loans; and 12% to real estate mortgage loans at December 31, 1994, leaving a balance of 17% unallocated. Nonperforming loans increased to $4,736,000 at December 31, 1994 from $3,821,000 at December 31, 1993. The increase in nonperforming loans was primarily due to one large commercial borrower totaling approximately $832,000 at December 31, 1994 being 90 days or more past due.
Total noninterest income decreased $121,000 (2%) to $5,313,000 in 1994 primarily due to decreases in two areas. Data processing fees decreased $51,000 (3%) to $1,932,000 in 1994 compared to $1,983,000 in 1993. Also, as discussed above, the Corporation did not sell as many loans in the secondary market in 1994 resulting in a decline in net gains on loan sales of $318,000 (74%) from $430,000 in 1993 to $112,000 in 1994. These decreases were partially offset by increases in service charges on deposits, trust department income and other noninterest income.
Total noninterest expense increased $1,154,000 (10%) to $12,664,000 in 1994, primarily due to the following factors. Salaries and employee benefits increased $461,000 (9%) due in part to the acquisition of Citizens Bank as well as normal annual salary increases. Equipment rentals, depreciation and maintenance increased $190,000 (18%) of which $54,000 was due to the acquisition of Citizens Bank. Other expenses increased $534,000 (12%) primarily due to increases in professional fees of $121,000 (17%), advertising expense of $72,000 (45%), state, local and other taxes of $82,000 (16%) and other operating expenses of $225,000 (25%). The most significant factor in the increase in other expenses of $534,000 was the addition of Citizens Bank.
Income tax expense for the year ended December 31, 1994 was $1,899,000, an increase of $76,000 (4%) from 1994. This increase was primarily attributable to an increase in income before income tax expense and a reduction in the level of tax-exempt income in 1994 as compared to 1993.
Liquidity
Liquidity relates primarily to the Corporation's ability to fund loan demand, meet deposit customers' withdrawal requirements and provide for operating expenses. Assets used to satisfy these needs consist of cash, deposits in other financial institutions, federal funds sold, securities and loans held for sale. These assets are commonly referred to as liquid assets. Liquid assets were $121,839,000 at December 31, 1995 compared to $100,397,000 at December 31, 1994 and $82,100,000 at December 31, 1993. Liquidity levels increased $21,442,000 from 1994 to 1995 primarily due to the increase in cash and cash equivalents and securities available-for-sale. Management recognizes that securities may need to be sold in the future to help fund loan demand and, accordingly, as of December 31, 1995, $90,330,000 of securities were classified as available-for-sale. Management believes its current liquidity level is sufficient to meet anticipated future growth.
The cash flow statements for the periods presented provide an indication of the Corporation's sources and uses of cash as well as an indication of the ability of the Corporation to maintain an adequate level of liquidity. A discussion of the cash flow statements for 1995, 1994 and 1993 follows.
For all periods presented, the Corporation experienced a net increase in cash from operating activities. Net cash from operating activities was $8,033,000, $6,856,000 and $2,681,000 for the years ended December 31, 1995, 1994 and 1993, respectively. The increase in net cash from operating activities of $1,177,000 for 1995 as compared to 1994 was primarily due to an increase in interest received on interest-earning assets which outpaced an increase in interest paid on interest-bearing liabilities. Net cash from operating activities increased $4,175,000 in 1994 as compared to 1993 primarily due to changes in activity related to loans originated for sale and an increase in interest received on interest-earning assets outpacing the increase in interest paid on interest-bearing liabilities due to the acquisition of Citizens Bank in October of 1994 and rising interest rates.
Net cash flow from investing activities was $(16,672,000), $(13,086,000) and $(9,212,000) for the years ended December 31, 1995, 1994 and 1993, respectively. The changes in net cash from investing activities include the result of normal maturities and reinvestments of securities as well as financing loan growth and premises and equipment expenditures. In 1995, the Corporation received $2,263,000 from sales of securities available-for-sale and $25,509,000 from principal repayments, maturities and calls of securities, and had a cash outflow of $45,462,000 for the purchase of securities. In 1994, the Corporation received $3,266,000 in net cash as a result of the acquisition of Citizens Bank.
Net cash flow from financing activities was $11,840,000, $13,071,000 and $3,685,000 for the years ended December 31, 1995, 1994 and 1993, respectively. The net cash increase was primarily attributable to growth in total deposits of $13,151,000, $15,335,000 and $3,907,000 in 1995, 1994 and 1993, respectively.
Management of interest sensitivity is accomplished by matching the maturities of interest-earning assets and interest-bearing liabilities. The following table illustrates the asset (liability) funding gaps for selected maturity periods as of December 31, 1995.
INTEREST SENSITIVITY GAP ANALYSIS
------------Repricable or Maturing Within------------- 0-6 6-12 Total 1 Over 1 Total Months Months yr. yr. (000) (000) (000) (000) (000) ----- ----- ----- ----- ----- ASSETS Interest-earning deposits in other financial institutions $ 20 $ 100 $ 120 $ 60 $ 180 Federal funds sold 7,313 - 7,313 - 7,313 Securities 15,414 17,695 33,109 57,221 90,330 Loans/loans held for sale 141,051 66,598 207,649 72,665 280,314 --------- -------- -------- --------- --------
Total interest-earning $163,798 $ 84,393 $248,191 $129,946 $378,137 assets ======== ======== ======== ======== ========
LIABILITIES Interest-bearing deposits $232,458 $ 42,155 $274,613 $ 44,463 $319,076 ======== ======== ======== ======== ========
Assets (liability) GAP $(68,660) $ 42,238 $(26,422) $ 85,483 $ 59,061 GAP ratio (assets/ 70% 200% 90% 292% 119% liabilities)
Capital Resources
Total shareholders' equity was $40,078,000 (which includes $9,333,000 of common shares subject to repurchase obligation in ESOP) as of December 31, 1995, an increase of $4,403,000 over total shareholders' equity of $35,675,000 as of December 31, 1994. The increase in total shareholders' equity was primarily due to 1995 net income of $4,095,000 and $1,619,000 net change in unrealized appreciation on securities available-for-sale, net of tax, partially offset by dividends of $1,311,000. Under risk-based capital guidelines issued by the Federal Reserve Board, the Corporation and its subsidiary banks are required to maintain a minimum risk-based capital ratio of 8% and a minimum leverage ratio of 4% as of December 31, 1995. While risk-based capital guidelines consider on-balance-sheet and off-balance-sheet risk, the minimum leverage ratio measures capital in relation to total on-balance-sheet assets.
The components of risk-based capital are tier 1 capital and tier 2 capital. The definition of capital, used in the leverage ratio, is identical to tier 1 capital under risk-based capital guidelines. Tier 1 capital is total shareholders' equity less intangible assets and tier 2 capital includes total allowance for loan losses in the calculation of total capital for risk-based capital purposes. The allowance for loan losses is includable in tier 2 capital up to a maximum of 1.25% of risk-weighted assets. The net unrealized appreciation/depreciation on securities available-for-sale, net of tax, under SFAS No. 115 is not considered for meeting regulatory capital requirements. The following table provides the minimum regulatory capital requirements and the Corporation's capital ratios at December 31, 1995:
TYPE OF CAPITAL RATIO Minimum Regulatory Capital Corporation's Requirements Capital 12/31/95 Ratio ----------- -------------
Ratio of tier 1 capital to weighted-risk assets 4.00% 14.51% Ratio of total capital to weighted-risk assets 8.00% 15.76% Leverage Ratio 4.00% 9.26% Ratio of total shareholders' equity to total assets N/A 9.75%
The Corporation's subsidiaries meet the applicable minimum regulatory capital requirements at December 31, 1995. The Corporation remains comfortably above the minimum regulatory capital requirements. The banking regulators may alter minimum capital requirements as a result of revising their internal policies and their ratings of the Corporation's subsidiary banks.
Restrictions exist regarding the ability of the subsidiary banks to transfer funds to the Corporation in the form of cash dividends, loans or advances. (See Note 1 to Consolidated Financial Statements.) These restrictions have had no major impact on the Corporation's dividend policy or operations and it is not anticipated that they will have any major impact in the future.
