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, 2001
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.
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(Exact name of Registrant as specified in its charter)
OHIO 34-1395608
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
401 CLINTON STREET, DEFIANCE, OHIO 43512
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (419) 783-8950
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Shares, Without Par Value (4,564,513 Outstanding At April 15, 2002)
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(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
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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. [X]
Based upon the closing price of the Common Shares of the Registrant on April 15,
2002, the aggregate market value of the Common Shares of the Registrant held by
non-affiliates on that date was $43,805,105.
Documents Incorporated by Reference:
Portions of the Registrant's definitive Proxy Statement for its Annual Meeting
of Shareholders to be held on May 30, 2002 are incorporated by reference into
Part III of this Annual Report on Form 10-K.
Exhibit Index on Page 87 (as numbered sequentially)
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, (1) The State Bank and Trust Company,
Defiance, Ohio ("State Bank"), and (2) RFC Banking Company ("RFCBC") which is
comprised of the following divisions: The Peoples Banking Company, Findlay, Ohio
("Peoples Bank"), The First Bank of Ottawa ("First Bank of Ottawa") and The
Citizens Savings Bank Company, Pemberville, Ohio ("Citizens Savings Bank"), the
Corporation is engaged in the business of commercial banking. The Corporation's
subsidiary, Rurbanc Data Services, Inc. ("RDSI"), is engaged in the related
business of providing data processing services, principally to banks. The
Corporation's subsidiary, Rurban Life Insurance Company ("Rurban Life"), is
engaged in the related business of accepting life and disability reinsurance
ceded in part by American General Assurance Company ("AGAC") from the credit
life and disability insurance. State Bank has two wholly-owned subsidiaries:
Reliance Financial Services, N.A. ("RFS") and Rurban Mortgage Company ("RMC").
RFS is a nationally-chartered trust and financial services company. RMC is an
Ohio corporation and mortgage company with its principle office located in
Defiance, Ohio.
GENERAL DESCRIPTION OF HOLDING COMPANY GROUP
STATE BANK
State Bank is an Ohio state-chartered bank. State Bank presently
operates six branch offices in Defiance County, Ohio (five in the city of
Defiance and one in Ney), three branch offices in adjacent Paulding County, Ohio
(one each in Paulding, Oakwood and Grover Hill), three branch offices in Fulton
County, Ohio (one in each of Delta, Lyons and Wauseon), one branch office in
Summit County (Westlake) and one in Cuyahoga County (Akron). At December 31,
2001, State Bank had 85 full-time equivalent employees.
State Bank offers a full range of commercial banking services,
including checking and NOW accounts; passbook savings and money market accounts;
time certificates of deposit, automatic teller machines; commercial, consumer,
agricultural and residential mortgage loans (including "Home Value Equity" line
of credit loans); personal and corporate trust services; commercial leasing;
bank credit card services; safe deposit box rentals; and other personalized
banking services. In addition, State Bank serves as a correspondent (federal
funds investing and check clearing purposes) for RFCBC's three operating
divisions (Peoples Bank, First Bank of Ottawa and Citizens Savings Bank).
RFS
RFS is a nationally-chartered trust and financial services company
and a wholly-owned subsidiary of State Bank. RFS offers various trust and
financial services, including asset management services for individuals and
corporate employee benefit plans as well as brokerage services through Raymond
James Financial, Inc.
3
RFS has two offices. The main office is located in State Bank's main
offices in Defiance, Ohio with the second located in Dayton, Ohio. At December
31, 2001, RFS had 26 full-time equivalent employees.
RMC
RMC is an Ohio corporation with its main office located in Defiance,
Ohio. RMC is a wholly-owned subsidiary of State Bank. RMC ceased originating
mortgage loans in the second quarter of 2000.
At December 31, 2001, RMC had no employees.
RFC BANKING COMPANY
Effective June 30, 2001, Peoples Bank, First Bank of Ottawa and
Citizens Savings Bank merged to form an Ohio state-chartered bank, RFC Banking
Company. RFCBC provides checking and NOW accounts; passbook savings and money
market accounts; time certificates of deposit; an automatic teller machine;
commercial, consumer, agricultural and residential loans; personal and corporate
trust services; commercial leasing; bank credit card services; safe deposit box
rentals and other personalized banking services. At December 31, 2001, RFCBC had
60 full-time equivalent employees.
Each of the RFCBC divisions described below maintains the following
offices and operates under their individual bank names.
PEOPLES BANK
The main office of Peoples Bank is located in Findlay, Ohio. Peoples
Bank operates one full-service branch in Findlay and one in McComb, Ohio.
FIRST BANK OF OTTAWA
The executive offices of First Bank of Ottawa are located at 405 East
Main Street, Ottawa, Ohio. At its present location, First Bank of Ottawa
operates four drive-in teller lanes and an automatic teller machine with a
traditional banking lobby on the first floor. First Bank of Ottawa presently
operates no branch offices.
CITIZENS SAVINGS BANK
The main office of Citizens Savings Bank is located in Pemberville,
Ohio. Citizens Savings Bank also operates a full-service branch in Gibsonburg,
Ohio.
RDSI
Substantially all of RDSI's business is comprised of providing data
processing services to 52 financial institutions in Ohio, Michigan and Indiana
(including State Bank and RFCBC), including information processing for financial
institution customer services, loan and deposit account information and data
analysis. At December 31, 2001, RDSI had 45 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 accepts
reinsurance ceded in part by AGAC
4
from the credit life and disability insurance purchased by customers of State
Bank and RFCBC (through its divisions, Peoples Bank, First Bank of Ottawa and
Citizens Savings Bank) from AGAC in connection with revolving credit loans
secured by mortgages and with certain installment loans made to such customers
by State Bank and RFCBC (though its divisions, Peoples Bank, First Bank of
Ottawa 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, 2001, Rurban Life has not accepted any other reinsurance. In
August 2000, the Corporation's banks ceased issuing credit life and disability
insurance contracts through AGAC. In September 2000, the Corporation's banks
entered into agreements with Individual Assurance Corporation ("IAC") and began
issuing credit life and disability insurance contract through IAC. At December
31, 2001, Rurban Life had no employees.
5
COMPETITION
State Bank and RFCBC 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 and RFCBC, and,
to a lesser extent, from savings associations, insurance companies, governmental
agencies, credit unions, securities brokerage firms and pension funds. The
primary factors in competing for loans are interest rates charged and overall
banking services.
Competition for deposits comes from other commercial banks, savings
associations, money market funds and credit unions as well as from insurance
companies and securities brokerage firms. The primary factors in competing for
deposits are interest rates paid on deposits, account liquidity and convenience
of office location.
RDSI also operates in a highly competitive field. RDSI competes
primarily on the basis of the value and quality of its data processing services,
and service and convenience to its customers.
Rurban Life operates in the highly competitive industry of credit
life and disability insurance. A large number of stock and mutual insurance
companies also operating in this industry have been in existence for longer
periods of time and have substantially greater financial resources than does
Rurban Life. The principal methods of competition in the credit life and
disability insurance industry are the availability of coverages, premium rates
and quality of service.
RFS operates in the highly competitive trust services field and its
competition is primarily other Ohio bank trust departments.
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.
6
RFS, as a nationally-chartered trust company, is regulated by the
OCC. As Ohio state-chartered banks, State Bank and RFCBC are supervised and
regulated by the Ohio Division of Financial Institutions. State Bank is
a member of the Federal Reserve System so its primary federal regulator is the
Federal Reserve Board. RFCBC is not a member of the Federal Reserve System so
its primary federal regulator is the Federal Deposit Insurance Corporation
("FDIC"). The deposits of State Bank and RFCBC are insured by the FDIC and as
such 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 and RFCBC
including requirements to maintain reserves against deposits, restrictions on
the nature and amount of loans which may be made and the interest that may be
charged thereon, restrictions relating to investments and other activities,
limitations on credit exposure to correspondent banks, limitations on activities
based on capital and surplus, limitations on payment of dividends, and
limitations on branching.
The Federal Reserve Board has adopted risk-based capital guidelines
for bank holding companies and for state member banks, such as State Bank. 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 1%-2% higher
for other bank holding companies and state member banks based on their
particular circumstances and risk profiles and those experiencing or
anticipating significant growth. State non-member banks such as RFCBC, are
subject to similar capital requirements adopted by the FDIC.
The Corporation and RFCBC at year end 2001 were categorized as well
capitalized while State Bank was adequately capitalized. The Corporation, State
Bank and the three banks which were merged to create RFCBC in 2001 were
categorized as well capitalized at year end 2000.
The federal banking regulators have established regulations governing
prompt corrective action to resolve capital deficient banks. Under these
regulations, institutions which become undercapitalized become subject to
mandatory regulatory scrutiny and limitations, which increase as capital
decreases. Such institutions are also required to file capital plans with their
7
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 to shareholders of the Corporation. State Bank and RFCBC 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 and RFCBC 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 and RFCBC are members of
BIF. The FDIC may increase assessment rates for either fund if necessary to
restore the fund's ratio of reserves to insured deposits to its target level
within a reasonable time and may decrease such rates if such target level has
been met. The FDIC has established a risk-based assessment system for both BIF
and SAIF members. Under this system, assessments vary based on the risk the
institution poses to its deposit insurance fund. The risk level is determined
based on the institution's capital level and the FDIC's level of supervisory
concern about the institution.
MONETARY POLICY AND ECONOMIC CONDITIONS
The commercial banking business is affected not only by general
economic conditions, but also by the policies of various governmental regulatory
authorities, including the Federal Reserve Board. The Federal Reserve Board
regulates money and credit conditions and interest rates in order to influence
general economic conditions primarily through open market operations in U.S.
Government securities, changes in the discount rate on bank borrowings and
changes in reserve requirements against bank deposits. These policies and
regulations significantly affect the overall growth and distribution of bank
loans, investments and deposits, and the interest rates charged on loans as well
as the interest rates paid on deposits and accounts.
8
The monetary policies of the Federal Reserve Board have had a
significant effect on the operating results of commercial banks in the past and
are expected to continue to have significant effects in the future. In view of
the changing conditions in the economy and the money market and the activities
of monetary and fiscal authorities, no definitive predictions can be made as to
future changes in interest rates, credit availability or deposit levels.
FINANCIAL SERVICES MODERNIZATION ACT OF 1999
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act, or the Financial Services Modernization Act of 1999,
which, effective March 11, 2000, permits bank holding companies to become
financial holding companies and thereby affiliate with securities firms and
insurance companies and engage in other activities that are financial in nature.
A bank holding company may become a financial holding company if each of its
subsidiary banks is well capitalized under the Federal Deposit Insurance
Corporation Act of 1991 prompt corrective action provisions, is well managed,
and has at least a satisfactory rating under the Community Reinvestment Act by
filing a declaration that the bank holding company wishes to become a financial
holding company. No regulatory approval will be required for a financial holding
company to acquire a company, other than a bank or savings association, engaged
in activities that are financial in nature or incidental to activities that are
financial in nature, as determined by the Federal Reserve Board.
The Financial Services Modernization Act defines "financial in
nature" to include: (i) securities underwriting, dealing and market making; (ii)
sponsoring mutual funds and investment companies; (iii) insurance underwriting
and agency; (iv) merchant banking activities; and (v) activities that the
Federal Reserve Board has determined to be closely related to banking.
As of the date of this Form 10-K, the Corporation has opted not to
become a financial holding company. The Corporation intends to continue to
analyze the proposed advantages and disadvantages of becoming a financial
holding company on a periodic basis.
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 OPERATIONS and the Consolidated Financial
Statements of the Corporation and its subsidiaries included at pages F-1 through
F-37 of this Annual Report on Form 10-K.
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:
ASSETS 2001 2000 1999
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Interest-earning assets
Securities available for sale (1)
Taxable $ 86,093,920 $ 74,441,630 73,661,147
Non-taxable 8,389,767 11,358,301 9,442,497
Federal funds sold 4,758,218 842,205 1,477,880
Loans, net of unearned income
and deferred loan fees (2) 583,238,599 542,411,783 461,342,591
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Total interest-earning assets 682,480,504 629,053,919 545,924,115
Allowance for loan losses (7,627,356) (6,652,365) (5,698,734)
----------------- ----------------- -----------------
674,853,148 622,401,554 540,225,381
Noninterest-earning assets
Cash and due from banks 24,496,305 18,474,413 16,953,255
Premises and equipment, net 12,089,689 10,960,222 11,188,449
Accrued interest receivable and
other assets 11,387,930 13,686,564 11,833,035
----------------- ----------------- -----------------
$ 722,827,072 $ 665,522,753 $ 580,200,120
================= ================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Deposits
Savings and interest-bearing
demand deposits $ 160,936,035 $ 167,696,509 $ 173,054,644
Time deposits 385,058,782 326,957,405 263,863,296
Short-term borrowings 8,916,001 19,961,260 11,313,555
Advances from Federal Home
Loan Bank (FHLB) 51,759,557 43,769,424 32,332,414
Junior subordinated debentures 9,702,395 3,229,999 -
Other borrowed funds - 4,314,728 4,100,000
----------------- ----------------- -----------------
Total interest-bearing liabilities 616,372,770 565,929,325 484,663,909
Noninterest-bearing liabilities
Demand deposits 47,207,819 43,773,329 45,760,449
Accrued interest payable and
other liabilities 6,538,340 9,192,932 6,809,194
----------------- ----------------- -----------------
670,118,929 618,895,586 537,233,552
Shareholders' equity (3) 52,708,143 46,627,167 42,966,568
----------------- ----------------- -----------------
$ 722,827,072 $ 665,522,753 $ 580,200,120
================= ================= =================
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(1) Securities available for sale are carried at fair value. The average
balance includes quarterly average balances of the market value adjustments
and daily average balances for the amortized cost of securities.
(2) Loan balances include principal balances of nonaccrual loans and loans held
for sale.
(3) Shown net of average net unrealized appreciation (depreciation) on
securities available for sale, net of tax. 10.
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.
------------------------------2001--------------------------
----
Average Average
Balance Interest Rate
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INTEREST-EARNING ASSETS
Securities (1)
Taxable $ 84,170,391 $ 5,462,886 6.49%
Non-taxable 8,380,942 615,453 (2) 7.34 (2)
Federal funds sold 4,758,218 167,133 3.51
Loans, net of unearned income and
deferred loan fees 583,238,599 (3) 50,482,611 (4) 8.66
---------------- ----------------
Total interest-earning assets $ 680,548,150 56,728,083 (2) 8.34% (2)
================
INTEREST-BEARING LIABILITIES
Deposits
Savings and interest-bearing
demand deposits $ 160,936,035 4,244,925 2.64%
Time deposits 385,058,782 22,169,421 5.76
Short-term borrowings 8,916,001 301,726 3.38
Advances from FHLB 51,759,557 2,986,829 5.77
Junior subordinated debentures 9,702,395 1,048,109 10.80
Other borrowed funds - 26,614 N/A
---------------- ----------------
Total interest-bearing liabilities $ 616,372,770 30,777,624 4.99% (5)
================ ----------------
Net interest income $ 25,950,459 (2)
================
Net interest income as a percent
of average interest-earning assets 3.81% (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 2001).
(3) Loan balances include principal balances of nonaccrual loans and loans held
for sale.
(4) Includes net fees on loans of $1,863,508 in 2001.
(5) Excludes approximately $47,207,000 in noninterest-bearing demand deposits.
If such balances were included, the average rate would be 4.64%.
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I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)
------------------------------2000--------------------------
----
Average Average
Balance Interest Rate
------- -------- ----
INTEREST-EARNING ASSETS
Securities (1)
Taxable $ 76,005,166 $ 4,978,266 6.55%
Non-taxable 11,906,739 897,333 (2) 7.54 (2)
Federal funds sold 842,205 48,035 5.70
Loans, net of unearned income and
deferred loan fees 542,411,783 (3) 50,404,396 (4) 9.29
---------------- ----------------
Total interest-earning assets $ 631,165,893 56,328,030 (2) 8.92% (2)
================
INTEREST-BEARING LIABILITIES
Deposits
Savings and interest-bearing
demand deposits $ 167,696,509 5,858,448 3.49%
Time deposits 326,957,405 19,033,922 5.82
Short-term borrowings 19,961,260 1,358,778 6.81
Advances from FHLB 43,769,424 2,707,345 6.19
Junior subordinated debentures 3,229,999 335,667 10.39
Other borrowed funds 4,314,728 340,909 7.90
---------------- ----------------
Total interest-bearing liabilities $ 565,929,325 29,635,069 5.24% (5)
================ ----------------
Net interest income $ 26,692,961 (2)
================
Net interest income as a percent
of average interest-earning assets 4.23% (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 2000).
(3) Loan balances include principal balances of nonaccrual loans and loans held
for sale.
(4) Includes net fees on loans of $1,836,580 in 2000.
(5) Excludes approximately $43,773,000 in noninterest-bearing demand deposits.
If such balances were included, the average rate would be 4.86%.
12
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)
------------------------------1999--------------------------
----
Average Average
Balance Interest Rate
------- -------- ----
INTEREST-EARNING ASSETS
Securities (1)
Taxable $ 73,801,410 $ 4,553,538 6.17%
Non-taxable 10,019,393 754,935 (2) 7.53 (2)
Federal funds sold 1,477,880 76,408 5.17
Loans, net of unearned income and
deferred loan fees 461,342,591 (3) 39,824,608 (4) 8.63
---------------- ----------------
Total interest-earning assets $ 546,641,274 45,209,489 (2) 8.27% (2)
================
INTEREST-BEARING LIABILITIES
Deposits
Savings and interest-bearing
demand deposits $ 173,054,644 5,500,812 3.18%
Time deposits 263,863,296 13,525,640 5.13
Short-term borrowings 11,313,555 617,027 5.45
Advances from FHLB 32,332,414 1,765,513 5.46
Other borrowed funds 4,100,000 334,921 8.17
---------------- ----------------
Total interest-bearing liabilities $ 484,663,909 21,743,913 4.49% (5)
================ ----------------
Net interest income $ 23,465,576 (2)
================
Net interest income as a percent
of average interest-earning assets 4.29% (2)
- --------------------------------------------------------------------------------
(1) Securities balances represent daily average balances for the amortized cost
of securities. The average rate is calculated based on the amortized cost
of securities.
(2) Computed on tax equivalent basis for non-taxable securities (34% statutory
tax rate in 1999).
(3) Loan balances include principal balances of nonaccrual loans and loans held
for sale.
(4) Includes net fees on loans of $1,368,444 in 1999.
(5) Excludes approximately $45,760,449 in noninterest-bearing demand deposits.
If such balances were included, the average rate would be 4.10%.
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I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIAL (Continued)
C. The following tables set forth the effect of volume and rate changes on
interest income and expense for the periods indicated. For purposes of
these tables, changes in interest due to volume and rate were determined as
follows:
Volume Variance - change in volume multiplied by the previous year's rate.
Rate Variance - change in rate multiplied by the previous year's volume.
Rate/Volume Variance - change in volume multiplied by the change in rate.
