<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 June 30, 2000
-------------
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________to_____________________
Commission file number 0-13507
-------
RURBAN FINANCIAL CORP.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-1395608
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer 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 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
4,140,718 on August 1, 2000.
<PAGE> 2
PART I - FINANCIAL INFORMATION
------------------------------
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, 2000 are not
necessarily indicative of results for the complete year.
2
<PAGE> 3
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<CAPTION>
June December June
2000 1999 1999
------------ ------------ ------------
(Unaudited) Note (Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 19,982,874 $ 18,571,702 $ 13,223,135
Federal funds sold 0 11,000 47,000
------------ ------------ ------------
Total cash and cash equivalents 19,982,874 18,582,702 13,270,135
Interest-bearing deposits in other
financial institutions 110,000 110,000 180,000
Securities available for sale 85,908,841 83,118,908 84,296,618
Loans held for sale, net of valuation
allowance $0 5,047,254 7,149,585 13,133,517
Loans, net of allowance for losses of $6,732,002
at June 2000, $6,193,712 at December 1999 and
$5,631,044 at June 1999 531,458,966 495,137,666 440,314,818
Accrued interest receivable 5,107,412 4,147,321 3,925,809
Premises and equipment, net 10,540,089 11,140,327 11,265,817
Other assets 8,522,900 8,397,015 8,134,941
------------ ------------ ------------
Total assets $666,678,336 $627,783,524 $574,521,655
============ ============ ============
</TABLE>
3
(Continued)
<PAGE> 4
<TABLE>
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<CAPTION>
June December June
2000 1999 1999
------------ ------------ ------------
(Unaudited) (Note) (Unaudited)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 43,489,747 $ 49,005,311 $ 43,978,673
Interest-bearing 497,373,606 470,290,773 432,459,754
------------ ------------ ------------
Total deposits 540,863,353 519,296,084 476,438,427
Federal funds purchased 23,839,000 10,900,000 12,040,000
Advances from Federal Home Loan Bank (FHLB) 43,301,723 40,035,303 33,164,783
Other borrowed funds 6,100,000 7,000,000 5,200,000
Accrued interest payable 2,604,675 2,513,798 1,752,431
Other liabilities 3,832,130 4,137,868 3,330,412
------------ ------------ ------------
Total liabilities 620,540,881 583,883,053 531,926,053
Shareholders' equity
Common stock, stated value $2.50 per share;
shares authorized: 10,000,000;
shares issued: 4,575,702;
shares outstanding: 4,140,718 11,439,255 11,439,255 11,439,255
Additional paid-in capital 11,518,469 11,518,469 11,518,469
Retained earnings 32,305,363 30,047,158 28,012,507
Accumulated other comprehensive loss, net of
tax of $(851,533) in June 2000, $(790,008) in
December 1999 and $(355,202) in June 1999 (1,652,975) (1,533,547) (689,510)
Unearned ESOP shares (unearned shares:
June 2000 - 48,054, December 1999 - 50,334
and June 1999 - 55,240) (809,807) (908,014) (1,022,269)
Treasury stock; shares at cost June 2000 -
434,984, December 1999 - 434,984 and June
1999 - 434,984 (6,662,850) (6,662,850) (6,662,850)
------------ ------------ ------------
Total shareholders' equity 46,137,455 43,900,471 42,595,602
------------ ------------ ------------
Total liabilities and shareholders' equity $666,678,336 $627,783,524 $574,521,655
============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements (unaudited)
Note: The balance sheet at December 31, 1999 has been derived from
the audited consolidated financial statements at that date.
