<PAGE> 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 MARCH 31, 1998.
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
2,069,909 on May 1, 1998.
<PAGE> 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 three months ended March 31, 1998 are not
necessarily indicative of the results for the complete year.
2
<PAGE> 3
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
<CAPTION>
March 31 December 31
1998 1997
------------ ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Cash and due from banks $ 15,135,217 $ 15,552,385
Federal funds sold 9,994,413 6,670,000
------------ ------------
TOTAL CASH AND CASH EQUIVALENTS 25,129,630 22,222,385
Interest-bearing deposits in other
financial institutions 532,945 529,777
Securities available for sale 73,127,572 71,683,120
Loans held for sale, net of valuation allowance of
$-0- in 1998 and $-0- in 1997 12,717,429 4,404,327
Loans, net of allowance for losses of $5,379,421
in 1998 and $5,239,601 in 1997 353,289,586 354,207,709
Premises and equipment, net 8,820,596 8,583,961
Accrued interest and other assets 10,105,808 9,739,811
------------ ------------
TOTAL ASSETS $483,723,566 $471,371,090
============ ============
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
------------ ------------
(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 38,227,649 $ 46,149,132
Interest bearing 385,923,000 369,032,154
------------ ------------
Total Deposits 424,150,649 415,181,286
Federal funds purchased 0 4,929,000
Advances from Federal Home Loan Bank (FHLB) 15,571,366 7,529,867
Accrued interest payable 1,721,144 1,577,140
Other liabilities 2,578,781 3,059,869
------------ ------------
TOTAL LIABILITIES 444,021,940 432,277,162
Common stock subject to repurchase obligation
in ESOP (shares outstanding:
1998 - 326,612, 1997 - 326,612) 11,063,982 10,124,972
Unearned ESOP shares (unearned shares:
1998 - 43,111 1997 - 43,111) (1,299,000) (1,299,000)
Common stock, stated value $2.50 per share
shares authorized: 10,000,000;
shares issued: 1998-2,287,851, 1997 -2,287,851;
shares outstanding:
1998 - 1,743,297, 1997 - 1,743,297 4,903,098 4,903,098
Additional paid-in capital 6,991,636 7,930,646
Retained earnings 24,489,601 23,891,983
Net unrealized appreciation (depreciation)
on securities available-for-sale (net of tax
of $117,928 in 1998 and $106,988 in 1997) 228,920 218,840
Treasury stock, at cost, 217,942 shares (6,676,611) (6,676,611)
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $483,723,566 $471,371,090
============ ============
</TABLE>
See notes to condensed consolidated unaudited financial statements
Note: The balance sheet at December 31, 1997 has been derived from the
audited financial statement at that date.
4
<PAGE> 5
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
<CAPTION>
Three Months Ended
March 31
----------------------------
1998 1997
<S> <C> <C>
Interest Income:
Interest and fees on loans $8,508,834 $7,438,472
Interest and dividends on securities:
Taxable 944,816 899,304
Tax-exempt 69,525 78,511
Other 142,382 266,514
---------- ----------
TOTAL INTEREST INCOME 9,665,557 8,682,801
Interest Expense:
Deposits 4,233,499 3,776,545
Borrowings 223,544 7,798
---------- ----------
TOTAL INTEREST EXPENSE 4,457,043 3,784,343
---------- ----------
NET INTEREST INCOME 5,208,514 4,898,458
Provision for loan losses 270,000 216,000
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,938,514 4,682,458
Noninterest income:
Data processing fees 708,775 623,649
Trust fees 633,594 574,445
Service charges on deposit accounts 269,894 274,112
Net gain (loss) on sale of securities 33,675 (2,687)
Net gain on sale of loans 484,868 200,656
Other 231,771 162,789
---------- ----------
TOTAL NONINTEREST INCOME 2,362,577 1,832,964
Noninterest expense:
Salaries and employee benefits 3,260,019 2,372,774
Net occupancy expense 271,991 253,267
Equipment expense 559,361 513,077
Other 1,685,126 1,396,097
---------- ----------
TOTAL NONINTEREST EXPENSE 5,776,497 4,535,215
INCOME BEFORE INCOME TAXES 1,524,594 1,980,207
Income tax expense 512,994 637,862
---------- ----------
NET INCOME $1,011,600 $1,342,345
========== ==========
Basic and diluted earnings per Common Share (Note B) $ 0.50 $ 0.60
========== ==========
</TABLE>
5
<PAGE> 6
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
