1
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, 2001
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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
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RURBAN FINANCIAL CORP.
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(Exact name of registrant as specified in its charter)
Ohio 34-1395608
- ------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
401 Clinton Street, Defiance, Ohio 43512
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(Address of principal executive offices)
(Zip Code)
(419) 783-8950
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(Registrant's telephone number, including area code)
None
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(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 sections 13 or 15(d) of the Securities Exchange Act of 1934
during the proceeding 12 months (or for such shorter period 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
4,347,238 on August 1, 2001.
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PART I - FINANCIAL INFORMATION
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Item 1. Financial statements
- ----------------------------
The interim condensed 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, 2001 are not
necessarily indicative of results for the complete year.
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RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, December 31, June 30,
2001 2000 2000
----------------- ---------------- ---------------
(Unaudited) (Note) (Unaudited)
ASSETS
Cash and due from banks $ 22,018,502 $ 18,431,717 $ 19,982,874
Interest-bearing deposits in other
financial institutions 260,000 110,000 110,000
Securities available for sale 91,801,206 88,904,958 85,908,841
Loans held for sale, net of valuation
allowance $0 3,854,299 1,166,716 5,047,254
Loans, net of allowance for losses of $7,655,853
at June 30, 2001, $7,214,970 at December 31, 2000
and $6,732,002 at June 30, 2000 576,278,758 569,421,255 531,458,966
Accrued interest receivable 5,126,726 5,716,048 5,107,412
Premises and equipment, net 12,207,918 10,902,749 10,540,089
Other assets 6,705,766 6,164,259 8,522,900
-------------- -------------- --------------
Total assets $ 718,253,175 $ 700,817,702 $ 666,678,336
============== ============== ==============
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(Continued)
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RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, December 31, June 30,
2001 2000 2000
----------------- --------------- -----------------
(Unaudited) (Note) (Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 45,531,575 $ 47,989,547 $ 43,489,747
Interest-bearing 553,260,624 518,331,214 497,373,606
--------------- --------------- ---------------
Total deposits 598,792,199 566,320,761 540,863,353
Federal funds purchased -- 13,200,000 23,839,000
Advances from Federal Home Loan Bank (FHLB) 51,421,742 52,163,914 43,301,723
Other borrowed funds -- -- 6,100,000
Junior subordinated debentures 9,698,541 9,690,677 --
Accrued interest payable 4,175,779 4,613,173 2,604,675
Other liabilities 1,596,858 4,688,991 3,832,130
--------------- --------------- ---------------
Total liabilities 665,685,119 650,677,516 620,540,881
Shareholders' equity
Common stock, stated value $2.50 per share;
shares authorized: 10,000,000;
shares issued: 4,575,702;
shares outstanding: 4,347,238 at June 30, 2001
4,347,238 at December 31, 2000 and 4,140,718
at June 30, 2000 11,439,255 11,439,255 11,439,255
Additional paid-in capital 11,113,340 11,113,340 11,518,469
Retained earnings 33,122,275 31,450,244 32,305,363
Accumulated other comprehensive gain (loss), net
of tax of $502,024 at June 30, 2001, $169,222 at
December 31, 2000 and $(851,533) at June 30, 2000 974,517 328,490 (1,652,975)
Unearned ESOP shares: 35,966 at June 30, 2001,
36,802 at December 31, 2000 and 48,054 at
June 30, 2000 (611,630) (721,442) (809,807)
Treasury stock; shares at cost June 30, 2001 -
228,464, December 31, 2000 - 228,464 and June 30,
2000 - 434,984 (3,469,701) (3,469,701) (6,662,850)
--------------- --------------- ---------------
Total shareholders' equity 52,568,056 50,140,186 46,137,455
--------------- --------------- ---------------
Total liabilities and shareholders' equity $ 718,253,175 $ 700,817,702 $ 666,678,336
=============== =============== ===============
See notes to condensed consolidated financial statements (unaudited)
Note: The balance sheet at December 31, 2000 has been derived from
the audited consolidated financial statements at that date.
