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 September 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 October 31, 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 nine months ended September 30,
1996 are not necessarily indicative of the results for the complete year.
2
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
September 30 December 31
1996 1995
----------- ------------
(Unaudited) (Note)
ASSETS
Cash and due from banks $ 24,391,388 $ 21,067,131
Federal funds sold 3,550,353 7,312,525
------------ ------------
TOTAL CASH AND CASH EQUIVALENTS 27,941,741 28,379,656
Interest bearing deposits in other
financial institutions 180,000 180,000
Securities available-for-sale 65,849,126 90,329,866
Loans, net of allowance for losses of
$4,855,536 and $4,270,000 respectively 310,152,322 273,094,844
Loans held for sale 4,343,829 2,949,293
Premises and equipment, net 8,713,871 8,383,717
Accrued interest and other assets 8,837,043 7,908,389
TOTAL ASSETS $426,017,932 $411,225,765
============ ============
3
September 30 December 31
1996 1995
------------ -----------
(Unaudited) (Note)
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 44,713,798 $ 48,721,000
Interest bearing 335,205,827 319,075,538
------------- ------------
TOTAL DEPOSITS 379,919,625 367,796,538
Federal Funds Purchased 2,000,000 - - -
Accrued expenses and other liabilities 3,703,844 3,350,736
------------- ------------
TOTAL LIABILITIES 385,623,469 371,147,274
Common stock subject to repurchase
obligation in ESOP (1996: 308,090 shares
outstanding; 1995: 297,467 shares
outstanding) 10,398,037 9,333,027
Unearned Employee Stock Ownership Plan
shares (1,505,527) - - -
Common stock, stated value $2.50 a share:
Authorized--1996: 10,000,000 shares;
1995: 5,000,000 shares:
1996: 1,871,288 shares outstanding;
1995: 1,886,911 shares outstanding 4,678,220 4,717,277
Additional Paid In Capital 4,602,235 5,798,813
Retained earnings 22,198,893 19,779,897
Net unrealized appreciation/(depreciation) on
securities available-for sale (net of tax of
$ 11,645 in 1996 and $231,549 in 1995) 22,605 449,477
------------- ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 426,017,932 $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
consolidated financial statements at that date.
4
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
Three Months Ended
September 30
--------------------
1996 1995
------ ------
Interest income:
Interest and fees on loans $7,248,382 $6,790,990
Interest and dividends on securities:
Taxable 889,529 1,006,080
Tax-exempt 99,757 107,738
Other 74,059 206,551
---------- ----------
TOTAL INTEREST INCOME 8,311,727 8,111,359
Interest expense:
Deposits 3,640,940 3,663,033
Short-term borrowings 47,409 548
---------- ----------
TOTAL INTEREST EXPENSE 3,688,349 3,663,581
---------- ----------
NET INTEREST INCOME 4,623,378 4,447,778
Provision for losses 225,000 280,435
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOSSES 4,398,378 4,167,343
Noninterest income:
Trust department 532,000 495,607
Service charges on
deposit accounts 315,303 318,031
Data processing fees 499,850 507,444
Gain on sale of securities available-for-sale 394 - - -
Other 131,241 117,489
---------- ----------
TOTAL NONINTEREST INCOME 1,478,788 1,438,571
Noninterest expense:
Salaries and employee
benefits 2,008,164 1,776,951
Net occupancy expense 233,955 229,141
Equipment expense 482,834 406,030
Other 1,524,927 1,396,455
---------- ----------
TOTAL NONINTEREST EXPENSE 4,249,880 3,808,577
---------- ----------
INCOME BEFORE
INCOME TAXES 1,627,286 1,797,337
Applicable income taxes 550,097 602,153
---------- ----------
NET INCOME $1,077,189 $1,195,184
========== ==========
Net income per Common
Share (Note D) $ .49 $ .55
Average shares outstanding (Note D) 2,179,378 2,184,378
See notes to condensed consolidated unaudited financial statements
5
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
Nine Months Ended
September 30
------------------
1996 1995
------ ------
Interest income:
Interest and fees on loans $20,916,789 $19,678,086
Interest and dividends on securities:
Taxable 3,014,791 2,630,911
Tax-exempt 319,920 319,711
Other 244,812 503,107
----------- -----------
TOTAL INTEREST INCOME 24,496,312 23,131,815
Interest expense:
Deposits 10,683,142 10,448,830
