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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, 1999
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 (4,140,718 outstanding at March 10, 2000)
--------------------------------------------------------------------------
(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 10,
2000, the aggregate market value of the Common Shares of the Registrant held by
non-affiliates on that date was $51,729,489.
Documents Incorporated by Reference:
Portions of the Registrant's definitive Proxy Statement for its Annual Meeting
of Shareholders to be held on April 24, 2000 are incorporated by reference into
Part III of this Annual Report on Form 10-K.
Exhibit Index on Page 84 (as numbered sequentially)
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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 American General Assurance Company ("AGAC") from the credit
life and disability insurance purchased by customers of the Corporation's
banking subsidiaries from AGAC 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, 1999, State Bank had 96 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, 1999, RFS had 29 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 selling such loans in the secondary market.
At December 31, 1999, RMC had 11 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 one full-service branch in Findlay
and one in McComb, Ohio. At December 31, 1999, Peoples Bank had 27 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, 1999, First National Bank had 14 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, 1999, Citizens Savings
Bank had 24 full-time equivalent employees.
RDSI
- ----
Substantially all of RDSI's business is comprised of providing data
processing services to 50 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, 1999, RDSI had 35 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 AGAC from the
credit life and disability insurance purchased by customers of State Bank,
Peoples Bank, First National Bank and Citizens Savings Bank from AGAC 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, 1999, 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, 1999, 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.
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 loans. RMC also underwrites loans
originated by the Corporation's four affiliate banks and other community banks
in Ohio and Florida.
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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 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
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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.
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
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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.
Financial Services Modernization Act of 1999
--------------------------------------------
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act, or the Financial Services Modernization Act of 1999,
which, effective March 11, 2000, permits bank holding companies to become
financial holding companies and thereby affiliate with securities firms and
insurance companies and engage in other activities that are financial in nature.
A bank holding company may become a financial holding company if each of its
subsidiary banks is well capitalized under the Federal Deposit Insurance
Corporation Act of 1991 prompt corrective action provisions, is well managed,
and has at least a satisfactory rating under the Community Reinvestment Act by
filing a declaration that the bank holding company wishes to become a financial
holding company. No regulatory approval will be required for a financial holding
company to acquire a company, other than a bank or savings association, engaged
in activities that are financial in nature or incidental to activities that are
financial in nature, as determined by the Federal Reserve Board.
The Financial Services Modernization Act defines "financial in
nature" to include: (i) securities underwriting, dealing and market making; (ii)
sponsoring mutual funds and investment companies; (iii) insurance underwriting
and agency; (iv) merchant banking activities; and (v) activities that the
Federal Reserve Board has determined to be closely related to banking.
The specific effects of the enactment of the Financial Services
Modernization Act on the banking industry in general and on the Corporation and
its subsidiaries have yet to be determined due to the fact that the Financial
Services Modernization Act was only recently adopted.
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Statistical Financial Information Regarding the Corporation
-----------------------------------------------------------
The following schedules and tables analyze certain elements of the
consolidated balance sheets and statements of income of the Corporation and its
subsidiaries, as required under Exchange Act Industry Guide 3 promulgated by the
Securities and Exchange Commission, and should be read in conjunction with the
narrative analysis presented in Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation and the Consolidated Financial
Statements of the Corporation and its subsidiaries included at pages F-1 through
F-35 of this Annual Report on Form 10-K.
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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 1999 1998 1997
---- ---- ----
Interest-earning assets
Securities available for sale (1)
Taxable $ 73,661,147 $ 68,465,434 $ 63,329,510
Non-taxable 9,442,497 6,191,050 5,827,365
Federal funds sold 1,477,880 17,112,858 13,009,024
Loans, net of unearned income
and deferred loan fees (2) 461,342,591 376,126,488 342,480,740
------------ ------------ ------------
Total interest-earning assets 545,924,115 467,895,830 424,646,639
Allowance for loan losses (5,698,734) (5,382,901) (5,245,851)
------------ ------------ ------------
540,225,381 462,512,929 419,400,788
Noninterest-earning assets
Cash and due from banks 16,953,255 15,152,187 14,980,442
Premises and equipment, net 11,188,449 10,067,321 8,732,846
Accrued interest receivable and
other assets 11,833,035 6,224,187 8,897,276
------------ ------------ ------------
$580,200,120 $493,956,624 $452,011,352
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Deposits
Savings and interest-bearing
demand deposits $ 82,291,784 $ 96,422,897 $ 90,874,940
Time deposits 354,626,156 281,227,689 265,046,479
Federal funds purchased and
securities sold under agree-
ments to repurchase 11,313,555 1,093,099 2,294,882
Advances from Federal Home
Loan Bank (FHLB) 32,332,414 24,222,456 3,907,485
Other borrowed funds 4,100,000 -- --
------------ ------------ ------------
Total interest-bearing liabilities 484,663,909 402,966,141 362,123,786
Noninterest-bearing liabilities
Demand deposits 45,760,449 45,418,691 44,405,121
Accrued interest payable and
other liabilities 6,809,194 5,140,844 3,331,816
------------ ------------ ------------
537,233,552 453,525,676 409,860,723
Shareholders' equity (3) 42,966,568 40,430,948 42,150,629
------------ ------------ ------------
$580,200,120 $493,956,624 $452,011,352
============ ============ ============
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(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.
1999
----------------------------------------------
Average Average
Balance Interest Rate
------- -------- ----
INTEREST-EARNING ASSETS
Securities (1)
Taxable $ 73,801,410 $ 4,553,538 6.17%
Non-taxable 10,019,393 754,935 (2) 7.53 (2)
Federal funds sold 1,477,880 76,408 5.17
Loans, net of unearned income and
deferred loan fees 461,342,591 (3) 39,824,608 (4) 8.63
------------ -----------
Total interest-earning assets $546,641,274 45,209,489 (2) 8.27% (2)
============
INTEREST-BEARING LIABILITIES
Deposits
Savings and interest-bearing
demand deposits $ 82,291,784 1,674,222 2.03%
Time deposits 354,626,156 17,352,230 4.89
Federal funds purchased and
securities sold under agree-
ments to repurchase 11,313,555 617,027 5.45
Advances from FHLB 32,332,414 1,765,513 5.46
Other borrowed funds 4,100,000 334,921 8.17
------------ -----------
Total interest-bearing liabilities $484,663,909 21,743,913 4.49%
============ -----------
Net interest income $23,465,576 (2)
===========
Net interest income as a percent
of average interest-earning assets 4.29% (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 1999).
(3) Loan balances include principal balances of nonaccrual loans and loans
held for sale.
(4) Includes net fees on loans of $1,368,444 in 1999.
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I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (CONTINUED)
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) 34,131,651 (4) 9.07
------------ -----------
Total interest-earning assets $467,613,168 39,460,844 (2) 8.44%(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 $20,718,145 (2)
===========
Net interest income as a percent
of average interest-earning assets 4.43%(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 net fees on loans of $1,041,507 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) 31,616,158 (4) 9.23
------------ -----------
Total interest-earning assets $424,599,588 36,742,530 (2) 8.65%(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 $20,053,375 (2)
===========
Net interest income as a percent
of average interest-earning assets 4.72%(2)
====
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(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 net fees on loans of $891,330 in 1997.
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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 1999, 1998 and
1997.
Total Variance Attributable To
Variance ------------------------
1999/1998 Volume Rate
--------- ------ ----
INTEREST INCOME
Securities
Taxable $ 613,871 $ 330,288 $ 283,583
Non-taxable 262,123 298,100 (35,977)
Federal funds sold (820,306) (808,503) (11,803)
Loans, net of unearned income
and deferred loan fees 5,692,957 7,422,832 (1,729,875)
---------- ---------- -----------
5,748,645 7,242,717 (1,494,072)
INTEREST EXPENSE
Deposits
Savings and interest-bearing
demand deposits (447,082) (295,430) (151,652)
Time deposits 2,130,768 3,693,953 (1,563,185)
Federal funds purchased and
securities sold under agreements
to repurchase 554,174 557,577 (3,403)
Advances from FHLB 428,433 442,995 (14,562)
Other borrowed funds 334,921 334,921 --
---------- ---------- -----------
3,001,214 4,734,016 (1,732,802)
---------- ---------- -----------
NET INTEREST INCOME $2,747,431 $2,508,701 $ 238,730
========== ========== ===========
13
14
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (CONTINUED)
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 2,515,493 3,060,983 (545,490)
---------- ---------- ---------
2,718,314 3,600,310 (881,996)
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 $ 664,770 $1,554,325 $(889,555)
========== ========== =========
14
15
II. INVESTMENT PORTFOLIO
A. The book value of securities available for sale as of December
31 are summarized as follows:
1999 1998 1997
---- ---- ----
U.S. Treasury and U.S. Government
agency securities $19,376,264 $20,110,990 $43,398,433
Obligations of states and
political subdivisions 10,581,971 9,201,982 5,395,065
Mortgage-backed securities 50,565,523 50,608,107 21,159,472
Marketable equity securities 2,595,150 2,221,850 1,730,150
----------- ----------- -----------
$83,118,908 $82,142,929 $71,683,120
=========== =========== ===========
B. The maturity distribution and weighted average yield of
securities available for sale at December 31, 1999 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 $ -- $16,339,019 $ 3,037,245 $ --
Obligations of states and political
subdivisions 1,325,111 2,343,763 1,794,010 5,119,087
Mortgage-backed securities (2) 2,485,233 11,770,918 16,398,921 19,910,451
Marketable equity securities -- -- -- 2,595,150
---------- ----------- ----------- -----------
$3,810,344 $30,453,700 $21,230,176 $27,624,688
========== =========== =========== ===========
Weighted average yield (1) 4.37% 06.28% 5.88% 5.78%
(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,
1999.
15
16
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:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Commercial,
financial and
agricultural (1) $326,564,165 $248,840,548 $217,324,268 $185,838,900 $ 63,444,036
Real estate
mortgage (1) 80,703,338 72,225,323 75,212,817 72,356,881 152,555,540
Consumer
loans to
individuals 94,410,123 73,244,850 67,198,876 60,512,850 61,600,664
------------ ------------ ------------ ------------ ------------
$501,677,626 $394,310,721 $359,735,961 $318,708,631 $277,600,240
============ ============ ============ ============ ============
Real estate
mortgage
loans held
for resale $ 7,149,585 $ 18,509,275 $ 4,404,327 $ 1,875,636 $ 2,949,293
============ ============ ============ ============ ============
(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 commercial real estate, business assets and
agricultural loans collateralized by crops and farm equipment. As of December
31, 1999, commercial, financial and agricultural loans make up approximately 65%
of the loan portfolio and the loans are expected to be repaid from cash flow
from operations of businesses. As of December 31, 1999, residential first
mortgage loans make up approximately 16% of the loan portfolio and are
collateralized by first mortgages on residential real estate. As of December 31,
1999, 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, 1999 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 $124,018,000
After one year but within five years 104,973,000
After five years 97,573,000
------------
$326,564,000
============
16
17
III. LOAN PORTFOLIO (CONTINUED)
Commercial, Financial and Agricultural
--------------------------------------
Interest Sensitivity
--------------------
Fixed Variable
Rate Rate Total
---- ---- -----
Due after one year but
within five years $62,435,000 $ 42,538,000 $104,973,000
Due after five years 9,828,000 87,745,000 97,573,000
----------- ------------ ------------
$72,263,000 $130,283,000 $202,546,000
=========== ============ ============
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.
