UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      10-Q





x QUARTERLY
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934


For
      the
      quarterly period ended March
      31, 2008


OR





o TRANSITION
      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
              incorporation
                or organization)
            
            (I.R.S.
                Employer Identification No.)





401
      Clinton Street, Defiance, Ohio 43512


(Address
      of principal executive offices)


(Zip
      Code)





(419)
      783-8950





(Registrant’s
      telephone number, including area code)





None





(Former
      name, former address and former fiscal year, if changed since last
      report.)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      definition of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. Large Accelerate
      Filer o Accelerated
      Filer o Non-Accelerated
      Filer o Smaller
      Reporting Company x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o No x




Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.





**Common
                Shares, without par value**
            **4,941,933****(class)**
            **(Outstanding
                at May 13, 2008)**










**RURBAN
      FINANCIAL CORP.**





**FORM
      10-Q**





**TABLE
      OF CONTENTS**





**PART
                I – FINANCIAL INFORMATION**
            3Item
                1.
            Financial
                Statements
            3Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            20Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            28Item
                4T.
            Controls
                and Procedures
            29**PART
                II – OTHER INFORMATION**
            30Item
                1.
            Legal
                Proceedings
            30Item
                1A.
            Risk
                Factors
            30Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            30Item
                3.
            Defaults
                Upon Senior Securities
            30Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            31Item
                5.
            Other
                Information
            32Item
                6.
            Exhibits
            32Signatures
            
            33




2





**PART
      I – FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





The
      interim condensed consolidated financial statements of Rurban Financial Corp.
      (“Rurban” or the “Company”) 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 of Regulation S-X. Results of operations for the three months ended March
      31, 2008 are not necessarily indicative of results for the complete year.


3


**Rurban
      Financial Corp.**


**Condensed
      Consolidated Balance Sheets**


**March
      31, 2008 and December 31, 2007**


**March
                  31,**
                **2008**
              
              **December
                  31,**
                **2007**(Unaudited)**Assets**Cash
                  and due from banks
              
              $
              15,758,593
              
              $
              15,183,627Federal
                  funds sold
              
              
              6,400,000
              
              
              2,000,000Cash
                  and cash equivalents
              
              
              22,158,593
              
              
              17,183,627Available-for-sale
                  securities
              
              
              94,378,377
              
              
              92,661,386Loans
                  held for sale
              
              
              2,464,643
              
              
              1,649,758Loans,
                  net of unearned income
              
              
              391,962,691
              
              
              389,268,744Allowance
                  for loan losses
              
              
              (4,016,230
              )
              
              (3,990,455
              )Premises
                  and equipment
              
              
              15,180,760
              
              
              15,128,754Purchased
                  software
              
              
              4,149,202
              
              
              4,282,563Federal
                  Reserve and Federal Home Loan Bank stock
              
              
              4,062,100
              
              
              4,021,200Foreclosed
                  assets held for sale, net
              
              
              1,572,644
              
              
              124,131Interest
                  receivable
              
              
              2,752,252
              
              
              3,008,968Goodwill
              
              
              13,940,618
              
              
              13,940,618Core
                  deposits and other intangibles
              
              
              4,961,846
              
              
              5,135,228Cash
                  value of life insurance
              
              
              12,276,003
              
              
              12,160,581Other
              
              
              5,889,849
              
              
              6,638,895Total
                  assets
              
              $
              571,733,348
              
              $
              561,213,998




*See
      notes to condensed consolidated financial statements
      (unaudited)*





*Note:*
            *The
                balance sheet at December 31, 2007 has been derived from theaudited
                consolidated financial statements at that
                date.*




4


**Rurban
      Financial Corp.**


**Condensed
      Consolidated Balance Sheets (continued)**


**March
      31, 2008 and December 31, 2007**


**March
                  31,**
                **2008**
              
              **December
                  31,**
                **2007**(Unaudited)**Liabilities
                  and Stockholders’ Equity****Liabilities**DepositsDemand
              
              $
              41,748,793
              
              $
              41,541,297Savings,
                  interest checking and money market
              
              
              156,513,960
              
              
              141,009,043Time
              
              
              218,449,515
              
              
              223,480,842Total
                  deposits
              
              
              416,712,268
              
              
              406,031,182Notes
                  payable
              
              
              817,584
              
              
              922,457Federal
                  Home Loan Bank advances
              
              
              23,000,000
              
              
              24,000,000Retail
                  repurchase agreements
              
              
              43,536,570
              
              
              43,006,438Trust
                  preferred securities
              
              
              20,620,000
              
              
              20,620,000Interest
                  payable
              
              
              2,481,629
              
              
              2,532,914Other
                  liabilities
              
              
              4,694,986
              
              
              4,775,773Total
                  liabilities
              
              
              511,863,037
              
              
              501,888,764**Commitments
                  and Contingent Liabilities****Stockholders’
                  Equity**Common
                  stock, $2.50 stated value; authorized 10,000,000 shares; issued
                  5,027,433
                  shares; outstanding March 2008 – 4,941,933 shares, December
                  2007 – 4,978,933 shares
              
              
              12,568,583
              
              
              12,568,583Additional
                  paid-in capital
              
              
              14,944,315
              
              
              14,923,571Retained
                  earnings
              
              
              32,956,244
              
              
              32,361,106Accumulated
                  other comprehensive loss
              
              
              432,429
              
              
              82,235Treasury
                  Stock, at costCommon;
                  March 2008 – 85,500 shares, December 2007 – 48,500
                  shares
              
              
              (1,031,260
              )
              
              (610,260
              )Total
                  stockholders’ equity
              
              
              59,870,311
              
              
              59,325,235Total
                  liabilities and stockholders’ equity
              
              $
              571,733,348
              
              $
              561,213,998




*See
      notes to condensed consolidated financial statements
      (unaudited)*





*Note:*
            *The
                balance sheet at December 31, 2007 has been derived from
                the******audited
                consolidated financial statements at that
                date.*




5


**Rurban
      Financial Corp.**


**Condensed
      Consolidated Statements of Income (Unaudited)**


**Three
      Months Ended**


**March
                  31,**
                **2008**
              
              **March
                  31,**
                **2007****Interest
                  Income**LoansTaxable
              
              $
              6,808,196
              
              $
              6,676,813Tax-exempt
              
              
              21,350
              
              
              17,293SecuritiesTaxable
              
              
              1,039,894
              
              
              1,091,197Tax-exempt
              
              
              158,367
              
              
              153,057Other
              
              
              97,409
              
              
              78,468Total
                  interest income
              
              
              8,125,216
              
              
              8,016,828**Interest
                  Expense**Deposits
              
              
              3,091,902
              
              
              3,333,730Other
                  borrowings
              
              
              17,506
              
              
              51,072Retail
                  repurchase agreements
              
              
              460,552
              
              
              343,849Federal
                  Home Loan Bank advances
              
              
              302,336
              
              
              249,587Trust
                  preferred securities
              
              
              435,704
              
              
              445,314Total
                  interest expense
              
              
              4,308,000
              
              
              4,423,552**Net
                  Interest Income**
              
              
              3,817,216
              
              
              3,593,276**Provision
                  for Loan Losses**
              
              
              192,218
              
              
              92,640**Net
                  Interest Income After Provision for Loan Losses**
              
              
              3,624,998
              
              
              3,500,636**Non-interest
                  Income**Data
                  service fees
              
              
              5,264,565
              
              
              4,834,136Trust
                  fees
              
              
              855,107
              
              
              826,382Customer
                  service fees
              
              
              586,207
              
              
              528,424Net
                  gains on loan sales
              
              
              274,603
              
              
              54,279Net
                  proceeds from liquidation of equity securities
              
              
              132,106
              
              
              0Investment
                  securities recoveries
              
              
              197,487
              
              
              0Loan
                  servicing fees
              
              
              62,940
              
              
              108,706Gain
                  (loss) on sale of assets
              
              
              (71,032
              )
              
              35,967Other
              
              
              213,530
              
              
              350,848Total
                  non-interest income
              
              
              7,515,513
              
              
              6,738,742


*See
        notes to condensed consolidated financial statements
        (unaudited)*


6


**Rurban
      Financial Corp.**


**Condensed
      Consolidated Statements of Income (Unaudited) (continued)**


**Three
      Months Ended**


**March
                  31,**
                **2008**
              
              **March
                  31,**
                **2007****Non-interest
                  Expense**Salaries
                  and employee benefits
              
              $
              4,438,764
              
              $
              4,396,787Net
                  occupancy expense
              
              
              566,016
              
              
              527,133Equipment
                  expense
              
              
              1,567,637
              
              
              1,605,873Data
                  processing fees
              
              
              96,567
              
              
              156,181Professional
                  fees
              
              
              570,687
              
              
              677,391Marketing
                  expense
              
              
              181,747
              
              
              155,685Printing
                  and office supplies
              
              
              186,052
              
              
              198,092Telephone
                  and communications
              
              
              421,929
              
              
              445,204Postage
                  and delivery expense
              
              
              602,634
              
              
              392,261State,
                  local and other taxes
              
              
              180,768
              
              
              199,741Employee
                  expense
              
              
              230,611
              
              
              255,069Other
              
              
              557,948
              
              
              290,836Total
                  non-interest expense
              
              
              9,601,360
              
              
              9,300,253**Income
                  Before Income Tax**
              
              
              1,539,151
              
              
              939,125**Provision
                  for Income Taxes**
              
              
              429,795
              
              
              236,672**Net
                  Income**
              
              $
              1,109,356
              
              $
              702,453**Basic
                  Earnings Per Share**
              
              $
              0.22
              
              $
              0.14**Diluted
                  Earnings Per Share**
              
              $
              0.22
              
              $
              0.14**Dividends
                  Declared Per Share**
              
              $
              0.08
              
              $
              0.06




*See
      notes to condensed consolidated financial statements
      (unaudited)*


7




**RURBAN
      FINANCIAL CORP.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'**


**EQUITY
      (UNAUDITED)**


Three Months EndedMarch 31, 2008
              
              March 31, 2007Balance
                  at beginning of period
              
              $
              59,325,235
              
              $
              56,955,153Cumulative
                  effect adjustment for split-dollar BOLI
              