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RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
June 30,
-------------------------------------------
2001 2000
Interest income
Interest and fees on loans $ 12,975,085 $ 12,241,946
Interest and dividends on securities:
Taxable 1,325,764 1,204,837
Tax-exempt 136,770 149,145
Other 69,842 60,346
-------------- --------------
Total interest income 14,507,461 13,656,274
Interest expense
Deposits 6,901,139 5,914,694
Borrowings 1,054,639 1,156,001
-------------- --------------
Total interest expense 7,955,778 7,070,695
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Net interest income 6,551,683 6,585,579
Provision for loan losses 1,458,000 450,000
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Net interest income after provision
for loan losses 5,093,683 6,135,579
Noninterest income
Service charges on deposit accounts 668,148 416,404
Loan servicing fees 158,380 160,050
Trust fees 651,628 639,734
Data service fees 1,520,591 1,256,760
Net gain on securities 40,503 2,520
Net gain on sales of loans 184,619 124,491
Net gain on sales of fixed assets 16,303 1,290
Other income 176,447 173,210
-------------- --------------
Total noninterest income 3,416,619 2,774,459
Noninterest expense
Salaries and employee benefits 3,870,576 3,502,489
Net occupancy expense of premises 297,503 267,745
Equipment rentals, depreciation and maintenance 848,205 828,726
Other expenses 1,850,239 1,855,234
-------------- --------------
Total noninterest expense 6,866,523 6,454,194
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Income before income tax expense 1,643,779 2,455,844
Income tax expense 522,662 805,342
-------------- --------------
Net income $ 1,121,117 $ 1,650,502
============== ==============
Basic and diluted earnings per common share (Note B) $ 0.26 $ 0.40
============== ==============
Dividends declared per share $ 0.12 $ 0.11
============== ==============
See notes to condensed consolidated financial statements (unaudited)
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RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Six Months Ended
June 30,
-------------------------------------------
2001 2000
Interest income
Interest and fees on loans $ 26,303,153 $ 23,562,677
Interest and dividends on securities:
Taxable 2,667,312 2,346,154
Tax-exempt 293,346 289,281
Other 84,136 117,752
--------------- ---------------
Total interest income 29,347,947 26,315,864
Interest expense
Deposits 13,860,650 11,293,658
Borrowings 2,284,597 2,119,950
--------------- ---------------
Total interest expense 16,145,247 13,413,608
--------------- ---------------
Net interest income 13,202,700 12,902,256
Provision for loan losses 1,983,000 900,000
--------------- ---------------
Net interest income after provision
for loan losses 11,219,700 12,002,256
Noninterest income
Service charges on deposit accounts 1,133,293 812,938
Loan servicing fees 326,046 326,819
Trust fees 1,377,429 1,420,304
Data service fees 3,007,365 2,597,223
Net gain (loss) on securities 40,503 (78,020)
Net gain on sales of loans 364,653 294,953
Net gain on sales of fixed assets 16,303 1,290
Other income 388,984 350,185
--------------- ---------------
Total noninterest income 6,654,576 5,725,692
Noninterest expense
Salaries and employee benefits 7,831,758 7,214,310
Net occupancy expense of premises 604,277 559,560
Equipment rentals, depreciation and maintenance 1,763,553 1,643,715
Other expenses 3,687,947 3,589,768
--------------- ---------------
Total noninterest expense 13,887,535 13,007,353
--------------- ---------------
Income before income tax expense 3,986,741 4,720,595
Income tax expense 1,271,373 1,551,432
--------------- ---------------
Net income $ 2,715,368 $ 3,169,163
=============== ===============
Basic and diluted earnings per common share (Note B) $ 0.63 $ 0.77
=============== ===============
Dividends declared per share $ 0.24 $ 0.22
=============== ===============
See notes to condensed consolidated financial statements (unaudited)
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RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
Total Total Total Total
Shareholders' Shareholders' Shareholders' Shareholders'
Equity Equity Equity Equity