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands)
(a) Loans accounted for on a
nonaccrual basis $1,403 (1) $1,880 (1) $ 2,303 (1) $1,055 (1) $2,403 (1)
(b) Accruing loans which are
contractually
past due 90 days or
more as to interest
or principal payments 809 (1) 1,742 462 293 711
(c) Loans not included in (a)
or (b) which are
"Troubled Debt Restruc-
turings" as defined by
Statement of Financial
Accounting Standards
No. 15 -- -- -- -- --
(d) Other loans defined as
"impaired" 1,103 -- -- 2,490 --
------ ------ ------ ------ ------
$3,315 $3,622 $2,765 $3,838 $3,114
====== ====== ====== ====== ======
(1) Includes loans defined as "impaired" under SFAS No. 114.
17
18
III. LOAN PORTFOLIO (CONTINUED)
Management believes the allowance for loan losses at December 31, 1999 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.
1999
----
(In thousands)
Gross interest income that would have been recorded in 1999 on
nonaccrual loans outstanding at December 31, 1999 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 $170
Interest income actually recorded on nonaccrual loans and
included in net income for the period (40)
----
Interest income not recognized during the period $130
====
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, 1999, in addition to the $3,315,000 of
loans reported under Item III, C.1., there are approximately
$10,142,000 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 $10,142,000 potential problem loans described
above, management believes that such loans will not materially
impact future operating results, liquidity, or capital
resources.
18
19
III. LOAN PORTFOLIO (CONTINUED)
3. Foreign Outstandings
None
4. Loan Concentrations
At December 31, 1999, loans outstanding related to
agricultural operations or collateralized by agricultural real
estate aggregated approximately $61,099,000. At December 31,
1999, there were no agriculture loans which were accounted for
on a nonaccrual basis; and there are approximately $75,000 of
accruing agriculture loans which are contractually past due
ninety days or more as to interest or principal payments.
D. Other Interest-Bearing Assets
-----------------------------
Other than $285,000 in foreclosed real estate, there are no
other interest-bearing assets as of December 31, 1999 which
would be required to be disclosed under Item III. C.1 or 2 if
such assets were loans.
19
20
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:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
LOANS
Loans outstanding at end of period (1) $508,480,963 $412,478,828 $363,851,637 $320,321,476 $280,314,137
============ ============ ============ ============ ============
Average loans outstanding during period (1) $461,342,591 $376,126,488 $342,480,740 $305,611,881 $282,864,867
============ ============ ============ ============ ============
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $ 5,408,854 $ 5,239,601 $ 5,066,600 $ 4,270,000 $ 4,770,000
Loans charged-off
Commercial, financial and agricultural loans (2) (578,228) (885,132) (438,317) (308,143) (1,267,028)
Real estate mortgage (2) (25,181) (59,940) (30,863) (14,470) (509,108)
Consumer loans to individuals (489,032) (390,420) (856,426) (555,164) (874,690)
------------ ------------ ------------ ------------ ------------
(1,092,441) (1,335,492) (1,325,606) (877,777) (2,650,826)
Recoveries of loans previously charged-off
Commercial, financial and agricultural loans (2) 327,122 248,054 308,283 380,951 497,437
Real estate mortgage (2) 72,045 3,610 6,877 8,288 23,432
Consumer loans to individuals 263,132 173,081 235,482 324,129 178,059
------------ ------------ ------------ ------------ ------------
662,299 424,745 550,642 713,368 698,928
------------ ------------ ------------ ------------ ------------
Net loans charged-off (430,142) (910,747) (774,964) (164,409) (1,951,898)
Provision for loan losses 1,215,000 1,080,000 947,965 961,009 1,451,898
------------ ------------ ------------ ------------ ------------
Balance at end of period $ 6,193,712 $ 5,408,854 $ 5,239,601 $ 5,066,600 $ 4,270,000
============ ============ ============ ============ ============
Ratio of net charge-offs during the period to
average loans outstanding during the period .09% .24% .23% .05% .69%
============ ============ ============ ============ ============
(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 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 to Category To
Allowance Total Allowance Total
Amount Loans Amount Loans
------ ----- ------ -----
December 31, 1999 December 31, 1998
----------------- -----------------
Commercial, financial
and agricultural $4,371,000 65.1% $2,704,000 63.1%
Residential first mortgage 93,000 16.1 144,000 18.3
Consumer loans
to individuals 553,000 18.8 1,026,000 18.6
Unallocated 1,176,712 N/A 1,534,854 N/A
---------- ----- ---------- -----
$6,193,712 100.0% $5,408,854 100.0%
========== ===== ========== =====
December 31, 1997 December 31, 1996
----------------- -----------------
Commercial, financial
and agricultural $3,678,000 60.4% $3,445,000 58.3%
Residential first mortgage 203,000 20.9 203,000 22.7
Consumer loans
to individuals 742,000 18.7 811,000 19.0
Unallocated 616,601 N/A 607,600 N/A
---------- ----- ---------- -----
$5,239,601 100.0% $5,066,600 100.0%
========== ===== ========== =====
December 31, 1995
-----------------
Commercial, financial
and agricultural $1,665,000 22.9%
Real estate mortgage 512,000 54.9
Consumer loans
to individuals 1,452,000 22.2
Unallocated 641,000 N/A
---------- -----
$4,270,000 100.0%
========== =====
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 19% 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:
1 9 9 9 1 9 9 8 1 9 9 7
------- ------- -------
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
Savings and interest-bearing
demand deposits $ 82,291,784 2.03% $ 96,422,897 2.20% $ 90,874,940 2.17%
Time deposits 354,626,156 4.89 281,227,689 5.41 265,045,479 5.41
Demand deposits
(non-interest bearing) 45,760,449 -- 45,418,691 -- 44,405,121 --
------------ ------------ ------------
$482,678,389 $423,069,277 $400,326,540
============ ============ ============
Maturities of time certificates of deposit and other time deposits of
$100,000 or more outstanding at December 31, 1999 are summarized as
follows:
Amount
------
Three months or less $ 23,339,000
Over three months and through six months 36,940,000
Over six months and through twelve months 26,394,000
Over twelve months 20,113,000
------------
$106,786,000
============
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:
1999 1998 1997
---- ---- ----
Average total assets $580,200,120 $493,956,624 $452,011,352
============ ============ ============
Average shareholders' equity (1) $ 42,966,568 $ 40,430,948 $ 42,150,629
============ ============ ============
Net income $ 5,230,902 $ 4,277,877 $ 5,515,797
============ ============ ============
Cash dividends declared $ 1,692,641 $ 1,660,963 $ 1,648,730
============ ============ ============
Return on average total assets .90% .87% 1.22%
============ ============ ============
Return on average share-
holders' equity 12.17% 10.58% 13.09%
============ ============ ============
Dividend payout percentage (2) 32.36% 38.83% 29.89%
============ ============ ============
Average shareholders' equity
to average total assets 7.41% 8.19% 9.33%
============ ============ ============
(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 1998 and 1997 was 30
percent or more of shareholders' equity at the end of the reported
periods.
The following information is reported for federal funds purchased for
1999:
Amount outstanding at end of year $10,900,000
===========
Weighted average interest rate at end of year 5.73%
===========
Maximum amount outstanding at any month end $18,200,000
===========
Average amount outstanding during the year $11,313,555
===========
Weighted average interest rate during the year 5.45%
===========
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 4,403 square
feet on the second floor and on the lower level presently are
leased to RDSI, 7,064 square feet on the second floor are
leased to RFS and 2,868 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 and most recently remodeled in 1999.
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.
24
25
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.
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.
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 2,213 square foot office space located at Estancia
Boulevard, Suite 201, Clearwater, Florida. This office was first leased on
January 22, 1997.
RDSI leases a 5,616 square foot office space located at 2010 South
Jefferson, Defiance, Ohio. This office was first leased on December 21, 1999.
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 47 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 51 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 47 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 55 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 48 Senior Vice President and Senior Credit Officer 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 43 President and Chief Executive Officer of State Bank since August 1996;
(1) 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 52 Chairman and Chief Executive Officer of RDSI since October 1997; Chairman
(1) 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.
Henry R. Thiemann 53 Senior Vice President and Operations Manager of the Corporation since
January 1999; President of RMC since August 1999; Special Projects Manager
(Y2K) of the Corporation since January 1999; Independent Consultant from
January 1996 to January 1999; Managing Agent of FDIC/RTC from April 1990
to December 1995.
Edward L. Yoder 54 Senior Vice President and Senior Agricultural Lender of the Corporation
(1) since December 1998; Executive Vice President of State Bank since April
1992; Director of RMC; Chairman and President of Rurban Life; Senior Vice
President of State Bank since January 1992; Vice President of State Bank
since 1985.
(1) For purposes of this Form 10-K, even though Mr. Soukup, Mr. Joyce and
Mr. Yoder 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.
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PART II
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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 under the 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 two 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.
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
Per Share Per Share
Bid Prices Dividends
1999 High Low Declared
---- ---- --- --------
First Quarter $17.75 $15.00 $.10
Second Quarter 16.00 13.25 .10
Third Quarter 16.25 13.25 .10
Fourth Quarter 14.25 12.50 .11
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 December 31, 1999,
was 1,650.
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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, 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
EARNINGS
Total interest income $ 44,953 $ 39,293 $ 36,582 $ 32,924 $ 30,969
Total interest expense 21,744 18,743 16,689 14,657 14,238
Net interest income 23,209 20,550 19,893 18,267 16,731
Provision for loan losses 1,215 1,080 948 961 1,452
Total noninterest income 11,064 10,511 8,294 6,781 6,214
Total noninterest expense 25,466 23,630 19,253 16,876 15,271
Income tax expense 2,361 2,073 2,470 2,362 2,127
Net income 5,231 4,278 5,516 4,849 4,095
- ------------------------------------------------------------------------------------------
PER SHARE DATA (1)
Basic earnings (2) $ 1.28 $ 1.05 $ 1.24 $ 1.07 $ 0.89
Diluted earnings (2) 1.28 1.04 1.24 1.07 0.89
Cash dividends declared 0.41 0.40 0.37 0.285 0.285
- ------------------------------------------------------------------------------------------
AVERAGE BALANCES
Average shareholders'
equity $ 42,967 $ 40,431 $ 42,151 $ 40,749 $ 37,877
Average total assets 580,200 493,957 452,011 416,743 398,560
- ------------------------------------------------------------------------------------------
RATIOS
Return on average
shareholders' equity 12.17% 10.58% 13.09% 11.90% 10.81%
Return on average total
assets .90 .87 1.22 1.16 1.03
Cash dividend payout
ratio (cash dividends
divided by net income) 32.36 38.83 29.89 26.99 32.01
Average shareholders'
equity to average total
assets 7.41 8.19 9.33 9.78 9.50
- ------------------------------------------------------------------------------------------
PERIOD END TOTALS
Total assets $627,784 $537,155 $471,371 $433,273 $411,226
Total loans and leases 501,678 394,311 359,736 318,709 277,600
Total deposits 519,296 450,813 415,181 387,766 367,797
Advances from FHLB 40,035 28,890 7,530 -- --
Shareholders' equity 43,900 41,903 39,094 41,489 40,078
Shareholders' equity
per share (1) 10.60 10.12 9.44 9.07 8.74
- ------------------------------------------------------------------------------------------
(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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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
- --------------------------------------------------------------------------------
EARNINGS SUMMARY
CONSOLIDATED NET INCOME for Rurban Financial Corp. (the "Corporation") for 1999
was $5.2 million, up from $4.3 million in 1998 and down from $5.5 million in
1997. Basic earnings per share were $1.28 in 1999, an increase of 22% from $1.05
in 1998 and a 3% increase over the 1.24% in 1997. Cash dividends declared per
share increased to $.41 for 1999 compared to $.40 in 1998 and $.37 in 1997,
increases of 2.5% and 8%, respectively. Per share data has been adjusted to
reflect the two-for-one stock split declared in May 1998.
