Rurban Financial Corp. Announces Third Quarter 2010 Results

DEFIANCE, Ohio, Nov. 15, 2010 (GLOBE NEWSWIRE) -- Rurban Financial Corp. (Nasdaq:RBNF) ("Rurban" or the "Company"), a diversified financial services company providing full-service community banking, wealth management, and data/item processing services, today reported financial results for the third quarter and nine months ended September 30, 2010.

Net income for the third quarter of 2010 was $26,000, or $0.01 per diluted share, a decrease of $134,000, or 83.8 percent, from $160,000, or $0.03 per diluted share, for the third quarter of 2009. Net loss for the first nine months of 2010 was $9.03 million, or $(1.86) per diluted share, compared to net income of $2.27 million, or $0.46 per diluted share, for the comparable 2009 year-to-date period.

Included in the nine-month 2010 and 2009 periods were certain nonrecurring charges relating to the previously proposed spinoff of Rurban's data and item processing subsidiary, RDSI Banking Systems, Inc. ("RDSI"), and its subsequent merger with New Core Holdings, Inc. ("New Core"), which was announced in the second quarter of 2009, and the decision to terminate these transactions, which was announced in the second quarter of 2010. Impairments and write-offs of software, hardware and development costs related to these transactions were $10.0 million in year-to-date 2010 ($6.5 million after-tax), and $0.45 million in year-to-date 2009 ($0.30 million after tax).  Excluding these nonrecurring RDSI charges from GAAP results, the Company had an adjusted net loss from operations of $2.41 million for the 2010 year-to-date period compared to adjusted net income of $1.97 million for the comparable 2009 period.

The following table provides segment information for Rurban on a quarterly basis and identifies the nonrecurring charges reported by RDSI for each quarter. Rurban believes excluding those one-time charges provides useful information relating to Rurban's operating (core) performance.

 
After-Tax Earnings ($000s) Banking (GAAP) Data Processing (GAAP) Parent & Other Rurban Financial (GAAP) One-Time After-Tax RDSI Charges Core Rurban Financial (Non-GAAP)
3Q 2010 $ 548 $ (54) $ (468) $ 26 $ -0-- $ 26
2Q 2010 $(1,350) $ (6,446) $ (282) $ (8,078) $ (5,614) $ (2,464)
1Q 2010 $ 538 $ (879) $ (507) $ (848) $ (876) $ 28
4Q 2009 $ (577) $  (509) $ (798) $ (1,884) $ (509) $ (1,375)
3Q 2009 $ 712 $ 8 $ (560) $ 160 $ (293) $ 453

Highlights of the third quarter include:
  • Asset quality improved from year-end 2009 to September 20, 2010, as non-accruing loans declined significantly, down $8.4 million, or 45 percent, to $10.1 million, while foreclosed and repossessed assets remained under $2 million. Non-performing assets ("NPAs") were 1.77 percent of total assets at September 30, 2010 compared to 3.02 percent at year-end 2009. 
  • Mortgage originations, driven by strong results from the Columbus loan production office of Rurban's banking subsidiary, The State Bank and Trust Company ("State Bank"), were $67.8 million for the third quarter of 2010, generating $0.94 million in gains from mortgage loan sales. This compares to $42.3 million in originations and $0.40 million in gains for the year-ago third quarter.
  • RDSI made progress reducing its operating expenses to a level commensurate with its current revenue stream, resulting in a virtually breakeven quarter. Data Processing ("DP") clients are scheduled to complete their de-conversion by year-end, with State Bank remaining as RDSI's only DP client. Payment Solutions (a/k/a Item Processing) clients not tied to DP services remain in place and have generally not been affected by the deconversion of RDSI's DP clients.
  • Deposits grew $41 million since the June quarter, of which only $14 million were time deposits. The influx of deposits, despite their relatively low cost, combined with declining loan volume, contributed to a net interest margin decline from 3.87 percent and 3.72 percent for the year-ago and linked quarters, to 3.66 percent for the September 2010 quarter. 
  • Non-interest expenses declined $2.1 million compared to the year-ago quarter, primarily from a reduction of 64 full-time equivalent ("FTE") employees, or 20 percent, since third quarter 2009, as well as from the $0.45 million third quarter 2009 charge and subsequent charges taken by RDSI to account for impairments and write-downs of hardware and software. Year-over-year, third quarter equipment expense declined $1.2 million, or 57 percent, while salaries declined $1.36 million, or 25 percent. 
  • Capital ratios all remain in excess of "well-capitalized" for State Bank, although holding company ratios have declined somewhat as a result of the second quarter RDSI charge-offs.

Mark A. Klein, President and Chief Executive Officer of Rurban, commented, "We are pleased with the progress we are making in a number of areas. While we still have issues to address, most importantly, the future direction of RDSI, we have reason to be optimistic about future opportunities.

"Our markets continue their gradual improvement. Jobless levels have declined modestly over the course of the past year, buoyed by the recent turnaround in manufacturing employment and relatively robust economy in the Columbus area, which has been the source of strong mortgage origination activity. Mortgage banking fees are becoming a more important source of fee income for State Bank. Although mortgage banking income, net of impairments and amortization, has not grown overall this year compared to 2009 nine-month results, the composition of our mortgage banking fee income has become increasingly cash-based.

"A second reason for optimism is our core deposit growth, which has been exceptionally strong. Non-maturity deposits (DDAs, Money Market, NOW and Savings accounts) have grown nearly nine percent since last quarter alone. State Bank has been able to capture deposit market share in several of our regions from larger institutions, despite their heavier advertising expenditures. The excess liquidity will be put to good use, helping us to pay down higher priced borrowings as they mature.  

"We continue to be pleased with the performance of our loan portfolio. We only wish we had more of the high-quality loans we've booked over the past several years. But weak loan demand appears to be an industry-wide phenomenon, exacerbated by our low-growth market demographics. And this past quarter, we pruned our portfolio of some of our weaker commercial loans. However, market stability has worked in our favor to prevent the over-expansion of commercial and residential real estate activity that caused credit quality problems throughout the country.  