------------ ------------ ------------ ------------
Balance at beginning of period $ 52,057,588 $ 44,967,641 $ 50,140,186 $ 43,900,471
Net Income 1,121,117 1,650,502 2,715,368 3,169,163
Other comprehensive income (loss):
Net change in unrealized gains (losses)
on securities available for sale, net (159,475) (84,097) 646,027 (119,428)
------------ ------------ ------------ ------------
Total comprehensive income 961,642 1,566,405 3,361,395 3,049,735
Cash dividends declared (521,668) (455,479) (1,043,337) (910,958)
Paydown of ESOP loan 70,494 58,888 109,812 98,207
------------ ------------ ------------ ------------
Balance at end of period $ 52,568,056 $ 46,137,455 $ 52,568,056 $ 46,137,455
============ ============ ============ ============
See notes to condensed consolidated financial statements (unaudited)
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RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
---------------------------------------
2001 2000
Cash Flows From Operations
Cash received from customers - fees and commissions $ 6,233,117 $ 5,507,469
Cash paid to suppliers and employees (13,659,218) (13,016,128)
Loans originated for sale (14,676,171) (6,960,146)
Proceeds from sales of loans held for sale 12,353,241 9,357,430
Interest received 29,937,269 25,355,773
Interest paid (16,582,641) (13,322,731)
Income taxes paid (3,797,000) (420,000)
--------------- ---------------
Net cash from operating activities (191,403) 6,501,667
Cash Flows From Investing Activities:
Proceeds from principal repayments, maturities and
calls of securities available for sale 17,264,934 4,067,772
Proceeds from sales of securities available for sale 6,658,567 8,985,546
Purchase of securities available for sale (25,800,417) (16,102,224)
Net change in interest-bearing deposits in other
financial institutions (150,000) --
Net change in loans (9,030,847) (37,426,569)
Recoveries on loan charge-offs 190,344 205,269
Premises and equipment expenditures, net (2,318,653) (337,541)
--------------- ---------------
Net cash from investing activities (13,186,072) (40,607,747)
Cash Flows From Financing Activities:
Net change in deposits 32,471,438 21,567,269
Net change in federal funds purchased (13,200,000) 12,939,000
Proceeds from FHLB advances 13,500,000 8,000,000
Repayments of FHLB advances (14,242,172) (4,733,580)
Net change in other borrowed funds -- (900,000)
Cash dividends paid (1,565,006) (1,366,437)
--------------- ---------------
Net cash from financiing activities 16,964,260 35,506,252
--------------- ---------------
Net change in cash and cash equivalents 3,586,785 1,400,172
Cash and cash equivalents at beginning of period 18,431,717 18,582,702
--------------- ---------------
Cash and cash equivalents at end of period $ 22,018,502 $ 19,982,874
=============== ===============
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(Continued)
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RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
-----------------------------------------------
2001 2000
Reconciliation Of Net Income To Net
Cash From Operating Activities
Net Income $ 2,715,368 $ 3,169,163
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation 1,029,787 939,069
Amortization of intangible assets 71,965 120,000
Amortization of deferred debt issue costs 7,864 --
Provision for loan losses 1,983,000 900,000
Net (gain) loss on securities (40,503) 78,020
Loans originated for sale (14,676,171) (6,960,146)
Proceeds from sales of loans held for sale 12,353,241 9,357,430
Net gain on sale of loans (364,653) (294,953)
Net gain on sale of fixed assets (16,303) (1,290)
Paydown of ESOP loan 109,812 98,207
Change in accrued interest receivable 589,322 (960,091)
Change in other assets (946,274) (184,360)
Change in accrued interest payable (437,394) 90,877
Change in other liabilities (2,570,464) 149,741
--------------- ---------------
Net cash from operating activities $ (191,403) $ 6,501,667
=============== ===============
See notes to condensed consolidated financial statements (unaudited)
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RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 for Form 10-Q. 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, 2000.