RESULTS OF OPERATIONS
1999 COMPARED WITH 1998
- -----------------------
NET INTEREST INCOME for 1999 was $23.2 million an increase of $2.7 million
(12.9%) over 1998. The increase was primarily due to a 22.7% increase in the
average balance of loans and loans held for sale. The average yield on loans
declined to 8.63% compared to 9.07% for 1998. The decline in earning asset yield
partially offset by the decrease in the average rate on interest bearing
liabilities from 4.65% in 1998 to 4.49% in 1999, combined to result in a decline
in the tax equivalent net interest margin from 4.43% in 1998 to 4.29% in 1999.
AT DECEMBER 31, 1999, loans and loans held for sale, net of deferred loan fees
amounted to $508.5 million, an increase of 23.3% over the December 31, 1998
balance of $412.5 million. This increase was due to the Corporation's loan
origination efforts, with the majority of the growth occurring in the
Findlay/Hancock county and Cleveland/Akron areas.
COMMERCIAL, FINANCIAL AND AGRICULTURAL LOANS increased $77.7 million from $248.8
million at December 31, 1998 to $326.6 million at December 31, 1999. This
increase occurred as the result of the Corporation's goal to increase small
business loan relationships.
AT DECEMBER 31, 1999, approximately $7.1 million of real estate mortgage loans
were held for sale in the secondary market. During 1999, approximately $97.3
million of real estate mortgage loans were originated for sale and approximately
$103.6 million were sold in the secondary market. This represents an increase of
$5.2 million (5.3%) in loans sold in 1999 as compared to 1998. During 1999, most
loans were sold on a servicing released basis. Loans originated for sale are
primarily fixed rate mortgage loans.
SECURITIES AVAILABLE FOR SALE TOTALED $83.1 million at December 31, 1999 which
represented an increase of $1 million (1.2%) from $82.1 million at December 31,
1998. As of December 31, 1999, 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
decrease in shareholders' equity of $1.5 million at December 31, 1999.
TOTAL DEPOSITS at December 31, 1999 amounted to $519.3 million, an increase of
$68.5 million (15.2%) over total deposits of $450.8 million at December 31,
1998. The increase in deposits is believed to have
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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, 1999 were $57.9 million compared to $38.4 at
December 31, 1998. These borrowings consisted of $40.0 million of FHLB Advances
and $10.9 million of federal funds purchased and $7.0 million borrowed on a line
of credit with another financial institution 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 inherent losses based on an
evaluation of loan portfolio risk and economic factors. The provision for loan
losses was $1,215,000 in 1999 compared to $1,080,000 in 1998.
THE ALLOWANCE for loan losses at December 31, 1999 was $6.2 million or 1.22% of
loans and loans held for sale, net of deferred loan fees, compared to $5.4
million or 1.31% at December 31, 1998.
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, 1999, the Corporation classified three loan
relationships as impaired, totaling $1.5 million. Management allocated $807,000
of the allowance for loan losses to impaired loans at December 31, 1999.
MANAGEMENT ALLOCATED approximately 71% of the allowance for loan losses to
commercial, financial and agricultural loans; 9% to consumer loans; and 1% to
residential first mortgage loans at December 31, 1999, leaving a balance of 19%
unallocated. Nonperforming loans decreased to $2.2 million at December 31, 1999
from $3.6 million at December 31, 1998. The decrease in nonperforming loans
relates primarily to a decrease in accruing loans past due 90 days or more at
the end of 1999. The allowance is maintained by management at a level considered
adequate to cover losses that are currently anticipated based on past loss
experience, 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, 1999 is adequate to absorb
losses on impaired, nonperforming and other loans.
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TOTAL NONINTEREST INCOME increased $553,000 to $11.1 million in 1999 from $10.5
million in 1998. This growth was driven by data service fees which increased
$828,000 (23.3%) to $4,382,000 in 1999 compared to $3,554,000 in 1998. The
primary reasons for the $828,000 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 39
at the end of 1998 to 50 at year-end 1999. Trust fee income increased $20,000
(0.8%) to $2,597,000 in 1999 from $2,577,000 in 1998 primarily due to an
increase in trust assets managed from $326 million at December 31, 1998 to $356
million at December 31, 1999. Net gain on sales of loans decreased $787,000 to
$1,147,000 in 1999 as compared to $1,934,000 in 1998. This decrease was the
result of lower margins in gains on sale in 1999 compared to 1998. Other income
increased $318,000 (54.7%) to $899,000 in 1999 from $581,000 in 1998. The
primary reason for the increase was a $226,000 gain on sale of a branch site in
1999.
TOTAL NONINTEREST EXPENSE increased $1.8 million (7.8%) to $25.5 million in
1999, from $23.6 million in 1998, primarily due to the following factors.
Salaries and employee benefits increased $2.0 million (15.7%) to $14.4 million
in 1999 compared to $12.4 million in 1998. This increase was due primarily to
annual merit increases, and staffing increases in the Corporation's non-interest
income generating companies. Equipment rentals, depreciation and maintenance
increased $466,000 primarily due to the upgrading of networking and computer
equipment. Other expenses decreased $674,000 (8.8%) primarily due to the
decrease in operating expenses at Rurban Mortgage Company.
INCOME TAX EXPENSE for the year ended December 31, 1999 was $2.4 million, an
increase of $288,000 (13.9%) from 1998. This increase was primarily attributable
to a increase in income before income tax expense.
RESULTS OF OPERATIONS
1998 COMPARED WITH 1997
- -----------------------
NET INTEREST INCOME for 1998 was $20.6 million an increase of $0.7 million
(3.3%) over 1997. The increase was primarily due to a 9.8% increase in the
average balance of loans and loans held for sale. The average yield on loans
declined to 9.07% compared to 9.23% 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 tax
equivalent net interest margin from 4.72% in 1997 to 4.43% in 1998.
AT DECEMBER 31, 1998, loans and loans held for sale, net of deferred loan fees
amounted to $412.5 million, an increase of 13.4% 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
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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.
SECURITIES AVAILABLE FOR SALE TOTALED $82.1 million at December 31, 1998 which
represented an increase of $10.4 million (14.5%) from $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 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.
OTHER BORROWINGS at December 31, 1998 were $38.4 million compared to $12.5 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 inherent 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.
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 90 days or more at
the end of 1998.
TOTAL NONINTEREST INCOME increased $2,216,000 to $10.5 million in 1998 from $8.3
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 service fees increased $726,000 (25.7%) to
$3,554,000 in 1998 compared to $2,828,000 in 1997. RDSI purchased a second
mainframe computer and doubled its bank data processing capacity during the
third quarter of 1998. The $726,000 increase would have been a $964,000 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 $964,000 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
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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.
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 $109
million at December 31, 1999 compared to $126 million at December 31, 1998 and
$98 million at December 31, 1997. Liquidity levels decreased $17 million from
1998 to 1999 primarily due to strong loan demand which exceeded the growth in
deposits and short-term borrowings. Management recognizes that securities may
need to be sold in the future to help fund loan demand and, accordingly, as of
December 31, 1999, the entire securities portfolio of $83.1 million was
classified as available for sale.
THE CORPORATION'S RESIDENTIAL FIRST MORTGAGE PORTFOLIO of $80.7 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.
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 1999, 1998 and 1997 follows.
THE CORPORATION experienced a net increase in cash from operating activities in
1999 and 1997 and a net decrease in 1998. Net cash from operating activities was
$14.6 million, $(6.6) million and $4.1 million for the years ended December 31,
1999, 1998 and 1997, respectively. The increase in net cash from operating
activities of $14.6 million for 1999 as compared to 1998 was primarily due to
decreases in loans held for sale of $6.2 million.
NET CASH FLOW FROM INVESTING ACTIVITIES was $(107.9 million), $(50.0 million)
and $(47.8 million) for the years ended December 31, 1999, 1998 and 1997,
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 1999, 1998 and 1997, the Corporation
received $17.7 million, $24.8 million and $28.6 million , respectively, from
sales of securities available for sale, while proceeds from repayments and
maturities of securities were $24.2 million, $24.1 million and $8.8 million in
1999, 1998 and 1997, respectively.