This variance was allocated to volume variance and rate variance in
proportion to the relationship of the absolute dollar amount of the change
in each. Interest on non-taxable securities has been adjusted to a fully
tax equivalent basis using a statutory tax rate of 34% in 2001, 2000 and
1999.
Total Variance Attributable To
Variance -------------------------
2001/2000 Volume Rate
--------- ------ ----
INTEREST INCOME
Securities
Taxable $ 484,620 $ 530,326 $ (45,706)
Non-taxable (281,880) (259,457) (22,423)
Federal funds sold 119,098 144,098 (25,000)
Loans, net of unearned income
and deferred loan fees 78,215 3,657,773 (3,579,558)
-------------- -------------- ----------------
400,053 4,072,740 (3,672,687)
INTEREST EXPENSE
Deposits
Savings and interest-bearing
demand deposits (1,613,523) (228,000) (1,385,523)
Time deposits 3,135,499 3,347,310 (211,811)
Short-term borrowings (1,057,052) (553,786) (503,266)
Advances from FHLB 279,484 469,985 (190,501)
Junior subordinated debentures 712,442 698,672 13,770
Other borrowed funds (314,295) (170,455) (143,840)
-------------- -------------- ----------------
1,142,555 3,563,726 (2,421,171)
-------------- -------------- ----------------
NET INTEREST INCOME $ (742,502) $ 509,014 $ (1,251,516)
============== ============== ================
14
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)
Total Variance Attributable To
Variance --------------------------
2000/1999 Volume Rate
-------------- -------------- ----------------
INTEREST INCOME
Securities
Taxable $ 424,728 $ 138,706 $ 286,022
Non-taxable 142,398 142,237 161
Federal funds sold (28,373) (35,600) 7,227
Loans, net of unearned income
and deferred loan fees 10,579,788 7,371,120 3,208,668
-------------- -------------- ----------------
11,118,541 7,616,463 3,502,078
INTEREST EXPENSE
Deposits
Savings and interest-bearing
demand deposits 357,636 (174,334) 531,970
Time deposits 5,508,282 3,514,175 1,994,107
Short-term borrowings 741,751 559,979 181,772
Advances from FHLB 941,832 684,806 257,026
Junior subordinated debentures 335,667 335,667 -
Other borrowed funds 5,988 17,187 (11,199)
-------------- -------------- ----------------
7,891,156 4,937,480 2,953,676
-------------- -------------- ----------------
NET INTEREST INCOME $ 3,227,385 $ 2,678,983 $ 548,402
============== ============== ================
15
II. INVESTMENT PORTFOLIO
A. The book value of securities available for sale as of December 31
are summarized as follows:
2001 2000 1999
---- ---- ----
U.S. Treasury and Government agencies $ 16,881,118 $ 22,896,320 $ 19,376,264
Obligations of states and
political subdivisions 4,797,862 12,575,609 10,581,971
Mortgage-backed securities 62,981,046 49,930,790 50,565,523
Corporate Securities 6,179,483 - -
Mutual Funds 10,000,000 - -
Marketable equity securities 3,536,042 3,502,239 2,595,150
--------------- --------------- ----------------
$ 104,375,551 $ 88,904,958 $ 83,118,908
=============== =============== ================
B. The maturity distribution and weighted average yield of securities
available for sale at December 31, 2001 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 Government agencies $ - $ 15,618,787 $ 1,262,331 $ -
Obligations of states and political
subdivisions 185,219 1,086,693 2,220,319 1,305,631
Mortgage-backed securities (2) 546,169 3,933,343 17,779,878 40,721,656
Corporate securities - 6,129,483 50,000 -
Mutual Funds - - - 10,000,000
Marketable equity securities - - - 3,536,042
------------- --------------- ------------- --------------
$ 731,388 $ 26,768,306 $ 21,312,528 $ 55,563,329
============= =============== ============= ==============
Weighted average yield (1) 6.42% 5.02% 6.37% 5.70%
(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. At December 31, 2001, the Corporation had an investment with an
amortized cost of approximately $10,051,000 and a fair value of
approximately $10,000,000 in the Federated Ultrashort Bond Fund.
Excluding those holdings of the investment portfolio in U.S. Treasury
securities and other agencies of the U.S. Government, there were no
other securities of any one issuer which exceeded 10% of the
shareholders' equity of the Corporation at December 31, 2001.
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:
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Commercial and
agricultural $ 388,673,339 $ 362,927,760 $ 326,564,165 $ 248,840,548 $ 217,324,268
Real estate
mortgage 106,689,148 107,717,699 80,703,338 72,225,323 75,212,817
Consumer
loans to
individuals 105,264,384 106,342,607 94,410,123 73,244,850 67,198,876
---------------- ---------------- ----------------- ----------------- -----------------
$ 600,626,871 $ 576,988,066 $ 501,677,626 $ 394,310,721 $ 359,735,961
================ ================ ================= ================= =================
Real estate
mortgage
loans held
for resale $ 439,991 $ 1,166,716 $ 7,149,585 $ 18,509,275 $ 4,404,327
================ ================ ================= ================= =================
CONCENTRATIONS OF CREDIT RISK: The Corporation grants commercial, real estate
and installment loans to customers mainly in northern Ohio. Commercial loans
include loans collateralized by commercial real estate, business assets and
agricultural loans collateralized by crops and farm equipment. As of December
31, 2001, commercial and agricultural loans make up approximately 65% of the
loan portfolio and the loans are expected to be repaid from cash flow from
operations of businesses. As of December 31, 2001, residential first mortgage
loans make up approximately 18% of the loan portfolio and are collateralized by
first mortgages on residential real estate. As of December 31, 2001, consumer
loans to individuals make up approximately 17% 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 and agricultural
loans outstanding as of December 31, 2001 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 and agricultural loans due
after one year. (Variable-rate loans are those loans with floating or
adjustable interest rates.)
Commercial and
Maturing Agricultural
-------- ------------
Within one year $ 142,445,000
After one year but within five years 131,365,000
After five years 114,863,000
---------------
$ 388,673,000
===============
</Table>
17
III. LOAN PORTFOLIO (Continued)
<Table>
<Caption>
Commercial and Agricultural
---------------------------
Interest Sensitivity
--------------------
Fixed Variable
Rate Rate Total
---- ---- -----
Due after one year but
within five years $ 50,117,000 $ 81,248,000 $ 131,365,000
Due after five years 12,842,000 102,021,000 114,863,000
---------------- --------------- ---------------
$ 62,959,000 $ 183,269,000 $ 246,228,000
================ =============== ===============
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.
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(In thousands)
(a) Loans accounted for on a
nonaccrual basis $ 12,557 (1) $ 2,950 (1) $ 1,403 (1) $ 1,880 (1) $ 2,303 (1)
(b) Accruing loans which
are contractually
past due 90 days or
more as to interest
or principal payments 2,131 1,927 809 (1) 1,742 462
(c) Loans not included in (a)
which are "Troubled
Debt Restructurings" as
defined by Statement of
Financial Accounting
Standards No. 15 - 3,911 (1) - - -
---------- ---------- ---------- ---------- ------------
Total non-performing
loans $ 14,688 $ 8,788 $ 2,212 $ 3,622 $ 2,765
========== ========== ========== ========== ============
(d) Other loans defined as
impaired $ - $ 1,624 $ 1,103 $ - $ -
========== ========== ========== ========== ============
(1) Includes loans defined as "impaired" under SFAS No. 114.
18
III. LOAN PORTFOLIO (Continued)
Management believes the allowance for loan losses at December 31, 2001 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 probable 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.
2001
----
(In thousands)
Gross interest income that would have been recorded in 2001 on
nonaccrual loans outstanding at December 31, 2001 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 $589
Interest income actually recorded on nonaccrual loans and included in net income
for the period 205
---------
Interest income not recognized during the period $384
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, 2001, in addition to the $14,688,000 of
loans reported under Item III. C. 1. (which includes all
loans classified by management as doubtful or loss), there
are approximately $25,756,000 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 (loans classified as substandard by
management) and which may result in disclosure of such loans
pursuant to Item III. C. 1. at some future date. In regard
to loans classified as substandard, management believes that
such potential problem loans have been adequately evaluated
in the allowance of loan losses.
19
III. LOAN PORTFOLIO (Continued)
3. Foreign Outstandings
None
4. Loan Concentrations
At December 31, 2001, loans outstanding related to
agricultural operations or collateralized by agricultural
real estate aggregated approximately $67,137,000. At
December 31, 2001, there were no agriculture loans which
were accounted for on a nonaccrual basis; and there were no
agriculture loans which are contractually past due ninety
days or more as to interest or principal payments.
D. OTHER INTEREST-BEARING ASSETS
Other than $326,000 in foreclosed real estate, there are no other
interest-bearing assets as of December 31, 2001 which would be
required to be disclosed under Item III. C. 1 or Item III. C. 2.
if such assets were loans.
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:
2001 2000 1999 1998 1997
------------- ------------- ------------- ------------- -------------
LOANS
Loans outstanding at end of period (1) $ 600,730,921 $ 577,802,941 $ 508,480,963 $ 412,478,828 $ 363,851,637
============= ============= ============= ============= =============
Average loans outstanding during period (1) $ 583,238,599 $ 542,411,783 $ 461,342,591 $ 376,126,488 $ 342,480,740
============= ============= ============= ============= =============
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $ 7,214,970 $ 6,193,712 $ 5,408,854 $ 5,239,601 $ 5,066,600
Loans charged-off
Commercial and agricultural loans (6,089,530 (641,088) (578,228) (885,132) (438,317)
Real estate mortgage (53,720 (22,195) (25,181) (59,940) (30,863)
Consumer loans to individuals (1,029,707 (906,211) (489,032) (390,420) (856,426)
------------- ------------- ------------- ------------- -------------
(7,172,957 (1,569,494) (1,092,441) (1,335,492) (1,325,606)
Recoveries of loans previously charged-off
Commercial and agricultural loans 109,813 106,048 327,122 248,054 308,283
Real estate mortgage 1,299 22,780 72,045 3,610 6,877
Consumer loans to individuals 352,811 361,924 263,132 173,081 235,482
------------- ------------- ------------- ------------- -------------
463,923 490,752 662,299 424,745 550,642
------------- ------------- ------------- ------------- -------------
Net loans charged-off (6,709,034 (1,078,742) (430,142) (910,747) (774,964)
Provision for loan losses 8,733,000 2,100,000 1,215,000 1,080,000 947,965
------------- ------------- ------------- ------------- -------------
Balance at end of period $ 9,238,936 $ 7,214,970 $ 6,193,712 $ 5,408,854 $ 5,239,601
============= ============= ============= ============= =============
Ratio of net charge-offs during the period to
average loans outstanding during the period 1.15 % .20% .09% .24% .23%
============= ============= ============= ============= =============
(1) Net of unearned income and deferred loan fees, including loans held for
sale
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 in 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, 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.
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 Percentage
of Loans of Loans of Loans
In Each In Each In Each
Category to Category To Category to
Allowance Total Allowance Total Allowance Total
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
December 31, 2001* December 31, 2000 December 31, 1999
----------------- ----------------- -----------------
Commercial, and agricultural $ 8,222,000 64.7% $ 5,365,000 62.9% $ 4,371,000 65.1%
Residential first mortgage 126,000 17.8 202,000 18.7 93,000 16.1
Consumer loans to
individuals 890,936 17.5 814,000 18.4 553,000 18.8
Unallocated * N/A 833,970 N/A 1,176,712 N/A
-------------- ------- ------------- ------ -------------- -------
$ 9,238,936 100.0% $ 7,214,970 100.0% $ 6,193,712 100.0%
============== ===== ============= ===== ============== =====
-----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, 1998 December 31, 1997
----------------- -----------------
Commercial, and agricultural $ 2,704,000 63.1% $3,678,000 60.4%
Residential first mortgage 144,000 18.3 203,000 20.9
Consumer loans to
individuals 1,026,000 18.6 742,000 18.7
Unallocated 1,534,854 N/A 616,601 N/A
------------- --- ------------ -------
$ 5,408,854 100.0% $5,239,601 100.0%
============= ===== ========== =====
* In 2001, management established a revised methodology for allocating the
allowance for loan losses which includes identifying specific allocations for
impaired and problem loans and quantifying general allocations for other
loans based on a detailed evaluation of historical loss ratios. Adjustments
are then made to these amounts based on various quantifiable information
related to individual portfolio risk factors. Additional adjustments are made
based on a local and national economic trends and their estimated impact on
the industries to which the Company extends credit. Prior to 2001, individual
portfolio risk factors allocations were made on a more subjective basis.
Management believes the new methodology more appropriately allocates the
allowance for known and inherent risks within the individual loan portfolios.
While management's periodic analysis of the adequacy of the allowance for loan
losses may allocate portions of the allowance for specific problem loan
situations, the entire allowance is available for any loan charge-offs that
occur.
22
V. DEPOSITS
The average amount of deposits and average rates paid are summarized as
follows for the years ended December 31:
2 0 0 1 2 0 0 0
------- -------
Average Average Average Average
Amount Rate Amount Rate
------ ---- ------ ----
Savings and interest-bearing demand deposits $ 160,936,035 2.64% $ 78,724,650 2.19%
Time deposits 385,058,782 5.76 415,929,264 5.57
Demand deposits (noninterest-bearing) 47,207,819 - 43,773,329 -
----------------- ------------------
$ 593,202,636 $ 538,427,243
================= ==================
1 9 9 9
-------
Average Average
Amount Rate
------ ----
Savings and interest-bearing demand deposits $ 82,291,784 2.03%
Time deposits 354,626,156 4.89
Demand deposits (noninterest-bearing) 45,760,449 -
-----------------
$ 482,678,389
=================
Maturities of time certificates of deposit and other time deposits of
$100,000 or more outstanding at December 31, 2001 are summarized as
follows:
Amount
------
Three months or less $ 27,923,000
Over three months and through six months 44,047,000
Over six months and through twelve months 46,572,000
Over twelve months 45,501,000
---------------
$ 164,043,000
===============
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:
2001 2000 1999
---- ---- ----
Average total assets $ 722,827,072 $ 665,522,753 $ 580,200,120
================= ================== ==================
Average shareholders' equity (1) $ 52,708,143 $ 46,627,167 $ 42,966,568
================= ================== ==================
Net income $ 2,252,958 $ 6,086,178 $ 5,230,902
================= ================== ==================
Cash dividends declared $ 2,158,392 $ 1,888,104 $ 1,692,641
================= ================== ==================
Return on average total assets .31% .91% .90%
=== === ===
Return on average share-
holders' equity 4.27% 13.05% 12.17%
==== ===== =====
Dividend payout ratio (2) 95.80% 31.02% 32.36%
===== ===== =====
Average shareholders' equity
to average total assets 7.29% 7.01% 7.41%
==== ==== ====
(1) Net of average unrealized appreciation or depreciation on securities
available for sale.
(2) Cash dividends declared divided by net income.
VII. SHORT-TERM BORROWINGS
The Corporation did not have any category of short-term borrowings for
which the average balance outstanding during 2001 was 30 percent or more of
shareholders' equity at the end of the reported period.
The following information is reported for federal funds purchased for
2000 and 1999:
2000 1999
---- ----
Amount outstanding at end of year $ 13,200,000 $ 10,900,000
================= ===================
Weighted average interest rate at end of year 6.44% 5.73%
==== ========
Maximum amount outstanding at any month end $ 31,005,000 $ 18,200,000
================= ===================
Average amount outstanding during the year $ 19,961,260 $ 11,313,555
================= ===================
Weighted average interest rate during the year 6.81% 5.45%
==== ========
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 2,023 square feet on the second floor are leased to
RDSI, 7,294 square feet on the second floor are leased to RFS and
2,868 square feet on the lower level are leased to the Corporation.
Remodeling commenced in the 4th quarter of 2001.
2. A drive through branch office located in downtown Defiance, Ohio
containing 3,200 square feet of floor space was built in 1961. Most of
the space is in the basement which is used for storage. It contains a
three-bay drive-thru, two inside teller locations, an ATM and a night
deposit unit.
3. A full service branch office located on Main Street in Ney, Ohio
containing 1,536 square feet of floor space was opened in 1968.
4. A full service branch office located at 1796 North Clinton Street,
Defiance, Ohio containing 2,120 square feet of floor space was opened
in 1968. It is a free standing structure located in front of a
shopping center. The branch was remodeled in 2000.
5. A full service branch office located at 1856 East Second Street,
Defiance, Ohio containing 2,160 square feet of floor space was opened
in 1972 and remodeled in 1998. It is a free standing structure located
in front of a shopping center.
6. A full service branch office located at 220 North Main Street,
Paulding, Ohio containing 6,200 square feet of floor space was opened
in 1980 and most recently remodeled in 1999.
25
7. A full service branch office located at 312 Main Street, Delta, Ohio
containing 3,470 square feet of floor space was acquired from Society
Bank & Trust ("Society") in 1992.
8. A full service branch office located at 133 E. Morenci Street, Lyons,
Ohio containing 2,578 square feet of floor space was acquired from
Society in 1992.
9. A full service branch office located at 515 Parkview, Wauseon, Ohio
containing 3,850 square feet of floor space was acquired from Society
in 1992. This office was remodeled in 1998.
10. A full service branch located in the Chief Market Square supermarket
at 705 Deatrick Street, Defiance, Ohio and containing 425 square feet
was opened in 1993. State Bank leases the space in which this branch
is located pursuant to a 15-year lease. This office was remodeled in
2001.
11. A full service branch office located at 1991 Crocker Road, Suite 204,
Westlake, Ohio containing 1,364 square feet was opened in 1998. State
Bank leases the space in which this branch is located. This office was
remodeled in 2001.
12. A full service branch office located at 137 S. Main St., Suite 302,
Akron, Ohio which opened in 2000 was closed in the fourth quarter of
2001. State Bank leased the space in which this branch was located.
13. A full service branch office located at 218 North First Street,
Oakwood, Ohio 45873 with 3,226 square feet of space is leased by State
Bank.
14. A full service branch office located at 100 South Main Street, Grover
Hill, Ohio 45849 with 1,556 square feet of space is leased by State
Bank.
The following is a listing and brief description of the properties
owned by RFCBC used in its business:
PEOPLES BANK
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. This office was remodeled in 2001.
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. The establishment of a full service branch office at 101 N. Main
Street, Arcadia, Ohio was approved July 21, 2000; a 1,750 square foot
office is under construction and is expected to open in June, 2002.
This office will be leased.
FIRST BANK OF OTTAWA
The real property owned by First Bank of Ottawa is the location of
the Bank at 405 East Main Street, Ottawa, Ohio. First Bank of Ottawa's facility
is a two-story brick and steel building
26
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.
CITIZENS SAVINGS BANK
1. The full service main office is located at 132 East Front Street,
Pemberville, Ohio and contains 6,389 square feet. It was built near
the turn of the century and was completely remodeled and added on to
in 1992.
2. A full service branch office located at 230 West Madison Street,
Gibsonburg, Ohio occupies 2,520 square feet and was built in 1988.
RMC is the master lessee of Oak Creek Offices. This office space is located
at Estancia Boulevard, Suite 202, Clearwater, Florida. This space is leased to
various tenants.
