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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO
____________
Commission File Number 0-13507
RURBAN FINANCIAL CORP.
(Exact name of Registrant as specified in its charter)
Ohio 34-1395608
------------------------------ -------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
401 Clinton Street, Defiance, Ohio 43512
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (419) 783-8950
-------------------
Securities registered pursuant to Section 12(b) of the Act: None
-------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, Without Par Value (4,140,518 outstanding at March 5, 1999)
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based upon the closing price of the Common Shares of the Registrant on March 5,
1999, the aggregate market value of the Common Shares of the Registrant held by
non-affiliates on that date was $65,284,481.
Documents Incorporated by Reference:
Portions of the Registrant's definitive Proxy Statement for its Annual Meeting
of Shareholders to be held on April 26, 1999 are incorporated by reference into
Part III of this Annual Report on Form 10-K.
Exhibit Index on Page 53
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PART I
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 offices 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 Savings Bank"), the
Corporation is engaged in the business of commercial banking. The Corporation's
subsidiary, Rurbanc Data Services, Inc. ("RDSI"), 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 the Corporation's
banking subsidiaries from USLIFE in connection with revolving credit loans
secured by mortgages and with certain installment loans made to such customers.
State Bank has two wholly-owned subsidiaries: Reliance Financial
Services, N.A. ("RFS") and Rurban Mortgage Company ("RMC"). RFS is
nationally-chartered trust and financial services company. RMC is an Ohio
corporation with its main office located in Clearwater, Florida which engages in
the retail and wholesale mortgage banking industry.
General Description of Holding Company Group
--------------------------------------------
State Bank
- ----------
State Bank is an Ohio state-chartered bank. State Bank presently
operates six branch offices in Defiance County, Ohio (five 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, 1998, State Bank had 95 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;
time certificates of deposit, automatic teller machines; commercial, consumer,
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 box rentals; and other personalized
banking services. In addition, State Bank serves as a correspondent (federal
funds investing and check clearing purposes) for three affiliated financial
institutions in the region (Peoples Bank, First National Bank and Citizens
Savings Bank).
RFS
---
RFS is a nationally-chartered trust and financial services company and
a wholly-owned subsidiary of State Bank. RFS offers various trust and financial
services, including asset management services for individuals and corporate
employee benefit plans as well as brokerage services through Raymond James
Financial, Inc.
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RFS' offices are located in State Bank's main offices in Defiance,
Ohio. At December 31, 1998, RFS had 33 full-time equivalent employees.
RMC
---
RMC is an Ohio corporation with its main office located in Clearwater,
Florida. RMC is a wholly-owned subsidiary of State Bank. RMC engages in the
retail and wholesale mortgage banking business. The principal activities engaged
in by RMC are originating, underwriting and servicing first and second
residential mortgage loans and then selling such loans in the secondary market.
At December 31, 1998, RMC had 25 full-time equivalent employees.
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; automatic teller machines; commercial and consumer loans and real
estate mortgage loans; personal and corporate trust services; and safe deposit
box rental facilities. Peoples Bank operates two full-service branches in
Findlay and one in McComb, Ohio. At December 31, 1998, Peoples Bank had 28
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, 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, 1998, 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;
time certificates of deposit; automatic teller machines; commercial, consumer,
agricultural and residential mortgage loans; personal and corporate trust
services; commercial leasing; bank credit card services; safe deposit box
rentals; and other personalized banking services.
Citizens Savings Bank
- ---------------------
Citizens Savings Bank is an Ohio state-chartered bank. The main office
of Citizens Savings Bank is located in Pemberville, Ohio. Citizens Savings Bank
provides checking and NOW accounts; passbook savings and money market accounts;
time certificates of deposit; an automatic teller machine; commercial, consumer,
agricultural and residential loans; personal and corporate trust services;
commercial leasing; bank credit card services; safe deposit box rentals; and
other personalized banking services. Citizens Savings Bank also operates a
full-service branch in Gibsonburg, Ohio. At December 31, 1998, Citizens Savings
Bank had 26 full-time equivalent employees.
RDSI
- ----
Substantially all of RDSI's business is comprised of providing data
processing services to 49 financial institutions in Ohio, Michigan and Indiana
(including State Bank, Peoples Bank, First National Bank and Citizens Savings
Bank), including information processing for financial institution customer
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services, loan and deposit account information and data analysis. At December
31, 1998, RDSI had 34 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 Savings 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 Savings Bank. The operations of Rurban Life do not
materially impact the consolidated results of operations of the Corporation. As
of December 31, 1998, 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, 1998, Rurban Life had no employees.
Competition
-----------
State Bank, Peoples Bank, First National Bank and Citizens Savings 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 Savings 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.
RDSI also operates in a highly competitive field. RDSI 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 Savings Bank.
RFS operates in the highly competitive trust services field and its
competition is primarily other Ohio bank trust departments.
RMC operates in the highly competitive mortgage banking environment. In
Florida, RMC competes primarily with large national and regional mortgage
brokers who originate well over 50% of new
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loans. RMC also underwrites loans originated by the Corporation's four affiliate
banks and other community banks in Ohio and Florida.
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. 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. 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.
As a national bank, First National Bank is supervised and regulated by
the OCC. Reliance, as a nationally-chartered bank, is also regulated by the OCC.
As Ohio state-chartered banks, State Bank, Peoples Bank and Citizens Savings
Bank are supervised and regulated by the Ohio Division of Financial Institutions
and the Federal Deposit Insurance Corporation ("FDIC"). The deposits of State
Bank, Peoples Bank, First National Bank and Citizens Savings 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 Savings 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.
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 Savings Bank. The risk-based capital guidelines include both a
definition of capital and a framework for calculating risk weighted assets by
assigning assets and off-balance-sheet items to broad risk categories. The
minimum ratio of total capital to risk weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8%. At
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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 3% 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%-2% 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.
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
decreases. 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 Savings 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 Savings
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.
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Deposit Insurance Assessments and Recent Legislation
----------------------------------------------------
The FDIC is authorized to establish separate annual assessment rates
for deposit insurance for members of the Bank Insurance Fund ("BIF") and the
Savings Association Insurance Fund ("SAIF"). State Bank, Peoples Bank, First
National Bank and Citizens Savings Bank are members of BIF. The FDIC may
increase assessment rates for either fund if necessary to restore the fund's
ratio of reserves to insured deposits to its target level within a reasonable
time and may decrease such rates if such target level has been met. The FDIC has
established a risk-based assessment system for both BIF and SAIF members. Under
this system, assessments vary based on the risk the institution poses to its
deposit insurance fund. The risk level is determined based on the institution's
capital level and the FDIC's level of supervisory concern about the institution.
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.
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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:
ASSETS 1998 1997 1996
---- ---- ----
Interest-earning assets
Securities available for sale (1)
Taxable $ 68,465,434 $ 63,329,510 $ 65,724,102
Non-taxable 6,191,050 5,827,365 8,931,157
Federal funds sold 17,112,858 13,009,024 6,950,036
Loans, net of unearned income
and deferred loan fees (2) 376,126,488 342,480,740 305,611,881
--------------- ---------------- ----------------
Total interest-earning assets 467,895,830 424,646,639 387,217,176
Allowance for loan losses (5,382,901) (5,245,851) (4,593,293)
--------------- ---------------- ----------------
462,512,929 419,400,788 382,623,883
Noninterest-earning assets
Cash and due from banks 15,152,187 14,980,442 17,435,810
Premises and equipment, net 10,067,321 8,732,846 8,540,524
Accrued interest receivable and
other assets 6,224,187 8,897,276 8,142,608
--------------- ---------------- ----------------
$ 493,956,624 $ 452,011,352 $ 416,742,825
=============== ================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Deposits
Savings and interest-bearing
demand deposits $ 96,422,897 $ 90,874,940 $ 83,395,385
Time deposits 281,227,689 265,046,479 243,798,539
Federal funds purchased and
securities sold under agreements
to repurchase 1,093,099 2,294,882 2,559,025
Advances from Federal Home
Loan Bank (FHLB) 24,222,456 3,907,485 -
--------------- ---------------- ----------------
Total interest-bearing liabilities 402,966,141 362,123,786 329,752,949
Noninterest-bearing liabilities
Demand deposits 45,418,691 44,405,121 42,733,313
Accrued interest payable and
other liabilities 5,140,844 3,331,816 3,507,865
--------------- ---------------- ----------------
453,525,676 409,860,723 375,994,127
Shareholders' equity (3) 40,430,948 42,150,629 40,748,698
--------------- ---------------- ----------------
$ 493,956,624 $ 452,011,352 $ 416,742,825
=============== ================ ================
(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 and loans
held for sale.
(3) Shown net of average net unrealized appreciation (depreciation) on
securities available for sale, net of tax.
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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.
------------------------------1998--------------------------
Average Average
Balance Interest Rate
------- -------- ----
INTEREST-EARNING ASSETS
Securities (1)
Taxable $ 68,282,845 $ 3,939,667 5.77%
Non-taxable 6,090,977 492,812 (2) 8.09 (2)
Federal funds sold 17,112,858 896,714 5.24
Loans, net of unearned income and
deferred loan fees 376,126,488 (3) 34,671,890 (4) 9.22
--------------- ------------
Total interest-earning assets $ 467,613,168 40,001,083 (2) 8.55% (2)
===============
INTEREST-BEARING LIABILITIES
Deposits
Savings and interest-bearing
demand deposits $ 96,422,897 2,121,304 2.20%
Time deposits 281,227,689 15,221,462 5.41
Federal funds purchased and
securities sold under agree-
ments to repurchase 1,093,099 62,853 5.75
Advances from FHLB 24,222,456 1,337,080 5.52
--------------- ------------
Total interest-bearing liabilities $ 402,966,141 18,742,699 4.65%
=============== ------------
Net interest income $ 21,258,384 (2)
=============
Net interest income as a percent
of average interest-earning assets 4.55% (2)
====
(1) Securities balances represent daily average balances for the amortized cost
of securities. The average rate is calculated based on the amortized cost
of securities.
(2) Computed on tax equivalent basis for non-taxable securities (34% statutory
tax rate in 1998).
(3) Loan balances include principal balances of nonaccrual loans and loans held
for sale.
(4) Includes fees on loans of $1,581,746 in 1998.
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I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (CONTINUED)
------------------------------1997----------------------------
Average Average
Balance Interest Rate
------- -------- ----
INTEREST-EARNING ASSETS
Securities (1)
Taxable $ 63,305,000 $ 3,900,143 6.16%
Non-taxable 5,804,824 473,148(2) 8.15 (2)
Federal funds sold 13,009,024 753,081 5.79
Loans, net of unearned income and
deferred loan fees 342,480,740(3) 32,155,039(4) 9.39
--------------- ------------
Total interest-earning assets $ 424,599,588 37,281,411(2) 8.78%(2)
===============
INTEREST-BEARING LIABILITIES
Deposits
Savings and interest-bearing
demand deposits $ 90,874,940 1,971,334 2.17%
Time deposits 265,046,479 14,334,398 5.41
Federal funds purchased and
securities sold under agree-
ments to repurchase 2,294,882 161,505 7.04
Advances from FHLB 3,907,485 221,918 5.68
--------------- ------------
Total interest-bearing liabilities $ 362,123,786 16,689,155 4.61%
=============== ------------
Net interest income $ 20,592,256 (2)
============
Net interest income as a percent
of average interest-earning assets 4.85%(2)
====
(1) Securities balances represent daily average balances for the amortized cost
of securities. The average rate is calculated based on the amortized cost
of securities.
(2) Computed on tax equivalent basis for non-taxable securities (34% statutory
tax rate in 1997).
(3) Loan balances include principal balances of nonaccrual loans and loans held
for sale.
(4) Includes fees on loans of $1,430,211 in 1997.
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I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (CONTINUED)
------------------------------1996--------------------------
Average Average
Balance Interest Rate
INTEREST-EARNING ASSETS
Securities (1)
Taxable $ 65,675,003 $ 4,066,184 6.19%
Non-taxable 8,771,930 619,411(2) 7.06(2)
Federal funds sold 6,950,036 355,950 5.12
Loans, net of unearned income and
deferred loan fees 305,611,881(3) 28,680,021(4) 9.38
------------- --------------
Total interest-earning assets $ 387,008,850 33,721,566(2) 8.71%(2)
=============
INTEREST-BEARING LIABILITIES
Deposits
Savings and interest-bearing
demand deposits $ 83,395,385 2,109,831 2.53%
Time deposits 243,798,539 12,401,905 5.09
Federal funds purchased and
securities sold under agree-
ments to repurchase 2,559,025 144,773 5.66
------------- --------------
Total interest-bearing liabilities $ 329,752,949 14,656,509 4.44%
============= --------------
Net interest income $ 19,065,057(2)
==============
Net interest income as a percent
of average interest-earning assets 4.93%(2)
====
(1) Securities balances represent daily average balances for the amortized cost
of securities. The average rate is calculated based on the amortized cost
of securities.
(2) Computed on tax equivalent basis for non-taxable securities (34% statutory
tax rate in 1996).
(3) Loan balances include principal balances of nonaccrual loans and loans held
for sale.
(4) Includes fees on loans of $1,237,771 in 1996.
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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 1998, 1997
and 1996.
Total Variance Attributable To
Variance ------------------------
1998/1997 Volume Rate
INTEREST INCOME
Securities
Taxable $ 39,524 $ 295,905 $ (256,381)
Non-taxable 19,664 23,175 (3,511)
Federal funds sold 143,633 220,247 (76,614)
Loans, net of unearned income
and deferred loan fees 2,516,851 3,110,485 (593,634)
----------- ------------ -----------
2,719,672 3,649,812 (930,140)
INTEREST EXPENSE
Deposits
Savings and interest-bearing
demand deposits 149,970 121,734 28,236
Time deposits 887,064 875,800 11,264
Federal funds purchased and securities
sold under agreements to repurchase (98,652) (73,109) (25,543)
Advances from FHLB 1,115,162 1,121,560 (6,398)
----------- ------------ -----------
2,053,544 2,045,985 7,559
----------- ------------ -----------
NET INTEREST INCOME $ 666,128 $ 1,603,827 $ (937,699)
=========== ============ ===========
12
13
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (CONTINUED)
Total Variance Attributable To
Variance -------------------------
1997/1996 Volume Rate
--------- ------ ----
INTEREST INCOME
Securities
Taxable $ (166,041) $ (146,100) $ (19,941)
Non-taxable (146,263) (231,718) 85,455
Federal funds sold 397,131 345,492 51,639
Loans, net of unearned income
and deferred loan fees 3,475,018 3,461,559 13,459
------------- ------------ -------------
3,559,845 3,429,233 130,612
INTEREST EXPENSE
Deposits
Savings and interest-bearing
demand deposits (138,497) 178,809 (317,306)
Time deposits 1,932,493 1,120,456 812,037
Federal funds purchased and securities
sold under agreements to repurchase 16,732 (16,027) 32,759
Advances from FHLB 221,918 221,918 -
------------- ------------ -------------
2,032,646 1,505,156 527,490
------------- ------------ -------------
NET INTEREST INCOME $ 1,527,199 $ 1,924,077 $ (396,878)
============= ============ =============
13
14
II. INVESTMENT PORTFOLIO
A. The book value of securities available for sale as of December
31 are summarized as follows:
1998 1997 1996
---- ---- ----
U.S. Treasury and U.S. Government
agency securities $ 20,110,990 $ 43,398,433 $ 54,235,593
Obligations of states and
political subdivisions 9,201,982 5,395,065 6,389,434
Mortgage-backed securities 50,608,107 21,159,472 4,837,112
Marketable equity securities 2,221,850 1,730,150 1,173,750
------------- ------------- --------------
$ 82,142,929 $ 71,683,120 $ 66,635,889
============= ============= ==============
B. The maturity distribution and weighted average yield of
securities available for sale at December 31, 1998 are as
follows:
--------------------------Maturing--------------------------
After One Year After Five Years
Within But Within But Within After
One Year Five Years Ten Years Ten Years
-------- ---------- --------- ---------
U.S. Treasury and U.S. Government
agency securities $ 12,390,993 $ 6,343,853 $ 1,336,345 $ 39,799
Obligations of states and political
subdivisions (1) 552,172 3,348,737 1,149,585 4,151,488
Mortgage-backed securities (2) 660,623 18,044,931 17,138,264 14,764,289
Marketable equity securities - - - 2,221,850
------------- ------------- ------------- --------------
$ 13,603,788 $ 27,737,521 $ 19,624,194 $ 21,177,426
============= ============= ============= ==============
Weighted average yield 4.34% 6.28% 6.33% 5.89%
(1) Yields are not presented on a tax-equivalent basis.
(2) Maturity based upon estimated weighted-average life.
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,
1998.
14
15
III. LOAN PORTFOLIO
A. Types of Loans - Total loans on the balance sheet are
comprised of the following classifications at December 31 for
the years indicated:
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Commercial, financial
and agricultural (1) $ 248,840,548 $ 217,324,268 $ 185,838,900 $ 63,444,036 $ 62,866,040
Real estate mortgage (1) 72,225,323 75,212,817 72,356,881 152,555,540 152,136,086
Consumer loans
to individuals 73,244,850 67,198,876 60,512,850 61,600,664 65,676,876
------------- -------------- ------------- ------------- --------------
$ 394,310,721 $ 359,735,961 $ 318,708,631 $ 277,600,240 $ 280,679,002
============= ============== ============= ============= ==============
Real estate mortgage
loans held for resale $ 18,509,275 $ 4,404,327 $ 1,875,636 $ 2,949,293 $ 4,689,611
============= ============== ============= ============= ==============
(1) Beginning in 1996, commercial real estate loans are classified as
commercial, financial and agricultural. Prior to 1996, commercial
real estate loans are classified as real estate mortgage.
CONCENTRATIONS OF CREDIT RISK: The Corporation grants commercial, real estate
and installment loans to customers mainly in northern Ohio. Commercial loans
include loans collateralized by business assets and agricultural loans
collateralized by crops and farm equipment. As of December 31, 1998, commercial,
financial and agricultural loans make up approximately 63% of the loan portfolio
and the loans are expected to be repaid from cash flow from operations of
businesses. As of December 31, 1998, residential first mortgage loans make up
approximately 18% of the loan portfolio and are collateralized by first
mortgages on residential real estate. As of December 31, 1998, consumer loans to
individuals make up approximately 19% of the loan portfolio and are primarily
collateralized by consumer assets.