As of December 31, 1995, management is not aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have, or are reasonably likely to have, a material adverse effect on the Corporation's liquidity, capital resources or operations.
Impact Of Inflation And Changing Prices
The majority of assets and liabilities of the Corporation are monetary in nature and therefore the Corporation differs greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories. However, inflation does have an important impact on the growth of total assets in the banking industry and the resulting need to increase equity capital at higher than normal rates in order to maintain an appropriate equity to assets ratio. Inflation significantly affects noninterest expense, which tends to rise during periods of general inflation.
Management believes the most significant impact on financial results is the Corporation's ability to react to changes in interest rates. Management seeks to maintain an essentially balanced position between interest sensitive assets and liabilities and actively manages the amount of securities available-for-sale in order to protect against the effects of wide interest rate fluctuations on net income and shareholders' equity.
Item 8.

Item 8. Financial Statements and Supplementary Data.
The Consolidated Balance Sheets of the Corporation and its subsidiaries as of December 31, 1995 and December 31, 1994, the related Consolidated Statements of Income, Changes in Shareholders' Equity and Cash Flows for each of the years in the three-year period ended December 31, 1995, the related Notes to Consolidated Financial Statements and the Report of Independent Auditors, appear on pages 46 through 73 of this Annual Report on Form 10-K. The Corporation is not required to furnish the supplementary financial information specified by Item 302 of Regulation S-K.
Item 9.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant.
In accordance with General Instruction G(3), the information called for in this Item 10 is incorporated herein by reference to the Corporation's definitive Proxy Statement, filed with the Securities and Exchange Commission pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, relating to the Corporation's Annual Meeting of Shareholders to be held on April 22, 1996, under the captions "ELECTION OF DIRECTORS" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." In addition, certain information concerning the executive officers of the Corporation called for in this Item 10 is set forth in the portion of Part I of this Annual Report on Form 10-K entitled "Executive Officers of the Registrant" in accordance with General Instruction G(3).
Item 11.

Item 11. Executive Compensation.
In accordance with General Instruction G(3), the information called for in this Item 11 is incorporated herein by reference to the Corporation's definitive Proxy Statement, filed with the Securities and Exchange Commission pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, relating to the Corporation's Annual Meeting of Shareholders to be held on April 22, 1996, under the captions "COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS" and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION." Neither the "REPORT ON EXECUTIVE COMPENSATION" nor the "PERFORMANCE GRAPH" included in the Corporation's definitive Proxy Statement relating to the Corporation's Annual Meeting of Shareholders to be held on April 22, 1996, shall be deemed to be incorporated herein by reference.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management.
In accordance with General Instruction G(3), the information called for in this Item 12 is incorporated herein by reference to the Corporation's definitive Proxy Statement, filed with the Securities and Exchange Commission pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, relating to the Corporation's Annual Meeting of Shareholders to be held on April 22, 1996, under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Item 13.

Item 13. Certain Relationships and Related Transactions.
In accordance with General Instruction G(3), the information called for in this Item 13 is incorporated herein by reference to the Corporation's definitive Proxy Statement, filed with the Securities and Exchange Commission pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, relating to the Corporation's Annual Meeting of Shareholders to be held on April 22, 1996, under the caption "TRANSACTIONS INVOLVING MANAGEMENT."
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements.
For a list of all financial statements included in this Annual Report on Form 10-K, see "Index to Financial Statements" at page 45.
(a) (2) Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.
(a) (3) Exhibits.
Exhibits filed with this Annual Report on Form 10-K are attached hereto. For a list of such exhibits, see "Index to Exhibits" at page 74. The following table provides certain information concerning executive compensation plans and arrangements required to be filed as exhibits to this Annual Report on Form 10-K.
Executive Compensation Plans and Arrangements
Exhibit No. Description Location
10(a) Employees' Stock Ownership Incorporated herein by Plan of Rurban Financial Corp. reference to the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 (File No. 0-13507) [Exhibit 10(a)].
10(b) First Amendment to Employees' Incorporated herein by Stock Ownership Plan of Rurban reference to the Financial Corp., dated June Corporation's Annual 14, 1993 and made to be Report on Form 10-K for effective as of January 1, 1993 the fiscal year ended December 31, 1993 (File No. 0-13507) [Exhibit 10(b)].
10(c) Second Amendment to Employees' Incorporated herein by Stock Ownership Plan of Rurban reference to the Financial Corp., dated March Corporation's Annual 14, 1994 and made to be Report on Form 10-K for effective as of January 1, 1993 the fiscal year ended December 31, 1993 (File No. 0-13507) [Exhibit 10(c)].
10(d) Third Amendment to Employees' Incorporated herein by Stock Ownership Plan of Rurban reference to the Financial Corp., dated March Corporation's Annual 13, 1995 Report on Form 10-K for the fiscal year ended December 31, 1994 (File No. 0-13507) [Exhibit 10(d)].
10(e) Fourth Amendment to Employees' Pages 79 through 81 of Stock Ownership Plan of Rurban this Annual Report on Form Financial Corp., dated 10-K. June 10, 1995 and made to be effective as of January 1, 1995
10(f) The Rurban Financial Corp. Incorporated herein by Savings Plan and Trust reference to the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1988 (File No. 0-13507) [Exhibit 10(d)].
10(g) First Amendment to The Rurban Incorporated herein by Financial Corp. Savings Plan reference to the and Trust, dated December 10, Corporation's Annual 1990 and effective January 1, Report on Form 10-K for 1990 the fiscal year ended December 31, 1990 (File No. 0-13507) [Exhibit 10(g)].
10(h) Second Amendment to The Rurban Incorporated herein by Financial Corp. Savings Plan reference to the and Trust, dated March 11, Corporation's Annual 1991, effective February 1, Report on Form 10-K for 1991 the fiscal year ended December 31, 1992 (File No. 0-13507) [Exhibit 10(d)].
10(i) Third Amendment to The Rurban Incorporated herein by Financial Corp. Savings Plan reference to the and Trust, dated June 11, 1991 Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (File No. 0-13507) [Exhibit 10(e)].
10(j) Fourth Amendment to The Rurban Incorporated herein by Financial Corp. Savings Plan reference to the and Trust, dated July 14, Corporation's Annual 1992, effective May 1, 1992 Report on Form 10-K for the fiscal year ended December 31, 1992 (File No. 0-13507) [Exhibit 10(f)].
10(k) Fifth Amendment to The Rurban Incorporated herein by Financial Corp. Savings Plan reference to the and Trust, dated March 14, 1994 Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-13507) [Exhibit 10(i)].
10(l) Sixth Amendment to The Rurban Pages 82 through 84 of Financial Corp. Savings Plan this Annual Report on Form and Trust dated May 1, 1995 10-K.
10(m) Summary of Incentive Incorporated herein by Compensation Plan of State Bank reference to the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-13507) [Exhibit 10(j)].
10(n) Summary of Bonus Program Incorporated herein by adopted by the Trust reference to the Department of State Bank for Corporation's Annual the benefit of Robert W. Report on Form 10-K for Constien in his capacity as the fiscal year ended Manager of the Trust Department December 31, 1991 (File No. 0-13507) [Exhibit 10(e)].
10(o) Summary of Bonus Program for Incorporated herein by the Trust Department of State reference to the Bank Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (File No. 0-13507) [Exhibit 10(i)].
10(p) Summary of Sales Bonus Program Incorporated herein by of State Bank reference to the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (File No. 0-13507) [Exhibit 10(n)].
10(q) Summary of Rurban Financial Incorporated herein by Corp. Bonus Plan reference to the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-13507) [Exhibit 10(q)].
10(r) Executive Salary Continuation Incorporated herein by Agreement, dated December 15, reference to the 1994, between Rurban Financial Corporation's Annual Corp. and Richard C. Burrows Report on Form 10-K for the fiscal year ended December 31, 1994 (File No. 0-13507) [Exhibit 10(p)].
10(s) Executive Salary Continuation Pages 85 through 93 of Agreement, dated October 11, this Annual Report on Form 1995, between Rurban Financial 10-K. Corp. and Thomas C. Williams; and Schedule A to Exhibit 10(s) identifying other identical Executive Salary Continuation Agreements between executive officers of Rurban Financial Corp. and Rurban Financial Corp. 10(t) Description of Split-Dollar Page 94 of this Annual Insurance Policies Maintained Report on Form 10-K. for Certain Executive Officers of Rurban Financial Corp.
