##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 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.
  Ohio
    
    34-1395608(State or other jurisdiction of
    
    (I.R.S. Employer Identification
No.)incorporation or organization)
 401 Clinton Street, Defiance, Ohio 43512
    (Registrants telephone number, including area code)
  (Former name, former address and former fiscal year, if changed since last report.)
 þ o
  o o þ
 o þ
  Common Shares, without par value
    
    5,027,433 shares(class)
    
    (Outstanding at November 13, 2006)




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##### 



RURBAN FINANCIAL CORP.
 FORM 10-Q
 TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsItem 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3.
    
    Quantitative and Qualitative Disclosures About Market RiskItem 4.
    
    Controls and ProceduresPART II  OTHER INFORMATIONItem 1.
    
    Legal ProceedingsItem 1A.
    
    Risk FactorsItem 2.
    
    Unregistered Sales of Equity Securities and Use of ProceedsItem 3.
    
    Defaults Upon Senior SecuritiesItem 4.
    
    Submission of Matters to a Vote of Security HoldersItem 5.
    
    Other InformationItem 6.
    
    ExhibitsSignaturesEX-31.1EX-31.2EX-32.1EX-32.2
   2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
  3




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Rurban Financial Corp.
 Condensed Consolidated Balance Sheets
September 30, 2006 and December 31, 2005
 Assets
 (Unaudited)September 30,
    
    
    December 31,2006
    
    
    2005Cash and due from banks
    
    $
    18,333,213
    
    
    $
    12,650,839Interest-bearing deposits
    
    
    150,000
    
    
    
    150,000Available-for-sale securities
    
    
    127,863,121
    
    
    
    139,353,329Loans held for sale
    
    
    282,100
    
    
    
    224,000Loans, net of unearned income
    
    
    364,343,193
    
    
    
    327,048,229Allowance for loan losses
    
    
    (4,521,911
    )
    
    
    (4,699,827
    )Premises and equipment
    
    
    13,790,324
    
    
    
    13,346,632Purchased software
    
    
    4,722,746
    
    
    
    3,916,913Federal Reserve and Federal Home Loan Bank stock
    
    
    3,994,000
    
    
    
    3,607,500Foreclosed assets held for sale, net
    
    
    490,256
    
    
    
    2,309,900Interest receivable
    
    
    3,399,893
    
    
    
    3,010,355Goodwill
    
    
    13,517,292
    
    
    
    8,917,373Core deposits and other intangibles
    
    
    6,027,386
    
    
    
    3,742,333Cash value of life insurance
    
    
    10,706,737
    
    
    
    10,443,487Other
    
    
    6,888,763
    
    
    
    6,521,213Total assets
    
    $
    569,987,113
    
    
    $
    530,542,276
 See notes to condensed consolidated financial statements (unaudited)
 Note:
    
    The balance sheet at December 31, 2005 has been derived from the audited consolidated financial statements at that date.
 4




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##### Table of Contents



Rurban Financial Corp.
 Condensed Consolidated Balance Sheets (continued)
September 30, 2006 and December 31, 2005
 Liabilities and Stockholders Equity
 (Unaudited)September 30,
    
    
    December 31,2006
    
    
    2005LiabilitiesDepositsDemand
    
    $
    44,369,103
    
    
    $
    52,073,751Savings, interest checking and money market
    
    
    133,184,971
    
    
    
    124,206,115Time
    
    
    234,623,570
    
    
    
    208,558,046Total deposits
    
    
    412,177,644
    
    
    
    384,837,912Notes payable
    
    
    2,468,646
    
    
    
    938,572Federal Home Loan Bank advances
    
    
    38,500,000
    
    
    
    45,500,000Federal funds purchased
    
    
    800,000
    
    
    
    4,600,000Retail repurchase agreements
    
    
    31,784,052
    
    
    
    6,080,420Trust preferred securities
    
    
    20,620,000
    
    
    
    20,620,000Interest payable
    
    
    2,108,320
    
    
    
    1,373,044Other liabilities
    
    
    5,417,278
    
    
    
    12,141,680Total liabilities
    
    
    513,875,940
    
    
    
