CONFORMED COPY
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996.
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission file number 0-13507
RURBAN FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Ohio 34-1395608
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
401 Clinton Street, Defiance, Ohio 43512
(Address of principal executive offices)
(Zip Code)
(419) 783-8950
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if
changed since last report.)
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
The number of common shares of Rurban Financial Corp.
outstanding was 2,179,378 on August 1, 1996.
-1-
PART 1 - FINANCIAL INFORMATION
Item 1. Financial statements
The interim consolidated financial statements of Rurban Financial Corp.
are unaudited; however, the information contained herein reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of financial condition and results of operations for the interim
periods presented. All adjustments reflected in these financial statements are
of a normal recurring nature in accordance with Rule 10-01(b) (8) of
Regulation S-X. Results of operations for the six months ended June 30, 1996
are not necessarily indicative of the results for the complete year.
-2-
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
June 30 December 31
1996 1995
----------- -----------
(Unaudited) (Note)
ASSETS
Cash and due from banks ..................... $ 15,910,119 $ 21,067,131
Federal funds sold .......................... 2,274,799 7,312,525
--------- ---------
TOTAL CASH AND CASH EQUIVALENTS ..... 18,184,918 28,379,656
Interest bearing deposits in other
financial institutions .................... 180,000 180,000
Securities available-for-sale ............... 69,014,484 90,329,866
Loans, net of allowance for losses of
$4,525,384 and $4,270,000 respectively .... 296,642,115 273,094,844
Loans held for sale .......................... 8,925,700 2,949,293
Premises and equipment, net .................. 7,962,605 8,383,717
Accrued interest and other assets ............ 8,756,344 7,908,389
--------- ---------
TOTAL ASSETS ...... $409,666,166 $411,225,765
============ ============
-3-
June 30 December 31
1996 1995
(Unaudited) (Note)
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing ........................ $ 39,927,569 $ 48,721,000
Interest bearing ........................... 322,879,946 319,075,538
------------- ------------
TOTAL DEPOSITS ....... 362,807,515 367,796,538
Federal Funds Purchased ...................... 2,668,000 - - -
Accrued expenses and other liabilities ....... 3,147,396 3,350,736
------------- ------------
TOTAL LIABILITIES ...... 368,622,911 371,147,274
Common stock subject to repurchase
obligation in ESOP (1996 279,113 shares
outstanding; 1995 297,467 shares
outstanding) ............................... 9,350,285 9,333,027
Common stock, stated value $2.50
a share:
Authorized--5,000,000 shares
1996 1,900,265 shares outstanding;
1995 1,886,911 shares outstanding .......... 4,750,563 4,717,277
Capital Surplus .............................. 5,577,644 5,798,813
Retained earnings ............................ 21,448,610 19,779,897
Net unrealized gain/(loss) on available-
for-sale securities (net of tax of
$ 43,194 and $231,549 respectively) ....... (83,847) 449,477
------------- ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ........... $ 409,666,166 $411,225,765
============= ============
See notes to condensed consolidated unaudited financial statements
Note: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date.
-4-
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
Three Months Ended
June 30
-------------------
1996 1995
Interest income:
Interest and fees on loans .................... $6,970,866 $6,578,911
Interest and dividends on securities:
Taxable ...................................... 999,008 814,576
Tax-exempt ................................... 108,738 105,898
Other ......................................... 64,039 205,719
---------- ----------
TOTAL INTEREST INCOME ....................... 8,142,651 7,705,104
Interest expense:
Deposits ...................................... 3,486,198 3,539,606
Short-term borrowings ......................... 61,371 2,671
---------- ----------
TOTAL INTEREST EXPENSE ...................... 3,547,569 3,542,277
---------- ----------
NET INTEREST INCOME ...................... 4,595,082 4,162,827
Provision for losses ........................... 270,000 265,000
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOSSES ...................... 4,325,082 3,897,827
Noninterest income:
Trust department .............................. 504,000 479,966
Service charges on
deposit accounts ............................. 310,052 299,147
Data processing fees .......................... 522,187 474,397
Gain on sale of securities available-for-sale.. 11,519 6,156
Other ......................................... 127,632 197,024
---------- ----------
TOTAL NONINTEREST INCOME ................. 1,475,390 1,456,690
Noninterest expense:
Salaries and employee