(b) Reports on Form 8-K.
There were no Current Reports on Form 8-K filed during the fiscal quarter ended December 31, 1995.
(c) Exhibits.
Exhibits filed with this Annual Report on Form 10-K are attached hereto. For a list of such exhibits, see "Index to Exhibits" at page 74.
(d) Financial Statement Schedules.
None.
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.
RURBAN FINANCIAL CORP.
Date: March 26, 1996 By: Thomas C. Williams, President and Chief Executive Officer
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 and in the capacities and on the dates indicated.
Name Date Capacity ------ ------ ----------
*Thomas C. Williams * President, Chief Executive Officer, Principal Executive Officer and Director
*David E. Manz * Executive Vice President, Secretary, Treasurer, Chief Financial Officer, Principal Financial and Accounting Officer and Director
*Richard C. Burrows * Director
*John R. Compo * Director
*Robert A. Fawcett, Jr. * Director
*Richard Z. Graham * Director
*John H. Moore * Director
*Merlin W. Mygrant * Director
*Steven D. VanDemark * Director
*J. Michael Walz, D.D.S. * Director
*By: Thomas C. Williams (Attorney-in-Fact) Date: March 26, 1996
RURBAN FINANCIAL CORP.
ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1995
Pages in this Annual Report on Description Form 10-K
Report of Independent Auditors.................................... 46
Consolidated Balance Sheets at December 31, 1995 and 1994........................................................ 47-48
Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993.......................... 49
Consolidated Statements of Changes in Shareholders' Equity for the three years ended December 31, 1995............................................................ 50
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993............................................................ 51-52
Notes to Consolidated Financial Statements........................ 53-73
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders Rurban Financial Corp. Defiance, Ohio
We have audited the accompanying consolidated balance sheets of Rurban Financial Corp. as of December 31, 1995 and 1994 and the related consolidated statements of income, changes in shareholders' equity and cash flows for the years ended December 31, 1995, 1994 and 1993. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. 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 Rurban Financial Corp. as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the years ended December 31, 1995, 1994 and 1993 in conformity with generally accepted accounting principles.
As discussed in Note 1, the Corporation adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", as of January 1, 1994.
Crowe, Chizek and Company LLP
South Bend, Indiana January 19, 1996
RURBAN FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994
1995 1994 ---- ---- ASSETS Cash and due from banks (Note 10) ............ $ 21,067,131 $ 20,606,577 Federal funds sold ........................... 7,312,525 4,571,594 ------------- ------------- Total cash and cash equivalents ........... 28,379,656 25,178,171 ------------- ------------- Interest-earning deposits in other financial institutions ............................... 180,000 346,324 Securities available-for-sale (Note 2) ....... 90,329,866 59,811,855 Securities held-to-maturity (Note 2) (Fair value: 1994 - $ 10,346,000) .......... -- 10,370,912 Loans Commercial, financial and agricultural .... 63,444,036 62,866,040 Real estate mortgage ...................... 152,555,540 152,136,086 Installment ............................... 61,600,664 65,676,876 ------------- ------------- Total loans ............................ 277,600,240 280,679,002 Deferred loan fees, net ................... (235,396) (262,204) Allowance for loan losses (Note 3) ........ (4,270,000) (4,770,000) ------------- ------------- Net loans .............................. 273,094,844 275,646,798 ------------- ------------- Loans held for sale .......................... 2,949,293 4,689,611 Premises and equipment, net (Note 4) ......... 8,383,717 9,264,085 Accrued interest receivable .................. 3,240,154 2,694,374 Other assets ................................. 4,668,235 5,545,354 ------------- -------------
Total assets ........................... $ 411,225,765 $ 393,547,484 ============= =============
See accompanying notes to consolidated financial statements.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994
1995 1994 ---- ---- LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Deposits Noninterest-bearing ...................... $ 48,721,000 $ 50,381,190 Interest-bearing (Note 5) ................ 319,075,538 304,264,446 ------------ ------------- Total deposits ........................ 367,796,538 354,645,636 ------------ ------------- Accrued interest payable .................... 1,035,048 908,248 Other liabilities ........................... 2,315,688 2,319,013 ------------ -------------
Total liabilities ..................... 371,147,274 357,872,897
Commitments, off-balance-sheet risk and contingencies (Note 10)
Common stock subject to repurchase obligation in ESOP (Note 6) (1995 - 297,467 shares out- standing; 1994 - 271,428 shares outstanding) . 9,333,027 6,834,557 Common stock: stated value $2.50 per share; 5,000,000 shares authorized; 1995 - 1,886,911 shares outstanding; 1994 - 1,912,950 shares outstanding .................................. 4,717,277 4,782,375 Additional paid-in capital ..................... 5,798,813 8,232,185 Retained earnings .............................. 19,779,897 16,995,711 Net unrealized appreciation (depreciation) on securities available-for-sale, net of tax of $231,549 in 1995 and $602,851 in 1994 ........ 449,477 (1,170,241) ------------ -------------
Total liabilities and shareholders' equity .. $411,225,765 $ 393,547,484 ============ =============
See accompanying notes to consolidated financial statements.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ---- Interest income Interest and fees on loans $26,539,689 $20,421,474 $17,948,466 Interest and dividends on securities Taxable 3,756,764 2,485,695 2,989,616 Non-taxable 426,178 346,485 445,580 Other interest income 707,596 220,244 94,625 ---------- ----------- ---------- Total interest income 31,430,227 23,473,898 21,478,287
Interest expense Interest on deposits (Note 5) 14,197,998 9,486,706 8,856,704 Interest on short-term borrowings 40,050 125,647 52,406 ---------- ----------- ---------- Total interest expense 14,238,048 9,612,353 8,909,110 ---------- ----------- ----------
Net interest income 17,192,179 13,861,545 12,569,177
Provision for loan losses (Note 3) 1,451,898 701,490 795,486 ---------- ----------- ----------
Net interest income after provision for loan losses 15,740,281 13,160,055 11,773,691
Noninterest income Service charges on deposits 1,184,787 1,021,685 1,004,321 Trust department income 1,946,013 1,784,626 1,616,930 Data processing fees 2,038,948 1,932,045 1,982,739 Net securities gains (losses) (Notes 2 and 8) 3,113 (8,556) (6,399) Net gains on loan sales 83,919 112,156 430,321 Other income 496,419 470,727 405,917 ---------- ----------- ---------- Total noninterest income 5,753,199 5,312,683 5,433,829
Noninterest expense Salaries and employee benefits (Note 6) 6,909,268 5,736,434 5,275,815 Net occupancy expense of premises 869,678 788,377 818,739 Equipment rentals, depreciation and maintenance 1,889,540 1,251,898 1,061,832 Other expenses (Note 7) 5,603,077 4,886,990 4,353,348 ---------- ----------- ---------- Total noninterest expense 15,271,563 12,663,699 11,509,734 ---------- ----------- ----------
Income before income tax expense 6,221,917 5,809,039 5,697,786
Income tax expense (Note 8) 2,127,104 1,898,665 1,822,805 ---------- ----------- ----------
Net income $4,094,813 $ 3,910,374 $3,874,981 ========== =========== ==========
Earnings per common share (Note 1) $ 1.87 $ 1.89 $ 1.91 =========== ============ ===========
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1995, 1994 and 1993
See also Note 14
See accompanying notes to consolidated financial statements.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994, and 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Industry Segment Information: Rurban Financial Corp. is a bank holding company, organized under Ohio law, that owns all the outstanding stock of The State Bank and Trust Company ("State Bank"), The Peoples Banking Company ("Peoples Bank"), The First National Bank of Ottawa ("First National Bank"), The Citizens Savings Bank Company ("Citizens Savings Bank"), Rurbanc Data Services, Inc. ("RDSI") and Rurban Life Insurance Company ("Rurban Life") (together referred to as "the Corporation"). The Corporation's subsidiary banks grant credit and accept deposits from their customers in the normal course of business primarily in the northwestern Ohio region. Rurbanc's business is comprised of providing data processing services primarily to financial institutions located in the northwest area of Ohio. Rurban Life accepts reinsurance ceded in part by USLIFE from the credit life and disability insurance purchased by customers of the Corporation's subsidiary banks. The Corporation operates primarily in the banking industry which accounts for more than 90% of its revenues, operating income and assets.