NOTE B--EARNINGS PER COMMON SHARE
Earnings per common share have been computed based on the weighted average
number of shares outstanding during the periods presented. The number of shares
used in the computation of basic and diluted earnings per common share was:
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2001 2000 2001 2000
---- ---- ---- ----
Basic earnings per share 4,310,854 4,092,338 4,310,854 4,092,338
Diluted earnings per share 4,314,027 4,092,338 4,315,683 4,092,338
NOTE C--ACCOUNTING STANDARDS IMPLEMENTED IN 2001
On January 1, 2001, the Corporation adopted SFAS No. 133 which requires
derivatives to be recorded at fair value. Unless designated as hedges, changes
in the fair values will be recorded in the income statement. Fair value changes
involving hedges will generally be recorded by offsetting gains and losses on
the hedge and on the hedged items, even if the fair value of the hedged item is
not otherwise recorded. Adoption of this standard on January 1, 2001 did not
have a material effect on the Corporation's financial condition or results of
operations.
NOTE D - RECLASSIFICATIONS
Certain amounts appearing in the December 31, 2000 financial statements have
been reclassified to conform to the current presentation.
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(Continued)
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NOTE E--RISK ELEMENTS AND LOAN LOSS RESERVE
ALLOWANCE FOR LOAN LOSSES
The following is a summary of the activity in the allowance for loan losses
account for the six months ended June 30, 2001 and 2000 and the year ended
December 31, 2000.
June 30, December 31, June 30,
2001 2000 2000
---- ---- ----
Beginning balance, January 1 $ 7,214,970 $ 6,193,712 $ 6,193,712
Provision for loan losses 1,983,000 2,100,000 900,000
Recoveries of previous charge-offs 190,344 490,752 205,269
Losses charged to the allowance (1,732,461) (1,569,494) (566,979)
----------- ----------- -----------
Ending balance $ 7,655,853 $ 7,214,970 $ 6,732,002
=========== =========== ===========
At June 30, 2001, December 31, 2000 and June 30, 2000 loans past due more than
90 days and still accruing interest approximated $951,000, $1,927,000 and
$3,675,000.
Impaired loans were as follows.
June 30, December 31,
2001 2000
---- ----
Loans with no allowance for loan losses allocated $ 3,296,000 $ 4,189,000
Loans with allowance for loan losses allocated 6,639,000 3,923,000
----------- -----------
Total impaired loans $ 9,935,000 $ 8,112,000
=========== ===========
Amount of allowance allocated $ 2,694,000 $ 2,410,000
=========== ===========
There have 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 three and six months ended June 30, 2001.
During the second quarter, probable losses on certain impaired loans became more
determinable and resulted in net chargeoffs of $1,464,000 versus $238,000 in the
second quarter of 2000. As a reflection of the prevailing economic slowdown, a
loan loss provision of $1,458,000 was recorded during the second quarter of 2001
as compared to $450,000 in the same period for 2000.
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(Continued)
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NOTE F--BENEFIT PLANS
The Corporation's shareholders adopted a stock option plan in 1997. Under the
terms of this plan, options for up to 420,000 shares of the Corporation's common
stock may be granted to key employees and directors of the Corporation and its
subsidiaries. Stock option plans are used to reward employees and provide them
with an additional equity interest. Options are issued for 10 year periods with
varying vesting periods. The exercise price of the options is determined at the
time of grant by a committee of the Board of Directors and cannot be less than
the fair market value of the stock on the date of grant.
SFAS No. 123 requires pro forma disclosure for companies that do not adopt a
fair value accounting method for stock-based employee compensation. Accordingly,
the following pro forma information presents net income and earnings per common
share had the fair value method been used to measure compensation cost for stock
option plans. Compensation cost actually recognized for stock options was $-0-
for the six months ended June 30, 2001 and 2000.
2001 2000
---- ----
Net income for the six months ended June 30 $ 2,715,368 $ 3,169,163
Pro forma net income for the six months ended June 30 $ 2,635,365 $ 3,103,988
Basic and diluted earnings per common share as reported
for the six months ended June 30 $ .63 $ .77
Pro forma basic and diluted earnings per common share
for the six months ended June 30 $ .61 $ .76
There were no options granted during the six months ended June 30, 2001. In
future years, the pro forma effect of not applying this standard is expected to
increase as additional options are granted.