4
<PAGE> 5
<TABLE>
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
Three Months Ended
June 30
---------------------------
2000 1999
<S> <C> <C>
Interest income
Interest and fees on loans $12,241,946 $ 9,799,062
Interest and dividends on securities:
Taxable 1,204,837 1,066,030
Tax-exempt 149,145 114,629
Other 60,346 125,097
----------- -----------
Total interest income 13,656,274 11,104,818
Interest expense
Deposits 5,914,694 4,544,338
Borrowings 1,156,001 755,681
----------- -----------
Total interest expense 7,070,695 5,300,019
----------- -----------
Net interest income 6,585,579 5,804,799
Provision for loan losses 450,000 276,000
----------- -----------
Net interest income after provision
for loan losses 6,135,579 5,528,799
Noninterest income
Service charges on deposit accounts 416,404 350,629
Loan servicing fees 160,050 152,835
Trust fees 639,734 611,034
Data service fees 1,256,760 1,125,504
Net gain on securities 2,520 1,183
Net gain on sales of loans 124,491 230,006
Net gain on sales of fixed assets 1,290 225,672
Other income 173,210 159,874
----------- -----------
Total noninterest income 2,774,459 2,856,737
Noninterest expense
Salaries and employee benefits 3,502,489 3,702,553
Net occupancy expense of premises 267,745 294,385
Equipment rentals, depreciation and maintenance 828,726 731,992
Other expenses 1,855,234 1,773,185
----------- -----------
Total noninterest expense 6,454,194 6,502,115
----------- -----------
Income before income tax expense 2,455,844 1,883,421
Income tax expense 805,342 608,770
----------- -----------
Net income $ 1,650,502 $ 1,274,651
=========== ===========
Basic and diluted earnings per common share (Note B) $ 0.40 $ 0.31
=========== ===========
</TABLE>
5
<PAGE> 6
<TABLE>
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
Six Months Ended
June 30
-----------------------------
2000 1999
<S> <C> <C>
Interest income
Interest and fees on loans $23,562,677 $18,743,821
Interest and dividends on securities:
Taxable 2,346,154 2,063,867
Tax-exempt 289,281 233,969
Other 117,752 237,724
----------- -----------
Total interest income 26,315,864 21,279,381
Interest expense
Deposits 11,293,658 8,972,607
Borrowings 2,119,950 1,165,340
----------- -----------
Total interest expense 13,413,608 10,137,947
----------- -----------
Net interest income 12,902,256 11,141,434
Provision for loan losses 900,000 552,000
----------- -----------
Net interest income after provision
for loan losses 12,002,256 10,589,434
Noninterest income
Service charges on deposit accounts 812,938 687,600
Loan servicing fees 326,819 263,378
Trust fees 1,420,304 1,259,676
Data service fees 2,597,223 2,154,366
Net gain (loss) on securities (78,020) 1,915
Net gain on sales of loans 294,953 598,109
Net gain on sales of fixed assets 1,290 225,672
Other income 350,185 353,786
----------- -----------
Total noninterest income 5,725,692 5,544,502
Noninterest expense
Salaries and employee benefits 7,214,310 7,245,419
Net occupancy expense of premises 559,560 594,389
Equipment rentals, depreciation and maintenance 1,643,715 1,445,376
Other expenses 3,589,768 3,546,506
----------- -----------
Total noninterest expense 13,007,353 12,831,690
----------- -----------
Income before income tax expense 4,720,595 3,302,246
Income tax expense 1,551,432 975,545
----------- -----------
Net income $ 3,169,163 $ 2,326,701
=========== ===========
Basic and diluted earnings per common share (Note B) $ 0.77 $ 0.57
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements (unaudited)
6
<PAGE> 7
<TABLE>
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
Total Total Total Total
Shareholders' Shareholders' Shareholders' Shareholders'
Equity Equity Equity Equity
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at beginning of period $44,967,641 $42,398,835 $43,900,471 $41,902,950
Net Income 1,650,502 1,274,651 3,169,163 2,326,701
Other comprehensive income (loss):
Net change in unrealized gains (losses)
on securities available for sale, net (84,097) (703,218) (119,428) (892,432)
----------- ----------- ----------- -----------
Total comprehensive income 1,566,405 571,433 3,049,735 1,434,269
Cash dividends declared (455,479) (413,984) (910,958) (823,091)
Issuance of 200 treasury shares due to excersice
of stock options -- -- -- 2,838
Paydown of ESOP loan 58,888 39,318 98,207 78,636
----------- ----------- ----------- -----------
Balance at end of period $46,137,455 $42,595,602 $46,137,455 $42,595,602
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements (unaudited)
7
<PAGE> 8
<TABLE>
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Six Months Ended
June 30
-------------------------------
2000 1999
<S> <C> <C>
Cash Flows From Operations
Cash received from customers' fees and commissions $ 5,507,469 $ 4,718,806
Cash paid to suppliers and employees (13,016,128) (12,040,580)
Loans originated for sale (6,960,146) (68,630,226)
Proceeds from sales of loans held for sale 9,357,430 74,604,093
Interest received 25,355,773 20,550,118
Interest paid (13,322,731) (10,070,953)
Income taxes paid (420,000) (1,365,000)
------------ ------------
Net cash from operating activities 6,501,667 7,766,258
