-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BmOoe+i5KGg6+WIeGOxbFJCONzySvG6AehCyGl3cclzSY+dnwY76eDwLr0ADoVYJ TD9Xw6prwLG+vvYNVfJ9Aw== 0000950152-98-002863.txt : 19980401 0000950152-98-002863.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950152-98-002863 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RURBAN FINANCIAL CORP CENTRAL INDEX KEY: 0000767405 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 341395608 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-13507 FILM NUMBER: 98582914 BUSINESS ADDRESS: STREET 1: 401 CLINTON ST CITY: DEFIANCE STATE: OH ZIP: 43512 BUSINESS PHONE: 4197838950 10-K 1 RURBAN FINANCIAL CORP. FORM 10-K 1 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, 1997 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 (2,069,909 outstanding at March 12, 1998) -------------------------------------------------------------------------- (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 average bid and asked prices of the Common Shares of the Registrant on March 12, 1998, the aggregate market value of the Common Shares of the Registrant held by non-affiliates on that date was $68,027,642. Documents Incorporated by Reference: Portions of the Registrant's definitive Proxy Statement for its Annual Meeting of Shareholders to be held on April 27, 1998 are incorporated by reference into Part III of this Annual Report on Form 10-K. Exhibit Index on Page 79 Page 1 of 115 Pages. 2 PART I ------ Item 1. Business. - ------------------ General ------- Rurban Financial Corp., an Ohio corporation (the "Corporation"), is a bank holding company under the Bank Holding Company Act of 1956, as amended, and is subject to regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). The executive offices of the Corporation are located at 401 Clinton Street, Defiance, Ohio 43512. Through its subsidiaries, The State Bank and Trust Company, Defiance, Ohio ("State Bank"), The Peoples Banking Company, Findlay, Ohio ("Peoples Bank"), The First National Bank of Ottawa ("First National Bank") and The Citizens Savings Bank Company, Pemberville, Ohio ("Citizens Savings Bank"), the Corporation is engaged in the business of commercial banking. The Corporation's subsidiary, Rurbanc Data Services, Inc. ("RDSI"), is engaged in the related business of providing data processing services, principally to banks. The Corporation's subsidiary, Rurban Life Insurance Company ("Rurban Life"), is engaged in the related business of accepting life and disability reinsurance ceded in part by USLIFE Credit Life Insurance Company ("USLIFE") from the credit life and disability insurance purchased by customers of the Corporation's banking subsidiaries from USLIFE in connection with revolving credit loans secured by mortgages and with certain installment loans made to such customers. State Bank has two wholly-owned subsidiaries: Reliance Financial Services, N.A. ("RFS") and Rurban Mortgage Company ("RMC"). RFS is nationally-chartered trust and financial services company . RMC is an Ohio corporation with its main office located in Clearwater, Florida which engages in the retail and wholesale mortgage industry. General Description of Holding Company Group -------------------------------------------- State Bank - ---------- State Bank is an Ohio state-chartered bank. State Bank presently operates seven branch offices in Defiance County, Ohio (six in the city of Defiance and one in Ney), one branch office in adjacent Paulding County, Ohio and three branch offices in Fulton County, Ohio (one in each of Delta, Lyons and Wauseon). At December 31, 1997, State Bank had 97.5 full-time equivalent employees. State Bank offers a full range of commercial banking services, including checking and NOW accounts; passbook savings and money market accounts; automatic teller machines; commercial, 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). 2 3 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 a Robert Thomas Securities office. RFS' offices are located in State Bank's main offices in Defiance, Ohio. At December 31, 1997, 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 business. The principal activities engaged in by RMC are originating, underwriting and servicing first and second residential mortgage loans and then selling such loans in the secondary market. RMC presently operates 2 offices (other than its main office) which are located in Port Richey, Florida and Port Charlotte, Florida. At December 31, 1997, RMC had 41.5 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; commercial and consumer loans and real estate mortgage loans; trust services; and safe deposit box rental facilities. Peoples Bank operates two full-service branches in Findlay and one in McComb, Ohio. At December 31, 1997, 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, 1997, First National Bank had 16.5 full-time equivalent employees. First National Bank offers a full range of commercial banking services, including checking and NOW accounts; passbook savings and money market accounts; automatic teller machines; commercial, 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. 3 4 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; 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, 1997, Citizens Savings Bank had 29 full-time equivalent employees. RDSI - ---- Substantially all of RDSI's business is comprised of providing data processing services to 37 financial institutions primarily in the northwest area of Ohio (including State Bank, Peoples Bank, First National Bank and Citizens Savings Bank), including information processing for financial institution customer services, loan and deposit account information and data analysis. At December 31, 1997, RDSI had 32 full-time equivalent employees. Rurban Life - ----------- Rurban Life commenced its business of transacting insurance as an Arizona life and disability reinsurer in January, 1988. Rurban Life may accept life and disability reinsurance ceded to Rurban Life by an insurance company authorized to write life and disability insurance, provided that the amount accepted does not exceed certain limitations imposed under Arizona law. Rurban Life is not currently authorized to write life and disability insurance on a direct basis. Rurban Life accepts reinsurance ceded in part by USLIFE from the credit life and disability insurance purchased by customers of State Bank, Peoples Bank, First National Bank and Citizens Savings Bank from USLIFE in connection with revolving credit loans secured by mortgages and with certain installment loans made to such customers by State Bank, Peoples Bank, First National Bank and Citizens Savings Bank. The operations of Rurban Life do not materially impact the consolidated results of operations of the Corporation. As of December 31, 1997, 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, 1997, 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. 4 5 The primary factors in competing for deposits are interest rates paid on deposits, account liquidity and convenience of office location. RDSI also operates in a highly competitive field. RDSI competes primarily on the basis of the value and quality of its data processing services, and service and convenience to its customers. Rurban Life operates in the highly competitive industry of credit life and disability insurance. A large number of stock and mutual insurance companies also operating in this industry have been in existence for longer periods of time and have substantially greater financial resources than does Rurban Life. The principal methods of competition in the credit life and disability insurance industry are the availability of coverages, premium rates and quality of service. The Corporation believes that Rurban Life has a competitive advantage due to the fact that the business of Rurban Life is limited to the accepting of life and disability reinsurance ceded in part by USLIFE from the credit life and disability insurance purchased by loan customers of State Bank, Peoples Bank, First National Bank and Citizens Savings Bank. RFS operates in the highly competitive trust services field and its competition is primarily other Ohio bank trust departments. RMC operates in the highly competitive mortgage banking environment. In Florida, RMC competes primarily with large national and regional mortgage brokers who originate well over 50% of new loans. RMC also underwrites loans originated by the Corporation's four affiliate banks and other community banks in Ohio. 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. 5 6 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. Pursuant to recent federal legislation, First National Bank may branch across state lines, if permitted by the law of the other state. In addition, effective June 1997, such interstate branching by First National Bank will be authorized, unless the law of the other state specifically prohibits the interstate branching authority granted by federal law. The Federal Reserve Board has adopted risk-based capital guidelines for bank holding companies and for state member banks, such as State Bank and Citizens 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 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 100-200 basis points 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. 6 7 The Corporation and its subsidiaries currently satisfy all capital requirements. Failure to meet applicable capital guidelines could subject a banking institution to a variety of enforcement remedies available to federal and state regulatory authorities, including the termination of deposit insurance by the FDIC. The federal banking regulators have established regulations governing prompt corrective action to resolve capital deficient banks. Under these regulations, institutions which become undercapitalized become subject to mandatory regulatory scrutiny and limitations, which increase as capital continues to decrease. Such institutions are also required to file capital plans with their primary federal regulator, and their holding companies must guarantee the capital shortfall up to 5% of the assets of the capital deficient institution at the time it becomes undercapitalized. The ability of a bank holding company to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends which may be declared by its subsidiary banks and other subsidiaries. However, the Federal Reserve Board expects the Corporation to serve as a source of strength to its subsidiary banks, which may require it to retain capital for further investment in the subsidiaries, rather than for dividends for shareholders of the Corporation. State Bank, Peoples Bank, First National Bank and Citizens 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 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. 7 8 Monetary Policy and Economic Conditions --------------------------------------- The commercial banking business is affected not only by general economic conditions, but also by the policies of various governmental regulatory authorities, including the Federal Reserve Board. The Federal Reserve Board regulates money and credit conditions and interest rates in order to influence general economic conditions primarily through open market operations in U.S. Government securities, changes in the discount rate on bank borrowings and changes in reserve requirements against bank deposits. These policies and regulations significantly affect the overall growth and distribution of bank loans, investments and deposits, and the interest rates charged on loans as well as the interest rates paid on deposits and accounts. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial banks in the past and are expected to continue to have significant effects in the future. In view of the changing conditions in the economy and the money market and the activities of monetary and fiscal authorities, no definitive predictions can be made as to future changes in interest rates, credit availability or deposit levels. Statistical Financial Information Regarding the Corporation ----------------------------------------------------------- The following schedules and tables analyze certain elements of the consolidated balance sheets and statements of income of the Corporation and its subsidiaries, as required under Exchange Act Industry Guide 3 promulgated by the Securities and Exchange Commission, and should be read in conjunction with the narrative analysis presented in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation and the Consolidated Financial Statements of the Corporation and its subsidiaries included at pages 48 through 78 of this Annual Report on Form 10-K. 8 9 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:
1997 1996 1995 ASSETS ---- ---- ---- Interest-earning assets Securities available for sale (1) Taxable $ 63,329,510 $ 65,724,102 $ 64,643,230 Non-taxable 5,827,365 8,931,157 25,869 Securities held to maturity Taxable - - 1,485,961 Non-taxable - - 9,416,228 Federal funds sold 13,009,024 6,950,036 10,145,738 Loans, net of unearned income and deferred loan fees (2) 342,480,740 305,611,881 282,864,867 ------------ ------------ ------------ Total interest-earning assets 424,646,639 387,217,176 368,581,893 Allowance for loan losses (5,245,851) (4,593,293) (4,606,629) ------------ ------------ ------------ 419,400,788 382,623,883 363,975,264 Noninterest-earning assets Cash and due from banks 14,980,442 17,435,810 17,670,513 Premises and equipment, net 8,732,846 8,540,524 8,857,350 Accrued interest receivable and other assets 8,897,276 8,142,608 8,056,940 ------------ ------------ ------------ $452,011,352 $416,742,825 $398,560,067 ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities Deposits Savings and interest-bearing demand deposits $ 90,874,940 $ 83,395,385 $ 83,243,571 Time deposits 265,046,479 243,798,539 231,640,466 Federal funds purchased and securities sold under agreements to repurchase 2,294,882 2,559,025 684,484 Advances from Federal Home Loan Bank (FHLB) 3,907,485 - - ------------ ------------ ------------ Total interest-bearing liabilities 362,123,786 329,752,949 315,568,521 Noninterest-bearing liabilities Demand deposits 44,405,121 42,733,313 41,427,007 Accrued interest payable and other liabilities 3,331,816 3,507,865 3,687,999 ------------ ------------ ------------ 409,860,723 375,994,127 360,683,527 Net ESOP obligation 8,178,356 8,615,308 8,083,792 Shareholders' equity (3) 33,972,273 32,133,390 29,792,748 ------------ ------------ ------------ $452,011,352 $416,742,825 $398,560,067 ============ ============ ============ - -------------------------------------------------------------------------------------------------------------------
(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. 9 10 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.
------------------------------1997---------------------- Average Average Balance Interest Rate ------- -------- ---- INTEREST-EARNING ASSETS Securities(1) Taxable $ 63,329,510 $ 3,900,143 6.16% Non-taxable 5,827,365 473,148(2) 8.12 (2) Federal funds sold 13,009,024 753,081 5.79 Loans, net of unearned income and deferred loan fees 342,480,740(3) 32,155,039(4) 9.39 ------------ ----------- Total interest-earning assets $424,646,639 37,281,411(2) 8.78%(2) ============ INTEREST-BEARING LIABILITIES Deposits Savings and interest-bearing demand deposits $ 90,874,940 1,971,334 2.17% Time deposits 265,046,479 14,334,398 5.41 Federal funds purchased and securities sold under agree- ments to repurchase 2,294,882 161,505 7.04 Advances from FHLB 3,907,485 221,918 5.68 ------------ ----------- Total interest-bearing liabilities $362,123,786 16,689,155 4.61 ============ ----------- Net interest income $20,592,256(2) =========== Net interest income as a percent of average interest-earning assets 4.85%(2) ==== - -------------------------------------------------------------------------------------------------------------------
(1) Securities balances represent daily average balances for the amortized cost of securities. The average rate is calculated based on the amortized cost of securities. (2) Computed on tax equivalent basis for non-taxable securities (34% statutory tax rate in 1997). (3) Loan balances include principal balances of nonaccrual loans and loans held for sale. (4) Includes fees on loans of $1,430,211 in 1997. 10 11 I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)
---------------------------1996------------------ Average Average Balance Interest Rate ------- -------- ---- INTEREST-EARNING ASSETS Securities(1) Taxable $ 65,675,003 $ 4,066,184 6.19% Non-taxable 8,771,930 619,411(2) 7.06 (2) Federal funds sold 6,950,036 355,950 5.12 Loans, net of unearned income and deferred loan fees 305,611,881(3) 28,680,021(4) 9.38 ------------ ----------- Total interest-earning assets $387,008,850 33,721,566(2) 8.71%(2) ============ INTEREST-BEARING LIABILITIES Deposits Savings and interest-bearing demand deposits $ 83,395,385 2,109,831 2.53% Time deposits 243,798,539 12,401,905 5.09 Federal funds purchased and securities sold under agreements to repurchase 2,559,025 144,773 5.66 ------------ ----------- Total interest-bearing liabilities $329,752,949 14,656,509 4.44% ============ ----------- Net interest income $ 19,065,057(2) ============ Net interest income as a percent of average interest-earning assets 4.93%(2) ==== - -------------------------------------------------------------------------------------------------------------------
(1) Securities balances represent daily average balances for the amortized cost of securities. The average rate is calculated based on the amortized cost of securities. (2) Computed on tax equivalent basis for non-taxable securities (34% statutory tax rate in 1996). (3) Loan balances include principal balances of nonaccrual loans and loans held for sale. (4) Includes fees on loans of $1,237,771 in 1996. 11 12 I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL (CONTINUED)
------------------------1995------------------- Average Average Balance Interest Rate ------- -------- ---- INTEREST-EARNING ASSETS Securities(1) Taxable $ 66,675,224 $ 3,756,764 5.63% Non-taxable 9,442,097 645,724(2) 6.84 (2) Federal funds sold 10,145,738 707,596 6.97 Loans, net of unearned income and deferred loan fees 282,864,867 (3) 26,539,689(4) 9.38 ------------ ----------- Total interest-earning assets $369,127,926 31,649,773(2) 8.57%(2) ============ INTEREST-BEARING LIABILITIES Deposits Savings and interest-bearing demand deposits $ 83,243,571 2,088,899 2.51% Time deposits 231,640,466 12,109,099 5.23 Federal funds purchased and securities sold under agree- ments to repurchase 684,484 40,050 5.85 ------------ ----------- Total interest-bearing liabilities $315,568,521 14,238,048 4.51% ============ ----------- Net interest income $17,411,725(2) =========== Net interest income as a percent of average interest-earning assets 4.72%(2) ==== - -------------------------------------------------------------------------------------------------------------------
(1) Securities balances represent daily average balances for the amortized cost of securities. 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 1995). (3) Loan balances include principal balances of nonaccrual loans and loans held for sale. (4) Includes fees on loans of $967,504 in 1995. 12 13 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 1997, 1996 and 1995.
Total Variance Attributable To Variance ------------------------ 1997/1996 Volume Rate --------- ------ ---- INTEREST INCOME Securities Taxable $ (166,041) $ (144,547) $ (21,494) Non-taxable (146,263) (229,465) 83,202 Federal funds sold 397,131 345,492 51,639 Loans, net of unearned income and deferred loan fees 3,475,018 3,440,015 35,003 ---------- ---------- --------- 3,559,845 3,411,495 148,350 INTEREST EXPENSE Deposits Savings and interest-bearing demand deposits (138,497) 178,809 (317,306) Time deposits 1,932,493 1,120,456 812,037 Federal funds purchased and securities sold under agreements to repurchase 16,732 (16,027) 32,759 Advances from FHLB 221,918 221,918 - ---------- ---------- --------- 2,032,646 1,505,156 527,490 ---------- ---------- --------- NET INTEREST INCOME $1,527,199 $1,906,339 $(379,140) ========== ========== =========
13 14 ' I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)
Total Variance Attributable To Variance ------------------------ 1996/1995 Volume Rate --------- ------ ---- INTEREST INCOME Securities Taxable $ 309,420 $ (57,091) $ 366,511 Non-taxable (26,313) (46,854) 20,541 Federal funds sold (351,646) (190,759) (160,887) Loans, net of unearned income and deferred loan fees 2,140,332 2,154,575 (14,243) ---------- ---------- --------- 2,071,793 1,859,871 211,922 INTEREST EXPENSE Deposits Savings and interest-bearing demand deposits 20,932 3,815 17,117 Time deposits 292,806 624,266 (331,460) Federal funds purchased and securities sold under agreements to repurchase 104,723 106,093 (1,370) ---------- ---------- --------- 418,461 734,174 (315,713) ---------- ---------- --------- NET INTEREST INCOME $1,653,332 $1,125,697 $ 527,635 ========== ========== =========
14 15 II. INVESTMENT PORTFOLIO A. The book value of securities available for sale as of December 31 are summarized as follows:
1997 1996 1995 ---- ---- ---- U.S. Treasury and U.S. Government agency securities $43,398,433 $54,235,593 $74,251,501 Obligations of states and political subdivisions 5,395,065 6,389,434 9,543,395 Mortgage-backed securities 21,159,472 4,837,112 5,345,748 Marketable equity securities 1,730,150 1,173,750 1,189,222 ----------- ----------- ----------- $71,683,120 $66,635,889 $90,329,866 =========== =========== ===========
B. The maturity distribution and weighted average yield of securities available for sale at December 31, 1997 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 $ - $43,170,683 $ 227,750 $ - Obligations of states and political subdivisions (1) 293,389 2,802,897 2,192,900 105,879 Mortgage-backed securities (2) 33,816 4,285,568 10,710,064 6,130,024 Marketable equity securities - - - 1,730,150 -------- ----------- ----------- ---------- $327,205 $50,259,148 $13,130,714 $7,966,053 ======== =========== =========== ========== Weighted average yield 5.95% 6.04% 6.80% 6.23% ==== ==== ==== ====
(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, 1997. 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:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Commercial, financial and agricultural(1) $217,324,268 $185,838,900 $ 63,444,036 $ 62,866,040 $ 51,078,815 Real estate mortgage(1) 75,212,817 72,356,881 152,555,540 152,136,086 122,313,826 Consumer loans to individuals 67,198,876 60,512,850 61,600,664 65,676,876 54,420,469 ------------ ------------ ------------ ------------ ------------ $359,735,961 $318,708,631 $277,600,240 $280,679,002 $227,813,110 ============ ============ ============ ============ ============ Real estate mortgage loans held for resale $ 4,404,327 $ 1,875,636 $ 2,949,293 $ 4,689,611 $ 4,669,580 ============ ============ ============ ============ ============
(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 northwest Ohio. Commercial loans include loans collateralized by business assets and agricultural loans collateralized by crops and farm equipment. As of December 31, 1997, commercial, financial and agricultural loans make up approximately 60% of the loan portfolio and the loans are expected to be repaid from cash flow from operations of businesses. As of December 31, 1997, residential first mortgage loans make up approximately 21% of the loan portfolio and are collateralized by first mortgages on residential real estate. As of December 31, 1997, 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, 1997 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 $ 97,867,000 After one year but within five years 114,137,000 After five years 5,320,000 ------------ $217,324,000
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 $33,473,000 $80,664,000 $114,137,000 Due after five years 5,320,000 - 5,320,000 ----------- ----------- ------------ $38,793,000 $80,664,000 $119,457,000 =========== =========== ============
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.