              
              (116,303
              )
              
              -Beginning
                  balance as adjusted
              
              
              59,208,932
              
              
              56,955,153Net
                  Income
              
              
              1,109,356
              
              
              702,453Other
                  comprehensive income (loss):Net
                  change in unrealized gains (losses) on securities available for
                  sale,
                  net
              
              
              350,193
              
              
              342,085Total
                  comprehensive income (loss)
              
              
              1,459,549
              
              
              1,044,538Cash
                  dividend
              
              
              (397,914
              )
              
              (301,646
              )Purchase
                  of Treasury Shares
              
              
              (421,000
              )
              
              -Stock
                  option expense
              
              
              20,744
              
              
              13,259Balance
                  at end of period
              
              $
              59,870,311
              
              $
              57,711,304




*See
      notes to condensed consolidated financial statements
      (unaudited)*


8


**Rurban
      Financial Corp.**


**Condensed
      Consolidated Statements of Cash Flows (Unaudited)**


**Three
      Months Ended**




**March
                31, 2008**
            
            **March
                31, 2007****Operating
                Activities**Net
                income
            
            $
            1,109,356
            
            $
            702,453Items
                not requiring (providing) cashDepreciation
                and amortization
            
            
            976,290
            
            
            968,860Provision
                for loan losses
            
            
            192,218
            
            
            92,640Expense
                of stock option plan
            
            
            20,744
            
            
            13,259Amortization
                of premiums and discounts on securities
            
            
            15,842
            
            
            25,649Amortization
                of intangible assets
            
            
            173,382
            
            
            175,384Deferred
                income taxes
            
            
            (180,403
            )
            
            (157,478
            )FHLB
                Stock Dividends
            
            
            (40,900
            )
            
            (47,250
            )Proceeds
                from sale of loans held for sale
            
            
            15,208,863
            
            
            4,808,032Originations
                of loans held for sale
            
            
            (15,749,144
            )
            
            (4,474,350
            )Gain
                from sale of loans
            
            
            (274,603
            )
            
            (54,279
            )(Gain)
                loss on sale of foreclosed assets
            
            
            (3,180
            )
            
            (9,040
            )(Gain)
                loss on sales of fixed assets
            
            
            71,032
            
            
            (26,927
            )Changes
                inInterest
                receivable
            
            
            256,716
            
            
            308,859Other
                assets
            
            
            656,421
            
            
            (853,117
            )Interest
                payable and other liabilities
            
            
            (248,376
            )
            
            (917,091
            )Net
                cash provided by operating activities
            
            
            2,184,258
            
            
            555,604**Investing
                Activities**Purchases
                of available-for-sale securities
            
            
            (36,191,291
            )
            
            (5,722,790
            )Proceeds
                from maturities of available-for-sale securities
            
            
            34,989,055
            
            
            11,529,117Net
                change in loans
            
            
            (4,461,937
            )
            
            (3,326,187
            )Purchase
                of premises and equipment and software
            
            
            (1,196,249
            )
            
            (1,502,472
            )Proceeds
                from sales of premises and equipment
            
            
            301,314
            
            
            234,397Proceeds
                from sale of foreclosed assets
            
            
            62,385
            
            
            175,016Cash
                paid for Diverse Computer Marketers, Inc. acquisition
            
            
            -
            
            
            (16,034
            )Net
                cash provided by (used in) investing activities
            
            
            (6,496,723
            )
            
            1,371,047





*See
      notes to condensed consolidated financial statements
      (unaudited)*


9




**Rurban
      Financial Corp.**


**Condensed
      Consolidated Statements of Cash Flows (Unaudited)
      (continued)**


**Three
      Months Ended**




**March 31, 2008**
            
            **March 31, 2007****Financing
                Activities**Net
                increase (decrease) in demand deposits, money market, interest checking
                and savings accounts
            
            $
            15,712,413
            
            $
            3,681,627Net
                increase (decrease) in certificates of deposit
            
            
            (5,031,327
            )
            
            (5,644,131
            )Net
                increase (decrease) in securities sold under agreements to
                repurchase
            
            
            530,132
            
            
            (1,443,705
            )Proceeds
                from Federal Home Loan Bank advances
            
            
            1,000,000
            
            
            —Repayment
                of Federal Home Loan Bank advances
            
            
            (2,000,000
            )
            
            (3,500,000
            )Repayment
                of notes payable
            
            
            (104,873
            )
            
            (73,296
            )Purchase
                of treasury stock
            
            
            (421,000
            )Dividends
                paid
            
            
            (397,914
            )
            
            (301,646
            )Net
                cash (used in) provided by financing activities
            
            
            9,287,431
            
            
            (7,281,151
            )**Increase
                (Decrease) in Cash and Cash Equivalents**
            
            
            4,974,966
            
            
            (5,354,500
            )**Cash
                and Cash Equivalents, Beginning of Year**
            
            
            17,183,627
            
            
            22,481,791**Cash
                and Cash Equivalents, End of Period**
            
            $
            22,158,593
            
            $
            17,127,291**Supplemental
                Cash Flows Information**Interest
                paid
            
            $
            4,359,285
            
            $
            4,414,340Transfer
                of loans to foreclosed assets
            
            $
            1,507,718
            
            $
            28,244





*See
      notes to condensed consolidated financial statements
      (unaudited)*


10


**RURBAN
      FINANCIAL CORP.**


**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. The financial
      statements reflect all adjustments that are, in the opinion of management,
      necessary to fairly present the financial position, results of operations and
      cash flows of the Company. Those adjustments consist only of normal recurring
      adjustments. Results of operations for the three months ended March 31, 2008
      are
      not necessarily indicative of results for the complete year.





The
      condensed consolidated balance sheet of the Company as of December 31, 2007
      has
      been derived from the audited consolidated balance sheet of the Company as
      of
      that date.





For
      further information, refer to the consolidated financial statements and
      footnotes included in the Company’s Annual Report on Form 10-K for the year
      ended December 31, 2007.





**NOTE
      B—EARNINGS PER SHARE**





Earnings
      per share (EPS) have been computed based on the weighted average number of
      shares outstanding during the periods presented. For the periods ended March
      31,
      2008 and 2007, stock options totaling 329,640 and 319,913 common shares,
      respectively, were not considered in computing EPS as they were anti-dilutive.
      The number of shares used in the computation of basic and diluted earnings
      per
      share was:





Three
                Months EndedMarch
                31,2008
            
            2007Basic
                earnings per share
            
            
            4,962,428
            
            
            5,027,433Diluted
                earnings per share
            
            
            4,962,511
            
            
            5,027,613








**NOTE
      C – LOANS, RISK ELEMENTS AND ALLOWANCE FOR LOAN
      LOSSES**





Total
      loans on the balance sheet are comprised of the following classifications
      at:





March,
                31
              2008
            
            December
                31,
              2007Commercial
            
            $
            82,268,776
            
            $
            83,048,522Commercial
                real estate
            
            
            129,703,596
            
            
            126,784,483Agricultural
            
            
            47,508,611
            
            
            43,369,266Residential
                real estate
            
            
            82,998,903
            
            
            84,620,992Consumer
            
            
            49,389,534
            
            
            51,357,419Lease
                financing
            
            
            330,000
            
            
            330,000Total
                loans
            
            
            392,199,420
            
            
            389,510,682LessNet
                deferred loan fees, premiums and discounts
            
            
            (236,792
            )
            
            (241,938
            )Loans,
                net of unearned income
            
            $
            391,962,691
            
            $
            389,268,744Allowance
                for loan losses
            
            $
            (4,016,230
            )
            $
            (3,990,455
            )




11





The
      following is a summary of the activity in the allowance for loan losses account
      for the three months ended March 31, 2008 and 2007.





Three
                Months Ended
              March
                31,2008
            
            2007Balance,
                beginning of period
            
            $
            3,990,455
            
            $
            3,717,377Provision
                charged to expense
            
            
            192,218
            
            
            92,640Recoveries
            
            
            30,848
            
            
            54,044Loans
                charged off
            
            
            (197,291
            )
            
            (95,247
            )Balance,
                end of period
            
            $
            4,016,230
            
            $
            3,768,814





The
      following schedule summarizes nonaccrual, past due and impaired loans
      at:





March
                31,
              2008
            
            December
                31,
              2007Non-accrual
                loans
            
            $
            5,304,652
            
            $
            5,990,483Accruing
                loans which are contractually past due 90 days or more as to interest
                orprincipal
                payments
            
            
            -
            
            
            -Total
                non-performing loans
            
            $
            5,304,652
            
            $
            5,990,483




Individual
      loans determined to be impaired were as follows:





March
                31,
              2008
            
            December
                31,
              2007Loans
                with no allowance for loan losses allocated
            
            $
            1,742,000
            
            $
            1,787,000Loans
                with allowance for loan losses allocated
            
            
            1,744,000
            
            
            1,898,000Total
                impaired loans
            
            $
            3,486,000
            
            $
            3,685,000Amount
                of allowance allocated
            
            $
            358,000
            
            $
            333,000




**NOTE
      D – REGULATORY MATTERS**




The
      Company and The State Bank and Trust Company (“State Bank”) are subject to
      various regulatory capital requirements administered by federal and state
      banking agencies. Failure to meet minimum capital requirements can initiate
      certain mandatory and possibly additional discretionary, actions by regulators.
      If undertaken, these actions could have a direct material adverse effect on
      the
      Company’s financial statements. Under capital adequacy guidelines and the
      regulatory framework for prompt corrective action, the Company and State Bank
      must meet specific capital guidelines that involve quantitative measures of
      assets, liabilities and certain off-balance-sheet items as calculated under
      regulatory accounting practices. The capital amounts and classification are
      also
      subject to qualitative judgments by the regulators about components, risk
      weightings and other factors.




Quantitative
      measures established by regulation to ensure capital adequacy require the
      Company and State Bank to maintain minimum amounts and ratios (set forth in
      the
      table below) of total and Tier I capital (as defined in the regulations) to
      risk-weighted assets (as defined in the regulations), and of Tier I capital
      to
      average assets (as defined in the regulations). As of March 31, 2008 and
      December 31, 2007, the Company and State Bank exceeded all “well-capitalized”
requirements to which they were subject.