NET CASH FLOW FROM FINANCING ACTIVITIES was $86.4 million, $59.9 million and
$32.0 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The net cash increase was primarily attributable to growth in
total deposits of $68.5 million, $35.6 million and $27.4 million in 1999, 1998
and 1997, respectively. Other significant changes in 1999, 1998 and 1997
included $11.1 million, $21.4 million and $7.5 million in net borrowings from
the Federal Home Loan Bank. Additionally, In 1999
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$7.0 million of funding was received under a line of credit and 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 rates 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 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
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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 can be 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 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, as applicable, 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)
- --------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total
- --------------------------------------------------------------------------------------------------------------
RATE-SENSITIVE ASSETS:
Variable rate loans $110,544 $ 9,032 $ 9,054 $ 3,772 $ 2,250 $ 0 $134,652
Average interest rate 8.97% 8.60% 8.69% 8.40% 18.08% 0.00% 9.07%
Adjustable rate loans $ 54,514 $ 35,676 $33,710 $33,976 $10,203 $ 0 $168,079
Average interest rate 8.16% 8.20% 8.13% 8.12% 8.12% 0.00% 8.15%
Fixed rate loans $110,323 $ 61,419 $13,643 $12,090 $ 210 $ 1,262 $198,947
Average interest rate 8.51% 8.48% 8.12% 7.97% 4.77% 5.18% 8.42%
Total loans $275,381 $106,127 $56,407 $49,838 $12,663 $ 1,262 $501,678
Average interest rate 8.63% 8.40% 8.22% 8.10% 9.84% 5.18% 8.50%
Fixed rate investment
securities $ 17,790 $ 14,796 $11,221 $ 7,963 $ 5,891 $24,111 $ 81,772
Average interest rate 5.62% 6.21% 6.40% 6.20% 6.15% 5.44% 5.87%
Variable rate investment sec. $ 0 $ 0 $ 0 $ 0 $ 1,347 $ 0 $ 1,347
Average interest rate 0.00% 0.00% 0.00% 0.00% 6.73% 0.00% 6.73%
Fed funds sold & other $ 111 $ 0 $ 0 $ 0 $ 10 $ 0 $ 121
Average interest rate 5.76% 0.00% 0.00% 0.00% 5.43% 0.00% 5.73%
Total rate sensitive assets $293,282 $120,923 $67,628 $57,801 $19,911 $25,373 $584,918
Average interest rate 8.44% 8.13% 7.92% 7.84% 8.53% 5.43% 8.13%
RATE SENSITIVE LIABILITIES:
Demand - non interest-bearing $ 1,552 $ 2,961 $ 4,200 $ 5,224 $ 6,879 $28,189 $ 49,005
Demand - interest bearing $ 1,551 $ 2,959 $ 4,197 $ 5,220 $ 6,873 $28,165 $ 48,965
Average interest rate 1.81% 1.81% 1.81% 1.81% 1.81% 1.81% 1.81%
Money market accounts $ 76,249 $ 13,818 $ 139 $ 129 $ 119 $ 1,519 $ 91,973
Average interest rate 4.45% 3.51% 2.10% 2.10% 2.10% 2.10% 4.26%
Savings $ 9,500 $ 1,532 $ 1,420 $ 1,316 $ 1,220 $15,469 $ 30,457
Average interest rate 2.15% 2.15% 2.15% 2.15% 2.15% 2.15% 2.15%
Certificates of deposit $237,927 $ 46,275 $ 9,793 $ 1,357 $ 3,438 $ 106 $298,896
Average interest rate 5.14% 5.54% 5.41% 5.52% 5.82% 4.71% 5.22%
Fixed rate FHLB advances $ 4,121 $ 2,139 $ 1,925 $ 1,850 $ 0 $ 4,000 $ 14,035
Average interest rate 5.96% 5.80% 5.82% 5.80% 0.00% 5.88% 5.87%
Variable rate FHLB advances $ 4,000 $ 3,500 $ 0 $ 0 $ 0 $18,500 $ 26,000
Average interest rate 5.64% 6.18% 0.00% 0.00% 0.00% 5.36% 5.51%
Variable rate note payable $ 7,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 7,000
Average interest rate 8.50% 0.00% 0.00% 0.00% 0.00% 0.00% 8.50%
Fed funds purchased $ 10,900 $ 0 $ 0 $ 0 $ 0 $ 0 $ 10,900
Average interest rate 5.73% 0.00% 0.00% 0.00% 0.00% 0.00% 5.73%
Total rate sensitive
liabilities $352,800 $ 73,184 $21,674 $15,096 $18,529 $95,948 $577,231
Average interest rate 4.97% 4.75% 3.47% 2.04% 1.91% 2.19% 4.25%
- --------------------------------------------------------------------------------------------------------------
37
38
Principal/Notional Amount Maturing In:
(Dollars in Thousands)
Comparison of 1999 to 1998: First Years
Total rate-sensitive assets: Year 2 - 5 Thereafter Total
---- ----- ---------- -----
At December 31, 1999 $293,282 $266,263 $ 25,373 $584,918
At December 31, 1998 230,007 231,979 41,876 503,862
-------- -------- -------- --------
Increase (decrease) $ 63,275 $ 34,284 $(16,503) $ 81,056
Total rate-sensitive liabilities:
At December 31, 1999 $352,800 $128,483 $ 95,948 $577,231
At December 31, 1998 283,558 112,995 92,650 489,203
-------- -------- -------- --------
Increase (decrease) $ 69,242 $ 15,488 $ 3,298 $ 88,028
THE ABOVE TABLE reflects 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 Corporation's increased reliance
on non-core funding sources has restricted the Corporation's ability to reduce
funding rates in concert with declines in lending rates. Therefore, tax
equivalent net interest income as a percentage of average interest earning
assets declined from 4.43% in 1998 to 4.27% in 1999.
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.
CAPITAL RESOURCES
TOTAL SHAREHOLDERS' EQUITY, net of unearned ESOP shares was $43.9 million as of
December 31, 1999, an increase of $2 million from $41.9 million as of December
31, 1998. The increase was primarily due to 1999 net income of $5.2 million,
reduced by $1.7 million of cash dividends to shareholders and a $1.7 million
decrease in the market value of securities available for sale, net of tax.
TOTAL REGULATORY (RISK-BASED) CAPITAL was $51.1 million, net of $908,000 of
unearned ESOP shares as of December 31, 1999, an increase of $5.0 million from
total regulatory (risk-based) capital of $46.1 million as of December 31, 1998.
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
38
39
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 16 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.)
As of December 31, 1999, 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.
YEAR 2000
During 1999, the corporation completed its comprehensive Year 2000 (Y2K) plan in
preparing for the Year 2000 date change. The plan involved identifying and
providing a remedy for date recognition problems that might pertain to any
facets of the Corporation's business. These included problems in computer
hardware and software, physical plant and other equipment, working with third
parties to address their Year 2000 issues, assessing major loan an deposit
customers for potential risk and developing contingency plans to address
potential risks in the event of Year 2000 failures. As testimony to the success
of these efforts, the Corporation experienced no disruption in service of any
type in the transition to 2000.
In 1999 the Corporation spent $554,000 in out of pocket expenses directly
related to year 2000 readiness. Much of this expense was related to assuring
that RDSI was fully prepared and that their 50 bank clients were fully aware of
their preparation responsibilities as they relate to RDSI's data processing
systems. The out of pocket expenses and the significant amount of time devoted
to Year 2000 preparation by directors, officers and other personnel combined to
have a material impact on the results of operations in 1999. All business
processes will continue to be monitored, including interaction with the
Corporation's customers, vendors and other third parties, throughout 2000 to
address any issues and ensure all processes continue to function properly.
Management does not expect the costs of addressing Year 2000 issues to have a
material impact on the results of operations in 2000.
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 approximately $3 million over the next year.
IMPACT OF INFLATION AND CHANGING PRICES
THE MAJORITY OF ASSETS AND LIABILITIES of the Corporation are monetary in nature
and therefore the Corporation differs greatly from most commercial and
industrial companies that have significant investments in fixed assets or
inventories. However, inflation does have an important impact on the growth of
total assets in the banking industry and the resulting need to increase equity
capital at higher than normal rates in order to maintain an appropriate equity
to assets ratio. Inflation significantly affects noninterest expense, which
tends to rise during periods of general inflation.
MANAGEMENT BELIEVES the most significant impact on financial results is the
Corporation's ability to react to changes in interest rates. Management seeks to
maintain an essentially balanced position between interest sensitive assets and
liabilities and actively manages the amount of securities available
39
40
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, 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, 1999 and December 31, 1998, 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, 1999,
the related Notes to Consolidated Financial Statements and the Report of
Independent Auditors, appear on pages F-1 through F-35 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.
40
41
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 24, 2000, 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 February of 2000, director John R. Compo filed a late Form 4
reporting his purchase of 1,500 of the Corporation's Common Shares which were
acquired during September of 1999. 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 24, 2000, 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
24, 2000, 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 24, 2000, 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
Securities Exchange Act of 1934, relating to the Corporation's Annual Meeting of
Shareholders to be held on April 24, 2000, under the caption "TRANSACTIONS
INVOLVING MANAGEMENT."
41
42
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 47.
(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
84. 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.
42
43
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)].
43
44
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)].
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)].
44
45
Exhibit No. Description Location
- ----------- ----------- --------
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)].
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)].
45
46
Exhibit No. Description Location
- ----------- ----------- --------
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)].
10(y) Employees' Stock Ownership and Savings Plan Filed herewith as Exhibit 10(y).
of Rurban Financial Corp.
(b) Reports on Form 8-K.
-------------------
There were no Current Reports on Form 8-K filed during the fiscal
quarter ended December 31, 1999.
(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
84.
(d) Financial Statement Schedules.
-----------------------------
None.
46
47
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 28, 2000 By: Richard C. Warrener, Executive
Vice President, Chief Financial
Officer and Chief Accounting 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
---- ---- --------
/s/ Thomas C. Williams March 28, 2000 President, Chief Executive Officer, Principal
- ---------------------------- Executive Officer and Director
Thomas C. Williams
/s/ Richard C. Burrows March 28, 2000 Director
- ----------------------------
Richard C. Burrows
/s/ John R. Compo March 28, 2000 Director
- ----------------------------
John R. Compo
/s/ John Fahl March 28, 2000 Director
- ----------------------------
John Fahl
/s/ Robert A. Fawcett, Jr. March 28, 2000 Director
- ----------------------------
Robert A. Fawcett, Jr.
