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 SEPTEMBER 30, 1997. 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 Identification No.) incorporation or organization) 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 2,284,009 on October 31, 1997.
2 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, 1997 are not necessarily indicative of the results for the complete year.
3 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) RURBAN FINANCIAL CORP. AND SUBSIDIARIES <TABLE> <CAPTION> September 30 December 31 1997 1996 ------------ ------------ (Unaudited) (Note) <S> <C> <C> ASSETS Cash and due from banks $ 15,196,973 $ 18,718,263 Federal funds sold 7,765,398 15,309,000 ------------ ------------ TOTAL CASH AND CASH EQUIVALENTS 22,962,371 34,027,263 Interest-bearing deposits in other financial institutions 180,000 180,000 Securities available for sale 71,354,881 66,635,889 Loans held for sale, net of valuation allowance of $7,000 in 1997 and $31,119 in 1996 1,951,151 1,875,636 Loans, net of allowance for losses of $5,497,319 in 1997 and $5,066,600 in 1996 349,325,227 313,379,240 Premises and equipment, net 8,478,928 8,827,838 Accrued interest and other assets 9,511,583 8,346,907 ------------ ------------ TOTAL ASSETS $463,764,141 $433,272,773 ============ ============ </TABLE>
4 <TABLE> <CAPTION> September 30 December 31 1997 1996 ------------ ----------- (Unaudited) (Note) <S> <C> <C> LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest bearing $ 40,111,116 $ 42,323,683 Interest bearing 368,763,225 345,442,390 ------------ ------------ 408,874,341 387,766,073 Accrued expenses and other liabilities 10,346,885 4,018,052 ------------ ------------ 419,221,226 391,784,125 Common stock subject to repurchase obligation in ESOP (shares outstanding: 1997 - 326,719, 1996 - 328,582) 9,393,171 9,387,588 Unearned ESOP shares (unearned shares: 1997 - 43,111 1996 - 46,879) (1,490,000) (1,490,000) Common stock, stated value $2.50 per share Authorized--10,000,000 shares Shares issued 1997-1,961,132, 1996 - 1,959,269 and outstanding 1997 - 1,957,290, 1996 - 1,959,269 4,902,830 4,898,173 Additional paid-in capital 8,662,715 8,672,955 Retained Earnings 23,002,625 20,024,916 Net unrealized appreciation (depreciation) 183,952 (4,984) on securities available-for-sale (net of tax of $94,763 in 1997 and $(2,567) in 1996) Less: Treasury stock, at cost, 3842 shares (112,378) ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $463,764,141 $433,272,773 ============ ============ </TABLE> See notes to condensed consolidated unaudited financial statements Note: The balance sheet at December 31, 1996 has been derived from the audited financial statement at that date.
5 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) RURBAN FINANCIAL CORP. AND SUBSIDIARIES <TABLE> <CAPTION> Three Months Ended September 30 ---------------------------- 1997 1996 <S> <C> <C> Interest Income: Interest and fees on loans $8,291,913 $7,248,382 Interest and dividends on securities: Taxable 921,429 889,529 Tax-exempt 78,025 99,757 Other 153,230 74,059 ---------- ---------- TOTAL INTEREST INCOME 9,444,597 8,311,727 Interest Expense: Deposits 4,172,681 3,640,940 Short-term borrowings 104,386 47,409 ---------- ---------- TOTAL INTEREST EXPENSE 4,277,067 3,688,349 ---------- ---------- NET INTEREST INCOME 5,167,530 4,623,378 Provision for loan losses 245,000 225,000 ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,922,530 4,398,378 Noninterest income: Trust fees 603,048 532,000 Service charges on deposit accounts 294,247 315,303 Data processing fees 719,024 499,850 Gain (Loss) on sale of securities available-for-sale 63,541 394 Gain (loss) on sale of loans-net 80,437 Other 306,302 131,241 ---------- ---------- TOTAL NONINTEREST INCOME 2,066,599 1,478,788 Noninterest expense: Salaries and employee benefits 2,616,187 2,008,164 Net occupancy expense 277,103 233,955 Equipment expense 509,879 482,834 Other 1,486,156 1,524,927 ---------- ---------- TOTAL NONINTEREST EXPENSE 4,889,325 4,249,880 ---------- ---------- INCOME BEFORE INCOME TAXES 2,099,804 1,627,286 Income Tax Expense 662,677 550,097 ---------- ---------- NET INCOME $1,437,127 $1,077,189 ========== ========== Net income per Common Share (Note B) $ 0.63 $ 0.49 Average shares outstanding (Note B) 2,287,224 2,179,378 </TABLE> See notes to condensed consolidated unaudited financial statements