    476,091,628Commitments and Contingent LiabilitiesStockholders EquityCommon stock, $2.50 stated value; authorized
10,000,000 shares; issued 5,027,433; outstanding
September 30, 2006  5,027,433 and December 31, 2005
 5,027,433
    
    
    12,568,583
    
    
    
    12,568,583Additional paid-in capital
    
    
    14,852,930
    
    
    
    14,835,110Retained earnings
    
    
    29,998,511
    
    
    
    28,702,817Accumulated other comprehensive loss
    
    
    (1,308,851
    )
    
    
    (1,655,862
    )Total stockholders equity
    
    
    56,111,173
    
    
    
    54,450,648Total liabilities and stockholders equity
    
    $
    569,987,113
    
    
    $
    530,542,276
 See notes to condensed consolidated financial statements (unaudited)
 Note:
    
    The balance sheet at December 31, 2005 has been derived from the audited consolidated financial statements at that date.
 5




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Rurban Financial Corp.
 Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended
 September 30,
    
    
    September 30,2006
    
    
    2005Interest IncomeLoansTaxable
    
    $
    6,641,379
    
    
    $
    4,187,543Tax-exempt
    
    
    18,326
    
    
    
    17,898SecuritiesTaxable
    
    
    1,306,979
    
    
    
    1,095,151Tax-exempt
    
    
    183,466
    
    
    
    71,264Other
    
    
    7,323
    
    
    
    57,498Total interest income
    
    
    8,157,473
    
    
    
    5,429,354Interest ExpenseDeposits
    
    
    3,017,993
    
    
    
    1,615,308Other borrowings
    
    
    67,773
    
    
    
    67,162Retail repurchase agreements
    
    
    182,007
    
    
    
    23,874Federal Home Loan Bank advances
    
    
    667,749
    
    
    
    440,175Trust preferred securities
    
    
    466,417
    
    
    
    300,360Total interest expense
    
    
    4,401,939
    
    
    
    2,446,879Net Interest Income
    
    
    3,755,534
    
    
    
    2,982,475Provision (Credit) for Loan Losses
    
    
    35,000
    
    
    
    (382,000
    )Net Interest Income After Provision (Credit) for Loan Losses
    
    
    3,720,534
    
    
    
    3,364,475Non-interest IncomeData service fees
    
    
    3,785,037
    
    
    
    3,042,996Trust fees
    
    
    753,449
    
    
    
    767,969Customer service fees
    
    
    542,518
    
    
    
    526,197Net gains on loan sales
    
    
    283,123
    
    
    
    28,895Net realized gains on sales of available-for-sale securities
    
    
    
    
    
    
    34,050Loan servicing fees
    
    
    96,754
    
    
    
    79,186Gain (loss) on sale of assets
    
    
    25,914
    
    
    
    (36,011
    )Other
    
    
    415,961
    
    
    
    151,328Total non-interest income
    
    
    5,902,756
    
    
    
    4,594,610
 See notes to condensed consolidated financial statements (unaudited)
 6




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Rurban Financial Corp.
 Condensed Consolidated Statements of Income (Unaudited) (continued)
Three Months Ended
 September 30,
    
    
    September 30,2006
    
    
    2005Non-interest ExpenseSalaries and employee benefits
    
    $
    4,253,924
    
    
    $
    3,607,270Net occupancy expense
    
    
    468,855
    
    
    
    312,661Equipment expense
    
    
    1,445,073
    
    
    
    1,294,686Data processing fees
    
    
    146,703
    
    
    
    99,085Professional fees
    
    
    481,132
    
    
    
    467,951Marketing expense
    
    
    168,031
    
    
    
    144,954Printing and office supplies
    
    
    126,765
    
    
    
    115,320Telephone and communications
    
    
    467,692
    
    
    
    388,900Postage and delivery expense
    
    
    142,957
    
    
    
    77,979State, local and other taxes
    
    
    188,464
    
    
    
    146,683Employee expense
    
    
    235,429
    
    
    
    225,032Other
    
    
    389,631
    
    
    
    338,556Total non-interest expense
    
    
    8,514,656
    
    
    
    7,219,077Income Before Income Tax
    
    
    1,108,634
    
    
    