benefits ..................................... 1,934,431 1,655,920
Net occupancy expense ......................... 264,787 209,089
Equipment expense ............................. 472,961 484,770
Other ......................................... 1,406,557 1,429,694
---------- ----------
TOTAL NONINTEREST EXPENSE ................ 4,078,736 3,779,473
---------- ----------
INCOME BEFORE
INCOME TAXES ...................... 1,721,736 1,575,044
Applicable income taxes ........................ 540,398 521,511
---------- ----------
NET INCOME ...................... $1,181,338 $1,053,533
========== ==========
Net income per Common
Share (Note D) ................................ $ .54 $ .48
Average shares outstanding (Note D) ............ 2,183,554 2,184,378
See notes to condensed consolidated unaudited financial statements
-5-
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
Six Months Ended
--------------------
June 30
1996 1995
Interest income:
Interest and fees on loans ........................ $13,668,407 $12,887,096
Interest and dividends on securities:
Taxable .......................................... 2,125,262 1,624,831
Tax-exempt ....................................... 220,163 211,973
Other ............................................. 170,753 296,556
----------- -----------
TOTAL INTEREST INCOME ........................... 16,184,585 15,020,456
Interest expense:
Deposits .......................................... 7,042,202 6,785,797
Short-term borrowings ............................. 73,180 37,360
----------- -----------
TOTAL INTEREST EXPENSE .......................... 7,115,382 6,823,157
----------- -----------
NET INTEREST INCOME .......................... 9,069,203 8,197,299
Provision for losses .............................. 526,009 505,000
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOSSES ......................... 8,543,194 7,692,299
Noninterest income:
Trust department ................................. 1,012,315 937,359
Service charges on
deposit accounts ................................ 592,049 571,590
Data processing fee .............................. 1,139,201 956,055
Gain on sale of securities available-for-sale .... 11,519 3,113
Other ............................................ 260,240 341,111
----------- -----------
TOTAL NONINTEREST INCOME .................... 3,015,324 2,809,228
Noninterest expense:
Salaries and employee
benefits ........................................ 3,886,508 3,341,177
Net occupancy expense ............................ 518,207 424,763
Equipment expense ................................ 991,908 970,829
Other ............................................ 2,730,135 2,802,515
----------- -----------
TOTAL NONINTEREST EXPENSE ................... 8,126,758 7,539,284
----------- -----------
INCOME BEFORE
INCOME TAXES ......................... 3,431,760 2,962,243
Applicable income taxes ........................... 1,107,735 976,566
----------- -----------
NET INCOME ......................... $ 2,324,025 $ 1,985,677
=========== ===========
Net income per Common
Share (Note D) .................................... $ 1.06 $ .91
Average shares outstanding (note D) ............... 2,183,966 2,184,378
See notes to condensed consolidated unaudited financial statements
-6-
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
Balance beginning of period $ 40,748,269 $ 36,984,144 $ 40,078,491 $ 35,674,587
Net Income ................ 1,181,338 1,053,533 2,324,025 1,985,677
Cash dividends declared
($.15 and $.30 per
share in 1996 and 1995) . (327,656) (327,657) (655,312) (655,313)
Retirement of 5,000 shares
of common stock ......... (170,625) (170,625)
Change in net unrealized
holding gains (losses) on
available-for-sale
securities .............. (388,071) 484,501 (533,324) 1,189,570
------------ ------------ ------------ ------------
Balance end of period ..... $ 41,043,255 $ 38,194,521 $ 41,043,255 $ 38,194,521
============ ============ ============ ============
See notes to condensed consolidated unaudited financial statements
-7-
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
Six Months Ended
June 30
------------------
1996 1995
Cash Flows From Operating Activities
Cash received from customers' fees and
commissions .................................. $ 3,003,805 $ 2,806,115
Cash paid to suppliers and employees .......... (7,782,044) (8,041,244)
Loans originated for sale ..................... (14,589,566) - - -
Proceeds from sales of loans held for sale .... 8,626,009 - - -
Interest received ............................. 16,038,025 14,681,283
Interest paid ................................ (7,160,586) (6,561,120)
Income taxes paid ............................ (1,386,500) (696,000)
------------ ------------
Net Cash from operating activities ........... (3,250,857) 2,189,034
------------ ------------
Cash Flows From Investing Activities
Net decrease in interest earning deposits
in other financial institutions .............. - - - 166,324
Proceeds from principal repayments,
maturities and calls of:
Securities available-for-sale ................. 29,689,533 15,224,472
Securities held-to-maturity ................... - - - 921,359
Purchase of securities available-for-sale ..... (9,170,699) (15,950,781)
Purchase of securities held-to-maturity ....... - - - (1,309,861)
Net (increase)/decrease in loans .............. (24,377,350) (4,066,258)
Proceeds from sales of loans .................. - - - 3,601,800
Recoveries on loan charge-offs ................ 241,296 190,836
Premises and equipment expenditures ........... (179,701) (238,939)
------------ ------------
Net cash from investing activities ........... (3,796,921) (1,461,048)
------------ ------------
Cash Flows From Financing Activities
Net increase/(decrease) in deposits ........... (4,989,023) 5,726,509
Net increase/(decrease) in short term
borrowings .................................. 2,668,000 - - -
Common stock retirement ....................... (170,625) - - -
Dividends paid ................................ (655,312) (655,313)
------------ ------------
Net cash from financing activities ........... (3,146,960) 5,071,196
------------ ------------
Net Change In Cash And Cash Equivalents ........ (10,194,738) 5,799,182
Cash And Cash Equivalents At Beginning Of Year . 28,379,656 25,178,171
------------ ------------
Cash And Cash Equivalents At End Of Period ..... $ 18,184,918 $ 30,977,353
============ ============
-8-
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED (UNAUDITED)
Six Months Ended
June 30
-------------
1996 1995
Reconciliation Of Net Income To Net
Cash From Operating Activities
Net income ...................................... $ 2,324,025 $ 1,985,677
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation .................................. 600,813 580,214
Amortization of intangible assets ............. 184,000 165,000
Provision for loan losses ..................... 526,009 505,000
Net (gains)/losses on available-for-sale
securities ................................... (11,519) (3,113)
Loans originated for sale ..................... (14,589,566) - - -
Proceeds from sales of loans held for sale .... 8,626,009 - - -
Net (gains)/losses on loan sales .............. (12,850) - - -
Increase/(decrease) in deferred loan fees ..... 62,774 (7,603)
(Increase)/decrease in interest receivable .... (196,484) (331,570)
(Increase)/decrease in other assets ........... (560,728) (919,809)
Increase/(decrease) in interest payable ....... (45,204) 262,037
Increase/(decrease) in income taxes payable ... (278,765) 280,566
Increase/(decrease) in other liabilities ...... 120,629 (327,365)
------------ -----------
Net cash from operating activities ........... $ (3,250,857) $ 2,189,034
============ ===========
-9-
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes included in the Corporation's annual report for the year ended
December 31, 1995.
NOTE B--IMPACT OF NEW ACCOUNTING STANDARDS
Several new accounting standards have been issued by the FASB that apply in
1996. SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets To Be Disposed Of", requires a review of long-term assets
for impairment of recorded value and resulting write-downs if the value is
impaired. SFAS No. 122, "Accounting for Mortgage Servicing Rights", requires
recognition of an asset when servicing rights are retained on in-house
originated loans that are sold. These statements are not expected to have a
material effect on the Corporation's consolidated financial position or
results of operations.
NOTE C--ELECTION OF DIRECTORS
At the annual Meeting of Shareholders on April 22, 1996, an election of Class
1 Directors was held with the following results:
Votes Cast Votes Cast
Nominee for Against Abstentions
- --------------- ---------- ---------- -----------
John R. Compo 1,619,008 105 6,521
John Fahl 1,602,339 16,774 6,521
Robert W. Fawcett Jr. 1,603,798 15,315 6,521
The following directors did not stand for election and their term of office
continued after the meeting:
Richard C. Burrows Steven D. VanDemark
Richard Z. Graham J. Michael Walz
David E. Manz Thomas C. Williams
John H. Moore
NOTE D--EARNINGS AND DIVIDENDS PER COMMON SHARE
Earnings per common share have been computed based on the weighted average
number of shares outstanding during the periods presented. In the second
quarter of 1996 5,000 shares were retired. The number of shares used in the
computation of earnings per common share was 2,183,966 for 1996 and 2,184,378
for 1995.
-10-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Rurban Financial Corp. ("Rurban") was incorporated on February 23, 1983, under
the laws of the State of Ohio. Rurban is a bank holding company registered
with the Federal Reserve Board under the Bank Holding Company Act of 1956, as
amended. Rurban's subsidiaries, The State Bank and Trust Company ("State
Bank"), The Peoples Banking Company ("Peoples Bank"), The First National Bank
of Ottawa ("First National Bank") and the Citizens Savings Bank ("Citizens
Bank") are engaged only in the industry segment of commercial banking.