Basis of Reporting: The accompanying consolidated financial statements in- clude the accounts of Rurban Financial Corp. and its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.
On October 3, 1994, the Corporation acquired 100% of the common stock of Citizens Savings Bank located in Pemberville, Ohio with approximately $60 million in assets. The transaction was accounted for as a purchase. Citizens Savings Bank's results of operations are included in the income statement of the Corporation beginning as of the purchase date. Each share of Citizens Savings Bank's common stock was exchanged for $73.39 in cash or 3.91 common shares of the Corporation's common stock. The Corporation paid a total of $2,378,046 and issued 155,000 common shares in the acquisition.
Presented below are the consolidated proforma results of operations of the Corporation for the years ended December 31, 1994 and 1993, assuming this acquisition had occurred as of January 1, of each year.
1994 1993 ---- ----
Net interest income ............................ $15,569,000 $14,965,000 Net income ..................................... 3,687,000 3,382,000 Earnings per share ............................. 1.69 1.55
Use of Estimates In Preparing Financial Statements: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
- -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) - --------------------------------------------------------------------------------
Certain Significant Estimates: Areas involving the use of management's estimates and assumptions include the allowance for loan losses, the realization of deferred tax assets, fair values of securities and other financial instruments, the determination and carrying value of impaired loans, the carrying value of loans held for sale, the carrying value of other real estate, the determination of other-than-temporary reductions in the fair value of securities, recognition and measurement of loss contingencies, depreciation of premises and equipment and the carrying value and amortization of intangibles. Estimates that are more susceptible to change in the near term include the allowance for loan losses, securities valuations, the carrying value of loans held for sale, the carrying value of intangibles and the realization of deferred tax assets.
Certain Vulnerability Due to Certain Concentrations: Management is of the opinion that no concentrations exist that make the Corporation vulnerable to the risk of near-term severe impact.
Securities: On January 1, 1994, the Corporation adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities". The Corporation classifies securities into held-to-maturity, available-for-sale and trading categories. Held-to-maturity securities are those which the Corporation has the positive intent and ability to hold to maturity, and are reported at amortized cost. Available-for-sale securities are those the Corporation may decide to sell if needed for liquidity, asset-liability management or other reasons. Available-for-sale securities are reported at fair value, with unrealized gains and losses included as a separate component of shareholders' equity, net of tax. Trading securities are bought principally for sale in the near term, and are reported at fair value with unrealized gains and losses included in earnings. Adoption of SFAS No. 115 on January 1, 1994 increased shareholders' equity by $198,496, net of $102,256 tax effect.
In November 1995, the Financial Accounting Standards Board ("FASB") issued its Special Report, A Guide to Implementation of SFAS No. 115 on Accounting for Certain Investments in Debt and Equity Securities ("Guide"). As permitted by the Guide, on December 31, 1995, the Corporation made a one-time reassessment and transferred securities from the held-to-maturity portfolio to the available-for-sale portfolio. At the date of transfer, these securities had an amortized cost of $10,854,066 and the transfer increased the unrealized gain on securities available-for-sale by $210,566 and shareholders' equity by $138,974, net of tax of $71,592.
Realized gains and losses resulting from the sale of securities are computed by the specific identification method. Interest and dividend income, adjusted by amortization of purchase premium or discount, is included in earnings. Premiums and discounts on securities are recognized using the level yield method over the estimated life of the security.
- -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) - --------------------------------------------------------------------------------
Prior to January 1, 1994, securities were reported at amortized cost, except for securities held for sale, which were reported at the lower of cost or market value in the aggregate. Net unrealized losses were recognized in a valuation allowance by charges to income.
Loans Held for Sale: Loans intended for sale are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses are recognized in a valuation allowance by charges to income.
Interest Income on Loans: Interest on loans is accrued over the term of the loans based upon the principal outstanding. Management reviews loans delinquent 90 days or more to determine if the interest accrual should be discontinued. When serious doubt exists as to the collectibility of a loan, the accrual of interest is discontinued. Effective January 1, 1995, under SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", as amended by SFAS No. 118, the carrying value of impaired loans is periodically adjusted to reflect cash payments, revised estimates of future cash flows, and increases in the present value of expected cash flows due to the passage of time. Cash payments representing interest income are reported as such and other cash payments are reported as reductions in carrying value. Increases or decreases in carrying value due to changes in estimates of future payments or the passage of time are reported as a component of the provision for loan losses.
Loan Fees and Costs: Loan fees, net of direct origination costs, are deferred. The net amount deferred is reported in the consolidated balance sheets as part of loans and is recognized into interest income over the term of the loan using the level yield method.
Allowance For Loan Losses: An allowance for loan losses is established and maintained because some loans may not be repaid in full. Increases to the allowance are recorded by a provision for loan losses charged to expense. Estimating the risk of loss and the amount of loss on any loan is necessarily subjective. Accordingly, the allowance is maintained by management at a level considered adequate to cover losses that are currently anticipated based on past loss experience, general economic conditions, information about specific borrower situations including their financial position and collateral values, and other factors and estimates which are subject to change over time. While management may periodically allocate portions of the allowance for specific problem loan situations, the entire allowance is available for any loan charge-offs that may occur. A loan is charged off by management as a loss when deemed uncollectible, although collection efforts continue and future recoveries may occur.
- -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) - --------------------------------------------------------------------------------
SFAS No. 114 and SFAS No. 118 were adopted effective January 1, 1995 and require recognition of loan impairment. Loans are considered impaired if full principal or interest payments are not anticipated in accordance with the contractual loan terms. Impaired loans are carried at the present value of expected future cash flows discounted at the loan's effective interest rate or at the fair value of the collateral if the loan is collateral dependent. A portion of the allowance for loan losses is allocated to impaired loans. If these allocations cause the allowance for loan losses to require increase, such increase is reported as a component of the provision for loan losses. The effect of adopting these standards in 1995 was not material.
Smaller-balance homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by one-to-four family residences, residential construction loans, and automobile, home equity and second mortgage loans. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. When analysis of borrower operating results and financial condition indicates that underlying cash flows of the borrower's business are not adequate to meet its debt service requirements, the loan is evaluated for impairment. Often this is associated with a delay or shortfall in payments of 30 days or more. Commercial loans are rated on a scale of 1 to 5, with 1 being satisfactory, 2 watch, 3 substandard, 4 doubtful, and 5 as loss which are then charged off. Loans graded a 4 or worse are considered for impairment. Loans are generally moved to nonaccrual status when 90 days or more past due. These loans are often considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible. This typically occurs when the loan is 120 days or more past due. The nature of disclosures for impaired loans is considered generally comparable to prior nonaccrual and renegotiated loans and non-performing and past-due asset disclosures.
Premises and Equipment: Buildings and improvements are depreciated using primarily the straight-line method with useful lives ranging from 10 to 50 years. Furniture and equipment are depreciated using the straight-line and declining-balance methods with useful lives ranging predominantly from 5 to 20 years. Maintenance and repairs are expensed and major improvements are capitalized.
Intangible Assets: Goodwill arising from the acquisition of subsidiary banks is amortized over 5 to 25 years using the straight-line method. Core deposit intangibles are amortized on an accelerated basis over 10 years, the estimated life of the deposits acquired. As of December 31, 1995, unamortized goodwill totaled approximately $784,000 and unamortized core deposit intangibles totaled approximately $521,000.
Other Real Estate Owned: Real estate properties acquired through, or in lieu of, loan foreclosure are initially recorded at fair value at the date of acquisition. Any reduction to fair value from the carrying value of the related loan at the time of acquisition is accounted for as a loan loss and charged against the allowance for loan losses. After acquisition, a valuation allowance is recorded through a charge to income for the amount of estimated selling costs. Valuations are periodically performed by management, and valuation allowances are adjusted through a charge to income for changes in fair value or estimated selling costs. Other real estate owned amounted to approximately $320,000 and $400,000 at December 31, 1995 and 1994, respectively, and is included in other assets in the consolidated balance sheets.