RDSI leases a 5,616 square foot office space located at 2010 South
Jefferson, Defiance, Ohio. This office was first leased on December 21, 1999.
RDSI also leases 2,023 square feet on the second floor of the State Bank
building located at 401 Clinton Street, Defiance, Ohio.
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.
27
EXECUTIVE OFFICERS OF THE REGISTRANT.
- ------------------------------------
The following table lists the names and ages of the executive
officers of the Corporation as of the date of this Annual Report on Form 10-K,
the positions presently held by each such executive officer and the business
experience of each such executive officer during the past five years. Unless
otherwise indicated, each person has held his principal occupation(s) for more
than five years. All executive officers serve at the pleasure of the Board of
Directors of the Corporation.
Position(s) Held with the Corporation and
Name Age Its Subsidiaries and Principal Occupation(s)
---- --- --------------------------------------------
Steven D. VanDemark 49 Chairman of the Board of Directors of the Corporation;
Chairman of the Board of Directors of State Bank;
Chairman of the Board of Directors of RFCBC; Director of
RDSI; General Manager of Defiance Publishing Company,
Defiance, Ohio, a newspaper publisher.
Thomas C. Williams 53 President and Chief Executive Officer of the Corporation
since June 1995; Director of the Corporation, State Bank,
RFCBC, Rurban Life, RFS, and RDSI. President and Chief
Executive Officer of State Bank, June 1995 to August 1996.
Robert W. Constien 49 Senior Executive Vice President & Chief Operating Officer
since November 22, 2000; Executive Vice President of the
Corporation from March, 1997 to November 2000; 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 since 1996; President and Chief Executive Officer
of State Bank since April 2002; 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 57 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.
28
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS.
The common shares of the Corporation are traded on the NASDAQ National Market,
(symbol "RBNF") effective November 6, 2001. Prior to that date, the common
shares of the Corporation were traded on the OTC Bulletin Board. The table below
sets forth the high and low closing prices and the cash dividends declared with
respect to the common shares of the Corporation for the indicated periods. The
high and low closing prices reflect actual prices for purchases and sales of the
Corporation's common shares as reported by NASDAQ and not inter-dealer prices.
The per share amounts have been restated for the 5% stock dividend declared in
2000 and 2001.
Per Share Per Share
Closing Prices Dividends
2000 High Low Declared
---- ---- --- --------
First Quarter $ 12.92 $ 11.79 $ .100
Second Quarter 12.69 11.56 .100
Third Quarter 12.86 11.68 .100
Fourth Quarter 12.38 11.33 .114
2001
----
First Quarter $ 12.38 $ 11.07 $ .114
Second Quarter 13.33 11.78 .114
Third Quarter 14.75 12.85 .114
Fourth Quarter 15.29 13.45 .130
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.
The approximate number of holders of outstanding common shares of the
Corporation, based upon the number of record holders as of March 31, 2002 was
1,479.
FORM 10-K
The Corporation will provide without charge to each shareholder, upon written
request to Rurban Financial Corp., P.O. Box 467, Defiance, Ohio 43512,
Attention: Sandra Stockhorst, Investor Relations Department, a copy of the
Corporation's Annual Report on Form 10-K, including the Financial Statements and
Schedules thereto required to be filed with the Securities and Exchange
Commission, for the Corporation's most recent fiscal year.
29
ITEM 6. SELECTED FINANCIAL DATA.
SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
Year Ended December 31, 2001 2000 1999 1998 1997
---- ---- ---- ---- ----
EARNINGS
Total interest income $ 56,519 $ 56,023 $ 44,953 $ 39,293 $ 36,582
Total interest expense 30,778 29,635 21,744 18,743 16,689
Net interest income 25,741 26,388 23,209 20,550 19,893
Provision for loan losses 8,733 2,100 1,215 1,080 948
Total noninterest income 14,162 11,273 11,064 10,511 8,294
Total noninterest expense 28,018 26,754 25,466 23,630 19,253
Income tax expense 899 2,721 2,361 2,073 2,470
Net income 2,253 6,086 5,231 4,278 5,516
- -----------------------------------------------------------------------------------------------------------------
PER SHARE DATA (1)
Basic earnings $ .50 $ 1.35 $ 1.16 $ .95 $ 1.12
Diluted earnings .50 1.35 1.16 .94 1.12
Cash dividends declared .47 .42 .37 .36 .33
- -----------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES
Average shareholders'
equity $ 52,708 $ 46,627 $ 42,967 $ 40,431 $ 42,151
Average total assets 722,827 665,523 580,200 493,957 452,011
- -----------------------------------------------------------------------------------------------------------------
RATIOS
Return on average
shareholders' equity 4.27% 13.05% 12.17% 10.58% 13.09%
Return on average total
assets .31 .91 .90 .87 1.22
Cash dividend payout
ratio (cash dividends
divided by net income) 92.61 31.02 32.36 38.83 29.89
Average shareholders'
equity to average total
assets 7.29 7.01 7.41 8.19 9.33
- -----------------------------------------------------------------------------------------------------------------
PERIOD END TOTALS
Total assets $ 746,209 $ 700,818 $ 627,784 $ 537,155 $ 471,371
Total loans and leases 600,627 576,988 501,678 394,311 359,736
Total deposits 610,860 566,321 519,296 450,813 415,181
Advances from FHLB 54,275 52,164 40,035 28,890 7,530
Junior subordinated
debentures 9,706 9,697 - - -
Shareholders' equity 50,829 50,140 43,900 41,903 39,094
Shareholders' equity
per share (1) 11.14 10.98 9.62 9.18 8.56
(1) Per share data restated for two-for-one stock split declared in
1998, 5% stock dividend declared in 2000 and 5% stock dividend
declared in 2001.
30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
EARNINGS SUMMARY
Net earnings for the year were $2.3 million, or $.50 per diluted share, compared
with the $6.1 and $5.2 million, or $1.35 and $1.16 per diluted share, reported
for 2000 and 1999, respectively. Cash dividends declared per share increased to
$.47 for 2001 compared to $.42 in 2000 and $.37 in 1999. Per share data has been
adjusted to reflect the 5% stock dividends paid in September 2001 and 2000.
RESULTS OF OPERATIONS
Year Ended Year Ended
December 31, December 31,
----------- -----------
2001 2000 % Change 2000 1999 % Change
--------------------------------------------------------------------------------
(dollars in thousands except per share data)
--------------------------------------------------------------------------------
Total Assets $746,209 $700,818 +6% $700,818 $627,784 +12%
Total Loans (Net) 591,052 569,421 +4% 569,421 495,138 +15%
Total Deposits 610,860 566,321 +8% 566,321 519,296 +9%
Total Revenues (Net) 39,903 37,661 +6% 37,661 34,273 +10%
Net Interest Income 25,741 26,388 -3% 26,388 23,209 +14%
Noninterest Income 14,162 11,273 +26% 11,273 11,064 +2%
Loan Loss Provision 8,733 2,100 +316% 2,100 1,215 +73%
Noninterest Expense 28,018 26,754 +5% 26,754 25,466 +5%
Net Income 2,253 6,086 -63% 6,086 5,231 +16%
Basic Earnings per Share $.50 $1.35 -63% $1.35 $1.16 +16%
Diluted Earnings per Share $.50 $1.35 -63% $1.35 $1.16 +16%
TOTAL REVENUES
Year Ended Year Ended
December 31, December 31,
----------- -----------
2001 2000 % Change 2000 1999 % Change
-------------------------------------------------------------------------------
(dollars in thousands)
-------------------------------------------------------------------------------
Total Revenues (Net) $39,903 $37,661 +6% $37,661 $34,273 +10%
Total revenues for 2001 totaled $39.9 million compared to $37.7 million for
2000, up $2.2 million, or 6%. Total revenues for 2000 increased $3.4 million, or
10%, over 1999.
31
NET INTEREST INCOME
Year Ended Year Ended
December 31, December 31,
----------- -----------
2001 2000 % Change 2000 1999 % Change
-------------------------------------------------------------------------------
(dollars in thousands)
-------------------------------------------------------------------------------
Net Interest Income $25,741 $26,388 -3% $26,388 $23,209 +14%
NET INTEREST INCOME declined $647,000 from 2000 to $25.7 million in 2001 despite
a 4% growth in the net loan portfolio. The decrease was a direct result of the
effect on our asset sensitive balance sheet of 11 rate decreases which reduced
the prime rate from 9.50% to 4.75%. The net interest margin for 2001 was 3.81%
compared to 4.23% for the previous year. The unprecedented steep decline in the
prime rate compressed the net interest margin as the decline in interest income
on loans exceeded the pace of the decline in funding costs. The 42 basis point
decline in the net interest margin was largely due to a 58 basis point decrease
in the yield on earning assets from 8.92% to 8.34% which was not fully offset by
a 25 basis point decrease in the Company's cost of funds.
NET INTEREST INCOME for 2000 was $26.4 million, an increase of $3.2 million, or
14%, over 1999. The increase was primarily due to an 18% increase in the average
balance of net loans and a 66 basis point increase in the average yield on net
loans. The increase in loan yield, partially offset by a 75 basis point increase
in the average rate on interest bearing liabilities to 5.24% in 2000 from 4.49%
in 1999, along with volume increases in interest earning assets and
interest-bearing liabilities, combined to result in a decline of 6 basis points
in the tax equivalent net interest margin to 4.23% in 2000 from 4.29% in 1999.
NONINTEREST INCOME
Year Ended Year Ended
December 31, December 31,
----------- -----------
2001 2000 % Change 2000 1999 % Change
-----------------------------------------------------------------------------
(dollars in thousands)
-----------------------------------------------------------------------------
Total Noninterest Income $ 14,162 $ 11,273 +26% $ 11,273 $ 11,064 +2%
- Data Service Fees $ 6,126 $ 5,124 +20% $ 5,124 $ 4,382 +17%
- Deposit Service Fees $ 2,593 $ 1,744 +49% $ 1,744 $ 1,463 +19%
- Gains on Sale of Loans $ 889 $ 387 +130% $ 387 $ 1,147 -66%
- Gains on Sale of Securities $ 490 $ (81) N/A $ (81) $ (6) -1,250%
NONINTEREST INCOME increased $2.9 million, or 26%, from 2000 to $14.2 million in
2001. The increase was primarily due to a $1.0 million increase in data service
fees from the Company's bank data processing subsidiary, Rurbanc Data Services,
Inc. ("RDSI"), an $849,000 increase in deposit service fees due to a new product
introduction, and a $1.1 million increase in gains on sale of loans and
securities. Growth in data processing fees and in deposit and servicing fees is
expected to continue, while gains on sale of loans are expected to decline as
refinancing slows. Significant gains on sale of securities are not anticipated
in 2002.
32
TOTAL NONINTEREST INCOME increased $.2 million to $11.3 million in 2000 from
$11.1 million in 1999. This growth was driven by data service fees which
increased $.7 million (17%) to $5.1 million in 2000 compared to $4.4 million in
1999. The primary reasons for this increase were increases in the number of
customer accounts processed and in the level of sales of complementary data
processing products. The increase in the number of accounts was a result of
customer account growth at client banks. Deposit service fees increased $.3
million (19%) to $1.7 million. Gains on sale of loans decreased $.8 million to
$.4 million in 2000 as compared to $1.1 million in 1999. This decrease was the
result of lower volume of loan sales in 2000 compared to 1999.
RURBANC DATA SERVICES, INC. ("RDSI")
Year Ended Year Ended
December 31, December 31,
----------- -----------
2001 2000 % Change 2000 1999 % Change
-------------------------------------------------------------------------------
(Dollars in thousands)
-------------------------------------------------------------------------------
Data Service Fees $6,126 $5,124 +20% $5,124 $4,382 +17%
RDSI PROVIDES data processing services for 53 community banks in Ohio, Michigan
and Indiana. RDSI differentiates itself from its competition through the quality
of its products and the excellence of its customer service. The applications
utilized by RDSI are driven by world-class software used by over 3,600 banks
nationwide. Customer service encompasses on-time delivery every morning and a
discipline of responding to and resolving customer questions and issues within
one hour in excess of 90% of the time. Finally, RDSI can provide turnkey
solutions for its clients through its partnerships with vendors experienced in a
full array of banking products.
RDSI'S GROWTH comes from both new and existing clients. In the past five years,
the number of bank clients has more than doubled. Equally important is the
growth of client banks, both in their number of customer accounts and in the
breadth of services provided. Network services, internet banking and other
technical services are a rapidly growing part of RDSI's revenue.
NONINTEREST EXPENSE
Year Ended Year Ended
December 31, December 31,
----------- -----------
2001 2000 % Change 2000 1999 % Change
------------------------------------------------------------------------------
(dollars in thousands)
------------------------------------------------------------------------------
Total Noninterest Expense $28,018 $26,754 +5% $26,754 $25,466 +5%
- Salaries & Employee Benefits $15,448 $15,095 +2% $15,095 $14,389 +5%
- All Other $12,570 $11,659 +8% $11,659 $11,077 +5%
33
NONINTEREST EXPENSE for the year 2001 was $28.0 million, up 5% from $26.8
million in 2000. The noninterest expense increase was limited to 5% as incentive
compensation declined by $750,000, resulting in an increase in compensation of
less than 1%. Employee benefits increased $270,000 or 9% primarily due to a
$224,000 or 28% increase in group insurance. Noninterest expense other than
salaries and benefits increased $911,000 or 8%.
TOTAL NONINTEREST EXPENSE increased $1.3 million (5%) to $26.8 million in 2000,
from $25.5 million in 1999, primarily due to the following factors. Salaries and
employee benefits increased $.7 million (4.9%) to $15.1 million in 2000 compared
to $14.4 million in 1999. This increase was due primarily to increases in ESOP
contributions and other employee benefits, as compensation expense from annual
merit increases was fully offset by the $.5 million reduction in salaries from
the discontinuation of operations at RMC. Equipment rentals, depreciation and
maintenance increased $.4 million primarily due to the upgrading of networking
and computer equipment and application software licenses.
LOANS
Period Ended
% of % of % % of %
12/31/01 Total 12/31/00 Total Inc/(Dec) 12/31/99 Total Inc/(Dec)
-------------------------------------------------------------------------------------------------
(dollars in thousands)
-------------------------------------------------------------------------------------------------
Commercial $388,673 65% $362,928 63% 7% $326,564 65% 11%
Residential 106,689 18% 107,718 19% (1)% 80,703 16% 33%
Consumer 105,264 17% 106,342 18% (1)% 94,410 19% 13%
------------- ------------- ------------
Total Loans $600,626 $576,988 4% $501,677 15%
COMMERCIAL LOAN GROWTH for the year was 7%, while residential and consumer loans
declined 1%. At December 31, 2001, commercial, residential and consumer loans
represented 65%, 18% and 17% respectively, of total loans, compared to 63%, 19%
and 18%, respectively, at December 31, 2000.
COMMERCIAL LOANS increased $36.3 million from $326.6 million at December 31,
1999 to $362.9 million at December 31, 2000. This increase occurred as the
result of the Corporation's goal to increase small business loan relationships.
34
ASSET QUALITY
Period Ended December 31,
-------------------------
(dollars in millions)
Change in Change in
dollars/ dollars/
12/31/01 12/31/00 Percentages 12/31/99 Percentages
-------- -------- ----------- -------- -----------
Non-performing loans $ 14.7 $ 8.8 $ 5.9 $ 2.2 $ 6.6
Non-performing assets $ 15.0 $ 8.9 $ 6.1 $ 2.5 $ 6.4
Non-performing assets/loans
plus OREO 2.49% 1.55% .94% .44% 1.11%
Non-performing assets/total
assets 2.00% 1.27% 73% .40% .87%
Net chargeoffs $ 6.7 $ 1.1 $ 5.6 $ .4 $ .7
Net chargeoffs/total loans 1.12% .19% .93% .07% .12%
Loan loss provision $ 8.7 $ 2.1 $ 6.6 $ 1.2 $ .9
Allowance $ 9.2 $ 7.2 $ 2.0 $ 6.2 $ 1.0
Allowance/loans 1.54% 1.25% .29% 1.23% .02%
Allowance/non-performing
loans 63% 82% -19% 280% -198%
Allowance/non-performing
assets 62% 81% -19% 248% -167%
ASSET QUALITY statistics reflect a significant increase in both nonperforming
assets and chargeoffs during 2001 compared to 2000 and 2000 compared to 1999.
Non-performing assets at December 31, 2001 were $15.0 million or 2.0% of total
assets, versus $8.9 million or 1.3% at December 31, 2000. Annual net chargeoffs
for 2001 were $6.7 million or 1.12 % of total loans compared to $1.1 million or
.19% for 2000. The ratio of the allowance for loan losses to nonperforming loans
was 63% at December 31, 2001 compared to 82% at December 31, 2000.
THE INCREASE IN THE LOAN LOSS PROVISION from $2.1 million in 2000 to $8.7
million in 2001 was due to chargeoffs primarily relating to severe weaknesses in
several commercial loans. After these charge-offs, provisions were recorded to
maintain the allowance for loan losses at a level reflective of the risk in the
portfolio. Evaluation of portfolio risk considered the impact of current
economic conditions on individual loans and on the overall loan portfolio, as
well as current levels of delinquencies, non-performing loans and internal loan
grades.
THE PROVISION FOR LOAN LOSSES was $2.1 million in 2000 compared to $1.2 million
in 1999 as the allowance for loan losses at December 31, 2000 was 1.25% of loans
compared to 1.23% at December 31, 1999. The increase in the provision resulted
from nonperforming loans increasing to $8.8 million at December 31, 2000 from
$2.2 million at December 31, 1999.
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,
interest earning deposits in other financial institutions, securities
available-for sale and loans held for sale. These assets are commonly referred
to as liquid assets. Liquid assets were $130 million at December 31, 2001
compared to $109 million at December 31, 2000.
35
THE CORPORATION'S RESIDENTIAL FIRST MORTGAGE PORTFOLIO of $106.7 million at
December 31, 2001 and $107.7 million at December 31, 2000, 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 2001, 2000 and 1999 follows.
THE CORPORATION EXPERIENCED a net increase in cash from operating activities in
2001, 2000 and 1999. Net cash from operating activities was $8.4 million, $13.3
million and $14.6 million for the years ended December 31, 2001, 2000 and 1999,
respectively.
NET CASH FLOW FROM INVESTING ACTIVITIES was $(47.7) million, $(75.7) million and
$(107.9) million for the years ended December 31, 2001, 2000 and 1999,
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 2001, 2000 and 1999, the Corporation
received $19.0 million, $9.1 million and $17.7 million, respectively, from sales
of securities available for sale, while proceeds from repayments, maturities and
calls of securities were $38.1 million, $8.8 million and $24.2 million in 2001,
2000 and 1999, respectively.
NET CASH FLOW FROM FINANCING ACTIVITIES was $46.2 million, $62.3 million, and
$86.4 million for the years ended December 31, 2001, 2000 and 1999,
respectively. The net cash increase was primarily attributable to growth in
total deposits of $44.5 million, $47.0 million and $68.5 million in 2001, 2000
and 1999, respectively. Other significant changes in 2001, 2000 and 1999
included $2.1 million, $12.1 million and $11.1 million in net borrowings from
the Federal Home Loan Bank. Additionally, in 1999 $7.0 million of funding was
received under a line of credit, which was repaid in 2000 using funds provided
by $9.7 million in net proceeds from the issuance of junior subordinated
debentures.