Rurban's subsidiary, Rurbanc Data Services ("Rurbanc"), provides computerized
data processing services for the Corporation's subsidiary banks as well as
other banks and businesses. Rurban's subsidiary, Rurban Life Insurance Company
("Rurban Life") has a certificate of authority from the State of Arizona to
transact insurance as a domestic life and disability reinsurer.
Liquidity
Liquid assets consist of cash, amounts due from banks, securities, federal
funds sold and loans held for sale. These assets decreased $25,533,713 from
December 31, 1995 to June 30, 1996. Liquid assets were 30% of total assets at
December 31, 1995 and 24% of total assets at June 30, 1996. This difference is
the result of a strong loan demand. Management believes its current liquidity
level is sufficient to meet anticipated future growth.
Capital Resources
Total shareholders' equity was $41,043,255 (which includes $9,350,285 of
common stock subject to repurchase obligation in ESOP) as of June 30, 1996, an
increase of $964,764 over total shareholders' equity of $40,078,491 as of
December 31, 1995. This increase was attributed to earnings of $2,324,025 less
dividends declared of $655,312 less retirement of common stock of $170,625
less change in net unrealized gain/(loss) on available-for-sale securities of
$533,324.
The following table provides the minimum regulatory capital requirements and
the Corporation's capital ratios at June 30, 1996.
Minimum Regulatory Corporation's
Capital Requirements Capital Ratio
-------------------- -------------
Ratio of tier 1 capital to
weighted-risk assets ................... 4.00% 13.66%
Ratio of total capital to
weighted-risk assets ................... 8.00% 14.91%
Ratio of shareholders' equity
to weighted risk assets ................ 4.00% 14.05%
Leverage Ratio ........................... 4.00% 9.79%
Ratio of total shareholders'
equity to total assets ................. None 10.02%
-11-
The Corporation's subsidiaries meet the applicable minimum regulatory capital
requirements at June 30, 1996. The Corporation remains comfortably above the
minimum regulatory capital requirements. The Banking Regulators may alter
minimum capital requirements as a result of revising their internal policies
and their ratings of the Corporation's Subsidiary Banks.
As of June 30, 1996, management is not aware of any current recommendation by
banking regulatory authorities which if they were to be implemented would
have, or are reasonably likely to have, a material adverse effect on the
Corporation's liquidity, capital resources or operations.
Supplemental Information
Nonperforming loans decreased $1,170,000 from December 31, 1995 to June 30,
1996 primarily due to the liquidation of several large Commercial loans for
which recognition of future interest income had become questionable.
Material Changes in Financial Condition
There were no material changes in financial condition as of June 30, 1996
compared to December 31, 1995.
Material Changes in Results of Operations
Net interest income for the quarter ended June 30, 1996 was $4,595,082, an
increase of $432,255 (10%) over the second quarter of 1995 and for the six
months was $9,069,203, an increase of $871,904 (11%) over the same period in
1995. These increases are due mainly to an increase in the amount of earning
assets and a favorable increase in yields on those assets.
There was no material change in total noninterest income (1%) for the three
months ended June 30, 1996 when compared to the same three months in 1995. For
the six months ended June 30, 1996 there was an increase of $206,096 (7%) when
compared to the six months ended June 30, 1995 due mainly to an increase of
$74,956 (8%) in Trust Department fees and an increase of $183,146 (19%) in
data processing fees.
Total noninterest expense increased $299,263 (8%) to $4,078,736 for the
quarter ended June 30, 1996 and $587,474 (8%) to $8,126,758 for the six months
when compared to the same periods in 1995. This was primarily due to normal
increases in salaries and benefits of $278,511 (17%) and $545,331 (16%) for
the quarter and six months respectively.
Income tax expense for the quarter was $540,398, an increase of $18,887 and
for the six months was $1,107,735, an increase of $131,169, over the same
periods in 1995, due to an increase in taxable income.
The result of all these factors is an increase in net income of $127,805 (12%)
for the three months and an increase of $338,348 (17%) for the six month ended
June 30, 1996.
-12-
PART 11 - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See index to exhibits on pages 14 and 15
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RURBAN FINANCIAL CORP.
Date August 8, 1996 By /s/Thomas C. Williams
________________________________
Thomas C. Williams
President
By /s/David E. Manz
________________________________
David E. Manz
Executive Vice President &
Chief Financial Officer
-13-
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 FINANCIAL DATA SCHEDULE