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (In thousands) (a) Loans accounted for on a nonaccrual basis $2,303(1) $1,055(1) $2,403(1) $3,538 $3,621 (b) Accruing loans which are contractually past due 90 days or more as to interest or principal payments 462 293 711 1,198 200 (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" - 2,490 - - - ------ ------ ------ ------ ------ $2,765 $3,838 $3,114 $4,736 $3,821 ====== ====== ====== ====== ======
(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, 1997 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.
1997 ---- (In thousands) Gross interest income that would have been recorded in 1997 on nonaccrual loans outstanding at December 31, 1997 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 $250 Interest income actually recorded on nonaccrual loans and included in net income for the period (46) ---- Interest income not recognized during the period $204 ====
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, 1997, in addition to the $2,765,000 of loans reported under Item III, C.1., there are approximately $3,855,000 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 $3,855,000 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, 1997, loans outstanding related to agricultural operations or collateralized by agricultural real estate aggregated approximately $48,794,000. At December 31, 1997, there were no agriculture loans which were accounted for on a nonaccrual basis; and there are no accruing agriculture loans which are contractually past due ninety days or more as to interest or principal payments. D. Other Interest-Bearing Assets ----------------------------- There are no other interest-bearing assets as of December 31, 1997 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:
1997 1996 1995 ---- ---- ---- LOANS Loans outstanding at end of period (1) $ 363,851,637 $ 320,321,476 $ 280,314,137 ============= ============= ============= Average loans outstanding during period (1) $ 342,480,740 $ 305,611,881 $ 282,864,867 ============= ============= ============= ALLOWANCE FOR LOAN LOSSES Balance at beginning of period $ 5,066,600 $ 4,270,000 $ 4,770,000 Allowance of acquired Bank -- -- -- Loans charged-off Commercial, financial and agricultural loans (2) (438,317) (308,143) (1,267,028) Real estate mortgage (2) (30,863) (14,470) (509,108) Consumer loans to individuals (856,426) (555,164) (874,690) ------------- ------------- ------------- (1,325,606) (877,777) (2,650,826) Recoveries of loans previously charged-off Commercial, financial and agricultural loans (2) 308,283 380,951 497,437 Real estate mortgage (2) 6,877 8,288 23,432 Consumer loans to individuals 235,482 324,129 178,059 ------------- ------------- ------------- 550,642 713,368 698,928 ------------- ------------- ------------- Net loans charged-off (774,964) (164,409) (1,951,898) Provision for loan losses 947,965 961,009 1,451,898 ------------- ------------- ------------- Balance at end of period $ 5,239,601 $ 5,066,600 $ 4,270,000 ============= ============= ============= Ratio of net charge-offs during the period to average loans outstanding during the period .23% .05% .69% ============= ============= =============
1994 1993 ---- ---- LOANS $ 285,106,409 $ 232,317,346 Loans outstanding at end of period (1) ============= ============= $ 249,993,210 $ 225,013,808 Average loans outstanding during period (1) ============= ============= ALLOWANCE FOR LOAN LOSSES $ 3,390,000 $ 3,086,443 Balance at beginning of period 1,100,000 -- Allowance of acquired Bank Loans charged-off (275,543) (139,250) Commercial, financial and agricultural loans (2) (66,531) (118,054) Real estate mortgage (2) (408,879) (676,436) Consumer loans to individuals ------------- ------------- (750,953) (933,740) Recoveries of loans previously charged-off 85,052 89,832 Commercial, financial and agricultural loans (2) 56,809 114,156 Real estate mortgage (2) 187,602 237,823 Consumer loans to individuals ------------- ------------- 329,463 441,811 ------------- ------------- (421,490) (491,929) Net loans charged-off 701,490 795,486 Provision for loan losses ------------- ------------- $ 4,770,000 $ 3,390,000 Balance at end of period ============= ============= Ratio of net charge-offs during the period to .17% .22% average loans outstanding during the period ============= =============
(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, 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 December 31, 1994 ----------------- ----------------- Commercial, financial and agricultural $1,665,000 22.9% $1,764,900 22.4% Real estate mortgage 512,000 54.9 572,400 54.2 Consumer loans to individuals 1,452,000 22.2 1,621,800 23.4 Unallocated 641,000 N/A 810,900 N/A ---------- ------- ---------- ----- $4,270,000 100.0% $4,770,000 100.0% ========== ======= ========== ===== December 31, 1993 ----------------- Commercial, financial and agricultural $1,220,400 22.4% Real estate mortgage 372,900 53.7 Consumer loans to individuals 1,084,800 23.9 Unallocated 711,900 N/A ---------- ----- $3,390,000 100.0% ========== =====
While management's periodic analysis of the adequacy of the allowance for loan losses may allocate portions of the allowance for specific problem loan situations, the entire allowance is available for any loan charge-offs that occur. 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 7 1 9 9 6 1 9 9 5 ------- ------- ------- Average Average Average Average Average Average Amount Rate Amount Rate Amount Rate ------ ---- ------ ---- ------ ---- Savings and interest-bearing demand deposits $ 90,874,940 2.17% $ 83,395,385 2.53% $ 83,243,571 2.51% Time deposits 265,046,479 5.41 243,798,539 5.09 231,640,466 5.23 Demand deposits (noninterest-bearing) 44,405,121 ---- 42,733,313 ---- 41,427,007 ---- ------------ ------------ ------------ $400,326,540 $369,927,237 $356,311,044 ============ ============ ============
Maturities of time certificates of deposit and other time deposits of $100,000 or more outstanding at December 31, 1997 are summarized as follows: Amount ----------- Three months or less $16,139,000 Over three months and through six months 17,506,000 Over six months and through twelve months 10,834,000 Over twelve months 12,799,000 ----------- $57,278,000 =========== 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:
1997 1996 1995 ---- ---- ---- Average total assets $452,011,352 $416,742,825 $398,560,067 ============ ============ ============ Average shareholders' equity and net ESOP obligation (1) $ 42,150,629 $ 40,748,698 $ 37,876,540 ============ ============ ============ Average shareholders' equity (1) $ 33,972,273 $ 32,133,390 $ 29,792,748 ============ ============ ============ Net income $ 5,515,797 $ 4,849,214 $ 4,094,813 ============ ============ ============ Cash dividends declared $ 1,648,730 $ 1,308,975 $ 1,310,627 ============ ============ ============ Return on average total assets 1.22% 1.16% 1.03% ==== ==== ==== Return on average share- holders' equity and net ESOP obligation 13.09% 11.90% 10.81% ===== ===== ===== Return on average share- holders' equity 16.24% 15.09% 13.74% ===== ===== ===== Dividend payout percentage (2) 29.89% 26.99% 32.01% ===== ===== ===== Average shareholders' equity and net ESOP obligation to average total assets 9.33% 9.78% 9.50% ==== ==== ==== Average shareholders' equity to average total assets 7.52% 7.71% 7.48% ==== ==== ====
(1) Net of average unrealized appreciation or depreciation on securities available for sale. (2) Dividends declared divided by net income. II. SHORT-TERM BORROWINGS The Corporation did not have any category of short-term borrowings for which the average balance outstanding during the reported periods was 30 percent or more of shareholders' equity at the end of the reported periods. 23 24 Effect of Environmental Regulation ---------------------------------- Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect upon the capital expenditures, earnings or competitive position of the Corporation and its subsidiaries. The Corporation believes that the nature of the operations of its subsidiaries has little, if any, environmental impact. The Corporation, therefore, anticipates no material capital expenditures for environmental control facilities for its current fiscal year or for the foreseeable future. The Corporation's subsidiaries may be required to make capital expenditures for environmental control facilities related to properties which they may acquire through foreclosure proceedings in the future; however, the amount of such capital expenditures, if any, is not currently determinable. Item 2. Properties. - --------------------- The following is a listing and brief description of the properties owned or leased by State Bank and used in its business: 1. Its main office is a two-story brick building located at 401 Clinton Street, Defiance, Ohio, which was built in 1971. Including a basement addition built in 1991, it contains 33,400 square feet of floor space. Approximately 2,186 square feet on the second floor and 2,910 on the lower level presently are leased to RDSI, 6,408 square feet on the second floor are leased to RFS and 3,565 sqaure feet on the lower level are leased to the Corporation. 2. A 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. It is a free standing structure located in front of a shopping center. 6. A full service branch office located at 2010 South Jefferson, Defiance, Ohio containing 2,160 square feet of floor space was opened in 1979. It is located in a primarily residential area. 24 25 7. A full service branch office located at 220 North Main Street, Paulding, Ohio containing 6,200 square feet of floor space was opened in 1980. 8. A full service branch office located at 312 Main Street, Delta, Ohio containing 3,470 square feet of floor space was acquired from Society Bank & Trust ("Society") in 1992. 9. A full service branch office located at 133 E. Morenci Street, Lyons, Ohio containing 2,578 square feet of floor space was acquired from Society in 1992. 10. A full service branch office located at 515 Parkview, Wauseon, Ohio containing 3,850 square feet of floor space was acquired from Society in 1992. 11. A full service branch located in the Chief Market Square supermarket at 705 Deatrick Street, Defiance, Ohio and containing 425 square feet was opened in 1993. State Bank leases the space in which this branch is located pursuant to a 15-year lease. The following is a listing and brief description of the properties owned by Peoples Bank and used in its business: 1. The full service main office located at 301 South Main Street, Findlay, Ohio was opened in 1990. It contains approximately 30,000 square feet of floor space, of which 12,000 is used by an unrelated law firm. 2. A full service branch office located at 124 East Main Street, McComb, Ohio was opened in 1990. It contains approximately 3,600 square feet of floor space. 3. A full service branch office located at 1330 North Main Street, Findlay, Ohio, was opened in 1979. It contains approximately 1,500 square feet of floor space. The only real property owned by First National Bank is the location of the Bank at 405 East Main Street, Ottawa, Ohio. First National Bank's facility is a two-story brick and steel building containing approximately 7,100 square feet of space. The first floor is a traditional banking lobby 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. 25 26 2. A full service branch office located at 230 West Madison Street, Gibsonburg, Ohio occupies 2,520 square feet and was built in 1988. The following is a listing and brief description of the properties leased by RMC and used in its business: 1. A 6,400 square foot office space located at Estancia Boulevard, Suite 201, Clearwater, Florida. This office was first leased on January 22, 1997. 2. A 650 square foot office space located at 6521 Ridge Rd. Port Richey, Florida and used as a satellite mortgage loan production office. 3. A 650 square foot office space located at 3443G Tamiami Trail Port Charlotte, Florida. 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. 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.
Name Age Position(s) Held with the ---- --- Corporation and its Subsidiaries and Principal Occupation(s) --------------------------- Steven D. VanDemark 45 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.
26 27
Name Age Position(s) Held with the ---- --- Corporation and its Subsidiaries and Principal Occupation(s) --------------------------- Thomas C. Williams 49 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 45 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 53 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. Mark E. Rowland 46 Senior Vice President and Senior Lender of the Corporation since December 1997; Executive Vice President of State Bank since June 1997; Senior Vice President of State Bank since January 1997; Executive Vice President of Bancapital Corporation, a financial services company involved primarily in mortgage lending, from January 1991 to June 1996.
27 28
Name Age Position(s) Held with the ---- --- Corporation and its Subsidiaries and Principal Occupation(s) --------------------------- Mark A. Soukup 41 President and Chief Executive Officer of State Bank since (1) August 1996; Senior Vice President-Retail Banking of State Bank from November 1995 to August 1996; Branch Administrator FirstMerit First National Bank of Ohio from 1992 to September 1995. Kenneth A. Joyce 50 Chairman and Chief Executive Officer of RDSI since October (1) 1997; Chairman and Chief Executive Officer of RMC since November 1997; Executive Vice President of State Bank from June 1997 to November 1997; President of FirstMerit Bank, FSB, Clearwater Florida from July 1995 to December 1996.
(1) For purposes of this Form 10-K, even though Mr. Soukup and Mr. Joyce are not employed as officers of the Corporation and their salaries are not paid by the Corporation, they are included in the list of Executive Officers of the Corporation because they perform policy making functions for the Corporation. PART II ------- Item 5. Market for Registrant's Common Equity and Related Shareholder Matters. - ------------------------------------------------------------------------------ The common shares of the Corporation are traded on a limited basis in the over-the-counter market. The table below sets forth the high and low bid quotations for, and the cash dividends declared with respect to, the common shares of the Corporation, for the indicated periods. The bid quotations were obtained from one of the securities dealers who makes a market in the Corporation's common shares (the Corporation is aware of three securities dealers who make a market in its common shares). The bid quotations reflect the prices at which purchases and sales of the Corporation's common shares could be made during each period and not inter-dealer prices. The bid quotations reflect retail mark-ups, but not commissions or retail mark-downs. The bid quotations represent actual transactions in the Corporation's common shares. The per share amounts have been restated for the 5% stock dividend declared in December 1996. Per Share Per Share Bid Prices Dividends 1996 High Low Declared - ---- ---- --- -------- First Quarter $32.38 $29.88 $ .1429 Second Quarter 33.81 30.95 $ .1429 Third Quarter 33.81 31.90 $ .1429 Fourth Quarter 33.10 28.00 $ .1429 28 29 Per Share Per Share Bid Prices Dividends 1997 High Low Declared - ---- ---- --- -------- First Quarter $33.00 $26.00 $ .18 Second Quarter 32.00 30.00 $ .18 Third Quarter 31.50 28.00 $ .18 Fourth Quarter 31.38 27.50 $ .20 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, 1997, is 1,130. 29 30 Item 6. Selected Financial Data. - --------------------------------- SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands except per share data) Year Ended December 31, 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- EARNINGS Total interest income $ 37,120 $ 33,511 $ 31,430 $ 23,474 $ 21,478 Total interest expense 16,689 14,657 14,238 9,612 8,909 Net interest income 20,431 18,854 17,192 13,862 12,569 Provision for loan losses 948 961 1,452 701 795 Total noninterest income 7,756 6,194 5,753 5,312 5,434 Total noninterest expense 19,253 16,876 15,271 12,664 11,510 Income tax expense 2,470 2,362 2,127 1,899 1,823 Net income 5,516 4,849 4,095 3,910 3,875 - ------------------------------------------------------------------------------------------------- PER SHARE DATA (1) Basic and diluted net income(2) $ 2.49 $ 2.14 $ 1.79 $ 1.80 $ 1.82 Cash dividends declared 0.74 0.57 0.57 0.57 0.57 - ------------------------------------------------------------------------------------------------- AVERAGE BALANCES Average shareholders' equity and net ESOP obligation $ 42,151 $ 40,749 $ 37,877 $ 30,614 $ 29,966 Average shareholders' equity 33,972 32,133 29,793 24,589 25,412 Average total assets 452,011 416,743 398,560 335,118 314,230 - ------------------------------------------------------------------------------------------------- RATIOS Return on average total assets 1.22% 1.16% 1.03% 1.17% 1.23 Average shareholders' equity and net ESOP obligation to average total assets 9.33 9.78 9.50 9.14 9.54 Average shareholders' equity to average total assets 7.52 7.71 7.48 7.34 8.09 Return on average shareholders' equity and net ESOP obligation 13.09 11.90 10.81 12.77 12.93 Return on average shareholders' equity 16.24 15.09 13.74 15.90 15.25 Cash dividend payout ratio (cash dividends divided by net income) 29.89 26.99 32.01 32.33 31.54 - -------------------------------------------------------------------------------------------------
(1) Per share data restated for 5% stock dividend declared in 1996 and 1994 two-for-one stock split. (2) Restated to reflect adoption of SFAS No. 128 on December 31, 1997. 30 31 SUMMARY OF SELECTED FINANCIAL DATA (Continued)
(Dollars in thousands except per share data) Year Ended December 31, 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- PERIOD END TOTALS Total assets $471,371 $433,273 $411,226 $393,547 $317,845 Total loans and leases 359,736 318,709 277,600 280,679 227,813 Total deposits 415,181 387,766 367,797 354,646 283,603 Advances from FHLB 7,530 -- -- -- -- Shareholders' equity and net ESOP obligation 39,094 41,489 40,078 35,675 31,293 Shareholders' equity 30,268 33,591 30,745 28,840 26,076 Shareholders' equity and net ESOP obligation per share(1) 18.89 18.13 17.47 15.55 14.69 Shareholders' equity per share(1) 17.36 17.14 15.52 14.36 13.12 - -------------------------------------------------------------------------------------------
(1) Per share data restated for 5% stock dividend declared in 1996 and 1994 two-for-one stock split. 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 1997 was $5.5 million, up from $4.8 million in 1996 and $4.1 million in 1995. Net income per share was $2.49 in 1997, an increase of 16% from $2.14 in 1996. The 1996 net income per share results represented a 20% increase from $1.79 in 1995. Cash dividends declared per share were $.74 in 1997 compared to $.57 in 1996 and 1995, a 30% increase in 1997. Per share data has been adjusted to reflect the 5% stock dividend declared in December, 1996. RESULTS OF OPERATIONS 1997 COMPARED WITH 1996 - ----------------------- NET INTEREST INCOME for 1997 was $20.4 million an increase of $1.6 million (8.4%) over 1996. The increase was primarily due to additional net interest income resulting from an 12.1% increase in the average balance of total loans and loans held for sale. While the average yield on loans was flat at 9.39% compared to 9.38% for 1996, the mix of loans as a percentage of average earning assets increased from 79.0% in 1996 to 80.7% in 1997, thereby improving the average yield on earning assets from 8.71% to 8.78%. The improvement in earning asset yield was more than offset by the increase in the average rate on interest bearing liabilities from 4.44% in 1996 to 4.61% in 1997; resulting in a decline in the net interest margin from 4.93% in 1996 to 4.85% in 1997. AT DECEMBER 31, 1997, total loans and loans held for sale, net of deferred loan fees amounted to $363.9 million, an increase of 13.6% over net loans of $320.3 million at December 31, 1996. This increase was primarily due to the Corporation's loan origination efforts. 31 32 COMMERCIAL, FINANCIAL AND AGRICULTURAL LOANS increased $35.1 million from $185.8 million at December 31, 1996 to $217.3 million at December 31, 1997. This increase occurred as the result of the hiring of additional commercial lending staff and the Corporation's goal to increase commercial loan relationships. AT DECEMBER 31, 1997, approximately $4.4 million of real estate mortgage loans were held for sale in the secondary market. During 1997, approximately $30.8 million of real estate mortgage loans were originated for sale and approximately $28.8 million were sold in the secondary market. This represents an increase of $7.6 million (36%) in loans sold in 1997 as compared to 1996. Real estate mortgage loans originated for sale increased $10.4 million in 1997, as compared to 1996, primarily due to the loan origination efforts of the Rurban Mortgage Division of State Bank and Rurban Mortgage Company. Net gains on loan sales for 1997 totaled $552,000, an increase of $762,000 as compared to net losses on loan sales of $210,000 in 1996. During 1997, most loans were sold on a servicing released basis. Loans originated for sale are primarily fixed rate mortgage loans. Management anticipate further growth in the volume of loans originated for sale in 1998 as Rurban Mortgage Company's volume grows from its start-up level in 1997. Such growth is anticipated to be boosted by relatively low interest rate levels, which during the first quarter of 1998 were resulting in a wave of mortgage loan refinancing. SECURITIES AVAILABLE FOR SALE TOTALED $71.7 million at December 31, 1997 which represented an increase of $5.0 million (7.6%) from total securities of $66.6 million at December 31, 1996. As of December 31, 1997, all securities of the Corporation were designated available for sale. Available for sale securities represent those securities which the Corporation may decide to sell if needed for liquidity, asset/liability management or other reasons. Such securities are reported at fair value with net unrealized appreciation (depreciation) included as a separate component of shareholders' equity, net of tax. This resulted in a net increase in shareholders' equity of $219,000 at December 31, 1997. TOTAL DEPOSITS AT December 31, 1997 amounted to $415.2 million, an increase of $27.4 million (7.1%) over total deposits of $387.8 million at December 31, 1996. The increase in deposits is believed to have occurred as a result of increased deposit services and flexibility of products offered. 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, 1997 were 12.5 million and $0 at December 31, 1997 and 1996. These borrowings consisted of $7.5 million of FHLB Advances and $4.9 million of federal funds purchased as the Corporation began to access alternative sources for funding its loan growth. THE PROVISION FOR LOAN LOSSES charged to operations was based on the amount of net losses incurred and management's estimation of future losses based on an evaluation of loan portfolio risk and economic factors. The provision for loan losses was $948,000 in 1997 compared to $961,000 in 1996. THE ALLOWANCE FOR LOAN LOSSES at December 31, 1997 was $5.2 million or 1.44% of total loans and loans held for sale, net of deferred loan fees, compared to $5.1 million or 1.58% at December 31, 1996. 