12




As
      of
      December 31, 2007, the most recent notification to the regulators categorized
      State Bank as well-capitalized under the regulatory framework for prompt
      corrective action. To be categorized as well-capitalized, State Bank must
      maintain capital ratios as set forth in the following table. There are no
      conditions or events since that notification that management believes have
      changed State Bank’s categorization as well-capitalized.




The
      Company’s consolidated, and State Bank’s actual, capital amounts (in millions)
      and ratios, as of March 31, 2008 and December 31, 2007, are also presented
      in
      the following table.


**Actual**
              
              **Minimum
                  Required**
                **For
                  Capital Adequacy**
                **Purposes**
              
              **To
                  Be Well**
                **Capitalized
                  Under**
                **Prompt
                  Corrective**
                **Action
                  Provisions****Amount**
              
              **Ratio**
              
              **Amount**
              
              **Ratio**
              
              **Amount**
              
              **Ratio**As
                  of March 31, 2008Total
                  Capital(to Risk-Weighted Assets)Consolidated
              
              $
              64.5
              
              
              15.8
              %
              $
              32.7
              
              
              8.0
              %
              $
              —
              
              
              N/AState
                  Bank
              
              
              50.1
              
              
              12.6
              
              
              31.8
              
              
              8.0
              
              
              39.7
              
              
              10.0Tier
                  I Capital(to Risk-Weighted Assets)Consolidated
              
              
              60.3
              
              
              14.7
              
              
              16.4
              
              
              4.0
              
              
              —
              
              
              N/AState
                  Bank
              
              
              46.1
              
              
              11.6
              
              
              15.9
              
              
              4.0
              
              
              23.8
              
              
              6.0Tier
                  I Capital(to Average Assets)Consolidated
              
              
              60.3
              
              
              11.0
              
              
              21.9
              
              
              4.0
              
              
              —
              
              
              N/AState
                  Bank
              
              
              46.1
              
              
              8.4
              
              
              21.8
              
              
              4.0
              
              
              27.3
              
              
              5.0As
                  of December 31, 2007Total
                  Capital(to Risk-Weighted Assets)Consolidated
              
              $
              64.2
              
              
              15.9
              %
              $
              32.2
              
              
              8.0
              %
              $
              —
              
              
              N/AState
                  Bank
              
              
              49.5
              
              
              12.7
              
              
              31.3
              
              
              8.0
              
              
              39.1
              
              
              10.0Tier
                  I Capital(to Risk-Weighted Assets)Consolidated
              
              
              59.9
              
              
              14.9
              
              
              16.1
              
              
              4.0
              
              
              —
              
              
              N/AState
                  Bank
              
              
              45.5
              
              
              11.6
              
              
              15.6
              
              
              4.0
              
              
              23.5
              
              
              6.0Tier
                  I Capital(to Average Assets)Consolidated
              
              
              59.9
              
              
              11.0
              
              
              21.9
              
              
              4.0
              
              
              —
              
              
              N/AState
                  Bank
              
              
              45.5
              
              
              8.4
              
              
              21.8
              
              
              4.0
              
              
              27.3
              
              
              5.0




13





**NOTE
      E – CONTINGENT LIABILITIES**





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 Company’s consolidated financial condition or results of
      operations.





**NOTE
      F - NEW ACCOUNTING PRONOUNCEMENTS**





On
      December 4, 2007, the FASB issued FASB Statement No. 160, *“Noncontrolling
      Interests in Consolidated Financial Statements, an Amendment of ARB No. 51.”* SFAS
      No.
      160 amends ARB No. 51 to establish new accounting and reporting standards for
      the noncontrolling interest in a subsidiary and for the deconsolidation of
      a
      subsidiary. SFAS No. 160 clarifies that changes in a parent’s ownership interest
      in a subsidiary that do not result in deconsolidation are equity transactions.
      The statement also requires that a parent recognize a gain or loss in net income
      when a subsidiary is deconsolidated. SFAS No. 160 is effective for fiscal years
      and interim periods within those fiscal years, beginning on or after December
      15, 2008. Early application is prohibited. SFAS No. 160 is effective for the
      Company’s fiscal year that begins on January 1, 2009 and will be applied to
      future acquisitions.





On
      December 4, 2007, the FASB amended SFAS No. 141 (revised 2007), “ *Business
      Combinations.”* SFAS
      No.
      141R, establishes requirements and principles for how an acquirer recognizes
      and
      measures in its financial statements the identifiable assets acquired, the
      liabilities assumed and any non-controlling interest in the acquiree. SFAS
      No.
      141R will apply to business combinations for which the acquisition date is
      on or
      after the beginning of the first reporting period for fiscal year beginning
      on
      or after December 15, 2008. Earlier adoption is prohibited. Accordingly, a
      calendar year-end company is required to record and disclose business
      combinations following existing GAAP until January 1, 2009. Management is
      currently evaluating the potential impact, if any, to the Company’s consolidated
      financial statements.





The
      Company or one of its subsidiaries files income tax returns in the U.S. federal
      and Ohio jurisdictions. With few exceptions, the Company is no longer subject
      to
      U.S. federal, state and local examinations by tax authorities for years before
      2005.





The
      Company adopted the provisions of the Financial Accounting Standards Board
      (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income
      Taxes - an interpretation of FASB Statement No. 109, on January 1, 2007. FIN
      48
      prescribes a recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. FIN 48 also provides guidance on derecognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. As a result of the implementation of FIN 48, the
      Company did not become aware of any liability for uncertain tax positions that
      it believes should be recognized in the financial statements.





In
      February 2007, the Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standards No. 159, The Fair Value Option for Financial
      Assets and Financial Liabilities - including an amendment of FASB Statement
      No.
      115 (SFAS No. 159). SFAS No. 159 permits the Company to choose to measure
      certain financial assets and liabilities at fair value that are not currently
      required to be measured at fair value (i.e. the Fair Value Option). Election
      of
      the Fair Value Option is made on an instrument-by-instrument basis and is
      irrevocable. At the adoption date, unrealized gains and losses on financial
      assets and liabilities for which the Fair Value Option has been elected would
      be
      reported as a cumulative adjustment to beginning retained earnings. If the
      Company elects the Fair Value Option for certain financial assets and
      liabilities, the Company will report unrealized gains and losses due to changes
      in their fair value in earnings at each subsequent reporting date. SFAS No.
      159
      is effective as of January 1, 2008. The Company has not elected the Fair Value
      Option for any financial assets or liabilities at March 31,
      2008.


14




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No. 157, *Fair
      Value Measurements* (FAS
      157). FAS 157 enhances existing guidance for measuring assets and liabilities
      using fair value. Prior to the issuance of FAS 157, guidance for applying fair
      value was incorporated in several accounting pronouncements. FAS 157 provides
      a
      single definition of fair value, together with a framework for measuring it,
      and
      requires additional disclosure about the use of fair value to measure assets
      and
      liabilities. FAS 157 also emphasizes that fair value is a market-based
      measurement, not an entity-specific measurement, and sets out a fair value
      hierarchy with the highest priority being quoted prices in active markets.
      Under
      FAS 157, fair value measurements are disclosed by level within that hierarchy.
      While FAS 157 does not add any new fair value measurements, it does change
      current practice. Changes to practice include: (1) a requirement for an
      entity to include its own credit standing in the measurement of its liabilities;
      (2) a modification of the transaction price presumption; (3) a
      prohibition on the use of block discounts when valuing large blocks of
      securities for broker-dealers and investment companies; and (4) a
      requirement to adjust the value of restricted stock for the effect of the
      restriction even if the restriction lapses within one year. FAS 157 is effective
      for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years. We have
      adopted FAS 157 effective for the first quarter of 2008.





At
      its
      September 2006 meeting, the Emerging Issues Task Force (“EITF”) reached a final
      consensus on Issue No. 06-4, Accounting for Deferred Compensation and
      Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
      Arrangements. The consensus stipulates that an agreement by an employer to
      share
      a portion of the proceeds of a life insurance policy with an employee during
      the
      postretirement period is a postretirement benefit arrangement required to be
      accounted for under Statement No. 106 (“SFAS No. 106”) or Accounting Principles
      Board (APB) Opinion No. 12, Omnibus Opinion-1967. The consensus concludes that
      the purchase of a split-dollar life insurance policy does not constitute a
      settlement under SFAS No. 106 and, therefore, a liability for the postretirement
      obligation must be recognized under SFAS No. 106 if the benefit is offered
      under
      an arrangement that constitutes a plan or under APB No. 12 if it is not part
      of
      a plan. Issue 06-04 is effective for annual or interim reporting periods
      beginning after December 15, 2007. The Company has endorsement split-dollar
      life
      insurance policies. A liability has been recorded through a cumulative-effect
      adjustment to retained earnings as of January 1, 2008 in the amount of $116,303.
      There was no material impact to the financial position and results of operations
      as a result of the implementation of EITF 06-04.





At
      its
      March 2007 meeting, the EITF reached a final consensus on Issue No. 06-10,
      Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements.
      A
      consensus was reached that an employer should recognize a liability for the
      postretirement benefit related to a collateral assignment split-dollar life
      insurance arrangement in accordance with either FASB Statement No. 106 or APB
      Opinion No. 12, as appropriate, if the employer has agreed to maintain a life
      insurance policy during the employee’s retirement or provide the employee with a
      death benefit based on the substantive agreement with the employee. A consensus
      also was reached that an employer should recognize and measure an asset based
      on
      the nature and substance of the collateral assignment split-dollar life
      insurance arrangement. The consensuses are effective for fiscal years beginning
      after December 15, 2007, including interim periods within those fiscal years,
      with early application permitted. The Company has endorsement split-dollar
      life
      insurance policies. The implementation of EITF 06-10 will not have a material
      impact on the financial position and results of operations of the
      Company.