ASSET LIABILITY MANAGEMENT
ASSET LIABILITY MANAGEMENT involves developing and monitoring strategies to
maintain sufficient liquidity, maximize net interest income and minimize the
impact that significant fluctuations in market interest rates would have on
earnings. The business of the Corporation and the composition of its balance
sheet consists of investments in interest-earning assets (primarily loans,
mortgage-backed securities, and securities available for sale) which are
primarily funded by interest-bearing liabilities (deposits and borrowings). With
the exception of loans which are originated and held for sale, all of the
financial instruments of the Corporation are for other than trading purposes.
All of the Corporation's transactions are denominated in U.S. dollars with no
specific foreign exchange exposure. In addition, the Corporation has limited
exposure to commodity prices related to agricultural loans. The impact of
changes in foreign exchange rates and commodity prices on interest rates are
assumed to be insignificant. The Corporation's financial instruments have
varying levels of sensitivity to changes in market interest rates resulting in
market risk. Interest rate risk is the Corporation's primary market risk
exposure; to a lesser extent, liquidity risk also impacts market risk exposure.
36
INTEREST RATE RISK is the exposure of a banking institution's financial
condition to adverse movements in interest rates. Accepting this risk can be an
important source of profitability and stockholder value; however, excessive
levels of interest rate risk could pose a significant threat to the
Corporation's earnings and capital base. Accordingly, effective risk management
that maintains interest rate risks at prudent levels is essential to the
Corporation's safety and soundness.
EVALUATING A FINANCIAL INSTITUTION'S EXPOSURE to changes in interest rates
includes assessing both the adequacy of the management process used to control
interest rate risk and the organization's quantitative level of exposure. When
assessing the interest rate risk management process, the Corporation seeks to
ensure that appropriate policies, procedures, management information systems,
and internal controls are in place to maintain interest rate risks at prudent
levels of consistency and continuity. Evaluating the quantitative level of
interest rate risk exposure requires the Corporation to assess the existing and
potential future effects of changes in interest rates on its consolidated
financial condition, including capital adequacy, earnings, liquidity, and asset
quality (when appropriate).
THE FEDERAL RESERVE BOARD together with the Office of the Comptroller of the
Currency and the Federal Deposit Insurance Corporation, adopted a Joint Agency
Policy Statement on interest rate risk effective June 26, 1996. The policy
statement provides guidance to examiners and bankers on sound practices for
managing interest rate risk, which will form the basis for ongoing evaluation of
the adequacy of interest rate risk management at supervised institutions. The
policy statement also outlines fundamental elements of sound management that
have been identified in prior Federal Reserve guidance and discusses the
importance of these elements in the context of managing interest rate risk.
Specifically, the guidance emphasizes the need for active Board of Director and
Senior Management oversight and a comprehensive risk management process that
effectively identifies, measures, and controls interest rate risk.
FINANCIAL INSTITUTIONS derive their income primarily from the excess of interest
collected over interest paid. The rates of interest an institution earns on its
assets and owes on its liabilities generally are established contractually for a
period of time. Since market interest rates change over time, an institution is
exposed to lower profit margins (or losses) if it cannot adapt to interest rate
changes. For example, assume that an institution's assets carry intermediate or
long term fixed rates and that those assets are funded with short-term
liabilities. If market interest rates rise by the time the short-term
liabilities must 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 possibly, net interest expense. Similar risks exist when
assets are subject to contractual interest rate ceilings, or rate sensitive
assets are funded by longer-term, fixed-rate liabilities in a declining rate
environment.
SEVERAL WAYS an institution can manage interest rate risk include: 1) matching
repricing periods for new assets and liabilities, for example, by shortening
terms of new loans or investments; 2) selling existing assets or repaying
certain liabilities; and 3) hedging existing assets, liabilities, or anticipated
transactions. An institution might also invest in more complex financial
instruments intended to hedge or otherwise change interest rate risk. Interest
rate swaps, futures contacts, options on futures contracts, and other such
derivative financial instruments can be used for this purpose. Because these
instruments are sensitive to interest rate changes, they require management's
expertise to be effective. The Corporation has not purchased derivative
financial instruments in the past and does not presently intend to purchase such
instruments.
37
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 as of December 31, 2001.
It does not present when these items may actually reprice. For loans receivable,
securities, and liabilities with contractual maturities, the table presents
principal cash flows and related weighted-average interest rates by contractual
maturities as well as the Corporation's historical experience of the impact of
interest rate fluctuations on the prepayment of loans and mortgage backed
securities. For core deposits (demand deposits, interest-bearing checking,
savings, and money market deposits) that have no contractual maturity, the table
presents principal cash flows and, as applicable related weighted-average
interest rates based upon the Corporation's historical experience, management's
judgment and statistical analysis, as applicable, concerning their most likely
withdrawal behaviors. The current historical interest rates for core deposits
have been assumed to apply for future periods in this table as the actual
interest rates that will need to be paid to maintain these deposits are not
currently known. Weighted average variable rates are based upon contractual
rates existing at the reporting date.
38
PRINCIPAL/NOTIONAL AMOUNT MATURING OR ASSUMED TO WITHDRAW IN:
(DOLLARS IN THOUSANDS)
2002 2003 2004 2005 2006 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
RATE-SENSITIVE ASSETS
Variable rate loans $133,048 $ 32,487 $ 17,816 $ 9,620 $ 9,726 $ 19,253 $221,950
Average interest rate 6.14% 6.00% 6.32% 6.50% 7.27% 6.94% 6.27%
Adjustable rate loans $ 42,052 $ 32,046 $ 24,235 $ 18,376 $ 13,562 $ 40,478 $170,749
Average interest rate 7.91% 7.83% 7.81% 7.81% 7.78% 7.83% 7.84%
Fixed rate loans $ 94,373 $ 49,426 $ 27,234 $ 16,244 $ 7,427 $ 13,224 $207,928
Average interest rate 8.17% 7.68% 7.99% 7.79% 7.25% 8.32% 7.98%
Total loans $269,473 $113,959 $ 69,285 $ 44,240 $ 30,715 $ 72,955 $600,627
Average interest rate 7.13% 7.24% 7.50% 7.52% 7.49% 7.68% 7.31%
Fixed rate investment securities $ 24,813 $ 16,304 $ 17,618 $ 3,250 $ 1,732 $ 30,659 $ 94,376
Average interest rate 6.58% 6.14% 5.33% 6.05% 5.31% 5.99% 6.04%
Variable rate investment securities $ 10,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 10,000
Average interest rate 4.37% 0.00% 0.00% 0.00% 0.00% 0.00% 4.37%
Interest-earnings deposit $ 250 $ 0 $ 10 $ 0 $ 0 $ 0 $ 260
Average interest rate 3.00% 0.00% 5.43% 0.00% 0.00% 0.00% 3.09%
Total rate sensitive assets $304,536 $130,263 $ 86,913 $ 47,490 $ 32,447 $103,614 $705,263
Average interest rate 6.99% 7.11% 7.06% 7.42% 7.37% 7.18% 7.09%
RATE SENSITIVE LIABILITIES:
Demand - non interest-bearing $ 1,737 $ 3,313 $ 4,699 $ 5,844 $ 7,694 $ 29,543 $ 52,830
Demand - interest bearing $ 1,959 $ 3,449 $ 4,893 $ 6,085 $ 8,012 $ 31,828 $ 56,226
Average interest rate .93% .93% .93% .93% .93% .93% .93%
Money market accounts $ 77,414 $ 14,776 $ 158 $ 146 $ 136 $ 1,723 $ 94,353
Average interest rate 3.61% 2.93% 1.62% 1.62% 1.62% 1.62% 3.46%
Savings $ 8,418 $ 1,399 $ 1,297 $ 1,202 $ 1,114 $ 14,143 $ 27,573
Average interest rate 1.04% 1.04% 1.04% 1.04% 1.04% 1.04% 1.04%
Certificates of deposit $262,508 $ 85,795 $ 26,095 $ 2,499 $ 1,623 $ 1,358 $379,878
Average interest rate 4.92% 5.35% 4.95% 6.62% 5.16% 5.04% 5.04%
Fixed rate FHLB advances $ 4,925 $ 12,350 $ 5,000 $ 0 $ 0 $ 30,500 $ 52,775
Average interest rate 4.83% 6.39% 6.70% 0.00% 0.00% 5.31% 5.65%
Variable rate FHLB advances $ 0 $ 1,500 $ 0 $ 0 $ 0 $ 0 $ 1,500
Average interest rate 0.00% 1.58% 0.00% 0.00% 0.00% 0.00% 1.98%
Fixed rate debentures $ 0 $ 0 $ 0 $ 0 $ 0 $ 9,706 $ 9,706
Average interest rate 0.00% 0.00% 0.00% 0.00% 0.00% 10.60% 10.60%
Fed funds purchased $ 14,850 $ 0 $ 0 $ 0 $ 0 $ 0 $ 14,850
Average interest rate 2.07% 0.00% 0.00% 0.00% 0.00% 0.00% 2.07%
Total rate sensitive liabilities $371,811 $122,582 $ 42,142 $ 15,776 $ 18,579 $118,801 $689,691
Average interest rate 4.40% 4.80% 4.01% 1.50% 0.92% 2.62% 3.98%
39
PRINCIPAL/NOTIONAL AMOUNT MATURING OR ASSUMED TO WITHDRAW IN:
(DOLLARS IN THOUSANDS)
Comparison of 2001 to 2000: First Years
Total rate-sensitive assets: Year 2 - 5 Thereafter Total
----------- ----------- ----------- -----------
At December 31, 2001 $ 304,536 $ 297,113 $ 103,614 $ 705,263
At December 31, 2000 273,089 254,392 138,522 666,003
----------- ----------- ----------- -----------
Increase (decrease) $ 31,447 $ 42,721 $ (34,908) $ 39,260
Total rate-sensitive liabilities:
At December 31, 2001 $ 371,811 $ 199,079 $ 118,801 $ 689,691
At December 31, 2000 345,651 187,793 107,938 641,382
----------- ----------- ----------- -----------
Increase (decrease) $ 26,160 $ 11,286 $ 10,863 $ 48,309
THE ABOVE TABLE reflects expected maturities, not expected repricing. The
contractual maturities adjusted for anticipated prepayments and anticipated
renewals at current interest rates, as shown in the preceding table, are only
part of the Corporation's interest rate risk profile. Other important factors
include the ratio of rate-sensitive assets to rate sensitive liabilities (which
takes into consideration loan repricing frequency but not when deposits may be
repriced) and the general level and direction of market interest rates. For core
deposits, the repricing frequency is assumed to be longer than when such
deposits actually reprice. For some rate sensitive liabilities, their repricing
frequency is the same as their contractual maturity. For variable rate loans
receivable, repricing frequency can be daily or monthly and for adjustable rate
loans receivable, repricing can be as frequent as annually for loans whose
contractual maturities range from one to thirty years. While increasingly
aggressive local market competition in lending rates has pushed loan rates
lower; the Corporation's increased reliance on non-core funding sources has
restricted the Corporation's ability to reduce funding rates in concert with
declines in lending rates. Therefore, tax equivalent net interest income as a
percentage of average interest earning assets declined from 4.29% in 1999 and
4.23% in 2000 to 3.81% in 2001.
THE CORPORATION MANAGES its interest rate risk by the employment of strategies
to assure that desired levels of both interest-earning assets and
interest-bearing liabilities mature or reprice with similar time frames. Such
strategies include; 1) loans receivable which are renewed(and repriced)
annually, 2) variable rate loans, 3) certificates of deposit with terms from one
month to six years and 4) securities available for sale which mature at various
times primarily from one through ten years 5) federal funds borrowings with
terms of one day to 90 days, and 6) Federal Home Loan Bank borrowings with terms
of one day to ten years.
CAPITAL RESOURCES
STOCKHOLDERS' EQUITY at December 31, 2001 increased to $50.8 million or 7.03% of
average total assets as compared to $50.1 million or 7.53% of average total
asset at December 31, 2000. The Company and RFCBC exceed all "well-capitalized"
regulatory capital benchmarks while State Bank exceeds the Tier 1 capital to
risk weighted assets and Tier 1 capital to average assets "well-capitalized"
regulatory capital benchmarks and exceeds the Total Capital to risk weighted
assets "adequately-capitalized" regulatory capital benchmark. Banking regulatory
authorities periodically perform examinations of the Corporation's subsidiary
banks and, as an integral part of the examination process, periodically review
the allowance for loan losses. Such authorities may require additions to the
allowance for loan losses based upon their judgement of the information
available to them at the time of their examination. Such authorities may also
require other adjustments or place various restrictions on the activities of the
Corporation's subsidiary banks.
40
TOTAL REGULATORY (RISK-BASED) CAPITAL was $67.4 million at December 31, 2001 and
$66.3 million at December 31, 2000. The excess of total regulatory capital over
total shareholder equity is primarily due to the $10.0 million of junior
subordinated debentures (trust preferred securities) which qualify as tier 1
capital, and the allowance for loan losses which qualifies as tier 2 capital
subject to certain restrictions.
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 buildings and improvements and furniture and equipment (which includes
computer hardware, software, office furniture and license agreements), are
currently expected to total approximately $6 million over the next year.
IMPACT OF INFLATION AND CHANGING PRICES
THE MAJORITY OF ASSETS AND LIABILITIES of the Corporation are monetary in nature
and therefore the Corporation differs greatly from most commercial and
industrial companies that have significant investments in fixed assets or
inventories. However, inflation does have an important impact on the growth of
total assets in the banking industry and the resulting need to increase equity
capital at higher than normal rates in order to maintain an appropriate equity
to assets ratio. Inflation significantly affects noninterest expense, which
tends to rise during periods of general inflation.
MANAGEMENT BELIEVES the most significant impact on financial results is the
Corporation's ability to react to changes in interest rates. Management seeks to
maintain an essentially balanced position between interest sensitive assets and
liabilities and actively manages the amount of securities available for sale in
order to protect against the effects of wide interest rate fluctuations on net
income and shareholders' equity.
FORWARD-LOOKING STATEMENTS
WHEN USED IN THIS FILING and in future filings by the Corporation with the
Securities and Exchange Commission, in the Corporation's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phases, "anticipate,"
"would be," "will allow," "intends to," "will likely result," "are expected to,"
"will continue," "is anticipated," "estimated," "project," or similar
expressions are intended to identify, "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are subject to risks and uncertainties, including but not limited to changes in
economic conditions in the Corporation's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Corporation's market area, and competition, all or some of which could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected.
41
THE CORPORATION WISHES TO CAUTION readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made, and
advise readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investing activities, and competitive and regulatory
factors, could affect the Corporation's financial performance and could cause
the Corporation's actual results for future periods to differ materially form
those anticipated or projected.
THE CORPORATION DOES NOT UNDERTAKE, and specifically disclaims any obligation,
to update any forward looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The disclosures required by this item appear in this Annual Report on
Form 10-K under the caption "Asset Liability Management" contained in the
Management's Discussion and Analysis section of this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Balance Sheets of the Corporation and its
subsidiaries as of December 31, 2001 and December 31, 2000, 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, 2001,
the related Notes to Consolidated Financial Statements and the Report of
Independent Auditors, appear on pages F-1 through F-37 of this Annual Report on
Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
42
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 May 30, 2002, under the captions "ELECTION OF
DIRECTORS" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
In addition, certain information concerning the executive officers of the
Corporation called for in this Item 10 is set forth in the portion of Part I,
Item 4 of this Annual Report on Form 10-K entitled "Executive Officers of the
Registrant" in accordance with General Instruction G(3).
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 May 30, 2002, 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 May
30, 2002, shall be deemed to be incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
In accordance with General Instruction G(3), the information called
for in this Item 12 is incorporated herein by reference to the Corporation's
definitive Proxy Statement, filed with the Securities and Exchange Commission
pursuant to Regulation 14A of the General Rules and Regulations under the
Securities Exchange Act of 1934, relating to the Corporation's Annual Meeting of
Shareholders to be held on May 30, 2002, 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 May 30, 2002, under the caption "TRANSACTIONS
INVOLVING MANAGEMENT."
43
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 49.
(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
87. 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.
44
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)].
45
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
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)].
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)].
46
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
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)].
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)].
47
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
10(s) Executive Salary Continuation Agreement, dated Incorporated herein by reference to the
October 11, 1995, between Rurban Financial Corporation's Annual Reports on Form 10-K
Corp. and Thomas C. Williams; and Amended for the fiscal years ended
Schedule A to Exhibit 10(s) identifying other December 31, 1995 and December 31, 1997
identical Executive Salary Continuation (File No. 0-13507) [Exhibit 10(s)].
Agreements between executive officers of Rurban
Financial Corp. and Rurban Financial Corp.
10(t)
Description of Split-Dollar Insurance Policies Incorporated herein by reference to the
Maintained for Certain Executive Officers of Corporation's Annual Report on Form 10-K
Rurban Financial Corp. for the fiscal year ended
December 31, 1995 (File No. 0-13507)
[Exhibit 10(t)].
10(u)
Rurban Financial Corp. Stock Option Plan Incorporated herein by reference to the
Corporation's Annual Report on Form 10-K
for the fiscal year ended
December 31, 1996 (File No. 0-13507)
[Exhibit 10(u)].
10(v)
Rurban Financial Corp. Plan to Allow Directors Incorporated herein by reference to the
to Elect to Defer Compensation Corporation's Annual Report on Form 10-K
for the fiscal year ended
December 31, 1996 (File No. 0-13507)
[Exhibit 10(v)].
10(w) Form of Non-Qualified Stock Option Agreement Incorporated herein by reference to the
Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31,
1997 (File No. 0-13507 [Exhibit 10(w)].
10(x) Form of Incentive Stock Option Agreement Incorporated herein by reference to the
Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31,
1997 (File No. 0-13507 [Exhibit 10(x)].
48
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
10(y) Employees' Stock Ownership and Savings Plan Incorporated herein by reference to the
of Rurban Financial Corp. Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999 (File
No. 0-13507 [Exhibit 10(y)].
(b) REPORTS ON FORM 8-K
There were no current reports on Form 8-K filed during the fiscal
quarter ended December 31, 2001.
(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
87.
(d) FINANCIAL STATEMENT SCHEDULES.
None.
49
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: APRIL 15, 2002 By: Richard C. Warrener, Executive Vice
-------------- President, Chief Financial Officer
and Chief Accounting Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each 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, 2001, 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.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Date Capacity
---- ---- --------
/s/ Thomas C. Williams April 15, 2002 President, Chief Executive Officer, Principal
- ---------------------- -------------- Executive Officer and Director
Thomas C. Williams
/s/ Thomas A. Buis April 15, 2002 Director
- ------------------ --------------
Thomas A. Buis
/s/ Thomas M. Callan April 15, 2002 Director
- -------------------- --------------
Thomas M. Callan
/s/ John R. Compo April 15, 2002 Director
- ----------------- --------------
John R. Compo
/s/ John Fahl April 15, 2002 Director
- ------------- --------------
John Fahl
/s/ Robert A. Fawcett, Jr. April 15, 2002 Director
- -------------------------- --------------
Robert A. Fawcett, Jr.