"Results for the third quarter continue to be impacted by the RDSI/New Core wind-down, but we believe the overall process is ahead of schedule. Rurban and RDSI continue to evaluate opportunities, but until a definitive agreement or decision is reached, we expect that State Bank will be the sole data processing client of RDSI at year-end. Our Payment Solutions segment under Diverse Computer Marketers ("DCM"), RDSI's payment processing affiliate continues to service its item processing clients without interruption or loss of clientele. As a low-cost provider of item processing services, we believe that DCM stands to benefit as industries other than banking convert to electronic imaging.

"As you can tell, we remain firmly committed to propelling Rurban to a higher level of performance for our shareholders. We have initiatives in place throughout our organization to encourage cross-referrals and behaviors which result in higher profitability and quality customer service. While there is still much work to be done, I am proud of the progress we have made thus far."

Consolidated Operations

For the third quarter of 2010, total revenue, consisting of net interest income and non-interest income, declined 19.4% to $10.0 million from $12.4 million in the third quarter of 2009. For the first nine months of 2010, total revenue decreased 17.5 percent to $31.5 million from $38.1 million for the prior-year nine months.

Net interest Income

Rurban reported consolidated net interest income of $4.88 million for the 2010 third quarter, a decline of $0.46 million, or 8.6 percent, from the $5.34 million earned in the year-ago quarter. Included in consolidated net interest income in the third quarter of both years is approximately $0.45 million of interest expense associated with $20.6 million of trust preferred securities at the holding company level, and $6.2 million of borrowings at the non-bank subsidiary. Average earning assets decreased 2.5 percent year-over-year, from $569.1 million for the third quarter of 2009 to $554.7 million for the third quarter of 2010, while the consolidated net interest margin declined 21 basis points, or 5.0 percent, to 3.66 percent (fully-taxable equivalent), from 3.87 percent for the year-ago quarter. Excluding the $0.45 million of non-bank interest expense, State Bank earned net interest income of $5.36 million and $5.80 million in the third quarters of 2010 and 2009, respectively, giving rise to net interest margins at the bank level of 3.65 percent and 3.98 percent for the 2010 and 2009 third quarters, respectively. The decline in the net interest margin was primarily the result of loan yields declining faster than funding costs.

For the first nine months of 2010, Rurban earned net interest income of $14.8 million, a decline of $0.87 million, or 5.5 percent, from the $15.7 million of net interest income earned in the 2009 nine-month period. Excluding $1.11 million of interest expense paid primarily on $20 million of trust preferred securities at the corporate level and $ 6.0 million of borrowings at the non-bank subsidiary level, State Bank reported net interest income of $16.3 million, a decline of 4.0 percent.

Loan Loss Provision

The third quarter provision for loan losses was $0.90 million, compared to $6.5 million and $0.90 million for the linked and year-ago quarters. Second quarter 2010 included a $3.0 million loan loss provision recorded by RDSI and a concurrent charge-off of a $3.0 million loan made by RDSI to support development activities at New Core. State Bank charged-off $1.45 million in the 2010 third quarter, or 1.32 percent of average loans on an annualized basis. This compares to net charge-offs of 0.57 percent and 0.73 percent of average loans annualized for the linked and year-ago quarters. Year-to-date, Rurban added a total of $8.79 million to the allowance for loan losses, while charging-off $9.37 million, including the $3.0 million RDSI loan. At the Bank, the year-to-date addition to the loan loss provision was $5.79 million and net charge-offs were $6.37 million. As of September 30, 2010, the allowance for loan losses stood at $6.45 million, or 1.47 percent of total loans, compared to 1.55 percent of total loans for the linked quarter, and 1.29 percent for the year-ago third quarter.

Non-interest Income

Consolidated non-interest income generated in the third quarter of 2010 was $5.13 million, a 27.5 percent decline from the $7.08 million of non-interest income generated in the 2009 third quarter. The decline was due largely to the wind-down of RDSI's data processing activities, which also impacted multi-product RDSI clients. Data service fees dropped $2.76 million from the year-ago quarter, or 57 percent, to $2.04 million for the current quarter.

Excluding data service fees from consolidated results, the remainder of non-interest income was generated by State Bank. Third quarter non-interest income from banking activities was $3.08 million compared to $2.27 million for the year-ago quarter, an improvement of $0.81 million, or 36 percent.

       

 
Non-interest Income --- Banking   ($000s) 3rd Qtr 2010 3Q 2009 9 months ended 9/30/10 9 months ended 9/30/09
Trust fees 650.5 644.4 1,884.0 1,869.1
Customer service fees  643.8 700.0 1,846.2 1,923.7
Net gain on sales of mtg. loans 941.8 396.5 1,758.6 1,267.7
OMSR service fees 493.8 303.1 895.1 1,390.9
Net gain on sales of other loans 125.1 22.6 233.1 80.0
Net realized gain on securities sales -- -- 451.5 477.6
Investment securities recoveries    --  -- 73.8  --
Loan servicing fees 188.3 126.3 472.4 298.0
Loss on sale or disposal of assets  (129.0) (53.0) (159.1) (95.40)
Other income 168.2 129.4 482.7 474.4
         
Total Bank noninterest income $3,082.5 $2,269.4 $7,938.2 $7,686.1

Mortgage banking activity accounted for the majority of banking fee income improvement. Mortgage originations reached near-record levels this past quarter at $67.8 million, generating gains on sale of $0.94 million for the 2010 third quarter, more than double the $0.40 million of fees earned in the 2009 third quarter. A 49 percent, or $62,000, improvement in loan servicing fees over the prior-year third quarter more than offset the 8.0 percent, or $56,000, decline in customer service fees experienced from the drop-off in overdraft charges. Loss on the sale of other assets was $129,000 for the third quarter of 2010 compared to $53,000 for the year-ago quarter.