**NOTE
      G – COMMITMENTS AND CREDIT RISK**





As
      of
      March 31, 2008, loan commitments and unused lines of credit totaled $68,135,000,
      standby letters of credit totaled $287,000 and no commercial letters of credit
      were outstanding.





**NOTE
      H – SEGMENT INFORMATION**





The
      reportable segments are determined by the products and services offered,
      primarily distinguished between banking and data processing operations. “Other”
segment information includes the accounts of the holding company, Rurban, which
      combined provides management and operational services to its subsidiaries.
      Information reported internally for performance assessment follows.




15




NOTE
                H — SEGMENT INFORMATION (Continued)As
                of and for the three months ended March 31, 2008




Data
            
            
            
            Total
            
            Intersegment
            
            ConsolidatedIncome
                statement information:
            
            Banking
            
            Processing
            
            Other
            
            Segments
            
            Elimination
            
            TotalsNet
                interest income (expense)
            
            $
            4,295,351
            
            $
            (43,240
            )
            $
            (434,895
            )
            $
            3,817,216
            
            
            
            
            $
            3,817,216Non-interest
                    income - external customers
            
            
            2,159,188
            
            
            5,259,566
            
            
            96,759
            
            
            7,515,513
            
            
            
            
            
            7,515,513Non-interest
                income - other segments
            
            
            9,366
            
            
            389,403
            
            
            309,998
            
            
            708,767
            
            
            (708,767
            )
            
            -Total
                revenue
            
            
            6,463,905
            
            
            5,605,729
            
            
            (28,138
            )
            
            12,041,496
            
            
            (708,767
            )
            
            11,332,729Non-interest
                expense
            
            
            5,017,887
            
            
            4,393,142
            
            
            899,098
            
            
            10,310,127
            
            
            (708,767
            )
            
            9,601,360Significant
                non-cash items:Depreciation
                    and amortization
            
            
            269,370
            
            
            667,162
            
            
            39,758
            
            
            976,290
            
            
            -
            
            
            976,290Provision
                for loan losses
            
            
            192,218
            
            
            -
            
            
            -
            
            
            192,218
            
            
            -
            
            
            192,218Income
                tax expense (benefit)
            
            
            336,347
            
            
            412,280
            
            
            (318,832
            )
            
            429,795
            
            
            -
            
            
            429,795Segment
                profit (loss)
            
            $
            917,453
            
            $
            800,307
            
            $
            (608,404
            )
            $
            1,109,356
            
            $
            -
            
            $
            1,109,356Balance
                sheet information:Total
                assets
            
            $
            552,918,637
            
            $
            20,353,899
            
            $
            6,588,372
            
            $
            579,860,908
            
            $
            (8,127,560
            )
            $
            571,733,348Goodwill
                and intangibles
            
            
            11,579,734
            
            
            7,322,730
            
            
            -
            
            
            18,902,464
            
            
            -
            
            
            18,902,464Premises
                and equipment expenditures
            
            
            57,314
            
            
            1,046,388
            
            
            92,547
            
            
            1,196,249
            
            
            -
            
            
            1,196,249








16


NOTE
                H — SEGMENT INFORMATION (Continued)As
                of and for the three months ended March 31, 2007




Data
            
            
            
            Total
            
            Intersegment
            
            ConsolidatedIncome
                statement information:
            
            Banking
            
            Processing
            
            Other
            
            Segments
            
            Elimination
            
            TotalsNet
                interest income (expense)
            
            $
            4,131,429
            
            $
            (93,658
            )
            $
            (444,495
            )
            $
            3,593,276
            
            
            
            
            $
            3,593,276Non-interest
                  income - external customers
            
            
            1,889,737
            
            
            4,834,136
            
            
            14,869
            
            
            6,738,742
            
            
            
            
            
            6,738,742Non-interest
                income - other segments
            
            
            526,124
            
            
            415,225
            
            
            313,046
            
            
            1,254,395
            
            
            (1,254,395
            )
            
            -Total
                revenue
            
            
            6,547,290
            
            
            5,155,703
            
            
            (116,580
            )
            
            11,586,413
            
            
            (1,254,395
            )
            
            10,332,018Non-interest
                expense
            
            
            5,710,203
            
            
            4,108,766
            
            
            735,679
            
            
            10,554,648
            
            
            (1,254,395
            )
            
            9,300,253Significant
                non-cash items:Depreciation
                and amortization
            
            
            239,567
            
            
            699,637
            
            
            29,656
            
            
            968,860
            
            
            -
            
            
            968,860Provision
                for loan losses
            
            
            92,640
            
            
            -
            
            
            -
            
            
            92,640
            
            
            -
            
            
            92,640Income
                tax expense (benefit)
            
            
            173,944
            
            
            355,973
            
            
            (293,245
            )
            
            236,672
            
            
            -
            
            
            236,672Segment
                profit (loss)
            
            $
            570,503
            
            $
            690,964
            
            $
            (559,014
            )
            $
            702,453
            
            $
            -
            
            $
            702,453Balance
                sheet information:Total
                assets
            
            $
            530,459,372
            
            $
            21,097,318
            
            $
            8,460,028
            
            $
            560,016,718
            
            $
            (11,131,164
            )
            $
            548,885,554Goodwill
                and intangibles
            
            
            12,040,233
            
            
            7,333,457
            
            
            -
            
            
            19,373,690
            
            
            -
            
            
            19,373,690Premises
                and equipment expenditures
            
            
            730,435
            
            
            772,037
            
            
            -
            
            
            1,502,472
            
            
            -
            
            
            1,502,472





17




**NOTE
        I – FAIR VALUE OF ASSETS AND LIABILITIES**
 
 Effective
        January 1, 2008, the Company adopted Statement of Financial Accounting Standards
        No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value,
        establishes a framework for measuring fair value and expands disclosures
        about
        fair value measurements. FAS 157 has been applied prospectively as of the
        beginning of the period.
 
 FAS
        157
        defines fair value as the price that would be received to sell an asset or
        paid
        to transfer a liability in an orderly transaction between market participants
        at
        the measurement date. FAS 157 also establishes a fair value hierarchy which
        requires an entity to maximize the use of observable inputs and minimize
        the use
        of unobservable inputs when measuring fair value. The standard describes
        three
        levels of inputs that may be used to measure fair value:
 
 **Level
                1**
              Quoted
                  prices in active markets for identical assets or
                  liabilities
 **Level
                2**
              Observable
                  inputs other than Level 1 prices, such as quoted prices for similar
                  assets
                  or liabilities; quoted prices in markets that are not active; or
                  other
                  inputs that are observable or can be corroborated by observable
                  market
                  data for substantially the full term of the assets or
                  liabilities
 **Level
                3**
              Unobservable
                  inputs that are supported by little or no market activity and that
                  are
                  significant to the fair value of the assets or
                  liabilities
 
 Available-for-Sale
        Securities
 
 The
        fair
        value of available-for-sale securities are determined by various valuation
        methodologies. Level 2 securities include U.S. government agencies,
        mortgage-backed securities, and obligations of political and state
        subdivisions.
 
 The
        following table presents the fair value measurements of assets measured at
        fair
        value on a recurring basis and the level within FAS 157 fair value hierarchy
        in
        which the fair value measurements fall at March 31, 2008:
 
 Fair
                  Value Measurements Using:Description
              
              Fair Values at 3/31/2008
              
              Quoted Prices
                in Active
                Markets for
                Identical Assets (Level 1)
              
              Significant
                Other
                Observable
                Inputs (Level 2)
              
              Significant Unobservable
                Inputs (Level 3)Available-for-Sale Securities
              
              
              94,378,377
              
              
              -
              
              
              94,378,377
              
              
              -
 
 Impaired
        Loans
 
 Loans
        for
        which it is probable the Company will not collect all principal and interest
        due
        according to contractual terms are measured for impairment in accordance
        with
        the provisions of Financial Accounting Standard No. 114, “ *Accounting
        by Creditors for Impairment of a Loan.”* Allowable methods for estimating fair value include using the fair value
        of the
        collateral for collateral dependent loans, or where a loan is determined
        no to
        be collateral dependent, using the discounted cash flow method. If the impaired
        loan is collateral dependent, then the fair value method of measuring the
        amount
        of impairment is utilized. This method requires obtaining an independent
        appraisal of the collateral and applying a discount factor to the value based
        on
        the Company’s loan review policy.
  18
 The
        following table presents the fair value measurements of assets measured at
        fair
        value on a nonrecurring basis and the level within the FAS 157 fair value
        hierarchy in which the fair value measurements fall at March 31,
        2008:
 
 Fair
                  Value Measurements Using:Description
              
              Fair Values
                at 3/31/2008
              
              Quoted Prices
                in Active
                Markets for
                Identical Assets (Level 1)
              
              Significant Other Observable
                Inputs (Level 2)
              
              SignificantUnobservable
                Inputs (Level 3)Impaired
                  loans
              
              
              403,000
              
              
              -
              
              
              -
              
              
              403,000


19




**Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations**





**Cautionary
      Statement Regarding Forward-Looking Information**




Management’s
      Discussion and Analysis of Financial Condition and Results of Operations
      contains forward-looking statements that are provided to assist in the
      understanding of anticipated future financial performance. Forward-looking
      statements provide current expectations or forecasts of future events and are
      not guarantees of future performance. Examples of forward-looking statements
      include: (a) projections of income or expense, earnings per share, the payments
      or non-payments of dividends, capital structure and other financial items;
      (b)
      statements of plans and objectives of the Company or our management or Board
      of
      Directors, including those relating to products or services; (c) statements
      of
      future economic performance; and (d) statements of assumptions underlying such
      statements. Words such as “believes,” “anticipates,” “expects,” “intends,”
“targets,” “plans,” “projects,” “estimates,” and similar expressions are
      intended to identify forward-looking statements, but are not the exclusive
      means
      of identifying those statements. Forward-looking statements are based on
      management’s expectations and are subject to a number of risks and
      uncertainties. Although management believes that the expectations reflected
      in
      such forward-looking statements are reasonable, actual results may differ
      materially from those expressed or implied in such statements. Risks and
      uncertainties that could cause actual results to differ materially include,
      without limitation, changes in interest rates, changes in the competitive
      environment, and changes in banking regulations or other regulatory or
      legislative requirements affecting bank holding companies. Additional detailed
      information concerning a number of important factors which could cause actual
      results to differ materially from the forward-looking statements contained
      in
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations is available in the Company’s filings with the Securities and
      Exchange Commission, under the Securities Exchange Act of 1934, including the
      disclosure under the heading “Item 1A. Risk Factors” of Part I of the
      Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
      2007. Undue reliance should not be placed on the forward-looking statements,
      which speak only as of the date hereof. Except as may be required by law, the
      Company undertakes no obligation to update any forward-looking statement to
      reflect unanticipated events or circumstances after the date on which the
      statement is made.