Short-term borrowings 120,589 37,908
----------- -----------
TOTAL INTEREST EXPENSE 10,803,731 10,486,738
----------- -----------
NET INTEREST INCOME 13,692,581 12,645,077
Provision for losses 751,009 785,435
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOSSES 12,941,572 11,859,642
Noninterest income:
Trust department 1,544,315 1,432,966
Service charges on
deposit accounts 907,352 889,621
Data processing fee 1,639,051 1,463,499
Gain on sale of securities available-for-sale 11,913 - - -
Other 391,481 461,713
----------- -----------
TOTAL NONINTEREST INCOME 4,494,112 4,247,799
Noninterest expense:
Salaries and employee
benefits 5,894,672 5,118,128
Net occupancy expense 752,162 653,904
Equipment expense 1,474,742 1,376,859
Other 4,255,062 4,198,970
----------- -----------
TOTAL NONINTEREST EXPENSE 12,376,638 11,347,861
----------- -----------
INCOME BEFORE
INCOME TAXES 5,059,046 4,759,580
Applicable income taxes 1,657,832 1,578,719
----------- -----------
NET INCOME $ 3,401,214 $ 3,180,861
=========== ===========
Net income per Common
Share (Note D) $ 1.56 $ 1.46
Average shares outstanding (note D) 2,182,571 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 Nine Months Ended
September 30 September 30
------------------ -----------------
1996 1995 1996 1995
------ ------ ------ ------
Balance beginning of
period $ 31,692,970 $ 30,675,265 $ 30,745,464 $ 28,840,030
Net Income 1,077,189 1,195,184 3,410,214 3,180,861
Cash dividends declared
($.15 and $.45 per
share in 1996 and 1995) (326,906) (327,656) (982,218) (982,969)
Retirement of 5,000 shares
of common stock - - - - - - (170,625) - - -
Capital surplus allocated
from common stock repurchase
obligation in ESOP 1,047,752 (943,488) (1,074,010) (1,628,187)
Change in net unrealized
holding gains (losses) on
available-for-sale
securities 106,452 28,443 (426,872) 1,218,013
------------ ------------ ------------ ------------
Balance end of period $ 31,501,953 $ 30,627,748 $ 31,501,953 $ 30,627,748
============ ============ ============ ============
See notes to condensed consolidated unaudited financial statements
7
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
Nine Months Ended
September 30
------------------------
1996 1995
------ ------
Cash Flows From Operating Activities
Cash received from customers' fees and
commissions $ 4,482,199 $ 4,244,686
Cash paid to suppliers and employees (14,361,371) (10,830,653)
Loans originated for sale (14,571,360) - - -
Proceeds from sale of loans held for sale 15,753,698 - - -
Interest received 24,028,489 22,112,347
Interest paid (10,526,116) (10,399,355)
Income taxes paid (1,518,500) (1,211,500)
------------ ------------
Net Cash from operating activities 3,287,039 3,915,525
------------ ------------
Cash Flows From Investing Activities
Net decrease in interest earning deposits
in other financial institutions 166,324
Proceeds from sales of securities available-
for-sale 6,990,391 - - -
Proceeds from principal repayments,
maturities and calls of:
Securities available-for-sale 30,703,995 21,114,067
Securities held-to-maturity - - - 1,633,886
Purchase of securities available-for-sale (13,848,478) (29,445,561)
Purchase of securities held-to-maturity - - - (1,997,710)
Net (increase)/decrease in loans (37,580,477) (9,259,122)
Proceeds from sales of loans - - - 7,929,292
Recoveries on loan charge-offs (228,010) 360,028
Premises and equipment expenditures (1,227,092) (309,599)
------------ ------------
Net cash from investing activities (15,189,671) (9,808,395)
------------ ------------
Cash Flows From Financing Activities
Net increase/(decrease) in deposits 12,123,087 10,620,715
Net increase in short term Borrowings 2,000,000 - - -
Common Stock Retirement (170,625) - - -
Aquistion of Shares for ESOP (1,505,527) - - -
Dividends paid (982,218) (982,969)
------------ ------------
Net cash from financing activities 11,464,717 9,637,746
------------ ------------
Net Change In Cash And Cash Equivalents (437,915) 3,744,876
Cash And Cash Equivalents At Beginning Of Year 28,379,656 25,178,171
------------ ------------
Cash And Cash Equivalents At End Of Period $ 27,941,741 $ 28,923,047
============ ============
8
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED (UNAUDITED)
Nine Months Ended
September 30
-------------------
1996 1995