/s/ Eric C. Hench April 15, 2002 Director
- ----------------- --------------
Eric C. Hench
50
/s/ Gary A. Koester April 15, 2002 Director
- ------------------- --------------
Gary A. Koester
/s/ Steven D. Vandemark April 15, 2002 Director
- ----------------------- --------------
Steven D. VanDemark
/s/ J. Michael Walz, D.D.S April 15, 2002 Director
- -------------------------- --------------
J. Michael Walz, D.D.S
/s/ Richard C. Warrener April 15, 2002 Executive Vice President, Chief Financial
- --------------------------- -------------- Officer and Chief Accounting Officer
Richard C. Warrener
Date: April 15, 2002
51
RURBAN FINANCIAL CORP.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2001
INDEX TO FINANCIAL STATEMENTS
Pages in
this Annual
Report on
Description Form 10-K
- ----------- ---------
Report of Independent Auditors................................................................... F-1
Consolidated Balance Sheets at December 31, 2001
and 2000.................................................................................... F-2 to F-3
Consolidated Statements of Income for the years
ended December 31, 2001, 2000 and 1999...................................................... F-4
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 2001, 2000 and 1999................................. F-5
Consolidated Statements of Cash Flows for the
years ended December 31, 2001, 2000 and 1999................................................ F-6 to F-7
Notes to Consolidated Financial Statements....................................................... F-8 to F-37
52
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, 2001 and 2000 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the years ended December 31, 2001, 2000 and 1999. 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 auditing standards generally accepted
in the United States of America. 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, 2001 and 2000, and the results of its
operations and its cash flows for the years ended December 31, 2001, 2000 and
1999 in conformity with accounting principles generally accepted in the United
States of America.
/s/ Crowe, Chizek and Company LLP
----------------------------------
Crowe, Chizek and Company LLP
South Bend, Indiana
April 8, 2002
- --------------------------------------------------------------------------------
F-1.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
2001 2000
---- ----
ASSETS
Cash and due from banks $ 25,342,043 $ 18,431,717
Interest-earning deposits in other financial institutions 260,000 110,000
Securities available for sale 104,375,551 88,904,958
Loans held for sale, net of valuation allowance ($0) 439,991 1,166,716
Loans
Commercial and agricultural 388,673,339 362,927,760
Residential first mortgage 106,689,148 107,717,699
Consumer 105,264,384 106,342,607
------------- -------------
Total loans 600,626,871 576,988,066
Deferred loan fees, net (335,941) (351,841)
Allowance for loan losses (9,238,936) (7,214,970)
------------- -------------
Net loans 591,051,994 569,421,255
Accrued interest receivable 4,939,741 5,716,048
Premises and equipment, net 11,816,557 10,902,749
Other assets 7,983,216 6,164,259
------------- -------------
Total assets $ 746,209,093 $ 700,817,702
============= =============
- -------------------------------------------------------------------------------
(Continued)
F-2.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
- -------------------------------------------------------------------------------
2001 2000
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 52,830,193 $ 47,989,547
Interest-bearing 558,029,616 518,331,214
------------- -------------
Total deposits 610,859,809 566,320,761
Federal funds purchased 14,850,000 13,200,000
Advances from Federal Home Loan Bank ("FHLB") 54,275,069 52,163,914
Junior subordinated debentures 9,706,405 9,697,385
Accrued interest payable 3,630,623 4,613,173
Other liabilities 2,057,855 4,682,283
------------- -------------
Total liabilities 695,379,761 650,677,516
Shareholders' Equity
Common stock: stated value $2.50 per share;
shares authorized: 10,000,000; shares issued: 4,575,702;
shares outstanding: 2001 - 4,564,513; 2000 - 4,347,238 11,439,255 11,439,255
Additional paid-in capital 11,013,284 11,113,340
Retained earnings 28,499,026 31,450,244
Accumulated other comprehensive income (loss),
net of tax of $371,863 in 2001 and $169,222 in 2000 721,851 328,490
Unearned ESOP shares: unearned shares: 2001 - 26,514;
2000 - 50,115 (512,146) (721,442)
Treasury stock: shares at cost: 2001 - 11,189;
2000 - 228,464 (331,938) (3,469,701)
------------- -------------
Total shareholders' equity 50,829,332 50,140,186
------------- -------------
Total liabilities and shareholders' equity $ 746,209,093 $ 700,817,702
============= =============
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-3.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
2001 2000 1999
---- ---- ----
Interest income
Loans, including fees $ 50,482,611 $ 50,404,396 $ 39,824,608
Taxable securities 5,462,886 4,978,266 4,553,538
Non-taxable securities 406,199 592,240 498,257
Other interest income 167,133 48,035 76,408
------------ ------------ ------------
Total interest income 56,518,829 56,022,937 44,952,811
Interest expense
Deposits 26,414,346 24,892,370 19,026,452
Short-term borrowings 301,726 1,358,778 617,027
Advances from FHLB 2,986,829 2,707,345 1,765,513
Junior subordinated debentures 1,048,109 335,667 --
Other borrowed funds 26,614 340,909 334,921
------------ ------------ ------------
Total interest expense 30,777,624 29,635,069 21,743,913
------------ ------------ ------------
NET INTEREST INCOME 25,741,205 26,387,868 23,208,898
Provision for loan losses 8,733,000 2,100,000 1,215,000
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 17,008,205 24,287,868 21,993,898
Noninterest income
Service charges on deposit accounts 2,592,704 1,744,446 1,462,925
Loan servicing fees 559,648 662,665 581,581
Trust fees 2,744,743 2,635,047 2,597,465
Data service fees 6,125,970 5,123,805 4,381,746
Net gain (loss) on securities 489,641 (80,540) (5,827)
Net gain on sales of loans 889,462 387,493 1,147,339
Other income 759,445 799,945 898,767
------------ ------------ ------------
Total noninterest income 14,161,613 11,272,861 11,063,996
Noninterest expense
Salaries and employee benefits 15,448,319 15,094,596 14,389,186
Net occupancy expense of premises 1,210,915 1,137,377 1,183,120
Equipment rentals, depreciation and
maintenance 3,488,586 3,347,608 2,952,061
Other expenses 7,870,474 7,174,436 6,941,688
------------ ------------ ------------
Total noninterest expense 28,018,294 26,754,017 25,466,055
------------ ------------ ------------
INCOME BEFORE INCOME TAX EXPENSE 3,151,524 8,806,712 7,591,839
Income tax expense 898,566 2,720,534 2,360,937
------------ ------------ ------------
NET INCOME $ 2,252,958 $ 6,086,178 $ 5,230,902
============ ============ ============
Earnings per common share:
Basic $ .50 $ 1.35 $ 1.16
============ ============ ============
Diluted $ .50 $ 1.35 $ 1.16
============ ============ ============
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-4.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 2001, 2000 and 1999
- ------------------------------------------------------------------------------------------------------------------
Accumulated
Other
Additional Comprehensive
Common Paid-In Retained Income (Loss),
Stock Capital Earnings Net of Tax
----- ------- -------- ----------
BALANCES AT JANUARY 1, 1999 $ 11,439,255 $ 11,518,727 $ 26,508,897 $ 202,922
Comprehensive Income:
Net income for the year -- -- 5,230,902 --
Net change in net unrealized appreciation
(depreciation) on securities available for sale,
net of reclassification adjustments and tax effects -- -- -- (1,736,469)
Total Comprehensive Income
Pay down of ESOP Loan -- -- -- --
Cash dividends declared ($0.37 per share) -- -- (1,692,641) --
Issuance of 200 treasury shares due to exercise
of stock options -- (258) -- --
------------ ------------ ------------ ------------
BALANCES AT DECEMBER 31, 1999 11,439,255 11,518,469 30,047,158 (1,533,547)
Comprehensive Income:
Net income for the year -- -- 6,086,178 --
Net change in net unrealized appreciation
(depreciation) on securities available for sale,
net of reclassification adjustments and tax effects -- -- -- 1,862,037
Total Comprehensive Income
Pay down of ESOP Loan
Cash dividends declared ($0.42 per share) -- -- (1,888,104) --
Declaration of 5% stock dividend net of cash
paid in lieu of fractional shares and issuance
of 206,520 treasury shares -- (405,129) (2,794,988) --
------------ ------------ ------------ ------------
BALANCES AT DECEMBER 31, 2000 11,439,255 11,113,340 31,450,244 328,490
Comprehensive Income:
Net income for the year -- -- 2,252,958 --
Net change in net unrealized appreciation
(depreciation) on securities available for sale,
net of reclassification adjustments and tax effects -- -- -- 393,361
Total Comprehensive Income
Pay down of ESOP Loan -- -- -- --
Cash dividends declared ($0.47 per share) -- -- (2,158,392) --
Purchase of 3,049 shares of treasury shares -- -- -- --
Issuance of 3,580 treasury shares due to exercise
of stock options -- (4,180) -- --
Declaration of 5% stock dividend net of cash
paid in lieu of fractional shares and issuance
of 216,744 treasury shares -- (95,876) (3,045,784) --
------------ ------------ ------------ ------------
BALANCES AT DECEMBER 31, 2001 $ 11,439,255 $ 11,013,284 $ 28,499,026 $ 721,851
============ ============ ============ ============
Unearned
ESOP Treasury
Shares Stock Total
------ ----- -----
BALANCES AT JANUARY 1, 1999 $ (1,100,905) $ (6,665,946) $ 41,902,950
Comprehensive Income:
Net income for the year -- -- 5,230,902
Net change in net unrealized appreciation
(depreciation) on securities available for sale,
net of reclassification adjustments and tax effects -- -- (1,736,469)
------------
Total Comprehensive Income 3,494,433
Pay down of ESOP Loan 192,891 -- 192,891
Cash dividends declared ($0.37 per share) -- -- (1,692,641)
Issuance of 200 treasury shares due to exercise
of stock options -- 3,096 2,838
------------ ------------ ------------
BALANCES AT DECEMBER 31, 1999 (908,014) (6,662,850) 43,900,471
Comprehensive Income:
Net income for the year -- -- 6,086,178
Net change in net unrealized appreciation
(depreciation) on securities available for sale,
net of reclassification adjustments and tax effects -- -- 1,862,037
------------
Total Comprehensive Income 7,948,215
Pay down of ESOP Loan 186,572 -- 186,572
Cash dividends declared ($0.42 per share) -- -- (1,888,104)
Declaration of 5% stock dividend net of cash
paid in lieu of fractional shares and issuance
of 206,520 treasury shares -- 3,193,149 (6,968)
------------ ------------ ------------
BALANCES AT DECEMBER 31, 2000 (721,442) (3,469,701) 50,140,186
Comprehensive Income:
Net income for the year -- -- 2,252,958
Net change in net unrealized appreciation
(depreciation) on securities available for sale,
net of reclassification adjustments and tax effects -- -- 393,361
------------
Total Comprehensive Income 2,646,319
Pay down of ESOP Loan 209,296 -- 209,296
Cash dividends declared ($0.47 per share) -- -- (2,158,392)
Purchase of 3,049 shares of treasury shares -- (45,400) (45,400)
Issuance of 3,580 treasury shares due to exercise
of stock options -- 50,162 45,982
Declaration of 5% stock dividend net of cash
paid in lieu of fractional shares and issuance
of 216,744 treasury shares -- 3,133,001 (8,659)
------------ ------------ ------------
BALANCES AT DECEMBER 31, 2001 $ (512,146) $ (331,938) $ 50,829,332
============ ============ ============
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-5.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2001, 2000 and 1999
- -------------------------------------------------------------------------------------------------------------------
2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers - fees
and commissions $ 12,782,510 $ 10,965,908 $ 9,922,484
Cash paid to suppliers and employees (26,240,167) (23,681,258) (23,415,280)
Loans originated for sale (29,851,752) (13,076,583) (97,308,756)
Proceeds from sales of loans held for sale 31,467,939 14,102,762 104,697,491
Interest received 57,295,136 54,459,803 44,007,116
Interest paid (31,760,174) (27,535,694) (20,915,552)
Income taxes paid (5,250,000) (1,961,537) (2,400,000)
------------- ------------- -------------
Net cash from operating activities 8,443,492 13,273,401 14,587,503
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing deposits
in other financial institutions (150,000) -- 70,000
Proceeds from principal repayments,
maturities, and calls of securities
available for sale 38,131,013 8,845,593 24,243,471
Proceeds from sales of securities available
for sale 19,060,258 9,063,566 17,657,888
Purchase of securities available for sale (71,576,221) (20,954,482) (45,514,178)
Net change in loans (30,811,762) (71,535,751) (103,341,052)
Recoveries on loan charge-offs 463,923 490,752 662,299
Net purchases of premises and equipment (2,856,133) (1,655,551) (1,666,906)
------------- ------------- -------------
Net cash from investing activities (47,738,922) (75,745,873) (107,888,478)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 44,539,048 47,024,677 68,482,861
Net change in federal funds purchased 1,650,000 2,300,000 1,400,000
Proceeds from advances from FHLB 16,500,000 20,000,000 15,000,000
Repayments of advances from FHLB (14,388,845) (7,871,389) (3,854,987)
Net proceeds from issuance of junior
subordinated debentures -- 9,697,385 --
Net proceeds from (repayment of) advances
on line of credit -- (7,000,000) 7,000,000
Cash dividends paid (2,086,370) (1,822,218) (1,656,179)
Proceeds from exercise of stock options 45,982 -- 2,838
Cash paid for purchase of treasury shares (45,400) -- --
Cash paid in lieu of fractional shares for
5% stock dividend (8,659) (6,968) --
------------- ------------- -------------
Net cash from financing activities 46,205,756 62,321,487 86,374,533
------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents 6,910,326 (150,985) (6,926,442)
Cash and cash equivalents at beginning of year 18,431,717 18,582,702 25,509,144
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 25,342,043 $ 18,431,717 $ 18,582,702
============= ============= =============
- --------------------------------------------------------------------------------
(Continued)
F-6.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2001, 2000 and 1999
- -------------------------------------------------------------------------------------------------------------------
2001 2000 1999
---- ---- ----
RECONCILIATION OF NET INCOME TO
NET CASH FROM OPERATING ACTIVITIES
Net income $ 2,252,958 $ 6,086,178 $ 5,230,902
Adjustments to reconcile net income
to net cash from operating activities
Depreciation 1,942,325 1,893,129 1,926,624
Amortization of intangible assets 120,661 210,000 210,000
Amortization of deferred debt issuance
costs 9,020 -- --
Provision for loan losses 8,733,000 2,100,000 1,215,000
Net (gain) loss on securities (489,641) 80,540 5,827
Loans originated for sale (29,851,752) (13,076,583) (97,308,756)
Proceeds from sales of loans held for sale 31,467,939 14,102,762 104,697,491
Net gain on sales of loans (889,462) (387,493) (1,147,339)
Paydown of ESOP loan 209,296 186,572 192,891
Change in assets and liabilities
Deferred loan fees, net (15,900) 5,593 5,080
Accrued interest receivable 776,307 (1,568,727) (950,775)
Other assets (2,142,259) 1,063,526 (56,330)
Accrued interest payable (982,550) 2,099,375 828,361
Other liabilities (2,696,450) 478,529 (261,473)
------------- ------------- -------------
Net cash from operating
activities $ 8,443,492 $ 13,273,401 $ 14,587,503
============= ============= =============
Supplemental disclosure of noncash transactions:
Transfer from loans held for sale to loans
Receivable $ -- $ 5,344,183 $ 5,118,294
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-7.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of Rurban Financial Corp. and its wholly-owned
subsidiaries. Rurban Financial Corp. ("the Corporation") is a bank holding
company, organized under Ohio law, that owns all the outstanding stock of The
State Bank and Trust Company ("State Bank"), RFC Banking Company ("RFCBC"),
Rurbanc Data Services, Inc. ("RDSI"), Rurban Life Insurance Company ("Rurban
Life") and Rurban Statutory Trust 1 ("RST") (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"). RFCBC was
created June 30, 2001 through the merger of The Peoples Banking Company ("PBC"),
The First National Bank of Ottawa ("FNB") and The Citizens Savings Bank Company
("CSB") , which were wholly owned subsidiaries of the Corporation prior to the
merger, and now operate as separate divisions under their long-standing names.
All significant intercompany balances and transactions are eliminated in
consolidation.
NATURE OF BUSINESS AND INDUSTRY SEGMENTS: Internal financial information is
primarily reported and aggregated in two lines of business: banking and data
processing. For further discussion, see Note 19. The Corporation's subsidiary
banks grant credit and accept deposits from their customers in the normal course
of business primarily in northern Ohio. RDSI provides data processing services
to financial institutions located in Ohio, Michigan and Indiana. Prior to 2001,
Rurban Life accepted reinsurance ceded in part by other insurance companies from
the credit life and disability insurance purchased by customers of the
Corporation's subsidiary banks. During 2001, the Corporation's subsidiary banks
began using a third party insurance company to provide credit life and
disability insurance to customers. RFS offers a diversified array of trust and
financial services to customers nationwide. RST is a trust which was organized
in 2000 to manage the Corporation's junior subordinated debentures.
CONCENTRATIONS OF CREDIT RISK: The Corporation grants commercial and
agricultural, residential first mortgage and consumer loans to customers mainly
in northern Ohio. Commercial loans include loans collateralized by commercial
real estate, business assets and agricultural loans collateralized by crops and
farm equipment. Commercial and agricultural loans make up approximately 65% of
the loan portfolio and the loans are expected to be repaid from cash flow from
operations of businesses. Residential first mortgage loans make up approximately
18% of the loan portfolio and are collateralized by first mortgages on
residential real estate. Consumer loans make up approximately 17% of the loan
portfolio and are primarily collateralized by consumer assets.
USE OF ESTIMATES: To prepare financial statements in conformity with accounting
principles generally accepted in the United States of America, 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 securities and other financial instruments, the
carrying value of loans held for sale and status of contingencies are
particularly subject to change.
- --------------------------------------------------------------------------------
(Continued)
F-8.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SECURITIES: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with net unrealized appreciation (depreciation), net of tax, reported separately
in other comprehensive income (loss) and shareholders' equity. Securities are
classified as trading when held for short term periods in anticipation of market
gains, and are carried at fair value. Other securities such as FHLB stock are
carried at cost.
Interest income includes amortization of purchase premium or discount. Gains and
losses on sales are based on the amortized cost of the security sold. Securities
are written down to fair value when a decline in fair value is not temporary.
Also, see Note 3.
LOANS: Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at the principal
balance outstanding, net of unearned interest, deferred loan fees and costs, and
an allowance for loan losses. Loans held for sale are reported at the lower of
cost or market, on an aggregate basis.
Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the loan term. Interest income is not
reported when full loan repayment is in doubt, typically when the loan is
impaired or payments are past due over 90 days (180 days for residential
mortgages). Payments received on such loans are reported as principal
reductions.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation
allowance for probable incurred credit losses, increased by the provision for
loan losses and decreased by charge-offs less recoveries. Management estimates
the allowance balance required using past loan loss experience, the nature and
volume of the portfolio, information about specific borrower situations and
estimated collateral values, economic conditions, and other factors. Allocations
of the allowance may be made for specific loans, but the entire allowance is
available for any loan that, in management's judgment, should be charged-off.
Loan losses are charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed.
A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from the collateral.
- --------------------------------------------------------------------------------
(Continued)
F-9.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FORECLOSED ASSETS: Assets acquired through or instead of loan foreclosure are
initially recorded at lower of cost or market when acquired, establishing a new
cost basis. If fair value declines, a valuation allowance is recorded through
expense. Costs after acquisition are expensed. Foreclosed real estate amounted
to approximately $326,000 and $137,000 at December 31, 2001 and 2000 and is
included in premises and equipment in the consolidated balance sheets.
PREMISES AND EQUIPMENT: Land is carried at cost. Premises and equipment are
stated at cost less accumulated depreciation. Depreciation is computed over the
asset useful lives on an accelerated basis, except for buildings for which the
straight line basis is used. Maintenance and repairs are expensed and major
improvements are capitalized. Premises and equipment are reviewed for impairment
when events indicate that their carrying value may not be recoverable. Also, see
Note 5.
SERVICING RIGHTS: Servicing rights are recognized as assets for purchased rights
and for the allocated value of retained servicing rights on loans sold.
Servicing rights are expensed in proportion to, and over the period of,
estimated net servicing revenues. Impairment is evaluated based on the fair
value of the rights, using groupings of the underlying loans as to interest
rates and then, secondarily, as to geographic and prepayment characteristics.
Any impairment of a grouping is reported as a valuation allowance.
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, 2001, 2000 and 1999, unamortized goodwill totaled
approximately $179,000, $277,000 and $404,000, and unamortized core deposit
intangibles totaled approximately $-0-, $23,000 and $106,000.
BENEFIT PLANS: The Corporation sponsors a 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 10.
- --------------------------------------------------------------------------------
(Continued)
F-10.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
STOCK COMPENSATION: Employee compensation expense under stock option plans is
reported if options are granted below market price at grant date. Pro forma
disclosures of net income and earnings per share are shown using the fair value
method of SFAS No. 123 to measure expense for options granted after 1994, using
an option pricing model to estimate fair value. The stock option plan is
discussed further in Note 10.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP): The cost of shares issued to the ESOP, but
not yet allocated to participants, is shown as a reduction of shareholders'
equity. Compensation expense is based on the market price of shares as they are
committed to be released to participant accounts. Dividends on allocated ESOP
shares reduce retained earnings; dividends on unearned ESOP shares reduce debt
and accrued interest. The ESOP is discussed further in Note 10.
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.
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. Also, see
Note 12.
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. Such financial instruments
are recorded when they are funded. A summary of these commitments is disclosed
in Note 14.
DERIVATIVES: All derivative instruments are recorded at their fair values. If
derivative instruments are designated as hedges of fair values, both the change
in the fair value of the hedge and the hedged item are included in current
earnings. Fair value adjustments related to cash flow hedges are recorded in
other comprehensive income and reclassified to earnings when the hedged
transaction is reflected in earnings. Ineffective portions of hedges are
reflected in earnings as they occur.
- --------------------------------------------------------------------------------
(Continued)
F-11.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
STOCK DIVIDENDS AND STOCK SPLITS: Dividends issued in stock are reported by
transferring the market value of the stock issued from retained earnings to
common stock or treasury stock and additional paid-in capital. Stock splits are
recorded by adjusting common stock and additional paid in capital by the par
value of the additional shares. On August 16, 2000, the Board of Directors
declared a 5% stock dividend, paid on September 29, 2000, increasing shares
outstanding by 206,520 shares. On August 15, 2001, the Board of Directors
declared a 5% stock dividend, paid September 28, 2001, increasing shares
outstanding by 216,744 shares.
EARNINGS AND DIVIDENDS PER COMMON SHARE: Basic earnings per common share is net
income divided by the weighted average number of common shares considered to be
outstanding during the period. ESOP shares are considered outstanding for this
calculation unless unearned. Diluted earnings per common share includes the
dilutive effect of additional potential common shares issuable under stock
options. Earnings and dividends per common share are restated for all stock
splits and dividends. Also, see Note 2.
COMPREHENSIVE INCOME (LOSS): Comprehensive income (loss) consists of net income
and other comprehensive income (loss). Other comprehensive income (loss)
includes the net change in net unrealized appreciation (depreciation) on
securities available for sale, net of tax, which is also recognized as a
separate component of shareholders' equity. Also, see Note 18.
LOSS CONTINGENCIES: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management believes that there currently are no such matters that
would have a material effect on the financial statements.
DIVIDEND RESTRICTION: Certain restrictions exist regarding the ability of the
subsidiaries to transfer funds to Rurban Financial Corp. in the form of cash
dividends, loans or advances. Approximately $3,100,000 of undistributed earnings
of the subsidiaries, included in consolidated retained earnings is available for
distribution to Rurban Financial Corp. as dividends as of December 31, 2001,
without prior regulatory approval. Banking regulations also require maintaining,
certain capital levels and may limit the dividends paid by the banks to the
Corporation or the Corporation to shareholders. Also, see Note 17.
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 16. 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.
- --------------------------------------------------------------------------------
(Continued)
F-12.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
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 and amounts due from financial
institutions with original maturities under 90 days. The Corporation reports net
cash flows for customer loan and deposit transactions, short-term borrowings
with original maturities of 90 days or less and interest-bearing deposits in
other financial institutions.
NEW ACCOUNTING PRONOUNCEMENTS: A new accounting standard requires all business
combinations to be recorded using the purchase method of accounting for any
transactions initiated after June 30, 2001. Under the purchase method, all
identifiable tangible and intangible assets and liabilities of the acquired
company must be recorded at fair value at date of acquisition, and the excess of
cost over fair value of net assets acquired is recorded as goodwill.
Identifiable intangible assets with finite useful lives will be amortized under
the new standard, whereas goodwill, both amounts previously recorded and future
amounts purchased, will cease being amortized starting in 2002. Annual
impairment testing will be required for goodwill with impairment being recorded
if the carrying amount of goodwill exceeds its implied fair value. Adoption of
this standard on January 1, 2002 will not have a material effect on the
Company's financial statements.
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, 2001, 2000 and 1999 is presented below:
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
BASIC EARNINGS PER COMMON SHARE
Net income $ 2,252,958 $ 6,086,178 $ 5,230,902
=========== =========== ===========
Weighted average common shares
outstanding 4,564,029 4,564,560 4,565,138
Less: Unallocated ESOP shares (38,315) (54,056) (62,922)
----------- ----------- -----------
Weighted average common shares
outstanding for basic earnings
per common share 4,525,714 4,510,504 4,502,216
=========== =========== ===========
Basic earnings per common share $ .50 $ 1.35 $ 1.16
=========== =========== ===========
- --------------------------------------------------------------------------------
(Continued)
F-13.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 2 - BASIC AND DILUTED EARNINGS PER COMMON SHARE (Continued)
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
DILUTED EARNINGS PER COMMON SHARE
Net income $2,252,958 $6,086,178 $5,230,902
========== ========== ==========
Weighted average common shares
outstanding for basic earnings
per common share 4,525,714 4,510,504 4,502,216
Add: Dilutive effects of assumed
conversions and exercise of stock options 18,737 208 9,177
---------- ---------- ----------
Weighted average common and dilutive
potential common shares outstanding 4,544,451 4,510,712 4,511,393
========== ========== ==========
Diluted earnings per common share $ .50 $ 1.35 $ 1.16
========== ========== ==========
Incentive stock options for 143,685, 237,148 and 575,605 shares of common stock
were not considered in computing diluted earnings per common share for 2001,
2000 and 1999 because these options were not dilutive. Common share numbers have
been restated for all stock splits and stock dividends.
NOTE 3 - SECURITIES AVAILABLE FOR SALE
Year end securities available for sale were as follows.
Gross Gross
Amortized Unrealized Unrealized
2001 Cost Gains Losses Fair Value
- ---- ---- ----- ------ ----------
U.S. Treasury and Government
agency $16,663,883 $ 231,951 $ (14,716) $16,881,118
Obligations of states and
political subdivisions 4,859,755 46,343 (108,236) 4,797,862
Mortgage-backed securities 61,935,534 1,075,697 (30,185) 62,981,046
Corporate securities 6,236,118 -- (56,635) 6,179,483
Mutual funds 10,050,505 -- (50,505) 10,000,000
Marketable equity securities 3,536,042 -- -- 3,536,042
------------ ----------- ----------- ------------
$103,281,837 $ 1,353,991 $ (260,277) $104,375,551
============ =========== =========== ============
- --------------------------------------------------------------------------------
(Continued)
F-14.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES AVAILABLE FOR SALE (Continued)
Gross Gross
Amortized Unrealized Unrealized
2000 Cost Gains Losses Fair Value
- ---- ---- ----- ------ ----------
U.S. Treasury and Government
agency $22,832,078 $ 132,514 $ (68,272) $22,896,320
Obligations of states and
political subdivisions 12,496,066 241,579 (162,036) 12,575,609
Mortgage-backed securities 49,576,863 585,638 (231,711) 49,930,790
Marketable equity securities 3,502,239 -- -- 3,502,239
----------- ----------- ----------- -----------
$88,407,246 $ 959,731 $ (462,019) $88,904,958
=========== =========== =========== ===========
Contractual maturities of debt securities available for sale at December 31,
2001 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.
Amortized
Cost Fair Value
---- ----------
Due in one year or less $ 184,250 $ 185,219
Due after one year through five years 22,730,752 22,834,963
Due after five years through ten years 3,490,970 3,532,650
Due after ten years 1,353,784 1,305,631
Mortgage-backed securities 61,935,534 62,981,046
----------- -----------
Total debt securities available for sale $89,695,290 $90,839,509
=========== ===========
Proceeds, gross gains and gross losses realized from sales of securities
available for sale for the years ended December 31, 2001, 2000 and 1999 are as
follows:
2001 2000 1999
---- ---- ----
Proceeds from sales of securities
available for sale $ 19,060,258 $ 9,063,566 $ 17,657,888
============== ================ ==============
Gross gains from sales of securities
available for sale $ 666,458 $ 6,080 $ 25,648
Gross losses from sales of securities
available for sale (176,817) (86,620) (31,475)
-------------- ---------------- --------------
Net gain (loss) on securities $ 489,641 $ (80,540) $ (5,827)
============== ================ ==============
- --------------------------------------------------------------------------------
(Continued)
F-15.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES AVAILABLE FOR SALE (Continued)
At December 31, 2001, the Corporation had an investment with an amortized cost
of approximately $10,051,000 and a fair value of approximately $10,000,000 in
the Federated Ultrashort Bond Fund. There were no other 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 $76,471,000 and $77,708,000
as of December 31, 2001 and 2000, were pledged to secure public and trust
deposits and FHLB advances.
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, 2001, 2000 and 1999:
2001 2000 1999
---- ---- ----
Beginning balance $ 7,214,970 $ 6,193,712 $ 5,408,854
Provision for loan losses 8,733,000 2,100,000 1,215,000
Recoveries of previous charge-offs 463,923 490,752 662,299
Losses charged to the allowance (7,172,957) (1,569,494) (1,092,441)
----------- ----------- -----------
Ending balance $ 9,238,936 $ 7,214,970 $ 6,193,712
=========== =========== ===========
At December 31, 2001 and 2000, loans past due more than 90 days and still
accruing interest approximated $2,131,000 and $1,927,000.
Individual loans determined to be impaired were as follows.
2001 2000 1999
---- ---- ----
Year end loans with no allowance for
loan losses allocated $ 1,937,000 $ 4,189,000 $ --
Year end loans with allowance for loan
losses allocated 9,134,000 3,923,000 1,536,000
----------- ----------- -----------
Total impaired loans $11,071,000 $ 8,112,000 $ 1,536,000
=========== =========== ===========
Amount of allowance allocated $ 3,647,000 $ 2,410,000 $ 807,000
Average of impaired loans during the
year 7,999,000 6,020,000 1,461,000
Interest income recognized during
impairment 421,000 416,000 40,000
Cash-basis interest income recognized 412,000 89,000 17,000
- --------------------------------------------------------------------------------
(Continued)
F-16.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 5 - PREMISES AND EQUIPMENT, NET
Premises and equipment, net at December 31, are summarized as follows:
2001 2000
---- ----
Land $ 1,056,691 $ 1,056,691
Buildings and improvements 8,170,766 7,880,696
Furniture and equipment 10,711,339 10,709,599
------------ ------------
Total cost 19,938,796 19,646,986
Accumulated depreciation and amortization (8,122,239) (8,744,237)
------------ ------------
$ 11,816,557 $ 10,902,749
============ ============
The Corporation is obligated under non-cancelable leases for office space and
equipment. Rent expense was $299,000, $253,000 and $229,000 for 2001, 2000 and
1999.
At December 31, 2001, minimum future lease payments are as follows for the years
ended December 31:
2002 $ 99,600
2003 99,600
2004 99,600
2005 99,600
2006 99,600
Thereafter 498,000
--------------
$ 996,000
==============
NOTE 6 - INTEREST-BEARING DEPOSITS
Included in interest-bearing deposits are certificates of deposit in
denominations of $100,000 or more of approximately $164,043,000 and $146,525,000
as of December 31, 2001 and 2000, respectively. Certificates of deposit obtained
from brokers totaled approximately $70,426,000 and $55,507,000 as of December
31, 2001 and 2000, respectively.
At December 31, 2001, the scheduled maturities of certificates of deposit are as
follows for the years ended December 31:
2002 $ 262,509,262
2003 85,796,291
2004 26,094,778
2005 2,498,514
2006 1,621,362
Thereafter 1,358,192
--------------
$ 379,878,399
==============
- --------------------------------------------------------------------------------
(Continued)
F-17.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 7 - ADVANCES FROM FHLB
Advances from the FHLB of Cincinnati with fixed and variable interest rates
ranging from 1.98% to 7.02% at December 31, 2001 and from 4.52% to 6.90% at
December 31, 2000 mature as follows for the years ending December 31:
2001 2000
---- ----
2001 $ -- $ 5,638,845
2002 4,925,069 4,175,069
2003 13,850,000 12,350,000
2004 5,000,000 5,000,000
2005 -- --
2006 -- --
Thereafter 30,500,000 25,000,000
-------------- --------------
$ 54,275,069 $ 52,163,914
============== ==============
At December 31, 2001 and 2000, in addition to FHLB stock, the Corporation
pledged mortgage loans with a minimum carrying value of approximately
$77,933,000 and $71,203,000 and securities with an amortized cost of
approximately $4,524,000 and $-0- and fair value of approximately $4,518,000 and
$-0- to the FHLB to secure advances outstanding.
NOTE 8 - JUNIOR SUBORDINATED DEBENTURES
On September 7, 2000, Rurban Statutory Trust 1 ("RST"), a wholly owned
subsidiary of the Corporation, closed a pooled private offering of 10,000
Capital Securities with a liquidation amount of $1,000 per security. The
proceeds of the offering were loaned to the Corporation in exchange for junior
subordinated debentures with terms similar to the Capital Securities. The sole
assets of RST are the junior subordinated debentures of the Corporation and
payments thereunder. The junior subordinated debentures and the back-up
obligations, in the aggregate, constitute a full and unconditional guarantee by
the Corporation of the obligations of RST under the Capital Securities.
Distributions on the Capital Securities are payable semi-annually at the annual
rate of 10.6% and are included in interest expense in the consolidated financial
statements. These securities are considered Tier 1 capital (with certain
limitations applicable) under current regulatory guidelines. As of December 31,
2001 and 2000, the outstanding principal balance of the Capital Securities was
$10,000,000. The principal balance of the Capital Securities less unamortized
issuance costs constitute the junior subordinated debentures in the financial
statements.
- --------------------------------------------------------------------------------
(Continued)
F-18.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 8 - JUNIOR SUBORDINATED DEBENTURES (Continued)
The junior subordinated debentures are subject to mandatory redemption, in whole
or in part, upon repayment of the Capital Securities at maturity or their
earlier redemption at the liquidation amount. Subject to the Corporation having
received prior approval of the Federal Reserve, if then required, the Capital
Securities are redeemable prior to the maturity date of September 7, 2030, at
the option of the Corporation; on or after September 7, 2020 at par; or on or
after September 7, 2010 at a premium, or upon occurrence of specific events
defined within the trust indenture. The Corporation has the option to defer
distributions on the Capital Securities from time to time for a period not to
exceed 10 consecutive semi-annual periods.
NOTE 9 - OTHER BORROWED FUNDS
The Corporation has a line of credit from The Northern Trust Company for up to
$15,000,000. The line of credit is unsecured and requires monthly interest
payments with full principal payment at maturity on April 27, 2002. The interest
rate is variable based on the current federal funds rate and adjusts daily. The
line of credit had an outstanding balance of zero at December 31, 2001 and 2000.
Subsequent to year end, $7 million was borrowed on this line of credit. The line
of credit agreement contains various covenants with which the Corporation must
comply. The Corporation was granted a waiver of two covenants through December
31, 2001. However, the Corporation was in violation of one additional covenant
at December 31, 2001 and recently has requested a waiver of that covenant.
NOTE 10 - 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
$736,000, $519,000 and $260,000, and related expense attributable to the plan
included in salaries and employee benefits was approximately $886,000, $967,000
and $572,000 in 2001, 2000 and 1999, respectively. The Corporation's
contributions to the account of each employee become fully vested after three
years of service.
Distributions to plan participants may be paid in cash or stock upon their
termination of employment. During 2001 and 2000, 18,765 and 21,562 shares were
withdrawn from the ESOP by participants who terminated their employment with the
Company.
- --------------------------------------------------------------------------------
(Continued)
F-19.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 10 - EMPLOYEE BENEFITS (Continued)
During 1996, the ESOP borrowed $1,505,527 from the Corporation to purchase
103,368 shares of common stock at a weighted average cost of $14.57 per share.
Collateral for the loan is the unearned shares of common stock purchased by the
ESOP with the loan proceeds. The loan will be repaid principally from the
Corporation's discretionary contributions to the ESOP. The interest rate for the
loan is 7.75%. Shares purchased by the ESOP are held in suspense until allocated
among ESOP participants as the loan is repaid. During 2001, 2000 and 1999, the
ESOP allocated 81,429 shares, 51,820 shares and 14,858 shares. Allocations of
shares during 2001 and 2000 included 55,322 and 48,947 shares purchased on the
open market and 26,107 and 2,873 shares from unearned shares.