    740,008Provision for Income Taxes
    
    
    294,893
    
    
    
    247,824Net Income
    
    $
    813,741
    
    
    $
    492,184Basic Earnings Per Share
    
    $
    0.16
    
    
    $
    0.11Diluted Earnings Per Share
    
    $
    0.16
    
    
    $
    0.11Dividends Declared Per Share
    
    $
    0.05
    
    
    $
    0.05
 See notes to condensed consolidated financial statements (unaudited)
 7




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Rurban Financial Corp.
 Condensed Consolidated Statements of Income (Unaudited)
Nine Months Ended
 September 30,
    
    
    September 30,2006
    
    
    2005Interest IncomeLoansTaxable
    
    $
    18,238,590
    
    
    $
    12,098,708Tax-exempt
    
    
    45,718
    
    
    
    48,227SecuritiesTaxable
    
    
    3,953,438
    
    
    
    3,134,559Tax-exempt
    
    
    451,869
    
    
    
    165,462Other
    
    
    57,635
    
    
    
    159,716Total interest income
    
    
    22,747,250
    
    
    
    15,606,672Interest ExpenseDeposits
    
    
    7,695,387
    
    
    
    4,012,052Other borrowings
    
    
    120,220
    
    
    
    204,365Retail repurchase agreements
    
    
    465,560
    
    
    
    60,328Federal Home Loan Bank advances
    
    
    1,684,415
    
    
    
    1,581,052Trust preferred securities
    
    
    1,331,615
    
    
    
    842,170Total interest expense
    
    
    11,297,197
    
    
    
    6,699,967Net Interest Income
    
    
    11,450,053
    
    
    
    8,906,705Provision (Credit) for Loan Losses
    
    
    337,321
    
    
    
    (30,000
    )Net Interest Income After Provision
(Credit) for Loan Losses
    
    
    11,112,732
    
    
    
    8,936,705Non-interest IncomeData service fees
    
    
    10,312,757
    
    
    
    9,312,961Trust fees
    
    
    2,361,127
    
    
    
    2,351,509Customer service fees
    
    
    1,635,272
    
    
    
    1,409,199Net gains on loan sales
    
    
    415,833
    
    
    
    46,243Net realized gains on sales of
available-for-sale securities
    
    
    
    
    
    
    25,300Loan servicing fees
    
    
    301,233
    
    
    
    225,326Gain (loss) on sale of assets
    
    
    85,346
    
    
    
    (18,935
    )Other
    
    
    1,067,739
    
    
    
    513,714Total non-interest income
    
    
    16,179,307
    
    
    
    13,865,317
 See notes to condensed consolidated financial statements (unaudited)
 8




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Rurban Financial Corp.
 Condensed Consolidated Statements of Income (Unaudited) (continued)
Nine Months Ended
 September 30,
    
    
    September 30,2006
    
    
    2005Non-interest ExpenseSalaries and employee benefits
    
    $
    11,906,909
    
    
    $
    10,339,614Net occupancy expense
    
    
    1,334,722
    
    
    
    897,058Equipment expense
    
    
    4,168,534
    
    
    
    3,831,477Data processing fees
    
    
    402,661
    
    
    
    303,781Professional fees
    
    
    1,525,399
    
    
    
    1,697,020Marketing expense
    
    
    536,977
    
    
    
    308,925Printing and office supplies
    
    
    453,110
    
    
    
    397,153Telephone and communications
    
    
    1,277,707
    
    
    
    1,144,334Postage and delivery expense
    
    
    397,217
    
    
    
    236,006State, local and other taxes
    
    
    512,757
    
    
    
    380,036Employee expense
    
    
    745,341
    
    
    
    726,561Other
    
    
    1,283,228
    
    
    
    1,163,450Total non-interest expense
    
    
    24,544,562
    
    
    
    21,425,415Income Before Income Tax
    
    
    2,747,477
    
    
    
    1,376,607Provision for Income Taxes
    
    
    697,668
    
    
    
    359,661Net Income
    
    $
    2,049,809
    
    
    $
    1,016,946Basic Earnings Per Share
    
    $
    0.41
    
    
    $
    0.22Diluted Earnings Per Share
    
    $
    0.41
    
    
    $
    0.22Dividends Declared Per Share
    
    $
    0.15
    
    
    $
    0.15
 See notes to condensed consolidated financial statements (unaudited)
 9