---- ----
Reconciliation Of Net Income To Net
Cash From Operating Activities
Net income $ 3,401,214 $ 3,180,861
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 896,938 859,224
Amortization of intangible assets 234,000 309,503
Provision for loan losses 751,009 785,435
(Gain) on sale of securities available-
for-sale (11,913)
Loans originated for sale (17,360,432) - - -
Proceeds from sales of loans held for sale 15,753,698 - - -
Net (gains)/losses on loan sales 212,198 - - -
Increase/(decrease) in deferred loan fees (66,882) (17,753)
(Increase)/decrease in interest receivable (534,705) (1,001,715)
(Increase)/decrease in other assets 58,866 (653,796)
Increase/(decrease) in interest payable 157,026 87,383
Increase/(decrease) in income taxes payable (400,060) 367,219
Increase/(decrease) in other liabilities 196,082 (836)
------------ -----------
Net cash from operating activities $ 3,287,039 $ 3,915,525
============ ===========
9
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and Article 10-01 of Regulation S.X.
Accordingly, footnote disclosures, which would substantially duplicate the
disclosures contained in the most recent audited financial statements, have
been omitted. In the opinion of management of the Corporation, all adjustments
necessary for a fair presentation of such financial information have been
included. All such adjustments are of a normal recurring nature. The results
of operations and cash flows for the nine months ended September 30, 1996 may
not be indicative of the results for the entire year. The accompanying
unaudited consolidated financial statements should be read in conjunction with
the notes to consolidated financial statements contained in the December 31,
1995 consolidated financial statements.
NOTE B--EARNINGS AND DIVIDENDS PER COMMON SHARE
Earnings per common share are calculated on the basis of the weighted average
number of shares outstanding adjusted for the effect of dilutive stock
options.
NOTE C - ACCOUNTING STANDARDS IMPLEMENTED IN 1996
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of". SFAS No. 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. The Statement requires review of
such assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Measurement of an
impairment loss for long-lived assets and identifiable intangibles that an
entity expects to hold and use should be based on the fair value of the asset.
The Statements is effective for financial statements for fiscal years
beginning after December 15, 1995. The Corporation adopted SFAS No. 121
effective January 1, 1996. The adoption had no material effect on the
Corporation's financial position or results of operations for the nine months
ended September 30, 1996.
The FASB issued SFAS No. 122, "Accounting for Mortgage Servicing Rights", in
May 1995. This Statement changes the accounting for mortgage servicing rights
retained by the loan originator. Under this Statement, an entity that acquires
mortgage servicing rights through either the purchase or origination of
mortgage loans and sells or securitizes those loans with servicing rights
retained should allocate the total cost of the mortgage loans to the mortgage
servicing rights and the loans (without the mortgage servicing rights) based
on their relative fair values. Under current practice, all such costs are
assigned to the loan. The costs allocated to mortgage servicing rights are to
be recorded as a separate asset and amortized in proportion to, and over the
10
life of, the net servicing income. The carrying value of the mortgage
servicing rights are to be periodically evaluated for impairment. The
Statement became effective for the Corporation as of January 1, 1996. The
adoption of SFAS No. 122 did not have a material effect on the Corporation's
financial position or results of operations for the nine months ended
September 30, 1996.
SFAS No. 125, Accounting for Transfer and Servicing of Financial Assets and
Extinguishment of Liabilities, provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
and requires a consistent application of a financial-components approach that
focuses on control. Under that approach, after a transfer of financial assets,
an entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred and derecognizes liabilities when extinguished.