The ESOP shares as of December 31 were as follows:
2001 2000
---- ----
Allocated shares 735,258 672,594
Unearned shares 26,514 52,621
-------- --------
Total ESOP shares 761,772 725,215
======== ========
Fair value of unearned ESOP shares at December 31 $362,738 $582,587
======== ========
The Corporation accounts for its ESOP under AICPA Statement of Position ("SOP")
93-6. Compensation expense is recorded based on the average market price of the
shares committed to be released for allocation to participant accounts and cash
allocated to participant accounts. The difference between the market price and
the cost of shares committed to be released is recorded as an adjustment to
additional paid-in capital. Dividends on allocated ESOP shares are recorded as a
reduction of retained earnings; dividends on unearned ESOP shares are reflected
as a reduction of debt and accrued interest or as a contribution to participant
accounts.
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 proprietary interest in the Corporation. A
total of 441,000 shares of the Corporation's authorized and unissued common
stock were reserved for issuance under the Option Plan. The option exercise
price shall not be less than the fair market value (as defined in the Option
Plan) of the common stock on the date the option is granted, and the option term
cannot exceed 10 years.
- --------------------------------------------------------------------------------
(Continued)
F-20.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 10 - EMPLOYEE BENEFITS (Continued)
At December 31, 2001, 81,921 additional options were available to be granted.
Eligible directors, officers and key employees are able to exercise options
awarded to them at a rate of 20% per year. Options outstanding at December 31,
2001 had a range of exercise prices of $11.07 - $16.78 and a weighted average
remaining contractual life of 7.6 years.
A summary of the activity in the Option Plan is as follows.
2 0 0 1 2 0 0 0 1 9 9 9
------- ------- -------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at beginning
of year 332,961 $ 13.00 241,558 $ 13.77 240,125 $ 13.69
Granted 8,313 13.62 95,813 11.08 7,167 16.79
Exercised (3,580) 13.11 - - (221) 12.87
Forfeited (14,714) 14.12 (4,410) 13.85 (5,513) 14.43
------- ------- -------
Outstanding at end of year 322,980 $ 12.96 332,961 $ 13.00 241,558 $ 13.77
======= ======= =======
Options exercisable at December 31, 2001, 2000 and 1999 were as follows.
2 0 0 1 2 0 0 0 1 9 9 9
------- ------- -------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise Exercise
Prices Number Price Number Price Number Price
- ------ ------ ----- ------ ----- ------ -----
$11.07 18,470 $ 11.07 -- $ -- -- $ --
$12.87 136,620 12.87 104,186 12.87 68,025 12.87
$16.78 29,491 16.78 18,024 16.78 7,607 16.78
------- --------- --------
Exercisable at year end 184,581 $ 13.31 122,210 $ 13.45 75,632 $ 13.26
======= ========= ========
The Corporation applies APB Opinion 25, Accounting For Stock Issued to Employees
and related interpretations in accounting for its Option Plan. Accordingly, no
compensation expense has been recognized for the Option Plan. SFAS No. 123,
Accounting For Stock-Based Compensation requires pro forma disclosures for
entities that do not adopt its fair value accounting method for stock-based
compensation. Had compensation cost for stock options been measured using SFAS
No. 123, net income and earnings per share would have been the pro forma amounts
indicated below. The pro forma effect may increase in the future if more options
are granted.
- --------------------------------------------------------------------------------
(Continued)
F-21.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 10 - EMPLOYEE BENEFITS (Continued)
2001 2000 1999
---- ---- ----
Net income as reported $ 2,252,958 $ 6,086,178 $ 5,230,902
Pro forma net income $ 2,104,050 $ 5,943,434 $ 5,083,603
Basic earnings per common share as reported $ .50 $ 1.35 $ 1.16
Pro forma basic earnings per common share $ .46 $ 1.32 $ 1.13
Diluted earnings per common share as reported $ .50 $ 1.35 $ 1.16
Pro forma diluted earnings per common share $ .46 $ 1.32 $ 1.13
The pro forma effects are computed using option pricing models, using the
following weighted-average assumptions as of grant date.
2001 2000 1999
---- ---- ----
Risk-free interest rate 4.78% 5.68% 4.79%
Expected option life 8 10 10
Expected stock price volatility 10.84% 17.35% 7.14%
Expected dividend yield 3.77% 3.54% 2.67%
Resulting weighted average grant date
fair value of stock options granted during
the year $ 1.69 $ 2.37 $ 2.79
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 three years. The plans cover substantially all employees of the
Corporation. Expense attributable to the plans, included in salaries and
employee benefits, was approximately $297,000, $278,000 and $220,000 in 2001,
2000 and 1999.
LIFE INSURANCE PLANS: Life insurance plans are provided for certain executive
officers on a split-dollar basis. 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, not to exceed the employee's portion of
the death benefit. 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 and life
insurance policies related to the Corporation's supplemental retirement plan
totaled approximately $2,610,000 and $2,503,000 at December 31, 2001 and 2000,
and is included in other assets in the consolidated balance sheets.
- --------------------------------------------------------------------------------
(Continued)
F-22.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 10 - EMPLOYEE BENEFITS (Continued)
SUPPLEMENTAL RETIREMENT PLAN: The Corporation established a supplemental
retirement plan for selected officers. The Corporation has purchased insurance
contracts on the lives of certain participants in the supplemental retirement
plan and has named the Corporation as beneficiary. While no direct contract
exists between the supplemental retirement plan and the life insurance
contracts, it is management's current intent that the proceeds from the
insurance contracts will be used to help offset earlier payments made under the
supplemental retirement plan. The Corporation is recording an expense equal to
the projected present value of the payments due at retirement based on the
projected remaining years of service using the straight line method. The
obligations under the plans, net of payments already made, was approximately
$1,164,615 and $1,015,000 at December 31, 2001 and 2000 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 $192,000,
$236,000 and $165,000 in 2001, 2000 and 1999.
NOTE 11 - OTHER EXPENSES
The following is an analysis of other expenses for the years ended December 31,
2001, 2000 and 1999:
2001 2000 1999
---- ---- ----
Amortization of intangible assets $ 120,661 $ 210,000 $ 210,000
Advertising expense 612,234 513,411 448,971
Professional fees 1,712,161 1,263,095 1,244,190
Insurance expense 241,030 230,399 211,101
Data processing fees 473,196 551,200 439,365
Printing, stationery and supplies 705,583 615,660 620,853
Telephone and communications 681,450 590,345 665,747
Postage and delivery expense 590,570 545,648 542,536
State, local and other taxes 641,452 611,481 470,742
Other operating expenses 2,092,137 2,043,197 2,088,183
---------- ---------- ----------
$7,870,474 $7,174,436 $6,941,688
========== ========== ==========
- --------------------------------------------------------------------------------
(Continued)
F-23.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 12 - INCOME TAX EXPENSE
Income tax expense consists of the following for the years ended December 31,
2001, 2000 and 1999:
2001 2000 1999
---- ---- ----
Current expense $ 2,977,440 $ 4,200,359 $ 1,612,264
Deferred expense (benefit) (2,078,874) (1,479,825) 748,673
------------ ------------ ------------
$ 898,566 $ 2,720,534 $ 2,360,937
============ ============ ============
Income tax expense (benefit) on net gain (loss) on securities was $166,478,
$(27,384) and $(1,981) in 2001, 2000 and 1999.
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, 2001, 2000 and
1999:
2001 2000 1999
---- ---- ----
Statutory tax rate 34% 34% 34%
Income taxes computed at the
statutory federal income tax rate $ 1,071,518 $ 2,994,282 $ 2,581,225
Add (subtract) tax effect of
Tax-exempt income (162,859) (268,587) (243,884)
Non-deductible expenses and other (10,093) (5,161) 23,596
------------ ------------ ------------
$ 898,566 $ 2,720,534 $ 2,360,937
============ ============ ============
The components of the net deferred tax asset recorded in the consolidated
balance sheets as of December 31, 2001 and 2000 are as follows:
2001 2000
---- ----
Deferred tax assets
Provision for loan losses $3,752,000 $2,082,361
Mark to market adjustment 371,863 169,222
Net deferred loan fees 102,277 91,733
Accrued compensation and benefits 395,970 345,038
ESOP contributions 70,071 --
Other 21,281 5,704
---------- ----------
4,713,462 2,694,058
- --------------------------------------------------------------------------------
(Continued)
F-24.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 12 - INCOME TAX EXPENSE (Continued)
2001 2000
---- ----
Deferred tax liabilities
Net unrealized appreciation on
securities available for sale $ (371,863) $ (169,222)
Originated mortgage servicing rights (131,215) (393,788)
Depreciation (368,411) (147,250)
Purchase accounting adjustments (49,210) (60,145)
Other (8,062) (15,185)
----------- -----------
(928,761) (785,590)
Valuation allowance -- --
----------- -----------
$ 3,784,701 $ 1,908,468
=========== ===========
NOTE 13 - RELATED PARTY TRANSACTIONS
Certain directors, executive officers and principal shareholders of the
Corporation, including associates of such persons, are loan customers. A summary
of the related party loan activity, for loans aggregating $60,000 or more to any
one related party, follows for the years ended December 31, 2001 and 2000:
2001 2000
---- ----
Balance, January 1 $ 4,678,000 $ 4,977,000
New loans 875,000 1,272,000
Repayments (1,494,000) (1,528,000)
Previously existing loans to new directors 3,668,000 --
Other changes (113,000) (43,000)
----------- -----------
Balance, December 31 $ 7,614,000 $ 4,678,000
=========== ===========
Other changes include adjustments for loans applicable to one reporting period
that are excludable from the other reporting period.
- --------------------------------------------------------------------------------
(Continued)
F-25.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 14 - 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 the 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, standby letters of credit
and commercial 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:
2001 2000
---- ----
Loan commitments and unused lines of credit $152,106,000 $139,705,000
Standby letters of credit 1,795,000 2,394,000
Commercial letters of credit 11,000 60,000
------------ ------------
$153,912,000 $142,159,000
============ ============
Since many commitments to make loans expire without being used, the amount does
not necessarily represent future cash commitments. In addition, commitments to
extend credit are arrangements to lend to customers as long as there is no
violation of any condition established in the contract. No losses are
anticipated as a result of these transactions. Collateral obtained upon exercise
of the commitment is determined using management's credit evaluation of the
borrower and may include real estate, business assets, consumer assets, deposits
and other items.
There are various contingent liabilities that are not reflected in the
consolidated financial statements, including claims and legal actions arising in
the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters is
not expected to have a material effect on the Corporation's consolidated
financial condition or results of operations.
Salary continuation agreements with certain executive officers contain
provisions regarding certain events leading to separation from the Corporation,
before the executive officer's normal retirement date, which could result in
cash payments in excess of amounts already accrued.
The Corporation was required to have approximately $5,193,000 and $4,777,000 of
cash on hand or on deposit with the Federal Reserve Bank to meet regulatory
reserve and clearing requirements at December 31, 2001 and 2000. These balances
do not earn interest. Additionally, the Corporation was required to have
approximately $1,250,000 of cash on deposit to meet other clearing requirements
at December 31, 2001 and 2000. This balance does earn interest.
- --------------------------------------------------------------------------------
(Continued)
F-26.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 15 - PARENT COMPANY FINANCIAL STATEMENTS
Presented below are condensed financial statements for the parent company,
Rurban Financial Corp.:
CONDENSED BALANCE SHEETS
December 31, 2001 and 2000
2001 2000
---- ----
ASSETS
Cash and cash equivalents $ 5,214,886 $ 5,418,276
Investment in and advances to subsidiaries
Banking subsidiaries 53,173,886 44,421,456
Non-banking subsidiaries 4,785,997 3,981,655
----------- -----------
Total investment in subsidiaries 57,959,883 48,403,111
Accounts receivable from subsidiaries -- 194,558
Loans to banking subsidiaries 600,000 7,600,000
Other assets 1,443,335 1,539,283
----------- -----------
Total assets $65,218,104 $63,155,228
=========== ===========
LIABILITIES
Cash dividends payable $ 593,387 $ 521,365
Junior subordinated debentures 9,706,405 9,697,385
Borrowings from non-banking subsidiaries 310,000 310,000
Accrued interest payable 393,319 341,072
Other liabilities 3,385,661 2,145,220
----------- -----------
Total liabilities 14,388,772 13,015,042
SHAREHOLDERS' EQUITY 50,829,332 50,140,186
----------- -----------
Total liabilities and shareholders' equity $65,218,104 $63,155,228
=========== ===========
- --------------------------------------------------------------------------------
(Continued)
F-27.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 15 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF INCOME
Years ended December 31, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
INCOME
Interest $ 187,179 $ 89,644 $ --
Dividends from subsidiaries
Banking subsidiaries 3,090,000 11,680,000 --
Non-banking subsidiaries 300,000 240,000 1,150,000
------------ ------------ ------------
Total 3,390,000 11,920,000 1,150,000
Noninterest income 3,775,452 2,726,073 2,115,732
------------ ------------ ------------
Total income 7,352,631 14,735,717 3,265,732
EXPENSE
Interest expense on other borrowed funds 1,150,382 710,711 334,921
Noninterest expense 5,753,396 5,181,941 4,013,677
------------ ------------ ------------
Total expense 6,903,778 5,892,652 4,348,598
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAX BENEFIT AND EQUITY
IN UNDISTRIBUTED NET INCOME OF SUBSIDIARIES 448,853 8,843,065 (1,082,866)
Income tax benefit 999,990 1,214,076 767,517
------------ ------------ ------------
INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED
NET INCOME OF SUBSIDIARIES 1,448,843 10,057,141 (315,349)
Equity in undistributed (excess distributed)
net income of subsidiaries
Banking subsidiaries (227) (4,335,143) 6,301,416
Non-banking subsidiaries 804,342 364,180 (755,165)
------------ ------------ ------------
Total 804,115 (3,970,963) 5,546,251
------------ ------------ ------------
NET INCOME $ 2,252,958 $ 6,086,178 $ 5,230,902
============ ============ ============
COMPREHENSIVE INCOME $ 2,646,319 $ 7,948,215 $ 3,494,437
============ ============ ============
- --------------------------------------------------------------------------------
(Continued)
F-28.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 15 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Dividends received from subsidiaries
Banking subsidiaries $ 3,090,000 $ 11,680,000 $ --
Non-banking subsidiaries 300,000 240,000 1,150,000
------------ ------------ ------------
Total 3,390,000 11,920,000 1,150,000
Cash received from subsidiaries-fees
and commissions 3,970,010 4,843,675 (196,428)
Cash paid to suppliers and employees (4,487,997) (3,931,781) (3,773,369)
Interest received 187,179 89,644 --
Interest paid (1,098,135) (710,711) (334,921)
Income tax refunds 1,080,000 2,040,958 974,543
------------ ------------ ------------
Net cash from operating activities 3,041,057 14,251,785 (2,180,175)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in banking subsidiaries (8,150,000) (2,350,000) (3,500,000)
Investment in non-banking subsidiaries -- (310,000) --
Proceeds from loans to banking subsidiaries (600,000) (7,600,000) --
Repayment of loans to banking subsidiaries 7,600,000 -- --
------------ ------------ ------------
Net cash from investing activities (1,150,000) (10,260,000) (3,500,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of junior
subordinated debentures -- 9,697,385 --
Proceeds from borrowings from non-banking
subsidiaries -- 310,000 --
Net proceeds from (repayment of) advances on
line of credit -- (7,000,000) 7,000,000
Cash dividends paid (2,086,370) (1,822,218) (1,656,179)
Proceeds from exercise of stock options 45,982 -- 2,838
Cash paid for purchase of 3,049 shares of
treasury stock (45,400) -- --
Cash paid in lieu of fractional shares for
5% stock dividend (8,659) (6,968) --
------------ ------------ ------------
Net cash from financing activities (2,094,447) 1,178,199 5,346,659
------------ ------------ ------------
Net change in cash and cash equivalents (203,390) 5,169,984 (333,516)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 5,418,276 248,292 581,808
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,214,886 $ 5,418,276 $ 248,292
============ ============ ============
- --------------------------------------------------------------------------------
(Continued)
F-29.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 15 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
RECONCILIATION OF NET INCOME TO NET CASH
FROM OPERATING ACTIVITIES
Net income $ 2,252,958 $ 6,086,178 $ 5,230,902
Adjustments to reconcile net income to
net cash from operating activities
Amortization of deferred debt
issuance costs 9,020 -- --
Equity in (undistributed) excess
distributed net income of subsidiaries
Banking subsidiaries 227 4,335,143 (6,301,416)
Non-banking subsidiaries (804,342) (364,180) 755,165
Change in accounts receivable 194,558 2,117,602 (2,312,160)
Change in other assets 95,948 273,686 262,417
Change in other liabilities 1,240,441 1,803,356 184,917
Change in accrued interest payable 52,247 -- --
------------- ------------- ----------------
Net cash from operating activities $ 3,041,057 $ 14,251,785 $ (2,180,175)
============== ============== ================
NOTE 16 - 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, 2001 and 2000.
Items which are not financial instruments are not included.
2 0 0 1 2 0 0 0
---------------------------------- -----------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----- ---------- ----- ----------
Financial assets
- ----------------
Cash and due from banks $ 25,342,043 25,342,000 $ 18,431,717 $ 18,432,000
Interest-earning deposits in
other financial institutions 260,000 260,000 110,000 110,000
Securities available for sale 104,375,551 104,376,000 88,904,958 88,905,000
Loans, net of allowance for loan
losses (including loans held for sale) 591,491,985 595,917,000 570,587,971
568,326,000
Accrued interest receivable 4,939,741 4,940,000 5,716,048 5,716,000
Cash surrender value of
life insurance 2,610,000 2,610,000 2,503,000 2,503,000
Financial liabilities
- ----------------------
Demand and savings deposits (230,981,410) (230,981,000) (211,132,242) (210,734,000)
Time deposits (379,878,399) (384,823,000) (355,188,519) (356,930,000)
Federal funds purchased (14,850,000) (14,850,000) (13,200,000) (13,200,000)
Advances from FHLB (54,275,069) (57,165,000) (52,163,914) (52,418,000)
Junior subordinated debentures (9,706,405) (9,908,000) (9,697,385) (9,714,000)
Accrued interest payable (3,630,623) (3,631,000) (4,613,173) (4,613,000)
- --------------------------------------------------------------------------------
(Continued)
F-30.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 16 - 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, 2001 and 2000. The estimated fair value
for cash and due from banks, 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, 2001 and 2000,
applied for an estimated time period until the loan is assumed to reprice or be
paid and the allowance for loan losses is considered to be a reasonable estimate
of discount for credit quality concerns. The estimated fair value for demand
deposits and savings deposits and federal funds purchased, is based on their
carrying value. The estimated fair value for time deposits, fixed rate advances
from the FHLB and the junior subordinated debentures is based on estimates of
the rate the Corporation would pay on such deposits or borrowings at December
31, 2001 and 2000, 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, 2001 and 2000 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, 2001 and 2000, the estimated fair
values would necessarily have been realized at that date, since market values
may differ depending on various circumstances. The estimated fair values at
December 31, 2001 and 2000 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 17 - REGULATORY MATTERS
The Corporation and its subsidiary banks are subject to regulatory capital
requirements administered by federal banking agencies. Capital adequacy
guidelines and prompt corrective action regulations involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items calculated
under regulatory accounting practices. Capital amounts and classifications are
also subject to qualitative judgments by regulators about components, risk
weightings, and other factors, and the regulators can lower classifications in
certain cases. Failure to meet various capital requirements can initiate
regulatory action that could have a direct material effect on the consolidated
financial statements.