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, 1998 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 commercial, financial and agricultural
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 $ 72,766,000
After one year but within five years 67,016,000
After five years 109,059,000
----------------
$ 248,841,000
15
16
III. LOAN PORTFOLIO (CONTINUED)
Commercial, Financial and Agricultural
Interest Sensitivity
--------------------
Fixed Variable
Rate Rate Total
Due after one year but within five years $ 45,291,000 $ 21,725,000 $ 67,016,000
Due after five years 21,222,000 87,837,000 109,059,000
-------------- -------------- --------------
$ 66,513,000 $ 109,562,000 $ 176,075,000
============== ============== ==============
C. Risk Elements
-------------
1. Nonaccrual, Past Due, Restructured and Impaired Loans
- The following schedule summarizes nonaccrual, past
due, restructured and impaired loans at December 31.
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
(a) Loans accounted for on a
nonaccrual basis $ 1,880 (1) $ 2,303 (1) $ 1,055 (1) $ 2,403 (1) $ 3,538
(b) Accruing loans which are
contractually past due
90 days or more as to
interest or principal payments 1,742 462 293 711 1,198
(c) Loans not included in (a) or
(b) which are "Troubled Debt
Restructurings" as defined by
Statement of Financial Accounting
Standards
No. 15 - - - - -
(d) Other loans defined as
"impaired" - - 2,490 - -
-------- ------- -------- -------- -------
$ 3,622 $ 2,765 $ 3,838 $ 3,114 $ 4,736
======== ======= ======== ======== =======
(1) Includes loans defined as "impaired" under SFAS No. 114.
16
17
III. LOAN PORTFOLIO (CONTINUED)
Management believes the allowance for loan losses at December 31, 1998 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.
1998
(In thousands)
Gross interest income that would have been recorded in 1998 on
nonaccrual loans outstanding at December 31, 1998 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 $ 355
Interest income actually recorded on nonaccrual loans and included in
net income for the period (123)
----
Interest income not recognized during the period $232
====
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. These
policies apply to both commercial and consumer loans.
2. Potential Problem Loans
As of December 31, 1998, in addition to the
$3,381,000 of loans reported under Item III, C.1.,
there are approximately $10,238,000 in other
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 at some future
date. 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 such loans are
not included in the $10,238,000 potential problem
loans described above, management believes that such
loans will not materially impact future operating
results, liquidity, or capital resources.
17
18
III. LOAN PORTFOLIO (CONTINUED)
3. Foreign Outstandings
None
4. Loan Concentrations
At December 31, 1998, loans outstanding related to
agricultural operations or collateralized by
agricultural real estate aggregated approximately
$39,023,000. At December 31, 1998, there were no
agriculture loans which were accounted for on a
nonaccrual basis; and there are no 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 $456,000 in foreclosed real estate, there are no
other interest-bearing assets as of December 31, 1998 which
would be required to be disclosed under Item III. C.1 or 2 if
such assets were loans.
18
19
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:
1998 1997 1996
---- ---- ----
LOANS
Loans outstanding at end of period (1) $ 412,478,828 $ 363,851,637 $ 320,321,476
============= ============= =============
Average loans outstanding during period (1) $ 376,126,488 $ 342,480,740 $ 305,611,881
============= ============= =============
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $ 5,239,601 $ 5,066,600 $ 4,270,000
Allowance of acquired Bank - - -
Loans charged-off
Commercial, financial and agricultural loans (2) (885,132) (438,317) (308,143)
Real estate mortgage (2) (59,940) (30,863) (14,470)
Consumer loans to individuals (390,420) (856,426) (555,164)
------------- ------------- -------------
(1,335,492) (1,325,606) (877,777)
Recoveries of loans previously charged-off
Commercial, financial and agricultural loans (2) 248,054 308,283 380,951
Real estate mortgage (2) 3,610 6,877 8,288
Consumer loans to individuals 173,081 235,482 324,129
------------- ------------- -------------
424,745 550,642 713,368
------------- ------------- -------------
Net loans charged-off (910,747) (774,964) (164,409)
Provision for loan losses 1,080,000 947,965 961,009
------------- ------------- -------------
Balance at end of period $ 5,408,854 $ 5,239,601 $ 5,066,600
============= ============= =============
Ratio of net charge-offs during the period to
average loans outstanding during the period .24% .23% .05%
=== === ===
1995 1994
---- ----
LOANS
Loans outstanding at end of period (1) $ 280,314,137 $ 285,106,409
============= =============
Average loans outstanding during period (1) $ 282,864,867 $ 249,993,210
============= =============
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $ 4,770,000 $ 3,390,000
Allowance of acquired Bank - 1,100,000
Loans charged-off
Commercial, financial and agricultural loans (2) (1,267,028) (275,543)
Real estate mortgage (2) (509,108) (66,531)
Consumer loans to individuals (874,690) (408,879)
------------- -------------
(2,650,826) (750,953)
Recoveries of loans previously charged-off
Commercial, financial and agricultural loans (2) 497,437 85,052
Real estate mortgage (2) 23,432 56,809
Consumer loans to individuals 178,059 187,602
------------- -------------
698,928 329,463
------------- -------------
Net loans charged-off (1,951,898) (421,490)
Provision for loan losses 1,451,898 701,490
------------- -------------
Balance at end of period $ 4,270,000 $ 4,770,000
============= =============
Ratio of net charge-offs during the period to
average loans outstanding during the period .69% .17%
=== ===
(1) Net of unearned income and deferred loan fees, including loans held for
sale
(2) Beginning in 1996, commercial real estate loans are classified as
commercial, financial and agricultural. Prior to 1996, commercial real
estate loans are classified as real estate mortgage.
The allowance for loan losses balance and the provision for loan losses 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
19
20
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 the other
periods presented is due largely to the charge-off of certain credits which were
previously reported on a nonaccrual basis.
20
21
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 Category
Allowance to Total Allowance To Total
Amount Loans Amount Loans
------ ----- ------ -----
December 31, 1998 December 31, 1997
----------------- -----------------
Commercial, financial
and agricultural $ 2,704,000 63.1% $ 3,678,000 60.4%
Residential first mortgage 144,000 18.3 203,000 20.9
Consumer loans
to individuals 1,026,000 18.6 742,000 18.7
Unallocated 1,534,854 N/A 616,601 N/A
------------ --- ------------ ---
$ 5,408,854 100.0% $ 5,239,601 100.0%
============ ===== ============ =====
December 31, 1996 December 31, 1995
----------------- -----------------
Commercial, financial
and agricultural $ 3,445,000 58.3% $ 1,665,000 22.9%
Real estate mortgage 203,000 22.7 512,000 54.9
Consumer loans
to individuals 811,000 19.0 1,452,000 22.2
Unallocated 607,600 N/A 641,000 N/A
------------ --- ------------ ---
$ 5,066,600 100.0% $ 4,270,000 100.0%
============ ===== ============ =====
December 31, 1994
Commercial, financial
and agricultural $ 1,764,900 22.4%
Real estate mortgage 572,400 54.2
Consumer loans
to individuals 1,621,800 23.4
Unallocated 810,900 N/A
$ 4,770,000 100.0%
============ =====
Beginning in 1998, management established a new methodology for allocating the
allowance for loan losses which includes identifying specific allocations for
impaired and problem loans and quantifying general allocations for other loans
based on a detailed evaluation of historical loss ratios and individual
portfolio risk factors. Additionally, the unallocated allowance is maintained at
approximately 30% of the total allowance due to inherent uncertainty in the
allocation process. Prior to 1998, allowance allocations were made on a more
subjective basis. Management believes the new methodology more appropriately
allocates the allowance for known inherent risks within the individual loan
portfolios.
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.
21
22
V. DEPOSITS
The average amount of deposits and average rates paid are summarized as
follows for the years ended December 31:
1998 1997 1996
-------------------- --------------------- ----------------------
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
Savings and interest-bearing $ 96,422,897 2.20% $ 90,874,940 2.17% $ 83,395,385 2.53%
demand deposits
Time deposits 281,227,689 5.41 265,046,479 5.41 243,798,539 5.09
Demand deposits
(noninterest-bearing) 45,418,691 - 44,405,121 - 42,733,313 -
------------- -------------- ---------------
$ 423,069,277 $ 400,326,540 $ 369,927,237
============= ============== ===============
Maturities of time certificates of deposit and other time deposits of
$100,000 or more outstanding at December 31, 1998 are summarized as follows:
Amount
------
Three months or less $ 19,876,000
Over three months and through six months 17,173,000
Over six months and through twelve months 22,951,000
Over twelve months 4,888,000
--------------
$ 64,888,000
22
23
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:
1998 1997 1996
---- ---- ----
Average total assets $ 493,956,624 $ 452,011,352 $ 416,742,825
=============== =============== ===============
Average shareholders' equity (1) $ 40,430,948 $ 42,150,629 $ 40,748,698
=============== =============== ===============
Net income $ 4,277,877 $ 5,515,797 $ 4,849,214
=============== =============== ===============
Cash dividends declared $ 1,660,963 $ 1,648,730 $ 1,308,975
=============== =============== ===============
Return on average total assets .87% 1.22% 1.16%
=== ==== ====
Return on average share-
holders' equity 10.58% 13.09% 11.90%
===== ===== =====
Dividend payout percentage (2) 38.83% 29.89% 26.99%
===== ===== =====
Average shareholders' equity
to average total assets 8.19% 9.33% 9.78%
==== ==== ====
(1) Net of average unrealized appreciation or depreciation on securities
available for sale.
(2) 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.
23
24
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. 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 2,186 square feet on
the second floor and 2,910 on the lower level presently are
leased to RDSI, 6,408 square feet on the second floor are leased
to RFS and 3,565 square feet on the lower level are leased to
the Corporation.
2. A drive through branch office located in downtown Defiance, Ohio
containing 3,200 square feet of floor space was built in 1961.
Most of the space is in the basement which is used for storage.
It contains a three-bay drive-thru, two inside teller locations,
an ATM 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 and recently remodeled in 1998. It is a free
standing structure located in front of a shopping center.
6. 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.
7. 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.
8. 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.
9. 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. This office was remodeled in 1998.
24
25
10. 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 which was
remodeled in 1991. The second floor contains bookkeeping, office and storage
space.
The following is a listing and brief description of the properties owned
by Citizens Savings 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.
RMC leases 5,400 square foot office space located at Estancia Boulevard,
Suite 201, Clearwater, Florida. This office was first leased on January 22,
1997.
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. Submission of Matters to a Vote of Security Holders.
- ---------------------------------------------------------------
Not applicable.
25
26
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
Name Age its Subsidiaries and Principal Occupation(s)
---- --- --------------------------------------------
Steven D. VanDemark 46 Chairman of the Board of Directors of
the Corporation; Chairman of the Board
of Directors of State Bank; Director of
RDSI; Director of RMC; General Manager
of Defiance Publishing Company,
Defiance, Ohio, a newspaper publisher.
Thomas C. Williams 50 President and Chief Executive Officer of
the Corporation since June 1995;
Director of the Corporation, State Bank,
Peoples Bank, Rurban Life, RFS, RMC and
RDSI. President and Chief Executive
Officer of State Bank, June 1995 to
August 1996; 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.
Robert W. Constien 46 Executive Vice President of the
Corporation since March 12, 1997; Vice
President of the Corporation from 1994
to March, 1997; Chief Executive Officer
and a Director of RFS since March 1997;
Director of State Bank; Executive Vice
President of State Bank from 1994 to
1997, Senior Vice President of State
Bank from 1991 to 1993 and Vice
President of State Bank from 1987 to
1991.
Richard C. Warrener 54 Executive Vice President of the
Corporation since December 1997; Chief
Financial Officer of the Corporation
since December 31, 1996; Senior Vice
President of the Corporation from
December 31, 1996 to December 1997;
Senior Vice President and Chief
Financial Officer of FirstMerit Bank,
N.A. from March 1994 to December 1996;
Senior Vice President and Chief
Financial Officer of Life Savings Bank
from January 1991 to March 1994;
Division Vice President and Chief
Financial Officer of Florida Federal
Savings Bank from 1988 to November 1990.
26
27
Position(s) Held with the Corporation and
Name Age its Subsidiaries and Principal Occupation(s)
---- --- --------------------------------------------
Mark E. Rowland 47 Senior Vice President and Senior Lender
of the Corporation since December 1997;
Executive Vice President of State Bank
since June 1997; Senior Vice President
of State Bank since January 1997;
Executive Vice President of Bancapital
Corporation, a financial services
company involved primarily in mortgage
lending, from January 1991 to June 1996.
Mark A. Soukup 42 President and Chief Executive Officer of
(1) State Bank since August 1996; Senior
Vice President-Retail Banking of State
Bank from November 1995 to August 1996;
Branch Administrator FirstMerit - First
National Bank of Ohio from 1992 to
September 1995.
Kenneth A. Joyce 51 Chairman and Chief Executive Officer of
(1) RDSI since October 1997; Chairman and
Chief Executive Officer of RMC since
November 1997; Executive Vice President
of State Bank from June 1997 to November
1997; President of FirstMerit Bank, FSB,
Clearwater Florida from July 1995 to
December 1996.
(1) For purposes of this Form 10-K, even though Mr. Soukup and Mr. Joyce
are not employed as officers of the Corporation and their salaries
are not paid by the Corporation, they are included in the list of
Executive Officers of the Corporation because they perform policy
making functions for the Corporation.
PART II
-------
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
- ------- ----------------------------------------------------------------------
The common shares of the Corporation are traded on the OTC Bulletin
Board, Symbol "RBNF". 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 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
declared in 1998.
27
28
Per Share Per Share
Bid Prices Dividends
1997 High Low Declared
---- ---- --- --------
First Quarter $ 16.50 $13.00 $ .09
Second Quarter 16.00 15.00 .09
Third Quarter 15.75 14.00 .09
Fourth Quarter 15.69 13.75 .10
Per Share Per Share
Bid Prices Dividends
1998 High Low Declared
---- ---- --- --------
First Quarter $ 17.25 $15.31 $ .10
Second Quarter 19.25 17.00 .10
Third Quarter 20.50 16.50 .10
Fourth Quarter 18.00 15.50 .10
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
OPERATION - 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 March 5, 1999, was
1,176.
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Item 6. Selected Financial Data.
- --------------------------------
SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
Year Ended December 31, 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
EARNINGS
Total interest income $ 39,834 $ 37,120 $ 33,511 $ 31,430 $ 23,474
Total interest expense 18,743 16,689 14,657 14,238 9,612
Net interest income 21,091 20,431 18,854 17,192 13,862
Provision for loan losses 1,080 948 961 1,452 701
Total noninterest income 9,970 7,756 6,194 5,753 5,312
Total noninterest expense 23,630 19,253 16,876 15,271 12,664
Income tax expense 2,073 2,470 2,362 2,127 1,899
Net income 4,278 5,516 4,849 4,095 3,910
- ------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (1)
Basic earnings (2) $ 1.05 $ 1.25 $ 1.07 $ 0.89 $ 0.90
Diluted earnings (2) 1.05 1.24 1.07 0.89 0.90
Cash dividends declared 0.40 0.37 0.285 0.285 0.285
- ------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES
Average shareholders'
equity $ 40,431 $ 42,151 $ 40,749 $ 37,877 $ 30,614
Average total assets 493,957 452,011 416,743 398,560 335,118
- ------------------------------------------------------------------------------------------------------------------
RATIOS
Return on average
shareholders' equity 10.58% 13.09% 11.90% 10.81% 12.77%
Return on average total
assets .87 1.22 1.16 1.03 1.17
Cash dividend payout
ratio (cash dividends
divided by net income) 38.83 29.89 26.99 32.01 32.33
Average shareholders'
equity to average total
assets 8.19 9.33 9.78 9.50 9.14
- ------------------------------------------------------------------------------------------------------------------
PERIOD END TOTALS
Total assets $ 537,155 $ 471,371 $ 433,273 $ 411,226 $ 393,547
Total loans and leases 394,311 359,736 318,709 277,600 280,679
Total deposits 450,813 415,181 387,766 367,797 354,646
Advances from FHLB 28,890 7,530 - - -
Shareholders' equity 41,903 39,094 41,489 40,078 35,675
Shareholders' equity
per share (1) 10.12 9.44 9.07 8.74 7.78
- ------------------------------------------------------------------------------------------------------------------
(1) Per share data restated for 5% stock dividend declared in 1996 and
two-for-one stock split declared in 1998.
(2) Restated to reflect adoption of SFAS No. 128 on December 31, 1997.
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EARNINGS SUMMARY
CONSOLIDATED NET INCOME for Rurban Financial Corp. (the "Corporation") for 1998
was $4.3 million, down from $5.5 million in 1997 and $4.8 million in 1996. Basic
earnings per share were $1.05 in 1998, a decrease of 16% from $1.25 in 1997. The
1997 basic earnings per share results represented a 17% increase from $1.07 in
1996. Cash dividends declared per share were $.40 in 1998 compared to $.37 in
1997 and $.285 in 1996, increases of 8% and 30% respectively. Per share data has
been adjusted to reflect the 5% stock dividend declared in December 1996 and the
two-for-one stock split declared in May 1998.
RESULTS OF OPERATIONS
1998 COMPARED WITH 1997
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NET INTEREST INCOME for 1998 was $21.1 million, an increase of $.66 million
(3.2%) over 1997. The increase was primarily due to a 9.8% increase in the
average balance of total loans and loans held for sale. The average yield on
loans declined to 9.22% compared to 9.39% for 1997. The decline in earning asset
yield, the increase in the average rate on interest bearing liabilities from
4.61% in 1997 to 4.65% in 1998 and the funding cost of the November 1997 $6.7
million stock repurchase program combined to result in a decline in the net
interest margin from 4.85% in 1997 to 4.55% in 1998.