<CAPTION>
Three Months Ended
March 31
1998 1997
---- ----
<S> <C> <C>
Net income $1,011,600 $ 1,342,345
Other comprehensive income, net of tax:
Change in unrealized gains/losses on securities 43,755 (278,336)
Less: reclassification adjustment for accumulated
gains/losses included in net income 33,675 --
Other comprehensive income 10,080 (278,336)
Comprehensive income $1,021,680 $ 1,064,009
</TABLE>
See notes to condensed consolidated unaudited financial statements
6
<PAGE> 7
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (UNAUDITED)
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
<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, 1998 $4,903,098 $7,930,646 $23,891,983 218,840 (6,676,611)
Net income for the three month period -- -- 1,011,600 -- --
Cash dividends declared
($0.20 per share) -- -- (413,982) -- --
Adjustment for common stock subject to
repurchase agreement -- (939,010) -- -- --
Net change in unrealized appreciation
(depreciation) on securities available
for sale, net of tax of $5,191 -- -- -- 10,080 --
--------------------------------------------------------------------------
Balance at March 31, 1998 $4,903,098 $6,991,636 $24,489,601 $228,920 ($6,676,611)
==========================================================================
</TABLE>
See notes to condensed consolidated unaudited financial statements
7
<PAGE> 8
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------------------
1998 1997
<S> <C> <C>
Cash Flows From Operating Activities:
Cash received from customers' fees and commissions $ 1,844,034 $ 1,634,995
Cash paid to suppliers and employees (5,461,489) (4,373,832)
Loans originated for sale (36,204,998) (5,092,949)
Proceeds from sales of loans held for sale 28,376,764 4,963,069
Interest received 8,682,801 8,640,874
Interest paid (4,313,039) (3,782,321)
Income taxes paid (50,000) (575,000)
Net cash from operating activities (7,125,927) 1,414,836
Cash Flows From Investing Activities:
Net decrease in interest earning desposits
in other financial institutions (3,168) --
Proceeds from principal repayments, maturities and calls of:
Securities available for sale 6,859,039
Proceeds from sales of available-for-sale 11,081,773 14,162,927
Purchase of securities available-for-sale (19,337,535) (15,117,597)
Net (increase)/decrease in loans 560,837 (4,927,311)
Recoveries on loan charge-offs 87,286 176,000
Premises and equipment expenditures (468,958) (392,016)
------------ ------------
Net cash from investing activities (1,220,726) (6,097,997)
------------ ------------
Cash Flows From Financing Activities:
Net increase/(decrease) in deposits 8,969,363 7,266,547
Net charge in federal funds purchased (4,929,000) --
Proceeds from FHLB advances 8,100,000 --
Repayment of FHLB advances (58,501) --
Dividends paid (827,964) (411,813)
------------ ------------
Net cash from financing activities 11,253,898 6,854,734
------------ ------------
Net Change In Cash And Cash Equivalents 2,907,245 2,171,573
Cash And Cash Equivalents At Beginning Of Year 22,222,385 34,027,263
------------ ------------
Cash And Cash Equivalents At End Of Period $ 25,129,630 $ 36,198,836
============ ============
</TABLE>
See notes to condensed consolidated unaudited financial statements
8
<PAGE> 9
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED (UNAUDITED)
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------------
1998 1997
<S> <C> <C>
Reconciliation Of Net Income To Net
Cash From Operating Activities
Net income $ 1,011,600 1,342,345
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation and amortization 233,540 346,798
Amortization of intangible assets 48,230 45,000
Provision for loan losses 270,000 216,000
(Gain)/loss on sale of securities available for sale (33,675) 2,687
Loans originated for sale (36,204,998) (5,092,949)
Proceeds from sales of loans held for sale 28,376,764 4,963,069
Net (gains)/losses on loan sales (484,868) (200,656)
Increase/(decrease) in other liabilities and interest payable 76,898 1,144,980
(Increase)/decrease in other assets and interest receivable (419,418) (1,352,438)
------------ -----------
Net cash from operating activities $ (7,125,927) $ 1,414,836
============ ===========
</TABLE>
9
<PAGE> 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, 1997.