Information about option grants, forfeitures and exercises follows:
Number of
Outstanding
Options
-----------
Outstanding, January 1, 2001 317,105
Forfeited during six months ended June 30, 2001 (7,512)
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Outstanding, June 30, 2001 309,593
=======
Options exercisable at June 30, 2001 totaled 130,525.
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(Continued)
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NOTE G - CONTINGENT LIABILITIES
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.
NOTE H - SEGMENT INFORMATION
The reportable segments are determined by the products and services offered,
primarily distinguished between banking and data processing operations. Other
segments include the accounts of the holding company, Rurban Financial Corp.,
which provides management services to its subsidiaries; Reliance Financial
Services, N.A., which provides trust and financial services to customers
nationwide; Rurban Life, which provides insurance products to customers of the
Corporation's subsidiary banks; and Rurban Statutory Trust 1, which manages the
Corporation's junior subordinated debentures. Information reported internally
for performance assessments follows.
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(Continued)
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NOTE H -- SEGMENT INFORMATION (Continued)
As of and for the six months ended June 30, 2001
Data Total Intersegment Consolidated
Banking Processing Other Segments Elimination Totals
---------------------------------------------------------------------------------------------
Income statement information:
- -----------------------------------
Net interest income (expense) $ 13,120,003 ($ 67,221) $ 149,918 $ 13,202,700 $ -- $ 13,202,700
Other revenue - external
customers 2,151,914 3,007,365 1,495,297 6,654,576 -- 6,654,576
Other revenue - other segments -- 778,503 1,614,021 2,392,524 (2,392,524) --
------------ ------------ ------------ ------------ ------------ ------------
Net interest income
and other revenue 15,271,917 3,718,647 3,259,236 22,249,800 (2,392,524) 19,857,276
Noninterest expense 8,670,847 3,056,669 4,552,543 16,280,059 (2,392,524) 13,887,535
Significant non-cash items:
Depreciation and
amortization 479,577 530,550 99,489 1,109,616 -- 1,109,616
Provision for loan losses 1,983,000 -- -- 1,983,000 -- 1,983,000
Income tax expense (benefit) 1,486,207 225,073 (439,907) 1,271,373 -- 1,271,373
Segment profit (loss) 3,131,863 436,905 (853,400) 2,715,368 -- 2,715,368
Balance sheet information:
- -----------------------------------
Total assets 714,808,212 6,031,377 17,168,895 738,008,484 (19,755,309) 718,253,175
Goodwill and intangibles 228,035 -- -- 228,035 -- 228,035
Premises and equipment
expenditures, net 457,002 1,830,859 30,792 2,318,653 -- 2,318,653
14
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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")
and RFC Banking Company are engaged in the industry segment of commercial
banking. RFC Banking Company was created June 30, 2001 through the merger of The
Peoples Banking Company, The First National Bank of Ottawa and The Citizens
Savings Bank Company, which were all wholly owned subsidiaries of Rurban prior
to the merger, into a single bank. Rurban's subsidiary, Rurbanc Data Services,
Inc. ("RDSI"), provides computerized data processing services to community banks
and businesses including Rurban's subsidiary banks. 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
insurer. Rurban's subsidiary, Rurban Statutory Trust I ("RST") was established
in September 2000 for the purpose of managing the Corporation's junior
subordinated debentures. Reliance Financial Services, N.A. ("Reliance"), a
wholly owned subsidiary of State Bank, provides trust and financial services to
customers nationwide.
This section may contain statements that are forward-looking as defined by the
Securities and Exchange Commission in its rules, regulations and releases. The
Company intends that such forward-looking statements be subject to the safe
harbors created thereby. All forward-looking statements are based on current
expectations regarding important risk factors including those identified in the
Company's most recent periodic report and other filings with the Securities and
Exchange Commission. Accordingly, actual results may differ materially from
those expressed in the forward-looking statements, and the making of such
statements should not be regarded as a representation by the Company or any
other person that the results expressed therein will be achieved.