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RURBAN FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY (UNAUDITED)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Balance at beginning of period
    
    $
    54,026,126
    
    
    $
    50,599,536
    
    
    $
    54,450,648
    
    
    $
    50,305,795Net Income
    
    
    813,741
    
    
    
    492,184
    
    
    
    2,049,809
    
    
    
    1,016,946Other comprehensive income
(loss):Net change in unrealized
gains (losses)
on securities available
for sale, net
    
    
    1,516,738
    
    
    
    (582,396
    )
    
    
    347,011
    
    
    
    (393,135
    )Total comprehensive income
(loss)
    
    
    2,330,479
    
    
    
    (90,212
    )
    
    
    2,396,820
    
    
    
    623,811Cash dividend
    
    
    (251,372
    )
    
    
    (228,566
    )
    
    
    (754,113
    )
    
    
    (685,443
    )Stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,595Stock option expense
    
    
    5,940
    
    
    
    
    
    
    
    17,818
    
    
    
    Balance at end of period
    
    $
    56,111,173
    
    
    $
    50,280,758
    
    
    $
    56,111,173
    
    
    $
    50,280,758
 See notes to condensed consolidated financial statements (unaudited)
 10




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Rurban Financial Corp.
 Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
 September 30,
    
    
    September 30,2006
    
    
    2005Operating ActivitiesNet income
    
    $
    2,049,809
    
    
    $
    1,016,946Adjustments to reconcile net income to net cash provided by
operating activitiesDepreciation and amortization
    
    
    2,640,971
    
    
    
    2,280,844Provision for loan losses
    
    
    337,321
    
    
    
    (30,000
    )Expense of stock option plan
    
    
    17,818
    
    
    
    Amortization of premiums and discounts on securities
    
    
    170,767
    
    
    
    143,019Amortization of intangible assets
    
    
    366,947
    
    
    
    77,815Deferred income taxes
    
    
    (847,663
    )
    
    
    83,746Gain from sale of loans
    
    
    (415,833
    )
    
    
    (46,243
    )Gain on sales of foreclosed assets
    
    
    (92,432
    )
    
    
    19,221FHLB Stock Dividends
    
    
    (386,500
    )
    
    
    (82,400
    )(Gain) loss on sales of premises and equipment
    
    
    7,086
    
    
    
    (286
    )Net realized gains on available-for-sale securities
    
    
    
    
    
    
    (25,300
    )Changes inProceeds from sale of loans held for sale
    
    
    15,207,292
    
    
    
    4,468,743Originations of loans held for sale
    
    
    (14,849,559
    )
    
    
    (4,309,600
    )Interest receivable
    
    
    (389,538
    )
    
    
    (455,632
    )Other assets
    
    
    (223,486
    )
    
    
    343,478Interest payable and other liabilities
    
    
    (1,005,408
    )
    
    
    (22,740
    )Net cash provided by operating activities
    
    
    2,587,592
    
    
    
    3,461,611Investing ActivitiesPurchases of available-for-sale securities
    
    
    (13,783,842
    )
    
    
    (30,171,309
    )Proceeds from maturities of available-for-sale securities
    
    
    10,417,559
    
    
    
    13,792,631Proceeds from the sales of available-for-sale securities
    
    
    15,240,716
    
    
    
    5,310,512Net change in loans
    
    
    (38,187,317
    )
    
    
    (4,223,001
    )Purchase of premises and equipment
    
    
    (3,728,676
    )
    
    
    (2,760,567
    )Proceeds from assumption of net liabilities in business
acquisition
    
    
    
    
    
    
    48,645,686Cash paid to shareholders of Diverse Computer Marketers, Inc
Acquisition
    
    
    (4,803,577
    )
    
    
    Cash paid to shareholders of Exchange Bank Acquisition
    
    
    (6,526,646
    )
    
    
    Proceeds from sales of premises and equipment
    
    
    38,741
    
    
    
    288,553Proceeds from the sale of foreclosed assets
    
    
    2,670,459
    
    
    