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 32 33 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, 1997, the Corporation classified four loan relationships as impaired, totaling $1.8 million. Management allocated $725,000 of the allowance for loan losses to impaired loans at December 31, 1997. MANAGEMENT ALLOCATED approximately 70% of the allowance for loan losses to commercial, financial and agricultural loans; 14% to consumer loans; and 4% to residential first mortgage loans at December 31, 1997, leaving a balance of 12% unallocated. Nonperforming loans decreased to $2.8 million at December 31, 1997 from $3.8 million at December 31, 1996. The decrease in nonperforming loans relates primarily to the reduction of impaired loans during 1997. The allowance is maintained by management at a level considered adequate to cover losses that are currently anticipated based on past loss experience, general economic conditions, information about specific borrower situations including their financial position and collateral values, and other factors and estimates which are subject to change over time. Management believes the allowance for loan losses balance at December 31, 1997 is adequate to absorb losses on these and other loans. TOTAL NONINTEREST INCOME increased $1,562,000 (25.2%) to $7.8 million in 1997 from $6.2 million in 1996. Net gain on sales of loans increased $762,000 to $552,000 in 1997 as compared to a net loss of $210,000 in 1996. During the first quarter of 1997, an adjustment of approximately $238,000 was made to reflect the adoption of SFAS No. 122 as of January 1, 1996. Approximately $200,000 of that amount related to the recording of originated mortgage servicing rights on loans sold in 1996. Trust fees income declined $32,000 (1.4%) to $2,327,000 in 1997 from $2,359,000 in 1996. This $32,000 decline actually represented a $228,000 (10.8%) increase after considering the $260,000 increase in 1996 as the result of converting from cash to accrual basis of accounting for trust fees in 1996. Data processing fees increased $563,000 (25.5%) to $2,766,000 in 1997 compared to $2,203,000 in 1996. An adjustment in 1997 to convert from cash to accrual basis of accounting for data processing fees accounted for $238,000 (42.3%) of this increase. TOTAL NONINTEREST EXPENSE increased $2.4 million (14.1%) to $19.3 million in 1997, from $16.9 million in 1996, primarily due to the following factors. Salaries and employee benefits increased $1.9 million (22.4%) to $10.2 million in 1997 compared to $8.3 million in 1996. This increase was due primarily to three factors; 1) annual merit increases, 2) staffing increases, and 3)the extension of performance related bonuses and incentive compensation throughout the organization, and 4)individual employee equity and market salary adjustments to maintain competitive salaries and retain qualified employees. Equipment rentals, depreciation and maintenance declined $150,000 primarily due to a reduction in the dollar amount for classifying equipment purchases as fixed assets rather than recording them as direct expense in accordance with the Corporation's new fixed asset capitalization policy. The minimum amount to be capitalized was reduced from $5,000 to $1,000. Other expenses increased $649,000 (11.9%) primarily due to inflation and additional expenses attributed to loan and deposit growth. INCOME TAX EXPENSE for the year ended December 31, 1997 was $2.5 million, an increase of $108,000 (4.6%) from 1996. This increase was primarily attributable to an increase in income before income tax expense. THE FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) issued SFAS No. 125 which applied for the first time in 1997. SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, provides authoritative guidance as to the accounting and financial reporting for transfers and servicing of financial assets and extinguishment of liabilities. Example transactions covered by SFAS No. 125 include asset securitizations, repurchase agreements, wash sales, loan participations, transfers of loans with recourse and servicing of loans. The Standard is based on a consistent application of a financial components approach that focuses on control. The Statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The Statement also requires measuring instruments that have a substantial prepayment risk at fair value, much like debt instruments classified as available for sale or trading. SFAS No. 125 also supersedes SFAS No. 122, Accounting for Mortgage Servicing Rights, but it only marginally modifies the accounting and disclosure requirements of SFAS No. 122. SFAS No. 125, as amended by SFAS No. 33 34 127, was effective on a prospective basis for some transactions in 1997 and will be effective for others in 1998. The effect on the consolidated financial statements was not material. A NEW ACCOUNTING STANDARD, SFAS No. 130, Reporting Comprehensive Income, has been issued which will require future reporting of comprehensive income beginning March 31, 1998. Comprehensive income is net income plus changes in unrealized appreciation (depreciation) on securities available for sale, net of tax. A NEW ACCOUNTING STANDARD, SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, will require future reporting of additional information related to material business segments beginning December 31, 1998. RESULTS OF OPERATIONS 1996 COMPARED WITH 1995 - ----------------------- NET INTEREST INCOME for 1996 was $18.9 million an increase of $1.7 million (9.7%) over 1995. The increase was primarily due to additional net interest income resulting from an 8.0% increase in the average balance of total loans and loans held for sale, net of unearned income and deferred loan fees. While the average yield on loans remained at 9.38%, the mix of loans as a percentage of average earning assets increased from 76.6% in 1995 to 79.0% in 1996, thereby improving the average yield on earning assets from 8.57% to 8.71%. The improvement in earning asset yield coupled with a decline in the average rate on interest bearing liabilities from 4.51% in 1995 to 4.44% in 1996; resulted in an improvement in the net interest margin from 4.72% to 4.93%. AT DECEMBER 31, 1996, total loans and loans held for sale, net of deferred loan fees amounted to $320.3 million, an increase of 14.3% over net loans of $280.3 million at December 31, 1995. This increase was primarily due to a decline in interest rates and an improved focus on loan origination during 1996. AT DECEMBER 31, 1996, approximately $1.9 million of real estate mortgage loans were held for sale in the secondary market. During 1996, approximately $20.4 million of real estate mortgage loans were originated for sale and approximately $21.2 million were sold in the secondary market. This represents an increase of $9.0 (74%) in loans sold in 1996 as compared to 1995. Mortgage loans originated for sale increased $10.0 million in 1996, as compared to 1995, primarily due to declines in interest rates during the first half of 1996. Net losses on loan sales for 1996 totaled $210,000, a decrease of $294,000 as compared to net gains on loan sales of $84,000 in 1995. The Corporation retained the servicing of these loans as a fee generating service. Loans originated for sale were primarily fixed rate mortgage loans. SECURITIES AVAILABLE FOR SALE TOTALED $66.6 million at December 31, 1996 which represented a decrease of $23.7 million (26.2%) from total securities of $90.3 million at December 31, 1995. The decrease in securities from sales and maturities was primarily due to the need to fund loan demand which out paced deposit growth. TOTAL DEPOSITS at December 31, 1996 amounted to $387.8 million, an increase of $20.0 million (5.4%) over total deposits of $367.8 million at December 31, 1995. The increase in deposits is believed to have occurred as a result of increased deposit services and flexibility of products offered. THE PROVISION FOR LOAN LOSSES charged to operations was based on the amount of net losses incurred and management's estimation of future losses based on an evaluation of loan portfolio risk and economic factors. The provision for loan losses was $961,000 in 1996 compared to $1,452,000 in 1995. The decreased provision and increase in the allowance in 1996 as compared to 1995 were due largely to the charge-off of certain large credits in 1995. THE ALLOWANCE FOR LOAN LOSSES at December 31, 1996 was $5.1 million or 1.59% of total loans and loans held for sale, net of deferred loan fees, compared to $4.3 million or 1.52% at December 31, 1995. 34 35 MANAGEMENT ALLOCATED approximately 68% of the allowance for loan losses to commercial, financial and agricultural loans; 16% to consumer loans; and 4% to residential first mortgage loans at December 31, 1996, leaving a balance of 12% unallocated. Nonperforming loans increased to $3.8 million at December 31, 1996 from $3.1 million at December 31, 1995. The increase in nonperforming loans relates primarily to the identification of additional loans as impaired during 1996. TOTAL NONINTEREST INCOME increased $440,000 (7.7%) to $6.2 million in 1996 from $5.8 million in 1995. Trust fees income increased $413,000 (21.2%) to $2,359,000 in 1996 from $1,946,000 in 1995; $260,000 of this increase resulted from a change from cash to accrual basis of accounting for trust fees in 1996. Data processing fees increased $164,000 (8.1%) to $2,203,000 in 1996 compared to $2,039,000 in 1995. These increases were partially offset by net loss on sales of loans of $210,000 in 1996 which was an unfavorable change of $294,000 from the $84,000 of net gains on sales of loans in 1995. TOTAL NONINTEREST EXPENSE increased $1.6 million (10.5%) to $16.9 million in 1996, from $15.3 million in 1995, primarily due to the following factors. Salaries and employee benefits increased $1.2 million (16.7%) to $8.3 million in 1996 compared to $7.1 million in 1995. This increase was due primarily to three factors; 1) annual merit increases, 2) staffing increases, and 3)the extension of performance related bonuses and incentive compensation throughout the organization. Net occupancy expense of premises increased by $107,000 due to the repair of the exterior of the main office. Equipment costs increased $242,000 due primarily to the purchase of personal computers and other small equipment to upgrade the quality of the tools available to our people. Other expenses increased $64,000 (1.2%) primarily due to increases in professional fees of $142,000 and in other operating expenses of $573,000 which were offset by decreases in amortization of intangibles of $349,000 and FDIC deposit insurance premiums of $359,000. The increase in other operating expenses was primarily a result of increases in education and travel expenses of $191,000, and an increase of $84,000 in temporary labor. INCOME TAX EXPENSE for the year ended December 31, 1996 was $2.4 million, an increase of $235,000 (11.0%) from 1995. This increase was primarily attributable to an increase in income before income tax expense. LIQUIDITY LIQUIDITY RELATES PRIMARILY to the Corporation's ability to fund loan demand, meet deposit customers' withdrawal requirements and provide for operating expenses. Assets used to satisfy these needs consist of cash and due from banks, federal funds sold, securities available-for sale and loans held for sale. These assets are commonly referred to as liquid assets. Liquid assets were $98 million at December 31, 1997 compared to $103 million at December 31, 1996 and $122 million at December 31, 1995. Liquidity levels declined $5 million from 1996 to 1997 and $19 million from 1995 to 1996 primarily due to the increase in loans. Management recognizes that securities may need to be sold in the future to help fund loan demand and, accordingly, as of December 31, 1997, the entire securities portfolio of $71.7 million was classified as available for sale. THE CORPORATION'S RESIDENTIAL FIRST MORTGAGE PORTFOLIO of $75.2 million which can and has been readily used to collateralize borrowings is an additional source of liquidity. Management believes its current liquidity level is sufficient to meet anticipated future growth. 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 1997, 1996 and 1995 follows. FOR ALL PERIODS presented, the Corporation experienced a net increase in cash from operating activities. Net cash from operating activities was $4.1 million, $8.6 million and $8.0 million for the years ended December 31, 1997, 1996 and 1995, respectively. The decrease in net cash from operating activities of $4.5 million for 1997 as compared to 1996 was primarily due to increases in loans held for sale of $2.5 million and increases in cash paid to supplies and employees of $2.5 million. The increase in net cash from operating activities of $566,000 for 1996 as compared to 1995 was primarily due to interest received on interest-earning assets which outpaced an increase in interest paid on interest-bearing liabilities. 35 36 NET CASH FLOW FROM INVESTING ACTIVITIES was $(47.8 million), $(20.0 million) and $(16.7 million) for the years ended December 31, 1997, 1996 and 1995, 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 1997, 1996 and 1995, the Corporation received $28.6, $19.4 million and $2.3 million, respectively, from sales of securities available for sale, while proceeds from repayments and maturities of securities were $8.8 million, $46.4 million and $22.2 million in 1997, 1996 and 1995, respectively. NET CASH FLOW FROM FINANCING ACTIVITIES was $32.0, $17.0 and $11.8 million for the years ended December 31, 1997, 1996 and 1995, respectively. The net cash increase was primarily attributable to growth in total deposits of $27.4, $20.0 and $13.2 million in 1997, 1996 and 1995, respectively. Other significant changes in 1997 included $12.5 million in borrowings partially offset by $6.7 paid to repurchase common stock. ASSET LIABILITY MANAGEMENT ASSET LIABILITY MANAGEMENT involves developing and monitoring strategies to maintain sufficient liquidity, maximize net interest income and minimize the impact that significant fluctuations in market interest rates would have on earnings. The business of the Corporation and the composition of its balance sheet consists of investments in interest-earning assets (primarily loans, mortgage-backed securities, and securities available for sale) which are primarily funded by interest-bearing liabilities (deposits and borrowings). With the exception of loans which are originated and held for sale, all of the financial instruments of the Corporation are for other than trading purposes. All of the Corporation's transactions are denominated in U.S. dollars with no specific foreign exchange exposure. In addition, the Corporation has limited exposure to commodity prices related to agricultural loans. The impact of changes in foreign exchange rate and commodity prices on interest rates are assumed to be significant. 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. 36 37 FINANCIAL INSTITUTIONS derive their income primarily from the excess of interest collected over interest paid. The rates of interest an institution earns on its assets and owes on its liabilities generally are established contractually for a period of time. Since market interest rates change over time, an institution is exposed to lower profit margins (or losses) if it cannot adapt to interest rate changes. For example, assume that an institution's assets carry intermediate or long term fixed rates and that those assets are funded with short-term liabilities. If market interest rates rise by the time the short-term liabilities must be refinanced, the increase in the institution's interest expense on its liabilities may not be sufficiently offset if assets continue to earn at the long-term fixed rates. Accordingly, an institution's profits could decrease on existing assets because the institution will either have lower net interest income or possible, net interest expense. Similar risks exist when assets are subject to contractual interest rate ceilings, or rate sensitive assets are funded by longer-term, fixed-rate liabilities in a decreasing rate environment. SEVERAL WAYS an institution can manage interest rate risk include: 1) selling existing assets or repaying certain liabilities; 2) matching repricing periods for new assets and liabilities, for example, by shortening terms of new loans or investments; and 3) hedging existing assets, liabilities, or anticipated transactions. An institution might also invest in more complex financial instruments intended to hedge or otherwise change interest rate risk. Interest rate swaps, futures contacts, options on futures contracts, and other such derivative financial instruments are often used for this purpose. Because these instruments are sensitive to interest rate changes, they require management's expertise to be effective. The Corporation has not purchased derivative financial instruments in the past and does not presently intend to purchase such instruments. QUANTITATIVE MARKET RISK DISCLOSURE. The following table provides information about the Corporation's financial instruments used for purposes other than trading that are sensitive to changes in interest rates. For loans receivable, securities, and liabilities with contractual maturities, the table presents principal cash flows and related weighted-average interest rates by contractual maturities as well as the Corporation's historical experience of the impact of interest rate fluctuations on the prepayment of residential and home equity 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. Weighted average variable rates are based upon rates existing at the reporting date. 37 38 Principal/Notional Amount Maturing In: (Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------------------------- 1998 1999 2000 2001 2002 Thereafter Total - --------------------------------------------------------------------------------------------------------------------------------- RATE-SENSITIVE ASSETS Fixed interest rate loans $ 26,160 $ 9,372 $16,252 $23,495 $18,947 $ 22,305 $116,531 Average interest rate 9.75% 9.72% 9.12% 9.02% 9.00% 9.88% 9.42% Variable interest rate loans $210,233 $15,499 $ 8,475 $ 6,296 $ 6,650 $ 456 $247,609 Average interest rate 9.15% 9.15% 9.04% 7.72% 8.64% 8.71% 9.10% Fixed interest rate securities $ 336 $37,116 $ 5,919 $ 4,284 $ 3,372 $ 20,656 $ 71,683 Average interest rate 5.90% 5.88% 6.24% 6.12% 6.26% 6.54% 6.13% Other interest-bearing assets $ 7,200 -- -- -- -- -- $ 7,200 Average interest rate 5.80% -- -- -- -- -- 5.80% RATE SENSITIVE LIABILITIES: Non interest-bearing checking $ 839 $ 1,679 $ 2,515 $ 3,355 $ 4,195 $ 33,566 $ 46,149 Average interest rate -- -- -- -- -- -- -- Savings and interest-bearing $ 1,652 $ 3,303 $ 4,946 $ 6,598 $ 8,250 $ 65,278 $ 90,027 checking Average interest rate 2.17% 2.17% 2.17% 2.17% 2.17% 2.17% 2.17% Time deposits and money markets $215,036 $52,266 $ 8,921 $ 1,263 $ 764 $ 755 $279,005 Average interest rate 5.50% 5.75% 5.75% 5.92% 6.16% 5.10% 5.56% Fixed interest rate borrowings $ 6,570 $ 255 $ 271 $ 288 $ 75 -- $ 7,459 Average interest rate 6.38% 6.25% 6.25% 6.25% 6.25% -- 6.36% Variable interest rate borrowings -- -- -- -- -- $ 5,000 $ 5,000 Average interest rate -- -- -- -- -- 5.75% 5.75%
AT DECEMBER 31, 1997, the Corporation has a modestly positive Asset/Liability Gap of 108% during the one year frame. The one year Gap ratio above 100% indicates that a change in interest rates will affect more interest-earning assets that interest-bearing liabilities over the course of the year. Therefore, in the absence of countermanding strategies or circumstances, net interest income could be expected to rise in a period of rising rates and decline in periods of declining rates. 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, 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 five years. CAPITAL RESOURCES TOTAL SHAREHOLDERS' EQUITY plus common stock subject to repurchase obligation in ESOP, net of unearned ESOP shares was $39,094,000 as of December 31, 1997, a decrease of $2,395,000 from $41,489,000 as of December 31, 1996. The decrease was primarily due to the repurchase of 217,942 common shares at a cost of $6,677,000 under a stock repurchase program initiated during the fourth quarter of 1997, cash dividends of $1,649,000 offset by 1997 net income of $5,516,000. TOTAL REGULATORY (RISK-BASED) CAPITAL was $42.2 million (which includes $8.8 million of common stock subject to repurchase obligation in ESOP, net of $1.3 million of unearned ESOP shares) as of December 31, 1997, a decrease of $2.3 million from total regulatory (risk-based) capital of $44.5 million as of December 31, 1996. 38 39 AS OF DECEMBER 31, 1997, the Corporation's and State Bank's total capital to risk weighted assets exceeded the minimum requirements for capital adequacy purposes of 8.0% (by 3.6% or $13.1 million for the Corporation and by 2.3% or $5.5 million for State Bank). Tier 1 capital to risk weighted assets exceeded the minimum of 4.0% (by 6.3% or $23.1 million for the Corporation and by 5.1%r $12.0 million for State Bank), and Tier 1 capital to average assets exceeded the minimum of 4.0% (by 4.0% or $18.8 million for the Corporation and by 3.2% or $9.5 million for State Bank). Under prompt corrective actions regulations, the Corporation's and State Bank's total capital to risk weighted assets exceeded the minimum requirement to be well capitalized of 10.0% (by 1.6% or $5.8 million for the Corporation and by .3% or $.8 million for State Bank). Tier 1 capital to risk weighted assets exceeded the minimum of 6.0% (by 4.3% or $15.9 million for the Corporation and by 3.1% or $7.3 million for State Bank), and Tier 1 capital to average assets exceeded the minimum of 5.0% (by 3.0% or $14.1 million for the Corporation and by 2.2% or $6.6 million for State Bank). THE COMPONENTS OF total risk-based capital are Tier 1 capital and Tier 2 capital. Tier 1 capital is total shareholders' equity less intangible assets. Tier 2 capital is Tier 1 capital plus a portion of the allowance for loan losses. The allowance for loan losses is includable in Tier 2 capital up to a maximum of 1.25% of risk weighted assets. The net unrealized appreciation(depreciation) on securities available for sale, net of tax, under SFAS No. 115 is not considered in meeting regulatory capital requirements. The following table provides the minimum regulatory capital requirements and the Corporation's capital ratios at December 31, 1997: CAPITAL RATIOS
Minimum Regulatory Capital Corporation's Requirements Capital 12/31/96 Ratio -------- ----- Ratio of Total Capital to Risk Weighted Assets 8.0% 11.6% Ratio of Tier 1 Capital to Risk Weighted Assets 4.0% 10.3% Ratio of Tier 1 Capital to Average Assets 4.0% 8.0%
THE CORPORATION'S SUBSIDIARIES exceed the applicable minimum regulatory capital requirements at December 31, 1997. RESTRICTIONS EXIST REGARDING the ability of the subsidiary banks to transfer funds to the Corporation in the form of cash dividends, loans or advances. (See Note 1 to consolidated financial statements.) These restrictions have had no major impact on the Corporation's dividend policy or operations and it is not anticipated that they will have a major impact in the future. IMPACT OF THE YEAR 2000 THE CORPORATION HAS CONDUCTED A comprehensive review of its computer systems to identify applications that could be affected by the "Year 2000" issue, and has developed an implementation plan to address the issue. The Corporation's data processing is performed primarily in-house by RDSI; however software and hardware utilized is under maintenance agreements with third party vendors. Consequently the Corporation has contacted each vendor to request time tables for Year 2000 compliance and expected costs, if any, to be passed along to the Corporation. To date, the Corporation has been informed that its primary service providers anticipate that all reprogramming efforts will be complete by June 30, 1998, allowing the Corporation time for testing of the Corporation's primary computer systems before the Year 2000 arrives. Certain vendors have not responded, however, and the Corporation will pursue other options if it appears that these vendors will be unable to comply. Management does not expect the costs of addressing the impact of the Year 2000 to have a significant impact on the Corporation's consolidated financial position or results of operations; however, there can be no assurance that the vendors' 39 40 systems will be 2000 compliant, consequently the Corporation could incur material incremental costs to convert to other vendors. The Corporation has identified certain of its hardware and software equipment that will not be Year 2000 compliant and intends to purchase new equipment and software prior to December 31, 1998. PLANNED PURCHASES OF PREMISES AND EQUIPMENT MANAGEMENT PLANS TO PURCHASE additional premises and equipment to meet the current and future needs of the Corporation's customers. These purchases, including land, buildings and improvements and furniture and equipment (which includes computer software and license agreements), are currently expected to total at least $4 million over the next two years. AS OF DECEMBER 31, 1997, management is not aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have, or are reasonably likely to have, a material adverse effect on the Corporation's liquidity, capital resources or operations. IMPACT OF INFLATION AND CHANGING PRICES THE MAJORITY OF ASSETS AND LIABILITIES of the Corporation are monetary in nature and therefore the Corporation differs greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories. However, inflation does have an important impact on the growth of total assets in the banking industry and the resulting need to increase equity capital at higher than normal rates in order to maintain an appropriate equity to assets ratio. Inflation significantly affects noninterest expense, which tends to rise during periods of general inflation. MANAGEMENT BELIEVES the most significant impact on financial results is the Corporation's ability to react to changes in interest rates. Management seeks to maintain an essentially balanced position between interest sensitive assets and liabilities and actively manages the amount of securities available for sale in order to protect against the effects of wide interest rate fluctuations on net income and shareholders' equity. FORWARD-LOOKING STATEMENTS WHEN USED IN THIS FILING and in future filing 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. 40 41 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. - -------------------------------------------------------------------- The disclosures required by this item appear on pages 36 through 38 of this Annual Report on Form 10-K under the caption "Asset Liability Management". Item 8. Financial Statements and Supplementary Data. - ---------------------------------------------------- The Consolidated Balance Sheets of the Corporation and its subsidiaries as of December 31, 1997 and December 31, 1996, 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, 1997, the related Notes to Consolidated Financial Statements and the Report of Independent Auditors, appear on pages 48 through 78 of this Annual Report on Form 10-K. The Corporation is not required to furnish the supplementary financial information specified by Item 302 of Regulation S-K. Item 9. Changes in and Disagreements With Accountants on Accounting and - ----------------------------------------------------------------------- Financial Disclosure. --------------------- None. PART III -------- Item 10. Directors and Executive Officers of the Registrant. - ------------------------------------------------------------- In accordance with General Instruction G(3), the information called for in this Item 10 is incorporated herein by reference to the Corporation's definitive Proxy Statement, filed with the Securities and Exchange Commission pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, relating to the Corporation's Annual Meeting of Shareholders to be held on April 27, 1998, under the captions "ELECTION OF DIRECTORS" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." In addition, certain information concerning the executive officers of the Corporation called for in this Item 10 is set forth in the portion of Part I of this Annual Report on Form 10-K entitled "Executive Officers of the Registrant" in accordance with General Instruction G(3). Item 11. 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 27, 1998, 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 27, 1998, 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 41 42 Regulations under the Securities Exchange Act of 1934, relating to the Corporation's Annual Meeting of Shareholders to be held on April 27, 1998, 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 27, 1998, under the caption "TRANSACTIONS INVOLVING MANAGEMENT." PART IV ------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. - -------------------------------------------------------------------------- (a) (1) Financial Statements. For a list of all financial statements included in this Annual Report on Form 10-K, see "Index to Financial Statements" at page 48. (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 79. 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 Report on Form 10-K Corp. and Thomas C. Williams; and Amended for the fiscal year ended Schedule A to Exhibit 10(s) identifying other December 31, 1995 (File No. 0-13507) identical Executive Salary Continuation [Exhibit 10(s)]; Amended Schedule A to Agreements between executive officers of Rurban 10(s) is included at Page 92 of this Financial Corp. and Rurban Financial Corp. Annual Report on Form 10-K. 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)]. 10(w) Form of Non-Qualified Stock Option Agreement Pages 93 through 97 of this Annual Report on Form 10-K.