  

Mortgage Banking Activity          
($000s)   3rd Qtr 2010   3rd Qtr 2009   9 months ended 2010   9 months ended 2009  
Mortgage originations   $ 67,840   $ 42,270   $ 144,453   $ 178,302  
Mortgage sales   $ 66,036   $ 50,115   $ 147,184   $ 178,192  
OMSR amort. & impair expense   (592.4)   (34.3)   (808.6)   (28.5)  
Mortgage servicing portfolio   $ 276,298   $ 186,220   $ 276,298   $ 186,220  
Mortgage servicing rights – Fair Value   $ 2,041   $ 1,714   $ 2,041   $ 1,714  

State Bank currently sells all loans originated into the secondary market, and retains the servicing fee. Over the past year, its servicing portfolio grew 48 percent, to $275.3 million, all from internally generated sales activity. However, declining interest rates impacted the valuation of the Bank's mortgage servicing rights; year-to-date, the Bank recognized $0.23 million of OMSR amortization expense and $0.58 million of OMSR impairment expense compared to $25,000 and $0.28 million, respectively, for the 2009 nine-month period.

For the third quarter of 2010, data service fees generated by RDSI were $2.04 million; in addition, Rurban/State Bank paid $281,000 for data and item processing services rendered by RDSI in the third quarter of 2010. This relationship has been structured as an arm's length transaction, at the same markup that prevails for RDSI's external clients. For the year-ago third quarter, RDSI reported data services revenue of $4.81 million, excluding sales to State Bank/Rurban.

 

Data Service Fee Income (RDSI)          
($000s) 3rd Qtr 2010 2nd Qtr 2010 1st Qtr 2010 4th Qtr 2009 3rd Qtr 2009  
Data Processing            
 Information Services  512  598  1,279  1,330  1,561  
 Application Services  480  679  1,189  1,363  1,416  
Network Services  133  193  264  244  286  
Payment Solutions  1,168  1,365  1,667  1,559  1,748  
Other  32  0 0 15  191  
RDSI Fee Income  $2,325  $2,835  $4,399 $4,511  $5,202  
Less: Intercompany (281) (226) (370) (386) (396)  
Net External RDSI Revenue   $2,044 $2,609 $4,029 $4,125 $4,806  
                       

The terminated merger of RDSI and New Core contributed directly to the decline in total data services revenue, which consists of fee income from data and item processing services. Following the April 2009 announcement of Rurban's plan to spin-off RDSI and merge with New Core Holdings, many of RDSI's data processing clients elected to terminate their contract with RDSI. Over the past twelve months, RDSI's data processing client base has shrunk from 75 customers to 19 at September 30, 2010. It is anticipated that the remaining data processing clients will de-convert before year-end 2010, and only State Bank will remain as a client utilizing the legacy ITI core processing system. Since many of the data processing clients were multiple users of RDSI services, revenue from network services and payment solutions have also been impacted, but to a lesser extent; RDSI's DCM division provides item processing services to a separate and stable customer base without ties to data processing.  Over the past twelve months, item processing clients have decreased from 91 to 49 at September 30, 2010; virtually all were data processing as well as item processing clients. Rurban plans to continue item processing and network services as stand-alone RDSI offerings.    

Non-interest Expense

Noninterest expense was $9.33 million for the 2010 third quarter, a decline of $2.12 million, or 18.5 percent, from the third quarter of 2009. Excluding nonrecurring items from the third quarter results, including $0.59 million of OMSR impairment and amortization charges in 2010 and a one-time software impairment charge of $0.45 million in the third quarter of 2009, adjusted non-interest expense declined $2.27 million, or 20.6 percent, from the 2009 third quarter. Improvement was experienced in nearly every category, led by significant savings in salaries and employee benefits, down $1.36 million, or 25 percent, and equipment expense, down $1.17 million or 57 percent; these improvements were partially offset by $0.35 million of additional foreclosure and OREO expenses compared to the 2009 third quarter. The Company reduced FTE employees by 64 year-over-year -- 51 of which are from RDSI, with 257 FTE employees remaining as of September 30, 2010. Equipment expense also benefited from write-downs and accelerated depreciation of RDSI hardware and software recorded in prior quarters.

For the year-to-date 2010, non-interest expense was $37.2 million, up $4.17 million compared to the 2009 nine month period. Non-interest expense for the 2010 nine-month period included $6.66 million of nonrecurring charges associated with the RDSI/New Core wind-down, as well as $0.81 million of non-cash OMSR expenses; for the 2009 nine-month period, non-cash charges include $0.40 million of one-time RDSI expenses and $0.28 million of OMSR expenses. Excluding these non-cash charges, non-interest expense from operations was $29.7 million, an improvement of $2.7 million, or 8.3 percent, compared to adjusted operating non-interest expense of $32.4 million recorded in the 2009 year-to-date period.   

Consolidated Balance Sheet

Total assets at September 30, 2010 were $681.2 million, up $8.14 million, or 1.2 percent, over year-end 2009 levels; assets were higher by $32.7 million, or 5.0 percent, compared to the previous quarter. Rurban's asset growth was derived primarily from higher levels of liquid assets, which was partially offset by reduced loan balances and over $10.0 million of write-offs of RDSI equipment, software and investments in the second quarter of 2010. Cash and due from banks more than doubled since 2009 year-end, up $35.8 million to $60.6 million, while available-for-sale securities increased by $10.9 million during the same nine-month period, or 10.4 percent, to $116.0 million at September 30, 2010.

 

Total Loans (including Held For Sale)          
($000s) 3rd Quarter 2010 2nd Quarter  2010 1st Quarter 2010 4th Quarter 2009 3rd Quarter 2009
Construction and development 15,310 12,997 12,746 11,605 8,919
Comm. RE - owner occupied 67,288 67,160 71,716 69,434 67,750
Comm. RE – investor-owned 87,271 85,639 85,808 89,963 87,054
1-4 family mortgages 108,825 114,818 115,481 121,753 117,076
Commercial & Industrial 69,917 74,525 73,290 80,702 78,736
Agriculture 37,223 39,389 38,235 41,485 44,684
Consumer 48,577 50,611 49,054 50,569 51,246
Other 3,039 3,786 4,222 4,339 4,299
Total Loans $437,450 $448,925 $450,552 $469,850 $459,764

Total loans, net of unearned income, were $437.5 million as of September 30, 2010 compared to $448.9 million and $469.9 million at June 30, 2010 and December 31, 2009, respectively. Compared to year-end 2009, every loan category experienced declines with the exception of construction and development loans ("C&D"). These C&D loans remain modest in comparison with total loans outstanding -- $15.3 million at September 30, 2010 (3.5 percent of total loans), up $3.7 million over the past nine months. Reductions among commercial and industrial ("C&I") loans and 1-4 family residential mortgages represented approximately 75 percent of the $31 million loan decline year-to-date. C&I loans decreased $10.8 million from December 31, 2009, to $69.9 million at September 30, 2010 as the combined result of a planned pruning of lower quality loans and a sluggish economy. Despite mortgage loan originations of $144 million year-to-date, 1-4 family residential mortgages declined $13 million from December 31, 2009 to $108.8 million at September 30, 2010. A higher level of loan sales, combined with portfolio runoff due to widespread refinancing activity, accounted for the 10.7 percent balance sheet decline in residential loans outstanding since December 31, 2009.