- -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) - --------------------------------------------------------------------------------
Income Taxes: The Corporation files an annual consolidated federal income tax return. Income tax is based upon the asset and liability method. The asset and liability method requires the Corporation to record income tax expense based on the amount of taxes due on its consolidated tax return plus deferred taxes computed based on the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, using enacted tax rates.
Employee Benefits (See Note 6): The Corporation sponsors an employee stock ownership plan (ESOP) and 401(k) profit sharing plan for which contributions are made and expensed annually. The Corporation provides split-dollar life insurance plans for certain executive officers of the Corporation. Also, the Corporation sponsors a supplemental retirement plan for certain executive officers of the Corporation.
Postretirement Health Care Benefits: The Corporation sponsors a postretirement health care plan that covers both salaried and nonsalaried employees. Effective January 1, 1993, the Corporation adopted the provisions of SFAS No. 106, "Employers' Accounting For Postretirement Benefits Other Than Pensions". SFAS No. 106 requires the accrual, during the years that employees render the necessary service, of the expected cost of providing postretirement health care benefits to employees and their beneficiaries and covered dependents. The Corporation's postretirement health care plan provides that retired employees may remain on the Corporation's health care plan with each retiree's out-of-pocket contribution to the Corporation equal to their premium expense determined exclusively on the loss experience of the retirees in the plan. The impact of adopting the guidance was not material.
Earnings Per Common Share: Earnings and dividends per common share have been computed based on the weighted average number of shares outstanding during the periods presented, restated for all stock dividends and stock splits. In 1994, a two-for-one split was declared and paid. The number of shares used in the computation of earnings per common share was 2,184,378 for 1995, 2,067,597 for 1994 and 2,029,378 for 1993.
Dividend Restriction: Certain restrictions exist regarding the ability of the subsidiaries to transfer funds to Rurban Financial Corp. in the form of cash dividends, loans or advances. As of December 31, 1995, approximately $3,665,000 of undistributed earnings of the subsidiaries, included in consolidated retained earnings, was available for distribution to Rurban Financial Corp. as dividends without prior regulatory approval.
- -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) - --------------------------------------------------------------------------------
Concentrations of Credit Risk: The Corporation grants commercial, real estate and installment loans to customers mainly in northwest Ohio. Commercial loans include loans collateralized by business assets and agricultural loans collateralized by crops and farm equipment. Commercial loans make up approximately 23% of the loan portfolio and the loans are expected to be repaid from cash flow from operations of businesses. Real estate loans make up approximately 55% of the loan portfolio and are collateralized by both commercial and residential real estate. Installment loans make up approximately 22% of the loan portfolio and are primarily collateralized by consumer assets.
Financial Instruments With Off-Balance-Sheet Risk: The Corporation, in the normal course of business, makes commitments to extend credit which are not reflected in the consolidated financial statements. A summary of these com- mitments is disclosed in Note 10.
Statements of Cash Flows: For purposes of reporting cash flows, cash and cash equivalents is defined to include cash on hand, demand deposits in other financial institutions and federal funds sold with maturities of 90 days or less. The Corporation reports net cash flows for customer loan transactions, deposit transactions, short-term borrowings with maturities of 90 days or less and interest-earning deposits in other financial institutions.
Reclassifications: Certain amounts appearing in the financial statements and notes thereto for the years ended December 31, 1994 and 1993 have been reclassified to conform with the December 31, 1995 presentation.
NOTE 2 - SECURITIES
Information related to the amortized cost and fair value of securities at December 31, 1995 and 1994 is provided below:
Gross Gross Securities Available-for-Sale Amortized Unrealized Unrealized 1995 Cost Gains Losses Fair Value ----------------------------- --------- ---------- ---------- ---------- U.S. Treasury and U.S. Government agency securities $73,799,068 $574,819 $(122,386) $74,251,501 Obligations of states and political subdivisions 9,365,076 191,846 (13,527) 9,543,395 Mortgage-backed securities 5,295,474 62,183 (11,909) 5,345,748 ----------- -------- --------- ---------- Total debt securities available-for-sale 88,459,618 828,848 (147,822) 89,140,644 Marketable equity securities 1,189,222 - - 1,189,222 ----------- -------- --------- ----------
Total securities available- for-sale $89,648,840 $828,848 $(147,822) $90,329,866 =========== ======== ========= ===========
- -------------------------------------------------------------------------------- NOTE 2 - SECURITIES (Continued) - --------------------------------------------------------------------------------
Gross Gross Securities Available-for-Sale Amortized Unrealized Unrealized 1994 Cost Gains Losses Fair Value ----------------------------- --------- ---------- ---------- ---------- U.S. Treasury and U.S. Government agency securities $51,925,952 $ 712 $(1,393,582) $50,533,082 Mortgage-backed securities 8,783,192 19,356 (399,578) 8,402,970 ----------- -------- --------- ---------- Total debt securities available-for-sale 60,709,144 20,068 (1,793,160) 58,936,052 Marketable equity securities 875,803 - - 875,803 ----------- -------- --------- ----------
Total securities available- for-sale $61,584,947 $ 20,068 $(1,793,160) $59,811,855 =========== ======== =========== ===========
Gross Gross Securities Held-to-Maturity Amortized Unrealized Unrealized 1994 Cost Gains Losses Fair Value --------------------------- --------- ---------- ---------- ---------- U.S. Treasury and U.S. Government agency securities $ 1,482,576 $ 1,811 $ (3,387) $1,481,000 Obligations of states and political subdivisions 8,888,336 74,229 (97,565) 8,865,000 ----------- -------- --------- ----------
Total securities held- to-maturity $10,370,912 $ 76,040 $(100,952) $10,346,000 =========== ======== ========= ===========
The amortized cost and fair values of debt securities at December 31, 1995, by contractual maturity, are shown below. Expected 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 -------------------- Amortized Cost Fair Value ---------- ---------- Due in one year or less $29,399,818 $29,481,607 Due after one year through five years 51,421,608 51,889,174 Due after five years through ten years 2,302,918 2,387,838 Due after ten years 39,800 36,277 ---------- ----------- 83,164,144 83,794,896 Mortgage-backed securities 5,295,474 5,345,748 ---------- -----------
Total debt securities $88,459,618 $89,140,644 =========== ===========
- -------------------------------------------------------------------------------- NOTE 2 - SECURITIES (Continued) - --------------------------------------------------------------------------------
Proceeds, gross gains and gross losses realized from sales of securities for the years ended December 31, 1995, 1994 and 1993 are as follows:
1995 1994 1993 ---- ---- ----
Proceeds from sales of debt securities available-for-sale $2,263,104 $ - $ - Proceeds from sales of marketable equity securities held for sale - - 1,025,941 --------- ----------- -----------
Total proceeds from sales of securities $2,263,104 $ - $ 1,025,941 ========== ============ ===========
Gross gains from sales of debt securities available-for-sale $ 11,975 $ - $ - Gross losses from sales of debt securities available-for-sale (8,672) - - Net losses on calls of securities available-for-sale (190) - - Net losses on calls of securities held-to-maturity - (8,556) - Net losses from sales of marketable equity securities held for sale and calls of debt investment securities - - (6,399) --------- ----------- ---------
Net securities gains (losses) $ 3,113 $ (8,556) $ (6,399) ========== ========== ===========
At December 31, 1995 there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies and corporations, in an amount greater than 10% of shareholders' equity.
Securities with an amortized cost of approximately $47,893,000 and $40,753,000 as of December 31, 1995 and 1994, respectively, were pledged to secure public and trust deposits.
- -------------------------------------------------------------------------------- NOTE 3 - ALLOWANCE FOR LOAN LOSSES - --------------------------------------------------------------------------------
The following is a summary of the activity in the allowance for loan losses account for the years ended December 31, 1995, 1994 and 1993:
1995 1994 1993 ---- ---- ----
Balance at beginning of year $4,770,000 $3,390,000 $3,086,443 Allowance of acquired bank - 1,100,000 - Provision for loan losses 1,451,898 701,490 795,486 Recoveries credited to the allowance 698,928 329,463 441,811 Losses charged to the allowance (2,650,826) (750,953) (933,740) ---------- ---------- ---------
Balance at end of year $4,270,000 $4,770,000 $3,390,000 ========== ========== ==========
At December 31, 1995 and 1994, loans past due more than 90 days and still accruing interest approximated $711,000 and $1,198,000, respectively.