AT DECEMBER 31, 1998, total loans and loans held for sale, net of deferred loan
fees amounted to $412.5 million, an increase of 13.3% over the December 31, 1997
balance of $363.9 million. This increase was due to the Corporation's loan
origination efforts.
COMMERCIAL, FINANCIAL AND AGRICULTURAL LOANS increased $31.5 million from $217.3
million at December 31, 1997 to $248.8 million at December 31, 1998. This
increase occurred as the result of the Corporation's goal to increase small
business loan relationships.
AT DECEMBER 31, 1998, approximately $18.5 million of real estate mortgage loans
were held for sale in the secondary market. During 1998, approximately $112.4
million of real estate mortgage loans were originated for sale and approximately
$98.3 million were sold in the secondary market. This represents an increase of
$70.1 million (248%) in loans sold in 1998 as compared to 1997. Real estate
mortgage loans originated for sale increased $81.6 million in 1998, as compared
to 1997, primarily due to the loan origination efforts of Rurban Mortgage
Company. Net gains on loan sales for 1998 totaled $1,934,000, an increase of
$1,382,000 as compared to $552,000 in 1997. During 1998, most loans were sold on
a servicing released basis. Loans originated for sale are primarily fixed rate
mortgage loans. Management anticipates continued growth in the volume of loans
originated for sale in 1999.
SECURITIES AVAILABLE FOR SALE TOTALED $82.1 million at December 31, 1998 which
represented an increase of $10.4 million (14.5%) from total securities of $71.7
million at December 31, 1997. As of December 31, 1998, all securities of the
Corporation were designated available for sale. Available for sale securities
represent those securities which the Corporation may decide to sell if
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needed for liquidity, asset/liability management or other reasons. Such
securities are reported at fair value with net unrealized appreciation
(depreciation) included as a separate component of shareholders' equity, net of
tax. This resulted in a net increase in shareholders' equity of $203,000 at
December 31, 1998.
TOTAL DEPOSITS AT December 31, 1998 amounted to $450.8 million, an increase of
$35.6 million (8.6%) over total deposits of $415.2 million at December 31, 1997.
The increase in 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 and increase its deposit levels.
OTHER BORROWINGS at December 31, 1998 were $38.4 million compared to $12.5
million at December 31, 1997. These borrowings consisted of $28.9 million of
FHLB Advances and $9.5 million of federal funds purchased as the Corporation
continued to access alternative sources for funding its loan growth.
THE PROVISION FOR LOAN LOSSES charged to operations was based on the amount of
net losses incurred and management's estimation of future losses based on an
evaluation of loan portfolio risk and economic factors. The provision for loan
losses was $1,080,000 in 1998 compared to $948,000 in 1997.
THE ALLOWANCE FOR LOAN LOSSES at December 31, 1998 was $5.4 million or 1.31% of
total loans and loans held for sale, net of deferred loan fees, compared to $5.2
million or 1.44% at December 31, 1997.
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.
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 8, with 1-3 being satisfactory, 4 watch, 5 special
mention, 6 substandard, 7 doubtful, and 8 as loss which are then charged off.
Loans graded a 6 or worse are considered for impairment. Loans are generally
moved to nonaccrual status when 90 days or more past due. Such 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, 1998, the Corporation
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classified three loan relationships as impaired, totaling $1.3 million.
Management allocated $225,000 of the allowance for loan losses to impaired loans
at December 31, 1998.
MANAGEMENT ALLOCATED approximately 50% of the allowance for loan losses to
commercial, financial and agricultural loans; 19% to consumer loans; and 3% to
residential first mortgage loans at December 31, 1998, leaving a balance of 28%
unallocated. Nonperforming loans increased to $3.6 million at December 31, 1998
from $2.8 million at December 31, 1997. The increase in nonperforming loans
relates primarily to an increase in accruing loans past due over 90 days at the
end of 1998. 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. Management believes
the allowance for loan losses balance at December 31, 1998 is adequate to absorb
losses on these and other loans.
TOTAL NONINTEREST INCOME increased $2,214,000 to $10.0 million in 1998 from $7.8
million in 1997. Net gain on sales of loans increased $1,382,000 to $1,934,000
in 1998 as compared to $552,000 in 1997. Trust fee income increased $250,000
(10.7%) to $2,577,000 in 1998 from $2,327,000 in 1997 primarily due to an
increase in trust assets managed from $294 million at December 31, 1997 to $326
million at December 31, 1998. Data processing fees increased $316,000 (11.4%) to
$3,082,000 in 1998 compared to $2,766,000 in 1997. RDSI purchased a second
mainframe computer and doubled its bank data processing capacity during the
third quarter of 1998. The $316,000 increase would have been a $554,000 increase
excluding the inflation of 1997's data processing fees for a $238,000 cash to
accrual change made in 1997. The primary reasons for the $554,000 increase were
increases in the number of customer accounts processed and in the level of sales
of ancillary data processing products. The increase in number of accounts was a
result of customer account growth at client banks and growth in the number of
bank clients from 36 at the end of 1997 to 39 at year-end 1998.
TOTAL NONINTEREST EXPENSE increased $4.4 million (22.7%) to $23.6 million in
1998, from $19.3 million in 1997, primarily due to the following factors.
Salaries and employee benefits increased $2.2 million (22.0%) to $12.4 million
in 1998 compared to $10.2 million in 1997. This increase was due primarily to
annual merit increases, and staffing increases in the Corporation's three
non-interest income generating companies (RDSI, Reliance Financial Services and
Rurban Mortgage Company) and in the Holding Company's administrative staff.
Equipment rentals, depreciation and maintenance increased $505,000 primarily due
to the purchase of a second mainframe computer and associated software licensing
to double RDSI's data processing capacity. Other expenses increased $1,526,000
(25.1%) primarily due to inflation and additional expenses attributed to the
growth in loan origination volume at Rurban Mortgage Company.
INCOME TAX EXPENSE for the year ended December 31, 1998 was $2.1 million, a
decrease of $397,000 (16.1%) from 1997. This decrease was primarily attributable
to a decrease in income before income tax expense.
BEGINNING MARCH 31, 1998, SFAS No. 130, Reporting Comprehensive Income, was
adopted which requires the reporting of comprehensive income for 1998, with
prior information restated
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to be comparable. Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes the net change in
unrealized appreciation and depreciation on securities available for sale, net
of tax, which is also recognized as a separate component of shareholders'
equity. Total net change in unrealized appreciation (depreciation) on securities
available for sale, net of reclassification adjustments and tax effects totaled
$(15,918), $223,824 and $(454,461) for the years ended December 31, 1998, 1997
and 1996, respectively.
A NEW ACCOUNTING STANDARD, SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, became effective beginning December 31,
1998. Information related to the Corporation's material business segments
(banking, mortgage banking, data processing and other) is reported in Note 17 to
the consolidated financial statements.
RESULTS OF OPERATIONS
1997 COMPARED WITH 1996
- -----------------------
NET INTEREST INCOME for 1997 was $20.4 million an increase of $1.6 million
(8.4%) over 1996. The increase was primarily due to additional net interest
income resulting from an 12.1% increase in the average balance of total loans
and loans held for sale. While the average yield on loans was flat at 9.39%
compared to 9.38% for 1996, the mix of loans as a percentage of average earning
assets increased from 79.0% in 1996 to 80.7% in 1997, thereby improving the
average yield on earning assets from 8.71% to 8.78%. The improvement in earning
asset yield was more than offset by the increase in the average rate on interest
bearing liabilities from 4.44% in 1996 to 4.61% in 1997; resulting in a decline
in the net interest margin from 4.93% in 1996 to 4.85% in 1997.
AT DECEMBER 31, 1997, total loans and loans held for sale, net of deferred loan
fees amounted to $363.9 million, an increase of 13.6% over net loans of $320.3
million at December 31, 1996. This increase was primarily due to the
Corporation's loan origination efforts.
COMMERCIAL, FINANCIAL AND AGRICULTURAL LOANS increased $31.5 million from $185.8
million at December 31, 1996 to $217.3 million at December 31, 1997. This
increase occurred as the result of the hiring of additional commercial lending
staff and the Corporation's goal to increase commercial loan relationships.
AT DECEMBER 31, 1997, approximately $4.4 million of real estate mortgage loans
were held for sale in the secondary market. During 1997, approximately $30.8
million of real estate mortgage loans were originated for sale and approximately
$28.3 million were sold in the secondary market. This represents an increase of
$6.8 million (32%) in loans sold in 1997 as compared to 1996. Real estate
mortgage loans originated for sale increased $10.4 million in 1997, as compared
to 1996, primarily due to the loan origination efforts of the Rurban Mortgage
Division of State Bank and Rurban Mortgage Company. Net gains on loan sales for
1997 totaled $552,000, an increase of $762,000 as compared to net losses on loan
sales of $210,000 in 1996. During 1997, most loans were sold on a servicing
released basis. Loans originated for sale were primarily fixed rate mortgage
loans.
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SECURITIES AVAILABLE FOR SALE TOTALED $71.7 million at December 31, 1997 which
represented an increase of $5.0 million (7.6%) from total securities of $66.6
million at December 31, 1996. As of December 31, 1997, all securities of the
Corporation were designated available for sale. Available for sale securities
represent those securities which the Corporation may decide to sell if needed
for liquidity, asset/liability management or other reasons. Such securities are
reported at fair value with net unrealized appreciation (depreciation) included
as a separate component of shareholders' equity, net of tax. This resulted in a
net increase in shareholders' equity of $219,000 at December 31, 1997.
TOTAL DEPOSITS AT December 31, 1997 amounted to $415.2 million, an increase of
$27.4 million (7.1%) over total deposits of $387.8 million at December 31, 1996.
The increase in deposits is believed to have occurred as a result of increased
deposit services and flexibility of products offered.
OTHER BORROWINGS at December 31, 1997 were $12.5 million and $0 at December 31,
1996. These borrowings consisted of $7.5 million of FHLB Advances and $4.9
million of federal funds purchased as the Corporation began to access
alternative sources for funding its loan growth.
THE PROVISION FOR LOAN LOSSES charged to operations was based on the amount of
net losses incurred and management's estimation of future losses based on an
evaluation of loan portfolio risk and economic factors. The provision for loan
losses was $948,000 in 1997 compared to $961,000 in 1996.
THE ALLOWANCE FOR LOAN LOSSES at December 31, 1997 was $5.2 million or 1.44% of
total loans and loans held for sale, net of deferred loan fees, compared to $5.1
million or 1.58% at December 31, 1996.
MANAGEMENT ALLOCATED approximately 70% of the allowance for loan losses to
commercial, financial and agricultural loans; 14% to consumer loans; and 4% to
residential first mortgage loans at December 31, 1997, leaving a balance of 12%
unallocated. Nonperforming loans decreased to $2.8 million at December 31, 1997
from $3.8 million at December 31, 1996. The decrease in nonperforming loans
relates primarily to the reduction of impaired loans during 1997.
TOTAL NONINTEREST INCOME increased $1,562,000 (25.2%) to $7.8 million in 1997
from $6.2 million in 1996. Net gain on sales of loans increased $762,000 to
$552,000 in 1997 as compared to a net loss of $210,000 in 1996. During the first
quarter of 1997, an adjustment of approximately $238,000 was made to reflect the
adoption of SFAS No. 122 as of January 1, 1996. Approximately $200,000 of that
amount related to the recording of originated mortgage servicing rights on loans
sold in 1996. Trust fees income declined $32,000 (1.4%) to $2,327,000 in 1997
from $2,359,000 in 1996. This $32,000 decline actually represented a $228,000
(10.8%) increase after considering the $260,000 increase in 1996 as the result
of converting from cash to accrual basis of accounting for trust fees in 1996.
Data processing fees increased $563,000 (25.5%) to $2,766,000 in 1997 compared
to $2,203,000 in 1996. An adjustment in 1997 to convert from cash to accrual
basis of accounting for data processing fees accounted for $238,000 (42.3%) of
this increase.
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TOTAL NONINTEREST EXPENSE increased $2.4 million (14.1%) to $19.3 million in
1997, from $16.9 million in 1996, primarily due to the following factors.
Salaries and employee benefits increased $1.9 million (22.4%) to $10.2 million
in 1997 compared to $8.3 million in 1996. This increase was due primarily to
three factors; 1) annual merit increases, 2) staffing increases, 3) the
extension of performance related bonuses and incentive compensation throughout
the organization, and 4) individual employee equity and market salary
adjustments to maintain competitive salaries and retain qualified employees.
Equipment rentals, depreciation and maintenance declined $150,000 primarily due
to a reduction in the dollar amount for classifying equipment purchases as fixed
assets rather than recording them as direct expense in accordance with the
Corporation's new fixed asset capitalization policy. The minimum amount to be
capitalized was reduced from $5,000 to $1,000. Other expenses increased $649,000
(11.9%) primarily due to inflation and additional expenses attributed to loan
and deposit growth.
INCOME TAX EXPENSE for the year ended December 31, 1997 was $2.5 million, an
increase of $108,000 (4.6%) from 1996. This increase was primarily attributable
to an increase in income before income tax expense.
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 and due from banks,
federal funds sold, securities available-for sale and loans held for sale. These
assets are commonly referred to as liquid assets. Liquid assets were $126
million at December 31, 1998 compared to $98 million at December 31, 1997 and
$103 million at December 31, 1996. Liquidity levels increased $28 million from
1997 to 1998 primarily due to the increase in advances from the Federal Home
Loan Bank. Management recognizes that securities may need to be sold in the
future to help fund loan demand and, accordingly, as of December 31, 1998, the
entire securities portfolio of $82.1 million was classified as available for
sale.
THE CORPORATION'S RESIDENTIAL FIRST MORTGAGE PORTFOLIO of $72.2 million which
can and has been readily used to collateralize borrowings is an additional
source of liquidity. Management believes its current liquidity level is
sufficient to meet anticipated future growth as well as potential demands
related to the Year 2000 date change.
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 1998, 1997 and 1996 follows.
THE CORPORATION experienced a net decrease in cash from operating activities in
1998 and net increases in 1997 and 1996. Net cash from operating activities was
$(6.6) million, $4.1 million and $8.6 million for the years ended December 31,
1998, 1997 and 1996, respectively. The
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decrease in net cash from operating activities of $10.6 million for 1998 as
compared to 1997 was primarily due to increases in loans held for sale of $14.1
million.
NET CASH FLOW FROM INVESTING ACTIVITIES was $(50.0 million), $(47.8 million) and
$(20.0 million) for the years ended December 31, 1998, 1997 and 1996,
respectively. The changes in net cash from investing activities include loan
growth, as well as normal maturities and reinvestments of securities and
premises and equipment expenditures. In 1998, 1997 and 1996, the Corporation
received $24.8 million, $28.6 million and $19.4 million, respectively, from
sales of securities available for sale, while proceeds from repayments and
maturities of securities were $24.1 million, $8.8 million and $46.4 million in
1998, 1997 and 1996, respectively.
NET CASH FLOW FROM FINANCING ACTIVITIES was $59.9, $32.0 and $17.0 million for
the years ended December 31, 1998, 1997 and 1996, respectively. The net cash
increase was primarily attributable to growth in total deposits of $35.6, $27.4
and $20.0 million in 1998, 1997 and 1996, respectively. Other significant
changes in 1998 and 1997 included $21.4 million and $7.5 million in net
borrowings from the Federal Home Loan Bank. In 1997, $6.7 million was paid to
repurchase common stock.
ASSET LIABILITY MANAGEMENT
ASSET LIABILITY MANAGEMENT involves developing and monitoring strategies to
maintain sufficient liquidity, maximize net interest income and minimize the
impact that significant fluctuations in market interest rates would have on
earnings. The business of the Corporation and the composition of its balance
sheet consists of investments in interest-earning assets (primarily loans,
mortgage-backed securities, and securities available for sale) which are
primarily funded by interest-bearing liabilities (deposits and borrowings). With
the exception of loans which are originated and held for sale, all of the
financial instruments of the Corporation are for other than trading purposes.
All of the Corporation's transactions are denominated in U.S. dollars with no
specific foreign exchange exposure. In addition, the Corporation has limited
exposure to commodity prices related to agricultural loans. The impact of
changes in foreign exchange rate and commodity prices on interest rates are
assumed to be insignificant. The Corporation's financial instruments have
varying levels of sensitivity to changes in market interest rates resulting in
market risk. Interest rate risk is the Corporation's primary market risk
exposure; to a lesser extent, liquidity risk also impacts market risk exposure.
INTEREST RATE RISK is the exposure of a banking institution's financial
condition to adverse movements in interest rates. Accepting this risk can be an
important source of profitability and stockholder value; however, excessive
levels of interest rate risk could pose a significant threat to the
Corporation's earnings and capital base. Accordingly, effective risk management
that maintains interest rate risks at prudent levels is essential to the
Corporation's safety and soundness.
EVALUATING a financial institution's exposure to changes in interest rates
includes assessing both the adequacy of the management process used to control
interest rate risk and the organization's quantitative level of exposure. When
assessing the interest rate risk management process, the Corporation seeks to
ensure that appropriate policies, procedures, management information
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systems, and internal controls are in place to maintain interest rate risks at
prudent levels of consistency and continuity. Evaluating the quantitative level
of interest rate risk exposure requires the Corporation to assess the existing
and potential future effects of changes in interest rates on its consolidated
financial condition, including capital adequacy, earnings, liquidity, and asset
quality (when appropriate).
THE FEDERAL RESERVE BOARD together with the Office of the Comptroller of the
Currency and the Federal Deposit Insurance Corporation, adopted a Joint Agency
Policy Statement on interest rate risk effective June 26, 1996. The policy
statement provides guidance to examiners and bankers on sound practices for
managing interest rate risk, which will form the basis for ongoing evaluation of
the adequacy of interest rate risk management at supervised institutions. The
policy statement also outlines fundamental elements of sound management that
have been identified in prior Federal Reserve guidance and discusses the
importance of these elements in the context of managing interest rate risk.
Specifically, the guidance emphasizes the need for active Board of Director and
Senior Management oversight and a comprehensive risk management process that
effectively identifies, measures, and controls interest rate risk.