Total deposits as of September 30, 2010 were $522.3 million, up $40.5 million and $31.1 million, from the second quarter of 2010 and the fourth quarter of 2009, respectively. Since June 30, 2010, State Bank added $26.1 million in core deposits, namely non-maturity accounts (DDA, NOW, Savings and Money Market accounts), all of which bear a lower funding cost than time deposits. Core deposits, excluding retail time deposits, were $297.8 million at September 30, 2010, which accounted for 57.0 percent of total deposits. This compares to $271.7 million for the quarter ended June 20, 2010, where core deposits accounted for 56.4 percent of total deposits.  

Asset Quality

Rurban's asset quality has improved substantially since year-end 2009, with non-performing assets, consisting of non-accruing loans, foreclosed real estate ("OREO") and other assets owned ("OAO"), down $8.3 million, or 40.7 percent, to $12.1 million as of September 30, 2010. The reduction has been gradual, at the rate of approximately $2.0 million per quarter, with investor-owned commercial real estate showing the greatest improvement. Non-accruing loans in virtually every loan category have declined since December 31, 2009. Foreclosed real estate, consisting primarily of residential real estate has remained steady at less than $2 million over the past five quarters.

 
The State Bank and Trust Company          
  Non-accrual Loans + 90 Days Past Due
($000s) 9/30/2010 6/30/2010 3/31/2010 12/31/2009 9/30/2009
Secured by RE          
 C&D 634 622 625 628 1,273
 Farmland  56  --   2  --   -- 
 HELOC  469  439  308  402  353
 1-4 Family properties  3,419  3,420  4,730  5,088  4,365
 CRE - Owner occupied  448  465  326  618  616
 CRE – Investor owned  2,510  4,674  3,761  7,475  1,205
C&I  2,477  2,720  4,511  4,167  1,698
Consumer  94  61  136  165  136
Non-accrual Loans  $ 10,107   $ 12,401  $ 14,399  $ 18,543  $ 9,646

At 2.33 percent of total loans at September 30, 2010, Rurban's level of non-accruing and 90 day past due loans compares favorably to its loan loss reserve of $6.45 million, or 1.47 percent of loans. This also compares favorably to year-end 2009 non-accruals of 3.95 percent of loans and a loan loss reserve of 1.50 percent at September 30, 2010. The loan loss reserve provided 64 percent coverage of problem loans compared to 38 percent coverage at year-end. Delinquent loans in the 30-89 day category have averaged below $3 million throughout 2010. 

 
Rurban Consolidated Asset Quality        
($000s) 3rd Qtr 2010 2nd Qtr 2010 4th Qtr 2009 3rd Qtr 2009
Net charge-offs $ 1,448 $ 2,579 $ 2,547 $ 837
Net charge-offs to avg. loans (Annualized) 1.32% 2.28% 2.19% 0.73%
Non-performing loans $ 10,107 $ 12,401 $ 18,543 $ 9,646
OREO + OAO $ 1,947 $ 1,651 $ 1,775 $ 1,748
Non-performing assets (NPAs) $ 12,054 $ 14,052 $ 20,318 $ 11,394
NPAs / Total assets 1.77% 2.17% 3.02% 1.69%
Allowance for loan losses $ 6,451 $ 7001 $ 7,030 $ 5,934
Allowance for loan losses / Loans 1.47% 1.55% 1.50% 1.29%

Capital

As of September 30, 2010, the capital ratios of Rurban's banking subsidiary, State Bank, were all in excess of the regulatory thresholds for a "well-capitalized" institution. The Bank's Tier I Leverage ratio was 7.06 percent of total assets, while its Tier I and Total Risk-Based Capital ratios were 10.34 percent and 11.59 percent of risk-weighted assets, respectively. Holding company ratios are rebuilding after second quarter charge-offs from RDSI, with Tier 1 Leverage and Total Risk-Based Capital ratios at 10.37 percent and 11.63 percent, respectively. Rurban's common shares outstanding as of September 30, 2010 were 4,861,779.  

About Rurban Financial Corp.

Based in Defiance, Ohio, Rurban Financial Corp. is a financial services holding company with two wholly-owned subsidiaries: The State Bank and Trust Company (State Bank) and RDSI Banking Systems (RDSI). State Bank operates through 18 banking centers in seven Ohio counties, one banking center in Indiana, and a loan production office in Columbus, Ohio. State Bank offers a full-range of financial services for consumers and small businesses, including trust services, mortgage banking, commercial and agricultural lending. RDSI provides data and item processing services to community banks located primarily in the Midwest. Rurban's common stock is listed on the NASDAQ Global Market under the symbol RBNF.

Forward-Looking Statements

Certain statements within this document, which are not statements of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties and actual results may differ materially from those predicted by the forward-looking statements. These risks and uncertainties include, but are not limited to, risks and uncertainties inherent in the national and regional banking, insurance and mortgage industries, competitive factors specific to markets in which Rurban and its subsidiaries operate, future interest rate levels, legislative and regulatory actions, capital market conditions, general economic conditions, geopolitical events, the loss of key personnel and other factors, as more fully discussed in the "Risk Factors" section of the Company's Annual Report on Form 10-K for the year ended December 31, 2009, as the same have been updated, and may be updated from time to time in the Company's subsequent filings with the Securities and Exchange Commission.