45 46
Exhibit No. Description Location - ----------- ----------- -------- 10(x) Form of Incentive Stock Option Agreement Pages 98 through 102 of this Annual Report on Form 10-K.
(b) Reports on Form 8-K. There were no Current Reports on Form 8-K filed during the fiscal quarter ended December 31, 1997. (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 79. (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 31, 1998 By: Richard C. Warrener, Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name Date Capacity ---- ---- -------- *Thomas C. Williams * President, Chief Executive Officer, Principal - ------------------- Executive Officer and Director *Richard C. Burrows * Director - ------------------- *John R. Compo * Director - -------------- *John Fahl * Director - ---------- *Robert A. Fawcett, Jr. * Director - ----------------------- *Richard Z. Graham * Director - ------------------ *Eric C. Hench * Director - -------------- *W. Scott Muir * Director - ------------- *Steven D. VanDemark * Director - -------------------- *J. Michael Walz, D.D.S * Director - ----------------------- *By: Richard C. Warrener * Executive Vice President and Chief Financial - ------------------------- Officer (Attorney-in-Fact)
Date: March 31, 1998 47 48 RURBAN FINANCIAL CORP. ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1997 INDEX TO FINANCIAL STATEMENTS
Pages in this Annual Report on Description Form 10-K - ----------- --------- Report of Independent Auditors................................................................... 49 Consolidated Balance Sheets at December 31, 1997 and 1996....................................................................................... 50-51 Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995......................................................... 52 Consolidated Statements of Changes in Shareholders' Equity for the three years ended December 31, 1997........................................................................................... 53 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995........................................................................................... 54-55 Notes to Consolidated Financial Statements....................................................... 56-78
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, 1997 and 1996 and the related consolidated statements of income, changes in shareholders' equity and cash flows for the years ended December 31, 1997, 1996 and 1995. 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, 1997 and 1996, and the results of its operations and its cash flows for the years ended December 31, 1997, 1996 and 1995 in conformity with generally accepted accounting principles. Crowe, Chizek and Company LLP South Bend, Indiana January 30, 1998 49 50 RURBAN FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996 - --------------------------------------------------------------------------------
1997 1996 ---- ---- ASSETS Cash and due from banks $ 15,552,385 $ 18,718,263 Federal funds sold 6,670,000 15,309,000 ------------ ------------ Total cash and cash equivalents 22,222,385 34,027,263 Interest-bearing deposits in other financial institutions 529,777 180,000 Securities available for sale 71,683,120 66,635,889 Loans held for sale, net of valuation allowance (1997 - $-0-, 1996 - $31,119) 4,404,327 1,875,636 Loans Commercial, financial and agricultural 217,324,268 185,838,900 Residential first mortgage 75,212,817 72,356,881 Consumer 67,198,876 60,512,850 ------------ ------------ Total loans 359,735,961 318,708,631 Deferred loan fees, net (288,651) (262,791) Allowance for loan losses (5,239,601) (5,066,600) ------------ ------------ Net loans 354,207,709 313,379,240 Accrued interest receivable 3,533,532 3,298,902 Premises and equipment, net 8,583,961 8,827,838 Other assets 6,206,279 5,048,005 ------------ ------------ Total assets $471,371,090 $433,272,773 ============ ============
- -------------------------------------------------------------------------------- 50 (Continued) 51 RURBAN FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996 - --------------------------------------------------------------------------------
1997 1996 ---- ---- LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Deposits Noninterest-bearing $ 46,149,132 $ 42,323,683 Interest-bearing 369,032,154 345,442,390 ------------ ------------ Total deposits 415,181,286 387,766,073 Federal funds purchased 4,929,000 - Advances from Federal Home Loan Bank (FHLB) 7,529,867 - Accrued interest payable 1,577,140 1,421,131 Other liabilities 3,059,869 2,596,921 ------------ ------------ Total liabilities 432,277,162 391,784,125 Common stock subject to repurchase obligation in ESOP (shares outstanding: 1997 - 326,612, 1996 - 328,582) 10,124,972 9,387,588 Unearned ESOP shares (unearned shares: 1997 - 43,111, 1996 - 46,879) (1,299,000) (1,490,000) Common stock: stated value $2.50 per share; shares authorized: 10,000,000; shares issued: 2,287,851; shares outstanding: 1997 - 1,743,297, 1996 - 1,959,269 4,903,098 4,898,173 Additional paid-in capital 7,930,646 8,672,955 Retained earnings 23,891,983 20,024,916 Net unrealized appreciation (depreciation) on securities available for sale, net of tax of $106,988 in 1997 and $(2,567) in 1996 218,840 (4,984) Treasury stock: 1997 - 217,942 shares, at cost (6,676,611) - ------------ ------------ Total liabilities and shareholders' equity $471,371,090 $433,272,773 ============ ============
- -------------------------------------------------------------------------------- 51 The accompanying notes are an integral part of these consolidated financial statements. 52 RURBAN FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 1997, 1996 and 1995 - --------------------------------------------------------------------------------
1997 1996 1995 ---- ---- ---- Interest income Loans, including fees $32,155,039 $28,680,021 $26,539,689 Taxable securities 3,900,143 4,066,184 3,756,764 Non-taxable securities 312,278 408,811 426,178 Other interest income 753,081 355,950 707,596 ----------- ----------- ----------- Total interest income 37,120,541 33,510,966 31,430,227 Interest expense Deposits 16,305,732 14,511,736 14,197,998 Short-term borrowings 161,505 144,773 40,050 Advances from FHLB 221,918 - - ----------- ----------- ----------- Total interest expense 16,689,155 14,656,509 14,238,048 ----------- ----------- ----------- Net interest income 20,431,386 18,854,457 17,192,179 Provision for loan losses 947,965 961,009 1,451,898 ----------- ----------- ----------- Net interest income after provision for loan losses 19,483,421 17,893,448 15,740,281 Noninterest income Service charges on deposit accounts 1,199,153 1,253,127 1,184,787 Trust fees 2,326,629 2,359,312 1,946,013 Data processing fees 2,765,533 2,203,213 2,038,948 Net gain on securities 193,892 33,884 3,113 Net gain (loss) on sales of loans 551,730 (210,000) 83,919 Other income 718,804 554,131 496,419 ----------- ----------- ----------- Total noninterest income 7,755,741 6,193,667 5,753,199 Noninterest expense Salaries and employee benefits 10,189,420 8,327,349 7,135,943 Net occupancy expense of premises 992,486 977,165 869,678 Equipment rentals, depreciation and maintenance 1,981,699 2,131,295 1,889,540 Other expenses 6,089,291 5,439,951 5,376,402 ----------- ----------- ----------- Total noninterest expense 19,252,896 16,875,760 15,271,563 ----------- ----------- ----------- Income before income tax expense 7,986,266 7,211,355 6,221,917 Income tax expense 2,470,469 2,362,141 2,127,104 ----------- ----------- ----------- Net income $ 5,515,797 $ 4,849,214 $ 4,094,813 =========== =========== =========== Basic and diluted earnings per common share $ 2.49 $ 2.14 $ 1.79 =========== =========== ===========
- -------------------------------------------------------------------------------- 52 The accompanying notes are an integral part of these consolidated financial statements. 53 RURBAN FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Three years ended December 31, 1997 - --------------------------------------------------------------------------------
Net Unrealized Appreciation (Depreciation) On Securities Additional Available Common Paid-In Retained For Sale, Treasury Stock Capital Earnings Net of Tax Stock ----- ------- -------- ----------- ------ Balances at January 1, 1995 $ 4,782,375 $ 8,232,185 $ 16,995,711 $ (1,170,241) $ - Net income for the year - - 4,094,813 - - Cash dividends declared ($0.57 per share) - - (1,310,627) - - Transfer of 26,039 common shares and adjustment to common stock subject to repurchase obligation in ESOP (65,098) (2,433,372) - - - Net change in unrealized appreciation (depreciation) on securities available for sale, net of tax of $834,400 - - - 1,619,718 - ------------- -------------- ------------- ------------- -------------- Balances at December 31, 1995 4,717,277 5,798,813 19,779,897 449,477 - Net income for the year - - 4,849,214 - - Cash dividends declared ($0.57 per share) - - (1,308,975) - - Declaration of a 5% stock dividend and issuance of 92,826 common shares and 15,647 common shares subject to repurchase obligation in ESOP 232,066 2,574,993 (3,280,224) - - Cash dividend distributable for fractional shares related to 5% stock dividend - - (14,996) - - Purchase and retirement of 5,000 common shares (12,500) (158,125) - - - Transfer of 15,468 common shares and adjustment to common stock subject to repurchase obligation in ESOP (38,670) 457,274 - - - Net change in unrealized appreciation (depreciation) on securities available for sale, net of tax of $(234,116) - - - (454,461) - ------------- -------------- ------------- ------------- -------------- Balances at December 31, 1996 4,898,173 8,672,955 20,024,916 (4,984) - Net income for the year - - 5,515,797 - - Cash dividends declared ($.74 per share) - - (1,648,730) - - Purchase of 217,942 treasury shares - - - - (6,676,611) Transfer of 1,970 common shares and adjustment from common stock subject to repurchase obligation in ESOP 4,925 (742,309) - - - Net change in unrealized appreciation (depreciation) on securities available for sale, net of tax of $109,555 - - - 223,824 - ------------- -------------- ------------- ------------- -------------- Balances at December 31, 1997 $ 4,903,098 $ 7,930,646 $ 23,891,983 $ 218,840 $ (6,676,611) ============= ============== ============= ============= ==============
- -------------------------------------------------------------------------------- 53 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 54 RURBAN FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1997, 1996 and 1995 - --------------------------------------------------------------------------------
1997 1996 1995 ---- ---- ---- Cash flows from operating activities Cash received from customers - fees and commissions $ 7,010,119 $ 6,369,783 $ 5,666,167 Cash paid to suppliers and employees (18,388,747) (15,877,040) (14,117,567) Loans originated for sale (30,797,914) (20,385,626) (10,418,133) Proceeds from sales of loans held for sale 28,820,953 21,249,283 12,242,370 Interest received 36,911,771 33,479,613 30,857,639 Interest paid (16,533,146) (14,270,426) (14,111,248) Income taxes paid (2,968,950) (1,966,477) (2,086,479) --------------- --------------- ---------------- Net cash from operating activities 4,054,086 8,599,110 8,032,749 Cash flows from investing activities Net change in interest-bearing deposits in other financial institutions (349,777) - 166,324 Net change in loans (42,353,197) (41,986,168) 427,936 Proceeds from sales of securities available for sale 28,631,037 19,416,875 2,263,104 Principal repayments, maturities, and calls of: Securities available for sale 8,785,410 46,431,465 22,190,401 Securities held to maturity - - 3,318,925 Purchase of: Securities available for sale (41,936,407) (42,809,056) (41,660,219) Securities held to maturity - - (3,802,079) Net purchases of premises and equipment (1,149,654) (1,717,922) (274,859) Recoveries on loan charge-offs 550,903 713,368 698,928 --------------- --------------- ---------------- Net cash from investing activities (47,821,685) (19,951,438) (16,671,539) Cash flows from financing activities Cash paid to purchase unearned ESOP shares - (1,490,000) - Net change in deposits 27,415,213 19,969,535 13,150,902 Net change in federal funds purchased 4,929,000 - - Proceeds from advances from FHLB 7,529,867 - - Cash dividends paid (1,234,748) (1,308,975) (1,310,627) Cash paid to repurchase common stock (6,676,611) (170,625) - --------------- --------------- ---------------- Net cash from financing activities 31,962,721 16,999,935 11,840,275 --------------- --------------- ---------------- Net change in cash and cash equivalents (11,804,878) 5,647,607 3,201,485 Cash and cash equivalents at beginning of year 34,027,263 28,379,656 25,178,171 --------------- --------------- ---------------- Cash and cash equivalents at end of year $ 22,222,385 $ 34,027,263 $ 28,379,656 =============== =============== ================
- -------------------------------------------------------------------------------- 54 (CONTINUED) 55 RURBAN FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1997, 1996 and 1995 - --------------------------------------------------------------------------------
1997 1996 1995 ---- ---- ---- Reconciliation of net income to net cash from operating activities Net income $ 5,515,797 $ 4,849,214 $ 4,094,813 Adjustments to reconcile net income to net cash from operating activities Depreciation 1,393,531 1,273,801 1,155,227 Amortization of intangible assets 180,000 285,000 634,000 Provision for loan losses 947,965 961,009 1,451,898 Net gain on securities (193,892) (33,884) (3,113) Loans originated for sale (30,797,914) (20,385,626) (10,418,133) Proceeds from sales of loan held for sale 28,820,953 21,249,283 12,242,370 Net (gain) loss on sales of loans (551,730) 210,000 (83,919) Paydown of ESOP loan 191,000 - - Change in assets and liabilities Deferred loan fees, net 25,860 27,395 (26,808) Accrued interest receivable (234,630) (58,748) (545,780) Other assets (1,447,829) (430,654) (591,281) Accrued interest payable 156,009 386,083 126,800 Other liabilities 48,966 266,237 (3,325) --------------- --------------- ---------------- Net cash from operating activities $ 4,054,086 $ 8,599,110 $ 8,032,749 =============== =============== ================ Supplemental disclosures of cash flow information Transfer from securities held to maturity to securities available for sale $ - $ - $ 10,854,066
- -------------------------------------------------------------------------------- 55 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 56 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - -------------------------------------------------------------------------------- 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. is a bank holding company, organized under Ohio law, that owns all the outstanding stock of The State Bank and Trust Company ("State Bank"), The Peoples Banking Company ("Peoples Bank"), The First National Bank of Ottawa ("First National Bank"), The Citizens Savings Bank Company ("Citizens Savings Bank"), Rurbanc Data Services, Inc. ("RDSI") and Rurban Life Insurance Company ("Rurban Life") (together referred to as "the Corporation"). State Bank owns all of the outstanding stock of Reliance Financial Services, N.A. ("RFS") and Rurban Mortgage Company ("RMC"). RMC was incorporated on November 5, 1997. On December 31, 1997, the operations of the Rurban Mortgage Division of State Bank were merged into RMC along with the acquired operations of S&L Financial Services, Inc. ("S&L"). The S&L acquisition was accounted for as a purchase; income from S&L was not material for the years ended December 31, 1997, 1996 and 1995. All significant intercompany balances and transactions are eliminated in consolidation. Nature of Business: The Corporation operates primarily in the banking industry which accounts for more than 90% of its revenues, operating income and assets. The Corporation's subsidiary banks grant credit and accept deposits from their customers in the normal course of business primarily in the northwestern Ohio region. RDSI provides data processing services, primarily to financial institutions located in northwestern Ohio. Rurban Life accepts reinsurance ceded in part by USLIFE from the credit life and disability insurance purchased by customers of the Corporation's subsidiary banks. RFS offers a diversified array of trust and financial services to customers nationwide. RMC services residential mortgage customers in West and Central Florida. Use of Estimates: To prepare consolidated financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the consolidated financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, fair values of financial instruments, the carrying value of loans held for sale and fair value of stock options are particularly subject to change. Securities: Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported separately in shareholders' equity, net of tax. 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. In November 1995, the Financial Accounting Standards Board ("FASB") issued its Special Report, A Guide to Implementation of SFAS No. 115 on Accounting for Certain Investments in Debt and Equity Securities ("Guide"). As permitted by the Guide, on December 31, 1995, the Corporation made a one-time reassessment and transferred securities from the held to maturity portfolio to the available for sale portfolio. At the date of transfer, these securities had an amortized cost of $10,854,066 and the transfer increased the unrealized gain on securities available for sale by $210,566 and shareholders' equity by $138,974, net of tax of $71,592. - -------------------------------------------------------------------------------- 56 (CONTINUED) 57 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 57 (CONTINUED) 58 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Smaller-balance homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by one-to-four family residences, residential construction loans, and automobile, home equity and second mortgage loans. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. When analysis of borrower operating results and financial condition indicates that underlying cash flows of the borrower's business are not adequate to meet its debt service requirements, the loan is evaluated for impairment. Often this is associated with a delay or shortfall in payments of 30 days or more. Commercial loans are rated on a scale of 1 to 8, with 1 to 3 being satisfactory, 4 watch, 5 special mention, 6 substandard, 7 doubtful, and 8 as loss which are then charged off. Loans graded a 6 or worse are considered for impairment. Loans are generally moved to nonaccrual status when 90 days or more past due. These loans are often considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible. This typically occurs when the loan is 120 days or more past due. The nature of disclosures for impaired loans is considered generally comparable to prior nonaccrual and renegotiated loans and non-performing and past-due asset disclosures. Premises and Equipment: Land is carried at cost. Buildings and improvements are depreciated using primarily the straight-line method with useful lives ranging from 10 to 50 years. Furniture and equipment are depreciated using the straight-line and declining-balance methods with useful lives ranging predominantly from 5 to 20 years. These assets are reviewed for impairment under SFAS No. 121 when events indicate the carrying amount may not be recoverable. Maintenance and repairs are expensed and major improvements are capitalized. Servicing Rights: Prior to adopting SFAS No. 122 at the start of 1996, servicing right assets were recorded only for purchased rights to service mortgage loans. Subsequent to adopting this standard, servicing rights represent both purchased rights and the allocated value of servicing rights retained on loans sold. Servicing rights are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights, using groupings of the underlying loans as to interest rates and then, secondarily, as to geographic and prepayment characteristics. Any impairment of a grouping is reported as a valuation allowance. The impact on the Corporation's consolidated financial position and results of operations for the years ended December 31, 1997 and 1996 was not material. Excess servicing receivable is reported when a loan sale results in servicing in excess of normal amounts, and is expensed over the life of the servicing on the interest method. Intangible Assets: Goodwill arising from the acquisition of subsidiary banks and RMC is amortized over 5 to 25 years using the straight-line method. Core deposit intangibles are amortized on an accelerated basis over 10 years, the estimated life of the deposits acquired. Goodwill and identified intangibles are assessed for impairment based on estimated undiscounted cash flows, and written down if necessary. As of December 31, 1997, 1996 and 1995, unamortized goodwill totaled approximately $941,000, $669,000 and $784,000 and unamortized core deposit intangibles totaled approximately $271,000, $351,000 and $521,000. - -------------------------------------------------------------------------------- 58 (CONTINUED) 59 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - -------------------------------------------------------------------------------- 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 $-0- and $329,000 at December 31, 1997 and 1996, respectively, and is included in other assets in the consolidated balance sheets. Income Taxes: Income tax expense is the sum of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Employee Benefits: The Corporation sponsors an employee stock ownership plan (ESOP) and 401(k) profit sharing plan for which contributions are made and expensed annually. The Corporation also provides split-dollar life insurance plans for certain executive officers of the Corporation. Also, the Corporation sponsors a supplemental retirement plan for certain executive officers of the Corporation. Employee benefits are discussed further in Note 8. Stock Option Plan: The Corporation sponsors a stock option plan for directors, officers and key employees. Expense for employee compensation under the stock option plan is based on Accounting Principles Board ("APB") Opinion 25 with expense reported only if options are granted below market price at grant date. If applicable, disclosures of net income and earnings per common share are provided as if the fair value method of SFAS No. 123 were used for stock-based compensation. For further discussion see Note 8. Postretirement Health Care Benefits: The Corporation sponsors a postretirement health care plan that covers both salaried and nonsalaried employees. The Corporation accrues, during the years that employees render the necessary service, the expected cost of providing postretirement health care benefits to employees and their beneficiaries and covered dependents. The Corporation's postretirement health care plan provides that retired employees may remain on the Corporation's health care plan with each retiree's out-of-pocket contribution to the Corporation equal to their premium expense determined exclusively on the loss experience of the retirees in the plan. - -------------------------------------------------------------------------------- 59 (CONTINUED) 60 v RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Stock Dividends: 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 par value. On December 9, 1996, the Board of Directors declared a five percent stock dividend increasing shares outstanding by 108,473 shares. The stock dividend was payable to shareholders of record as of December 24, 1996. As of December 31, 1996, common stock includes $232,066 for the stock dividend distributable to shareholders which was paid on January 31, 1997. Earnings and Dividends Per Common Share: Basic and diluted earnings per common share are computed under a new accounting standard, SFAS No. 128, effective beginning with the quarter ended December 31, 1997. All prior earnings per common share amounts have been restated to be comparable. Basic earnings per common share is based on net income divided by the weighted average number of common shares considered to be outstanding during the period. Diluted earnings per common share shows the dilutive effect of any additional potential common shares issuable under stock options. ESOP shares are considered to be outstanding, for both basic and diluted earnings per common share, after they are committed to be released. Earnings and dividends per common share are restated for all stock splits and dividends. Dividend Restriction: Certain restrictions exist regarding the ability of the subsidiaries to transfer funds to Rurban Financial Corp. in the form of cash dividends, loans or advances. As of December 31, 1997, approximately $4,200,000 of undistributed earnings of the subsidiaries, included in consolidated retained earnings, was available for distribution to Rurban Financial Corp. as dividends without prior regulatory approval. Fair Values of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 14. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect such estimates. Concentrations of Credit Risk: The Corporation grants commercial, real estate and installment loans to customers mainly in northwest 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 60% 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 21% 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. Financial Instruments With Off-Balance-Sheet Risk: The Corporation, in the normal course of business, makes commitments to extend credit which are not reflected in the consolidated financial statements. A summary of these commitments is disclosed in Note 12. - -------------------------------------------------------------------------------- 60 (CONTINUED) 61 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. New Accounting Pronouncements: SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, was issued by the FASB in 1996. It revised the accounting for transfers of financial assets, such as loans and securities, and for distinguishing between sales and secured borrowings. It was effective for some transactions in 1997 and will be effective for others in 1998. The effect on the consolidated financial statements was not material. A new accounting standard, SFAS No. 130, Reporting Comprehensive Income, has been issued which will require future reporting of comprehensive income. Comprehensive income is net income plus changes in unrealized appreciation (depreciation) on securities available for sale, net of tax. A new accounting standard, SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, will require future reporting of additional information related to material business segments. Reclassifications: Some items in the prior consolidated financial statements have been reclassified to conform with the current presentation. - -------------------------------------------------------------------------------- 61 (CONTINUED) 62 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 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, 1997, 1996 and 1995 is presented below:
Year Ended December 31, ----------------------- 1997 1996 1995 ---- ---- ---- Basic Earnings Per Common Share Net income $5,515,797 $4,849,214 $4,094,813 ========== ========== ========== Weighted average common shares outstanding 2,259,671 2,284,197 2,293,597 Less: Unallocated ESOP shares (44,995) (23,440) - ---------- ---------- ---------- Weighted average common shares outstanding for basic earnings per common share 2,214,676 2,260,757 2,293,597 ========== ========== ========== Basic earnings per common share $ 2.49 $ 2.14 $ 1.79 ========== ========== ========== Diluted Earnings Per Common Share Net income $5,515,797 $4,849,214 $4,094,813 ========== ========== ========== Weighted average common shares outstanding for basic earnings per common share 2,214,676 2,260,757 2,293,597 Add: Dilutive effects of assumed conversions and exercise of stock options 1,191 - - ---------- ---------- ---------- Weighted average common and dilutive potential common shares outstanding 2,215,867 2,260,757 2,293,597 ========== ========== ========== Diluted earnings per common share $ 2.49 $ 2.14 $ 1.79 ========== ========== ==========
- -------------------------------------------------------------------------------- 62 (CONTINUED) 63 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 3 - SECURITIES AVAILABLE FOR SALE Year end securities available for sale were as follows.
Gross Gross Amortized Unrealized Unrealized 1997 Cost Gains Losses Fair Value - ---- ---- ----- ------ ---------- U.S. Treasury and U.S. Government agency securities $43,385,761 $ 48,187 $ (35,515) $43,398,433 Obligations of states and political subdivisions 5,238,970 156,333 (238) 5,395,065 Mortgage-backed securities 21,002,411 199,211 (42,150) 21,159,472 Marketable equity securities 1,730,150 - - 1,730,150 ----------- -------- --------- ----------- $71,357,292 $403,731 $ (77,903) $71,683,120 =========== ======== ========= =========== 1996 - ---- U.S. Treasury and U.S. Government agency securities $54,407,062 $ 65,917 $(237,386) $54,235,593 Obligations of states and political subdivisions 6,249,299 152,997 (12,862) 6,389,434 Mortgage-backed securities 4,813,329 29,022 (5,239) 4,837,112 Marketable equity securities 1,173,750 - - 1,173,750 ----------- -------- --------- ----------- $66,643,440 $247,936 $(255,487) $66,635,889 =========== ======== ========= ===========
Contractual maturities of debt securities available for sale at December 31, 1997 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 $ 297,581 $ 293,389 Due after one year through five years 45,887,958 45,973,580 Due after five years through ten years 2,336,138 2,420,650 Due after ten years 103,054 105,879 Mortgage-backed securities 21,002,411 21,159,472 ----------- ----------- Total debt securities available for sale $69,627,142 $69,952,970 =========== ===========
- -------------------------------------------------------------------------------- 63 (CONTINUED) 64 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 3 - SECURITIES AVAILABLE FOR SALE (Continued) Proceeds, gross gains and gross losses realized from sales of securities available for sale for the years ended December 31, 1997, 1996 and 1995 are as follows:
1997 1996 1995 ---- ---- ---- Proceeds from sales of debt securities available for sale $28,631,037 $19,401,403 $2,263,104 Proceeds from sales of marketable equity securities available for sale - 15,472 - ----------- ----------- ---------- Total proceeds from sale of securities available for sale $28,631,037 $19,416,875 $2,263,104 =========== =========== ========== Gross gains from sales of debt securities available for sale $ 252,834 $ 48,248 $ 11,975 Gross losses from sales of debt securities available for sale (58,942) (14,364) (8,672) Net losses on calls of securities available for sale - - (190) ----------- ----------- ---------- Net gain (loss) on securities $ 193,892 $ 33,884 $ 3,113 =========== =========== ==========
At December 31, 1997 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 $51,262,000 and $31,941,000 as of December 31, 1997 and 1996, were pledged to secure public and trust deposits. - -------------------------------------------------------------------------------- 64 (CONTINUED) 65 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - -------------------------------------------------------------------------------- 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, 1997, 1996 and 1995:
1997 1996 1995 ---- ---- ---- Beginning balance $ 5,066,600 $4,270,000 $ 4,770,000 Provision for loan losses 947,965 961,009 1,451,898 Recoveries of previous charge-offs 550,642 713,368 698,928 Losses charged to the allowance (1,325,606) (877,777) (2,650,826) ----------- ---------- ----------- Ending balance $ 5,239,601 $5,066,600 $ 4,270,000 =========== ========== ===========
At December 31, 1997 and 1996, loans past due more than 90 days and still accruing interest approximated $462,000 and $293,000. Impaired loans were as follows.
1997 1996 1995 ---- ---- ---- Year-end loans with no allowance for loan losses allocated $ - $ - $ 302,000 Year-end loans with allowance for loan losses allocated 1,801,000 3,296,000 1,533,000 Amount of allowance allocated 725,000 1,237,000 643,000 Average of impaired loans during the year 1,919,000 3,081,000 2,542,000 Interest income recognized during impairment 36,000 115,000 32,000 Cash-basis interest income recognized 36,000 112,000 32,000
NOTE 5 - PREMISES AND EQUIPMENT, NET Premises and equipment, net at December 31, are summarized as follows:
1997 1996 ---- ---- Land $ 1,073,031 $ 966,579 Buildings and improvements 7,173,717 7,069,653 Furniture and equipment 8,423,337 7,484,199 ----------- ----------- Total cost 16,670,085 15,520,431 Accumulated depreciation and amortization (8,086,124) (6,692,593) ----------- ----------- $ 8,583,961 $ 8,827,838 =========== ===========
- -------------------------------------------------------------------------------- 65 (CONTINUED) 66 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 6 - INTEREST-BEARING DEPOSITS Included in interest-bearing deposits are certificates of deposit in denominations of $100,000 or more of approximately $57,278,000 and $38,305,000 as of December 31, 1997 and 1996, respectively. At December 31, 1997, the scheduled maturities of certificates of deposit are as follows for the years ended December 31: 1998 $147,634,714 1999 45,473,746 2000 6,772,005 2001 840,342 2002 622,480 Thereafter 20,906 ------------ $201,364,193 ============ NOTE 7 - ADVANCES FROM FHLB At December 31, 1997, advances from the FHLB of Cincinnati with fixed interest rates ranging from 6.25% to 6.90% mature in the year ending December 31 as follows: 1998 $1,639,577 1999 254,987 2000 271,389 2001 288,845 2002 75,069 ---------- 2,529,867 Line of credit (LIBOR +.25 basis points) 5,000,000 ---------- $7,529,867 ========== At December 31, 1997, in addition to FHLB stock, the Corporation pledged mortgage loans with a minimum carrying value of approximately $11,324,000 to the FHLB to secure advances outstanding. The Corporation has a line of credit with the Fifth Third Bank in the amount of $10,000,000. At December 31, 1997, the Corporation did not have any advances outstanding on this line of credit. - -------------------------------------------------------------------------------- 66 (CONTINUED) 67 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 8 - EMPLOYEE BENEFITS Employee Stock Ownership Plan: The Corporation has a noncontributory employee stock ownership plan (ESOP) covering substantially all employees of the Corporation and its subsidiaries. Voluntary contributions are made by the Corporation to the plan. Each eligible employee is vested based upon years of service, including prior years of service. Contributions to the ESOP were $451,000, $375,000 and $374,000 and related expense attributable to the plan included in salaries and employee benefits were approximately $403,000, $476,000 and $374,000 in 1997, 1996 and 1995, respectively. Distributions to plan participants may be paid in cash or stock upon their termination of employment. For corporations not listed on NASDAQ, ERISA rules require employers with an ESOP to agree to repurchase shares from participants for a certain time period following the distribution of shares to the participants. The Corporation's common stock subject to repurchase obligation in ESOP had an estimated value as follows:
Unearned ESOP ESOP Shares ---- ----------- Balance at December 31, 1994 $ 6,834,557 $ - Change in estimated market value of common stock subject to repurchase obligation in ESOP 2,498,470 - ----------- ----------- Balance at December 31, 1995 9,333,027 - Purchase of unallocated ESOP shares with loan 1,490,000 (1,490,000) Change in estimated market value of common stock subject to repurchase obligation in ESOP (1,435,439) - ----------- ----------- Balance at December 31, 1996 9,387,588 (1,490,000) Paydown of ESOP loan - 191,000 Change in estimated market value of common stock subject to repurchase obligation in ESOP 737,384 - ----------- ----------- Balance at December 31, 1997 $10,124,972 $(1,299,000) =========== ===========
During 1996, the ESOP borrowed $1,490,000 from the Corporation to purchase 46,879 shares of common stock at a weighted average cost of $31.78 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 will be held in suspense until allocated among ESOP participants as the loan is repaid. - -------------------------------------------------------------------------------- 67 (CONTINUED) 68 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE 8 - EMPLOYEE BENEFITS (Continued) The ESOP shares as of December 31 were as follows:
1997 1996 ---- ---- Allocated shares 283,501 281,703 Unearned shares 43,111 46,879 ---------- ---------- Total ESOP shares 326,612 328,582 ========== ========== Fair value of unearned ESOP shares at December 31 $1,336,441 $1,339,333 ========== ==========
The Corporation accounts for its ESOP under AICPA Statement of Position ("SOP") 93-6. Compensation expense is recorded based on the average market price of the shares committed to be released for allocation to participant accounts. The difference between the market price and the cost of shares committed to be released is recorded as an adjustment to common stock. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings; dividends on unearned ESOP shares are reflected as a reduction of debt and accrued interest. Stock Option Plan: On March 12, 1997, the Board of Directors of the Corporation adopted the Rurban Financial Corp. Stock Option Plan ("Option Plan"). The purpose of the Option Plan is to advance the interests of the Corporation and its shareholders by granting directors, officers, and key employees of the Corporation options to increase their propriety interest in the Corporation. 200,000 shares of the Corporation's authorized unissued common stock were reserved for issuance under the Option Plan. The option exercise price shall not be less than the fair market value (as defined in the Option Plan) of the common stock on the date the option is granted, and the option term cannot exceed 10 years. On October 22, 1997, 89,500 options with a 10 year term were granted at an exercise price of $28.38 per share. All 89,500 of the options granted are outstanding at December 31, 1997. 110,500 options are available for granting at December 31, 1997. Eligible directors, officers and key employees are able to exercise options awarded to them at a rate of 20% per year, October 22, 1998, being the first possible exercise date, accordingly no options were exercisable at December 31, 1997 or 1996. The Corporation applied APB Opinion 25, Accounting For Stock Issued to Employees and related interpretations in accounting for its Option Plan. Accordingly, no compensation expense has been recognized for the Option Plan. SFAS No. 123, Accounting For Stock-Based Compensation requires disclosures for stock-based compensation awarded in fiscal years beginning after December 15, 1994 for entities that do not adopt its fair value accounting method for stock-based compensation. The effects of the fair value of options granted and the effects of the amortization of the fair value over the vesting period on the Corporation's net income and earnings per common share under the provisions of SFAS No. 123 were not material for the years ended December 31, 1997, 1996 and 1995. In future years, as additional options are granted, the effect on net income and earnings per common share may increase. - -------------------------------------------------------------------------------- 68 (CONTINUED) 69 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - ------------------------------------------------------------------------------- NOTE 8 - EMPLOYEE BENEFITS (Continued) 401(k) Profit Sharing Plan: The Corporation has 401(k) profit sharing plans. The annual expense of the plans is based on 50% matching of voluntary employee contributions of up to 6% of individual compensation. Employee contributions are vested immediately and the Corporation's matching contributions are fully vested after six years. The plans cover substantially all employees of the Corporation. Contributions to the plans were $145,000, $120,000 and $101,000 and related expense attributable to the plans, included in salaries and employee benefits, were approximately $117,000, $140,000 and $101,000 in 1997, 1996 and 1995. 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 $604,000 and $602,000 at December 31, 1997 and 1996, and is included in other assets in the consolidated balance sheets. Supplemental Retirement Plan: The Corporation established a supplemental retirement plan for selected officers. The Corporation has purchased insurance contracts on the lives of certain participants in the supplemental retirement plan and has named the Corporation as beneficiary. While no direct contract exists between the supplemental retirement plan and the life insurance contracts, it is management's current intent that the proceeds from the insurance contracts will be used to help offset earlier payments made under the supplemental retirement plan. The Corporation is recording an expense equal to the projected present value of the payment 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 $532,000 and $456,000 at December 31, 1997 and 1996 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 $127,000, $126,000 and $133,000 in 1997, 1996 and 1995. The cash surrender value of the life insurance was approximately $1,597,000 and $1,491,000 at December 31, 1997 and 1996, and is included in other assets in the consolidated balance sheets. - ------------------------------------------------------------------------------- 69 (Continued) 70 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - ------------------------------------------------------------------------------- NOTE 9 - OTHER EXPENSES The following is an analysis of other expenses for the years ended December 31, 1997, 1996 and 1995:
1997 1996 1995 ---- ---- ---- Amortization of intangible assets $ 180,000 $ 285,000 $ 634,000 Advertising expense 343,771 271,407 259,938 Professional fees 1,193,329 1,012,029 870,487 Insurance expense 141,929 123,893 525,189 Data processing fees 412,736 426,771 436,983 Printing, stationery and supplies 686,701 689,489 604,340 Postage and delivery expense 362,249 337,544 304,362 State, local and other taxes 655,089 610,792 630,829 Other operating expenses 2,113,487 1,683,026 1,110,274 ---------- ---------- ---------- $6,089,291 $5,439,951 $5,376,402 ========== ========== ==========
NOTE 10 - INCOME TAX EXPENSE Income tax expense consists of the following for the years ended December 31, 1997, 1996 and 1995:
1997 1996 1995 ---- ---- ---- Current expense $ 2,525,248 $ 2,380,683 $ 2,915,522 Deferred benefit (54,779) (18,542) (788,418) ----------- ----------- ----------- $ 2,470,469 $ 2,362,141 $ 2,127,104 =========== =========== ===========
Tax expense on net gain on securities was $65,923, $11,521 and $1,058 in 1997, 1996 and 1995. 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, 1997, 1996 and 1995:
1997 1996 1995 ---- ---- ---- Statutory tax rate 34% 34% 34% Income taxes computed at the statutory federal income tax rate $ 2,715,330 $ 2,451,861 $ 2,115,452 Add (subtract) tax effect of Tax-exempt income (214,877) (200,737) (184,312) Non-deductible expenses and other (29,984) 111,017 195,964 ----------- ----------- ----------- $ 2,470,469 $ 2,362,141 $ 2,127,104 =========== =========== ===========
- ------------------------------------------------------------------------------- 70 (Continued) 71 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - ------------------------------------------------------------------------------- NOTE 10 - INCOME TAX EXPENSE (Continued) The components of the net deferred tax asset recorded in the consolidated balance sheets as of December 31, 1997 and 1996 are as follows:
1997 1996 ---- ---- Deferred tax assets Provision for loan losses $1,290,453 $1,252,221 Mark to market adjustment 100,513 -- Net deferred loan fees 48,427 48,427 Net unrealized depreciation on securities available for sale -- 2,567 Accrued compensation and benefits 180,070 154,880 Other 7,337 112,837 ---------- ---------- 1,626,800 1,570,932 Deferred tax liabilities Net unrealized appreciation on securities available for sale (106,988) -- Originated mortgage servicing rights (88,433) -- Depreciation (105,404) (113,232) Purchase accounting adjustments (163,252) (196,360) Mark-to-market adjustment -- (43,883) Other (1,568) (1,526) ---------- ---------- (465,645) (355,001) Valuation allowance -- -- ---------- ---------- $1,161,155 $1,215,931 ========== ==========
NOTE 11 - RELATED PARTY TRANSACTIONS Certain directors, executive officers and principal shareholders of the Corporation, including associates of such persons, were loan customers during 1997. 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, 1997 and 1996:
1997 1996 ---- ---- Balance, January 1 $ 7,891,000 $ 3,512,000 New loans 309,000 18,423,000 Repayments (87,000) (14,469,000) Other changes (6,783,000) 425,000 ----------- ------------ Balance, December 31 $ 1,330,000 $ 7,891,000 =========== ============
Other changes include adjustments for loans applicable to one reporting period that are excludable from the other reporting period. - ------------------------------------------------------------------------------- 71 (Continued) 72 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - ------------------------------------------------------------------------------- NOTE 12 - COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES The Corporation is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet financing needs of its customers. These financial instruments include commitments to make loans, unused lines of credit and standby letters of credit. The Corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to make loans, unused lines of credit and standby letters of credit is represented by the contractual amount of those instruments. The Corporation follows the same credit policy to make such commitments as it uses for on-balance-sheet items. The Corporation has the following commitments for terms of up to two years outstanding at December 31:
1997 1996 ---- ---- Loan commitments and unused lines of credit $76,633,000 $67,561,000 Standby letters of credit 1,481,000 2,431,000 ----------- ----------- $78,114,000 $69,992,000 =========== ===========
Since many commitments to make loans expire without being used, the amount does not necessarily represent future cash commitments. In addition, commitments to extend credit are arrangements to lend to customers as long as there is no violation of any condition established in the contract. No losses are anticipated as a result of these transactions. Collateral obtained upon exercise of the commitment is determined using management's credit evaluation of the borrower and may include real estate, business assets, consumer assets, deposits and other items. There are various contingent liabilities that are not reflected in the consolidated financial statements, including claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material effect on the Corporation's consolidated financial condition or results of operations. Under employment agreements with certain executive officers, certain events leading to separation from the Corporation could result in cash payments totaling approximately $917,000 for which only $208,000 has been accrued as a liability at December 31, 1997. - ------------------------------------------------------------------------------- 72 (Continued) 73 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - ------------------------------------------------------------------------------- NOTE 12 - COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES (Continued) The Corporation was required to have approximately $4,027,000 and $4,802,000 of cash on hand or on deposit with the Federal Reserve Bank to meet regulatory reserve and clearing requirements at December 31, 1997 and 1996. These balances do not earn interest. NOTE 13 - PARENT COMPANY FINANCIAL STATEMENTS Presented below are condensed financial statements for the parent company, Rurban Financial Corp.: CONDENSED BALANCE SHEETS December 31, 1997 and 1996
1997 1996 ---- ---- ASSETS Cash and cash equivalents $ 991,206 $ 468,782 Securities available for sale -- 506,614 Investment in and advances to subsidiaries Banking subsidiaries 34,448,145 37,575,479 Non-banking subsidiaries 3,567,264 2,648,882 ----------- ----------- Total investment in subsidiaries 38,015,409 40,224,361 Other assets 886,162 827,280 ----------- ----------- Total assets $39,892,777 $42,027,037 =========== =========== LIABILITIES Cash dividends payable $ 413,982 $ -- Other liabilities 384,867 538,389 ----------- ----------- Total liabilities 798,849 538,389 COMMON STOCK SUBJECT TO REPURCHASE OBLIGATION IN ESOP 10,124,972 9,387,588 UNEARNED ESOP SHARES (1,299,000) (1,490,000) SHAREHOLDERS' EQUITY 30,267,956 33,591,060 ----------- ----------- Total liabilities and shareholders' equity $39,892,777 $42,027,037 =========== ===========
- ------------------------------------------------------------------------------- 73 (Continued) 74 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - ------------------------------------------------------------------------------- NOTE 13 - PARENT COMPANY FINANCIAL STATEMENTS (Continued) CONDENSED STATEMENTS OF INCOME Years ended December 31, 1997, 1996 and 1995
1997 1996 1995 ---- ---- ---- Income Interest on securities-non-taxable $ 21,477 $ 21,070 $ 5,347 Dividends from subsidiaries Banking subsidiaries 9,705,299 2,325,000 3,015,000 Non-banking subsidiaries -- 50,000 75,000 ----------- ---------- ---------- Total 9,705,299 2,375,000 3,090,000 Noninterest income 225,133 17,869 11,509 ----------- ---------- ---------- Total income 9,951,909 2,413,939 3,106,856 Noninterest expense 2,738,038 1,423,660 896,999 ----------- ---------- ---------- Income before income tax benefit and equity in undistributed net income of subsidiaries 7,213,871 990,279 2,209,857 Income tax benefit 925,702 448,950 302,011 ----------- ---------- ---------- Income before equity in undistributed net income of subsidiaries 8,139,573 1,439,229 2,511,868 Equity in undistributed (excess distributed) net income of subsidiaries Banking subsidiaries (3,542,158) 2,999,521 1,358,754 Non-banking subsidiaries 918,382 410,464 224,191 ----------- ---------- ---------- Total (2,623,776) 3,409,985 1,582,945 ----------- ---------- ---------- Net income $ 5,515,797 $4,849,214 $4,094,813 =========== ========== ==========
- ------------------------------------------------------------------------------- 74 (Continued) 75 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - ------------------------------------------------------------------------------- NOTE 13 - PARENT COMPANY FINANCIAL STATEMENTS (Continued) CONDENSED STATEMENTS OF CASH FLOWS Years ended December 31, 1997, 1996 and 1995
1997 1996 1995 ---- ---- ---- Cash flows from operating activities Dividends received from subsidiaries Banking subsidiaries $ 9,705,299 $ 2,325,000 $ 3,015,000 Non-banking subsidiaries -- 50,000 75,000 ----------- ----------- ----------- Total 9,705,299 2,375,000 3,090,000 Cash paid to suppliers and employees (2,877,327) (1,445,917) (681,050) Income tax refunds 933,985 375,026 253,486 ----------- ----------- ----------- Net cash from operating activities 7,761,957 1,304,109 2,662,436 Cash flows from investing activities Proceeds from sales of securities available for sale 516,371 -- -- Principal repayments and calls of securities available for sale 155,455 -- -- Purchase of securities available for sale -- (200,517) (306,097) Cash paid for life insurance premiums -- -- (716,613) ----------- ----------- ----------- Net cash from investing activities 671,826 (200,517) (1,022,710) Cash flows from financing activities Cash dividends paid (1,234,748) (1,308,975) (1,310,627) Cash paid to repurchase common stock (6,676,611) (170,625) -- ----------- ----------- ----------- Net cash from financing activities (7,911,359) (1,479,600) (1,310,627) ----------- ----------- ----------- Net change in cash and cash equivalents 522,424 (376,008) 329,099 Cash and cash equivalents at beginning of year 468,782 844,790 515,691 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 991,206 $ 468,782 $ 844,790 =========== =========== ===========
- ------------------------------------------------------------------------------- 75 (Continued) 76 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - ------------------------------------------------------------------------------- NOTE 13 - PARENT COMPANY FINANCIAL STATEMENTS (Continued) CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED) Years ended December 31, 1997, 1996 and 1995
1997 1996 1995 ---- ---- ---- Reconciliation of net income to net cash from operating activities Net income $5,515,797 $ 4,849,214 $ 4,094,813 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 3,542,158 (2,999,521) (1,358,754) Non-banking subsidiaries (918,382) (410,464) (224,191) Change in other assets (58,882) 6,772 (66,596) Change in other liabilities (153,522) (141,892) 217,164 ---------- ----------- ----------- Net cash from operating activities $7,761,957 $ 1,304,109 $ 2,662,436 ========== =========== ===========
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS The following table shows the estimated fair values and the related carrying values of the Corporation's financial instruments at December 31, 1997 and 1996. Items which are not financial instruments are not included.
1 9 9 7 1 9 9 6 ---------------------------------- ----------------------------------- Carrying Estimated Carrying Estimated Value Fair Value Value Fair Value Financial assets Cash and cash equivalents $ 22,222,385 $ 22,222,000 $ 34,027,263 $ 34,027,000 Interest-bearing deposits in other financial institutions 529,777 530,000 180,000 180,000 Securities available for sale 71,683,120 71,683,000 66,635,889 66,636,000 Loans, net of allowance for loan losses (including loans held for sale) 358,612,036 358,833,000 315,254,876 312,643,000 Accrued interest receivable 3,533,532 3,534,000 3,298,902 3,299,000 Cash surrender value of life insurance 2,201,000 2,201,000 2,093,000 2,093,000 Financial liabilities Demand and savings deposits (213,817,093) (213,817,000) (203,709,830) (203,710,000) Time deposits (201,364,193) (202,358,000) (184,056,243) (183,925,000) Accrued interest payable (1,577,140) (1,577,000) (2,596,921) (2,597,000)
- ------------------------------------------------------------------------------- 76 (Continued) 77 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - ------------------------------------------------------------------------------- NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued) For purposes of the above disclosures of estimated fair values, the following assumptions were used as of December 31, 1997 and 1996. 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, 1997 and 1996, applied for an estimated time period until the loan is assumed to reprice or be paid. The estimated fair value for demand and savings deposits is based on their carrying value. The estimated fair value for time deposits is based on estimates of the rate the Corporation would pay on such deposits at December 31, 1997 and 1996, 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, 1997 and 1996 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, 1997 and 1996, the estimated fair values would necessarily have been achieved at that date, since market values may differ depending on various circumstances. The estimated fair values at December 31, 1997 and 1996 should not necessarily be considered to apply at subsequent dates. In addition, other assets and liabilities of the Corporation that are not defined as financial instruments are not included in the above disclosures, such as premises and equipment. Also, non-financial instruments typically not recognized in the financial statements nevertheless may have value but are not included in the above disclosures. These include, among other items, the estimated earnings power of core deposit accounts, the earnings potential of trust assets, the trained work force, customer goodwill and similar items. NOTE 15 - REGULATORY MATTERS The Corporation and its subsidiary banks are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors, and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the consolidated financial statements. - ------------------------------------------------------------------------------- 77 (Continued) 78 RURBAN FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 - ------------------------------------------------------------------------------- NOTE 15 - REGULATORY MATTERS (Continued) The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If only adequately 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 ------ ----- ------ ----- ------ ----- 1997 Total capital (to risk weighted assets) Consolidated $42.2 11.6% $29.1 8.0% $36.4 10.0% State Bank 24.2 10.3 18.7 8.0 23.4 10.0 Tier 1 capital (to risk weighted assets) Consolidated 37.7 10.3 14.6 4.0 21.8 6.0 State Bank 21.3 9.1 9.3 4.0 14.0 6.0 Tier 1 capital (to averaged assets) Consolidated 37.7 8.0 18.9 4.0 23.6 5.0 State Bank 21.3 7.2 11.8 4.0 14.7 5.0 1996 Total capital (to risk weighted assets) Consolidated $44.5 13.9% $25.7 8.0% $32.1 10.0% State Bank 25.9 12.9 16.0 8.0 20.0 10.0 Tier 1 capital (to risk weighted assets) Consolidated 40.5 12.6 12.8 4.0 19.3 6.0 State Bank 23.4 11.7 8.0 4.0 12.0 6.0 Tier 1 capital (to averaged assets) Consolidated 40.5 9.4 17.2 4.0 21.5 5.0 State Bank 23.4 9.0 10.4 4.0 13.0 5.0
The Corporation and State Bank at year-end 1997 and 1996 were categorized as well capitalized. All other subsidiary banks are not considered significant for this presentation. - ------------------------------------------------------------------------------- 78 (Continued) 79 RURBAN FINANCIAL CORP. ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1997 INDEX TO EXHIBITS
Exhibit No. Description Page 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 Pages 84 through 85 of this Annual Articles of Rurban Financial Corp. Report on Form 10-K. 3(d) Amended and Restated Articles of Pages 86 through 91 of this Annual Rurban Financial Corp. Report on Form 10-K. 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 Ownership Incorporated herein by reference to Plan of Rurban Financial Corp., dated Registrant's Annual Report on Form 10-K June 14, 1993 and made to be effective as of for the fiscal year ended January 1, 1993 December 31, 1993 (File No. 0-13507) [Exhibit 10(b)].
79 80
Exhibit No. Description Page 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 effective for the fiscal year ended as of January 1, 1993 December 31, 1993 (File No. 0-13507) [Exhibit 10(c)]. 10(d) Third Amendment to Employees' Stock Ownership Incorporated herein by reference to Plan of Rurban Financial Corp., dated Registrant's Annual Report on Form 10-K March 13, 1995 for the fiscal year ended December 31, 1994 (File No. 0-13507) [Exhibit 10(d)]. 10(e) Fourth Amendment to Employees' Stock Ownership Incorporated herein by reference to Plan of Rurban Financial Corp., dated June 10, Registrant'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 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 Corp. Incorporated herein by reference to Savings Plan and Trust, dated December 10, Registrant's Annual Report on Form 10-K 1990 and effective January 1, 1990 for the fiscal year ended December 31, 1990 (File No. 0-13507) [Exhibit 10(g)]. 10(h) Second Amendment to The Rurban Financial Corp. Incorporated herein by reference to Savings Plan and Trust, dated March 11, 1991, Registrant'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 Savings Plan and Trust, dated June 11, 1991 Registrant'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 Savings Plan and Trust, dated July 14, 1992, Registrant'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)].
80 81
Exhibit No. Description Page No. - ----------- ----------- -------- 10(k) Fifth Amendment to The Rurban Financial Corp. Incorporated herein by reference to Savings Plan and Trust, dated March 14, 1994 Registrant'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 Savings Plan and Trust dated May 1, 1995 Registrant'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 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 Trust Incorporated herein by reference to Department of State Bank for the benefit of Registrant'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 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)].
81 82
Exhibit No. Description Page No. - ----------- ----------- -------- 10(r) Executive Salary Continuation Agreement, dated Incorporated herein by reference to December 15, 1994, between Rurban Financial Registrant'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 October 11, 1995, between Rurban Financial Registrant's Annual Report on Form 10-K Corp. and Thomas C. Williams; and Amended for the fiscal year ended December 31, Schedule A to Exhibit 10(s) identifying other 1995 (File No. 0-13507) [Exhibit 10(s)]. identical Executive Salary Continuation Amended Schedule A to 10(s) is included Agreements between executive officers of at Page 92 of this Annual Report on Form Rurban Financial Corp. and Rurban Financial 10-K. Corp. 10(t) Description of Split-Dollar Insurance Policies Incorporated herein by reference to Maintained for Certain Executive Officers of Registrant'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(u)]. 10(w) Form of Non-Qualified Stock Option Agreement Pages 93 through 97 of this Annual Report on Form 10-K. 10(x) Form of Incentive Stock Option Agreement Pages 98 through 102 of this Annual Report on Form 10-K.
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Exhibit No. Description Page No. - ----------- ----------- -------- 11 Statement re Computation of Per Pages 60 and 62 [included in Note 1 and Note Share Earnings 2 of the Notes to the Consolidated Financial Statements of Registrant in the financial statements portion of this Annual Report on Form 10-K]. 21 Subsidiaries of Registrant Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (File No. 0-13507) [Exhibit 21]. 23 Consent of Independent Auditor Page 103 of this Annual Report on Form 10-K 24 Powers of Attorney Pages 104 through 114 of this Annual Report on Form 10-K. 27 Financial Data Schedule Page 115 of this Annual Report on Form 10-K.