**Overview
      of Rurban**





Rurban
      is
      a bank holding company registered with the Federal Reserve Board. Rurban’s
      wholly-owned subsidiary, The State Bank and Trust Company (“State Bank”), is
      engaged in commercial banking. Rurban’s subsidiary, Rurbanc Data Services, Inc.
      (“RDSI”), provides computerized data processing services to community banks and
      businesses. On March 24, 2007, The Exchange Bank and Reliance Financial
      Services, N.A. (“Reliance”) were merged with and into the lead bank, State Bank.
      Reliance’s trust and investment operations are now conducted through a division
      of State Bank, doing business under the name Reliance Financial Services. On
      December 31, 2007 Diverse Computer Marketers, Inc. (DCM) was merged with and
      into RDSI. DCM continues to operate as a division of RDSI, continuing to doing
      business under the name Diverse Computer Marketers.





Rurban
      Statutory Trust I (“RST”) was established in August 2000. In
      September 2000, RST completed a pooled private offering of 10,000 Capital
      Securities with a liquidation amount of $1,000 per security. The proceeds of
      the
      offering were loaned to the Company in exchange for junior subordinated
      debentures of the Company with terms substantially similar to the Capital
      Securities. The sole assets of RST are the junior subordinated debentures,
      and
      the back-up obligations, in the aggregate, constitute a full and unconditional
      guarantee by the Company of the obligations of RST under the Capital
      Securities.





Rurban
      Statutory Trust II (“RST II”) was established in August 2005. In September 2005,
      RST II completed a pooled private offering of 10,000 Capital Securities with
      a
      liquidation amount of $1,000 per security. The proceeds of the offering were
      loaned to the Company in exchange for junior subordinated debentures of the
      Company with terms substantially similar to the Capital Securities. The sole
      assets of RST II are the junior subordinated debentures, and the back-up
      obligations, in the aggregate, constitute a full and unconditional guarantee
      by
      the Company of the obligations of RST II under the Capital Securities.





20




RFCBC,
      Inc., (“RFCBC”) is an Ohio corporation and wholly-owned subsidiary of the
      Company that was incorporated in August 2004. RFCBC operates as a loan
      subsidiary in servicing and working out problem loans.





**Critical
      Accounting Policies**




Note
      1 to
      the Notes to the Consolidated Financial Statements included in the Company’s
      Annual Report on Form 10-K for the fiscal year ended December 31, 2007 describes
      the significant accounting policies used in the development and presentation
      of
      the Company’s financial statements. The accounting and reporting policies of the
      Company are in accordance with accounting principles generally accepted in
      the
      United States and conform to general practices within the banking industry.
      The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions.
      The
      Company’s financial position and results of operations can be affected by these
      estimates and assumptions and are integral to the understanding of reported
      results. Critical accounting policies are those policies that management
      believes are the most important to the portrayal of the Company’s financial
      condition and results, and they require management to make estimates that are
      difficult, subjective, or complex.





**Allowance
      for Loan Losses -** The
      allowance for loan losses provides coverage for probable losses inherent in
      the
      Company’s loan portfolio. Management evaluates the adequacy of the allowance for
      loan losses each quarter based on changes, if any, in underwriting activities,
      loan portfolio composition (including product mix and geographic, industry
      or
      customer-specific concentrations), trends in loan performance, regulatory
      guidance and economic factors. This evaluation is inherently subjective, as
      it
      requires the use of significant management estimates. Many factors can affect
      management’s estimates of specific and expected losses, including volatility of
      default probabilities, rating migrations, loss severity and economic and
      political conditions. The allowance is increased through provisions charged
      to
      operating earnings and reduced by net charge-offs.





The
      Company determines the amount of the allowance based on relative risk
      characteristics of the loan portfolio. The allowance recorded for commercial
      loans is based on reviews of individual credit relationships and an analysis
      of
      the migration of commercial loans and actual loss experience. The allowance
      recorded for homogeneous consumer loans is based on an analysis of loan mix,
      risk characteristics of the portfolio, fraud loss and bankruptcy experiences,
      and historical losses, adjusted for current trends, for each homogeneous
      category or group of loans. The allowance for credit losses relating to impaired
      loans is based on the loan’s observable market price, the collateral for certain
      collateral-dependent loans, or the discounted cash flows using the loan’s
      effective interest rate.





Regardless
      of the extent of the Company’s analysis of customer performance, portfolio
      trends or risk management processes, certain inherent but undetected losses
      are
      probable within the loan portfolio. This is due to several factors, including
      inherent delays in obtaining information regarding a customer’s financial
      condition or changes in their unique business conditions, the subjective nature
      of individual loan evaluations, collateral assessments and the interpretation
      of
      economic trends. Volatility of economic or customer-specific conditions
      affecting the identification and estimation of losses for larger non-homogeneous
      credits and the sensitivity of assumptions utilized to establish allowances
      for
      homogenous groups of loans are also factors. The Company estimates a range
      of
      inherent losses related to the existence of these exposures. The estimates
      are
      based upon the Company’s evaluation of imprecise risk associated with the
      commercial and consumer allowance levels and the estimated impact of the current
      economic environment. To the extent that actual results differ from management’s
      estimates, additional loan loss provisions may be required that could adversely
      impact earnings for future periods.




21




**Goodwill
      and Other Intangibles** ***-*** The
      Company records all assets and liabilities acquired in purchase acquisitions,
      including goodwill and other intangibles, at fair value as required by SFAS
      141.
      Goodwill is subject, at a minimum, to annual tests for impairment. Other
      intangible assets are amortized over their estimated useful lives using
      straight-line or accelerated methods, and are subject to impairment if events
      or
      circumstances indicate a possible inability to realize the carrying amount.
      The
      initial goodwill and other intangibles recorded and subsequent impairment
      analysis requires management to make subjective judgments concerning estimates
      of how the acquired asset will perform in the future. Events and factors that
      may significantly affect the estimates include, among others, customer
      attrition, changes in revenue growth trends, specific industry conditions and
      changes in competition. A decrease in earnings resulting from these or other
      factors could lead to an impairment of goodwill that could adversely impact
      earnings of future periods.





**Impact
      of Accounting Changes**




On
      December 4, 2007, the FASB issued FASB Statement No. 160, *“Noncontrolling
      Interests in Consolidated Financial Statements, an Amendment of ARB No. 51.”* SFAS
      No.
      160 amends ARB No. 51 to establish new accounting and reporting standards for
      the noncontrolling interest in a subsidiary and for the deconsolidation of
      a
      subsidiary. SFAS No. 160 clarifies that changes in a parent’s ownership interest
      in a subsidiary that do not result in deconsolidation are equity transactions.
      The statement also requires that a parent recognize a gain or loss in net income
      when a subsidiary is deconsolidated. SFAS No. 160 is effective for fiscal years
      and interim periods within those fiscal years, beginning on or after December
      15, 2008. Early application is prohibited. SFAS No. 160 is effective for the
      Company’s fiscal year that begins on January 1, 2009 and will be applied to
      future acquisitions.





On
      December 4, 2007, the FASB amended SFAS No. 141 (revised 2007), “ *Business
      Combinations.”* SFAS
      No.
      141R, establishes requirements and principles for how an acquirer recognizes
      and
      measures in its financial statements the identifiable assets acquired, the
      liabilities assumed and any non-controlling interest in the acquiree. SFAS
      No.
      141R will apply to business combinations for which the acquisition date is
      on or
      after the beginning of the first reporting period for fiscal year beginning
      on
      or after December 15, 2008. Earlier adoption is prohibited. Accordingly, a
      calendar year-end company is required to record and disclose business
      combinations following existing GAAP until January 1, 2009. Management is
      currently evaluating the potential impact, if any, to the Company’s consolidated
      financial statements.





The
      Company or one of its subsidiaries files income tax returns in the U.S. federal
      and Ohio jurisdictions. With few exceptions, the Company is no longer subject
      to
      U.S. federal, state and local examinations by tax authorities for years before
      2005.





The
      Company adopted the provisions of the Financial Accounting Standards Board
      (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income
      Taxes - an interpretation of FASB Statement No. 109, on January 1, 2007. FIN
      48
      prescribes a recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. FIN 48 also provides guidance on derecognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. As a result of the implementation of FIN 48, the
      Company did not become aware of any liability for uncertain tax positions that
      it believes should be recognized in the financial statements.





In
      February 2007, the Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standards No. 159, The Fair Value Option for Financial
      Assets and Financial Liabilities - including an amendment of FASB Statement
      No.
      115 (SFAS No. 159). SFAS No. 159 permits the Company to choose to measure
      certain financial assets and liabilities at fair value that are not currently
      required to be measured at fair value (i.e. the Fair Value Option). Election
      of
      the Fair Value Option is made on an instrument-by-instrument basis and is
      irrevocable. At the adoption date, unrealized gains and losses on financial
      assets and liabilities for which the Fair Value Option has been elected would
      be
      reported as a cumulative adjustment to beginning retained earnings. If the
      Company elects the Fair Value Option for certain financial assets and
      liabilities, the Company will report unrealized gains and losses due to changes
      in their fair value in earnings at each subsequent reporting date. SFAS No.
      159
      is effective as of January 1, 2008. The Company has not elected the Fair Value
      Option for any financial assets or liabilities at March 31, 2008.