    1,573,627Net cash provided by (used in) investing activities
    
    
    (38,662,583
    )
    
    
    32,456,132
 See notes to condensed consolidated financial statements (unaudited)
 11




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Rurban Financial Corp.
 Condensed Consolidated Statements of Cash Flows (Unaudited) (continued)
Nine Months Ended
 September 30,
    
    
    September 30,2006
    
    
    2005Financing ActivitiesNet increase (decrease) in demand deposits, money market,
interest checking and savings accounts
    
    $
    1,274,208
    
    
    $
    (2,126,650
    )Net increase (decrease) in certificates of deposit
    
    
    26,065,524
    
    
    
    (19,389,270
    )Net increase in securities sold under agreements to repurchase
    
    
    25,703,630
    
    
    
    2,541,001Net decrease in federal funds purchased
    
    
    (3,800,000
    )
    
    
    (5,400,000
    )Proceeds from note payable
    
    
    2,500,000
    
    
    
    Proceeds from Federal Home Loan Bank advances
    
    
    27,900,000
    
    
    
    12,500,000Repayment of Federal Home Loan Bank advances
    
    
    (34,900,000
    )
    
    
    (34,500,000
    )Repayment of notes payable
    
    
    (2,231,884
    )
    
    
    (1,026,862
    )Dividends paid
    
    
    (754,113
    )
    
    
    (685,443
    )Proceeds from stock options exercised
    
    
    
    
    
    
    36,595Net cash provided by (used in) financing activities
    
    
    41,757,365
    
    
    
    (37,740,629
    )(Decrease) Increase in Cash and Cash Equivalents
    
    
    5,682,374
    
    
    
    (1,822,886
    )Cash and Cash Equivalents, Beginning of Year
    
    
    12,650,839
    
    
    
    10,617,766Cash and Cash Equivalents, End of Period
    
    $
    18,333,213
    
    
    $
    8,794,880Supplemental Cash Flows InformationInterest paid
    
    $
    10,561,921
    
    
    $
    6,522,908Transfer of loans to foreclosed assets
    
    $
    459,923
    
    
    $
    3,126,638
 See notes to condensed consolidated financial statements (unaudited)
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##### Table of Contents



RURBAN FINANCIAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE ABASIS OF PRESENTATION
    Reclassifications
  Stock Based Compensation
  Accounting for Stock Issued to Employees,
  13




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##### Table of Contents



Three Months Ended September 30, 2006Using Previous
    
    
    SFAS 123(R)
    
    
    AsAccounting
    
    
    Adjustment
    
    
    ReportedIncome before tax expense
    
    $
    1,114,574
    
    
    $
    (5,940
    )
    
    $
    1,108,634Income taxes
    
    
    294,893
    
    
    
    
    
    
    
    294,893Net income
    
    $
    819,681
    
    
    $
    (5,940
    )
    
    $
    813,741Earnings per share:Basic
    
    $
    0.16
    
    
    
    
    
    
    $
    0.16Diluted
    
    $
    0.16
    
    
    
    
    
    
    $
    0.16
 Nine Months Ended September 30, 2006Using Previous
    
    
    SFAS 123(R)
    
    
    AsAccounting
    
    
    Adjustment
    
    
    ReportedIncome before tax expense
    
    $
    2,765,295
    
    
    $
    (17,818
    )
    
    $
    2,747,477Income taxes
    
    
    697,668
    
    
    
    
    
    
    
    697,668Net income
    
    $
    2,067,627
    
    
    $
    (17,818
    )
    
    $
    2,049,809Earnings per share:Basic
    
    $
    0.41
    
    
    
    
    
    
    $
    0.41Diluted
    
    $
    0.41
    
    
    
    
    
    
    $
    0.41
 Three Months Ended September 30, 2005SFAS 123(R)As Reported
    
    
    Adjustment
    
    
    ProformaNet income before tax expense
    
    $
    740,008
    
    
    $
    (2,970
    )
    
    $
    737,038Income taxes
    
    
    247,824
    
    
    
    
    
    
    
    247,824Net Income
    
    $
    492,184
    
    
    $
    (2,970
    )
    