83 EX-3.C 2 EXHIBIT 3(C) 1 Exhibit 3(c) CERTIFICATE OF AMENDMENT TO THE AMENDED ARTICLES OF RURBAN FINANCIAL CORP. LOGO Prescribed by Charter No. ___________________ BOB TAFT, Secretary of State 30 East Broad Street, 14th Floor Approved ______________________ Columbus, Ohio 43266-0418 Form SH-AMD (January 1991) Date __________________________ Fee ___________________________ CERTIFICATE OF AMENDMENT By Shareholders to the Articles of Incorporation of Rurban Financial Corp. - ------------------------------------------------------------------------------- (Name of Corporation) Thomas C. Williams , who is: - --------------------------------------------------------------------- [ ] Chairman of the Board [ X ] President [ ] Vice President (check one) and Keeta J. Diller , who is: [ X ] Secretary [ ] Assistant Secretary - ------------------ (Check One) of the above name Ohio corporation for profit do hereby certify that: (check the appropriate box and complete the appropriate statements) [ X ] a meeting of the shareholders was duly called for the purpose of adopting this amendment and held on April 28, 1997 at which meeting a -------- -- quorum of the shareholders was present in person or by proxy, and by the affirmative vote of the holders of shares entitling them to exercise at least 50% of the voting power of the corporation. -------- [ ] in a writing signed by all of the shareholders who would be entitled to notice of a meeting held for that purpose, the following resolution to amend the articles was adopted: See attached Annex 1 IN WITNESS WHEREOF, the above named officers, acting for and on the behalf of the corporation, have hereto subscribed their names this 28th day of April , 1997. - ------------- --------------- - By /S/ Thomas C. Williams -------------------------------- Thomas C. Willams (President) By /s/ Keeta J. Diller -------------------------------- Keeta J. Diller (Secretary) NOTE: Ohio law does not permit one officer to sign in two capacities. Two separate signatures are required, even if this necessitates the election of a second officer before the filing can be made. 84 2 Exhibit 3(c) Annex 1 RESOLVED, that the Amended Articles of Rurban Financial Corp. shall be amended by the addition of Article TWELFTH in the following form: TWELFTH: Shareholders shall have no right to vote cumulatively in the election of directors. 85 EX-3.D 3 EXHIBIT 3(D) 1 Exhibit 3(d) AMENDED AND RESTATED ARTICLES OF RURBAN FINANCIAL CORP. FIRST: The name of the corporation shall be Rurban Financial Corp. SECOND: The place in Ohio where the principal office of the corporation is to be located is the city of Defiance, Defiance County. THIRD: The purpose for which the corporation is formed is to engage in any lawful act or activity for which corporations may be formed under Sections 1701.01 to 1701.98, inclusive, of the Ohio Revised Code. FOURTH: The total authorized number of shares of the corporation shall be 10,000,000, all of which shall be common shares, each without par value. FIFTH: The number of directors of the corporation shall be fixed from time to time by its Regulations and may be increased or decreased as therein provided, but the number of directors shall in no event be fixed at less than nine (9). The Board of Directors shall be divided into three classes, designated Class I, Class II and Class III, as nearly equal in number as the then fixed number of directors permits, with the term of office of one class expiring each year. The election of each class of directors shall be a separate election. At the first election of directors following the adoption of these articles at a meeting of shareholders, directors of Class I shall be elected to hold office for a term expiring at the next annual meeting, directors of Class II shall be elected to hold office for a term expiring at the annual meeting two years after the next annual meeting. At the next annual meeting of shareholders and at each annual meeting of shareholders thereafter, the successors to that class of directors whose term then expires shall be elected to hold office for a three-year term. In the event of any increase in the number of directors of the corporation, the additional directors shall be similarly classified in such a manner that each class of directors shall be as equal in number as possible. In the event of any decrease in the number of directors of the corporation, such decrease shall be effected in such a manner that each class of directors shall be equal in number as possible. SIXTH: Notwithstanding any provision of the Ohio Revised Code now or hereafter in force requiring for any purpose the vote, consent, waiver or release of the holders of shares of the corporation entitling them to exercise two-thirds (2/3) or any other proportion of the voting power of the corporation or of any class or classes thereof, such action, unless expressly otherwise provided by statute, may be taken by the vote, consent, waiver or release of the holders of the shares entitled them to exercise not less than a majority of the voting power of the corporation or of such class or classes; provided, however, that unless two-thirds (2/3) of the whole authorized number of directors of the corporation shall recommend the approval of any of 86 2 the following matters, the affirmative vote of the holders of shares entitling them to exercise not less than eighty percent (80%) of the voting power of the corporation entitled to vote thereon shall be required to adopt: (1) a proposed amendment to the articles of the corporation; (2) proposed new regulations, or an alteration, amendment or repeal of the regulations of the corporation; (3) an agreement of merger or consolidation providing for the merger or consolidation of the corporation with or into one or more other corporations; (4) a proposed combination or majority share acquisition involving the issuance of shares of shares of the corporation and requiring shareholder approval; (5) a proposal to sell, lease, or exchange all or substantially all of the property and assets of the corporation; (6) a proposed dissolution of the corporation; or (7) a proposal to fix or create the number of directors by action of the shareholders of the corporation. The written objection of a director to any such matter submitted to the president or secretary of the corporation not less than three days before the meeting of shareholders at which any such matter is to be considered shall be deemed to be an affirmative vote by such director against such matter. SEVENTH: No holder of shares of any class of the corporation shall have, as a matter of right, the preemptive right to purchase or subscribe for shares of any class of the corporation now or hereafter authorized, or to purchase or subscribe for securities or other obligations convertible into or exchangeable for such shares or which by warrants or otherwise entitle the holders thereof to subscribe for or purchase any such shares. EIGHTH: The directors of the corporation shall have the power to cause the corporation from time to time and at any time to purchase, hold, sell, transfer, or otherwise deal with (a) shares of any class or series issued by it; (b) any security or other obligation of the corporation which may confer upon the holder thereof the right to convert the same into shares of any class or series authorized by the articles of the corporation; and (c) any security or other obligation which may confer upon the holder thereof the right to purchase shares of any class or series authorized by the articles of the corporation. The corporation shall have the right to repurchase, if and when any shareholder desires to sell, or on the happening of any event is required to sell, shares of any class or series issued by the corporation. The authority granted in this Article EIGHTH of these articles shall not limit the plenary authority of the directors to 87 3 purchase, hold, sell, transfer, or otherwise deal with shares of any class or series, securities, or other obligations issued by the corporation or authorized by its articles. NINTH: A director or officer of the corporation shall not be disqualified by his office from dealing or contracting with the corporation as vendor, purchaser, employee, agent or otherwise. No contract or transaction shall be void or voidable with respect to the corporation for the reason that it is between the corporation and one or more of its directors or officers, or between the corporation and any other person in which one or more of its directors or officers are directors, trustees, or officers, or have a financial or personal interest, or for the reason that one or more interested directors or officers participated in or voted at the meeting of the directors or a committee thereof which authorized such contract or transaction if in any such case (a) the material facts as to the relationship or interest of such director, officer, or other person and as to the contract or transaction are disclosed or are known to the directors or the committee or such members thereof as shall be present at any meeting at which action upon any such contract or transaction shall be taken and the directors or committee, in good faith reasonably justified by such facts, authorized the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors constitute less than a quorum; or (b) the material facts as to the relationship or interest of such director, officer, or other person and as to the contract or transaction are disclosed or known to the shareholders entitled to vote thereon and the contract or transaction is specifically approved at a meeting of the shareholders held for such purpose by the affirmative vote of the holders of shares entitling them to exercise a majority of the voting power of the corporation held by person not interested in the contract or transaction; or (c) the contract or transaction is fair as to the corporation as of the time it is authorized or approved by the directors, a committee thereof, or the shareholders. Common or interested directors may be counted in determining the presence of a quorum at any meeting of the directors, or of a committee thereof, which authorizes the contract or transaction. TENTH: (A) In addition to any affirmative vote required by any provision of the Ohio Revised Code or by any other provision hereof, the affirmative vote or consent of the holders of the greater of (a) four-fifths (4/5) of the outstanding common shares or the corporation entitled to vote thereon or (b) that fraction of such outstanding common shares having as the numerator a number equal to the sum (i) the number of outstanding common shares Beneficially Owned by Controlling persons (as hereinafter defined) plus (ii) two-thirds (2/3) of the remaining number of outstanding common shares, and as the denominator a number equal to the total number of outstanding commons hares entitled to vote, shall be required for the adoption or authorization of a Business Combination (as hereinafter defined) unless: (1) The Business Combination will result in an involuntary sale, redemption, cancellation or other termination of ownership of all common shares of the corporation owned by shareholders who do not vote in favor of, or consent in writing to, the Business Combination and the cash or fair value of other readily marketable consideration to be received by such shareholders for such shares shall at least be equal to the Minimum Price Per Share (as hereinafter defined); and 88 4 (2) A proxy statement responsive to the requirements of the Securities Exchange Act of 1934 shall be mailed to the shareholders of the corporation for the purpose of soliciting shareholder approval of the proposed Business Combination. (B) For purposes of this Article TENTH, the following definitions shall apply: (1) "Affiliate" shall mean a Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another Person. (2) "Associate" shall mean (i) any corporation or organization of which a Person is an officer or partner or is, directly or indirectly, the Beneficial Owner of ten percent (10%) or more of any class of equity securities, (ii) any trust or other estate in which a Person has a ten percent (10%) or greater individual interest of any nature or as to which a Person serves as trustee or in a similar fiduciary capacity, (iii) any spouse of a Person, and (iv) any relative of a Person, or any relative of a spouse of a Person, who has the same residence of such Person or spouse. (3) "Beneficial Ownership" shall include without limitation (i) all shares directly or indirectly owned by a Person, by an Affiliate or such Person or by an Associate of such Person or such Affiliate, (ii) all shares which such Person, Affiliate or Associate has the right to acquire through the exercise of any option, warrant or right (whether or not currently exercisable), through the conversion of a security, pursuant to the power to revoke a trust, discretionary account or similar arrangement, or pursuant to the automatic termination of a trust, discretionary account or similar arrangement; and (iii) all shares as to which such Person, Affiliate or Associate directly or indirectly through any contract, arrangement, understanding, relationship or otherwise (including without limitation any written or unwritten agreement to act in concert) has or shares voting power (which includes the power to vote or to direct the voting of such shares) or investment power (which includes the power to dispose or direct the disposition of such shares) or both. (4) "Business Combination" shall mean (i) any merger or consolidation of the corporation with or into a Controlling Person or an Affiliate of a Controlling Person or an Associate of such Controlling Person or Affiliate, (ii) any sale, lease, exchange, transfer or other disposition, including without limitation a mortgage or any other security device of all or any Substantial Part of the assets of the corporation, including without limitation any voting securities of a Subsidiary, or of the assets of a Subsidiary, to a Controlling Person or Affiliate of a Controlling Person or Associate of such Controlling Person of Affiliate, (iii) any merger into the corporation, or into a Subsidiary, of a Controlling Person or an Affiliate of a Controlling Person or an Associate of such Controlling Person or Affiliate, (iv) any 89 5 sale, lease, exchange, transfer or other disposition to the corporation or a Subsidiary of all or any part of the assets of a Controlling Person or Affiliate of a Controlling Person or Associate of such Controlling Person or Affiliate but not including any disposition of assets which, if included with all other dispositions consummated during the same fiscal year of the corporation by the same Controlling Person, Affiliates thereof and Associates of such Controlling Person or Affiliates, would not result in dispositions during such year by all such Persons of assets having an aggregate fair value (determined at the time of disposition of the respective assets) in excess of one percent (1%) of the total consolidated assets of the corporation (as shown on its certified balance sheet as of the end of the fiscal year preceding the proposed disposition); provided, however, that in no event shall any disposition of assets be excepted from shareholder approval by reason of the preceding exclusion if such disposition when included with all other dispositions consummated during the same and immediately preceding four (4) fiscal years of the corporation by the same Controlling Person, Affiliate thereof and Associates of such Controlling Person or Affiliates, would result in disposition by all such Persons of assets having an aggregate fair value (determined at the time of disposition of the respective assets) in excess of two percent (2%) of the total consolidated assets of the corporation (as shown on its certified balance sheet as of the end of the fiscal year preceding the proposed disposition), (v) any reclassification of the common shares of the corporation, or any recapitalization involving common shares of the corporation, consummated within five (5) years after a Controlling Person becomes a Controlling Person, and (vi) any agreement, contract or other arrangement providing for any of the transactions described in the definition of Business combination. (5) "Control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. (6) "Controlling Person" shall mean any Person who Beneficially Owns shares of the corporation entitling that Person to exercise twenty percent (20%) or more of the voting power of the corporation entitled to vote in the election of directors. (7) "Minimum Price Per Share" shall mean the sum of (a) the higher of (i) the highest gross per share price paid or agreed to be paid to acquire any common shares of the corporation Beneficially Owned by a Controlling Person, provided such payment or agreement to make payment was made within five (5) years immediately prior to the record date set to determine the shareholders entitled to vote or consent to the Business Combination in question, or (ii) the highest per share closing public market price for such common shares during such five (5) year period, plus (b) the aggregate amount, if any, by which five percent (5%) for each year, beginning on the date on which such Controlling Person became a Controlling Person, of such higher per share price exceeds the aggregate amount 90 6 of all common share dividends per share pain in cash since the date on which such Person became a Controlling Person. The calculation of the Minimum Price Per Share shall require appropriate adjustments for capital changes, including without limitation stock splits, stock dividends and reverse stock splits. (8) "Person" shall mean an individual, a corporation, a partnership, an association, a joint-stock company, a trust, any unincorporated organization, a government or political subdivision thereof, and nay other entity. (9) "Securities Exchange Act of 1934" shall mean the Securities Exchange Act of 1934, as amended from time to time as well as any successor or replacement statute. (10) "Subsidiary" shall mean any corporation more than twenty-five (25%) of whose outstanding securities entitled to vote for the election of directors are Beneficially Owned by the corporation and/or one or more Subsidiaries. (11) "Substantial Part" shall mean more than ten percent (10%) of the total assets of the corporation in question, as shown on its certified balance sheet as of the end of the most recent fiscal year ending prior to the time the determination is being made. (C) During any period in which there are one or more Controlling Persons, this Article TENTH shall not be altered, changed or repealed unless the amendment effecting such alteration, change or repeal shall have received, in addition to any affirmative vote required by any provision of the Ohio revised Code or by any other provision hereof, the affirmative vote or consent of the holders of the grater of (a) four-fifths (4/5) of the outstanding common shares of the corporation entitled to vote thereon or (b) that fraction of such outstanding common shares having as the numerator a number equal to the sum of (i) the number of outstanding common shares Beneficially Owned by Controlling Persons plus (ii) two-thirds (2/3) of the remaining number of outstanding common shares, and as the denominator a number equal to the total number of outstanding common shares entitled to vote. ELEVENTH: These Amended Articles take the place of and supersede the existing Articles of Incorporation of Rurban Financial Corp. TWELFTH: Shareholders shall have no right to vote cumulatively in the election of directors. 91 EX-10.S 4 EXHIBIT 10(S) 1 Exhibit 10(s) Amended Schedule A to Exhibit 10(s) The following executive officers of Rurban Financial Corp. (the "Corporation") entered into Executive Salary Continuation Agreements with the Corporation which are identical to the Executive Salary Continuation Agreement, dated October 11,1995, between Thomas C. Williams and the Corporation filed as Exhibit 10(s) to the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995:
Date of Executive Salary Continuation Name of Executive Officer Position with the Company Agreement - ------------------------- ------------------------- --------- Robert W. Constien Executive Vice President 10/16/95 Richard C. Warrener Executive Vice President and 1/1/98 Chief Financial Officer Mark E. Rowland Senior Vice President and 1/1/98 Senior Lender Mark A. Soukup President and Chief Executive 8/30/96 Officer of State Bank Kenneth A. Joyce Chairman and Chief Executive 1/1/98 Officer of RMC and RDSI
92 EX-10.W 5 EXHIBIT 10(W) 1 Exhibit 10(w) FORM OF STOCK OPTION AGREEMENT (Non-Qualified Stock Options) THIS AGREEMENT (this "Agreement") is made to be effective as of _________ __ 199_, by and between Rurban Financial Corp., an Ohio corporation (the "COMPANY"), and (the "OPTIONEE"). WITNESSETH: WHEREAS, the Board of Directors and the shareholders of the COMPANY have adopted the Rurban Financial Corp. Stock Option Plan (the "PLAN"); and WHEREAS, pursuant to the provisions of the PLAN, the Compensation Committee (the "COMMITTEE") administers the PLAN and the COMMITTEE has determined that an option to acquire common shares, no par value (the "COMMON SHARES"), of the COMPANY should be granted to the OPTIONEE upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises, the parties hereto make the following agreement, intending to be legally bound thereby: (l) Grant of OPTION. The COMPANY hereby grants to the OPTIONEE an option (the "OPTION") to purchase COMMON SHARES of the COMPANY. The OPTION is not intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the "CODE"). (2) Terms and Conditions of the OPTION. (A) OPTION Price. The purchase price (the "OPTION PRICE") to be paid by the OPTIONEE to the COMPANY upon the exercise of the OPTION shall be $__.___ per share, being the closing price of the Common Shares on ______, _____, subject to adjustment as provided in Section 3. (B) Exercise of the OPTION. The OPTION may not be exercised until the OPTIONEE shall have completed twelve months of continuous employment with the COMPANY and/or its subsidiaries immediately following the date hereof. Thereafter, the OPTION may be exercised as follows: (i) at any time after such twelve-month period as to twenty percent (20%) of the COMMON SHARES subject to the OPTION; (ii) at any time after twenty-four months from the date of this Agreement as to an additional twenty percent (20%) of the COMMON SHARES subject to the OPTION; (iii) at any time after thirty-six months from the date of this Agreement as to an additional twenty percent (20%) of the COMMON SHARES subject to the OPTION; (iv) at any time after forty-eight months from the date of this Agreement as to an additional twenty percent (20%) of the COMMON SHARES subject to the OPTION; and 93 2 (v) at any time after sixty months from the date of this Agreement as to the remaining twenty percent (20%) of the COMMON SHARES subject to the OPTION. Subject to the other provisions of this Agreement, if the OPTION becomes exercisable as to certain COMMON SHARES, it shall remain exercisable as to those COMMON SHARES until the date of expiration of the OPTION term. The COMMITTEE may, but shall not be required to (unless otherwise provided in this Agreement), accelerate the schedule of the time or times when the OPTION may be exercised. The grant of the OPTION shall not confer upon the OPTIONEE any right to continue in the employment of the COMPANY nor limit in any way the right of the COMPANY to terminate the employment of the OPTIONEE at any time in accordance with law or the COMPANY's governing corporate documents. (C) OPTION Term. The OPTION shall in no event be exercisable after the expiration of ten (10) years from the date of this Agreement. (D) Method of Exercise. The OPTION may be exercised by giving written notice of exercise to the COMMITTEE in care of the Secretary of the COMPANY stating the number of COMMON SHARES subject to the OPTION in respect of which it is being exercised. Payment for all such COMMON SHARES shall be made to the COMPANY at the time the OPTION is exercised in United States dollars in cash (including check, bank draft or money order). If permitted by the COMMITTEE, payment for such COMMON SHARES may be made (i) by delivery of COMMON SHARES of the COMPANY already owned by the OPTIONEE and having a Fair Market Value (as that term is defined in the PLAN) on the date of delivery equal to the OPTION PRICE, or (ii) by delivery of a combination of cash and already owned COMMON SHARES. After payment in full for the COMMON SHARES purchased under the OPTION has been made, the COMPANY shall take all such action as is necessary to deliver appropriate share certificates evidencing the COMMON SHARES purchased upon the exercise of the OPTION as promptly thereafter as is reasonably practicable. (E) Satisfaction of Taxes and Tax Withholding Requirements. The COMMITTEE shall determine the appropriate arrangements for the satisfaction by the COMPANY and the OPTIONEE of all federal, state, local or other income, excise or employment taxes or tax withholding requirements applicable to the exercise of the OPTION or the later disposition of the COMMON SHARES or other property thereby acquired. (3) Adjustments and Changes in the COMMON SHARES. (A) In the event that the outstanding COMMON SHARES of the COMPANY shall be changed into or exchanged for a different kind of shares or other securities of the COMPANY or of another corporation (whether by reason of merger, consolidation, recapitalization, reclassification, split-up, combination of shares or otherwise) or if the number of such COMMON SHARES shall be increased through the payment of a stock dividend, then unless such change results in the termination of all outstanding options granted pursuant to the PLAN, there shall be substituted for or added to each COMMON SHARE of the COMPANY subject to the OPTION, the number and kind of shares or other securities into which each outstanding COMMON SHARE of the COMPANY shall be changed, or for which each such COMMON SHARE shall be exchanged, or to which the holder of each such COMMON SHARE shall be entitled, as the case may be. The OPTION shall also be appropriately amended as to the OPTION PRICE and other terms as may be necessary to reflect the foregoing events. In the event there shall be any other change in the number or kind of the outstanding shares of the COMPANY, or of any shares or other securities into which such shares shall have been changed, 94 3 or for which they shall have been exchanged, then if the COMMITTEE shall, in its sole discretion, determine that such change equitably requires an adjustment in the OPTION, such adjustment shall be made by the COMMITTEE in accordance with such determination. Fractional shares resulting from any adjustment in the OPTION pursuant to this Section 3(A) shall be rounded down to the nearest whole number of shares. (B) Notice of any adjustment pursuant to this Section 3 shall be given by the COMPANY to the OPTIONEE. (4) Acceleration of OPTIONS. (A) Notwithstanding anything in this Agreement to the contrary, upon the earlier of (i) the OPTIONEE's 70th birth date, (ii) the occurrence of an Applicable Event (as defined in the PLAN), (iii) the death of the OPTIONEE or (iv) total disability, all OPTIONS granted to the OPTIONEE shall be fully exercisable in accordance with terms of the PLAN. For purposes of this paragraph, an OPTIONEE is totally disabled if he is receiving disability benefits under the Social Security Act as the result of a total and permanent disability, or is determined to be totally disabled under any long-term disability plan sponsored by the COMPANY. (B) The grant of this OPTION shall not affect in any way the right of the COMPANY to adjust, reclassify, reorganize, or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. (5) Non-Assignability of OPTION. The OPTION shall not be assignable or otherwise transferable by the OPTIONEE except (i) by will or by the laws of descent and distribution or (ii) to an immediate family member, partnership consisting solely of immediate family members or trusts for the benefit of immediate family members. The OPTION may not be exercised during the lifetime of the OPTIONEE except by him, his guardian or legal representative. (6) Effect of Termination of Employment or Death. (A) If an OPTIONEE's status as a director or as an employee of the Company terminates for any reason, other than his retirement, death or disability, before the date of expiration of any OPTIONS held by such OPTIONEE, such OPTIONS shall become null and void on the date of such termination. An OPTIONEE who terminates employment with the COMPANY, but retains his status as a Director is not considered terminated for purposes of this Section 6. The date of such termination shall be the date the OPTIONEE ceases to be both a director and an employee of the Company. (B) If an OPTIONEE dies before the expiration of any OPTIONS held by the OPTIONEE, such OPTIONS shall terminate on the earlier of (i) the date of expiration of the OPTIONS or (ii) one year following the date of the OPTIONEE's death. The executor or administrator or personal representative of the estate of a deceased OPTIONEE, or the person or persons to whom an OPTION granted hereunder shall have been validly transferred by the executor or the administrator or the personal representative of the OPTIONEE's estate, shall have the right to exercise the OPTIONEE's OPTIONS. To the extent that such OPTIONS would otherwise by exercisable under the terms of the Plan and the OPTIONEE's Stock Option Agreement, such exercise may occur at any time prior to the termination date specified in this paragraph. 