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Published: Thursday, 4/14/2005

Rurban to acquire Exchange for $12.9M

BY MARY-BETH McLAUGHLIN
BLADE BUSINESS WRITER

DEFIANCE - In its first major transaction since being released from federal and state sanctions, Rurban Financial Corp. announced last evening that it plans to take over Exchange Bank in a cash and stock deal valued at $12.9 million.

The purchase apparently would give Rurban its first banking presence in metro Toledo and follows the recent expansion in the Toledo area by cross-town banking rival First Defiance Financial Corp.

The transaction, subject to regulatory and shareholder approval, is expected to close by year's end.

Rurban, which would take over the Wood County bank's parent company, Exchange Bancshares Inc., said it would keep Exchange Bank's name at its five locations. Rurban operates elsewhere in northwest Ohio as State Bank & Trust Co.

Executives from Rurban and Exchange were not available for comment last night, minutes after the Defiance firm announced the deal.

In recent weeks, Exchange Bank executives and board members either have denied knowledge of or have declined to return phone calls asking about reports that the bank was for sale.

Rurban Chief Executive Kenneth A. Joyce said in a statement yesterday, "The growing Toledo area is a key component for our continued expansion in northwest Ohio."

Exchange Bank, which has been in operation 99 years, has branches in Luckey, where it is based, and the Toledo suburbs of Sylvania, Holland, Perrysburg, and Walbridge. At the end of last year, it had assets of $91 million, loans of $62.3 million, and deposits of $82 million.

Its parent company reported this month that it had lost $368,000 last year, its second loss in three years, which it blamed in part on northwest Ohio's high bankruptcy rate. The company said it was withholding dividends because of rules set by regulators and that it had adopted new lending policies and added a credit analyst.

Exchange Bank had been working on recovering from a troubled 2002, when it lost $745,000. Its parent that year reported a total loss of $1 million.

This purchase would not be the first in which Rurban has taken over a bank company with problems. In 2002, it acquired Oakwood Deposit Bank Co. in Paulding County, which was shut down by regulators after a major embezzlement scheme by its chief executive was uncovered.

Rurban itself was released this year from federal and state sanctions imposed on it in 2002. It had been forced to restate slumping 2001 earnings to reflect bad-loan write-offs and the resignation of three top officials.

The terms of yesterday's deal call for Exchange shareholders to receive 1.555 Rurban shares for each share of Exchange, but half of the total number of Exchange shares are to be cashed in for $22 each.

That would put the value of the transaction at $12.9 million, based on Rurban's closing price of $14.22 a share Tuesday on Nasdaq. The shares closed yesterday at $14.20. Exchange's shares were $12.85 yesterday.

The merger announcement was made after the market closed.

One condition of the deal is that if the shareholders' equity in Exchange falls below $8.1 million before the deal closes, the purchase price per share will be reduced. That equity will be revised because of U.S. Securities and Exchange Commission questions about the company's deferred tax assets, an SEC filing said.

Rurban, which has 11 branches in Defiance, Paulding, and Fulton counties, had assets at the end of last year of $415 million and deposits of $280 million.

Its hometown rival, First Defiance, also has acquired or opened branches in metro Toledo in recent years, the latest through acquisition this year of Genoa Savings and Loan Co.

Contact Mary-Beth McLaughlin at

mmclaughlin@theblade.com

or 419-724-6199.



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