Information regarding impaired loans is as follows for the year ending December 31, 1995:
Average investment in impaired loans $2,542,000 Interest income recognized on impaired loans including interest income recognized on cash basis 32,000 Interest income recognized on impaired loans on cash basis 32,000
Information regarding impaired loans at December 31, 1995 is as follows:
Balance of impaired loans $1,835,000 Less portion for which no allowance for loan losses is allocated (302,000)
Portion of impaired loan balance for which an allowance for loan losses is allocated $1,533,000 ==========
Portion of allowance for loan losses allocated to impaired loan balance $ 643,000 ==========
Loans on which the recognition of interest has been discontinued or reduced totaled approximately $3,538,000 at December 31, 1994. Interest income not recognized on these loans totaled approximately $289,000 and $189,000 during 1994 and 1993, respectively.
- -------------------------------------------------------------------------------- NOTE 4 - PREMISES AND EQUIPMENT, NET - --------------------------------------------------------------------------------
Premises and equipment are stated at cost, less accumulated depreciation, and consist of the following at December 31, 1995 and 1994:
1995 1994
Land $ 966,579 $ 976,579 Buildings and improvements 6,927,945 7,002,690 Furniture and equipment 5,980,928 5,647,452 ---------- ---------- Total cost 13,875,452 13,626,721 Accumulated depreciation (5,491,735) (4,362,636) ---------- ----------
Premises and equipment, net $8,383,717 $9,264,085 ========== ==========
NOTE 5 - INTEREST-BEARING DEPOSITS
Included in interest-bearing deposits are time deposits in denominations of $100,000 or more of approximately $33,426,000 and $32,642,000 as of December 31, 1995 and 1994, respectively.
Interest expense on time deposits in denominations of $100,000 or more was approximately $1,090,000, $1,205,000 and $1,012,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
NOTE 6 - EMPLOYEE BENEFITS
Employee Stock Ownership Plan: The Corporation has a noncontributory employee stock ownership plan (ESOP) covering substantially all employees of the Corporation's subsidiaries. Each eligible employee is vested based upon years of service, including prior years of service. Contributions and related expense attributable to the plan included in salaries and employee benefits were approximately $374,000, $274,000 and $273,000 in 1995, 1994 and 1993, respectively.
For corporations not listed on NASDAQ, ERISA rules require employers with an ESOP to agree to repurchase shares from participants for a certain time period following the distribution of shares to the participants. The Corporation's common stock subject to repurchase obligation in ESOP had an estimated value of $9,333,027 and $6,834,557 at December 31, 1995 and 1994, respectively.
- -------------------------------------------------------------------------------- NOTE 6 - EMPLOYEE BENEFITS (Continued) - --------------------------------------------------------------------------------
401(k) Profit Sharing Plan: The Corporation has 401(k) profit sharing plans. The annual expense of the plans is based on 50% matching of voluntary employee contributions of up to 6% of individual compensation. Employee contributions are vested immediately and the Corporation's matching contributions are fully vested after six years. The plans cover substantially all employees of the Corporation. Contributions and related expense attributable to the plans, included in salaries and employee benefits, were approximately $101,000, $88,000 and $93,000 in 1995, 1994 and 1993, respectively.
Life Insurance Plans: Life insurance plans are provided for certain executive officers on a split-dollar basis and the Corporation is the owner of the split-dollar policies. The officers are entitled to a sum equal to two times either the employee's annual salary at death, if actively employed, or final annual salary, if retired, less $50,000. The Corporation is entitled to the remainder of the death proceeds less any loans on the policy and unpaid interest or cash withdrawals previously incurred by the Corporation. The employees have the right to designate a beneficiary(s) to receive their share of the proceeds payable upon death. The cash surrender value of these life insurance policies was approximately $596,000 and $556,000 at December 31, 1995 and 1994, respectively, and is included in other assets in the consolidated balance sheets.
Supplemental Retirement Plan: During 1994, the Corporation established a supplemental retirement plan for selected officers. The Corporation has purchased insurance contracts on the lives of the participants in the supplemental retirement plan and has named the Corporation as beneficiary. While no direct contract exists between the supplemental retirement plan and the life insurance contracts, it is management's current intent that the proceeds from the insurance contracts will be used to help offset earlier payments made under the supplemental retirement plan. The Corporation is recording an expense equal to the projected present value of the payment due at retirement based on the projected remaining years of service using the projected unit credit method. The expense attributable to the plan, included in salaries and employee benefits, was approximately $133,000 and $33,000 in 1995 and 1994, respectively. The cash surrender value of the life insurance was approximately $1,439,000 and $1,383,000 at December 31, 1995 and 1994, respectively, and is included in other assets in the consolidated balance sheets.
NOTE 7 - OTHER EXPENSES
The following is an analysis of other expenses for the years ended December 31, 1995, 1994 and 1993: 1995 1994 1993
Amortization of intangible assets $ 634,000 $ 217,000 $ 203,000 Advertising expense 259,938 233,548 161,511 Professional fees 1,097,162 853,241 732,151 Insurance expense 525,189 702,172 694,002 Data processing fees 436,983 323,942 333,079 Printing, stationery and supplies 604,340 587,995 594,609 Postage and delivery expense 304,362 241,441 214,213 State, local and other taxes 630,829 586,899 504,698 Other operating expenses 1,110,274 1,140,752 916,085 --------- ---------- ----------
Total other expenses $5,603,077 $4,886,990 $4,353,348 ========== ========== ==========
- -------------------------------------------------------------------------------- NOTE 8 - INCOME TAX EXPENSE - --------------------------------------------------------------------------------
Income tax expense consists of the following for the years ended December 31, 1995, 1994 and 1993: 1995 1994 1993
Current expense $2,915,522 $1,668,675 $1,801,099 Deferred expense (benefit) (788,418) 229,990 21,706 --------- ---------- ----------
Total income tax expense $2,127,104 $1,898,665 $1,822,805 ========== ========== ==========
Tax expense (benefit) on net securities gains (losses) were $1,058, $(2,909) and $(2,176) in 1995, 1994 and 1993, respectively.
The difference between the financial statement income tax expense and amounts computed by applying the statutory federal income tax rate to income before income tax expense is as follows for the years ended December 31, 1995, 1994 and 1993:
1995 1994 1993 ---- ---- ----
Statutory tax rate 34% 34% 34% Income taxes computed at the statutory federal income tax rate $2,115,452 $1,975,073 $1,937,247 Add (subtract) tax effect of: Tax-exempt income (184,312) (149,706) (178,144) Non-deductible expenses and other 195,964 73,298 63,702 --------- ---------- ----------
Total income tax expense $2,127,104 $1,898,665 $1,822,805 ========== ========== ==========
The components of the net deferred tax asset recorded in the consolidated balance sheets as of December 31, 1995 and 1994 are as follows:
1995 1994 ---- ---- Deferred tax assets Provision for loan losses $1,061,264 $1,201,000 Market to market adjustment 162,050 - Net deferred loan fees 65,309 89,149 Net unrealized depreciation on securities available-for-sale - 602,851 Accrued compensation and benefits 185,003 147,428 AMT credit carryforward - 157,539 Other 118,250 111,338 ---------- ---------- Total deferred tax assets $1,591,876 $2,309,305 ========== ==========
- -------------------------------------------------------------------------------- NOTE 8 - INCOME TAX EXPENSE (Continued) - -------------------------------------------------------------------------------- 1995 1994 Deferred tax liabilities ------ ------ Net unrealized appreciation on securities available-for-sale $(231,549) $ - Depreciation (139,185) (44,544) Purchase accounting adjustments (259,324) (397,136) Market-to-market adjustment - (815,304) Other (4,566) (49,087) ---------- ---------- Total deferred tax liabilities (634,624) (1,306,071)
Valuation allowance - - --------- ----------
Net deferred tax asset $ 957,252 $1,003,234 ========= ==========
NOTE 9 - RELATED PARTY TRANSACTIONS
Certain directors, executive officers and principal shareholders of the Corporation, including associates of such persons, were loan customers during 1995. A summary of the related party loan activity, for loans aggregating $60,000 or more to any one related party, follows:
Balance, January 1, 1995 ...................... $5,164,000 New loans .................................. 7,601,000 Repayments ................................. (9,111,000) Other changes .............................. (142,000) ----------
Balance, December 31, 1995 .................... $3,512,000 ==========
Other changes include adjustments for loans applicable to one reporting period that are excludable from the other reporting period.