FINANCIAL INSTITUTIONS derive their income primarily from the excess of interest
collected over interest paid. The rates of interest an institution earns on its
assets and owes on its liabilities generally are established contractually for a
period of time. Since market interest rates change over time, an institution is
exposed to lower profit margins (or losses) if it cannot adapt to interest rate
changes. For example, assume that an institution's assets carry intermediate or
long term fixed rates and that those assets are funded with short-term
liabilities. If market interest rates rise by the time the short-term
liabilities must be refinanced, the increase in the institution's interest
expense on its liabilities may not be sufficiently offset if assets continue to
earn at the long-term fixed rates. Accordingly, an institution's profits could
decrease on existing assets because the institution will either have lower net
interest income or possible, net interest expense. Similar risks exist when
assets are subject to contractual interest rate ceilings, or rate sensitive
assets are funded by longer-term, fixed-rate liabilities in a declining rate
environment.
SEVERAL WAYS an institution can manage interest rate risk include: 1) selling
existing assets or repaying certain liabilities; 2) matching repricing periods
for new assets and liabilities, for example, by shortening terms of new loans or
investments; and 3) hedging existing assets, liabilities, or anticipated
transactions. An institution might also invest in more complex financial
instruments intended to hedge or otherwise change interest rate risk. Interest
rate swaps, futures contacts, options on futures contracts, and other such
derivative financial instruments are often used for this purpose. Because these
instruments are sensitive to interest rate changes, they require management's
expertise to be effective. The Corporation has not purchased derivative
financial instruments in the past and does not presently intend to purchase such
instruments.
QUANTITATIVE MARKET RISK DISCLOSURE. The following table provides information
about the Corporation's financial instruments used for purposes other than
trading that are sensitive to changes in interest rates. For loans receivable,
securities, and liabilities with contractual maturities, the table presents
principal cash flows and related weighted-average interest rates by contractual
maturities as well as the Corporation's historical experience of the impact of
interest rate fluctuations on the prepayment of loans and mortgage backed
securities. For core deposits (demand deposits, interest-bearing checking,
savings, and money market deposits) that have no
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
contractual maturity, the table presents principal cash flows and, as
applicable, related weighted-average interest rates based upon the Corporation's
historical experience, management's judgement and statistical analysis
concerning their most likely withdrawal behaviors. The current historical
interest rates for core deposits have been assumed to apply for future periods
in this table as the actual interest rates that will need to be paid to maintain
these deposits are not currently known. Weighted average variable rates are
based upon contractual rates existing at the reporting date.
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Principal/Notional Amount Maturing In:
(Dollars in thousands)
1999 2000 2001 2002 2003 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
RATE-SENSITIVE ASSETS:
Variable rate loans $ 95,158 $ 7,355 $ 5,686 $ 5,745 $ 4,343 $ 3,076 $121,363
Average interest rate 8.33% 8.26% 8.67% 8.69% 8.38% 8.28% 8.36%
Adjustable rate loans $ 25,966 $25,834 $24,453 $14,593 $12,180 $29,698 $132,724
Average interest rate 8.27% 8.34% 8.29% 8.26% 8.42% 8.30% 8.31%
Fixed rate loans $ 67,942 $47,817 $25,689 $ 5,012 $11,009 $ 1,264 $158,733
Average interest rate 8.56% 8.46% 8.45% 8.29% 8.20% 8.04% 8.47%
Total loans $189,066 $81,006 $55,828 $25,350 $27,532 $34,038 $412,820
Average interest rate 8.40% 8.40% 8.41% 8.36% 8.33% 8.29% 8.38%
Fixed rate investment $ 31,948 $15,880 $ 8,129 $10,148 $ 7,408 $ 7,477 $ 80,990
securities
Average interest rate 6.10% 6.17% 6.23% 6.12% 6.17% 5.06% 6.04%
Variable rate investment sec. $ 144 $ 144 $ 144 $ 168 $ 192 $ 361 $ 1,153
Average interest rate 6.63% 6.63% 6.63% 6.63% 6.63% 6.63% 6.63%
Fed funds sold & other $ 8,849 $ 20 $ 0 $ 0 $ 30 $ 0 $ 8,899
Average interest rate 4.86% 4.80% 0.00% 0.00% 5.87% 0.00% 4.87%
Total rate sensitive assets $230,007 $97,050 $64,101 $35,666 $35,162 $41,876 $503,862
Average interest rate 7.95% 8.03% 8.13% 7.71% 7.86% 7.70% 7.94%
RATE SENSITIVE LIABILITIES:
Demand - non interest-bearing $ 1,325 $ 3,014 $ 4,278 $ 5,317 $ 7,003 $27,198 $ 48,135
Demand - interest bearing $ 1,240 $ 3,088 $ 4,380 $ 5,448 $ 7,174 $28,861 $ 50,191
Average interest rate 1.79% 1.79% 1.79% 1.79% 1.79% 1.79% 1.79%
Money market accounts $ 69,534 $ 2,725 $ 3,260 $ 3,865 $ 405 $ 1,186 $ 80,975
Average interest rate 4.51% 3.49% 3.48% 3.53% 2.11% 2.11% 4.34%
Savings $ 11,764 $ 1,914 $ 1,771 $ 1,643 $ 1,522 $18,351 $ 36,965
Average interest rate 2.23% 2.23% 2.23% 2.23% 2.23% 2.34% 2.29%
Certificates of deposit $186,340 $35,872 $10,180 $ 796 $ 1,305 $ 54 $234,547
Average interest rate 5.29% 5.54% 5.52% 6.04% 5.27% 5.23% 5.34%
Fixed rate FHLB advances $ 3,855 $ 2,121 $ 2,139 $ 1,925 $ 1,850 $10,000 $ 21,890
Average interest rate 5.56% 5.78% 5.80% 5.82% 5.80% 5.60% 5.67%
Variable rate FHLB advances $ 0 $ 0 $ 0 $ 0 $ 0 $ 7,000 $ 7,000
Average interest rate 0.00% 0.00% 0.00% 0.00% 0.00% 5.08% 5.08%
Fed funds purchased $ 9,500 $ 0 $ 0 $ 0 $ 0 $ 0 $ 9,500
39
40
Average interest rate 5.28% 0.00% 0.00% 0.00% 0.00% 0.00% 5.28%
Total rate sensitive $283,558 $48,734 $26,008 $18,994 $19,259 $92,650 $489,203
liabilities
Average interest rate 4.94% 4.72% 3.53% 2.27% 1.80% 2.04% 4.06%
40
41
Principal/Notional Amount Maturing In:
(Dollars in Thousands)
Comparison of 1998 to 1997: First Years
Total rate-sensitive assets: Year 2 - 5 Thereafter Total
---- ----- ---------- -----
At December 31, 1997 $ 243,929 $ 155,677 $ 43,417 $ 443,023
At December 31, 1998 230,007 231,979 41,876 503,862
--------- --------- ---------- ---------
Increase (decrease) $ (13,922) $ 76,302 $ (1,541) $ 60,839
Total rate-sensitive liabilities:
At December 31, 1997 $ 224,097 $ 98,944 $ 104,599 $ 427,640
At December 31, 1998 283,558 112,995 92,650 489,203
--------- --------- ---------- ---------
Increase (decrease) $ 59,461 $ 14,051 $ (11,949) $ 61,563
THE ABOVE TABLES reflect expected maturities, not expected repricing. The
contractual maturities adjusted for anticipated prepayments as shown in the
preceding table are only part of the Corporation's interest rate risk profile.
Other important factors include the ratio of rate-sensitive assets to rate
sensitive liabilities (which takes into consideration loan repricing frequency)
and the general level and direction of market interest rates. For some rate
sensitive liabilities, their repricing frequency is the same as their
contractual maturity. For variable rate loans receivable, repricing frequency
can be daily or monthly and for adjustable rate loans receivable, repricing can
be as frequent as annually for loans whose contractual maturities range from one
to thirty years.
While increasingly aggressive local market competition in lending rates has
pushed loan rates lower; the relatively low level of market interest rates has
restricted the Corporation's ability to reduce funding rates in concert with
declines in lending rates. Therefore, net interest income as a percentage of
average interest earning assets declined from 4.85% in 1997 to 4.55% in 1998.
THE CORPORATION MANAGES its interest rate risk by the employment of strategies
to assure that desired levels of both interest-earning assets and
interest-bearing liabilities mature or reprice with similar time frames. Such
strategies include; 1) loans receivable which are renewed (and repriced)
annually, 2) variable rate loans, 3) certificates of deposit with terms from one
month to six years and 4) securities available for sale which mature at various
times primarily from one through ten years 5) federal funds borrowings with
terms of one day to 90 days, and 6) Federal Home Loan Bank borrowings with terms
of one day to ten years.
41
42
CAPITAL RESOURCES
TOTAL SHAREHOLDERS' EQUITY, net of unearned ESOP shares was $41.9 million as of
December 31, 1998, an increase of $2.8 million from $39.1 million as of December
31, 1997. The increase was primarily due to 1998 net income of $4.3 million,
reduced by $1.6 million of cash dividends paid to shareholders.
TOTAL REGULATORY (RISK-BASED) CAPITAL was $46.1 million, net of $1.1 million of
unearned ESOP shares) as of December 31, 1998, an increase of $3.9 million from
total regulatory (risk-based) capital of $42.2 million as of December 31, 1997.
THE COMPONENTS OF total risk-based capital are Tier 1 capital and Tier 2
capital. Tier 1 capital is total shareholders' equity less intangible assets.
Tier 2 capital is Tier 1 capital plus a portion of the allowance for loan
losses. The allowance for loan losses is includable in Tier 2 capital up to a
maximum of 1.25% of risk weighted assets. (See Note 15 to the consolidated
financial statements.)
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.)
IMPACT OF THE YEAR 2000
THE YEAR 2000 ISSUE - The Year 2000 (Y2K) problem arose because many existing
computer programs use only the last two digits to refer to a year. Therefore,
these computer programs do not properly recognize a year that begins with "20"
instead of "19" or may interpret 2000 as 1900. If not corrected, such computer
applications could fail or make erroneous calculations. Systems which depend on
dates to function properly include not only transaction processing systems such
as those used in the banking industry, but also communication systems,
electrical systems and security systems which are necessary to the daily
operations of most businesses. If not timely corrected, Y2K problems could
affect the local, national and global economics.
THE CORPORATION'S STATUS OF Y2K READINESS -The Y2K issue could potentially have
severe implications for a bank or a bank data processing service provider due to
the high volume of financial transactions processed by their computer systems.
The Corporation is ready for the millennium change in regard to its primary
computer hardware and software systems as those systems incorporate the century
in the date field. Additionally, the source code for the application software
systems used by the Corporation's bank data processing service subsidiary (RDSI)
and its four financial institution subsidiaries is not subject to customization
by its users. This software is used by approximately 4,000 U.S. banks and has
been repeatedly tested and found to be Y2K ready. However, Y2K readiness goes
beyond mainframe hardware and software readiness. In accordance with the
guidelines of the Federal Financial Institutions Examination Council (FFIEC),
the Corporation has utilized a five phase approach in planning and preparing for
Y2K. The phases are:
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43
1. AWARENESS - of the range of possible issues, the magnitude of the resources
needed for successful preparation and a commitment at the executive level.
2. ASSESSMENT - of the magnitude and complexity of the full range of issues
including customer and vendor interdependencies.
3. RENOVATION - of both mission critical and non-mission critical systems on a
timely, prioritized basis.
4. VALIDATION - comprehensive testing of each component of the readiness plan.
5. IMPLEMENTATION - certification of systems as Year 2000 compliant or
development and testing of contingency plans for non- compliant systems.
The Corporation has successfully completed the first three phases of its
preparation. In regard to the Validation phase, the Corporation has tested its
mission critical business applications for Y2K compliance and has found these
systems to be Y2K ready, with minor exceptions. These exceptions are scheduled
to be corrected by March 31, 1999. In regard to the IMPLEMENTATION phase, the
Corporation has developed remediation contingency plans for items which are not
Year 2000 compliant, business resumption contingency plans and a liquidity
contingency plan. Planned activities during the last half of the calendar year
include:
- Continued testing of systems
- Continued contact with customers and vendors to assess their
Y2K readiness and its potential impact on the Corporation
- Refinement and validation of contingency plans
- Employee training in execution of contingency plans
- Executing a Y2K communication plan to educate and continually
update employees, directors, shareholders, customers and
community members and to calm fears which may develop due to
sensationalized media coverage of the millennium change
Year 2000 readiness efforts have not adversely impacted other information
technology projects as RDSI positions itself for a significant expansion of its
bank data processing services. A second mainframe computer was purchased and
installed during the third quarter of 1998, more than doubling RDSI's processing
capacity. Management has focused extra effort to assure that RDSI's early
preparation for the millennium change will put the Corporation in a position to
take advantage of business opportunities which may arise during the last half of
1999.
COSTS TO ADDRESS THE CORPORATION'S Y2K ISSUES - The Corporation's efforts to
address Y2K issues began in 1994 with the selection of the ITI software system
to replace an internally developed software system. Planning accelerated in
early 1997 with the adoption of the five phase approach to Y2K readiness. Out of
pocket expenses for Y2K were less than $50,000 in 1997 and approximately
$136,000 in 1998. During 1998, the Corporation's results of operations were
materially adversely affected by the diversion of loan officers' time away from
their loan origination efforts to assist the Y2K preparation effort. Management
expects the costs of addressing the impact of the Year 2000 to have material
impact on the Corporation's 1999 results of operations. The Corporation's 1999
budget for out of pocket costs related to Y2K is approximately $750,000. The
major components of the 1999 budgeted expenses are:
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44
-- Five employees fully devoted to this effort
-- Outside consulting services for:
-- Independent Review of the comprehensiveness of each
company's Y2K plan
-- Assistance in preparation of contingency plans
-- Independent review of the comprehensiveness of contingency
plans
-- Depreciation expense for new hardware and software to replace
non- compliant hardware and systems
Management does not expect the costs of addressing Y2K issues to have a material
impact on the results of operations in the Year 2000; however, there can be no
assurance that the Corporation, its subsidiaries and its vendors will not
experience Y2K problems in the Year 2000.
RISKS OF THE CORPORATION'S Y2K ISSUES - Management believes that the recent
dedication of additional resources, in the form of administrative staff and
outside consultants, will assure the timely completion of Year 2000 readiness
efforts without the significant diversion of loan officers' time away from their
loan origination efforts which occurred in 1998. Management is committed to
spending the time, effort and expense which is required to be fully prepared for
the millennium change and to fully document its Year 2000 readiness to
regulatory authorities.
THE CORPORATION'S CONTINGENCY PLANS - While management believes that the
millennium change will occur without a significant impact on the Corporation's
ability to serve its customers; nevertheless, the following types of contingency
plans are being prepared for training and testing:
- Business resumption contingency plans to react to any
hardware, system, vendor or other mission-critical function
failure, including potential interruptions of communications,
transportation or utilities services.
- A liquidity contingency plan to proactively address customer
concerns which may arise.
PLANNED PURCHASES OF PREMISES AND EQUIPMENT
MANAGEMENT PLANS TO PURCHASE additional premises and equipment to meet the
current and future needs of the Corporation's customers. These purchases,
including land, buildings and improvements and furniture and equipment (which
includes computer software and license agreements), are currently expected to
total at least $2 million over the next two years.
AS OF DECEMBER 31, 1998, 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
44
45
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.
FORWARD-LOOKING STATEMENTS
WHEN USED IN THIS FILING and in future filings by the Corporation with the
Securities and Exchange Commission, in the Corporation's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phases, "anticipate,"
"would be," "will allow," "intends to," "will likely result," "are expected to,"
"will continue," "is anticipated," "estimated," "project," or similar
expressions are intended to identify, "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are subject to risks and uncertainties, including but not limited to changes in
economic conditions in the Corporation's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Corporation's market area, and competition, all or some of which could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected.
THE CORPORATION WISHES TO CAUTION readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made, and
advise readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investing activities, the impact of the Year 2000 and
competitive and regulatory factors, could affect the Corporation's financial
performance and could cause the Corporation's actual results for future periods
to differ materially form those anticipated or projected.
THE CORPORATION DOES NOT UNDERTAKE, and specifically disclaims any obligation,
to update any forward looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
- ----------------------------------------------------------------------
The disclosures required by this item appear in this Annual Report on
Form 10-K under the caption "Asset Liability Management" contained in the
Management's Discussion and Analysis section of this Annual Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data.
- -------------------------------------------------------
The Consolidated Balance Sheets of the Corporation and its
subsidiaries as of December 31, 1998 and December 31, 1997, 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, 1998,
the related Notes to Consolidated Financial Statements and the Report of
Independent Auditors, appear on pages F-1 through
45
46
F-34 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. Changes in and Disagreements With Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure.
---------------------
None.
PART III
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 26, 1999, 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,
Item 4 of this Annual Report on Form 10-K entitled "Executive Officers of the
Registrant" in accordance with General Instruction G(3).
During March of 1999, director Eric C. Hench filed a late Form 4
reporting his purchase of 2,000 of the Corporation's Common Shares which were
acquired during November of 1998. This was the only transaction not timely
reported.
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 26, 1999, 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
26, 1999, shall be deemed to be incorporated herein by reference.
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 26, 1999, under the caption "SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
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
46
47
Securities Exchange Act of 1934, relating to the Corporation's Annual Meeting of
Shareholders to be held on April 26, 1999, under the caption "TRANSACTIONS
INVOLVING MANAGEMENT."
PART IV
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 53.
(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
53. 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.
47
48
Executive Compensation Plans and Arrangements
---------------------------------------------
Exhibit No. Description Location
- ----------- ----------- --------
10(a) Employees' Stock Ownership Plan of Rurban Incorporated herein by reference to the
Financial Corp. Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31,
1993 (File No. 0-13507) [Exhibit 10(a)].
10(b) First Amendment to Employees' Stock Ownership Incorporated herein by reference to the
Plan of Rurban Financial Corp., dated June 14, Corporation's Annual Report on Form 10-K
1993 and made to be effective as of January 1, for the fiscal year ended December 31,
1993 1993 (File No. 0-13507) [Exhibit 10(b)].