22




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No. 157, *Fair
      Value Measurements* (FAS
      157). FAS 157 enhances existing guidance for measuring assets and liabilities
      using fair value. Prior to the issuance of FAS 157, guidance for applying fair
      value was incorporated in several accounting pronouncements. FAS 157 provides
      a
      single definition of fair value, together with a framework for measuring it,
      and
      requires additional disclosure about the use of fair value to measure assets
      and
      liabilities. FAS 157 also emphasizes that fair value is a market-based
      measurement, not an entity-specific measurement, and sets out a fair value
      hierarchy with the highest priority being quoted prices in active markets.
      Under
      FAS 157, fair value measurements are disclosed by level within that hierarchy.
      While FAS 157 does not add any new fair value measurements, it does change
      current practice. Changes to practice include: (1) a requirement for an
      entity to include its own credit standing in the measurement of its liabilities;
      (2) a modification of the transaction price presumption; (3) a
      prohibition on the use of block discounts when valuing large blocks of
      securities for broker-dealers and investment companies; and (4) a
      requirement to adjust the value of restricted stock for the effect of the
      restriction even if the restriction lapses within one year. FAS 157 is effective
      for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years. We have
      adopted FAS 157 effective for the first quarter of 2008.





At
      its
      September 2006 meeting, the Emerging Issues Task Force (“EITF”) reached a final
      consensus on Issue No. 06-4, Accounting for Deferred Compensation and
      Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
      Arrangements. The consensus stipulates that an agreement by an employer to
      share
      a portion of the proceeds of a life insurance policy with an employee during
      the
      postretirement period is a postretirement benefit arrangement required to be
      accounted for under Statement No. 106 (“SFAS No. 106”) or Accounting Principles
      Board (APB) Opinion No. 12, Omnibus Opinion-1967. The consensus concludes that
      the purchase of a split-dollar life insurance policy does not constitute a
      settlement under SFAS No. 106 and, therefore, a liability for the postretirement
      obligation must be recognized under SFAS No. 106 if the benefit is offered
      under
      an arrangement that constitutes a plan or under APB No. 12 if it is not part
      of
      a plan. Issue 06-04 is effective for annual or interim reporting periods
      beginning after December 15, 2007. The Company has endorsement split-dollar
      life
      insurance policies. A liability has been recorded through a cumulative-effect
      adjustment to retained earnings as of January 1, 2008 in the amount of $116,303.





At
      its
      March 2007 meeting, the EITF reached a final consensus on Issue No. 06-10,
      Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements.
      A
      consensus was reached that an employer should recognize a liability for the
      postretirement benefit related to a collateral assignment split-dollar life
      insurance arrangement in accordance with either FASB Statement No. 106 or APB
      Opinion No. 12, as appropriate, if the employer has agreed to maintain a life
      insurance policy during the employee’s retirement or provide the employee with a
      death benefit based on the substantive agreement with the employee. A consensus
      also was reached that an employer should recognize and measure an asset based
      on
      the nature and substance of the collateral assignment split-dollar life
      insurance arrangement. The consensuses are effective for fiscal years beginning
      after December 15, 2007, including interim periods within those fiscal years,
      with early application permitted. The Company has endorsement split-dollar
      life
      insurance policies. The implementation of EITF 06-10 will not have a material
      impact on the financial position and results of operations of the
      Company.





**Three
      Months Ended March 31, 2008 compared to Three Months Ended March 31,
      2007**





***Net
      Income:*** Net
      income for the first quarter of 2008 was $1,109,000 or $0.22 per diluted share,
      compared to $702,000, or $0.14 per diluted share, for the first quarter of
      2007.
      This quarterly increase in net income was driven by a $777,000 increase in
      non-interest income and a $224,000 increase in net interest income partially
      offset by an increase in provision expense of $100,000 and a $301,000 increase
      in non-interest expense.





23


***Net
      Interest Income:*** Net
      interest income was $3.8 million, an increase of $224,000 or 6.2 percent, from
      the 2007 first quarter. Average earning assets increased $14.6 million or 3.0
      percent over the 12-month period, all of which was organic growth. Loan growth
      over the past twelve months was $18.7 million, or 5.0 percent, reaching $392.0
      million at March 31, 2008; this growth was entirely organic. Commercial loans
      now account for nearly 66 percent of State Bank’s loan portfolio, and the
      majority of the Bank’s loan growth was derived from this sector. Loan growth
      during the first quarter remained steady. As of March 31, 2008, loans were
      $2.7
      million higher than year-end, with agricultural loans, up $4.1 million and
      commercial real estate loans, up $2.9 million. Growth for both periods was
      primarily offset by slight declines in residential and consumer loans.
      Year-over-year, the net interest margin increased 22 basis points from 3.04%
      for
      the first quarter 2007 to 3.26% for the first quarter 2008. The 3.26% represents
      a 14 basis point increase from the linked quarter of 3.12%. This increase is
      a
      result of an aggressive asset liability management program that the Company
      continues to execute.





***Provision
      for Loan Losses:*** The
      provision for loan losses was $192,000 in the first quarter of 2008 compared
      to
      a $93,000 in the first quarter of 2007. The increase in provision was due in
      part to the Company's growing loan portfolio and more than offset the Company’s
      net charge-offs, which totaled $166,000 for the first quarter of 2008. Net
      charge-offs during the first quarter of 2007 were $41,000. Total allowance
      for
      loan losses to total loans was 1.02% and consistent with the previous quarter
      levels. For the first quarter ended March 31, 2008, net charge-offs as a
      percentage of average loans was 0.17% annualized. At quarter end, consolidated
      non-performing assets, including those of RFCBC (the loan workout subsidiary),
      were $7.0 million or 1.22% of total assets compared with $4.1 million or 0.75%
      of total assets for the prior year first quarter.


*($in
                  Thousands)*
              
              
              March 31, 2008
              
              
              December 31, 2007
              
              
              March 31, 2007Non-performing
                  Assets
              
              $
              6,967
              
              $
              6,162
              
              $
              4,112Allowance
                  for loan losses / Total loans
              
              
              1.02
              %
              
              1.03
              %
              
              1.01
              %Allowance
                  for loan losses/Non-performing loans
              
              
              57.6
              %
              
              64.8
              %
              
              91.6
              %




***Non-interest
      Income:***  Non-interest
      income was $7.5 million for the first quarter of 2008 compared with $6.7 million
      for the first quarter of 2007, an increase of $777,000 or 11.5%. The increase
      was primarily driven by data processing fees as they increased $430,000. First
      quarter non-interest income was also positively impacted by the one-time
      recovery of $197,000 and $132,000, respectively, from the partial recovery
      of
      previously written off WorldCom securities and proceeds from the sale of equity
      securities derived from VISA Inc.’s Initial Public Offering. Non-interest income
      accounts for approximately 66% of Rurban’s total revenue.




***Non-interest
      Expense:*** Non-interest expense was $9.6 million for the first quarter of 2008, up $301,000
      or 3.2% from the year-earlier quarter. RDSI took billing for postage in-house
      during the quarter resulting in additional postage expense of $230,000 being
      recorded. This is offset by increases in revenue. Additionally, one-time
      expenses of $176,000 were recorded in the quarter related to the wind-down
      of
      RFCBC, Rurban’s loan workout subsidiary.




**Changes
      in Financial Condition**





**March
      31, 2008 vs. December 31, 2007**





At
      March
      31, 2008, total assets were $571.7 million, representing an increase of $10.5
      million or 1.9% from December 31, 2007. The increase was primarily attributable
      to an increase of $4.4 million or 220% in fed funds, a $1.7 million or 1.9%
      increase in available-for-sale securities, and a $2.7 million or 0.7% increase
      in loans net of unearned income.





24




Year
      over
      year, average assets increased $12.5 million, or 2.3%. Loan growth over the
      past
      twelve months was approximately $18.7 million, or 5.0%, reaching $392.0 million
      at March 31, 2008; this growth was entirely organic. Virtually all of the growth
      in the Bank’s loan portfolio over this period was derived from the commercial
      sector. Loan growth during the first quarter remained steady. As of March 31,
      2008, loans were $2.7 million higher than year-end, with agricultural loans,
      up
      $4.1 million and commercial real estate loans, up $2.9 million. Growth for
      both
      periods was primarily offset by slight declines in residential and consumer
      loans.





At
      March
      31, 2008, liabilities totaled $511.9 million, an increase of $10.0 million
      since
      December 31, 2007. Of this increase, virtually all was derived from an increase
      in total deposits, which increased $10.7 million or 2.6%. Of the $10.7 million
      increase in total deposits, money market accounts increased $11.3 million and
      interest bearing NOW accounts increased $5.2 million. Time deposits decreased
      $5.0 million during the period, while savings deposits decreased $1.0 million.
      The decrease in time deposits reflects the execution of run-off of municipal
      deposits as part of the planned balance sheet restructuring.





From
      December 31, 2007 to March 31, 2008, total shareholders’ equity increased
      $545,000 or 1.0% to $59.9 million. Of this increase, retained earnings increased
      $595,000 which is the result of $1.1 million in net income less $398,000 in
      cash
      dividends to shareholders. Also, accumulated other comprehensive loss increased
      $350,000 as the result of an increase in market value of the available-for-sale
      securities portfolio, and additional paid in-capital increased $21,000 as the
      result of stock option expense incurred during the quarter. The stock repurchase
      plan reduced capital by $421,000 during the period as 37,000 shares were
      repurchased during the quarter.





**Capital
      Resources**





At
      March
      31, 2008, actual capital levels (in millions) and minimum required levels were
      as follows:





Minimum
                RequiredMinimum Required
            
            To Be Well CapitalizedFor Capital
            
            Under Prompt CorrectiveActual
            
            Adequacy Purposes
            
            Action RegulationsAmount
            
            Ratio
            
            Amount
            
            Ratio
            
            Amount
            
            RatioTotal
                capital (to risk weighted assets)Consolidated
            
            $
            64.5
            
            
            15.8
            %
            $
            32.7
            
            
            8.0
            %
            $
            -
            
            
            N/AState
                Bank
            
            
            50.1
            
            
            12.6
            
            
            31.8
            
            
            8.0
            
            
            39.7
            
            
            10.0





Both
      the
      Company and State Bank were categorized as well-capitalized at March 31, 2008.