/s/ Richard Z. Graham March 28, 2000 Director
- ----------------------------
Richard Z. Graham
/s/ Eric C. Hench March 28, 2000 Director
- ----------------------------
Eric C. Hench
/s/ W. Scott Muir March 28, 2000 Director
- ----------------------------
W. Scott Muir
/s/ Steven D. VanDemark March 28, 2000 Director
- ----------------------------
Steven D. VanDemark
/s/ J. Michael Walz, D.D.S March 28, 2000 Director
- ----------------------------
J. Michael Walz, D.D.S
/s/ Richard C. Warrener March 28, 2000 Executive Vice President, Chief Financial
- --------------------------- Officer and Chief Accounting Officer
Richard C. Warrener
Date: March 28, 2000
47
48
RURBAN FINANCIAL CORP.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1999
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, 1999
and 1998................................................ F-2 to F-3
Consolidated Statements of Income for the years
ended December 31, 1999, 1998 and 1997.................. F-4
Consolidated Statements of Changes in Shareholders'
Equity for the three years ended December 31, 1999...... F-5
Consolidated Statements of Cash Flows for the
years ended December 31, 1999, 1998 and 1997............ F-6 to F-7
Notes to Consolidated Financial Statements................... F-8 to F-35
48
49
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, 1999 and 1998 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the years ended December 31, 1999, 1998 and 1997. 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, 1999 and 1998, and the results of its
operations and its cash flows for the years ended December 31, 1999, 1998 and
1997 in conformity with generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
----------------------------------
Crowe, Chizek and Company LLP
South Bend, Indiana
February 4, 2000
- --------------------------------------------------------------------------------
F-1
50
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
- -----------------------------------------------------------------------------------------
1999 1998
---- ----
ASSETS
Cash and due from banks $ 18,571,702 $ 16,790,423
Federal funds sold 11,000 8,718,721
------------ ------------
Total cash and cash equivalents 18,582,702 25,509,144
Interest-bearing deposits in other financial institutions 110,000 180,000
Securities available for sale 83,118,908 82,142,929
Loans held for sale, net of valuation allowance ($-0-) 7,149,585 18,509,275
Loans
Commercial, financial and agricultural 326,564,165 248,840,548
Residential first mortgage 80,703,338 72,225,323
Consumer 94,410,123 73,244,850
------------ ------------
Total loans 501,677,626 394,310,721
Deferred loan fees, net (346,248) (341,168)
Allowance for loan losses (6,193,712) (5,408,854)
------------ ------------
Net loans 495,137,666 388,560,699
Accrued interest receivable 4,147,321 3,196,546
Premises and equipment, net 11,140,327 11,400,045
Other assets 8,397,015 7,656,141
------------ ------------
Total assets $627,783,524 $537,154,779
============ ============
- --------------------------------------------------------------------------------
(Continued)
F-2
51
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
- ---------------------------------------------------------------------------------------------
1999 1998
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 49,005,311 $ 48,135,487
Interest-bearing 470,290,773 402,677,736
------------ ------------
Total deposits 519,296,084 450,813,223
Federal funds purchased 10,900,000 9,500,000
Advances from Federal Home Loan Bank ("FHLB") 40,035,303 28,890,290
Other borrowed funds 7,000,000 --
Accrued interest payable 2,513,798 1,685,437
Other liabilities 4,137,868 4,362,879
------------ ------------
Total liabilities 583,883,053 495,251,829
Shareholders' Equity
Common stock: stated value $2.50 per share;
shares authorized: 10,000,000;
shares issued: 1999 - 4,575,702; 1998 - 4,575,702;
shares outstanding: 1999 - 4,140,718; 1998 - 4,140,518 11,439,255 11,439,255
Additional paid-in capital 11,518,469 11,518,727
Retained earnings 30,047,158 26,508,897
Accumulated other comprehensive income (loss),
net of tax of $(790,008) in 1999 and $104,536 in 1998 (1,533,547) 202,922
Unearned ESOP shares (unearned shares: 1999 - 50,334,
1998 - 63,810) (908,014) (1,100,905)
Treasury stock; shares at cost: 1999 - 434,984,
1998 - 435,184 (6,662,850) (6,665,946)
------------ ------------
Total shareholders' equity 43,900,471 41,902,950
------------ ------------
Total liabilities and shareholders' equity $627,783,524 $537,154,779
============ ============
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
52
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1999, 1998 and 1997
- ------------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Interest income
Loans, including fees $39,824,608 $34,131,651 $31,616,158
Taxable securities 4,553,538 3,939,667 3,900,143
Non-taxable securities 498,257 325,256 312,278
Other interest income 76,408 896,714 753,081
----------- ----------- -----------
Total interest income 44,952,811 39,293,288 36,581,660
Interest expense
Deposits 19,026,452 17,342,766 16,305,732
Short-term borrowings 617,027 62,853 161,505
Advances from FHLB 1,765,513 1,337,080 221,918
Other borrowed funds 334,921 -- --
----------- ----------- -----------
Total interest expense 21,743,913 18,742,699 16,689,155
----------- ----------- -----------
NET INTEREST INCOME 23,208,898 20,550,589 19,892,505
Provision for loan losses 1,215,000 1,080,000 947,965
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 21,993,898 19,470,589 18,944,540
Noninterest income
Service charges on deposit accounts 1,462,925 1,252,274 1,199,153
Loan servicing fees 581,581 540,239 538,881
Trust fees 2,597,465 2,576,823 2,326,629
Data service fees 4,381,746 3,553,998 2,827,782
Net gain (loss) on securities (5,827) 72,468 193,892
Net gain on sales of loans 1,147,339 1,933,834 551,730
Other income 898,767 580,998 656,555
----------- ----------- -----------
Total noninterest income 11,063,996 10,510,634 8,294,622
Noninterest expense
Salaries and employee benefits 14,389,186 12,434,334 10,189,420
Net occupancy expense of premises 1,183,120 1,093,772 992,486
Equipment rentals, depreciation and
maintenance 2,952,061 2,486,511 1,981,699
Other expenses 6,941,688 7,615,394 6,089,291
----------- ----------- -----------
Total noninterest expense 25,466,055 23,630,011 19,252,896
----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE 7,591,839 6,351,212 7,986,266
Income tax expense 2,360,937 2,073,335 2,470,469
----------- ----------- -----------
NET INCOME $ 5,230,902 $ 4,277,877 $ 5,515,797
=========== =========== ===========
Earnings per common share:
Basic $ 1.28 $ 1.05 $ 1.24
=========== =========== ===========
Diluted $ 1.28 $ 1.04 $ 1.24
=========== =========== ===========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
53
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Three years ended December 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Other
Additional Comprehensive Unearned
Common Paid-In Retained Income (Loss), ESOP Treasury
Stock Capital Earnings Net of Tax Shares Stock Total
----- ------- -------- ---------- ------ ----- -----
Balances at January 1, 1997 $ 5,719,628 $17,239,088 $20,024,916 $ (4,984)
$(1,490,000) $ -- $41,488,648
Comprehensive Income:
Net income for the year -- -- 5,515,797 -- -- -- 5,515,797
Net change in net
unrealized appreciation
(depreciation)on securities
available for sale, net
of reclassification
adjustments and tax effects -- -- -- 223,824 -- -- 223,824
-----------
Total Comprehensive Income 5,739,621
Pay down of ESOP Loan -- -- -- -- 191,000 -- 191,000
Cash dividends declared
($.37 per share) -- -- (1,648,730) -- -- -- (1,648,730)
Purchase of 217,942
treasury shares -- -- -- -- -- (6,676,611) (6,676,611)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1997 5,719,628 17,239,088 23,891,983 218,840 (1,299,000) (6,676,611) 39,093,928
Comprehensive Income:
Net income for the year -- -- 4,277,877 -- -- -- 4,277,877
Net change in net
unrealized appreciation
(depreciation) on securities
available for sale, net of
reclassification adjustments
and tax effects -- -- -- (15,918) -- -- (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 5,719,627 (5,719,627) -- -- -- -- --
Cash dividends declared
($0.40 per share) -- -- (1,660,963) -- -- -- (1,660,963)
Issuance of 700 treasury
shares due to exercise
of stock options -- (734) -- -- -- 10,665 9,931
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1998 11,439,255 11,518,727 26,508,897 202,922 (1,100,905) (6,665,946) 41,902,950
Comprehensive Income:
Net income for the year -- -- 5,230,902 -- -- -- 5,230,902
Net change in net unrealized
appreciation (depreciation)
on securities available
for sale, net of
reclassification adjustments
and tax effects -- -- -- (1,736,469) -- -- (1,736,469)
-----------
Total Comprehensive Income 3,494,433
Pay down of ESOP Loan -- -- -- -- 192,891 -- 192,891
Cash dividends declared
($0.41 per share) -- -- (1,692,641) -- -- -- (1,692,641)
Issuance of 200 treasury
shares due to exercise
of stock options -- (258) -- -- -- 3,096 2,838
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1999 $11,439,255 $11,518,469 $30,047,158 $(1,533,547) $ (908,014) $(6,662,850) $43,900,471
=========== =========== =========== =========== =========== =========== ===========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
54
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers - fees
and commissions $ 9,922,484 $ 8,504,332 $ 7,549,000
Cash paid to suppliers and employees (23,415,280) (22,013,138) (18,388,747)
Loans originated for sale (97,308,756) (112,427,356) (30,797,914)
Proceeds from sales of loans held for sale 104,697,491 100,256,242 28,820,953
Interest received 44,007,116 39,682,791 36,372,890
Interest paid (20,915,552) (18,634,402) (16,533,146)
Income taxes paid (2,400,000) (1,955,000) (2,968,950)
------------- ------------- ------------
Net cash from operating activities 14,587,503 (6,586,531) 4,054,086
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing deposits
in other financial institutions 70,000 349,777 (349,777)
Net change in loans (103,341,052) (35,910,252) (42,352,936)
Proceeds from sales of securities available
for sale 17,657,888 24,765,342 28,631,037
Principal repayments, maturities, and
calls of securities available for sale 24,243,471 24,138,929 8,785,410
Purchase of securities available for sale (45,514,178) (59,309,982) (41,936,407)
Net purchases of premises and equipment (1,666,906) (4,502,632) (1,149,654)
Recoveries on loan charge-offs 662,299 424,745 550,642
------------- ------------- ------------
Net cash from investing activities (107,888,478) (50,044,073) (47,821,685)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 68,482,861 35,631,937 27,415,213
Net change in federal funds purchased 1,400,000 4,571,000 4,929,000
Proceeds from advances from FHLB 15,000,000 26,500,000 7,529,867
Repayments of advances from FHLB (3,854,987) (5,139,577) --
Proceeds from advances on line of credit 7,000,000 -- --
Cash dividends paid (1,656,179) (1,655,928) (1,234,748)
Proceeds from exercise of stock options 2,838 9,931 --
Cash paid to repurchase common stock -- -- (6,676,611)
------------- ------------- ------------
Net cash from financing activities 86,374,533 59,917,363 31,962,721
------------- ------------- ------------
Net change in cash and cash equivalents (6,926,442) 3,286,759 (11,804,878)
Cash and cash equivalents at beginning of year 25,509,144 22,222,385 34,027,263
------------- ------------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 18,582,702 $ 25,509,144 $ 22,222,385
============= ============= ============
- --------------------------------------------------------------------------------
(Continued)
F-6
55
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
RECONCILIATION OF NET INCOME TO
NET CASH FROM OPERATING ACTIVITIES
Net income $ 5,230,902 $ 4,277,877 $ 5,515,797
Adjustments to reconcile net income
to net cash from operating activities
Depreciation 1,926,624 1,686,548 1,393,531
Amortization of intangible assets 210,000 385,000 180,000
Provision for loan losses 1,215,000 1,080,000 947,965
Net (gain) loss on securities 5,827 (72,468) (193,892)
Loans originated for sale (97,308,756) (112,427,356) (30,797,914)
Proceeds from sales of loans held for sale 104,697,491 100,256,242 28,820,953
Net gain on sales of loans (1,147,339) (1,933,834) (551,730)
Paydown of ESOP loan 192,891 198,095 191,000
Change in assets and liabilities
Deferred loan fees, net 5,080 52,517 25,860
Accrued interest receivable (950,775) 336,986 (234,630)
Other assets (56,330) (1,834,862) (1,447,829)
Accrued interest payable 828,361 108,297 156,009
Other liabilities (261,473) 1,300,427 48,966
------------ ------------- ------------
Net cash from operating
activities $ 14,587,503 $ (6,586,531) $ 4,054,086
============ ============= ============
Supplemental disclosure of noncash transactions:
Transfer from loans held for sale to loans
receivable $ 5,118,294 $ -- $ --
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
56
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
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 year ended December 31, 1997. 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 18. 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 American
General Assurance Company 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 Northern Ohio, 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 and the carrying value of loans
held for sale 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 net unrealized appreciation (depreciation), net of tax, reported separately
in other comprehensive income (loss) 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
57
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
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
58
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
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.
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.
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, 1999, 1998 and 1997, unamortized goodwill totaled
approximately $404,000, $532,000 and $834,000, and unamortized core deposit
intangibles totaled approximately $106,000, $188,000 and $271,000.
- --------------------------------------------------------------------------------
(Continued)
F-10
59
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
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 $285,000 and $456,000 at December 31, 1999 and 1998, 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 9.
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.
Pro forma 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 9.