10(c) Second Amendment to Employees' Stock Ownership Incorporated herein by reference to the
Plan of Rurban Financial Corp., dated March 14, Corporation's Annual Report on Form 10-K
1994 and made to be effective as of January 1, for the fiscal year ended December 31,
1993 1993 (File No. 0-13507) [Exhibit 10(c)].
10(d) Third Amendment to Employees' Stock Ownership Incorporated herein by reference to the
Plan of Rurban Financial Corp., dated March 13, Corporation's Annual Report on Form 10-K
1995 for the fiscal year ended December 31, 1994
(File No. 0-13507) [Exhibit 10(d)].
10(e) Fourth Amendment to Employees' Stock Ownership Incorporated herein by reference to the
Plan of Rurban Financial Corp., dated June 10, Corporation's Annual Report on Form 10-K
1995 and made to be effective as of January 1, for the fiscal year ended December 31,
1995 1995 (File No. 0-13507) [Exhibit 10(e)].
10(f) The Rurban Financial Corp. Savings Plan and Incorporated herein by reference to the
Trust Corporation'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 Financial Corp. Incorporated herein by reference to the
Savings Plan and Trust, dated December 10, 1990 Corporation's Annual Report on Form 10-K
and effective January 1, 1990 for the fiscal year ended December 31, 1990
(File No. 0-13507) [Exhibit 10(g)].
48
49
Exhibit No. Description Location
- ----------- ----------- --------
10(h) Second Amendment to The Rurban Financial Corp. Incorporated herein by reference to the
Savings Plan and Trust, dated March 11, 1991, Corporation's Annual Report on Form 10-K
effective February 1, 1991 for the fiscal year ended December 31,
1992 (File No. 0-13507) [Exhibit 10(d)].
10(i) Third Amendment to The Rurban Financial Corp. Incorporated herein by reference to the
Savings Plan 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 Financial Corp. Incorporated herein by reference to the
Savings Plan and Trust, dated July 14, 1992, Corporation's Annual Report on Form 10-K
effective May 1, 1992 for the fiscal year ended December 31,
1992 (File No. 0-13507) [Exhibit 10(f)].
10(k) Fifth Amendment to The Rurban Financial Corp. Incorporated herein by reference to the
Savings Plan 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 Financial Corp. Incorporated herein by reference to the
Savings Plan and Trust dated May 1, 1995 Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31,
1995 (File No. 0-13507) [Exhibit 10(l)].
10(m) Summary of Incentive Compensation Plan of State Incorporated herein by reference to the
Bank 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 adopted by the Trust Incorporated herein by reference to the
Department of State Bank for the benefit of Corporation's Annual Report on Form 10-K
Robert W. Constien in his capacity as Manager for the fiscal year ended December 31,
of the Trust Department 1991 (File No. 0-13507) [Exhibit 10(e)].
49
50
Exhibit No. Description Location
- ----------- ----------- --------
10(o) Summary of Bonus Program for the Trust Incorporated herein by reference to the
Department of State 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 of State Bank Incorporated herein by 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 Corp. Bonus Plan Incorporated herein by 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 Agreement, dated Incorporated herein by reference to the
December 15, 1994, between Rurban Financial Corporation's Annual Report on Form 10-K
Corp. and Richard C. Burrows for the fiscal year ended December 31, 1994
(File No. 0-13507) [Exhibit 10(p)].
10(s) Executive Salary Continuation Agreement, dated Incorporated herein by reference to the
October 11, 1995, between Rurban Financial Corporation's Annual Reports on Form 10-K
Corp. and Thomas C. Williams; and Amended for the fiscal years ended
Schedule A to Exhibit 10(s) identifying other December 31, 1995 and December 31, 1997
identical Executive Salary Continuation (File No. 0-13507) [Exhibit 10(s)].
Agreements between executive officers of Rurban
Financial Corp. and Rurban Financial Corp.
10(t)
Description of Split-Dollar Insurance Policies Incorporated herein by reference to the
Maintained for Certain Executive Officers of Corporation's Annual Report on Form 10-K
Rurban Financial Corp. for the fiscal year ended December 31, 1995
(File No. 0-13507) [Exhibit 10(t)].
10(u) Rurban Financial Corp. Stock Option Plan Incorporated herein by reference to the
Corporation's Annual Report on Form 10-K
for the fiscal year ended
December 31, 1996 (File No. 0-13507)
[Exhibit 10(u)].
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51
Exhibit No. Description Location
- ----------- ----------- --------
10(v) Rurban Financial Corp. Plan to Allow Directors Incorporated herein by reference to the
to Elect to Defer Compensation Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996
(File No. 0-13507) [Exhibit 10(v)].
10(w) Form of Non-Qualified Stock Option Agreement Incorporated herein by reference to the
Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31,
1997 (File No. 0-13507 [Exhibit 10(w)].
10(x) Form of Incentive Stock Option Agreement Incorporated herein by reference to the
Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31,
1997 (File No. 0-13507 [Exhibit 10(x)].
(b) Reports on Form 8-K.
--------------------
There were no Current Reports on Form 8-K filed during the fiscal
quarter ended December 31, 1998.
(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 53.
(d) Financial Statement Schedules.
------------------------------
None.
51
52
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.
/s/ Richard C. Warrener
-----------------------
Date: March 29, 1999 By: Richard C. Warrener, Executive Vice President
and Chief Financial 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
*Richard C. Burrows * Director
*John R. Compo * Director
*John Fahl * Director
*Robert A. Fawcett, Jr. * Director
*Richard Z. Graham * Director
*Eric C. Hench * Director
*W.Scott Muir * Director
*Steven D. VanDemark * Director
*J. Michael Walz, D.D.S * Director
*By: Richard C. Warrener * Executive Vice President and Chief Financial
(Attorney-in-Fact) Officer
Date: March 29, 1999
52
53
RURBAN FINANCIAL CORP.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1997
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Pages in
this Annual
Report on
Description Form 10-K
- ----------- ---------
Report of Independent Auditors............................................................ F-1
Consolidated Balance Sheets at December 31, 1998
and 1997................................................................................ F-2 to F-3
Consolidated Statements of Income for the years
ended December 31, 1998, 1997 and 1996.................................................. F-4
Consolidated Statements of Changes in Shareholders'
Equity for the three years ended December 31, 1998...................................... F-5
Consolidated Statements of Cash Flows for the
years ended December 31, 1998, 1997 and 1996............................................ F-6 to F-7
Notes to Consolidated Financial Statements................................................ F-8 to F-34
53
54
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. and Subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the years ended December 31, 1998, 1997 and 1996. These consolidated
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. and Subsidiaries as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years ended December 31, 1998, 1997 and
1996 in conformity with generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
---------------------------------
Crowe, Chizek and Company LLP
South Bend, Indiana
February 5, 1999
F-1
55
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
1998 1997
---- ----
ASSETS
Cash and due from banks $ 16,790,423 $ 15,552,385
Federal funds sold 8,718,721 6,670,000
----------------- -----------------
Total cash and cash equivalents 25,509,144 22,222,385
Interest-bearing deposits in other financial institutions 180,000 529,777
Securities available for sale 82,142,929 71,683,120
Loans held for sale, net of valuation allowance ($-0-) 18,509,275 4,404,327
Loans
Commercial, financial and agricultural 248,840,548 217,324,268
Residential first mortgage 72,225,323 75,212,817
Consumer 73,244,850 67,198,876
----------------- -----------------
Total loans 394,310,721 359,735,961
Deferred loan fees, net (341,168) (288,651)
Allowance for loan losses (5,408,854) (5,239,601)
----------------- -----------------
Net loans 388,560,699 354,207,709
Accrued interest receivable 3,196,546 3,533,532
Premises and equipment, net 11,400,045 8,583,961
Other assets 7,656,141 6,206,279
----------------- -----------------
Total assets $ 537,154,779 $ 471,371,090
================= =================
- --------------------------------------------------------------------------------
(Continued)
F-2
56
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
1998 1997
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 48,135,487 $ 46,149,132
Interest-bearing 402,677,736 369,032,154
----------------- -----------------
Total deposits 450,813,223 415,181,286
Federal funds purchased 9,500,000 4,929,000
Advances from Federal Home Loan Bank (FHLB) 28,890,290 7,529,867
Accrued interest payable 1,685,437 1,577,140
Other liabilities 4,362,879 3,059,869
----------------- -----------------
Total liabilities 495,251,829 432,277,162
Shareholders' Equity
Common stock: stated value $2.50 per share;
shares authorized: 10,000,000;
shares issued: 1998 - 4,575,702, 1997 - 2,287,851;
shares outstanding: 1998 - 4,140,518, 1997 - 2,069,909 11,439,255 5,719,628
Additional paid-in capital 11,518,727 17,239,088
Retained earnings 26,508,897 23,891,983
Accumulated other comprehensive income, net of tax of
$104,536 in 1998 and $106,988 in 1997 202,922 218,840
Unearned ESOP shares (unearned shares: 1998 - 73,502,
1997 - 43,111) (1,100,905) (1,299,000)
Treasury stock; shares at cost: 1998 - 435,184,
1997 - 217,942 (6,665,946) (6,676,611)
----------------- -----------------
Total shareholders' equity 41,902,950 39,093,928
----------------- -----------------
Total liabilities and shareholders' equity $ 537,154,779 $ 471,371,090
================= =================
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
57
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
Interest income
Loans, including fees $ 34,671,890 $ 32,155,039 $ 28,680,021
Taxable securities 3,939,667 3,900,143 4,066,184
Non-taxable securities 325,256 312,278 408,811
Other interest income 896,714 753,081 355,950
--------------- --------------- ----------------
Total interest income 39,833,527 37,120,541 33,510,966
Interest expense
Deposits 17,342,766 16,305,732 14,511,736
Short-term borrowings 62,853 161,505 144,773
Advances from Federal Home
Loan Bank (FHLB) 1,337,080 221,918 -
--------------- --------------- ----------------
Total interest expense 18,742,699 16,689,155 14,656,509
--------------- --------------- ----------------
NET INTEREST INCOME 21,090,828 20,431,386 18,854,457
Provision for loan losses 1,080,000 947,965 961,009
--------------- --------------- ----------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 20,010,828 19,483,421 17,893,448
Noninterest income
Service charges on deposit accounts 1,252,274 1,199,153 1,253,127
Trust fees 2,576,823 2,326,629 2,359,312
Data processing fees 3,081,890 2,765,533 2,203,213
Net gain on securities 72,468 193,892 33,884
Net gain (loss) on sales of loans 1,933,834 551,730 (210,000)
Other income 1,053,106 718,804 554,131
--------------- --------------- ----------------
Total noninterest income 9,970,395 7,755,741 6,193,667
Noninterest expense
Salaries and employee benefits 12,434,334 10,189,420 8,327,349
Net occupancy expense of premises 1,093,772 992,486 977,165
Equipment rentals, depreciation and
maintenance 2,486,511 1,981,699 2,131,295
Other expenses 7,615,394 6,089,291 5,439,951
--------------- --------------- ----------------
Total noninterest expense 23,630,011 19,252,896 16,875,760
--------------- --------------- ----------------
INCOME BEFORE INCOME TAX EXPENSE 6,351,212 7,986,266 7,211,355
Income tax expense 2,073,335 2,470,469 2,362,141
--------------- --------------- ----------------
NET INCOME $ 4,277,877 $ 5,515,797 $ 4,849,214
=============== =============== ================
Earnings per common share:
Basic $ 1.05 $ 1.25 $ 1.07
=============== =============== ================
Diluted $ 1.05 $ 1.24 $ 1.07
=============== =============== ================
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
58
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Three years ended December 31, 1998
- --------------------------------------------------------------------------------
Accumulated
Additional Other
Common Paid-In Retained Comprehensive
Stock Capital Earnings Income, Net of Tax
----- ------- -------- ------------------
Balances at January 1, 1996 $ 5,460,945 $ 14,388,172 $ 19,779,897 $ 449,477
Comprehensive Income:
Net income for the year - - 4,849,214
Net change in unrealized appreciation
(depreciation) on securities available
for sale, net of reclassification adjustments
and tax effects - - - (454,461)
Total Comprehensive Income
Cash dividends declared ($0.285 per share) - - (1,308,975) -
Declaration of a 5% stock dividend
and issuance of 108,473 common shares 271,183 3,009,041 (3,280,224) -
Cash dividend distributable for
fractional shares related to 5% stock dividend - - (14,996) -
Purchase and retirement of 5,000 common shares - (12,500) (158,125) -
Purchase of unearned ESOP Shares - - - -
------------- -------------- ------------- --------------
Balances at December 31, 1996 5,719,628 17,239,088 20,024,916 (4,984)
Comprehensive Income:
Net income for the year - - 5,515,797 -
Net change in unrealized appreciation
(depreciation) on securities available
for sale, net of reclassification adjustments
and tax effects - - - 223,824
Total Comprehensive Income
Pay down of ESOP Loan - - - -
Cash dividends declared ($.37 per share) - - (1,648,730) -
Purchase of 217,942 treasury shares - - - -
------------- -------------- ------------- --------------
Balances at December 31, 1997 5,719,628 17,239,088 23,891,983 218,840
Comprehensive Income:
Net income for the year - - 4,277,877 -
Net change in unrealized appreciation
(depreciation) on securities available
for sale, net of reclassification adjustments
and tax effects - - - (15,918)
Total Comprehensive Income
Pay down of ESOP Loan - - - -
Declaration of a 2 for 1 stock split and issuance
of 2,287,851 common shares 5,719,627 (5,719,627) - -
Cash dividends declared ($0.40 per share) - - (1,660,963) -
Issuance of 700 treasury shares due to exercise
of stock options - (734) - -
------------- -------------- ------------- --------------
Balances at December 31, 1998 $ 11,439,255 $ 11,518,727 $ 26,508,897 $ 202,922
============= ============== ============= ==============
Unearned
ESOP Treasury
Shares Stock Total
------ ----- -----
Balances at January 1, 1996 $ - $ - $ 40,078,491
Comprehensive Income:
Net income for the year - - 4,849,214
Net change in unrealized appreciation
(depreciation) on securities available
for sale, net of reclassification adjustments
and tax effects - - (454,461)
-------------
Total Comprehensive Income 4,394,753
Cash dividends declared ($0.285 per share) - - (1,308,975)
Declaration of a 5% stock dividend
and issuance of 108,473 common shares - - -
Cash dividend distributable for
fractional shares related to 5% stock dividend - - (14,996)
Purchase and retirement of 5,000 common shares - - (170,625)
Purchase of unearned ESOP Shares (1,490,000) - (1,490,000)
-------------- ------------- -------------
Balances at December 31, 1996 (1,490,000) - 41,488,648
Comprehensive Income:
Net income for the year - - 5,515,797
Net change in unrealized appreciation
(depreciation) on securities available
for sale, net of reclassification adjustments
and tax effects - - 223,824
-------------
Total Comprehensive Income 5,739,621
Pay down of ESOP Loan 191,000 - 191,000
Cash dividends declared ($.37 per share) - - (1,648,730)
Purchase of 217,942 treasury shares - (6,676,611) (6,676,611)
-------------- ------------- -------------
Balances at December 31, 1997 (1,299,000) (6,676,611) 39,093,928
Comprehensive Income:
Net income for the year - - 4,277,877
Net change in unrealized appreciation
(depreciation) on securities available
for sale, net of reclassification adjustments
and tax effects - - (15,918)
-------------
Total Comprehensive Income 4,261,959
Pay down of ESOP Loan 198,095 - 198,095
Declaration of a 2 for 1 stock split and issuance
of 2,287,851 common shares - - -
Cash dividends declared ($0.40 per share) - - (1,660,963)
Issuance of 700 treasury shares due to exercise
of stock options - 10,665 9,931
-------------- ------------- -------------
Balances at December 31, 1998 $ (1,100,905) $ (6,665,946) $ 41,902,950
============== ============= =============
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
59
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers - fees
and commissions $ 7,964,093 $ 7,010,119 $ 6,369,783
Cash paid to suppliers and employees (22,013,138) (18,388,747) (15,877,040)
Loans originated for sale (112,427,356) (30,797,914) (20,385,626)
Proceeds from sales of loans held for sale 100,256,242 28,820,953 21,249,283
Interest received 40,223,030 36,911,771 33,479,613
Interest paid (18,634,402) (16,533,146) (14,270,426)
Income taxes paid (1,955,000) (2,968,950) (1,966,477)
--------------- --------------- ----------------
Net cash from operating activities (6,586,531) 4,054,086 8,599,110
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing deposits
in other financial institutions 349,777 (349,777) -
Net change in loans (35,910,252) (42,353,197) (41,986,168)
Proceeds from sales of securities available
for sale 24,765,342 28,631,037 19,416,875
Principal repayments, maturities, and
calls of securities available for sale 24,138,929 8,785,410 46,431,465
Purchase of securities available for sale (59,309,982) (41,936,407) (42,809,056)
Net purchases of premises and equipment (4,502,632) (1,149,654) (1,717,922)
Recoveries on loan charge-offs 424,745 550,903 713,368
--------------- --------------- ----------------
Net cash from investing activities (50,044,073) (47,821,685) (19,951,438)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash paid to purchase unearned ESOP
shares - - (1,490,000)
Net change in deposits 35,631,937 27,415,213 19,969,535
Net change in federal funds purchased 4,571,000 4,929,000 -
Proceeds from advances from FHLB 26,500,000 7,529,867 -
Repayments of advances from FHLB (5,139,577) - -
Cash dividends paid (1,655,928) (1,234,748) (1,308,975)
Proceeds from exercise of stock options 9,931 - -
Cash paid to repurchase common stock - (6,676,611) (170,625)
--------------- --------------- ----------------
Net cash from financing activities 59,917,363 31,962,721 16,999,935
--------------- --------------- ----------------
Net change in cash and cash equivalents 3,286,759 (11,804,878) 5,647,607
Cash and cash equivalents at beginning of year 22,222,385 34,027,263 28,379,656
--------------- --------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 25,509,144 $ 22,222,385 $ 34,027,263
=============== =============== ================
- --------------------------------------------------------------------------------
(Continued)
F-6
60
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
RECONCILIATION OF NET INCOME TO
NET CASH FROM OPERATING ACTIVITIES
Net income $ 4,277,877 $ 5,515,797 $ 4,849,214
Adjustments to reconcile net income
to net cash from operating activities
Depreciation 1,686,548 1,393,531 1,273,801
Amortization of intangible assets 385,000 180,000 285,000
Provision for loan losses 1,080,000 947,965 961,009
Net gain on securities (72,468) (193,892) (33,884)
Loans originated for sale (112,427,356) (30,797,914) (20,385,626)
Proceeds from sales of loans held for sale 100,256,242 28,820,953 21,249,283
Net (gain) loss on sales of loans (1,933,834) (551,730) 210,000
Paydown of ESOP loan 198,095 191,000 -
Change in assets and liabilities
Deferred loan fees, net 52,517 25,860 27,395
Accrued interest receivable 336,986 (234,630) (58,748)
Other assets (1,834,862) (1,447,829) (430,654)
Accrued interest payable 108,297 156,009 386,083
Other liabilities 1,300,427 48,966 266,237
--------------- --------------- ----------------
Net cash from operating
activities $ (6,586,531) $ 4,054,086 $ 8,599,110
=============== =============== ================
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
61
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of Rurban Financial Corp. and its wholly-owned
subsidiaries. Rurban Financial Corp. ("the Corporation") 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"). State Bank owns all of the outstanding stock
of Reliance Financial Services, N.A. ("RFS") and Rurban Mortgage Company
("RMC"). RMC was incorporated on November 5, 1997. On December 31, 1997, the
operations of the Rurban Mortgage Division of State Bank were merged into RMC
along with the acquired operations of S&L Financial Services, Inc. ("S&L"). The
S&L acquisition was accounted for as a purchase; income from S&L was not
material for the years ended December 31, 1997 and 1996. All significant
intercompany balances and transactions are eliminated in consolidation.