Cash Flows From Investing Activities:
Proceeds from principal repayments, maturities and
calls of securities available for sale 4,067,772 16,577,567
Proceeds from sales of securities available for sale 8,985,546 6,639,566
Purchase of securities available for sale (16,102,224) (26,721,077)
Net change in loans (37,426,569) (52,624,645)
Recoveries on loan charge-offs 205,269 318,526
Premises and equipment expenditures, net (337,541) (600,664)
------------ ------------
Net cash from investing activities (40,607,747) (56,410,727)
Cash Flows From Financing Activities:
Net change in deposits 21,567,269 25,625,204
Net change in federal funds purchased 12,939,000 2,540,000
Net change in short term note payable (900,000) 5,200,000
Proceeds from FHLB advances 8,000,000 5,500,000
Repayments of FHLB advances (4,733,580) (1,225,507)
Proceeds from exercise of stock options 0 2,838
Cash dividends paid (1,366,437) (1,237,075)
------------ ------------
Net cash from financing activities 35,506,252 36,405,460
------------ ------------
Net change in cash and cash equivalents 1,400,172 (12,239,009)
Cash and cash equivalents at beginning of period 18,582,702 25,509,144
------------ ------------
Cash and cash equivalents at end of period $ 19,982,874 $ 13,270,135
============ ============
</TABLE>
8
(Continued)
<PAGE> 9
<TABLE>
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (UNAUDITED)
<CAPTION>
Six Months Ended
June 30
-----------------------------
2000 1999
<S> <C> <C>
Reconciliation Of Net Income To Net
Cash From Operating Activities
Net Income $ 3,169,163 $ 2,326,701
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation 939,069 960,564
Amortization of intangible assets 120,000 105,000
Provision for loan losses 900,000 552,000
Net (gain) loss on securities 78,020 (1,915)
Loans originated for sale (6,960,146) (68,630,226)
Proceeds from sales of loans held for sale 9,357,430 74,604,093
Net gain on sale of loans (294,953) (598,109)
Net gain on sale of fixed assets (1,290) (225,672)
Paydown of ESOP loan 98,207 78,636
Change in accrued interest receivable (960,091) (729,263)
Change in other assets (184,360) (124,062)
Change in accrued interest payable 90,877 66,994
Change in other liabilities 149,741 (618,483)
----------- ------------
Net cash from operating activities $ 6,501,667 $ 7,766,258
=========== ============
</TABLE>
See notes to condensed consolidated financial statements (unaudited)
9
<PAGE> 10
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, 1999.
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 4,092,338 for the
three and six months ended June 30, 2000 and 4,084,102 and 4,082,621 for the
three and six months ended June 30, 1999. The number of shares used in the
computation of diluted earnings per common share was 4,092,338 for the three and
six months ended June 30, 2000 and 4,088,650 and 4,091,717 for the three and six
months ended June 30, 1999.
NOTE C--ACCOUNTING STANDARDS IMPLEMENTED IN 2000
No new accounting standards have been implemented during the first six months of
2000.
NOTE D--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, 2000 and 1999 and the year ended
December 31, 1999.
<TABLE>
<CAPTION>
June December June
2000 1999 1999
---- ---- ----
<S> <C> <C> <C>
Beginning balance $6,193,712 $ 5,408,854 $5,408,854
Provision for loan losses 900,000 1,215,000 552,000
Recoveries of previous charge-offs 205,269 662,299 318,526
Losses charged to the allowance (566,979) (1,092,441) (648,336)
---------- ----------- ----------
Ending balance $6,732,002 $ 6,193,712 5,631,044
</TABLE>
At June 30, 2000, December 31, 1999 and June 30, 1999 loans past due more than
90 days and still accruing interest approximated $3,675,000, $809,000 and
$1,261,000.
10
(continued)
<PAGE> 11
Impaired loans were as follows.
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Loans with no allowance for loan losses allocated $1,920,000 $ 970,000
Loans with allowance for loan losses allocated 1,102,000 1,536,000
Amount of allowance allocated 767,000 807,000
Average of impaired loans during the period 3,128,000 1,461,000
Interest income recognized during impairment 91,000 40,000
Cash-basis interest income recognized 23,000 17,000
</TABLE>
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, 2000.
NOTE E--BENEFIT PLANS
The Corporation's Board of Directors adopted a stock option plan in 1997. Under
the terms of this plan, options for up to 400,000 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 three and six months ended June 30, 2000 and 1999.
11
(Continued)
<PAGE> 12
NOTE E--BENEFIT PLANS (Continued)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net income for the six months ended June 30 $3,169,163 $2,326,701
Pro forma net income for the six months end June 30 $3,103,988 $2,285,386
Basic and diluted earnings per common share as reported
for the six months ended June 30 $ .77 $ .57
Pro forma basic and diluted earnings per common share
for the six months ended June 30 $ .76 $ .56
</TABLE>
The pro forma effects are computed using option pricing models, using the
following weighted-average assumptions as of grant date.