Forward-looking statements speak only as of the date on which they are made, and Rurban undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made except as required by law. All subsequent written and oral forward-looking statements attributable to Rurban or any person acting on our behalf are qualified by these cautionary statements.

Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this release contains certain non-GAAP financial measures. Rurban believes that providing these non-GAAP financial measures provides investors with information that is useful in understanding Rurban's financial performance, performance trends and financial position. Specifically, Rurban provides measures based on "core operating earnings," which excludes merger, integration and restructuring expenses that are not reflective of on-going operations or not expected to recur. These non-GAAP measures should not be considered a substitute for GAAP basis measures and results.
RURBAN FINANCIAL CORP.   
CONSOLIDATED BALANCE SHEETS  
September 30, 2010 and December 31, 2009 and September 30, 2009 
       
   September   December   September 
  2010 2009 2009
   (Unaudited)     (Unaudited) 
ASSETS    
Cash and due from banks $60,600,672 $24,824,785 $31,055,035
Federal funds sold  --  --  --
Cash and cash equivalents  60,600,672  24,824,785  31,055,035
Available-for-sale securities  115,993,828  105,083,112  111,561,500
Loans held for sale  13,453,782  16,857,648  11,370,884
Loans, net of unearned income  424,995,825  452,557,581  448,392,963
Allowance for loan losses  (6,451,422)  (7,030,178)  (5,934,165)
Premises and equipment, net  14,999,354  16,993,640  17,217,039
Purchased software  545,606  5,338,319  5,273,311
Federal Reserve and Federal Home Loan Bank Stock  3,748,250  3,748,250  3,748,250
Foreclosed assets held for sale, net  1,946,653  1,767,953  1,748,376
Accrued interest receivable  2,560,938  2,324,868  2,851,934
Goodwill  21,414,790  21,414,790  21,414,790
Core deposits and other intangibles  4,377,111  4,977,513  5,177,508
Cash value of life insurance  13,107,086  12,792,045  12,953,972
Other assets  9,897,284  11,398,776  6,917,729
       
Total assets  $681,189,757  $673,049,102  $673,749,126
       
       
LIABILITIES AND SHAREHOLDERS' EQUITY  
Deposits    
Non interest bearing demand  $64,671,378  $57,229,795  $54,149,280
Interest bearing NOW  99,647,367  87,511,973  80,403,328
Savings  46,092,866  43,321,364  44,658,696
Money Market  87,407,976  86,621,953  88,676,904
Time Deposits  224,501,334  216,557,067  224,404,005
Total deposits  522,320,921  491,242,152  492,292,213
Notes payable  3,368,266  2,146,776  2,357,816
Advances from Federal Home Loan Bank  25,429,671  35,266,510  39,868,884
Fed Funds Purchased  --  5,000,000  --
Repurchase Agreements  50,117,031  47,042,820  46,138,646
Trust preferred securities  20,620,000  20,620,000  20,620,000
Accrued interest payable  1,683,116  1,507,521  1,382,015
Other liabilities  3,582,414  8,515,668  6,421,448
       
Total liabilities  627,121,419  611,341,447  609,081,022
       
Shareholders' Equity    
Common stock   12,568,583  12,568,583  12,568,583
Additional paid-in capital  15,208,434  15,186,042  15,132,715
Retained earnings  25,386,403  34,415,316  36,737,207
Accumulated other comprehensive income (loss)  2,674,229  1,307,025  1,998,910
Treasury stock  (1,769,311)  (1,769,311)  (1,769,311)
       
Total shareholders' equity  54,068,338  61,707,655  64,668,104
       
Total liabilities and shareholders' equity  $681,189,757  $673,049,102  $673,749,126
         
         
RURBAN FINANCIAL CORP.        
CONSOLIDATED STATEMENTS OF OPERATION - UNAUDITED    
             
      Three Months Ended Nine Months 
      September 30, September 30,
      2010 2009 2010 2009
Interest income        
Loans        
 Taxable   $6,281,157  $6,884,515  $19,442,383  $20,554,775
 Tax-exempt  13,664  20,944  49,960  71,791
Securities        
 Taxable   596,362  944,579  1,679,203  3,158,649
 Tax-exempt  353,755  294,716  1,055,707  766,931
Other   24  41,621  211  71,498
Total interest income  7,244,962  8,186,375  22,227,464  24,623,644
             
Interest expense        
Deposits  1,275,607  1,559,730  3,935,731  5,115,379
Other borrowings  32,367  43,745  101,145  91,548
Retail Repurchase Agreements  436,369  437,419  1,295,994  1,296,242
Federal Home Loan Bank advances  231,122  417,359  872,947  1,221,487
Trust preferred securities  388,854  391,407  1,178,502  1,185,021
Total interest expense  2,364,319  2,849,660  7,384,319  8,909,677
             
Net interest income  4,880,643  5,336,715  14,843,145  15,713,967
             
Provision for loan losses - Bank Only  898,570  898,050  5,788,713  2,192,042
Provision for loan losses - RDSI  --  --  3,000,000  --
             
 Net interest income after provision for loan losses  3,982,073  4,438,665  6,054,432  13,521,925
             
Non-interest income        
Data service fees  2,044,400  4,806,359  8,682,575  14,734,942
Trust fees  650,511  644,427  1,883,994  1,869,083
Customer service fees  643,816  700,042  1,846,161  1,923,744
Net gain on sales of loans  1,560,703  722,234  2,886,764  2,738,626
Net realized gain on sales of securities  --  --  451,474  477,591
Investment securities recoveries  --  --  73,774  --
Loan servicing fees  188,334  126,265  472,424  298,001
Gain (loss) on sale or disposal of assets  (128,985)  (52,976)  (159,066)  (95,390)
Other income  168,158  129,360  482,691  474,410
Total non-interest income  5,126,937  7,075,711  16,620,791  22,421,007
             