**LIQUIDITY**





Liquidity
      relates primarily to the Company’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 and due from banks, federal funds
      sold, interest earning deposits in other financial institutions, securities
      available for sale and loans held for sale. These assets are commonly referred
      to as liquid assets. Liquid assets were $119.0 million at March 31, 2008
      compared to $111.5 million at December 31, 2007.





25




The
      Company’s commercial real estate and residential first mortgage portfolio of
      $212.7 million at March 31, 2008, and $211.4 million at December 31, 2007,
      which
      can and has been readily used to collateralize borrowings, is an additional
      source of liquidity. Management believes the Company’s current liquidity level,
      without these borrowings, is sufficient to meet its liquidity needs. At March
      31, 2008, all eligible commercial real estate and first mortgage loans were
      pledged under an FHLB blanket lien.





The
      cash
      flow statements for the periods presented provide an indication of the Company’s
      sources and uses of cash, as well as an indication of the ability of the Company
      to maintain an adequate level of liquidity. A discussion of the cash flow
      statements for the three months ended March 31, 2008 and 2007
      follows.





The
      Company experienced positive cash flows from operating activities for the three
      months ended March 31, 2008 and 2007. Net cash from operating activities was
      $2.2 million and $556,000, respectively, for the three months ended March 31,
      2008 and 2007.





Cash
      flow
      from investing activities was a use of cash of $6.5 million for the three months
      ended March 31, 2008 and net funds provided of $1.4 million for the three months
      ended March 31, 2007. The changes in net cash from investing activities for
      the
      three months ended March 31, 2008 include the purchase of available-for-sale
      securities of $36.2 million, partially offset by the proceeds from maturities
      or
      calls of available-for-sale securities of $35.0 million, the net change in
      loans
      of $4.5 million, and the purchases of premises and equipment of $1.2 million.
      The changes in net cash from investing activities for the three months ended
      March 31, 2007 include the proceeds from maturities of available-for-sale
      securities $11.5 million, offset by the purchase of available-for-sale
      securities $5.7 million, the net change in loans of $3.3 million and the
      purchase of premises and equipment of $1.5 million.





Net
      cash
      flow from financing activities was $9.3 million, for the three months ended
      March 31, 2008 and $(7.3) million for the three months ended March 31, 2007.
      The
      2008 net cash increase was primarily due to a net increase in deposits of $10.7
      million, partially offset by net proceeds from FHLB advances of $1.0 million.
      The three months ended March 31, 2007 net cash decrease was due primarily to
      a
      net decrease in deposits of $2.0 million, proceeds from FHLB advances of $3.5
      million and the net decrease in securities sold under agreements to repurchase
      of $1.4 million.





**Off-Balance-Sheet
      Borrowing Arrangements:**





Significant
      additional off-balance-sheet liquidity is available in the form of FHLB
      advances, unused federal funds lines from correspondent banks, and the national
      certificate of deposit market. Management expects the risk of changes in
      off-balance-sheet arrangements to be immaterial to earnings.





Approximately
      $134.4 million of the Company’s $212.7 million commercial real estate and
      residential first mortgage loans qualify to collateralize FHLB borrowings and
      have been pledged to meet FHLB collateralization requirements as of March 31,
      2008. Based on the current collateralization requirements of the FHLB,
      approximately $27.3 million of additional borrowing capacity existed at March
      31, 2008.





At
      March
      31, 2008, the Company had $20.9 million in federal funds lines. As of December
      31, 2007, the Company had $20.9 million in federal funds lines. There were
      no
      Federal funds borrowed at March 31, 2008 and 2007. The Company also had $10.3
      million in unpledged securities of which $1.4 million may be used to pledge
      for
      additional borrowings.





The
      Company’s contractual obligations as of March 31, 2008 were comprised of
      long-term debt obligations, other debt obligations, operating lease obligations
      and other long-term liabilities. Long-term debt obligations are comprised of
      FHLB Advances of $23.0 million. Other debt obligations are comprised of Trust
      Preferred securities of $20.6 million and Notes Payable of $818,000. The
      operating lease obligation is a lease on the State Bank operations building
      of
      $99,600 per year, the RDSI-North building of $162,000 per year, the Northtowne
      branch of State Bank of $60,000 per year and the DCM Lansing facility which
      total $108,000 per year. Other long-term liabilities include time deposits
      of
      $218.4 million.





26




ASSET
      LIABILITY MANAGEMENT





Asset
      liability management involves developing and monitoring strategies to maintain
      sufficient liquidity, maximize net interest income and minimize the impact
      that
      significant fluctuations in market interest rates would have on earnings. The
      business of the Company and the composition of its balance sheet consist of
      investments in interest-earning assets (primarily loans, mortgage-backed
      securities, and securities available for sale) which are primarily funded by
      interest-bearing liabilities (deposits and borrowings). With the exception
      of
      specific loans which are originated and held for sale, all of the financial
      instruments of the Company are for other than trading purposes. All of the
      Company’s transactions are denominated in U.S. dollars with no specific foreign
      exchange exposure. In addition, the Company has limited exposure to commodity
      prices related to agricultural loans. The impact of changes in foreign exchange
      rates and commodity prices on interest rates are assumed to be insignificant.
      The Company’s financial instruments have varying levels of sensitivity to
      changes in market interest rates resulting in market risk. Interest rate risk
      is
      the Company’s primary market risk exposure; to a lesser extent, liquidity risk
      also impacts market risk exposure.





Interest
      rate risk is the exposure of a banking institution’s financial condition to
      adverse movements in interest rates. Accepting this risk can be an important
      source of profitability and shareholder value; however, excessive levels of
      interest rate risk could pose a significant threat to the Company’s earnings and
      capital base. Accordingly, effective risk management that maintains interest
      rate risks at prudent levels is essential to the Company’s safety and
      soundness.





Evaluating
      a financial institution’s exposure to changes in interest rates includes
      assessing both the adequacy of the management process used to control interest
      rate risk and the organization’s quantitative level of exposure. When assessing
      the interest rate risk management process, the Company seeks to ensure that
      appropriate policies, procedures, management information systems, and internal
      controls are in place to maintain interest rate risks at prudent levels of
      consistency and continuity. Evaluating the quantitative level of interest rate
      risk exposure requires the Company to assess the existing and potential future
      effects of changes in interest rates on its consolidated financial condition,
      including capital adequacy, earnings, liquidity, and asset quality (when
      appropriate).





The
      Federal Reserve Board together with the Office of the Comptroller of the
      Currency and the Federal Deposit Insurance Company, adopted a Joint Agency
      Policy Statement on interest rate risk effective June 26, 1996. The policy
      statement provides guidance to examiners and bankers on sound practices for
      managing interest rate risk, which will form the basis for ongoing evaluation
      of
      the adequacy of interest rate risk management at supervised institutions. The
      policy statement also outlines fundamental elements of sound management that
      have been identified in prior Federal Reserve guidance and discusses the
      importance of these elements in the context of managing interest rate risk.
      Specifically, the guidance emphasizes the need for active board of director
      and
      senior management oversight and a comprehensive risk management process that
      effectively identifies, measures, and controls interest rate risk.





Financial
      institutions derive their income primarily from the excess of interest collected
      over interest paid. The rates of interest an institution earns on its assets
      and
      owes on its liabilities generally are established contractually for a period
      of
      time. Since market interest rates change over time, an institution is exposed
      to
      lower profit margins (or losses) if it cannot adapt to interest rate changes.
      For example, assume that an institution’s assets carry intermediate or long term
      fixed rates and that those assets are funded with short-term liabilities. If
      market interest rates rise by the time the short-term liabilities must be
      refinanced, the increase in the institution’s interest expense on its
      liabilities may not be sufficiently offset if assets continue to earn at the
      long-term fixed rates. Accordingly, an institution’s profits could decrease on
      existing assets because the institution will either have lower net interest
      income or possibly, net interest expense. Similar risks exist when assets are
      subject to contractual interest rate ceilings, or rate sensitive assets are
      funded by longer-term, fixed-rate liabilities in a declining rate
      environment.





27




There
      are
      several ways an institution can manage interest rate risk including: 1) matching
      repricing periods for new assets and liabilities, for example, by shortening
      terms of new loans or investments; 2) selling existing assets or repaying
      certain liabilities; and 3) hedging existing assets, liabilities, or anticipated
      transactions. An institution might also invest in more complex financial
      instruments intended to hedge or otherwise change interest rate risk. Interest
      rate swaps, futures contacts, options on futures contracts, and other such
      derivative financial instruments can be used for this purpose. Because these
      instruments are sensitive to interest rate changes, they require management’s
      expertise to be effective. The Company has not purchased derivative financial
      instruments in the past but may purchase such instruments in the future if
      market conditions are favorable.





**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk**





The
      following table provides information about the Company’s financial instruments
      used for purposes other than trading that are sensitive to changes in interest
      rates as of March 31, 2008. It does not present when these items may actually
      reprice. For loans receivable, securities, and liabilities with contractual
      maturities, the table presents principal cash flows and related weighted-average
      interest rates by contractual maturities as well as the historical impact of
      interest rate fluctuations on the prepayment of loans and mortgage backed
      securities. For core deposits (demand deposits, interest-bearing checking,
      savings, and money market deposits) that have no contractual maturity, the
      table
      presents principal cash flows and applicable related weighted-average interest
      rates based upon the Company’s historical experience, management’s judgment and
      statistical analysis, as applicable, concerning their most likely withdrawal
      behaviors. The current historical interest rates for core deposits have been
      assumed to apply for future periods in this table as the actual interest rates
      that will need to be paid to maintain these deposits are not currently known.
      Weighted average variable rates are based upon contractual rates existing at
      the
      reporting date.