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
60
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
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 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 (Loss): Comprehensive income (loss) consists of net income
and other comprehensive income (loss). Other comprehensive income (loss)
includes the net change in net unrealized appreciation (depreciation) on
securities available for sale, net of tax, which is also recognized as a
separate component of shareholders' equity.
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 $10,900,000 of undistributed
earnings of the subsidiaries, included in consolidated retained earnings, plus
current 2000 net profits is available for distribution to Rurban Financial Corp.
as dividends in 2000 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 15. 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 65% 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 16% 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
61
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
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 13.
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, 1999, 1998 and 1997 is presented below:
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
BASIC EARNINGS PER COMMON SHARE
Net income $5,230,902 $4,277,877 $5,515,797
========== ========== ==========
Weighted average common shares
outstanding 4,140,714 4,140,484 4,519,342
Less: Unallocated ESOP shares (57,072) (70,380) (83,709)
---------- ---------- ----------
Weighted average common shares
outstanding for basic earnings
per common share 4,083,642 4,070,104 4,435,633
========== ========== ==========
Basic earnings per common share $ 1.28 $ 1.05 $ 1.24
========== ========== ==========
DILUTED EARNINGS PER COMMON SHARE
Net income $5,230,902 $4,277,877 $5,515,797
========== ========== ==========
Weighted average common shares
outstanding for basic earnings
per common share 4,083,642 4,070,104 4,435,633
Add: Dilutive effects of assumed
conversions and exercise of stock options 8,324 30,410 2,382
---------- ---------- ----------
Weighted average common and dilutive
potential common shares outstanding 4,091,966 4,100,514 4,438,015
========== ========== ==========
Diluted earnings per common share $ 1.28 $ 1.04 $ 1.24
========== ========== ==========
- --------------------------------------------------------------------------------
(Continued)
F-13
62
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 2 - BASIC AND DILUTED EARNINGS PER COMMON SHARE (Continued)
Incentive stock options for 6,500 shares of common stock granted during 1999 and
45,750 shares of common stock granted during 1998 were not considered in
computing earnings per common share for 1999 and 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
1999 Cost Gains Losses Fair Value
- ---- ---- ----- ------ ----------
U.S. Treasury and U.S.
Government agency
securities $19,794,342 $ 618 $ (418,696) $19,376,264
Obligations of states and
political subdivisions 11,235,056 19,984 (673,069) 10,581,971
Mortgage-backed securities 51,817,915 387 (1,252,779) 50,565,523
Marketable equity securities 2,595,150 -- -- 2,595,150
----------- ----------- ----------- -----------
$85,442,463 $ 20,989 $(2,344,544) $83,118,908
=========== =========== =========== ===========
1998
- ----
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
=========== =========== =========== ===========
- --------------------------------------------------------------------------------
(Continued)
F-14
63
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES AVAILABLE FOR SALE (Continued)
Contractual maturities of debt securities available for sale at December 31,
1999 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 $ 1,316,057 $ 1,325,111
Due after one year through five years 19,055,220 18,682,782
Due after five years through ten years 4,900,784 4,831,255
Due after ten years 5,757,337 5,119,087
Mortgage-backed securities 51,817,915 50,565,523
----------- -----------
Total debt securities available for sale $82,847,313 $80,523,758
=========== ===========
Proceeds, gross gains and gross losses realized from sales of securities
available for sale for the years ended December 31, 1999, 1998 and 1997 are as
follows:
1999 1998 1997
---- ---- ----
Proceeds from sales of debt securities
available for sale $17,657,888 $24,765,342 $28,631,037
=========== =========== ===========
Gross gains from sales of debt securities
available for sale $ 25,648 $ 73,245 $ 252,834
Gross losses from sales of debt securities
available for sale (31,475) (777) (58,942)
----------- ----------- -----------
Net gain (loss) on securities $ (5,827) $ 72,468 $ 193,892
=========== =========== ===========
At December 31, 1999 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 $70,991,000 and $58,444,000
as of December 31, 1999 and 1998, were pledged to secure public and trust
deposits and FHLB advances.
- --------------------------------------------------------------------------------
(Continued)
F-15
64
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
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, 1999, 1998 and 1997:
1999 1998 1997
---- ---- ----
Beginning balance $ 5,408,854 $ 5,239,601 $ 5,066,600
Provision for loan losses 1,215,000 1,080,000 947,965
Recoveries of previous charge-offs 662,299 424,745 550,642
Losses charged to the allowance (1,092,441) (1,335,492) (1,325,606)
----------- ----------- -----------
Ending balance $ 6,193,712 $ 5,408,854 $ 5,239,601
=========== =========== ===========
At December 31, 1999 and 1998, loans past due more than 90 days and still
accruing interest approximated $809,000 and $1,742,000.
Impaired loans were as follows.
1999 1998 1997
---- ---- ----
Year end loans with no allowance for
loan losses allocated $ -- $ 567,000 $ --
Year end loans with allowance for loan
losses allocated 1,536,000 689,000 1,801,000
Amount of allowance allocated 807,000 225,000 725,000
Average of impaired loans during the
year 1,461,000 1,462,000 1,919,000
Interest income recognized during
impairment 40,000 11,000 36,000
Cash-basis interest income recognized 17,000 11,000 36,000
NOTE 5 - PREMISES AND EQUIPMENT, NET
Premises and equipment, net at December 31, are summarized as follows:
1999 1998
---- ----
Land $ 984,216 $ 1,123,546
Buildings and improvements 7,716,803 7,820,057
Furniture and equipment 9,944,385 8,659,988
----------- -----------
Total cost 18,645,404 17,603,591
Accumulated depreciation and amortization (7,505,077) (6,203,546)
----------- -----------
$11,140,327 $11,400,045
=========== ===========
- --------------------------------------------------------------------------------
(Continued)
F-16
65
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 5 - PREMISES AND EQUIPMENT, NET (Continued)
The Corporation is obligated under non-cancelable leases for office space and
equipment. Rent expense was $229,000, $266,000 and $79,000 for 1999, 1998 and
1997.
At December 31, 1999, minimum future lease payments are as follows for the years
ended December 31:
2000 $ 99,600
2001 99,600
2002 99,600
2003 99,600
2004 99,600
Thereafter 697,200
----------
$1,195,200
==========
NOTE 6 - INTEREST-BEARING DEPOSITS
Included in interest-bearing deposits are certificates of deposit in
denominations of $100,000 or more of approximately $106,786,000 and $64,888,000
as of December 31, 1999 and 1998, respectively. Certificates of deposit obtained
from brokers totaled approximately $29,000,000 and $2,000,000 as of December 31,
1999 and 1998, respectively.
At December 31, 1999, the scheduled maturities of certificates of deposit are as
follows for the years ended December 31:
2000 $237,927,685
2001 46,275,578
2002 9,792,520
2003 1,356,888
2004 3,437,955
Thereafter 105,753
------------
$298,896,379
============
- --------------------------------------------------------------------------------
(Continued)
F-17
66
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 7 - ADVANCES FROM FHLB
Advances from the FHLB of Cincinnati with fixed and variable interest rates
ranging from 4.52% to 6.25% at December 31, 1999 and from 5.27% to 6.25% at
December 31, 1998 mature as follows for the years ending December 31:
1999 1998
---- ----
1999 $ -- $ 3,854,987
2000 4,121,389 2,121,389
2001 2,138,845 2,138,845
2002 1,925,069 1,925,069
2003 1,850,000 1,850,000
2004 -- --
Thereafter 19,500,000 10,000,000
----------- -----------
29,535,303 21,890,290
Line of credit (LIBOR) 10,500,000 7,000,000
----------- -----------
$40,035,303 $28,890,290
=========== ===========
At December 31, 1999 and 1998, in addition to FHLB stock, the Corporation
pledged mortgage loans with a minimum carrying value of approximately
$60,086,000 and $43,366,000 to the FHLB to secure advances outstanding.
NOTE 8 - OTHER BORROWED FUNDS
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, 1999 and 1998, the
Corporation had $7,000,000 and $-0- advances outstanding on this line of credit.
The note is unsecured and requires interest to be paid monthly with the
principal amount due at maturity on April 30, 2000. The interest rate is
variable based on the current prime rate and adjusts immediately.
NOTE 9 - 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
$260,000, $715,000 and $212,000, and related expense attributable to the plan
included in salaries and employee benefits were approximately $572,000, $568,000
and $391,000 in 1999, 1998 and 1997, respectively.
- --------------------------------------------------------------------------------
(Continued)
F-18
67
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 9 - EMPLOYEE BENEFITS (Continued)
Distributions to plan participants may be paid in cash or stock upon their
termination of employment. During 1999, 10,471 shares were withdrawn from the
ESOP by participants who terminated their employment with the Company.
During 1996, the ESOP borrowed $1,505,527 from the Corporation to purchase
93,758 shares of common stock at a weighted average cost of $16.06 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 1999, 1998 and 1997, the
ESOP allocated 13,476 shares, 13,140 shares and 13,518 shares.
The ESOP shares as of December 31 were as follows:
1999 1998
---- ----
Allocated shares 582,617 579,612
Unearned shares 50,334 63,810
-------- --------
Total ESOP shares 632,951 643,422
======== ========
Fair value of unearned ESOP shares at December 31 $679,509 $989,055
======== ========
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 and cash
allocated to participant accounts. The difference between the market price and
the cost of shares committed to be released is recorded as an adjustment to
additional paid-in capital. 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.
- --------------------------------------------------------------------------------
(Continued)
F-19
68
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 9 - EMPLOYEE BENEFITS (Continued)
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. During 1999, 6,500
options with a ten year term were granted at an exercise price of $18.50 per
share. At December 31, 1999, 1998 and 1997, 219,100, 217,800 and 179,000 options
were granted and outstanding and 168,750, 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. Options outstanding at December 31, 1999 had a range of
exercise prices of $14.19 - $18.50 and a weighted average remaining contractual
life of 8 years.
A summary of the activity in the Option Plan is as follows.
1 9 9 9 1 9 9 8 1 9 9 7
------- ------- -------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at beginning
of year 217,800 $15.09 179,000 $14.19 -- $ --
Granted 6,500 18.50 45,750 18.50 179,000 14.19
Exercised (200) 14.19 (700) 14.19 -- --
Forfeited (5,000) 15.91 (6,250) 14.36 -- --
------- ------- -------
Outstanding at end of year 219,100 $15.17 217,800 $15.09 179,000 $14.19
======= ======= =======
Options exercisable at December 31, 1999, 1998 and 1997 were as follows.
1 9 9 9 1 9 9 8 1 9 9 7
------- ------- -------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise Exercise
Prices Number Price Number Price Number Price
- ------ ------ ----- ------ ----- ------ -----
$14.19 61,700 $14.19 29,100 $14.19 -- $--
$18.50 6,900 18.50 -- -- -- --
------ ------ ---
Exercisable at year end 68,600 $14.62 29,100 $14.19 -- $--
====== ====== ===
The Corporation applies 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 pro forma disclosures for
entities that do not adopt its fair value accounting method for stock-based
compensation. Had compensation cost for stock options been measured using SFAS
No. 123, net income and earnings per share would have been the pro forma amounts
indicated below. The pro forma effect may increase in the future if more options
are granted.