Non-interest expense        
Salaries and employee benefits  4,058,316  5,422,005  14,064,591  15,644,731
Net occupancy expense  486,695  568,597  1,639,386  1,764,054
FDIC Insurance expense  259,646  183,935  676,462  572,598
Equipment expense  872,681  2,041,339  5,423,343  5,353,637
Fixed asset impairment expense  --  --  4,892,231  --
Data processing fees  211,129  151,320  635,393  495,782
Professional fees  619,430  705,415  1,823,449  1,846,458
Marketing expense  139,987  232,294  330,213  655,597
Printing and office supplies  111,414  104,036  369,842  435,913
Telephone and communication  267,344  406,673  992,891  1,212,901
Postage and delivery expense  388,666  511,525  1,415,529  1,635,037
State, local and other taxes  154,391  235,067  118,835  701,120
Employee expense  147,739  293,634  654,968  810,776
OREO Impairment  --  --  215,000  --
Other expenses  1,613,353  598,275  3,959,958  1,908,592
Total non-interest expense  9,330,791  11,454,115  37,212,091  33,037,196
             
Income (loss) before income tax expense  (221,781)  60,261  (14,536,868)  2,905,736
Income tax expense (benefit)  (247,696)  (99,421)  (5,507,954)  638,915
             
Net income (loss)  $25,915  $159,682  $(9,028,914)  $2,266,821
             
Earnings (loss) per common share:        
Basic $0.01 $0.03 $(1.86) $0.46
Diluted $0.01 $0.03 $(1.86) $0.46
         
         
RURBAN FINANCIAL CORP.        
CONSOLIDATED FINANCIAL HIGHLIGHTS        
(Unaudited)        
  Three Months Ended Nine Months Ended
  September 30, September 30,
(dollars in thousands except per share data) 2010 2009 2010 2009
         
EARNINGS        
 Net interest income  $4,881 $5,337 $14,843 $15,714
 Provision for loan loss (Bank Only) $899 $898 $5,789 $2,192
Provision for loan loss (RDSI) $0 $0 $3,000 $0
 Non-interest income $5,127 $7,076 $16,621 $22,421
 Revenue (net interest income plus non-interest income) $10,008 $12,413 $31,464 $38,135
 Non-interest expense $9,331 $11,454 $37,212 $33,037
 Pre-tax income (loss) $(222) $60 $(14,537) $2,906
 Net income (loss) $26 $160 $(9,029) $2,267
         
PER SHARE DATA        
 Basic earnings (loss) per share $0.01 $0.03 $(1.86) $0.46
 Diluted earnings (loss) per share $0.01 $0.03 $(1.86) $0.46
 Book value per share $11.12 $13.30 $11.12 $13.30
 Tangible Equity $25,398 $35,923 $25,398 $35,923
 Tangible book value per share $5.22 $7.39 $5.22 $7.39
 Cash dividend per share $0.00 $0.09 $0.00 $0.27
         
PERFORMANCE RATIOS         
 Return on average assets  0.02% 0.10% (1.80%) 0.46%
 Return on average equity 0.19% 1.00% (20.58%) 4.75%
 Return on tangible equity 0.41% 1.78% (47.40%) 8.41%
 Net interest margin (tax equivalent) 3.66% 3.87% 3.65% 3.79%
 Non-interest expense / Average assets 5.61% 6.88% 7.42% 6.63%
 Efficiency Ratio - bank (non-GAAP) 80.95% 75.80% 79.23% 75.22%
         
MARKET DATA PER SHARE        
 Market value per share --- Period end $3.18 $7.58 $3.18 $7.58
 Market as a % of book 29% 57% 29% 57%
 Cash dividend yield 0.00% 4.75% 0.00% 4.75%
 Period-end common shares outstanding (000) 4,862 4,862 4,862 4,862
 Common stock market capitalization ($000) $15,460 $36,852 $15,460 $36,852
         
CAPITAL & LIQUIDITY        
 Equity to assets 7.9% 9.6% 7.9% 9.6%
 Tier 1 leverage Ratio (Estimate) 7.1% 8.8% 7.1% 8.8%
 Tier 1 risk-based capital ratio (Estimate) 10.4% 11.8% 10.4% 11.8%
 Total risk-based capital ratio (Estimate) 11.6% 13.1% 11.6% 13.1%
         
ASSET QUALITY        
 Gross charge-offs (Bank Only) $1,583 $883 $6,743 $1,406
  Net charge-offs (Bank Only) $1,448 $837 $6,367 $1,279
 Net loan charge-offs (Ann.) / Average loans 1.32% 0.73% 1.89% 0.38%
 Non-accruing loans $10,107 $9,646 $10,107 $9,646
 OREO / OAOs $1,947 $1,748 $1,947 $1,748
 Non-performing assets $12,054 $11,394 $12,054 $11,394
 Non-performing assets / Total assets 1.77% 1.69% 1.77% 1.69%
 Allowance for loan losses / Total loans 1.47% 1.29% 1.47% 1.29%
 Allowance for loan losses / Non-performing Loans 63.8% 61.5% 63.8% 61.5%
         
END OF PERIOD BALANCES        
 Total loans, net of unearned income (Includes Loans HFS) $438,450 $459,764 $438,450 $459,764
 Allowance for loan loss $6,451 $5,934 $6,451 $5,934
 Total assets $681,190 $673,749 $681,190 $673,749
 Deposits $522,321 $492,292 $522,321 $492,292
 Stockholders' equity $54,068 $64,668 $54,068 $64,668
 Full-time equivalent employees (Bank Only) 198 198 198 198
 Full-time equivalent employees (Consolidated Total) 257 321 257 321
         
AVERAGE BALANCES        
 Loans $438,419 $456,196 $449,281 $450,119
 Total earning assets  $554,685 $569,099 $562,894 $567,621
 Total assets $664,981 $665,872 $668,605 $664,280
 Deposits $513,448 $483,637 $501,591 $486,206
 Stockholders' equity $54,154 $64,238 $58,500 $63,596
           
RURBAN FINANCIAL CORP.          
CONSOLIDATED FINANCIAL HIGHLIGHTS          
(Unaudited)          
  3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
(dollars in thousands except per share data) 2010 2010 2010 2009 2009
           