<TABLE>
<CAPTION>
1999 Grant 1998 Grant 1997 Grant
---------- ---------- ----------
<S> <C> <C> <C>
Risk-free interest rate 4.79% 5.38% 6.50%
Expected option life 10 10 10
Expected stock price volatility 7.14% 5.45% 5.45%
Dividend yield 2.67% 2.16% 2.39%
</TABLE>
In future years, the pro forma effect of not applying this standard is expected
to increase as additional options are granted.
Information about options grants follow:
<TABLE>
<CAPTION>
Number of
Outstanding Exercise
Options Price
------- -----
<S> <C> <C>
Outstanding, January 1, 2000 219,100 $15.17
Granted during six months ended June 30, 2000 0 0
Forfeited during six months ended June 30, 2000 (2,500) 15.05
-------
Outstanding, June 30, 2000 216,600 $15.17
</TABLE>
Options exercisable at June 30, 2000 were as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Prices Number Price
------ ------ -----
<S> <C> <C>
$14.19 66,400 $14.19
$18.50 18,000 18.50
------
Exercisable at June 30, 2000 84,400 $15.11
</TABLE>
12
(Continued)
<PAGE> 13
NOTE F--OTHER BORROWED FUNDS
At December 31, 1999, the Corporation had a line of credit for $10,000,000 with
Fifth Third Bank of Northwestern Ohio, N.A. The line of credit was unsecured and
required monthly interest payments and full principal payment at maturity on
April 30, 2000. The line of credit had an outstanding balance of $7,000,000 as
of December 31, 1999. During the six months ended June 30, 2000, the Corporation
refinanced their line of credit with Northern Trust Company for $15,000,000. The
new line of credit is unsecured and requires monthly interest payments with full
principal payment at maturity on April 27, 2001. The interest rate is variable
based on the current federal funds rate and adjusts daily. The line of credit
had an outstanding balance of $6,100,000 at June 30, 2000.
NOTE G--COMMITMENTS
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, mortgage 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; and Rurban Life, which provides insurance products to
customers of the Corporation's subsidiary banks. Information reported internally
for performance assessments follows.
13
(Continued)
<PAGE> 14
RURBAN FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE H -- SEGMENT INFORMATION (Continued)
As of and for six months ended June 30, 2000
<TABLE>
<CAPTION>
Mortgage Data Total Intersegment Consolidated
Banking Banking Processing Other Segments Elimination Totals
-------------------------------------------------------------------------------------------------
Income statement information:
----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income (expense) $ 12,728,406 $ 134,144 $ (34,429) $ 74,135 $ 12,902,256 $ -- $ 12,902,256
Other revenue - external
customers 1,454,785 123,121 2,597,223 1,550,563 5,725,692 -- 5,725,692
Other revenue - other segments -- -- 682,409 950,756 1,633,165 (1,633,165) --
------------ ----------- ---------- ---------- ------------ ------------ ------------
Net interest income
and other revenue 14,183,191 257,265 3,245,203 2,575,454 20,261,113 (1,633,165) 18,627,948
Noninterest expense 7,951,823 266,480 2,672,399 3,749,816 14,640,518 (1,633,165) 13,007,353
Significant non-cash items:
Depreciation and
amortization 460,865 51,536 460,708 85,960 1,059,069 -- 1,059,069
Provision for loan losses 900,000 -- -- -- 900,000 -- 900,000
Income tax expense (benefit) 1,759,596 (3,000) 194,740 (399,904) 1,551,432 -- 1,551,432
Segment profit (loss) 3,571,772 (6,215) 378,064 (774,458) 3,169,163 -- 3,169,163
Balance sheet information:
-----------------------------------
Total assets 663,747,601 15,300,665 4,361,523 3,739,184 687,148,973 (20,470,637) 666,678,336
Goodwill and intangibles 390,000 -- -- -- 390,000 -- 390,000
Premises and equipment 166,255 11,028 74,747 85,511 337,541 -- 337,541
expenditures, net
</TABLE>
14
<PAGE> 15
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 to community banks and businesses and the Corporation'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.
Reliance Financial Services, N.A. ("Reliance"), a wholly owned subsidiary of
State Bank, provides trust and financial services to customers nationwide.
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 $111 million at June,
30, 2000, compared to $109 million at December 31, 1999. The $2 million increase
in liquid assets represents normal fluctuation and was not due to any change in
policy of management regarding liquidity. Management recognizes securities may
need to be sold in the future to help fund loan demand and, accordingly, as of
June 30, 2000, the entire securities portfolio of $86 million was classified as
available for sale.