- --------------------------------------------------------------------------------
(Continued)
F-20
69
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 9 - EMPLOYEE BENEFITS (Continued)
1999 1998 1997
---- ---- ----
Net income as reported $5,230,902 $4,277,877 $5,515,797
Pro forma net income $5,083,603 $4,143,146 $5,492,136
Basic earnings per common share as reported $ 1.28 $ 1.05 $ 1.24
Pro forma basic earnings per common share $ 1.24 $ 1.02 $ 1.24
Diluted earnings per common share as reported $ 1.28 $ 1.04 $ 1.24
Pro forma diluted earnings per common share $ 1.24 $ 1.01 $ 1.24
The pro forma effects are computed using option pricing models, using the
following weighted-average assumptions as of grant date.
1999 1998 1997
---- ---- ----
Risk-free interest rate 4.79% 5.38% 6.50%
Expected option life 10 10 10
Expected stock price volatility 7.14% 5.45% 5.45%
Expected dividend yield 2.67% 2.16% 2.39%
Resulting weighted average grant date
fair value of stock options granted during
the year $2.97 $4.13 $3.77
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 $221,000, $196,000 and $145,000 and related
expense attributable to the plans, included in salaries and employee benefits,
were approximately $220,000, $186,000 and $117,000 in 1999, 1998 and 1997.
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 $650,000 and $627,000 at December 31, 1999 and 1998, and is
included in other assets in the consolidated balance sheets.
- --------------------------------------------------------------------------------
(Continued)
F-21
70
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 9 - EMPLOYEE BENEFITS (Continued)
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
$823,000 and $723,000 at December 31, 1999 and 1998 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 $165,000,
$210,000 and $127,000 in 1999, 1998 and 1997. The cash surrender value of the
life insurance was approximately $1,753,000 and $1,675,000 at December 31, 1999
and 1998, and is included in other assets in the consolidated balance sheets.
NOTE 10 - OTHER EXPENSES
The following is an analysis of other expenses for the years ended December 31,
1999, 1998 and 1997:
1999 1998 1997
---- ---- ----
Amortization of intangible assets $ 210,000 $ 385,000 $ 180,000
Advertising expense 448,971 434,353 343,771
Professional fees 1,244,190 1,327,552 1,193,329
Insurance expense 211,101 166,376 141,929
Data processing fees 439,365 334,392 412,736
Printing, stationery and supplies 620,853 754,446 686,701
Telephone and communications 665,747 638,901 395,877
Postage and delivery expense 542,536 547,934 362,249
State, local and other taxes 470,742 635,845 655,089
Other operating expenses 2,088,183 2,390,595 1,717,610
---------- ---------- ----------
$6,941,688 $7,615,394 $6,089,291
========== ========== ==========
- --------------------------------------------------------------------------------
(Continued)
F-22
71
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 11 - INCOME TAX EXPENSE
Income tax expense consists of the following for the years ended December 31,
1999, 1998 and 1997:
1999 1998 1997
---- ---- ----
Current expense $1,612,264 $2,151,100 $2,525,248
Deferred expense (benefit) 748,673 (77,765) (54,779)
---------- ---------- ----------
$2,360,937 $2,073,335 $2,470,469
========== ========== ==========
Income tax expense (benefit) on net gain (loss) on securities was $(1,981),
$24,639 and $65,923 in 1999, 1998 and 1997.
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, 1999, 1998 and
1997:
1999 1998 1997
---- ---- ----
Statutory tax rate 34% 34% 34%
Income taxes computed at the
statutory federal income tax rate $2,581,225 $2,159,412 $2,715,330
Add (subtract) tax effect of
Tax-exempt income (243,884) (204,756) (214,877)
Non-deductible expenses and other 23,596 118,679 (29,984)
---------- ---------- ----------
$2,360,937 $2,073,335 $2,470,469
========== ========== ==========
The components of the net deferred tax asset recorded in the consolidated
balance sheets as of December 31, 1999 and 1998 are as follows:
1999 1998
---- ----
Deferred tax assets
Provision for loan losses $1,629,197 $1,309,376
Mark to market adjustment -- 104,536
Net deferred loan fees 81,581 15,403
Accrued compensation and benefits 278,901 245,062
Net unrealized depreciation on
securities available for sale 790,008 --
Other 5,897 6,085
---------- ----------
2,785,584 1,680,462
- --------------------------------------------------------------------------------
(Continued)
F-23
72
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 11 - INCOME TAX EXPENSE (Continued)
1999 1998
---- ----
Deferred tax liabilities
Net unrealized appreciation on
securities available for sale $ -- $ (104,536)
Originated mortgage servicing rights (163,454) (126,411)
Mark to market adjustment (790,008) --
ESOP contributions (227,769) (8,183)
Depreciation (119,747) (67,718)
Purchase accounting adjustments (96,143) (126,698)
Other (1,220) (5,544)
----------- ----------
(1,398,341) (439,090)
Valuation allowance -- --
----------- ----------
$ 1,387,243 $1,241,372
=========== ==========
NOTE 12 - 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, 1999 and 1998:
1999 1998
---- ----
Balance, January 1 $ 4,394,000 $3,187,000
New loans 3,018,000 1,928,000
Repayments (3,639,000) (729,000)
Other changes 4,000 8,000
----------- ----------
Balance, December 31 $ 3,777,000 $4,394,000
=========== ==========
Other changes include adjustments for loans applicable to one reporting period
that are excludable from the other reporting period.
- --------------------------------------------------------------------------------
(Continued)
F-24
73
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 13 - 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:
1999 1998
---- ----
Loan commitments and unused lines of credit $121,415,000 $102,692,000
Standby letters of credit 1,935,000 2,168,000
Commercial letters of credit 956,000 60,000
------------ ------------
$124,306,000 $104,920,000
============ ============
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.
Salary continuation agreements with certain executive officers contain
provisions regarding certain events leading to separation from the Corporation,
before the executive officer's normal retirement date, which could result in
cash payments totaling approximately $2,446,000 for which $543,000 has been
accrued as a liability at December 31, 1999.
The Corporation was required to have approximately $4,493,000 and $4,730,000 of
cash on hand or on deposit with the Federal Reserve Bank to meet regulatory
reserve and clearing requirements at December 31, 1999 and 1998. These balances
do not earn interest. Additionally, the Corporation was required to have
approximately $1,250,000 of cash on deposit to meet other clearing requirements
at December 31, 1999. This balance does earn interest.
- --------------------------------------------------------------------------------
(Continued)
F-25
74
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 13 - COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES
(Continued)
During 1999, the Corporation entered into an agreement whereby borrowings can be
made from the Federal Reserve Bank's discount window. The terms of the program
allow the Corporation to borrow up to a certain specified percentage of
collateral pledged. At December 31, 1999, the Corporation was able to borrow up
to $44,000,000 using the percentages then in place. The Corporation has pledged
commercial loans against this borrowing capacity with a carrying value of
$68,000,000. The outstanding balance as of December 31, 1999 was $-0-.
NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS
Presented below are condensed financial statements for the parent company,
Rurban Financial Corp.:
CONDENSED BALANCE SHEETS
December 31, 1999 and 1998
1999 1998
---- ----
ASSETS
Cash and cash equivalents $ 248,292 $ 581,808
Investment in and advances to subsidiaries
Banking subsidiaries 44,357,990 36,100,152
Non-banking subsidiaries 3,307,475 4,062,640
----------- -----------
Total investment in subsidiaries 47,665,465 40,162,792
Accounts receivable from subsidiaries 2,312,160 --
Other assets 1,812,969 2,075,386
----------- -----------
Total assets $52,038,886 $42,819,986
=========== ===========
LIABILITIES
Cash dividends payable $ 455,479 $ 419,017
Other borrowed funds 7,000,000 --
Other liabilities 682,936 498,019
----------- -----------
Total liabilities 8,138,415 917,036
SHAREHOLDERS' EQUITY 43,900,471 41,902,950
----------- -----------
Total liabilities and shareholders' equity $52,038,886 $42,819,986
=========== ===========
- --------------------------------------------------------------------------------
(Continued)
F-26
75
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF INCOME
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
INCOME
Interest on securities-non-taxable $ -- $ -- $ 21,477
Dividends from subsidiaries
Banking subsidiaries -- 3,900,000 9,705,299
Non-banking subsidiaries 1,150,000 -- --
----------- ---------- -----------
Total 1,150,000 3,900,000 9,705,299
Noninterest income 102,183 386,384 225,133
----------- ---------- -----------
Total income 1,252,183 4,286,384 9,951,909
EXPENSE
Interest expense on other borrowed funds 334,921 -- --
Noninterest expense 2,000,128 2,791,944 2,738,038
----------- ---------- -----------
Total expense 2,335,049 2,791,944 2,738,038
----------- ---------- -----------
INCOME (LOSS) BEFORE INCOME TAX BENEFIT AND EQUITY
IN UNDISTRIBUTED NET INCOME OF SUBSIDIARIES (1,082,866) 1,494,440 7,213,871
Income tax benefit 767,517 818,231 925,702
----------- ---------- -----------
INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED
NET INCOME OF SUBSIDIARIES (315,349) 2,312,671 8,139,573
Equity in undistributed (excess distributed)
net income of subsidiaries
Banking subsidiaries 6,301,416 1,469,830 (3,542,158)
Non-banking subsidiaries (755,165) 495,376 918,382
----------- ---------- -----------
Total 5,546,251 1,965,206 (2,623,776)
----------- ---------- -----------
NET INCOME $ 5,230,902 $4,277,877 $ 5,515,797
=========== ========== ===========
- --------------------------------------------------------------------------------
(Continued)
F-27
76
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Dividends received from subsidiaries
Banking subsidiaries $ -- $ 3,900,000 $ 9,705,299
Non-banking subsidiaries 1,150,000 -- --
----------- ----------- -----------
Total 1,150,000 3,900,000 9,705,299
Cash received from customers-fees
and commissions 102,183 386,384 59,921
Cash paid to suppliers and employees (4,071,980) (4,060,688) (2,958,725)
Interest received -- -- 21,477
Interest paid (334,921) -- --
Income tax refunds 974,543 1,010,903 933,985
----------- ----------- -----------
Net cash from operating activities (2,180,175) 1,236,599 7,761,957
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
Investment in banking subsidiaries (3,500,000) -- --
----------- ----------- -----------
Net cash from investing activities (3,500,000) -- 671,826
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from advances on line of credit 7,000,000 -- --
Cash dividends paid (1,656,179) (1,655,928) (1,234,748)
Proceeds from exercise of stock options 2,838 9,931 --
Cash paid to repurchase common stock -- -- (6,676,611)
----------- ----------- -----------
Net cash from financing activities 5,346,659 (1,645,997) (7,911,359)
----------- ----------- -----------
Net change in cash and cash equivalents (333,516) (409,398) 522,424
Cash and cash equivalents at beginning
of year 581,808 991,206 468,782
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 248,292 $ 581,808 $ 991,206
=========== =========== ===========
- --------------------------------------------------------------------------------
(Continued)
F-28
77
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
RECONCILIATION OF NET INCOME TO NET CASH
FROM OPERATING ACTIVITIES
Net income $ 5,230,902 $ 4,277,877 $5,515,797
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 (6,301,416) (1,469,830) 3,542,158
Non-banking subsidiaries 755,165 (495,376) (918,382)
Change in accounts receivable
and other assets (2,049,743) (1,189,224) (58,882)
Change in other liabilities 184,917 113,152 (153,522)
----------- ----------- ----------
Net cash from operating activities $(2,180,175) $ 1,236,599 $7,761,957
=========== =========== ==========
NOTE 15 - 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, 1999 and 1998.