NATURE OF BUSINESS AND INDUSTRY SEGMENTS: Internal financial information is
primarily reported and aggregated in three lines of business: banking, mortgage
banking, and data processing services. For further discussion, see Note 17. The
Corporation's subsidiary banks grant credit and accept deposits from their
customers in the normal course of business primarily in northern Ohio. RDSI
provides data processing services to financial institutions located in Ohio,
Michigan and Indiana. 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. RFS offers a diversified array of trust and
financial services to customers nationwide. RMC services residential mortgage
customers in West and Central Florida.
USE OF ESTIMATES: To prepare consolidated financial statements in conformity
with generally accepted accounting principles, management makes estimates and
assumptions based on available information. These estimates and assumptions
affect the amounts reported in the consolidated financial statements and the
disclosures provided, and future results could differ. The allowance for loan
losses, fair values of financial instruments, the carrying value of loans held
for sale and fair value of stock options are particularly subject to change.
SECURITIES: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized appreciation and depreciation, net of tax, reported separately
in other comprehensive income and shareholders' equity. Securities are
classified as trading when held for short term periods in anticipation of market
gains, and are carried at fair value. Securities are written down to fair value
when a decline in fair value is not temporary.
- --------------------------------------------------------------------------------
(Continued)
F-8
62
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
LOANS HELD FOR SALE: Mortgage loans intended for sale in the secondary market
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. Under Statement of Financial Accounting Standards
("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 in 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.
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 the value of such loans is deemed to be less than
the unpaid balance. 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.
- --------------------------------------------------------------------------------
(Continued)
F-9
63
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 8, with 1 to 3 being satisfactory, 4 watch, 5 special
mention, 6 substandard, 7 doubtful, and 8 as loss which are then charged off.
Loans graded a 6 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: Land is carried at cost. 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. These assets are reviewed for impairment under
SFAS No. 121 when events indicate the carrying amount may not be recoverable.
Maintenance and repairs are expensed and major improvements are capitalized.
SERVICING RIGHTS: Servicing rights are recognized as assets for purchased rights
and for the allocated value of retained servicing rights on loans sold.
Servicing rights are expensed in proportion to, and over the period of,
estimated net servicing revenues. Impairment is evaluated based on the fair
value of the rights, using groupings of the underlying loans as to interest
rates and then, secondarily, as to geographic and prepayment characteristics.
Any impairment of a grouping is reported as a valuation allowance. The impact on
the Corporation's consolidated financial position and results of operations for
the years ended December 31, 1998, 1997 and 1996 was not material.
Excess servicing receivable is reported when a loan sale results in servicing in
excess of normal amounts, and is expensed over the life of the servicing on the
interest method.
INTANGIBLE ASSETS: Goodwill arising from the acquisition of subsidiary banks and
RMC 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. Goodwill and identified intangibles are assessed
for impairment based on estimated undiscounted cash flows, and written down if
necessary. As of December 31, 1998, 1997 and 1996, unamortized goodwill totaled
approximately $532,000, $834,000, and $669,000 and unamortized core deposit
intangibles totaled approximately $188,000, $271,000, and $351,000.
- --------------------------------------------------------------------------------
(Continued)
F-10
64
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FORECLOSED REAL ESTATE: Real estate properties acquired through, or in lieu of,
loan foreclosure are initially recorded at fair value at the date of acquisition
establishing a new cost basis. 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 $456,000 and $-0- at December 31, 1998 and 1997, respectively, and
is included in other assets in the consolidated balance sheets.
INCOME TAXES: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
EMPLOYEE BENEFITS: 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 also 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. Employee benefits are discussed further in Note 8.
STOCK OPTION PLAN: The Corporation sponsors a stock option plan for directors,
officers and key employees. Expense for employee compensation under the stock
option plan is based on Accounting Principles Board ("APB") Opinion 25 with
expense reported only if options are granted below market price at grant date.
Proforma disclosures of net income and earnings per common share are provided as
if the fair value method of SFAS No. 123 were used to measure expense for
stock-based compensation. For further discussion see Note 8.
POSTRETIREMENT HEALTH CARE BENEFITS: The Corporation sponsors a postretirement
health care plan that covers both salaried and nonsalaried employees. The
Corporation accrues, during the years that employees render the necessary
service, 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.
- --------------------------------------------------------------------------------
(Continued)
F-11
65
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
STOCK DIVIDENDS AND STOCK SPLITS: Dividends issued in stock are reported by
transferring the market value of the stock issued from retained earnings to
common stock and additional paid-in capital. Stock splits are recorded by
adjusting common stock and additional paid in capital by the par value of the
additional shares. On December 9, 1996, the Board of Directors declared a five
percent stock dividend increasing shares outstanding by 108,473 shares. The
stock dividend was payable to shareholders of record as of December 24, 1996. As
of December 31, 1996, common stock includes $232,066 for the stock dividend
distributable to shareholders which was paid on January 31, 1997. On May 27,
1998, the Board of Directors declared a two-for-one stock split, paid on June
30, 1998, increasing shares outstanding by 2,287,851 shares.
EARNINGS AND DIVIDENDS PER COMMON SHARE: Basic earnings per common share is net
income divided by the weighted average number of common shares considered to be
outstanding during the period. ESOP shares are considered outstanding for this
calculation unless unearned. Diluted earnings per common share includes the
dilutive effect of additional potential common shares issuable under stock
options. Earnings and dividends per common share are restated for all stock
splits and dividends.
COMPREHENSIVE INCOME: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes the net change in
unrealized appreciation and depreciation on securities available for sale, net
of tax, which is also recognized as a separate component of shareholders'
equity. The accounting standard that requires reporting comprehensive income
first applies for 1998, with prior information restated to be comparable.
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. Approximately $3,800,000 of undistributed earnings
of the subsidiaries, included in consolidated retained earnings, plus current
1999 net profits is available for distribution to Rurban Financial Corp. as
dividends in 1999 without prior regulatory approval.
FAIR VALUES OF FINANCIAL INSTRUMENTS: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed in Note 14. Fair value estimates involve uncertainties and matters of
significant judgment regarding interest rates, credit risk, prepayments, and
other factors, especially in the absence of broad markets for particular items.
Changes in assumptions or in market conditions could significantly affect such
estimates.
CONCENTRATIONS OF CREDIT RISK: The Corporation grants commercial, real estate
and installment loans to customers mainly in northern Ohio. Commercial loans
include loans collateralized by commercial real estate, business assets and
agricultural loans collateralized by crops and farm equipment. Commercial,
financial and agricultural loans make up approximately 63% of the loan portfolio
and the loans are expected to be repaid from cash flow from operations of
businesses. Residential first mortgage loans make up approximately 18% of the
loan portfolio and are collateralized by first mortgages on residential real
estate. Consumer loans make up approximately 19% of the loan portfolio and are
primarily collateralized by consumer assets.
- --------------------------------------------------------------------------------
(Continued)
F-12
66
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
commitments is disclosed in Note 12.
STATEMENTS OF CASH FLOWS: For purposes of reporting cash flows, cash and cash
equivalents is defined to include cash on hand, due from financial institutions
and federal funds sold with original maturities under 90 days. The Corporation
reports net cash flows for customer loan transactions, deposit transactions,
short-term borrowings with original maturities of 90 days or less and
interest-bearing deposits in other financial institutions.
RECLASSIFICATIONS: Some items in the prior consolidated financial statements
have been reclassified to conform with the current presentation.
NOTE 2 - BASIC AND DILUTED EARNINGS PER COMMON SHARE
A reconciliation of the numerators and denominators of the computations of basic
earnings per common share and diluted earnings per common share for the years
ended December 31, 1998, 1997 and 1996 is presented below:
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
BASIC EARNINGS PER COMMON SHARE
Net income $ 4,277,877 $ 5,515,797 $ 4,849,214
============== ============== ================
Weighted average common shares
outstanding 4,140,484 4,519,342 4,568,394
Less: Unallocated ESOP shares (79,862) (89,990) (46,880)
-------------- -------------- ----------------
Weighted average common shares
outstanding for basic earnings
per common share 4,060,622 4,429,352 4,521,514
============== ============== ================
Basic earnings per common share $ 1.05 $ 1.25 $ 1.07
============== ============== ================
DILUTED EARNINGS PER COMMON SHARE
Net income $ 4,277,877 $ 5,515,797 $ 4,849,214
============== ============== ================
Weighted average common shares
outstanding for basic earnings
per common share 4,060,622 4,429,352 4,521,514
Add: Dilutive effects of assumed
conversions and exercise of stock options 30,410 2,382 -
-------------- -------------- ----------------
Weighted average common and dilutive
potential common shares outstanding 4,091,032 4,431,734 4,521,514
============== ============== ================
Diluted earnings per common share $ 1.05 $ 1.24 $ 1.07
============== ============== ================
- --------------------------------------------------------------------------------
(Continued)
F-13
67
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 2 - BASIC AND DILUTED EARNINGS PER COMMON SHARE (Continued)
Incentive stock options for 45,750 shares of common stock granted during 1998
were not considered in computing earnings per common share for 1998 because they
were antidilutive. Common share numbers have been restated for all stock splits
and dividends.
NOTE 3 - SECURITIES AVAILABLE FOR SALE
Year end securities available for sale were as follows.
Gross Gross
Amortized Unrealized Unrealized
1998 Cost Gains Losses Fair Value
- ---- ---- ----- ------ ----------
U.S. Treasury and U.S.
Government agency
securities $ 20,011,303 $ 104,387 $ (4,700) $ 20,110,990
Obligations of states and
political subdivisions 9,092,811 163,383 (54,212) 9,201,982
Mortgage-backed securities 50,509,507 211,775 (113,175) 50,608,107
Marketable equity securities 2,221,850 - - 2,221,850
---------------- ------------ ------------- ----------------
$ 81,835,471 $ 479,545 $ (172,087) $ 82,142,929
================ ============ ============= ================
1997
U.S. Treasury and U.S.
Government agency
securities $ 43,385,761 $ 48,187 $ (35,515) $ 43,398,433
Obligations of states and
political subdivisions 5,238,970 156,333 (238) 5,395,065
Mortgage-backed securities 21,002,411 199,211 (42,150) 21,159,472
Marketable equity securities 1,730,150 - - 1,730,150
---------------- ------------ ------------- ----------------
$ 71,357,292 $ 403,731 $ (77,903) $ 71,683,120
================ ============ ============= ================
Contractual maturities of debt securities available for sale at December 31,
1998 were as follows. 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. Securities not due at a single maturity
date are shown separately.
Available for Sale
------------------
Amortized
Cost Fair Value
Due in one year or less $ 12,880,664 $ 12,943,165
Due after one year through five years 9,558,084 9,692,590
Due after five years through ten years 2,423,599 2,485,930
Due after ten years 4,241,767 4,191,287
Mortgage-backed securities 50,509,507 50,608,107
---------------- ---------------
Total debt securities available for sale $ 79,613,621 $ 79,921,079
================ ===============
- --------------------------------------------------------------------------------
(Continued)
F-14
68
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES AVAILABLE FOR SALE (Continued)
Proceeds, gross gains and gross losses realized from sales of securities
available for sale for the years ended December 31, 1998, 1997 and 1996 are as
follows:
1998 1997 1996
---- ---- ----
Proceeds from sales of debt securities
available for sale $ 24,765,342 $ 28,631,037 $ 19,401,403
Proceeds from sales of marketable equity
securities available for sale - - 15,472
-------------- ---------------- --------------
Total proceeds from sale of
securities available for sale $ 24,765,342 $ 28,631,037 $ 19,416,875
============== ================ ==============
Gross gains from sales of debt securities
available for sale $ 73,245 $ 252,834 $ 48,248
Gross losses from sales of debt securities
available for sale (777) (58,942) (14,364)
-------------- ---------------- --------------
Net gain on securities $ 72,468 $ 193,892 $ 33,884
============== ================ ==============
At December 31, 1998 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 $58,444,000 and $52,563,000
as of December 31, 1998 and 1997, were pledged to secure public and trust
deposits and FHLB advances.
- --------------------------------------------------------------------------------
(Continued)
F-15
69
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 4 - 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, 1998, 1997 and 1996:
1998 1997 1996
---- ---- ----
Beginning balance $ 5,239,601 $ 5,066,600 $ 4,270,000
Provision for loan losses 1,080,000 947,965 961,009
Recoveries of previous charge-offs 424,745 550,642 713,368
Losses charged to the allowance (1,335,492) (1,325,606) (877,777)
-------------- -------------- --------------
Ending balance $ 5,408,854 $ 5,239,601 $ 5,066,600
============== ============== ==============
At December 31, 1998 and 1997, loans past due more than 90 days and still
accruing interest approximated $1,742,000 and $462,000.
Impaired loans were as follows.
1998 1997 1996
---- ---- ----
Year end loans with no allowance for
loan losses allocated $ 567,000 $ - $ -
Year end loans with allowance for loan
losses allocated 689,000 1,801,000 3,296,000
Amount of allowance allocated 225,000 725,000 1,237,000
Average of impaired loans during the
year 1,462,000 1,919,000 3,081,000
Interest income recognized during
impairment 8,000 36,000 115,000
Cash-basis interest income recognized 11,000 36,000 112,000
NOTE 5 - PREMISES AND EQUIPMENT, NET
Premises and equipment, net at December 31, are summarized as follows:
1998 1997
---- ----
Land $ 1,123,546 $ 1,073,031
Buildings and improvements 7,820,057 7,173,717
Furniture and equipment 8,659,988 8,423,337
-------------- --------------
Total cost 17,603,591 16,670,085
Accumulated depreciation and amortization (6,203,546) (8,086,124)
-------------- --------------
$ 11,400,045 $ 8,583,961
============== ==============
During 1998, the Corporation disposed of $3,569,000 in fully depreciated
furniture and equipment.
- --------------------------------------------------------------------------------
(Continued)
F-16
70
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 6 - INTEREST-BEARING DEPOSITS
Included in interest-bearing deposits are certificates of deposit in
denominations of $100,000 or more of approximately $64,888,000 and $57,278,000
as of December 31, 1998 and 1997, respectively.
At December 31, 1998, the scheduled maturities of certificates of deposit are as
follows for the years ended December 31:
1999 $ 186,339,662
2000 35,872,502
2001 10,179,824
2002 796,083
2003 1,304,907
Thereafter 53,623
----------------
$ 234,546,601
================
NOTE 7 - ADVANCES FROM FHLB
At December 31, 1998 and 1997, advances from the FHLB of Cincinnati with fixed
interest rates ranging from 5.27% to 6.25% for 1998 and from 6.25% to 6.90% for
1997 mature in the year ending December 31 as follows:
1998 1997
---- ----
1998 $ - $ 1,639,577
1999 3,854,987 254,987
2000 2,121,389 271,389
2001 2,138,845 288,845
2002 1,925,069 75,069
2003 1,850,000 -
Thereafter 10,000,000 -
-------------- --------------
21,890,290 2,529,867
Line of credit (LIBOR) 7,000,000 5,000,000
-------------- --------------
$ 28,890,290 $ 7,529,867
============== ==============
At December 31, 1998 and 1997, in addition to FHLB stock, the Corporation
pledged mortgage loans with a minimum carrying value of approximately
$43,366,000 and $11,324,000 to the FHLB to secure advances outstanding.
- --------------------------------------------------------------------------------
(Continued)
F-17
71
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 7 - ADVANCES FROM FHLB (Continued)
The Corporation has a line of credit with the Fifth Third Bank of Northwestern
Ohio, N.A. in the amount of $10,000,000. At December 31, 1998 and 1997, the
Corporation did not have any advances outstanding on this line of credit.
NOTE 8 - EMPLOYEE BENEFITS
EMPLOYEE STOCK OWNERSHIP PLAN: The Corporation has a noncontributory employee
stock ownership plan (ESOP) covering substantially all employees of the
Corporation and its subsidiaries. Voluntary contributions are made by the
Corporation to the plan. Each eligible employee is vested based upon years of
service, including prior years of service. Contributions to the ESOP were
$576,000, $451,000, and $375,000 and related expense attributable to the plan
included in salaries and employee benefits were approximately $221,000,
$111,000, and $476,000 in 1998, 1997 and 1996, respectively.