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, federal funds
sold, securities available-for-sale and loans held for sale. These assets are
commonly referred to as liquid assets. Liquid assets were $118 million at June
30, 2001, compared to $109 million at December 31, 2000. Management recognizes
securities may need to be sold in the future to help fund loan demand and,
accordingly, as of June 30, 2001, the entire securities portfolio of $92 million
was classified as available for sale. Significant additional off balance sheet
liquidity is available in the form of FHLB advances, unused federal funds lines
from correspondent banks, the Rurban $15 million line of credit and the national
certificates of deposit market.
CAPITAL RESOURCES
Total shareholders' equity net of unearned ESOP shares was $52,568,056 as of
June 30, 2001, an increase of $2,427,870 over the $50,140,186 as of December 31,
2000 and an increase of $6,430,601 over the $46,137,455 as of June 30, 2000. The
increase for the six months ended June 30, 2001 was a result of first half of
2001 net income of $2,715,368, a net $646,027 increase in unrealized
appreciation on securities available for sale, net of tax; a reduction in
unearned ESOP shares of $109,812, offset by dividends declared of $1,043,337.
15
(Continued)
16
Each of the Corporation's subsidiary banks exceed the applicable "well
capitalized" regulatory capital requirements at June 30, 2001.
As of June 30, 2001, management is not aware of any current recommendations by
banking regulatory authorities which, if they were to be implemented, would
have, or are reasonably likely to have, a material adverse effect on the
Corporation's liquidity, capital resources or operations.
Supplemental Information
- ------------------------
Material Changes in Financial Condition
- ---------------------------------------
For the second quarter of 2001, Rurban continued solid growth in assets, loans,
deposits and shareholders' equity. Compared with June 30, 2000, total assets
increased eight percent to $718 million, net loans and loans held for sale
increased eight percent to $580 million, deposits grew more than ten percent
reaching $599 million, and shareholders' equity rose fourteen percent to a
record $53 million. While total loans grew at a 3% annualized rate during the
first half of 2001, the continued focus on small business lending produced an
annualized growth of 8% in commercial loans which was partially offset by
declines of 8% and 7% in residential first mortgages and consumer loans,
respectively. The mix of the loan portfolio as of June 30, 2001 was 65%
commercial and 35% residential and consumer, up from 60% commercial and 40%
residential and consumer at June 30, 2000.
Material Changes in Results of Operations
- -----------------------------------------
Net income for the second quarter of 2001 was $1,121,117 or $0.26 basic earnings
per share, compared to net income of $1,650,502 and basic earnings per share of
$0.40 in the second quarter of 2000.
Net interest income decreased $33,896 (0.5%) to $6,551,683 for the three months
ended June 30, 2001 compared to $6,585,579 for the second quarter of 2000.
Noninterest income was $3,416,619 for the quarter ended June 30, 2001 compared
to $2,774,459 for the same period in 2000. The increase in noninterest income
was the result of increases in each category of noninterest income except for
loan servicing fees. Data service fees and service charges on deposit accounts
had the largest increases.
Noninterest expense was $6,866,523 for the quarter ended June 30, 2001, $412,329
(6%) more than the same period in 2000.
Net loan chargeoffs for the second quarter were $1.5 million compared to
$238,000 for the same quarter of 2000. In order to increase the loan loss
reserve to a level commensurate with management's evaluation of the losses in
the loan portfolio, a loan loss provision of $1.5 million was recorded in the
second quarter of 2001.
Net income for the first six months of 2001 decreased $453,795 to $2,715,368
compared to $3,169,163for the same period of 2000.
Net interest income for the six months ended June 30, 2001 was $13,202,700, an
increase of $300,444 (2%) over the same period of 2000. Interest and fees on
loans increased $2,740,476
16
(Continued)
17
(12%) due to the increase in loans. Interest expense on deposits and borrowed
funds also increased $2.7 million (20%)
The provision for loan losses increased to $1,983,000 at June 30, 2001 compared
to $900,000 at June 30, 2000. The majority of this increase was recorded in the
second quarter of 2001.
