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 March 31, 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 of 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 2,184,378 on May 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 three months ended March 31, 1996 are not necessarily indicative of the results for the complete year. 2
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) RURBAN FINANCIAL CORP. AND SUBSIDIARIES March 31 December 31 1996 1995 ----------- ----------- (Unaudited) (Note) ASSETS Cash and due from banks ..................... $ 14,898,753 $ 21,067,131 Federal funds sold .......................... 6,031,140 7,312,525 TOTAL CASH AND CASH EQUIVALENTS ..... 20,929,893 28,379,656 Interest bearing deposits in other financial institutions .................... 180,000 180,000 Securities available-for-sale ............... 81,368,552 90,329,866 Loans, net of allowance for losses of $4,352,151 and $4,270,000 respectively .... 280,070,068 273,094,844 Loans held for sale .......................... 6,175,765 2,949,293 Premises and equipment, net .................. 8,085,096 8,383,717 Accrued interest and other assets ............ 8,746,752 7,908,389 TOTAL ASSETS ...... $405,556,126 $411,225,765 3
March 31 December 31 1996 1995 (Unaudited) (Note) LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest bearing ........................ $ 41,712,137 $ 48,721,000 Interest bearing ........................... 319,779,484 319,075,538 ------------ ------------ TOTAL DEPOSITS ....... 361,491,621 367,796,538 Accrued expenses and other liabilities ....... 3,316,236 3,350,736 TOTAL LIABILITIES ...... 364,807,857 371,147,274 Common stock subject to repurchase obligation in ESOP (297,467 shares outstanding in 1996 and 1995) .............. 9,333,027 9,333,027 Common stock, stated value $2.50 a share: Authorized--5,000,000 shares 1,886,911 shares outstanding in 1996 and 1995 .............................. 4,717,277 4,717,277 Capital Surplus .............................. 5,798,813 5,798,813 Retained earnings ............................ 20,594,928 19,779,897 Net unrealized gain/(loss) on available- for-sale securities (net of tax of $156,721 and $231,549 respectively) ....... 304,224 449,477 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..... $405,556,126 $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 March 31 1996 1995 Interest income: Interest and fees on loans ...................... $6,697,541 $ 6,308,185 Interest and dividends on securities: Taxable ........................................ 1,126,254 810,255 Tax-exempt ..................................... 111,425 106,075 Other ........................................... 106,714 90,837 ---------- ----------- TOTAL INTEREST INCOME ......................... 8,041,934 7,315,352 Interest expense: Deposits ........................................ 3,556,004 3,246,191 Short-term borrowings ........................... 11,809 34,689 ---------- ----------- TOTAL INTEREST EXPENSE ........................ 3,567,813 3,280,880 ---------- ----------- NET INTEREST INCOME ........................ 4,474,121 4,034,472 Provision for losses ............................. 256,009 240,000 ---------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOSSES ........................ 4,218,112 3,794,472 Noninterest income: Trust department ................................ 508,315 457,393 Service charges on deposit accounts ............................... 281,997 272,443 Data processing fees ............................ 617,014 481,658 Loss on sale of securities available-for-sale ... - - - (3,043) Other ........................................... 132,608 144,087 ---------- ----------- TOTAL NONINTEREST INCOME ................... 1,539,934 1,352,538 Noninterest expense: Salaries and employee benefits ....................................... 1,952,077 1,685,257 Net occupancy expense ........................... 253,420 215,674 Equipment expense ............................... 518,947 486,059 Other ........................................... 1,323,578 1,372,821 ---------- ----------- TOTAL NONINTEREST EXPENSE .................. 4,048,022 3,759,811 ---------- ----------- INCOME BEFORE INCOME TAXES ........................ 1,710,024 1,387,199 Applicable income taxes .......................... 567,337 455,055 ---------- ----------- NET INCOME ........................ $1,142,687 $ 932,144 ========== =========== Net income per Common Share (Note B) .................................. $ .52 $ .43 Average shares outstanding (Note B) .............. 2,184,378 2,184,378 See notes to condensed consolidated unaudited financial statements 5
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) RURBAN FINANCIAL CORP. AND SUBSIDIARIES Three Months Ended March 31 1996 1995 Balance beginning of period .................... $ 40,078,491 $ 35,674,587 Net Income ..................................... 1,142,687 932,144 Cash dividends declared ($.15 per share) .................................... (327,656) (327,656) Change in net unrealized holding gains (losses) on available-for-sale securities .............. (145,253) 705,069 Balance end of period .......................... $ 40,748,269 $ 36,984,144 ============ ============ See notes to condensed consolidated unaudited financial statements 6