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 basic earnings per common share was 2,026,798 for
1998 and 2,240,972 for 1997. The number of shares used in the computation of
diluted earnings per common share was 2,040,955 for 1998 and 2,240,972 for 1997.
NOTE C-- ACCOUNTING STANDARD IMPLEMENTED IN 1998
SFAS No. 130, Reporting Comprehensive Income, requires comprehensive income to
be reported for all periods. Comprehensive income includes both net income and
other comprehensive income. Other comprehensive income includes the change in
unrealized gains and losses on securities available for sale.
NOTE D-- 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 three months ended March 31, 1998.
10
<PAGE> 11
NOTE E - BENEFIT PLANS
The Company's Board of Directors has adopted a stock option plan. Under the
terms of this plan, options for up to 200,000 shares of the Company's common
stock may be granted to employees and directors of the Company and its
subsidiaries. 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 proforma disclosures for companies that do not adopt its
fair value accounting method for stock-based employee compensation. Accordingly,
the following proforma 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 three months ended March 31, 1998 and 1997.
The fair value of options granted during 1998 and 1997 is estimated using the
following weighted average information: risk-free interest rate of 6.5%,
expected life of 10 years, expected volatility of stock price of .05 and
expected dividends of 2.39% per year.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net income for the quarter ended March 31 $1,011,600 $1,342,345
Proforma net income for the quarter ended March 31 981,191 1,342,345
Basic and diluted earnings per common share as reported $ .50 $ .60
Proforma basic and diluted earnings per common share $ .48 $ .60
</TABLE>
In future years, the proforma effect of not applying this standard is expected
to increase as additional options are granted.
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. Information about option grants follows:
Weighted
Number of Average
Outstanding Exercise Fair Value
Options Price of Grants
------- ----- ---------
Outstanding, January 1, 1997 -- -- --
Granted 89,500 28.38 7.54
Outstanding, December 31, 1997 89,500 28.38 7.54
Outstanding, March 31, 1998 89,500 28.38 7.54
The weighted average remaining contractual life of options outstanding at March
31, 1998 was approximately nine years. There were no stock options exercisable
at March 31, 1998 or at March 31, 1997.
11
<PAGE> 12
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.
Reliance Financial Services, N.A., a wholly owned subsidiary of State Bank,
provides trust and financial services to customers nationwide.
Rurban Mortgage Company, a wholly owned subsidiary of State Bank, operates a
residential mortgage loan production office in Clearwater, Florida, a wholly
owned subsidiary of The State Bank and Trust Co. This office underwrites,
processes, closes and sells residential mortgages acquired through a network of
real estate mortgage lenders in the Tampa Bay market and community banks in
Ohio, including the four Rurban subsidiary banks.
LIQUIDITY
- ---------
LIQUIDITY RELATES PRIMARILY to the Corporation's ability to fund loan demand,
meet deposit customers' withdrawl requirements and provide for operating
expenses. Assets used to satisfy these needs consist of cash, federal funds
sold, securities and loans held for sale. These assets are commonly referred to
as liquid assets. Liquid assets were $111 million at March 31, 1998, compared to
$99 million at December 31, 1997. The $12 million increase in liquid assets
represents normal fluctuation and was not due to any change in policy of
management regarding liquidity. Management recognizes that securities may need
to be sold in the future to help fund loan demand and, accordingly, as of March
31, 1998, the entire securities portfolio of $73.1 million was classified as
available-for-sale.
CAPITAL RESOURCES
- -----------------
TOTAL SHAREHOLDER'S EQUITY plus common stock subject to repurchase obligation in
ESOP, net of unearned ESOP shares was $39,702,000 as of March 31, 1998, an
increase of $608,000 over $39,094,000 as of December 31, 1997. The increase was
primarily due to 1998 net income of $1,011,600, offset by dividends declared of
$413,982 and a net change in unrealized appreciation (depreciation) in
securities available for sale, net of tax of $10,000.