**Principal/Notional
      Amount Maturing or Assumed to Withdraw In:**


**(Dollars
      in Thousands)**





First
            
            YearsComparison
                  of 2008 to 2007:
            
            Year
            
            2 –
                5
            
            Thereafter
            
            TotalTotal
                rate-sensitive assets:At
                March 31, 2008
            
            $
            174,377
            
            $
            187,940
            
            $
            136,951
            
            $
            499,268At
                December 31, 2007
            
            
            176,907
            
            
            179,502
            
            
            133,191
            
            
            489,601Increase
                (decrease)
            
            $
            (2,530
            )
            $
            8,438
            
            $
            3,760
            
            $
            9,667Total
                rate-sensitive liabilities:At
                March 31, 2008
            
            $
            229,440
            
            $
            252,956
            
            $
            22,291
            
            $
            504,687At
                December 31, 2007
            
            
            231,589
            
            
            241,378
            
            
            21,612
            
            
            494,579Increase
                (decrease)
            
            $
            (2,149
            )
            $
            11,578
            
            $
            679
            
            $
            10,108





The
      above
      table reflects expected maturities, not expected repricing. The contractual
      maturities adjusted for anticipated prepayments and anticipated renewals at
      current interest rates, as shown in the preceding table, are only part of the
      Company’s interest rate risk profile. Other important factors include the ratio
      of rate-sensitive assets to rate-sensitive liabilities (which takes into
      consideration loan repricing frequency, but not when deposits may be repriced)
      and the general level and direction of market interest rates. For core deposits,
      the repricing frequency is assumed to be longer than when such deposits actually
      reprice. For some rate sensitive liabilities, their repricing frequency is
      the
      same as their contractual maturity. For variable rate loans receivable,
      repricing frequency can be daily or monthly. For adjustable rate loans
      receivable, repricing can be as frequent as annually for loans whose contractual
      maturities range from one to thirty years. Recent Fed actions, economic
      conditions and increasingly aggressive local market competition have pushed
      loan
      rates lower, necessitating the Company’s ability to generate and reprice core
      deposits downward which has enabled the Company to reduce overall funding
      costs.





28




The
      Company manages its interest rate risk by the employment of strategies to assure
      that desired levels of both interest-earning assets and interest-bearing
      liabilities mature or reprice with similar time frames. Such strategies include:
      1) loans receivable which are renewed (and repriced) annually, 2) variable
      rate
      loans, 3) certificates of deposit with terms from one month to six years, 4)
      securities available for sale which mature at various times primarily from
      one
      through ten years, 5) federal funds borrowings with terms of one day to 90
      days,
      and 6) FHLB borrowings with terms of one day to ten years.





**Item
      4T. Controls and Procedures**





Evaluation
      of Disclosure Controls and Procedures





With
      the
      participation of the President and Chief Executive Officer (the principal
      executive officer) and the Executive Vice President and Chief Financial Officer
      (the principal financial officer) of the Company, the Company’s management has
      evaluated the effectiveness of the Company’s disclosure controls and procedures
      (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as
      amended (the “Exchange Act”)) as of the end of the quarterly period covered by
      this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s
      President and Chief Executive Officer and Executive Vice President and Chief
      Financial Officer have concluded that:





**·**
            information
                required to be disclosed by the Company in this Quarterly Report
                on Form
                10-Q and other reports which the Company files or submits under the
                Exchange Act would be accumulated and communicated to the Company’s
                management, including its principal executive officer and principal
                financial officer, as appropriate to allow timely decisions regarding
                required disclosure;





**·**
            information
                required to be disclosed by the Company in this Quarterly Report
                on Form
                10-Q and other reports which the Company files or submits under the
                Exchange Act would be recorded, processed, summarized and reported
                within
                the time periods specified in the SEC’s rules and forms;
                and





**·**
            the
                Company’s disclosure controls and procedures were effective as of the end
                of the quarterly period covered by this Quarterly Report on Form
                10-Q.





Changes
      in Internal Control Over Financial Reporting





There
      were no changes in the Company’s internal control over financial reporting (as
      defined in Rule 13a-15(f) under the Exchange Act) that occurred during the
      Company’s fiscal quarter ended March 31, 2008, that have materially affected, or
      are reasonably likely to materially affect, the Company’s internal control over
      financial reporting.




29


**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings**


There
      are
      no material pending legal proceedings against the Company or any of its
      subsidiaries other than ordinary, routine litigation incidental to their
      respective businesses. In the opinion of management, this litigation should
      not,
      individually or in the aggregate, have a material adverse effect on the
      Company’s results of operations or financial condition.





**Item
      1A. Risk Factors**


An
      investment in our common shares involves certain risks, including those
      identified and described in “Item 1A. Risk Factors” of Part I of the Company’s
      Annual Report on Form 10-K for the fiscal year ended December 31, 2007, as
      well
      as in the Cautionary Statements Regarding Forward-Looking Information contained
      on page 18 of this Form 10-Q. These risk factors could materially affect the
      Company’s business, financial condition or future results. There have been no
      material change in the risk factors previously disclosed in the Company’s Annual
      Report on Form 10-K for the fiscal year ended December 31, 2007.





**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**


a.
            Not
                applicable


b.
            Not
                applicable


c.
            The
                following table provides information regarding repurchases of the
                Company’s common shares during the three months ended March 31,
                2008:


Period
              
              Total Number ofShares Purchased(1)
              
              Average PricePaid per Share
              
              Total Number ofShares Purchasedas Part of PubliclyAnnounced Plansor Programs
              
              MaximumNumber (orApproximateDollar Value) ofShares that MayYet Be PurchasedUnder the Plans orPrograms (2)January
                  1 through January 31, 2008
              
              
              902
              
              $
              11.49
              
              
              —
              
              
              201,500February
                  1 through February 29, 2008
              
              
              25,661
              
              $
              11.47
              
              
              22,000
              
              
              179,500March
                  1 through March 31, 2008
              
              
              15,517
              
              $
              10.86
              
              
              15,000
              
              
              164,500





(1)
            In
                February and March 2008, 3,661 and 517 of the repurchased shares
                respectively, were purchased in the open market by Reliance Financial
                Services, an indirect subsidiary of the Company, in its capacity
                as the
                administrator of the Company’s Employee Stock Ownership and Savings Plan.
                The balance of shares repurchased were part of the publicly announced
                plan.


(2)
            On
                April 12, 2007, the Company announced that its Board of Directors
                had
                authorized a stock repurchase program pursuant to which the Company
                may
                purchase up to 250,000 common shares over the ensuing 15-month
                period.





**Item
      3. Defaults Upon Senior Securities**


Not
      applicable




30




**Item
      4. Submission of Matters to a Vote of Security Holders** ****




The
      2008
      Annual Meeting of Shareholders of Rurban Financial Corp. was held on April
      17,
      2008, in Defiance, Ohio. Mark A. Klein, serving as Chairman of the Annual
      Meeting, presided.





At
      the
      close of business on the February 19, 2008 record date for the Annual Meeting,
      a
      total of 4,966,537 common shares of the Company were outstanding and entitled
      to
      vote. A total of 4,208,188, or 84.7% of the outstanding common shares entitled
      to vote, were represented by proxy or in person at the Annual Meeting.
      Therefore, a quorum was present. The proposal to adopt an amendment to Section
      2.01 of the Company’s Amended and Restated Regulations, which would have removed
      the 70-year age limit with respect to a person’s election or re-election as a
      director of the Company, was not approved. The eligible candidates for election
      as Directors, pending the outcome of Proposal One listed in the proxy statement,
      were elected to serve three-year terms expiring at the Annual Shareholder
      Meeting in 2011. The Rurban Financial Corp. 2008 Stock Incentive Plan was
      approved.





**Summary
      of Matters Voted Upon by Shareholders**





**1.**
            To
                adopt the proposed amendment to Section 2.01 of the Company’s Amended and
                Restated Regulations, which would remove the 70-year age limit with
                respect to a person’s election or re-election as a director of the
                Company:


Number
                  of SharesVotes
                  For
              
              
              Votes
                  Against
              
              
              Abstain2,381,560
              
              
              944,480
              
              
              882,148





**2.**
            Election
                of Directors:


Nominee
              
              Votes
                  For
              
              Votes
                  WithheldJohn
                  R. Compo
              
              
              3,669,831
              
              
              538,357Robert
                  A. Fawcett, Jr.
              
              
              3,679,800
              
              
              528,388Rita
                  A. Kissner
              
              
              3,679,172
              
              
              529,016





**3.**
            To
                approve the Rurban Financial Corp. 2008 Stock Incentive
                Plan:


Votes
                  For
              
              
              Votes
                  Against
              
              
              Abstain2,615,419
              
              
              640,377
              
              
              952,393





Directors
      whose term of office continued after the Annual Meeting:





Thomas
      A.
      Buis


Thomas
      M.
      Callan


Richard
      L. Hardgrove


Kenneth
      A. Joyce


Thomas
      L.
      Sauer


Steven
      D.
      VanDemark


J.
      Michael Walz





John
      Fahl, who has been a Board Member since 1996 and helped guide your Company
      through its challenging times, did not continue as a director following the
      Annual Meeting due to the failure of the proposed amendment to Section 2.01
      of
      the Company’s Amended and Restated Regulations to receive the necessary approval
      of shareholders. The amendment required the affirmative vote of at least a
      majority of the total common shares outstanding and entitled to vote at the
      Annual Meeting. Although Mr. Fahl received over 80% of the votes cast for his
      reelection at the Annual Meeting, he was ineligible for reelection due to the
      70-year age limit.





31





**Item
      5. Other Information**


Not
      applicable





**Item
      6. Exhibits**





Exhibits





31.1
–
      Rule 13a-14(a)/15d-14(a) Certification (Principal Executive
      Officer)


31.2
–
      Rule 13a-14(a)/15d-14(a) Certification (Principal Financial
      Officer)


32.1
–
      Section 1350 Certification (Principal Executive Officer)


32.2
–
      Section 1350 Certification (Principal Financial Officer)




32





**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      caused this report to be signed on its behalf by the undersigned hereunto duly
      authorized.





RURBAN
                FINANCIAL CORP.Date:May
                13, 2008
            By
            /s/
                Kenneth A. JoyceKenneth
                A. JoycePresident
                & Chief Executive OfficerBy
            /s/
                Duane L. SinnDuane
                L. SinnExecutive
                Vice President &Chief
                Financial Officer




33