EARNINGS          
 Net interest income  $4,881 $5,058 $4,904 $5,285 $5,337
 Provision for loan loss (Bank Only) $899 $3,499 $1,391 $3,546 $898
 Provision for loan loss (RDSI) $0 $3,000  $-- $ --  $--
 Non-interest income $5,127 $4,711 $6,783 $7,174 $7,076
 Revenue (net interest income plus non-interest income) $10,008 $9,769 $11,687 $12,459 $12,413
 Non-interest expense $9,331 $16,089 $11,792 $12,096 $11,454
 Pre-tax income (loss) $(222) $(12,819) $(1,496) $(3,184) $60
 Net income (loss) $26 $(8,207) $(848) $(1,884) $160
           
PER SHARE DATA          
 Basic earnings (loss) per share $0.01 $(1.69) $(0.17) $(0.39) $0.03
 Diluted earnings (loss) per share $0.01 $(1.69) $(0.17) $(0.39) $0.03
 Book value per share $11.12 $10.94 $12.72 $12.69 $13.30
 Tangible Equity $25,398 $25,283 $33,212 $33,832 $35,923
 Tangible book value per share $5.22 $5.20 $6.83 $6.96 $7.39
 Cash dividend per share $0.00 $0.00 $0.00 $0.09 $0.09
           
PERFORMANCE RATIOS           
 Return on average assets  0.02% (4.92%) (0.51%) (1.11%) 0.10%
 Return on average equity 0.19% (55.74%) (5.49%) (11.81%) 1.00%
 Return on tangible equity 0.41% (129.84%) (10.21%) (22.27%) 1.78%
 Net interest margin (tax equivalent) 3.66% 3.72% 3.58% 3.77% 3.87%
 Non-interest expense / Average assets 5.61% 9.57% 7.11% 7.11% 6.88%
 Efficiency Ratio - bank (non-GAAP) 80.95% 81.97% 73.22% 71.51% 75.80%
           
MARKET DATA PER SHARE          
 Market value per share --- Period end $3.18 $4.04 $6.80 $6.84 $7.58
 Market as a % of book 29% 37% 53% 54% 57%
 Cash dividend yield 0.00% 0.00% 0.00% 5.26% 4.75%
 Period-end common shares outstanding (000) 4,862 4,862 4,862 4,862 4,862
 Common stock market capitalization ($000) $15,460 $19,642 $33,060 $33,255 $36,852
           
CAPITAL & LIQUIDITY          
 Equity to assets 7.9% 8.2% 9.0% 9.2% 9.6%
 Tier 1 leverage Ratio (Estimate) (Consolidated) 7.1% 7.1% 8.4% 8.3% 8.8%
 Tier 1 risk-based capital ratio (Estimate) (Consolidated) 10.4% 10.0% 11.7% 11.4% 11.8%
 Total risk-based capital ratio (Estimate) (Consolidated) 11.6% 11.2% 12.9% 12.7% 13.1%
           
ASSET QUALITY          
 Gross charge-offs (Bank Only) $1,583 $2,680 $2,480 $2,566 $883
  Net charge-offs (Bank Only) $1,448 $2,572 $2,346 $2,547 $837
 Net loan charge-offs (Ann.) / Average loans 1.32% 2.28% 2.05% 2.19% 0.73%
 Non-accruing loans $10,107 $12,401 $14,399 $18,543 $9,646
 OREO / OAOs $1,947 $1,651 $1,616 $1,775 $1,748
 Non-performing assets $12,054 $14,052 $16,016 $20,319 $11,394
 Non-performing assets / Total assets 1.77% 2.17% 2.38% 3.02% 1.69%
 Allowance for loan losses / Total loans 1.47% 1.55% 1.33% 1.50% 1.29%
 Allowance for loan losses / Non-performing Loans 63.8% 56.4% 42.2% 37.9% 61.5%
           
END OF PERIOD BALANCES          
 Total loans, net of unearned income (Includes Loans HFS) 438,450 452,888 456,552 469,415 459,764
 Allowance for loan loss 6,451 7,001 6,075 7,030 5,934
 Total assets 681,190 646,347 673,804 673,049 673,749
 Deposits 522,321 481,763 498,946 491,242 492,292
 Stockholders' equity 54,068 53,201 60,855 61,708 64,668
 Full-time equivalent employees (Bank Only) 198 197 199 190 198
 Full-time equivalent employees (Consolidated Total) 257 270 311 315 321
           
AVERAGE BALANCES          
 Loans $438,419 $451,536 $458,423 $464,618 $456,196
 Total earning assets  $554,685 $566,618 $567,719 $577,263 $569,099
 Total assets $664,981 $667,295 $662,979 $680,121 $665,872
 Deposits $513,448 $502,102 $487,767 $499,317 $483,637
 Stockholders' equity $54,154 $58,891 $61,836 $63,800 $64,238
 
 
RURBAN FINANCIAL CORP.
Segment Reporting
Third Quarter Ended September 30, 2010
($ in Thousands)
           
  Total Banking Data Processing Parent Company and Other Elimination Entries Rurban Financial Corp.
Income Statement Measures
Interest Income  $ 7,281  $ --  $ 31  $ (67)  $ 7,245
           
Interest Expense  1,945  95  391  (67)  2,364
           
Net Interest Income  5,336  (95)  (360)  --  4,881
           
Provision For Loan Loss   899  --  --  --  899
           
Non-interest Income  3,096  2,325  27  (321)  5,127
           
Non-interest Expense  6,986  2,318  348  (321)  9,331
           
Net Income QTD  $ 548  $ (54)  $ (468)  $ --  $ 26
           
Performance Measures          
Average Assets -QTD  $ 655,555  $ 10,766  $ 77,437  $ (78,777)  $ 664,981
           
ROAA 0.33% (2.01%)  --  -- 0.02%
           
Average Equity - QTD  $ 67,430  $ 5,876  $ 54,154  $ (73,306)  $ 54,154
           
ROAE 3.25% (3.68%)  --  -- 0.19%
           
Efficiency Ratio -- % 80.95%  --  --  -- 91.24%
           
Average Loans - QTD  $ 440,945  $ --  $ 2,000  $ (4,526)  $ 438,419
           
Average Deposits - QTD  $ 514,393  $ --  $ --  $ (945)  $ 513,448
 
Rurban Financial Corp.
Segment Reporting
Nine Months Ended September 30, 2010
($ in Thousands)
           