Distributions to plan participants may be paid in cash or stock upon their
termination of employment. For a certain time period following the distribution
of shares, a participant may require the Corporation to repurchase the stock in
the event that the stock is not readily tradable on an established market
(referred to as the "put option"). As the Corporation's common stock is listed
on the OTC Bulletin Board under the symbol "RBNF," the provisions of the put
option currently have no effect.
During 1996, the ESOP borrowed $1,490,000 from the Corporation to purchase
93,758 shares of common stock at a weighted average cost of $15.89 per share.
Collateral for the loan is the unearned shares of common stock purchased by the
ESOP with the loan proceeds. The loan will be repaid principally from the
Corporation's discretionary contributions to the ESOP. The interest rate for the
loan is 7.75%. Shares purchased by the ESOP are held in suspense until allocated
among ESOP participants as the loan is repaid. During 1998, 1997 and 1996, the
ESOP allocated 12,720 shares, 7,536 shares, and 33,104 shares.
The ESOP shares as of December 31 were as follows:
1998 1997
---------- ----------
Allocated shares $ 569,920 $ 567,002
Unearned shares 73,502 86,222
Total ESOP shares 643,422 653,224
========== ==========
Fair value of unearned ESOP shares at December 31 $1,139,281 $1,336,441
========== ==========
- --------------------------------------------------------------------------------
(Continued)
F-18
72
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 8 - EMPLOYEE BENEFITS (Continued)
The Corporation accounts for its ESOP under AICPA Statement of Position ("SOP")
93-6. Compensation expense is recorded based on the average market price of the
shares committed to be released for allocation to participant accounts. The
difference between the market price and the cost of shares committed to be
released is recorded as an adjustment to common stock. Dividends on allocated
ESOP shares are recorded as a reduction of retained earnings; dividends on
unearned ESOP shares are reflected as a reduction of debt and accrued interest.
STOCK OPTION PLAN: On March 12, 1997, the Board of Directors of the Corporation
adopted the Rurban Financial Corp. Stock Option Plan ("Option Plan"). The
purpose of the Option Plan is to advance the interests of the Corporation and
its shareholders by granting directors, officers, and key employees of the
Corporation options to increase their propriety interest in the Corporation.
400,000 shares of the Corporation's authorized unissued common stock were
reserved for issuance under the Option Plan. The option exercise price shall not
be less than the fair market value (as defined in the Option Plan) of the common
stock on the date the option is granted, and the option term cannot exceed 10
years.
On October 22, 1997, 179,000 options with a 10 year term were granted at an
exercise price of $14.19 per share. On June 15, 1998, 45,750 options with a ten
year term were granted at an exercise price of $18.50. At December 31, 1998 and
1997, 217,800 and 179,000 options were granted and outstanding and 175,250 and
221,000 options were available to be granted. Eligible directors, officers and
key employees are able to exercise options awarded to them at a rate of 20% per
year, October 22, 1998, being the first possible exercise date, accordingly no
options were exercisable at December 31, 1997 or 1996.
The Corporation applied APB Opinion 25, Accounting For Stock Issued to Employees
and related interpretations in accounting for its Option Plan. Accordingly, no
compensation expense has been recognized for the Option Plan. SFAS No. 123,
Accounting For Stock-Based Compensation requires disclosures for stock-based
compensation awarded in fiscal years beginning after December 15, 1994 for
entities that do not adopt its fair value accounting method for stock-based
compensation. The weighted average grant-date fair value of stock options
granted during 1998 and 1997 was $4.13 and $3.77 per share.
A summary of the activity in the plan is as follows.
1 9 9 8 1 9 9 7
------- -------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
Outstanding at beginning
of year 179,000 $ 14.19 $ - $ -
Granted 45,750 18.50 179,000 14.19
Exercised (700) 14.19 -
Forfeited (6,250) 14.36 - -
------- --------
Outstanding at end of year 217,800 15.09 179,000 14.19
======= ========
- --------------------------------------------------------------------------------
(Continued)
F-19
73
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 8 - EMPLOYEE BENEFITS (Continued)
Options outstanding and exercisable at December 31, 1998 were as follows.
Outstanding Exercisable
----------- -----------
Weighted Average Weighted
Remaining Average
Exercise Contractual Exercise
Prices Number Life (in years) Number Price
------ ---------------- ------ ---------
$14.19 172,300 8.34 29,100 $14.19
$18.50 45,500 9.46 - -
------- ------
Outstanding at year end 217,800 8.57 29,100 14.19
======= ======
Had compensation cost for stock options been measured using FASB Statement No.
123, net income and earnings per share would have been the proforma amounts
indicated below. The proforma effect may increase in the future if more options
are granted.
1998 1997
---- ----
Net income as reported $ 4,277,877 $ 5,515,797
Proforma net income 4,127,825 5,489,543
Basic earnings per common share as reported 1.05 1.25
Proforma basic earnings per common share 1.02 1.24
Diluted earnings per common share as reported 1.05 1.24
Proforma diluted earnings per common share 1.01 1.24
The proforma effects are computed using option pricing models, using the
following weighted-average assumptions as of grant date.
1998 1997
---- ----
Risk-free interest rate 5.38% 6.50%
Expected option life 10 10
Expected stock price volatility 5.45% 5.45%
Dividend yield 2.16% 2.39%
- --------------------------------------------------------------------------------
(Continued)
F-20
74
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 8 - 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 to the plans were $196,000, $145,000, and $120,000 and related
expense attributable to the plans, included in salaries and employee benefits,
were approximately $186,000, $117,000, and $140,000 in 1998, 1997 and 1996.
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 $627,000 and $604,000 at December 31, 1998 and 1997, and is
included in other assets in the consolidated balance sheets.
SUPPLEMENTAL RETIREMENT PLAN: The Corporation established a supplemental
retirement plan for selected officers. The Corporation has purchased insurance
contracts on the lives of certain 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 payments due at retirement based on the
projected remaining years of service using the projected unit credit method. The
obligations under the plans, net of payments already made, was approximately
$700,000 and $532,000 at December 31, 1998 and 1997 and is included in other
liabilities in the consolidated balance sheets. The expense attributable to the
plans, included in salaries and employee benefits, was approximately $210,000,
$127,000, and $126,000 in 1998, 1997 and 1996. The cash surrender value of the
life insurance was approximately $1,675,000 and $1,597,000 at December 31, 1998
and 1997, and is included in other assets in the consolidated balance sheets.
- --------------------------------------------------------------------------------
(Continued)
F-21
75
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 9 - OTHER EXPENSES
The following is an analysis of other expenses for the years ended
December 31, 1998, 1997 and 1996:
1998 1997 1996
Amortization of intangible assets $ 492,000 $ 180,000 $ 285,000
Advertising expense 434,353 343,771 271,407
Professional fees 1,327,552 1,193,329 1,012,029
Insurance expense 166,376 141,929 123,893
Data processing fees 334,392 412,736 426,771
Printing, stationery and supplies 754,446 686,701 689,489
Telephone and communications 638,901 395,877 261,165
Postage and delivery expense 547,934 362,249 337,544
State, local and other taxes 635,845 655,089 610,792
Other operating expenses 2,283,595 1,717,610 1,421,861
--------------- -------------- --------------
$ 7,615,394 $ 6,089,291 $ 5,439,951
=============== ============== ==============
NOTE 10 - INCOME TAX EXPENSE
Income tax expense consists of the following for the years ended December 31,
1998, 1997 and 1996:
1998 1997 1996
---- ---- ----
Current expense $ 2,151,100 $ 2,525,248 $ 2,380,683
Deferred benefit (77,765) (54,779) (18,542)
--------------- -------------- --------------
$ 2,073,335 $ 2,470,469 $ 2,362,141
=============== ============== ==============
Tax expense on net gain on securities was $24,639, $65,923 and $11,521 in 1998,
1997 and 1996.
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, 1998, 1997 and
1996:
1998 1997 1996
---- ---- ----
Statutory tax rate 34% 34% 34%
Income taxes computed at the
statutory federal income tax rate $ 2,159,412 $ 2,715,330 $ 2,451,861
Add (subtract) tax effect of
Tax-exempt income (204,756) (214,877) (200,737)
Non-deductible expenses and other 118,679 (29,984) 111,017
--------------- -------------- --------------
$ 2,073,335 $ 2,470,469 $ 2,362,141
=============== ============== ==============
- --------------------------------------------------------------------------------
(Continued)
F-22
76
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 10 - INCOME TAX EXPENSE (Continued)
The components of the net deferred tax asset recorded in the consolidated
balance sheets as of December 31, 1998 and 1997 are as follows:
1998 1997
---- ----
Deferred tax assets
Provision for loan losses $ 1,309,376 $ 1,290,453
Mark to market adjustment 104,536 100,513
Net deferred loan fees 15,403 48,427
Accrued compensation and benefits 245,062 180,070
Other 6,085 7,337
-------------- --------------
1,680,462 1,626,800
Deferred tax liabilities
Net unrealized appreciation on
securities available for sale (104,536) (106,988)
Originated mortgage servicing rights (126,411) (88,433)
Depreciation (67,718) (105,404)
Purchase accounting adjustments (126,698) (163,252)
Other (13,727) (1,568)
-------------- --------------
(439,090) (465,645)
Valuation allowance - -
-------------- --------------
$ 1,241,372 $ 1,161,155
============== ==============
NOTE 11 - RELATED PARTY TRANSACTIONS
Certain directors, executive officers and principal shareholders of the
Corporation, including associates of such persons, are loan customers. A summary
of the related party loan activity, for loans aggregating $60,000 or more to any
one related party, follows for the year ended December 31, 1998 and 1997:
1998 1997
---- ----
Balance, January 1 $ 1,330,000 $ 7,891,000
New loans 1,839,000 309,000
Repayments (539,000) (87,000)
Other changes - (6,783,000)
-------------- --------------
Balance, December 31 $ 2,630,000 $ 1,330,000
============== ==============
Other changes include adjustments for loans applicable to one reporting period
that are excludable from the other reporting period.
- --------------------------------------------------------------------------------
(Continued)
F-23
77
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 12 - 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.
The Corporation has the following commitments for terms of up to two years
outstanding at December 31:
1998 1997
---- ----
Loan commitments and unused lines of credit $ 102,692,000 $ 76,633,000
Standby letters of credit 2,168,000 1,481,000
--------------- ---------------
$ 104,860,000 $ 78,114,000
=============== ===============
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.
There are various contingent liabilities that are not reflected in the
consolidated financial statements, including claims and legal actions arising in
the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters is
not expected to have a material effect on the Corporation's consolidated
financial condition or results of operations.
Under salary continuation agreements with certain executive officers, certain
events leading to separation from the Corporation before the executive officer's
normal retirement date could result in cash payments totaling approximately
$1,985,000 for which only $397,000 has been accrued as a liability at December
31, 1998.
The Corporation was required to have approximately $4,730,000 and $4,027,000 of
cash on hand or on deposit with the Federal Reserve Bank to meet regulatory
reserve and clearing requirements at December 31, 1998 and 1997. These balances
do not earn interest.
- --------------------------------------------------------------------------------
(Continued)
F-24
78
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 13 - PARENT COMPANY FINANCIAL STATEMENTS
Presented below are condensed financial statements for the parent company,
Rurban Financial Corp.:
CONDENSED BALANCE SHEETS
December 31, 1998 and 1997
1998 1997
---- ----
ASSETS
Cash and cash equivalents $ 581,808 $ 991,206
Investment in and advances to subsidiaries
Banking subsidiaries 36,100,152 34,448,145
Non-banking subsidiaries 4,062,640 3,567,264
--------------- ----------------
Total investment in subsidiaries 40,162,792 38,015,409
Other assets 2,075,386 886,162
--------------- ----------------
Total assets $ 42,819,986 $ 39,892,777
=============== ================
LIABILITIES
Cash dividends payable $ 419,017 $ 413,982
Other liabilities 498,019 384,867
--------------- ----------------
Total liabilities 917,036 798,849
SHAREHOLDERS' EQUITY 41,902,950 39,093,928
--------------- ----------------
Total liabilities and shareholders' equity $ 42,819,986 $ 39,892,777
=============== ================
- --------------------------------------------------------------------------------
(Continued)
F-25
79
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 13 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF INCOME
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
INCOME
Interest on securities-non-taxable $ - $ 21,477 $ 21,070
Dividends from subsidiaries
Banking subsidiaries 3,900,000 9,705,299 2,325,000
Non-banking subsidiaries - - 50,000
-------------- -------------- ---------------
Total 3,900,000 9,705,299 2,375,000
Noninterest income 386,384 225,133 17,869
-------------- -------------- ---------------
Total income 4,286,384 9,951,909 2,413,939
Noninterest expense 2,791,944 2,738,038 1,423,660
-------------- -------------- ---------------
INCOME BEFORE INCOME TAX BENEFIT AND EQUITY
IN UNDISTRIBUTED NET INCOME OF SUBSIDIARIES 1,494,440 7,213,871 990,279
Income tax benefit 818,231 925,702 448,950
-------------- -------------- ---------------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
NET INCOME OF SUBSIDIARIES 2,312,671 8,139,573 1,439,229
Equity in undistributed (excess distributed)
net income of subsidiaries
Banking subsidiaries 1,469,830 (3,542,158) 2,999,521
Non-banking subsidiaries 495,376 918,382 410,464
-------------- -------------- ---------------
Total 1,965,206 (2,623,776) 3,409,985
-------------- -------------- ---------------
NET INCOME $ 4,277,877 $ 5,515,797 $ 4,849,214
============== ============== ===============
- --------------------------------------------------------------------------------
(Continued)
F-26
80
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 13 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Dividends received from subsidiaries
Banking subsidiaries $ 3,900,000 $ 9,705,299 $ 2,325,000
Non-banking subsidiaries - - 50,000
-------------- -------------- ---------------
Total 3,900,000 9,705,299 2,375,000
Cash paid to suppliers and employees (3,674,304) (2,877,327) (1,445,917)
Income tax refunds 1,010,903 933,985 375,026
-------------- -------------- ---------------
Net cash from operating activities 1,236,599 7,761,957 1,304,109
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities
available for sale - 516,371 -
Principal repayments and calls of
securities available for sale - 155,455 -
Purchase of securities available for sale - - (200,517)
-------------- -------------- ---------------
Net cash from investing activities - 671,826 (200,517)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (1,655,928) (1,234,748) (1,308,975)
Proceeds from exercise of stock options 9,931 - -
Cash paid to repurchase common stock - (6,676,611) (170,625)
-------------- -------------- ---------------
Net cash from financing activities (1,645,997) (7,911,359) (1,479,600)
-------------- -------------- ---------------
Net change in cash and cash equivalents (409,398) 522,424 (376,008)
Cash and cash equivalents at beginning
of year 991,206 468,782 844,790
-------------- -------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 581,808 $ 991,206 $ 468,782
============== ============== ===============
- --------------------------------------------------------------------------------
(Continued)
F-27
81
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 13 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
RECONCILIATION OF NET INCOME TO NET CASH
FROM OPERATING ACTIVITIES
Net income $ 4,277,877 $ 5,515,797 $ 4,849,214
Adjustments to reconcile net income to
net cash from operating activities
Net gain on securities - (165,212) -
Equity in (undistributed) excess
distributed net income of subsidiaries
Banking subsidiaries (1,469,830) 3,542,158 (2,999,521)
Non-banking subsidiaries (495,376) (918,382) (410,464)
Change in other assets (1,189,224) (58,882) 6,772
Change in other liabilities 113,152 (153,522) (141,892)
-------------- -------------- ----------------
Net cash from operating activities $ 1,236,599 $ 7,761,957 $ 1,304,109
============== ============== ================
NOTE 14 - 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, 1998 and 1997.
Items which are not financial instruments are not included.
1998 1997
------------------------------------ -------------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
---------------- ---------------- ----------------- -----------------
Financial assets
- -----------------
Cash and cash equivalents $ 25,509,144 $ 25,509,000 $ 22,222,385 $ 22,222,000
Interest-bearing deposits in
other financial institutions 180,000 180,000 529,777 530,000
Securities available for sale 82,142,929 82,143,000 71,683,120 71,683,000
Loans, net of allowance for loan
losses (including loans held for sale) 407,069,974 408,802,000 358,612,036 358,833,000
Accrued interest receivable 3,196,546 3,197,000 3,533,532 3,534,000
Cash surrender value of
life insurance 2,302,000 2,302,000 2,201,000 2,201,000
Financial liabilities
- ----------------------
Demand and savings deposits (216,266,622) (216,267,000) (213,817,093) (213,817,000)
Time deposits (234,546,601) (235,645,000) (201,364,193) (202,358,000)
Federal funds purchased (9,500,000) (9,500,000) (4,929,000) (4,929,000)
Advances from FHLB (28,890,290) (29,796,000) (7,529,867) (7,530,000)
Accrued interest payable (1,685,437) (1,685,000) (1,577,140) (1,577,000)
- --------------------------------------------------------------------------------
(Continued)
F-28
82
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
For purposes of the above disclosures of estimated fair values, the following
assumptions were used as of December 31, 1998 and 1997. The estimated fair value
for cash and cash equivalents, accrued interest receivable, cash surrender value
of life insurance and accrued interest payable are considered to approximate
cost. The estimated fair value for interest-bearing deposits in other financial
institutions and securities available for sale is based on quoted market values
for the individual deposits or securities or for equivalent deposits or
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, 1998 and 1997,
applied for an estimated time period until the loan is assumed to reprice or be
paid. The estimated fair value for demand deposits, savings deposits, federal
funds purchased and the variable rate line of credit from FHLB is based on their
carrying value. The estimated fair value for time deposits and fixed rate
advances from FHLB is based on estimates of the rate the Corporation would pay
on such deposits or borrowings at December 31, 1998 and 1997, 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, 1998 and 1997 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, 1998 and 1997, the estimated fair
values would necessarily have been realized at that date, since market values
may differ depending on various circumstances. The estimated fair values at
December 31, 1998 and 1997 should not necessarily be considered to apply at
subsequent dates.
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
trust assets, the trained work force, customer goodwill and similar items.