    $
    489,214Earnings per share:Basic
    
    $
    0.11
    
    
    
    
    
    
    $
    0.11Diluted
    
    $
    0.11
    
    
    
    
    
    
    $
    0.11
 Nine Months Ended September 30, 2005SFAS 123(R)As Reported
    
    
    Adjustment
    
    
    ProformaIncome before tax expense
    
    $
    1,376,607
    
    
    $
    (640,765
    )
    
    $
    735,842Income taxes
    
    
    359,661
    
    
    
    
    
    
    
    359,661Net income
    
    $
    1,016,946
    
    
    $
    (640,765
    )
    
    $
    376,181Earnings per share:Basic
    
    $
    0.22
    
    
    
    
    
    
    $
    0.08Diluted
    
    $
    0.22
    
    
    
    
    
    
    $
    0.08
 14




---



##### Table of Contents



NOTE BEARNINGS PER SHARE
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Basic earnings per share
    
    
    5,027,433
    
    
    
    4,573,033
    
    
    
    5,027,433
    
    
    
    4,570,266Diluted earnings per share
    
    
    5,027,704
    
    
    
    4,574,492
    
    
    
    5,030,084
    
    
    
    4,584,070
 NOTE C
 LOANS, RISK ELEMENTS AND ALLOWANCE FOR LOAN LOSSES
  September 30,
    
    
    December 31,2006
    
    
    2005Commercial
    
    $
    83,215,678
    
    
    $
    79,359,126Commercial real estate
    
    
    89,135,547
    
    
    
    68,071,738Agricultural
    
    
    44,536,988
    
    
    
    40,236,664Residential real estate
    
    
    93,539,693
    
    
    
    89,086,024Consumer
    
    
    53,016,300
    
    
    
    48,876,788Lease financing
    
    
    1,189,694
    
    
    
    1,661,126Total loans
    
    
    364,633,900
    
    
    
    327,291,466LessNet deferred loan fees, premiums and discounts
    
    
    (290,707
    )
    
    
    (243,237
    )Loans, net of unearned income
    
    $
    364,343,193
    
    
    $
    327,048,229Allowance for loan losses
    
    $
    (4,521,911
    )
    
    $
    (4,699,827
    )
 15




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Balance, beginning of period
    
    $
    4,438,139
    
    
    $
    5,210,464
    
    
    $
    4,699,827
    
    
    $
    4,899,063Provision charged to expense
    
    
    35,000
    
    
    
    (382,000
    )
    
    
    337,321
    
    
    
    (30,000
    )Recoveries
    
    
    267,422
    
    
    
    304,140
    
    
    
    565,065
    
    
    
    1,419,602Loans charged off
    
    
    (218,650
    )
    
    
    (318,648
    
    
    
    (1,080,302
    )
    
    
    (1,474,709
    )Balance, end of period
    
    $
    4,521,911
    
    
    $
    4,813,956
    
    
    $
    4,521,911
    
    
    $
    4,813,956
  September 30,
    
    
    December 31,2006
    
    
    2005Non-accrual loans
    
    $
    5,626,000
    
    
    $
    6,270,000Accruing loans which are contractually
past due 90 days or more as to interest or
principal payments
    
    
    10,000
    
    
    
    5,200Total non-performing loans
    
    $
    5,636,000
    
    
    $
    6,275,200
  September 30,
    
    
    December 31,2006
    
    
    2005Loans with no allowance for loan losses allocated
    
    $
    2,135,000
    
    
    $
    1,676,000Loans with allowance for loan losses allocated
    
    
    1,811,000
    
    
    
    4,460,000Total impaired loans
    
    $
    3,946,000
    
    
    $
    6,136,000Amount of allowance allocated
    
    $
    831,000
    
    
    $
    1,993,000
 NOTE D
 REGULATORY MATTERS
  16




---



##### Table of Contents



To Be Well Capitalized UnderMinimum Required For
    
    Prompt Corrective ActionActual
    
    Capital Adequacy Purposes
    
    ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of September 30, 2006Total Capital(to Risk-Weighted Assets)Consolidated
    
    $
    62.4
    
    
    
    16.3
    %
    
    $
    30.7
    
    
    