95 4 (C) If an OPTIONEE becomes totally disabled before the expiration of the OPTIONS held by the Optionee, such OPTIONS shall terminate on the earlier of (i) the date of expiration of the OPTIONS Or (ii) one year following the date of the OPTIONEE's termination of service due to disability. (7) Restrictions on Transfers of COMMON SHARES. (A) Anything contained in this Agreement or elsewhere to the contrary notwithstanding, the COMPANY may postpone the issuance and delivery of COMMON SHARES upon any exercise of the OPTION until completion of any stock exchange listing or registration or other qualification of such COMMON SHARES under any state or federal law, rule or regulation as the COMPANY may consider appropriate; and may require the OPTIONEE when exercising the OPTION to make such representations and furnish such information as the COMPANY may consider appropriate in connection with the issuance of the COMMON SHARES in compliance with applicable law. (B) COMMON SHARES issued and delivered upon exercise of the OPTION shall be subject to such restrictions on trading, including appropriate legending of certificates to that effect, as the COMPANY, in its discretion, shall determine are necessary to satisfy applicable legal requirements and obligations. (8) Rights of OPTIONEE. The OPTIONEE shall have no rights as a shareholder of the COMPANY with respect to any COMMON SHARES of the COMPANY covered by the OPTION until the date of issuance of a certificate to him evidencing such COMMON SHARES. (9) PLAN as Controlling. All terms and conditions of the PLAN applicable to the OPTION which are not set forth in this Agreement shall be deemed incorporated herein by reference. Capitalized terms used in this Agreement which are not defined herein shall have the meanings provided for such terms in the PLAN. In the event that any term or condition of this Agreement is inconsistent with the terms and conditions of the PLAN, the PLAN shall be deemed controlling. (10) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. (11) Rights and Remedies Cumulative. All rights and remedies of the COMPANY and of the OPTIONEE enumerated in this Agreement shall be cumulative and, except as expressly provided otherwise in this Agreement, none shall exclude any other rights or remedies allowed by law or in equity, and each of said rights or remedies may be exercised and enforced concurrently. (12) Captions. The captions contained in this Agreement are included only for convenience of reference and do not define, limit, explain or modify this Agreement or its interpretation, construction or meaning and are in no way to be construed as a part of this Agreement. (13) Severability. If any provision of this Agreement or the application of any provision hereof to any person or any circumstance shall be determined to be invalid or unenforceable, then such determination shall not affect any other provision of this Agreement or the application of said provision to any other person or circumstance, all of which other provisions shall remain in full force and effect, and it is the intention of each party to this Agreement that if any provision of this Agreement is susceptible of two or more constructions, one of which would render the provision enforceable and the other or others of which would render the provision unenforceable, then the provision shall have the meaning which renders it enforceable. 96 5 (14) Number and Gender. When used in this Agreement, the number and gender of each pronoun shall be construed to be such number and gender as the context, circumstances or its antecedent may required. (15) Entire Agreement. This Agreement and the PLAN constitute the entire agreement between the COMPANY and the OPTIONEE in respect of the subject matter of this Agreement, and this Agreement supersedes all prior and contemporaneous agreements between the parties hereto in connection with the subject matter of this Agreement. No officer, employee or other servant or agent of the COMPANY, and no servant or agent of the OPTIONEE is authorized to make any representation, warranty or other promise not contained in this Agreement. No change, termination or attempted waiver of any of the provisions of this Agreement shall be binding upon any party hereto unless contained in a writing signed by the party to be charged. (16) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns (including successive, as well as immediate, successors and assigns) of the COMPANY. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date first above written. COMPANY: RURBAN FINANCIAL CORP. By: ------------------------ Its: ----------------------- EX-10.X 6 EXHIBIT 10(X) 1 Exhibit 10(x) FORM OF STOCK OPTION AGREEMENT (Incentive Stock Options) THIS AGREEMENT (this "Agreement") is made to be effective as of _________ __ 199_, by and between Rurban Financial Corp., an Ohio corporation (the "COMPANY"), and (the "OPTIONEE"). WITNESSETH: WHEREAS, the Board of Directors and the shareholders of the COMPANY have adopted the Rurban Financial Corp. Stock Option Plan (the "PLAN"); and WHEREAS, pursuant to the provisions of the PLAN, the Compensation Committee (the "COMMITTEE") administers the PLAN and the COMMITTEE has determined that an option to acquire common shares, no par value (the "COMMON SHARES"), of the COMPANY should be granted to the OPTIONEE upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises, the parties hereto make the following agreement, intending to be legally bound thereby: (l) Grant of OPTION. The COMPANY hereby grants to the OPTIONEE an option (the "OPTION") to purchase _____ COMMON SHARES of the COMPANY. The OPTION is intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the "CODE"). (2) Terms and Conditions of the OPTION. (A) OPTION Price. The purchase price (the "OPTION PRICE") to be paid by the OPTIONEE to the COMPANY upon the exercise of the OPTION shall be $__.____per share, being the closing price of the Common Shares on _________, ______, subject to adjustment as provided in Section 3. (B) Exercise of the OPTION. The OPTION may not be exercised until the OPTIONEE shall have completed twelve months of continuous employment with the COMPANY and/or its subsidiaries immediately following the date hereof. Thereafter, the OPTION may be exercised as follows: (i) at any time after such twelve-month period as to twenty percent (20%) of the COMMON SHARES subject to the OPTION; (ii) at any time after twenty-four months from the date of this Agreement as to an additional twenty percent (20%) of the COMMON SHARES subject to the OPTION; (iii) at any time after thirty-six months from the date of this Agreement as to an additional twenty percent (20%) of the COMMON SHARES subject to the OPTION; 98 2 (iv) at any time after forty-eight months from the date of this Agreement as to an additional twenty percent (20%) of the COMMON SHARES subject to the OPTION; and (v) at any time after sixty months from the date of this Agreement as to the remaining twenty percent (20%) of the COMMON SHARES subject to the OPTION. Subject to the other provisions of this Agreement, if the OPTION becomes exercisable as to certain COMMON SHARES, it shall remain exercisable as to those COMMON SHARES until the date of expiration of the OPTION term. The COMMITTEE may, but shall not be required to (unless otherwise provided in this Agreement), accelerate the schedule of the time or times when the OPTION may be exercised. The grant of the OPTION shall not confer upon the OPTIONEE any right to continue in the employment of the COMPANY nor limit in any way the right of the COMPANY to terminate the employment of the OPTIONEE at any time in accordance with law or the COMPANY's governing corporate documents. (C) OPTION Term. The OPTION shall in no event be exercisable after the expiration of ten (10) years from the date of the Agreement. (D) Method of Exercise. The OPTION may be exercised by giving written notice of exercise to the COMMITTEE in care of the Secretary of the COMPANY stating the number of COMMON SHARES subject to the OPTION in respect of which it is being exercised. Payment for all such COMMON SHARES shall be made to the COMPANY at the time the OPTION is exercised in United States dollars in cash (including check, bank draft or money order). If permitted by the COMMITTEE, payment for such COMMON SHARES may be made (i) by delivery of COMMON SHARES of the COMPANY already owned by the OPTIONEE and having a Fair Market Value (as that term is defined in the PLAN) on the date of delivery equal to the OPTION PRICE, or (ii) by delivery of a combination of cash and already owned COMMON SHARES. After payment in full for the COMMON SHARES purchased under the OPTION has been made, the COMPANY shall take all such action as is necessary to deliver appropriate share certificates evidencing the COMMON SHARES purchased upon the exercise of the OPTION as promptly thereafter as is reasonably practicable. (E) Satisfaction of Taxes and Tax Withholding Requirements. The COMMITTEE shall determine the appropriate arrangements for the satisfaction by the COMPANY and the OPTIONEE of all federal, state, local or other income, excise or employment taxes or tax withholding requirements applicable to the exercise of the OPTION or the later disposition of the COMMON SHARES or other property thereby acquired. (3) Adjustments and Changes in the COMMON SHARES. (A) In the event that the outstanding COMMON SHARES of the COMPANY shall be changed into or exchanged for a different kind of shares or other securities of the COMPANY or of another corporation (whether by reason of merger, consolidation, recapitalization, reclassification, split-up, combination of shares or otherwise) or if the number of such COMMON SHARES shall be increased through the payment of a stock dividend, then unless such change results in the termination of all outstanding options granted pursuant to the PLAN, there shall be substituted for or added to each COMMON SHARE of the COMPANY subject to the OPTION, the number and kind of shares or other securities into which each outstanding COMMON SHARE of the COMPANY shall be changed, or for which each such COMMON SHARE shall be exchanged, or to which the holder of each such COMMON SHARE shall be entitled, as the case may be. The OPTION shall also be appropriately amended as to the 99 3 OPTION PRICE and other terms as may be necessary to reflect the foregoing events. In the event there shall be any other change in the number or kind of the outstanding shares of the COMPANY, or of any shares or other securities into which such shares shall have been changed, or for which they shall have been exchanged, then if the COMMITTEE shall, in its sole discretion, determine that such change equitably requires an adjustment in the OPTION, such adjustment shall be made by the COMMITTEE in accordance with such determination. Fractional shares resulting from any adjustment in the OPTION pursuant to this Section 3(A) shall be rounded down to the nearest whole number of shares. (B) Notwithstanding the foregoing, any and all adjustments in connection with the OPTION shall comply in all respects with Section 422 of the CODE, and the regulations promulgated thereunder. (C) Notice of any adjustment pursuant to this Section 3 shall be given by the COMPANY to the OPTIONEE. (4) Acceleration of OPTIONS. (A) Notwithstanding anything in this Agreement to the contrary, upon the earlier of (i) the OPTIONEE's 65th birth date, (ii) the occurrence of an Applicable Event (as defined in the PLAN), (iii) the death of the OPTIONEE or (iv) total disability, all OPTIONS granted to the OPTIONEE shall be fully exercisable in accordance with terms of the PLAN. For purposes of this paragraph, an OPTIONEE is totally disabled if he is receiving disability benefits under the Social Security Act as the result of a total and permanent disability, or is determined to be totally disabled under any long-term disability plan sponsored by the COMPANY. (B) The grant of this OPTION shall not affect in any way the right of the COMPANY to adjust, reclassify, reorganize, or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. (5) Non-Assignability of OPTION. The OPTION shall not be assignable or otherwise transferable by the OPTIONEE except by will or by the laws of descent and distribution. The OPTION may not be exercised during the lifetime of the OPTIONEE except by him, his guardian or legal representative. (6) Effect of Termination of Employment or Death. (A) If an OPTIONEES's status as an employee of the COMPANY terminates for any reason, other than death, retirement or disability, before the date of expiration of OPTIONS held by such OPTIONEE, such OPTIONS shall become null and void on the date of such termination. (B) If an OPTIONEES's employment with the COMPANY terminates due to retirement or death, such OPTIONS shall terminate on the earlier of (i) the date of the expiration of the OPTIONS or (ii) three months following such termination of employment. (C) If an OPTIONEE's status as employee of the COMPANY terminates due to disability, as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended, such OPTIONS shall terminate on the earlier of (i) the date of the expiration of the OPTIONS or (ii) on year following such termination of employment. 100 4 (7) Restrictions on Transfers of COMMON SHARES. (A) Anything contained in this Agreement or elsewhere to the contrary notwithstanding, the COMPANY may postpone the issuance and delivery of COMMON SHARES upon any exercise of the OPTION until completion of any stock exchange listing or registration or other qualification of such COMMON SHARES under any state or federal law, rule or regulation as the COMPANY may consider appropriate; and may require the OPTIONEE when exercising the OPTION to make such representations and furnish such information as the COMPANY may consider appropriate in connection with the issuance of the COMMON SHARES in compliance with applicable law. (B) COMMON SHARES issued and delivered upon exercise of the OPTION shall be subject to such restrictions on trading, including appropriate legending of certificates to that effect, as the COMPANY, in its discretion, shall determine are necessary to satisfy applicable legal requirements and obligations. (8) Rights of OPTIONEE. The OPTIONEE shall have no rights as a shareholder of the COMPANY with respect to any COMMON SHARES of the COMPANY covered by the OPTION until the date of issuance of a certificate to him evidencing such COMMON SHARES. (9) PLAN as Controlling. All terms and conditions of the PLAN applicable to the OPTION which are not set forth in this Agreement shall be deemed incorporated herein by reference. Capitalized terms used in this Agreement which are not defined herein shall have the meanings provided for such terms in the PLAN. In the event that any term or condition of this Agreement is inconsistent with the terms and conditions of the PLAN, the PLAN shall be deemed controlling. (10) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. (11) Rights and Remedies Cumulative. All rights and remedies of the COMPANY and of the OPTIONEE enumerated in this Agreement shall be cumulative and, except as expressly provided otherwise in this Agreement, none shall exclude any other rights or remedies allowed by law or in equity, and each of said rights or remedies may be exercised and enforced concurrently. (12) Captions. The captions contained in this Agreement are included only for convenience of reference and do not define, limit, explain or modify this Agreement or its interpretation, construction or meaning and are in no way to be construed as a part of this Agreement. (13) Severability. If any provision of this Agreement or the application of any provision hereof to any person or any circumstance shall be determined to be invalid or unenforceable, then such determination shall not affect any other provision of this Agreement or the application of said provision to any other person or circumstance, all of which other provisions shall remain in full force and effect, and it is the intention of each party to this Agreement that if any provision of this Agreement is susceptible of two or more constructions, one of which would render the provision enforceable and the other or others of which would render the provision unenforceable, then the provision shall have the meaning which renders it enforceable. (14) Number and Gender. When used in this Agreement, the number and gender of each pronoun shall be construed to be such number and gender as the context, circumstances or its antecedent may required. 101 5 (15) Entire Agreement. This Agreement and the PLAN constitute the entire agreement between the COMPANY and the OPTIONEE in respect of the subject matter of this Agreement, and this Agreement supersedes all prior and contemporaneous agreements between the parties hereto in connection with the subject matter of this Agreement. No officer, employee or other servant or agent of the COMPANY, and no servant or agent of the OPTIONEE is authorized to make any representation, warranty or other promise not contained in this Agreement. No change, termination or attempted waiver of any of the provisions of this Agreement shall be binding upon any party hereto unless contained in a writing signed by the party to be charged. (16) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns (including successive, as well as immediate, successors and assigns) of the COMPANY. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date first above written. COMPANY: RURBAN FINANCIAL CORP. By: ------------------------ Its: ----------------------- 102 EX-23 7 EXHIBIT 23 1 Exhibit 23 We consent to the incorporation by reference and use of our report dated January 30, 1998, on the consolidated financial statements of Rurban Financial Corp., which appears on page 49 of Rurban Financial Corp.'s Form 10-K for the year ended December 31, 1997, in Rurban Financial Corp.'s Registration Statement on Form S-8 pertaining to the Rurban Financial Corp. Stock Option Plan. Crowe, Chizek and Company LLP South Bend, Indiana March 23, 1998 103 EX-24 8 EXHIBIT 24 1 Exhibit 24 POWERS OF ATTORNEY 104 2 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Rurban Financial Corp., an Ohio corporation which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1997, hereby constitutes and appoints Thomas C. Williams and Richard Warrener as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 20th day of March, 1998. /s/ THOMAS C. WILLIAMS --------------------------- Thomas C. Williams 105 3 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Rurban Financial Corp., an Ohio corporation which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1997, hereby constitutes and appoints Thomas C. Williams and Richard Warrener as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 20th day of March, 1998. /s/ RICHARD C. BURROWS --------------------------- Richard C. Burrows 106 4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Rurban Financial Corp., an Ohio corporation which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1997, hereby constitutes and appoints Thomas C. Williams and Richard Warrener as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 20th day of March, 1998. /s/ JOHN R. COMPO --------------------------- John R. Compo 107 5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Rurban Financial Corp., an Ohio corporation which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1997, hereby constitutes and appoints Thomas C. Williams and Richard Warrener as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 20th day of March, 1998. /s/ JOHN FAHL ----------------- John Fahl 108 6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Rurban Financial Corp., an Ohio corporation which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1997, hereby constitutes and appoints Thomas C. Williams and Richard Warrener as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 20th day of March, 1998. /s/ ROBERT A. FAWCETT, JR. --------------------------- Robert A. Fawcett, Jr. 109 7 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Rurban Financial Corp., an Ohio corporation which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1997, hereby constitutes and appoints Thomas C. Williams and Richard Warrener as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 20th day of March, 1998. /s/ RICHARD Z. GRAHAM --------------------------- Richard Z. Graham 110 8 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Rurban Financial Corp., an Ohio corporation which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1997, hereby constitutes and appoints Thomas C. Williams and Richard Warrener as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 20th day of March, 1998. /s/ ERIC C. HENCH --------------------------- Eric C. Hench 111 9 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Rurban Financial Corp., an Ohio corporation which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1997, hereby constitutes and appoints Thomas C. Williams and Richard Warrener as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 20th day of March, 1998. /s/ W. SCOTT MUIR --------------------------- W. Scott Muir 112 10 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Rurban Financial Corp., an Ohio corporation which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1997, hereby constitutes and appoints Thomas C. Williams and Richard Warrener as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 20th day of March, 1998. /s/ STEVEN D. VANDEMARK --------------------------- Steven D. VanDemark 113 11 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Rurban Financial Corp., an Ohio corporation which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 1997, hereby constitutes and appoints Thomas C. Williams and Richard Warrener as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 20th day of March, 1998. /s/ J. MICHAEL WALZ --------------------------- J. Michael Walz, D.D.S. 114 EX-27 9 EXHIBIT 27
9 12-MOS DEC-31-1997 DEC-31-1997 15,552,385 529,777 6,670,000 0 71,683,120 0 0 363,851,637 5,239,601 471,371,090 415,181,286 4,929,000 4,637,009 7,529,867 0 0 4,903,098 25,364,858 471,371,090 32,155,039 4,212,421 753,081 37,120,541 16,305,732 16,689,155 20,431,386 947,965 193,892 19,252,896 7,986,266 5,515,797 0 0 5,515,797 2.49 2.49 4.85 2,303,000 462,000 0 3,855,000 5,066,600 1,325,606 550,642 5,239,601 4,623,000 0 616,601
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