NOTE 10 - COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES
The Corporation is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet financing needs of its customers. These financial instruments include commitments to make loans, unused lines of credit and standby letters of credit. The Corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to make loans, unused lines of credit and standby letters of credit is represented by the contractual amount of those instruments. The Corporation follows the same credit policy to make such commitments as it uses for on-balance-sheet items.
- -------------------------------------------------------------------------------- NOTE 10 - COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES - -------------------------------------------------------------------------------- (Continued)
The Corporation has the following commitments outstanding at December 31:
1995 1994 ---- ---- Fixed rate loan commitments and unused lines of credit $4,491,000 $ 4,733,000 Variable rate loan commitments and unused lines of credit 47,552,000 51,699,000 Standby letters of credit 2,945,000 2,674,000 ---------- -----------
$54,988,000 $59,106,000 =========== ===========
Fixed rate loan commitments and unused lines of credit, at December 31, 1995, are at current rates, ranging primarily from 5.20% to 17.90% and are primarily for terms of up to two years.
Variable rate loan commitments and unused lines of credit, at December 31, 1995, are at current rates, ranging primarily from 7.75% to 16.25% and are primarily for terms of up to two years. The primary index used for adjustments is the prime rate.
Since many commitments to make loans expire without being used, the amount does not necessarily represent future cash commitments. In addition, commitments to extend credit are arrangements to lend to customers as long as there is no violation of any condition established in the contract. No losses are anticipated as a result of these transactions. Collateral obtained upon exercise of the commitment is determined using management's credit evaluation of the borrower and may include real estate, business assets, consumer assets, deposits and other items.
The Corporation was required to have approximately $3,475,000 and $3,438,000 of cash on hand or on deposit with the Federal Reserve Bank to meet regulatory reserve requirements at December 31, 1995 and 1994, respectively. These balances do not earn interest.
- -------------------------------------------------------------------------------- NOTE 11 - PARENT COMPANY FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
Presented below are condensed financial statements for the parent company, Rurban Financial Corp.:
CONDENSED BALANCE SHEETS December 31, 1995 and 1994
1995 1994 ====== ====== ASSETS Cash and cash equivalents $ 844,790 $ 515,691 Securities available-for-sale 306,097 - Investment in and advances to subsidiaries Banking subsidiaries 36,520,419 33,541,947 Non-banking subsidiaries 2,238,418 2,014,227 ----------- ---------- Total investment in subsidiaries 38,758,837 35,556,174 Other assets 834,052 50,843 ----------- ----------
Total assets $40,743,776 $36,122,708 =========== ===========
LIABILITIES Other liabilities $ 665,285 $ 448,121 ----------- ---------- Total liabilities 665,285 448,121
COMMON STOCK SUBJECT TO REPURCHASE OBLIGATION IN ESOP 9,333,027 6,834,557
OTHER SHAREHOLDERS' EQUITY 30,745,464 28,840,030 ----------- ----------
Total liabilities and shareholders' equity $40,743,776 $36,122,708 =========== ===========
- -------------------------------------------------------------------------------- NOTE 11 - PARENT COMPANY FINANCIAL STATEMENTS (Continued) - --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ---- Income Interest on securities-non-taxable $ 5,347 $ - $ - Dividends from subsidiaries Banking subsidiaries 3,015,000 3,900,000 1,125,000 Non-banking subsidiaries 75,000 300,000 325,000 ---------- ---------- --------- Total 3,090,000 4,200,000 1,450,000 Noninterest income 11,509 - - ---------- ---------- --------- Total income 3,106,856 4,200,000 1,450,000
Noninterest expense 896,999 685,952 469,051 ---------- ---------- ---------
Income before income tax benefit and equity in undistributed net income of subsidiaries 2,209,857 3,514,048 980,949
Income tax benefit 302,011 233,224 159,478 ---------- ---------- ---------
Income before equity in undistributed net income 2,511,868 3,747,272 1,140,427
Equity in undistributed net income Banking subsidiaries 1,358,754 80,153 2,598,967 Non-banking subsidiaries 224,191 82,949 135,587 ---------- ---------- --------- Total 1,582,945 163,102 2,734,554 ---------- ---------- ---------
Net income $4,094,813 $3,910,374 $3,874,981 ========== ========== ==========
- -------------------------------------------------------------------------------- NOTE 11 - PARENT COMPANY FINANCIAL STATEMENTS (Continued) - --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ---- Cash flows from operating activities Dividends received from subsidiaries Banking subsidiaries $3,015,000 $3,900,000 $1,125,000 Non-banking subsidiaries 75,000 300,000 325,000 ---------- ---------- --------- Total 3,090,000 4,200,000 1,450,000 Cash paid to suppliers and employees (681,050) (744,321) (262,616) Income tax refunds 253,486 269,455 95,540 ---------- ---------- --------- Net cash from operating activities 2,662,436 3,725,134 1,282,924
Cash flows from investing activities Investment in banking subsidiary - (2,378,046) - Purchase of securities available- for-sale (306,097) - - Cash paid for life insurance premiums (716,613) - - ---------- ---------- --------- Net cash from investing activities (1,022,710) (2,378,046) -
Cash flows from financing activities Cash dividends paid (1,310,627) (1,264,128) (1,221,980) ---------- ---------- ---------- Net cash from financing activities (1,310,627) (1,264,128) (1,221,980) ---------- ---------- ----------
Net change in cash and cash equivalents 329,099 82,960 60,944
Cash and cash equivalents at beginning of year 515,691 432,731 371,787 ---------- ---------- ------------
Cash and cash equivalents at end of year $ 844,790 $ 515,691 $ 432,731 ========== ========== ==========
- -------------------------------------------------------------------------------- NOTE 11 - PARENT COMPANY FINANCIAL STATEMENTS (Continued) - --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED) Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ---- Reconciliation of net income to net cash from operating activities Net income $4,094,813 $3,910,374 $3,874,981 Adjustments to reconcile net income to net cash from operating activities Equity in undistributed net income of subsidiaries Banking subsidiaries (1,358,754) (80,153) (2,598,967) Non-banking subsidiaries (224,191) (82,949) (135,587) Change in income taxes receivable (48,525) 36,231 (63,938) Change in other assets (18,071) - - Change in other liabilities 217,164 (58,369) (206,435) ---------- ---------- ---------- Net cash from operating activities $2,662,436 $3,725,134 $1,282,924 ========== ========== ==========
Supplemental disclosures of cash flow information
Non-cash increases related to Citizens Bank acquisition (Note 1): Common stock $ - $ 387,500 $ - Additional paid-in capital - 2,518,373 $ -
- -------------------------------------------------------------------------------- NOTE 12 - FAIR VALUES OF FINANCIAL INSTRUMENTS - --------------------------------------------------------------------------------
The following table shows the estimated fair values and the related carrying values of the Corporation's financial instruments at December 31, 1995 and 1994. Items which are not financial instruments are not included.
For purposes of the above disclosures of estimated fair value, the following assumptions were used as of December 31, 1995 and 1994. The estimated fair value for cash and cash equivalents is considered to approximate cost. The estimated fair value for interest-earning deposits in other financial institutions, securities available-for-sale and securities held-to-maturity is based on quoted market values for the individual securities or for equivalent securities. The estimated fair value for loans is based on estimates of the difference in interest rates the Corporation would charge the borrowers for similar such loans with similar maturities made at December 31, 1995 and 1994, applied for an estimated time period until the loan is assumed to reprice or be paid. The estimated fair value for demand and savings deposits is based on their carrying value. The estimated fair value for time deposits is based on estimates of the rate the Corporation would pay on such deposits at December 31, 1995 and 1994, applied for the time period until maturity. The estimated fair value for other financial instruments and off-balance-sheet loan commitments approximate cost at December 31, 1995 and 1994 and are not considered significant to this presentation.