6 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) RURBAN FINANCIAL CORP. AND SUBSIDIARIES <TABLE> <CAPTION> Nine Months Ended September 30 ------------------------------ 1997 1996 <S> <C> <C> Interest Income: Interest and fees on loans $23,698,807 $20,916,789 Interest and dividends on securities: Taxable 2,771,672 3,014,791 Tax-exempt 230,864 319,920 Other 633,933 244,812 ----------- ----------- TOTAL INTEREST INCOME 27,335,276 24,496,312 Interest Expense: Deposits 11,907,408 10,683,142 Short-term borrowings 170,934 120,589 ----------- ----------- TOTAL INTEREST EXPENSE 12,078,342 10,803,731 ----------- ----------- NET INTEREST INCOME 15,256,934 13,692,581 Provision for loan losses 696,000 751,009 ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 14,560,934 12,941,572 Noninterest income: Trust fees 1,762,886 1,544,315 Service charges on deposit accounts 843,429 907,352 Data processing fees 1,914,962 1,639,051 Gain (Loss) on sale of securities available-for-sale 31,524 11,913 Net Gain (loss) on sale of loans 431,830 -- Other 585,990 391,481 ----------- ----------- TOTAL NONINTEREST INCOME 5,570,621 4,494,112 Noninterest expense: Salaries and employee benefits 7,412,925 5,894,672 Net occupancy expense 786,279 752,162 Equipment expense 1,524,930 1,474,742 Other 4,219,735 4,255,062 ----------- ----------- TOTAL NONINTEREST EXPENSE 13,943,869 12,376,638 ----------- ----------- INCOME BEFORE INCOME TAXES 6,187,686 5,059,046 Income Tax Expense 1,975,134 1,657,832 ----------- ----------- NET INCOME $ 4,212,552 $ 3,401,214 =========== =========== Net income per Common Share (Note B) $ 1.84 $ 1.56 Average shares outstanding (Note B) 2,287,639 2,182,571 </TABLE> See notes to condensed consolidated unaudited financial statements
7 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHARE HOLDERS EQUITY (UNAUDITED) RURBAN FINANCIAL CORP. AND SUBSIDIARIES Nine month period ended September 30, 1997 <TABLE> <CAPTION> Net Unrealized Appreciation (Depreciation) on Additional Securities Available Common Paid-In Retained For Sale, Net Treasury Stock Capital Earnings of Tax Stock at Cost ---------- ---------- ----------- -------------------- ------------- <S> <C> <C> <C> <C> <C> Balances at January 1, 1997 $4,898,173 $8,672,955 $20,024,916 $ (4,984) $ 0 Net income for the nine month period -- 4,212,552 Cash dividends declared ($0.54 per share) -- (1,234,843) Reduction of repurchase obligation in ESOP (1,863 shares) 4,657 48,904 Change in market value of ESOP shares -- (59,144) -- Acquisition of stock for Treasury (3,842 shares) (112,378) Net change in unrealized appreciation (depreciation) on securities available for sale, net of tax of $94,763 -- -- -- 188,936 ---------------------------------------------------------------------------------- Balance at September 30, 1997 $4,902,830 $8,662,715 $23,002,625 $183,952 $(112,378) ================================================================================== </TABLE>
8 CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) RURBAN FINANCIAL CORP. AND SUBSIDIARIES <TABLE> <CAPTION> Nine Months Ended September, 30 ---------------------------------- 1997 1996 <S> <C> <C> Cash Flows From Operating Activities: Cash received from customers' fees and commissions $ 5,107,267 $ 4,482,199 Cash paid to suppliers and employees (17,118,834) (11,572,299) Loans originated for sale (18,486,433) (17,360,432) Proceeds from sales of loans held for sale 18,842,748 15,753,698 Interest received 27,173,417 24,028,489 Interest paid (12,739,745) (10,526,116) Income taxes paid 2,241,000 (1,518,500) ------------ ------------ Net cash from operating activities 5,019,420 3,287,039 ------------ ------------ Cash Flows From Investing Activities: Proceeds from sales of securities available-for-sale 17,160,080 Proceeds from principal repayments, maturities and calls of securities available-for-sale 15,046,993 37,694,386 Purchase of securities available-for-sale (37,040,335) (13,848,478) Net (increase)/decrease in loans (37,312,309) (37,580,477) Recoveries on loan charge-offs 400,322 (228,010) Premises and equipment expenditures (331,612) (1,227,092) ------------ ------------ Net cash from investing activities (42,076,861) (15,189,671) ------------ ------------ Cash Flows From Financing Activities: Net increase/(decrease) in deposits 21,108,268 12,123,087 Net increase/(decrease) in short term borrowings 6,231,502 2,000,000 Common stock retirement 0 (170,625) Purchase of treasury stock (112,378) Dividends paid (1,234,843) (2,487,745) ------------ ------------ Net cash from financing activities 25,992,549 11,464,717 ------------ ------------ Net Change In Cash And Cash Equivalents (11,064,892) (437,915) Cash And Cash Equivalents At Beginning Of Year 34,027,263 28,379,656 ------------ ------------ Cash And Cash Equivalents At End Of Period $ 22,962,371 $ 27,941,741 ============ ============ </TABLE>