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) RURBAN FINANCIAL CORP. AND SUBSIDIARIES Three Months Ended March 31 1996 1995 Cash Flows From Operating Activities Cash received from customers' fees and commissions .................................. $ 1,539,934 $ 1,355,581 Cash paid to suppliers and employees .......... (3,694,180) (5,196,876) Loans originated for sale ..................... (7,592,418) -- Proceeds from sales of loans held for sale .... 4,363,181 -- Interest received ............................. 7,614,982 6,978,041 Interest paid ............................... (3,588,032) (3,066,418) Income taxes paid ............................ (970,000) (5,000) ------------ ------------ Net Cash from operating activities ........... (2,326,533) 65,328 ------------ ------------ 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 ................. 13,900,334 7,893,786 Securities held-to-maturity ................... -- 163,051 Purchase of securities available-for-sale ..... (5,159,101) (3,502,969) Purchase of securities held-to-maturity ....... -- (451,360) Net (increase)/decrease in loans .............. (7,297,930) (650,366) Proceeds from sales of loans .................. -- 847,714 Recoveries on loan charge-offs ................ 77,142 57,941 Premises and equipment expenditures ........... (11,102) (156,050) ------------ ------------ Net cash from investing activities ........... 1,509,343 4,368,071 ------------ ------------ Cash Flows From Financing Activities Net Increase/(decrease) in deposits ........... (6,304,917) (3,547,352) Dividends paid ................................ (327,656) (327,656) ------------ ------------ Net cash from financing activities ........... (6,632,573) (3,875,008) ------------ ------------ Net Change In Cash And Cash Equivalents ........ (7,449,763) 558,391 Cash And Cash Equivalents At Beginning Of Year . 28,379,656 25,178,171 ------------ ------------ Cash And Cash Equivalents At End Of Period ..... $ 20,929,893 $ 25,736,562 ============ ============ 7
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED (UNAUDITED) Three Months Ended March 31 1996 1995 Reconciliation Of Net Income To Net Cash From Operating Activities Net income ....................................... $ 1,142,687 $ 932,144 Adjustments to reconcile net income to net cash from operating activities: Depreciation ................................... 309,723 292,727 Amortization of intangible assets .............. 134,500 82,500 Provision for loan losses ...................... 256,009 240,000 Loss on available-for-sale-security sold ....... -- 3,043 Loans originated for sale ...................... (7,592,418) Proceeds from sales of loans held for sale ..... 4,363,181 Net (gains)/losses on loan sales ............... 2,765 Increase/(decrease) in deferred loan fees ...... (10,445) (2,561) (Increase)/decrease in interest receivable ..... (419,272) (334,750) (Increase)/decrease in other assets ............ (478,763) (561,822) Increase/(decrease) in interest payable ........ (20,219) 214,462 Increase/(decrease) in income taxes payable .... (402,663) 450,055 Increase/(decrease) in other liabilities ....... 388,382 (1,250,470) ----------- ----------- Net cash from operating activities ............ $(2,326,533) $ 65,328 =========== =========== 8
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--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. The number of shares used in the computation of earnings per common share was 2,184,378 for 1995 and 1996. 9
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 $13,184,605 from December 31, 1995 to March 31, 1996. Liquid assets were 30% of total assets at December 31, 1995 and 27% of total assets at March 31, 1996. This difference represents normal fluctuation and was not due to any change in policy of management regarding liquidity. Capital Resources Total shareholders' equity was $40,748,269 (which includes $9,333,000 of common stock subject to repurchase obligation in ESOP) as of March 31, 1996, an increase of $669,778 over total shareholders' equity of $40,078,491 as of December 31, 1995. This increase was attributed to earnings of $1,142,687 less dividends declared, during the three months ended March 31, 1996, of $327,656 less change in net unrealized gain/(loss) on available-for-sale securities of $145,253. The following table provides the minimum regulatory capital requirements and the Corporation's capital ratios at March 31, 1996. Minimum Regulatory Corporation's Capital Requirements Capital Ratio Ratio of tier 1 capital to weighted-risk assets .................... 4.00% 14.07% Ratio of total capital to weighted-risk assets .................... 8.00% 15.32% Ratio of shareholders' equity to weighted risk assets ................. 4.00% 14.48% Leverage Ratio ............................ 4.00% 9.71% Ratio of total shareholders' equity to total assets .................. None 10.05% The Corporation's subsidiaries meet the applicable minimum regulatory capital requirements at March 31, 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. 10
As of March 31, 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 Cor- poration's liquidity, capital resources or operations. Supplemental Information Nonperforming loans decreased $767,000 from December 31, 1995 to March 31, 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 March 31, 1996 compared to December 31, 1995. Material Changes in Results of Operations Net interest income for the quarter ended March 31, 1996 was $4,474,121, an increase of $439,649 (11%) over the same period in 1995. This increase is due to an increase in the amount of earning assets and a favorable increase in yields on those assets. Total noninterest income increased $187,396 (14%) to $1,539,934 due mainly to an increase of $50,922 (11%) in Trust Department fees and an increase in data processing fees of $135,356 (28%). Total noninterest expense increased $288,211 (8%) for the quarter ended March 31, 1996 when compared to the same period in 1995. This was due primarily to normal increase in salaries and benefits of $266,820 (16%). Income tax expense for the quarter was $567,337, an increase of $112,282 over the same period in 1995 due to an increase in taxable income. The result of all these factors is an increase in net income of $210,543 (23%) to $1,142,687 for the three months ended March 31, 1996 when compared to the same period in 1995. 11
PART 11 - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits See index to exhibits on pages 13 and 14 (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 May 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 12
INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION 27 FINANCIAL DATA SCHEDULE