The Gramm-Leach-Bliley Act, commonly referred to as The Financial Services
Modernization Act (FSMA), provides the opportunity for a bank to enter into new
lines of business. One significant benefit of FSMA for community banks (under
$500 million in assets) is the requirement that the Federal Home Loan Banks
expand the type of collateral permissible to be pledged for FHLB advances. It is
anticipated that during late 2000 the implementation of new collateral rules
will significantly expand the FHLB borrowing capacity of the Corporation's four
subsidiary banks.
CAPITAL RESOURCES
Total shareholders' equity net of unearned ESOP shares was $46,137,455 as of
June 30, 2000, an increase of $2,236,984 over the $43,900,471 as of December 31,
1999 and an increase of $3,541,853 over the $42,595,602 as of June 30, 1999. The
increase for the six months of 2000 was a result of net income of $3,169,163 and
a reduction in unearned ESOP shares of $98,207 offset by dividends declared of
$910,958 and net change in unrealized depreciation on securities available for
sale, net of tax, of $119,428.
Each of the Corporation's subsidiary banks exceed the applicable "well
capitalized" regulatory capital requirements at June 30, 2000.
15
<PAGE> 16
As of June 30, 2000, 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
---------------------------------------
Net loans and loans held for sale increased $34 million from December 31, 1999
to $537 million at June 30, 2000. Real estate loans (residential and commercial
mortgages) increased $32 million, consumer loans and leases increased $10
million while commercial loans decreased $6 million and real estate loans held
for sale decreased $2 million. Liquid assets, premises and equipment and other
assets all had insignificant changes.
Increases in deposits of $22 million and federal funds purchased of $13 million
were the primary sources of funding for the loan growth during the first six
months of 2000.
Material Changes in Results of Operations
-----------------------------------------
Net income for the first six months of 2000 increased $842,000 over the same
period of 1999.
Net interest income for the first six months ended June 30, 2000 was $12.9
million, an increase of $1.8 million (16%) over the same period of 1999.
Interest income on loans increased $4.8 million (26%). Interest expense on
deposits and borrowed funds increased $3.3 million (32%). The rates for earning
assets have increased 0.55%, while the rates on deposits and borrowed funds have
increased 0.52%.
The provision for loan losses of $900,000 increased $348,000 (63%) compared to
the first six months of 1999.
Income tax expense increased $576,000 (59%) to $1,551,000 for the six months
ended June 30, 2000 compared to $976,000 for the same period of 1999. The
increase was due to the improved net income.
16
<PAGE> 17
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, 1999. The following table compares
rate sensitive assets and liabilities as of June 30, 2000 to December 31, 1999.
Principal/notational amount maturing in:
(Dollars in thousands)
<TABLE>
<CAPTION>
First Years
Year 2 to 5 Thereafter Total
---- ------ ---------- -----
<S> <C> <C> <C> <C>
Comparison of 6/30/00 to 12/31/99
Total rate sensitive assets:
At June 30, 2000 $253,949 $257,202 $111,374 $622,525
At December 31, 1999 293,282 266,263 25,373 584,918
-------- -------- -------- --------
Increase (decrease) (39,333) (9,061) 86,001 37,607
Total rate sensitive liabilities:
At June 30, 2000 $378,429 $137,988 $ 97,687 $614,104
At December 31, 1999 352,800 128,483 95,948 577,231
-------- -------- -------- --------
Increase 25,629 9,505 1,739 36,873
</TABLE>
Total rate sensitive assets increased approximately $38 million for the six
months ended June 30, 2000 due to a $34 million increase in loans during the
period. The Corporation reviewed its methodology for calculating prepayments.
Consequently, estimated loan prepayment speeds were decreased. This refinement
in prepayment assumptions was the primary factor in the shift of approximately
$86 million of assets from the "first year" and "years 2 to 5" categories to the
"thereafter" category. The majority of the $34 million increase in loans
occurred in the "first year" category and partially offset the decline in that
category caused by the reduction in loan prepayment assumptions.
Total rate sensitive liabilities increase approximately $37 million during the
six months ended June 30, 2000. During the period, the continued increase in
rates caused many customers to shorten the maturity of their certificates of
deposit. The primary factor in the approximately $26 million increase in rate
sensitive liabilities with maturities within one year was an $18 million
increase in certificates of deposit with maturities of one year or less.
17
<PAGE> 18
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, 2000, shareholders
voted on the re-election of certain directors and the ratification of
independent public accountants.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibit
-------
See exhibit 27, Financial Data Schedule, on pages 19 and 20
(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 , 2000 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
18