9 CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED (UNAUDITED) <TABLE> <CAPTION> Nine Months Ended September 30 --------------------------------- 1997 1996 <S> <C> <C> Reconciliation Of Net Income To Net Cash From Operating Activities Net income $ 4,212,552 $ 3,401,214 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 1,112,582 896,938 Amortization of intangible assets 135,000 234,000 Provision for loan losses 696,000 751,009 Net (gains)/losses on securities (31,524) (11,913) Loans originated for sale (18,486,433) (17,360,432) Proceeds from sales of loans held for sale 18,842,748 15,753,698 Net (gains)/losses on loan sales (431,830) 212,198 Increase/(decrease) in accrued interest and other assets (1,032,243) (542,721) (Increase)/decrease in accrued expenses and other liabilities 2,568 (46,952) ------------ ------------ Net cash from operating activities $ 5,019,420 $ 3,287,039 ============ ============ </TABLE>
10 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 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, 1996. 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 2,287,639 for 1997 and 2,183,554 for 1996. NOTE C- RISK ELEMENTS AND LOAN LOSS RESERVE 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 nine months ended September 30, 1997.
11 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 Company ("Citizens Bank") are engaged only in the industry segment of commercial banking. Rurban's subsidiary, Rurbanc Data Services, Inc., ("RDSI"), 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. During the first quarter of 1997, the Corporation opened Rurban Mortgage Company, a residential mortgage loan production office in Clearwater, Florida. This office underwrites, processes, closes and sells residential first mortgages acquired through a network of real estate mortgage brokers in the Tampa Bay market and in Ohio. Material Changes in Financial Condition - --------------------------------------- During the nine months ended September 30, 1997 total loan growth was approximately 15% or $36 million. The commercial business and real estate loan portfolios accounted for a majority of the increase in loans. The commercial loan portfolios grew by $21 million or 15%. The majority of the loan growth occurred at State Bank and Trust, which had a net increase of $28 million. The primary funding for loan growth was the growth of deposit balances of $21 million during the nine month period. $14 million of the increase in deposits occurred within the last three months. The Company also borrows from the Federal Home Loan Bank and through federal funds at other financial institutions. These borrowings were reduced by over 50% from the prior quarter as deposit balances increased. Material Changes in Results of Operations - ----------------------------------------- Net interest income for the quarter ended September 30, 1997 was $5,167,530 and increase of $544,152 (12%) over the same period in 1996. For the nine month period, net interest income was $15,256,934 and increase of $1,564,353 (11%). These increases were due to an increase in the amount of earning assets and an increase in yields on those assets. Total noninterest income for the quarter ended September 30, 1997 increased $587,811 (40%) to $2,066,599 due primarily to a $219,174 increase in data processing fees and a $175,061 increase in other income from a $161,276 gain on the sale of equity securities. For the nine month period, noninterest income increased $1,076,509 (23%) to $5,570,621 due primarily to an increase of $218,571 (14%) in trust fees, a $275,911 (17%) increase in data processing fees and a $431,830 increase in gain on sale of loans which was primarily the result of a first quarter entry to record the $230,000 estimated value of originated mortgage servicing rights on $23 million of loans sold between the adoption of FAS 122 On January 1, 1996 and March 31, 1997. Total noninterest expense increased $639,445 (15%) for the quarter ended September 30, 1997 when compared to the same period in 1996 and $1,567,231 (13%) for the nine months. These increases were due primarily to increases in salaries and benefits of $608,023 (30%) and $1,518,253 (26%) respectively. The increase in 1997 was primarily due to staffing increases at State Bank, Rurban Mortgage Company and Rurban Financial Corp.. The combined result of the factors was an increase in net income of $359,938 (33%) to $1,437,127 for the quarter ended September 30, 1997 when compared to the same period in 1996 and an increase in net income for the nine month period of $811,338 (24%) to $4,212,552.
12 PART 11 - OTHER INFORMATION --------------------------- Items 1 through 5 are not applicable - ------------------------------------ Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (A) Exhibits -------- See index on 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 , 1997 By -------------------- -------------------------- Thomas C. Williams President & CEO By -------------------------- Richard C. Warrener Senior Vice President & Chief Financial Officer
13 INDEX TO EXHIBITS ----------------- EXHIBIT NO. DESCRIPTION - ----------- ----------- 27 FINANCIAL DATA SCHEDULE