SFAS No. 125 also supersedes SFAS No. 122, and requires that servicing assets
and liabilities by subsequently measured by amortization in proportion to and
over the period of estimated net servicing income or loss and requires
assessment for asset impairment or increased obligation based on their fair
values. SFAS No. 125 applies to transfers and extinguishments occurring after
December 31, 1996, and early or retroactive application is not permitted. The
statements are not expected to have a material effect on the Corporation's
consolidated financial position or results of operations.
NOTE D - RISK ELEMENTS AND LOAN LOSS RESERVE
There has been no changes in the Risk Elements and Loan Loss Reserve activity
that would materially effect the Corporation's financial position or results
of operations for the nine months ended September 30, 1996.
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.
11
Liquidity
Liquid assets consist of cash, amounts due from banks, securities, federal
funds sold and loans held for sale. These assets decreased $25,549,203 from
December 31, 1995 to September 30, 1996. Liquid assets were 30% of total
assets at December 31, 1995 and 23% of total assets at September 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 $31,501,953 (which excludes $10,398,037 of
common stock subject to repurchase obligation in ESOP) as of September 30,
1996, an increase of $756,489 over total shareholders' equity of $30,745,464
as of December 31, 1995. This increase was attributed to earnings of
$30,745,464 and release of $2,196,061 from Capital Surplus allocated to
obligation to repurchase ESOP shares less dividends declared of $982,218 less
retirement of common stock of $170,625 less change in net unrealized loss on
available-for-sale securities of $426,872.
The following table provides the minimum regulatory capital requirements and
the Corporation's capital ratios at September 30, 1996.
Minimum Regulatory Corporation's
Capital Requirements Capital Ratio
-------------------- -------------
Ratio of tier 1 capital to
weighted-risk assets 4.00% 15.63%
Ratio of total capital to
weighted-risk assets 8.00% 16.88%
Ratio of shareholders' equity
to weighted risk assets 4.00% 17.11%
Leverage Ratio 4.00% 9.84%
Ratio of total shareholders'
equity to total assets None 8.13%
The Corporation's subsidiaries meet the applicable minimum regulatory capital
requirements at September 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 September 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 $1,811,000 from December 31, 1995 to September
30, 1996 primarily due to the liquidation of several large Commercial loans
for which recognition of future interest income had become questionable.
12
Material Changes in Financial Condition
Net loans increased $38,563,005 (14%) to $311,657,849 at September 30, 1996
from $273,094,844 at September 30, 1995 due to increase in loan demand. The
increase was primarily funded by a decrease in securities available-for-sale
and increase in deposits and federal funds purchased.
Material Changes in Results of Operations
Net interest income for the quarter ended September 30, 1996 was $4,623,378,
an increase of $175,600 (4%) over the third quarter of 1995 and for the nine
months was $13,692,581, an increase of $1,047,504 (8%) 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.
Total noninterest income for the quarter ended September 30, 1996 increased
$40,217 (3%) to $4,494,112, compared to the quarter ended September 30, 1995.
For the nine months ended September 30, 1996, total noninterest income
increased $246,313 (6%) compared to the same period in 1995; this growth is
primarily due to an increase of $111,349 (8%) in Trust Department fees and an
increase of $175,552 (12%) in data processing fees.
Total noninterest expense increased $441,303 (12%) to $4,249,880 for the
quarter ended September 30, 1996 and $1,028,777 (9%) to $12,376,638 for the
nine months when compared to the same periods in 1995. This was primarily due
to increases in salaries and benefits of $231,213 (13%) and $776,544 (15%) for
the quarter and nine months respectively.
Income tax expense for the quarter was $550,097, a decrease of $52,056 and for
the nine months was $1,657,832, an increase of $79,113 over the same periods
in 1995, due to the net affect of an increase in taxable income and unrealized
depreciation on securities available for sale.
The result of all these factors is a decrease in net income of $117,995 (10%)
for the three months and an increase of $220,353 (7%) for the nine month ended
September 30, 1996.
13
PART 11 - OTHER INFORMATION
Items 1-5. N/A
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See index to exhibits on pages 15 and 16
(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 November 13, 1996 By /s/Thomas C. Williams
--------------------------------
Thomas C. Williams
President
By /s/Duane Sinn
--------------------------------
Duane Sinn
Assistant Vice President
& Treasurer of Rurban
Financial Corporation
14
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 FINANCIAL DATA SCHEDULE
15