Items which are not financial instruments are not included.
1 9 9 9 1 9 9 8
-------------------------------- --------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----- ---------- ----- ----------
Financial assets
- ----------------
Cash and cash equivalents $ 18,582,702 $ 18,583,000 $ 25,509,144 $ 25,509,000
Interest-bearing deposits in
other financial institutions 110,000 110,000 180,000 180,000
Securities available for sale 83,118,908 83,119,000 82,142,929 82,143,000
Loans, net of allowance for loan
losses (including loans held for sale) 502,287,251 500,424,000 407,069,974 408,802,000
Accrued interest receivable 4,147,321 4,147,000 3,196,546 3,197,000
Cash surrender value of
life insurance 2,403,000 2,403,000 2,302,000 2,302,000
Financial liabilities
- ---------------------
Demand and savings deposits (220,399,705) (220,400,000) (216,266,622) (216,267,000)
Time deposits (298,896,379) (298,311,000) (234,546,601) (235,645,000)
Federal funds purchased (10,900,000) (10,900,000) (9,500,000) (9,500,000)
Advances from FHLB (40,035,303) (38,066,000) (28,890,290) (29,796,000)
Other borrowed funds (7,000,000) (7,000,000) -- --
Accrued interest payable (2,513,798) (2,514,000) (1,685,437) (1,685,000)
- --------------------------------------------------------------------------------
(Continued)
F-29
78
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 15 - 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, 1999 and 1998. 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, 1999 and 1998,
applied for an estimated time period until the loan is assumed to reprice or be
paid and the allowance for loan losses is considered to be a reasonable estimate
of discount for credit quality concerns. The estimated fair value for demand
deposits, savings deposits, federal funds purchased, other borrowed funds with
variable interest rates and the variable rate line of credit from the FHLB is
based on their carrying value. The estimated fair value for time deposits and
fixed rate advances from the FHLB is based on estimates of the rate the
Corporation would pay on such deposits or borrowings at December 31, 1999 and
1998, 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, 1999 and 1998 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, 1999 and 1998, 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, 1999 and 1998 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 16 - 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-30
79
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 16 - 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
------ ----- ------ ----- ------ -----
1999
- ----
Total capital (to risk weighted assets)
Consolidated $51.1 10.1% $40.6 8.0% $50.7 10.0%
State Bank 31.2 10.3 24.6 8.0 30.7 10.0
Tier 1 capital (to risk weighted assets)
Consolidated 44.9 8.9 20.3 4.0 30.4 6.0
State Bank 28.0 9.1 12.3 4.0 18.4 6.0
Tier 1 capital (to averaged assets)
Consolidated 44.9 7.2 24.8 4.0 31.0 5.0
State Bank 28.0 7.6 14.8 4.0 18.5 5.0
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
The Corporation at year end 1999 and 1998 was categorized as well capitalized.
State Bank at year end 1999 and 1998 was categorized as well and adequately
capitalized, respectively. All other subsidiary banks are not considered
significant for this presentation.
- --------------------------------------------------------------------------------
(Continued)
F-31
80
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 17 - OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) components and related taxes were as follows:
1999 1998 1997
---- ---- ----
Net change in net unrealized appreciation
(depreciation) on securities available
for sale
Net unrealized appreciation (depreciation)
arising during the year $(2,636,840) $ 54,098 $ 527,271
Reclassification adjustments for (gains)
losses included in net income 5,827 (72,468) (193,892)
----------- -------- ---------
Net change in net unrealized appreciation
(depreciation) on securities available
for sale (2,631,013) (18,370) 333,379
Tax expense (benefit) (894,544) (2,452) 109,555
----------- -------- ---------
Total other comprehensive income (loss) $(1,736,469) $(15,918) $ 223,824
=========== ======== =========
NOTE 18 - 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. 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-32
81
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 18 - SEGMENT INFORMATION (Continued)
1999
- ----
Mortgage Data Total Intersegment Consolidated
Banking Banking Processing Other Segments Elimination Totals
------- ------- ---------- ----- -------- ----------- ------
Income statement information:
- -----------------------------
Net interest income (expense) $ 22,764,187 $ 511,462 $ (134,811) $ 68,060 $ 23,208,898
$ -- $ 23,208,898
Other revenue - external
customers 3,070,510 760,049 4,381,746 2,851,691 11,063,996 -- 11,063,996
Other revenue - other segments -- -- 1,368,622 2,206,550 3,575,172 (3,575,172) --
------------ ----------- ---------- ----------- ------------ ------------ ------------
Net interest income
and other revenue 25,834,697 1,271,511 5,615,557 5,126,301 37,848,066 (3,575,172) 34,272,894
Noninterest expense 15,403,697 1,346,149 5,112,291 7,179,090 29,041,227 (3,575,172) 25,466,055
Significant non-cash items:
Depreciation and
amortization 774,668 120,696 1,061,980 179,280 2,136,624 -- 2,136,624
Provision for loan losses 1,215,000 -- -- -- 1,215,000 -- 1,215,000
Income tax expense (benefit) 2,940,249 (43,000) 171,111 (707,423) 2,360,937 -- 2,360,937
Segment profit (loss) 6,275,751 (31,638) 332,155 (1,345,366) 5,230,902 -- 5,230,902
Balance sheet information:
- --------------------------
Total assets 627,265,973 13,342,963 4,792,283 6,091,461 651,492,680 (23,709,156) 627,783,524
Goodwill and intangibles 480,000 30,000 -- -- 510,000 -- 510,000
Premises and equipment
expenditures, net 726,403 10,358 803,911 126,234 1,666,906 -- 1,666,906
- --------------------------------------------------------------------------------
(Continued)
F-33
82
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 18 - SEGMENT INFORMATION (Continued)
1998
- ----
Mortgage Data Total Intersegment Consolidated
Banking Banking Processing Other Segments Elimination Totals
------- ------- ---------- ----- -------- ----------- ------
Income statement information:
- -----------------------------
Net interest income (expense) $ 19,972,335 $ 506,359 $ (20,201) $ 92,096 $ 20,550,589
$ -- $ 20,550,589
Other revenue - external
customers 2,396,019 1,719,589 3,553,998 2,841,028 10,510,634 -- 10,510,634
Other revenue - other segments 5,164 -- 1,314,752 2,407,715 3,727,631 (3,727,631) --
------------ ----------- ---------- ---------- ------------ ------------ ------------
Net interest income
and other revenue 22,373,518 2,225,948 4,848,549 5,340,839 34,788,854 (3,727,631) 31,061,223
Noninterest expense 14,425,520 3,059,817 4,237,517 5,634,788 27,357,642 (3,727,631) 23,630,011
Significant non-cash items:
Depreciation and
amortization 688,156 320,037 929,038 134,317 2,071,548 -- 2,071,548
Provision for loan losses 1,080,000 -- -- -- 1,080,000 -- 1,080,000
Income tax expense (benefit) 2,240,587 (248,498) 208,177 (126,931) 2,073,335 -- 2,073,335
Segment profit (loss) 4,627,411 (585,371) 402,855 (167,018) 4,277,877 -- 4,277,877
Balance sheet information:
- --------------------------
Total assets 532,744,285 19,771,508 4,747,584 5,081,398 562,344,775 (25,189,996) 537,154,779
Goodwill and intangibles 660,000 60,000 -- -- 720,000 -- 720,000
Premises and equipment
expenditures, net 1,287,941 225,505 2,639,115 350,071 4,502,632 -- 4,502,632
- --------------------------------------------------------------------------------
(Continued)
F-34
83
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 18 - SEGMENT INFORMATION (Continued)
1997
- ----
Mortgage Data Total Intersegment Consolidated
Banking Banking Processing Other Segments Elimination Totals
------- ------- ---------- ----- -------- ----------- ------
Income statement information:
- -----------------------------
Net interest income (expense) $ 19,842,395 $ 35,708 $ (22,116) $ 36,518 $ 19,892,505 $ -- $ 19,892,505
Other revenue - external
customers 2,172,411 518,923 2,827,782 2,775,506 8,294,622 -- 8,294,622
Other revenue - other segments -- -- 1,263,555 1,256,352 2,519,907 (2,519,907) --
------------ ----------- ---------- ---------- ------------ ------------ ------------
Net interest income and
other revenue 22,014,806 554,631 4,069,221 4,068,376 30,707,034 (2,519,907) 28,187,127
Noninterest expense 12,993,227 711,769 3,186,130 4,881,677 21,772,803 (2,519,907) 19,252,896
Significant non-cash items:
Depreciation and
amortization 669,669 -- 822,373 81,489 1,573,531 -- 1,573,531
Provision for loan losses 947,965 -- -- -- 947,965 -- 947,965
Income tax expense (benefit) 2,503,692 (56,952) 300,251 (276,522) 2,470,469 -- 2,470,469
Segment profit (loss) 5,569,922 (100,186) 582,840 (536,779) 5,515,797 -- 5,515,797
Balance sheet information:
- --------------------------
Total assets 469,805,133 11,270,134 2,778,964 4,084,696 487,938,927 (16,567,837) 471,371,090
Goodwill and intangibles 840,000 265,000 -- -- 1,105,000 -- 1,105,000
Premises and equipment
expenditures, net 505,009 66,929 281,957 295,759 1,149,654 -- 1,149,654
- --------------------------------------------------------------------------------
F-35
84
RURBAN FINANCIAL CORP.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1999
---------------------------------------
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)].
84
85
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 for the fiscal year ended December 31,
effective 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 Registrant's Annual Report on Form 10-K
December 10, 1990 and effective January 1, for the fiscal year ended December
1990 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 Registrant's Annual Report on Form 10-K
June 11, 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 Registrant's Annual Report on Form 10-K
July 14, 1992, effective May 1, 1992 for the fiscal year ended December 31,
1992 (File No. 0-13507) [Exhibit 10(f)].
85
86
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)].
86
87
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 0-13507) [Exhibit 10(s)].
Salary 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(v)].
10(w) Form of Non-Qualified Stock Option Incorporated herein by reference to
Agreement 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)].
10(y) Employees' Stock Ownership and Savings Plan Filed herewith as Exhibit 10(y).
of Rurban Financial Corp.
11 Statement re Computation of Per Share [Included in Notes 1 and 2 of the Notes
Earnings to 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.
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88
Exhibit No. Description Reference No.
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23 Consent of Independent Auditor Included in this Annual Report on Form
10-K as Exhibit 23.
27 Financial Data Schedule Included in this Annual Report on Form
10-K as Exhibit 27.
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