THE CORPORATION'S SUBSIDIARIES exceed the applicable minimum regulatory capital
requirements at March 31, 1998.
AS OF MARCH 31, 1998, 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.
IMPACT OF YEAR 2000
- -------------------
There have been no material changes in the Company's plans to or status of
addressing the Year 2000 issue.
12
<PAGE> 13
Supplemental Information
- ------------------------
Non performing loans decreased $222,000 from December 31, 1997 to $2,543,000 or
0.63% of net loans at March 31, 1998.
Material Changes in Financial Condition
- ---------------------------------------
Loans and loans held for sale increased $7.4 million from December 31, 1997 to
$366 million at March 31, 1998; an annualized rate of 8.2%.
Deposits grew $9.0 million from December 31, 1997 to $424 million at March 31,
1998; an annualized rate of 8.6%.
Material Changes in Results of Operations
- -----------------------------------------
Net interest income for the quarter ended March 31, 1998 was $5,208,514, an
increase of $310,056 (6.3%) over the same period in 1997. This increase was due
to an increase in the amount of earning assets and a favorable increase in
yields on those assets.
Total noninterest income increased $529,613 to $2,362,577 due mainly to
increases in net gains on sales of loans of $284,212, data processing fees of
$85,126 and trust fees of $59,149.
Total noninterest expenses increased $1,241,282 for the quarter ended March 31,
1998 when compared to the same period 1997. The increase in salaries and
benefits of $887,245 represented 71% of the total increase in non-interest
expense. This increase was primarily due to three factors; 1) annual merit
increases, 2) staffing increases at Rurban Mortgage Company, Reliance Financial
Services, RDSI and in the Holding Company's administrative staff and 3) the
extension of performance related bonuses and incentive compensation throughtout
the organization.
Income tax expense for the quarter was $512,994, a decrease of $124,868 over the
same period in 1997 due to a decrease in taxable income.
The result of all of these factors was a decrease in net income of $330,745 to
$1,011,600 for the three months ended March 31, 1998 when compared to the same
period in 1997.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
There have been no material changes in the Company's quantitative and
qualitative market risks since December 31, 1997.
13
<PAGE> 14
PART 11 - OTHER INFORMATION
---------------------------
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 , 1998 By
-------------------- --------------------------
Thomas C. Williams
President & CEO
By
--------------------------
Richard C. Warrener
Executive Vice President &
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 15,135,217
<INT-BEARING-DEPOSITS> 532,945
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 73,127,572
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 353,289,586
<ALLOWANCE> 5,379,421
<TOTAL-ASSETS> 483,723,566
<DEPOSITS> 424,150,649
<SHORT-TERM> 6,100,000
<LIABILITIES-OTHER> 4,299,925
<LONG-TERM> 9,471,366
0
0
<COMMON> 4,903,098
<OTHER-SE> 25,033,546
<TOTAL-LIABILITIES-AND-EQUITY> 483,723,566
<INTEREST-LOAN> 8,508,834
<INTEREST-INVEST> 1,014,341
<INTEREST-OTHER> 142,382
<INTEREST-TOTAL> 9,665,557
<INTEREST-DEPOSIT> 4,233,499
<INTEREST-EXPENSE> 4,457,043
<INTEREST-INCOME-NET> 5,208,514
<LOAN-LOSSES> 270,000
<SECURITIES-GAINS> 33,675
<EXPENSE-OTHER> 5,776,497
<INCOME-PRETAX> 1,524,594
<INCOME-PRE-EXTRAORDINARY> 1,524,594
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,011,600
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
<YIELD-ACTUAL> 0
<LOANS-NON> 2,038,946
<LOANS-PAST> 1,112,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,239,601
<CHARGE-OFFS> 217,466
<RECOVERIES> 87,286
<ALLOWANCE-CLOSE> 5,379,421
<ALLOWANCE-DOMESTIC> 5,379,421
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,557,140
</TABLE>