NOTE 15 - REGULATORY MATTERS
The Corporation and its subsidiary banks are subject to regulatory capital
requirements administered by federal banking agencies. Capital adequacy
guidelines and prompt corrective action regulations involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items calculated
under regulatory accounting practices. Capital amounts and classifications are
also subject to qualitative judgments by regulators about components, risk
weightings, and other factors, and the regulators can lower classifications in
certain cases. Failure to meet various capital requirements can initiate
regulatory action that could have a direct material effect on the consolidated
financial statements.
- --------------------------------------------------------------------------------
(Continued)
F-29
83
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 15 - REGULATORY MATTERS (Continued)
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If less than well capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:
Capital to Risk-
Weighted Assets
---------------- Tier 1 Capital
Total Tier 1 To Average Assets
----- ------ -----------------
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
At year end, consolidated actual capital levels (in millions) and minimum
required levels were:
Minimum Required
Minimum Required To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
1998
- ----
Total capital (to risk weighted assets)
Consolidated $ 46.1 11.3% $ 32.7 8.0% $ 40.9 10.0%
State Bank 25.7 9.7 21.1 8.0 26.4 10.0
Tier 1 capital (to risk weighted assets)
Consolidated 41.0 10.0 16.4 4.0 24.5 6.0
State Bank 22.4 8.5 10.6 4.0 15.8 6.0
Tier 1 capital (to averaged assets)
Consolidated 41.0 8.3 19.8 4.0 24.7 5.0
State Bank 22.4 7.3 12.4 4.0 15.5 5.0
1997
- ----
Total capital (to risk weighted assets)
Consolidated $ 42.2 11.6% $ 29.1 8.0% $ 36.4 10.0%
State Bank 24.2 10.3 18.7 8.0 23.4 10.0
Tier 1 capital (to risk weighted assets)
Consolidated 37.7 10.3 14.6 4.0 21.8 6.0
State Bank 21.3 9.1 9.3 4.0 14.0 6.0
Tier 1 capital (to averaged assets)
Consolidated 37.7 8.0 18.9 4.0 23.6 5.0
State Bank 21.3 7.2 11.8 4.0 14.7 5.0
The Corporation at year end 1998 and 1997 was categorized as well capitalized.
State Bank at year end 1998 and 1997 was categorized as adequately and well
capitalized, respectively. All other subsidiary banks are not considered
significant for this presentation.
- --------------------------------------------------------------------------------
(Continued)
F-30
84
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 16 - OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as follows:
1998 1997 1996
---- ---- ----
Net change in unrealized appreciation
(depreciation) on securities available
for sale
Unrealized appreciation (depreciation)
arising during the year $ 54,098 $ 527,271 $ (654,693)
Reclassification adjustments for gains
included in net income (72,468) (193,892) (33,884)
-------------- -------------- ----------------
Net change in unrealized appreciation
(depreciation) on securities available
for sale (18,370) 333,379 (688,577)
Tax effects 2,452 (109,555) 234,116
-------------- -------------- ----------------
Total other comprehensive income (loss) $ (15,918) $ 223,824 $ (454,461)
============== ============== ================
NOTE 17 - SEGMENT INFORMATION
The reportable segments are determined by the products and services offered,
primarily distinguished between banking, mortgage banking and data processing
operations. Loans, investments, deposits, and financial services provide the
revenues in the banking operation, including the accounts of State Bank, Peoples
Bank, First National Bank and Citizens Savings Bank. Loan originations and net
gains on sales of loans provide the revenues in the mortgage banking operation,
including the accounts of RMC. Service fees provide the revenues in the data
processing operation, including the accounts of RDSI. Other segments include the
accounts of the holding company, Rurban Financial Corp., which provides
management services to its subsidiaries and RFS, which provides trust and
financial services to customer's nationwide and Rurban Life, which provides
insurance products to customers of the Corporation's subsidiary banks.
The accounting policies used are the same as those described in the summary
significant accounting policies. Segment performance is evaluated using net
interest income, other revenue, operating expense, and net income. Goodwill is
allocated. Income taxes and indirect expenses are allocated on revenue.
Transactions among segments are made at fair value. Beginning in 1998 the
holding company allocates certain expenses to other segments, except no expenses
are allocated to mortgage banking or to Rurban Life. Information reported
internally for performance assessment follows.
- --------------------------------------------------------------------------------
(Continued)
F-31
85
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 17 - SEGMENT INFORMATION (Continued)
1998
- ----
Mortgage Data
Banking Banking Processing Other
------- ------- ---------- -----
INCOME STATEMENT INFORMATION:
Net interest income (expense) $ 20,512,574 $ 506,359 $ (20,201) $ 92,096
Other revenue - external
customers 1,855,780 1,719,589 3,553,998 2,841,028
Other revenue - other segments 5,164 - 1,314,752 2,407,715
--------------- --------------- ---------------- ---------------
Net interest income
and other revenue 22,373,518 2,225,948 4,848,549 5,340,839
Noninterest expense 14,425,520 3,059,817 4,237,517 5,634,788
Significant non-cash items:
Depreciation and
amortization 688,156 320,037 929,038 134,317
Provision for loan losses 1,080,000 - - -
Income tax expense (benefit) 2,240,587 (248,498) 208,177 (126,931)
Segment profit (loss) 4,627,411 (585,371) 402,855 (167,018)
Balance sheet information:
- --------------------------
Total assets 532,744,285 19,771,508 4,747,584 5,081,398
Goodwill and intangibles 660,000 60,000 - -
Premises and equipment
Expenditures, net 1,287,941 225,505 2,639,115 350,071
Total Intersegment Consolidated
Segments Elimination Totals
-------- ----------- ------
INCOME STATEMENT INFORMATION:
Net interest income (expense) $ 21,090,828 $ - $ 21,090,828
Other revenue - external
customers 9,970,395 - 9,970,395
Other revenue - other segments 3,727,631 (3,727,631) -
--------------- ---------------- ---------------
Net interest income
and other revenue 34,788,854 (3,727,631) 31,061,223
Noninterest expense 27,357,642 (3,727,631) 23,630,011
Significant non-cash items:
Depreciation and
amortization 2,071,548 - 2,071,548
Provision for loan losses 1,080,000 - 1,080,000
Income tax expense (benefit) 2,073,335 - 2,073,335
Segment profit (loss) 4,277,877 - 4,277,877
Balance sheet information:
- --------------------------
Total assets 562,344,775 (25,189,996) 537,154,779
Goodwill and intangibles 720,000 - 720,000
Premises and equipment
Expenditures, net 4,502,632 - 4,502,632
- --------------------------------------------------------------------------------
(Continued)
F-32
86
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 17 - SEGMENT INFORMATION (Continued)
1997
- ----
Mortgage Data
Banking Banking Processing Other
------- ------- ---------- -----
Income statement information:
- -----------------------------
Net interest income (expense) $ 20,381,276 $ 35,708 $ (22,116) $ 36,518
Other revenue - external
customers 1,633,530 518,923 2,827,782 2,775,506
Other revenue - other segments - - 1,263,555 1,256,352
--------------- --------------- ---------------- ---------------
Net interest income and
other revenue 22,014,806 554,631 4,069,221 4,068,376
Noninterest expense 12,993,227 711,769 3,186,130 4,881,677
Significant non-cash items:
Depreciation and
amortization 669,669 - 822,373 81,489
Provision for loan losses 947,965 - - -
Income tax expense (benefit) 2,503,692 (56,952) 300,251 (276,522)
Segment profit (loss) 5,569,922 (100,186) 582,840 (536,779)
Balance sheet information:
- --------------------------
Total assets 469,805,133 11,270,134 2,778,964 4,084,696
Goodwill and intangibles 840,000 372,000 - -
Premises and equipment
Expenditures, net 505,009 66,929 281,957 295,759
Total Intersegment Consolidated
Segments Elimination Totals
-------- ----------- ------
Income statement information:
- -----------------------------
Net interest income (expense) $ 20,431,386 $ - $ 20,431,386
Other revenue - external
customers 7,755,741 - 7,755,741
Other revenue - other segments 2,519,907 (2,519,907) -
--------------- ---------------- ---------------
Net interest income and
other revenue 30,707,034 (2,519,907) 28,187,127
Noninterest expense 21,772,803 (2,519,907) 19,252,896
Significant non-cash items:
Depreciation and
amortization 1,573,531 - 1,573,531
Provision for loan losses 947,965 - 947,965
Income tax expense (benefit) 2,470,469 - 2,470,469
Segment profit (loss) 5,515,797 - 5,515,797
Balance sheet information:
- --------------------------
Total assets 487,938,927 (16,567,837) 471,371,090
Goodwill and intangibles 1,212,000 - 1,212,000
Premises and equipment
Expenditures, net 1,149,654 - 1,149,654
- --------------------------------------------------------------------------------
(Continued)
F-33
87
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 17 - SEGMENT INFORMATION (Continued)
1996
- ----
Mortgage Data
Banking Banking Processing Other
------- ------- ---------- -----
Income statement information:
Net interest income (expense) $ 18,785,722 $ 18,796 $ (38,329) $ 88,268
Other revenue (loss) - external
customers 1,500,222 (127,981) 2,220,193 2,601,233
Other revenue - other segments - - 905,101 827,023
--------------- --------------- ---------------- ---------------
Net interest income and
other revenue (expense) 20,285,944 (109,185) 3,086,965 3,516,524
Noninterest expense 11,755,145 97,770 2,801,520 3,953,449
Significant non-cash items:
Depreciation and
amortization 914,136 - 644,665 -
Provision for loan losses 961,009 - - -
Income tax expense (benefit) 2,484,600 (70,365) 97,052 (149,146)
Segment profit (loss) 5,085,190 (136,590) 188,393 (287,779)
Balance sheet information:
Total assets 428,986,581 1,875,636 2,649,611 3,053,868
Goodwill and intangibles 1,020,000 - - -
Premises and equipment
Expenditures, net 408,481 - 1,309,441 -
Total Intersegment Consolidated
Segments Elimination Totals
-------- ----------- ------
Income statement information:
Net interest income (expense) $ 18,854,457 $ - $ 18,854,457
Other revenue (loss) - external
customers 6,193,667 - 6,193,667
Other revenue - other segments 1,732,124 (1,732,124) -
--------------- ---------------- ---------------
Net interest income and
other revenue (expense) 26,780,248 (1,732,124) 25,048,124
Noninterest expense 18,607,884 (1,732,124) 16,875,760
Significant non-cash items:
Depreciation and
amortization 1,558,801 - 1,558,801
Provision for loan losses 961,009 - 961,009
Income tax expense (benefit) 2,362,141 - 2,362,141
Segment profit (loss) 4,849,214 - 4,849,214
Balance sheet information:
Total assets 436,565,696 (3,292,923) 433,272,773
Goodwill and intangibles 1,020,000 - 1,020,000
Premises and equipment
Expenditures, net 1,717,922 - 1,717,922
03/30/99 - 8274127.01
- --------------------------------------------------------------------------------
(Continued)
F-34
88
RURBAN FINANCIAL CORP.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1998
---------------------------------------
INDEX TO EXHIBITS
Exhibit No. Description Reference No.
- ----------- ----------- -------------
3(a) Amended Articles of Registrant, as amended Incorporated herein by 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 the Amended Incorporated herein by reference to
Articles of Rurban Financial Corp. Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1993 (File No. 0-13507) [Exhibit 3(b)].
3(c) Certificate of Amendment to the Amended Incorporated herein by reference to
Articles of Rurban Financial Corp. Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1997 (File No. 0-13507) [Exhibit 3(c)].
3(d) Amended and Restated Articles of Rurban Incorporated herein by reference to
Financial Corp. Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1997 (File No. 0-13507) [Exhibit 3(d)].
3(e) Regulations of Registrant, as amended Incorporated herein by 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 Plan of Rurban Incorporated herein by reference to
Financial Corp. Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1993 (File No. 0-13507) [Exhibit 10(a)].
10(b) First Amendment to Employees' Stock Incorporated herein by reference to
Ownership Plan of Rurban Financial Corp., Registrant's Annual Report on Form 10-K
dated June 14, 1993 and made to be for the fiscal year ended
effective as of January 1, 1993 December 31, 1993 (File No. 0-13507)
[Exhibit 10(b)].
89
Exhibit No. Description Reference No.
- ----------- ----------- -------------
10(c) Second Amendment to Employees' Stock Incorporated herein by reference to
Ownership Plan of Rurban Financial Corp., Registrant's Annual Report on Form 10-K
dated 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' Stock Incorporated herein by reference to
Ownership Plan of Rurban Financial Corp., Registrant's Annual Report on Form 10-K
dated March 13, 1995 for the fiscal year ended December 31, 1994
(File No. 0-13507) [Exhibit 10(d)].
10(e) Fourth Amendment to Employees' Stock Incorporated herein by reference to
Ownership Plan of Rurban Financial Corp., Registrant's Annual Report on Form 10-K
dated June 10, 1995 and made to be effective for the fiscal year ended December 31,
as of January 1, 1995 1995 (File No. 0-13507) [Exhibit 10(e)].
10(f) The Rurban Financial Corp. Savings Plan and Incorporated herein by reference to
Trust 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 Financial Incorporated herein by reference to
Corp. Savings Plan and Trust, dated December Registrant's Annual Report on Form 10-K
10, 1990 and effective January 1, 1990 for the fiscal year ended December
31, 1990 (File No. 0-13507)
[Exhibit 10(g)].
10(h) Second Amendment to The Rurban Financial Incorporated herein by reference to
Corp. Savings Plan and Trust, dated Registrant's Annual Report on Form 10-K
March 11, 1991, effective February 1, 1991 for the fiscal year ended December 31,
1992 (File No. 0-13507) [Exhibit 10(d)].
10(i) Third Amendment to The Rurban Financial Incorporated herein by reference to
Corp. Savings Plan and Trust, dated June 11, Registrant's Annual Report on Form 10-K
1991 for the fiscal year ended December 31,
1992 (File No. 0-13507) [Exhibit 10(e)].
10(j) Fourth Amendment to The Rurban Financial Incorporated herein by reference to
Corp. Savings Plan and Trust, dated July 14, Registrant's Annual Report on Form 10-K
1992, effective May 1, 1992 for the fiscal year ended December 31,
1992 (File No. 0-13507) [Exhibit 10(f)].
2
90
Exhibit No. Description Reference No.
- ----------- ----------- -------------
10(k) Fifth Amendment to The Rurban Financial Incorporated herein by reference to
Corp. Savings Plan and Trust, dated March Registrant's Annual Report on Form 10-K
14, 1994 for the fiscal year ended December 31,
1993 (File No. 0-13507) [Exhibit 10(i)].
10(l) Sixth Amendment to The Rurban Financial Incorporated herein by reference to
Corp. Savings Plan and Trust dated May 1, Registrant's Annual Report on Form 10-K
1995 for the fiscal year ended December 31,
1995 (File No. 0-13507) [Exhibit 10(l)].
10(m) Summary of Incentive Compensation Plan of Incorporated herein by reference to
State Bank Registrant'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 adopted by the Incorporated herein by reference to
Trust Department of State Bank for the Registrant's Annual Report on Form 10-K
benefit of Robert W. Constien in his for the fiscal year ended December 31,
capacity as Manager of the Trust Department 1991 (File No. 0-13507) [Exhibit 10(e)].
10(o) Summary of Bonus Program for the Trust Incorporated herein by reference to
Department of State Bank Registrant'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 of State Bank 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 10(n)].
10(q) Summary of Rurban Financial Corp. Bonus Plan Incorporated herein by 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 Agreement, Incorporated herein by reference to
dated December 15, 1994, between Rurban Registrant's Annual Report on Form 10-K
Financial Corp. and Richard C. Burrows for the fiscal year ended December 31,
1994 (File No. 0-13507) [Exhibit 10(p)].
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91
Exhibit No. Description Reference No.
- ----------- ----------- -------------
10(s) Executive Salary Continuation Agreement, Incorporated herein by reference to
dated October 11, 1995, between Rurban Registrant's Annual Reports on Form 10-K
Financial Corp. and Thomas C. Williams; and for the fiscal years ended December 31,
Amended Schedule A to Exhibit 10(s) 1995 and December 31, 1997 (File No.
identifying other identical Executive Salary 0-13507) [Exhibit 10(s)].
Continuation Agreements between executive
officers of Rurban Financial Corp. and
Rurban Financial Corp.
10(t) Description of Split-Dollar Insurance Incorporated herein by reference to
Policies Maintained for Certain Executive Registrant's Annual Report on Form 10-K
Officers of Rurban Financial Corp. for the fiscal year ended December 31,
1995 (File No. 0-13507) [Exhibit 10(t)].
10(u) Rurban Financial Corp. Stock Option Plan Incorporated herein by reference to the
Corporation's Annual Report on Form 10-K
for the fiscal year ended
December 31, 1996 (File No. 0-13507)
[Exhibit 10(u)].
10(v) Rurban Financial Corp. Plan to Allow Incorporated herein by reference to the
Directors to Elect to Defer Compensation Corporation's Annual Report on Form 10-K
for the fiscal year ended
December 31, 1996 (File No. 0-13507)
[Exhibit 10(u)].
10(w) Form of Non-Qualified Stock Option Agreement Incorporated herein by reference to
Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1997 (File No. 0-13507) [Exhibit 10(w)].
10(x) Form of Incentive Stock Option Agreement Incorporated herein by reference to
Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1997 (File No. 0-13507) [Exhibit 10(x)].
11 Statement re Computation of Per Share [Included in Note 2 of the Notes to
Earnings Consolidated Financial Statements of Registrant
in the financial statements portion of this
Annual Report on Form 10-K].
21 Subsidiaries of Registrant Included in this Annual Report on Form
10-K as Exhibit 21.
23 Consent of Independent Auditor Included in this Annual Report on Form
10-K as Exhibit 23.
4
92
Exhibit No. Description Reference No.
- ----------- ----------- -------------
24 Powers of Attorney Included in this Annual Report on Form
10-K as Exhibit 24.
27 Financial Data Schedule Included in this Annual Report on Form
10-K as Exhibit 27.
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