While these estimates of fair value are based on management's judgment of the most appropriate factors, there is no assurance that were the Corporation to have disposed of such items at December 31, 1995 and 1994, the estimated fair values would necessarily have been achieved at that date, since market values may differ depending on various circumstances. The estimated fair values at December 31, 1995 and 1994 should not necessarily be considered to apply at subsequent dates.
- -------------------------------------------------------------------------------- NOTE 12 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued) - --------------------------------------------------------------------------------
In addition, other assets and liabilities of the Corporation that are not defined as financial instruments are not included in the above disclosures, such as premises and equipment. Also, non-financial instruments typically not recognized in the financial statements nevertheless may have value but are not included in the above disclosures. These include, among other items, the estimated earnings power of core deposit accounts, the earnings potential of loan servicing rights, the earnings potential of State Bank's and Peoples Bank's trust departments, the trained work force, customer goodwill and similar items.
NOTE 13 - IMPACT OF NEW ACCOUNTING STANDARDS
Several new accounting standards have been issued by the FASB that will apply in 1996. SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of", requires a review of long-term assets for impairment of recorded value and resulting write-downs if the value is impaired. SFAS No. 122, "Accounting for Mortgage Servicing Rights", requires recognition of an asset when servicing rights are retained on in-house originated loans that are sold. These statements are not expected to have a material effect on the Corporation's consolidated financial position or results of operations.
NOTE 14 - SUPPLEMENTAL CASH FLOW DISCLOSURES
On October 3, 1994, Rurban Financial Corp. purchased all of the common stock of Citizens Bank for $2,378,046 in cash and issued 155,000 common shares at a market value of $18.75 per share. In conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired ............................. $58,707,000 Cash paid ................................................. (2,378,046) Common stock issued ....................................... (2,905,873) -----------
Liabilities assumed .................................... $53,423,081
NOTE 14 - SUPPLEMENTAL CASH FLOW DISCLOSURES (Continued)
Additionally, transfers of securities were as follows:
1995 Transfer from securities held-to-maturity to securities available-for-sale ........................... $10,854,066 1994 Transfer from investment securities and securities held for sale to: Securities available-for-sale ......................... 52,386,249 Securities held-to-maturity ........................... 6,527,912 1993 Transfer from investment securities to securities held for sale ........................................... 1,533,028
RURBAN FINANCIAL CORP.
ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1995
INDEX TO EXHIBITS
Exhibit No. Description Page No. - ----------- ------------------------- -------------- 3(a) Amended Articles of Incorporated herein by Registrant, as amended reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 (File No. 0-13507) [Exhibit 3(a)(i)].
3(b) Certificate of Amendment to Incorporated herein by the Amended Articles of reference to Registrant's Rurban Financial Corp. Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-13507) [Exhibit 3(b)].
3(c) Regulations of Registrant, as Incorporated herein by amended reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1986 (File No. 0-13507) [Exhibit 3(b)].
10(a) Employees' Stock Ownership Incorporated herein by Plan of Rurban Financial Corp. reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-13507) [Exhibit 10(b)].
10(b) First Amendment to Employees' Incorporated herein by Stock Ownership Plan of Rurban reference to Registrant's Financial Corp., dated June 14, Annual Report on Form 10-K 1993 and made to be effective for the fiscal year ended as of January 1, 1993 December 31, 1993 (File No. 0-13507) [Exhibit 10(b)].
10(c) Second Amendment to Employees' Incorporated herein by Stock Ownership Plan of Rurban reference to Registrant's Financial Corp., dated Annual Report on Form 10-K March 14, 1994 and made to be for the fiscal year ended effective as of January 1, 1993 December 31, 1993 (File No. 0-13507) [Exhibit 10(c)].
10(d) Third Amendment to Employees' Incorporated herein by Stock Ownership Plan of Rurban reference to Registrant's Financial Corp., dated Annual Report on Form 10-K March 13, 1995 for the fiscal year ended December 31, 1994 (File No. 0-13507) [Exhibit 10(d)].
10(e) Fourth Amendment to Pages 79 through 81. Employees' Stock Ownership Plan of Rurban Financial Corp., dated June 10, 1995 and made to be effective as of January 1, 1995
10(f) The Rurban Financial Corp. Incorporated herein by Savings Plan and Trust reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (File No. 0-13507) [Exhibit 10(g)].
10(g) First Amendment to The Rurban Incorporated herein by Financial Corp. Savings Plan reference to Registrant's and Trust, dated December 10, Annual Report on 1990 and effective January 1, Form 10-K for the fiscal 1990 year ended December 31, 1990 (File No. 0-13507) [Exhibit 10(g)].
10(h) Second Amendment to The Incorporated herein by Rurban Financial Corp. reference to Registrant's Savings Plan and Trust, dated Annual Report on Form March 11, 1991, effective 10-K for the fiscal year February 1, 1991 ended December 31, 1992 (File No. 0-13507) [Exhibit 10(d)].
10(i) Third Amendment to The Rurban Incorporated herein by Financial Corp. Savings Plan reference to Registrant's and Trust, dated June 11, 1991 Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (File No. 0-13507) [Exhibit 10(e)].
10(j) Fourth Amendment to The Incorporated herein by Rurban Financial Corp. reference to Registrant's Savings Plan and Trust, dated Annual Report on Form July 14, 1992, effective 10-K for the fiscal year May 1, 1992 ended December 31, 1992 (File No. 0-13507) [Exhibit 10(f)].
10(k) Fifth Amendment to The Rurban Incorporated herein by Financial Corp. Savings Plan reference to Registrant's and Trust, dated March 14, Annual Report on Form 1994 10-K for the fiscal year ended December 31, 1993 (File No. 0-13507) [Exhibit 10(i)].
10(l) Sixth Amendment to The Rurban Pages 82 through 84. Financial Corp. Savings Plan and Trust dated May 1, 1995
10(m) Summary of Incentive Incorporated herein by Compensation Plan of State reference to Registrant's Bank Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-13507) [Exhibit 10(j)].
10(n) Summary of Bonus Program Incorporated herein by adopted by the Trust reference to Registrant's Department of State Bank for Annual Report on Form the benefit of Robert W. 10-K for the fiscal year Constien in his capacity as ended December 31, 1991 Manager of the Trust (File No. 0-13507) Department [Exhibit 10(e)].
10(o) Summary of Bonus Program for Incorporated herein by the Trust Department of State reference to Registrant's Bank Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (File No. 0-13507
[Exhibit 10(i)]. 10(p) Summary of Sales Bonus Incorporated herein by Program of State Bank reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (File No. 0-13507) [Exhibit 10(n)].
10(q) Summary of Rurban Financial Incorporated herein by Corp. Bonus Plan reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-13507) [Exhibit 10(q)].
10(r) Executive Salary Continuation Incorporated herein by Agreement, dated December 15, reference to Registrant's 1994, between Rurban Annual Report on Form Financial Corp. and Richard 10-K for the fiscal year C. Burrows ended December 31, 1994 (File No. 0-13507) [Exhibit 10(p)].
10(s) Executive Salary Continuation Pages 85 through 93. Agreement, dated October 11, 1995, between Rurban Financial Corp. and Thomas C. Williams; and Schedule A to Exhibit 10(s) identifying other identical Executive Salary Continuation Agreements between executive officers of Rurban Financial Corp. and Rurban Financial Corp.
10(t) Description of Split-Dollar Page 94 Insurance Policies Maintained for Certain Executive Officers of Rurban Financial Corp.
11 Statement re Computation of Page 57 [included in Per Share Earnings Note 1 of the Notes to the Consolidated Financial Statements of Registrant in the financial statements portion of this Annual Report on Form 10-K].
21 Subsidiaries of Registrant Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (File No. 0-13507) [Exhibit 21].
24 Powers of Attorney Pages 95 through 105.
27 Financial Data Schedule Pages 106 through 108.