Noninterest income increased $928,884 (16%) to $6,654,576 for the six months end
June 30, 2001 compared to $5,725,692 for the same period of 2000. Except for
loan servicing fees, all other items of noninterest income increased. Data
service fees and service charges on deposit accounts had increases of $410,142
(16%) and $320,355 (39%), respectively. These increase were primarily
attributable to new deposit products. The increase in data service fees results
from additional products offered to and used by current customers and additional
banks being serviced.
Noninterest expense increased $880,182 (6.8%) to $13,887,535 compared to
$13,007,353 for the same period of 2000.
As of June 30, 2001, $187 million or 32% of the Corporation's loans and loans
held for sale are indexed to the prime rate and adjust immediately as prime
changes, while $172 million or 29% are indexed to various treasury rates and
adjust more gradually on their one, three or five year anniversaries. The
remaining $229 million or 39% of loans are fixed rate for terms of one to thirty
years.
During the six month period from December 31, 2000 to June 30, 2001, the prime
rate declined 2.75%, to 6.75%. This is the primary reason for a relatively flat
increase in earning assets yield to 8.87% in the first half of 2001, from 8.81%
for the first half of 2000 during which the prime rate increased 1.00% to 9.50%.
Local and national certificate of deposit rates rose dramatically during the
second half of 2000. Much of those higher priced funds will not reprice until
the last half of this year. The lag in the repricing of certificates was the
principal reason for the increase in funds costs to 4.97% in the first half of
2001 from 4.56% in the first half of 2000.
Those asset yield and funds cost changes combined to produce a decline in the
net interest margin to 3.92% in the first half of 2001 from 4.49% for the same
period of 2000.
We appear to be approaching the bottom of this rate cycle and therefore expect
to see in the net interest margin stabilize.
17
18
Item 3: Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
There have been no material changes in the Corporation's quantitative and
qualitative market risks since December 31, 2000. The following table compares
rate sensitive assets and liabilities as of June 30, 2001 to December 31, 2000.
Principal/notational amount maturing in:
(Dollars in thousands)
First Years
Year 2 to 5 Thereafter Total
---- ------ ---------- -----
Comparison of 6/30/01 to 12/31/00
Total rate sensitive assets:
At June 30, 2001 $ 292,426 $ 256,235 $ 131,189 $ 679,850
At December 31, 2000 273,463 254,653 138,702 666,818
--------- --------- --------- ---------
Increase (decrease) $ 18,963 $ 1,582 $ (7,513) $ 13,032
========= ========= ========= =========
Total rate sensitive liabilities:
At June 30, 2001 $ 330,896 $ 219,474 $ 109,543 $ 659,913
At December 31, 2000 345,614 187,830 107,931 641,375
--------- --------- --------- ---------
Increase (decrease) $ (14,718) $ 31,644 $ 1,612 $ 18,538
========= ========= ========= =========
Total rate sensitive assets increased approximately $13.0 million for the six
months ended June 30, 2001 due primarily to a $10.0 million increase in gross
loans and loans held for sale during the period and a $2.9 million increase in
securities available for sale. Variable rate (primarily prime indexed) loans
increased $22.6 million while adjustable rate (primarily treasury indexed) loans
declined $13.8 million.
Total rate sensitive liabilities increased approximately $18.5 million during
the six months ended June 30, 2001. Certificates of deposit balances increased
$40.5 million while demand deposits and money market accounts declined by $2.8
and $5.2 million, respectively. Federal funds purchased also declined by $13.2
million. During the period, the decline in market interest rates caused many
customers to lengthen the maturity of their certificates of deposit. The $14.7
million decline in the "First Year" category was primarily the result of a $13.2
million reduction in federal funds purchased; while the $31.6 million increase
in "Years 2 to 5" was primarily due to a $32.8 million increase in certificates
of deposit with maturities of over 1 through 5 years.
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19
PART 11 - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of shareholders held in April, 2001, shareholders
voted on the re-election of certain directors.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibit
-------
None
(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 14, 2001 By /s/ Thomas C. Williams
------------------ ---------------------------------
Thomas C. Williams
President &
Chief Executive Officer
By /s/ Richard C. Warrener
---------------------------------
Richard C. Warrener
Executive Vice President &
Chief Financial Officer
19