  Total Banking Data Processing Parent Company and Other Elimination Entries Rurban Financial Corp.
Income Statement Measures
Interest Income  $ 22,427  $ (82)  $ 71  $ (189)  $ 22,227
           
Interest Expense  6,109  286  1,178  (189)  7,384
           
Net Interest Income  16,318  (368)  (1,107)  --  14,843
           
Provision For Loan Loss   5,789  3,000  --  --  8,789
           
Non-interest Income  7,924  9,566  527  (1,396)  16,621
           
Non-interest Expense  19,688  17,563  1,357  (1,396)  37,212
           
Net Loss YTD  $ (393)  $ (7,379)  $ (1,257)  $ --  $ (9,029)
           
Performance Measures          
Average Assets - YTD  $ 652,695  $ 17,423  $ 81,448  $ (82,961)  $ 668,605
           
ROAA (0.08%) (56.47%)  --  -- (1.80%)
           
Average Equity - YTD  $ 67,494  $ 9,942  $ 58,500  $ (77,436)  $ 58,500
           
ROAE (0.78%) (98.96%)  --  -- (20.58%)
           
Efficiency Ratio -- % 79.23%  --  --  -- 116.36%
           
Average Loans - YTD  $ 450,079  $ 1,800  $ 1,600  $ (4,198)  $ 449,281
           
Average Deposits - YTD  $ 502,918  $ --  $ --  $ (1,327)  $ 501,591
 
 
Rurban Financial Corp.
Proforma Performance Measurement
Quarterly Comparison - Third Quarter 2010
($ in Thousands)
  Total Banking Data Processing Parent Company and Other Elimination Entries Rurban Financial Corp.
 
Revenue          
3Q10  $ 8,433  $ 2,236  $ (340)  $ (321)  $ 10,008
2Q10  $ 7,750  $ 2,625  $ (197)  $ (407)  $ 9,772
1Q10  $ 8,062  $ 4,338  $ (52)  $ (661)  $ 11,687
4Q09  $ 8,808  $ 4,430  $ 6  $ (785)  $ 12,459
3Q09  $ 8,043  $ 5,159  $ 19  $ (808)  $ 12,413
3rd Quarter Comparison  $ 390  $ (2,923)  $ (359)  $ --  $ (2,405)
           
Non-interest Expenses        
3Q10  $ 6,986  $ 2,318  $ 348  $ (321)  $ 9,331
2Q10  $ 6,516  $ 9,576  $ 278  $ (407)  $ 15,963
1Q10  $ 6,061  $ 5,669  $ 730  $ (668)  $ 11,792
4Q09  $ 6,459  $ 5,204  $ 1,218  $ (785)  $ 12,096
3Q09  $ 6,257  $ 5,145  $ 860  $ (808)  $ 11,454
3rd Quarter Comparison  $ 729  $ (2,827)  $ (512)  $ --  $ (2,123)
           
Net Income (loss)        
3Q10  $ 548  $ (54)  $ (468)  $ --  $ 26
2Q10  $ (1,479)  $ (6,446)  $ (282)  $ --  $ (8,207)
1Q10  $ 538  $ (879)  $ (507)  $ --  $ (848)
4Q09  $ (577)  $ (509)  $ (798)  $ --  $ (1,884)
3Q09  $ 712  $ 8  $ (560)  $ --  $ 160
3rd Quarter Comparison  $ (164)  $ (62)  $ 92  $ --  $ (134)
           
Average Assets          
3Q10  $ 655,555  $ 10,766  $ 77,437  $ (78,777)  $ 664,981
2Q10  $ 650,572  $ 18,800  $ 81,995  $ (84,071)  $ 667,296
1Q10  $ 642,556  $ 22,272  $ 84,377  $ (86,226)  $ 662,979
4Q09  $ 659,674  $ 22,368  $ 85,392  $ (87,313)  $ 680,121
3Q09  $ 644,116  $ 22,770  $ 86,418  $ (87,432)  $ 665,872
3rd Quarter Comparison  $ 11,439  $ (12,004)  $ (8,981)  $ --  $ (891)
           
ROAA          
3Q10 0.33% (2.01%)  --   --  (0.02%)
2Q10 (0.83%) (137.13%)  --   --  (4.84%)
1Q10 0.33% (15.79%)  --   --  (0.51%)
4Q09 (0.35%) (9.10%)  --   --  (1.11%)
3Q09 0.44% 0.14%  --   --  0.10%
3rd Quarter Comparison (0.11%) (2.15%)  --   --  (0.12%)
           
Average Equity          
3Q10  $ 67,430  $ 5,876  $ 54,154  $ (73,306)  $ 54,154
2Q10  $ 67,370  $ 10,492  $ 58,891  $ (77,862)  $ 58,891
1Q10  $ 67,701  $ 13,045  $ 61,836  $ (80,746)  $ 61,836
4Q09  $ 69,066  $ 13,969  $ 63,800  $ (83,035)  $ 63,800
3Q09  $ 68,153  $ 14,723  $ 64,238  $ (82,877)  $ 64,238
3rd Quarter Comparison  $ (723)  $ (8,847)  $ (10,084)  $ --  $ (10,084)
           
ROAE          
3Q10 3.25% (3.68%)  --   --  0.19%
2Q10 (8.02%) (245.72%)  --   --  (54.87%)
1Q10 3.18% (26.95%)  --   --  (5.49%)
4Q09 (3.34%) (14.57%)  --   --  (11.81%)
3Q09 4.18% 0.22%  --   --  1.00%
3rd Quarter Comparison (0.93%) (3.90%)  --   --  (0.81%)
           
Efficiency Ratio          
3Q10 80.95% 102.16%  --   --  91.24%
2Q10 81.97% 363.24%  --   --  161.01%
1Q10 73.22% 129.42%  --   --  99.06%
4Q09 71.51% 116.27%  --   --  95.36%
3Q09 75.80% 98.67%  --   --  90.55%
3rd Quarter Comparison 5.15% 3.49%  --   --  0.69%
CONTACT:  Rurban Financial Corp.          Anthony V. Cosentino, CFO          419-785-3663          Tony.Cosentino@rurban.net

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