- --------------------------------------------------------------------------------
(Continued)
F-31.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 17 - REGULATORY MATTERS (Continued)
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If less than well capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:
Capital to Risk-
Weighted Assets Tier 1 Capital
--------------- --------------
Total Tier 1 To Average Assets
----- ------ -----------------
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
At year end, 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
------ ----- ------ ----- ------ -----
2001
- ----
Total capital (to risk weighted assets)
Consolidated $ 67.4 10.9% $ 49.5 8.0% $ 61.9 10.0%
State Bank 35.3 9.7 29.2 8.0 36.5 10.0
RFCBC 25.7 10.2 20.0 8.0 25.1 10.0
Tier 1 capital (to risk weighted assets)
Consolidated 59.6 9.6 24.7 4.0 37.2 6.0
State Bank 30.1 8.3 14.5 4.0 21.9 6.0
RFCBC 22.6 9.0 10.0 4.0 15.1 6.0
Tier 1 capital (to average assets)
Consolidated 59.6 8.1 29.5 4.0 36.9 5.0
State Bank 30.1 7.0 17.2 4.0 21.5 5.0
RFCBC 22.6 7.5 12.0 4.0 15.0 5.0
2000
- ----
Total capital (to risk weighted assets)
Consolidated $ 66.3 11.6% $ 45.7 8.0% $ 57.2 10.0%
State Bank 34.6 10.3 27.0 8.0 33.8 10.0
Tier 1 capital (to risk weighted assets)
Consolidated 59.1 10.3 22.9 4.0 34.3 6.0
State Bank 24.9 7.4 13.5 4.0 20.3 6.0
Tier 1 capital (to average assets)
Consolidated 59.1 8.5 27.8 4.0 34.7 5.0
State Bank 24.9 6.1 16.5 4.0 20.6 5.0
The Corporation and RFCBC at year end 2001 were categorized as well capitalized
while State Bank was adequately capitalized. The Corporation, State Bank and the
three banks which were merged to create RFCBC in 2001 were categorized as well
capitalized at year end 2000.
- --------------------------------------------------------------------------------
(Continued)
F-32.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 18 - OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) components and related taxes were as follows:
2001 2000 1999
---- ---- ----
Net change in net unrealized appreciation
(depreciation) on securities available
for sale
Net unrealized appreciation (depreciation)
arising during the year $ 1,085,643 $2,740,727 $(2,636,840)
Reclassification adjustments for (gains)
losses included in net income (489,641) 80,540 5,827
----------- ---------- -----------
Net change in net unrealized appreciation
(depreciation) on securities available
for sale 596,002 2,821,267 (2,631,013)
Tax expense (benefit) 202,641 959,230 (894,544)
----------- ---------- -----------
Total other comprehensive income (loss) $ 393,361 $1,862,037 $(1,736,469)
=========== ========== ===========
NOTE 19 - SEGMENT INFORMATION
The reportable segments are determined by the products and services offered,
primarily distinguished between banking and data processing operations. Loans,
investments, deposits, and financial services provide the revenues in the
banking segment and include the accounts of State Bank and RFCBC in 2001 and the
accounts of State Bank, PBC, FNB and CSB in 2000 and 1999. Service fees provide
the revenues in the data processing operation and include the accounts of RDSI.
Other segments include the accounts of the holding company, Rurban Financial
Corp., which provides management services to its subsidiaries and RFS, which
provides trust and financial services to customers nationwide and Rurban Life,
which provides insurance products to customers of the Corporation's subsidiary
banks.
The accounting policies used are the same as those described in the summary of
significant accounting policies. Segment performance is evaluated using net
interest income, other revenue, operating expense, and net income. Goodwill is
allocated. Income taxes and indirect expenses are allocated on revenue.
Transactions among segments are made at fair value. The holding company
allocates certain expenses to other segments. Information reported internally
for performance assessment follows.
- --------------------------------------------------------------------------------
(Continued)
F-33.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 19 - SEGMENT INFORMATION (Continued)
2001
- ----
Data Total Intersegment Consolidated
Banking Processing Other Segments Elimination Totals
------- ---------- ----- -------- ----------- ------
Income statement information:
- -----------------------------
Net interest income (expense) $ 25,674,656 $ (126,933) $ 193,482 $ 25,741,205 $ -- $ 25,741,205
Other revenue - external customers 5,088,701 6,125,970 2,946,942 14,161,613 -- 14,161,613
Other revenue - other segments -- 1,564,758 3,851,576 5,416,334 (5,416,334) --
------------ ----------- ----------- ------------ ----------- ------------
Net interest income and other revenue 30,763,357 7,563,795 6,992,000 45,319,152 (5,416,334) 39,902,818
Noninterest expense 17,644,172 6,001,048 9,789,408 33,434,628 (5,416,334) 28,018,294
Significant non-cash items:
Depreciation and amortization 884,466 988,703 198,837 2,072,006 -- 2,072,006
Provision for loan losses 8,733,000 -- -- 8,733,000 -- 8,733,000
Income tax expense (benefit) 1,318,714 531,334 (951,482) 898,566 -- 898,566
Segment profit (loss) 3,067,471 1,031,413 (1,845,926) 2,252,958 -- 2,252,958
Balance sheet information:
- --------------------------
Total assets 739,852,844 5,683,449 9,753,342 755,289,635 (9,080,542) 746,209,093
Goodwill and intangibles 179,339 -- -- 179,339 -- 179,339
Premises and equipment expenditures, net 594,743 2,142,649 118,741 2,856,133 -- 2,856,133
- --------------------------------------------------------------------------------
(Continued)
F-34.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 19 - SEGMENT INFORMATION (Continued)
2000
- ----
Data Total Intersegment Consolidated
Banking Processing Other Segments Elimination Totals
------- ---------- ----- -------- ----------- ------
Income statement information:
- -----------------------------
Net interest income (expense) $ 26,156,349 $ (47,415) $ 278,934 $ 26,387,868 $ -- $ 26,387,868
Other revenue - external
customers 3,061,748 5,123,805 3,087,308 11,272,861 -- 11,272,861
Other revenue - other segments -- 1,389,863 2,929,625 4,319,488 (4,319,488) --
------------ ----------- ------------ ------------ ------------ ------------
Net interest income
and other revenue 29,218,097 6,466,253 6,295,867 41,980,217 (4,319,488) 37,660,729
Noninterest expense 16,372,598 5,681,075 9,019,832 31,073,505 (4,319,488) 26,754,017
Significant non-cash items:
Depreciation and
amortization 959,416 938,102 205,611 2,103,129 -- 2,103,129
Provision for loan losses 2,100,000 -- -- 2,100,000 -- 2,100,000
Income tax expense (benefit) 3,549,622 266,961 (1,096,049) 2,720,534 -- 2,720,534
Segment profit (loss) 7,195,877 518,217 (1,627,916) 6,086,178 -- 6,086,178
Balance sheet information:
- --------------------------
Total assets 691,764,552 4,763,318 27,714,578 724,242,448 (23,424,746) 700,817,702
Goodwill and intangibles 300,000 -- -- 300,000 -- 300,000
Premises and equipment
expenditures, net 555,021 916,141 184,389 1,655,551 -- 1,655,551
- --------------------------------------------------------------------------------
(Continued)
F-35.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 19 - SEGMENT INFORMATION (Continued)
1999
- ----
Data Total Intersegment Consolidated
Banking Processing Other Segments Elimination Totals
------- ---------- ----- -------- ----------- ------
Income statement information:
- -----------------------------
Net interest income (expense) $ 22,764,187 $ (134,811) $ 579,522 $ 23,208,898 $ -- $ 23,208,898
Other revenue - external
customers 3,070,510 4,381,746 3,611,740 11,063,996 -- 11,063,996
Other revenue - other segments -- 1,368,622 2,206,550 3,575,172 (3,575,172) --
------------ ----------- ------------ ------------ ------------ ------------
Net interest income
and other revenue 25,834,697 5,615,557 6,397,812 37,848,066 (3,575,172) 34,272,894
Noninterest expense 15,403,697 5,112,291 8,525,239 29,041,227 (3,575,172) 25,466,055
Significant non-cash items:
Depreciation and
amortization 774,668 1,061,980 299,976 2,136,624 -- 2,136,624
Provision for loan losses 1,215,000 -- -- 1,215,000 -- 1,215,000
Income tax expense (benefit) 2,940,249 171,111 (750,423) 2,360,937 -- 2,360,937
Segment profit (loss) 6,275,751 332,155 (1,377,004) 5,230,902 -- 5,230,902
Balance sheet information:
- --------------------------
Total assets 621,665,973 4,792,283 19,434,424 645,892,680 (18,109,156) 627,783,524
Goodwill and intangibles 480,000 -- 30,000 510,000 -- 510,000
Premises and equipment
expenditures, net 726,403 803,911 136,592 1,666,906 -- 1,666,906
- --------------------------------------------------------------------------------
(Continued)
F-36.
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 20 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Earnings per Share
Interest Net Interest Net ---------------------------
Income Income Income (loss) Basic Diluted
------ ------ ------------- ----- -------
2000
- ----
First quarter $12,659,590 $ 6,316,677 $ 1,518,661 $ .33 $ .33
Second quarter 13,656,274 6,585,579 1,650,502 .36 .36
Third quarter 14,585,032 6,683,183 1,713,857 .38 .38
Fourth quarter 15,122,041 6,802,429 1,203,158 .28 .28
----------- ----------- ----------- -------- --------
Total $56,022,937 $26,387,868 $ 6,086,178 $ 1.35 $ 1.35
=========== =========== =========== ======== ========
2001
- ----
First quarter $14,840,486 $ 6,651,017 $ 1,594,251 $ .35 $ .35
Second quarter 14,507,461 6,551,683 1,121,117 .25 .25
Third quarter 13,947,793 6,312,379 1,308,882 .29 .29
Fourth quarter 13,223,089 6,226,126 (1,771,292) (.39) (.39)
----------- ----------- ----------- -------- --------
Total $56,518,829 $25,741,205 $ 2,252,958 $ .50 $ .50
=========== =========== =========== ======== ========
During the fourth quarter of 2000 and second, third and fourth quarters of 2001,
an additional provision for loan losses was recorded due to the levels of
impaired loans and charge-offs.
NOTE 21 - SUBSEQUENT EVENT
On February 2, 2002, the Corporation announced that it had agreed to acquire
certain assets and assume certain liabilities of the Oakwood Deposit Bank
Company of Oakwood, Ohio from the FDIC following the Ohio Superintendent of
Financial Institutions placing the Oakwood Deposit Bank Company in receivership
and appointing the FDIC as receiver.
Under the terms of the Purchase and Assumption Agreement, the Corporation will
acquire approximately $56 million in assets, primarily consisting of $7 million
in cash and cash equivalents, $19 million in securities and $30 million in
loans. The Corporation will also assume approximately $93 million in
liabilities, primarily consisting of insured deposit accounts. The net premium
paid for these assets, net of the liabilities assumed, was $2,026,000.
- --------------------------------------------------------------------------------
(Continued)
F-37.
RURBAN FINANCIAL CORP.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2001
---------------------------------------
INDEX TO EXHIBITS
Exhibit No. Description Reference No.
- ----------- ----------- -------------
3(a) Amended Articles of Registrant, as amended Incorporated herein by reference to
Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1989 (File No. 0-13507) [Exhibit
3(a)(i)].
3(b) Certificate of Amendment to the Amended Incorporated herein by reference to
Articles of Rurban Financial Corp. Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1993 (File No. 0-13507) [Exhibit 3(b)].
3(c) Certificate of Amendment to the Amended Incorporated herein by reference to
Articles of Rurban Financial Corp. Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1997 (File No. 0-13507) [Exhibit 3(c)].
3(d) Amended and Restated Articles of Rurban Incorporated herein by reference to
Financial Corp. Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1997 (File No. 0-13507) [Exhibit 3(d)].
3(e) Regulations of Registrant, as amended Incorporated herein by reference to
Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1986 (File No. 0-13507) [Exhibit 3(b)].
10(a) Employees' Stock Ownership Plan of Rurban Incorporated herein by reference to
Financial Corp. Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1993 (File No. 0-13507) [Exhibit 10(a)].
87.
Exhibit No. Description Reference No.
- ----------- ----------- -------------
10(b) First Amendment to Employees' Stock Incorporated herein by reference to
Ownership Plan of Rurban Financial Corp., Registrant's Annual Report on Form 10-K
dated June 14, 1993 and made to be for the fiscal year ended
effective as of January 1, 1993 December 31, 1993 (File No. 0-13507)
[Exhibit 10(b)].
10(c) Second Amendment to Employees' Stock Incorporated herein by reference to
Ownership Plan of Rurban Financial Corp., Registrant's Annual Report on Form 10-K
dated March 14, 1994 and made to be for the fiscal year ended
effective as of January 1, 1993 December 31, 1993 (File No. 0-13507)
[Exhibit 10(c)].
10(d) Third Amendment to Employees' Stock Incorporated herein by reference to
Ownership Plan of Rurban Financial Corp., Registrant's Annual Report on Form 10-K
dated March 13, 1995 for the fiscal year ended
December 31, 1994 (File No. 0-13507)
[Exhibit 10(d)].
10(e) Fourth Amendment to Employees' Stock Incorporated herein by reference to
Ownership Plan of Rurban Financial Corp., Registrant's Annual Report on Form 10-K
dated June 10, 1995 and made to be for the fiscal year ended December 31,
effective as of January 1, 1995 1995 (File No. 0-13507) [Exhibit 10(e)].
10(f) The Rurban Financial Corp. Savings Plan and Incorporated herein by reference to
Trust Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1990 (File No. 0-13507) [Exhibit 10(g)].
10(g) First Amendment to The Rurban Financial Incorporated herein by reference to
Corp. Savings Plan and Trust, dated Registrant's Annual Report on Form 10-K
December 10, 1990 and effective January 1, for the fiscal year ended December
1990 31, 1990 (File No. 0-13507)
[Exhibit 10(g)].
10(h) Second Amendment to The Rurban Financial Incorporated herein by reference to
Corp. Savings Plan and Trust, dated Registrant's Annual Report on Form 10-K
March 11, 1991, effective February 1, 1991 for the fiscal year ended December 31,
1992 (File No. 0-13507) [Exhibit 10(d)].
10(i) Third Amendment to The Rurban Financial Incorporated herein by reference to
Corp. Savings Plan and Trust, dated Registrant's Annual Report on Form 10-K
June 11, 1991 for the fiscal year ended December 31,
1992 (File No. 0-13507) [Exhibit 10(e)].
88.
Exhibit No. Description Reference No.
- ----------- ----------- -------------
10(j) Fourth Amendment to The Rurban Financial Incorporated herein by reference to
Corp. Savings Plan and Trust, dated Registrant's Annual Report on Form 10-K
July 14, 1992, effective May 1, 1992 for the fiscal year ended December 31,
1992 (File No. 0-13507) [Exhibit 10(f)].
10(k) Fifth Amendment to The Rurban Financial Incorporated herein by reference to
Corp. Savings Plan and Trust, dated March Registrant's Annual Report on Form 10-K
14, 1994 for the fiscal year ended December 31,
1993 (File No. 0-13507) [Exhibit 10(i)].
10(l) Sixth Amendment to The Rurban Financial Incorporated herein by reference to
Corp. Savings Plan and Trust dated May 1, Registrant's Annual Report on Form 10-K
1995 for the fiscal year ended December 31,
1995 (File No. 0-13507) [Exhibit 10(l)].
10(m) Summary of Incentive Compensation Plan of Incorporated herein by reference to
State Bank Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1993 (File No. 0-13507) [Exhibit 10(j)].
10(n) Summary of Bonus Program adopted by the Incorporated herein by reference to
Trust Department of State Bank for the Registrant's Annual Report on Form 10-K
benefit of Robert W. Constien in his for the fiscal year ended December 31,
capacity as Manager of the Trust Department 1991 (File No. 0-13507) [Exhibit 10(e)].
10(o) Summary of Bonus Program for the Trust Incorporated herein by reference to
Department of State Bank Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1992 (File No. 0-13507 [Exhibit 10(i)].
10(p) Summary of Sales Bonus Program of State Bank Incorporated herein by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994
(File No. 0-13507) [Exhibit 10(n)].
89.
Exhibit No. Description Reference No.
- ----------- ----------- -------------
10(q) Summary of Rurban Financial Corp. Bonus Plan Incorporated herein by reference to
Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1993 (File No. 0-13507) [Exhibit 10(q)].
10(r) Executive Salary Continuation Agreement, Incorporated herein by reference to
dated December 15, 1994, between Rurban Registrant's Annual Report on Form 10-K
Financial Corp. and Richard C. Burrows for the fiscal year ended December 31,
1994 (File No. 0-13507) [Exhibit 10(p)].
10(s) Executive Salary Continuation Agreement, Incorporated herein by reference to
dated October 11, 1995, between Rurban Registrant's Annual Reports on Form 10-K
Financial Corp. and Thomas C. Williams; and for the fiscal years ended December 31,
Amended Schedule A to Exhibit 10(s) 1995 and December 31, 1997 (File No.
identifying other identical Executive 0-13507) [Exhibit 10(s)].
Salary Continuation Agreements between
executive officers of Rurban Financial
Corp. and Rurban Financial Corp.
10(t) Description of Split-Dollar Insurance Incorporated herein by reference to
Policies Maintained for Certain Executive Registrant's Annual Report on Form 10-K
Officers of Rurban Financial Corp. for the fiscal year ended December 31,
1995 (File No. 0-13507) [Exhibit 10(t)].
10(u) Rurban Financial Corp. Stock Option Plan Incorporated herein by reference to the
Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996
(File No. 0-13507) [Exhibit 10(u)].
10(v) Rurban Financial Corp. Plan to Allow Incorporated herein by reference to the
Directors to Elect to Defer Compensation Corporation's Annual Report on Form 10-K
for the fiscal year ended
December 31, 1996 (File No. 0-13507)
[Exhibit 10(v)].
90.
Exhibit No. Description Reference No.
- ----------- ----------- -------------
10(w) Form of Non-Qualified Stock Option Incorporated herein by reference to
Agreement Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1997 (File No. 0-13507) [Exhibit 10(w)].
10(x) Form of Incentive Stock Option Agreement Incorporated herein by reference to
Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1997 (File No. 0-13507) [Exhibit 10(x)].
10(y) Employees' Stock Ownership and Savings Plan Incorporated herein by reference to
of Rurban Financial Corp. Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1999 (File No. 0-13507) [Exhibit 10(y)].
11 Statement re: Computation of Per Share Included in Notes 1 and 2 of the Notes
Earnings to Consolidated Financial Statements of
Registrant in the financial statements
portion of this Annual Report on Form
10-K.
21 Subsidiaries of Registrant Included in this Annual Report on Form
10-K as Exhibit 21.
23 Consent of Independent Auditor Included in this Annual Report on Form
10-K as Exhibit 23.
91.