    8.0
    %
    
    $
    
    
    
    
    N/AState Bank
    
    
    38.4
    
    
    
    12.2
    
    
    
    25.1
    
    
    
    8.0
    
    
    
    31.4
    
    
    
    10.0Exchange Bank
    
    
    7.8
    
    
    
    13.1
    
    
    
    4.7
    
    
    
    8.0
    
    
    
    5.9
    
    
    
    10.0Tier I Capital(to Risk-Weighted Assets)Consolidated
    
    
    57.0
    
    
    
    14.9
    
    
    
    15.3
    
    
    
    4.0
    
    
    
    
    
    
    
    N/AState Bank
    
    
    35.2
    
    
    
    11.2
    
    
    
    12.6
    
    
    
    4.0
    
    
    
    18.8
    
    
    
    6.0Exchange Bank
    
    
    7.0
    
    
    
    11.9
    
    
    
    2.4
    
    
    
    4.0
    
    
    
    3.6
    
    
    
    6.0Tier I Capital(to Average Assets)Consolidated
    
    
    57.0
    
    
    
    10.3
    
    
    
    22.1
    
    
    
    4.0
    
    
    
    
    
    
    
    N/AState Bank
    
    
    35.2
    
    
    
    7.6
    
    
    
    18.5
    
    
    
    4.0
    
    
    
    23.2
    
    
    
    5.0Exchange Bank
    
    
    7.0
    
    
    
    7.9
    
    
    
    3.6
    
    
    
    4.0
    
    
    
    4.4
    
    
    
    5.0As of December 31, 2005Total Capital(to Risk-Weighted Assets)Consolidated
    
    $
    67.8
    
    
    
    19.3
    %
    
    $
    28.1
    
    
    
    8.0
    %
    
    $
    
    
    
    
    N/AState Bank
    
    
    36.6
    
    
    
    13.0
    
    
    
    22.6
    
    
    
    8.0
    
    
    
    28.2
    
    
    
    10.0Exchange Bank
    
    
    7.5
    
    
    
    13.8
    
    
    
    4.4
    
    
    
    8.0
    
    
    
    5.5
    
    
    
    10.0Tier I Capital(to Risk-Weighted Assets)Consolidated
    
    
    62.1
    
    
    
    17.7
    
    
    
    14.0
    
    
    
    4.0
    
    
    
    
    
    
    
    N/AState Bank
    
    
    33.5
    
    
    
    11.9
    
    
    
    11.3
    
    
    
    4.0
    
    
    
    16.9
    
    
    
    6.0Exchange Bank
    
    
    6.9
    
    
    
    12.6
    
    
    
    2.2
    
    
    
    4.0
    
    
    
    3.3
    
    
    
    6.0Tier I Capital(to Average Assets)Consolidated
    
    
    62.1
    
    
    
    14.4
    
    
    
    17.2
    
    
    
    4.0
    
    
    
    
    
    
    
    N/AState Bank
    
    
    33.5
    
    
    
    8.0
    
    
    
    16.7
    
    
    
    4.0
    
    
    
    20.8
    
    
    
    5.0Exchange Bank
    
    
    6.9
    
    
    
    8.5
    
    
    
    3.2
    
    
    
    4.0
    
    
    
    4.1
    
    
    
    5.0
 17




---



##### Table of Contents



NOTE E
 CONTINGENT LIABILITIES
  NOTE F  NEW ACCOUNTING PRONOUNCEMENTS
 Accounting for
Servicing of Financial Assets: an amendment of FASB Statement No. 140
 Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109
 Fair Value
Measurements
 18




---



##### Table of Contents



NOTE G
 COMMITMENTS AND CREDIT RISK
  NOTE H
 SEGMENT INFORMATION
  19




---



##### Table of Contents



Data
    
    
    
    
    
    
    Total
    
    
    Intersegment
    
    
    ConsolidatedIncome statement information:
    
    Banking
    
    
    Processing
    
    
    Other
    
    
    Segments
    
    
    Elimination
    
    
    TotalsNet interest income (expense)
    
    $
    12,898,783
    
    
    $
    (164,635
    )
    
    $
    (1,284,095
    )
    
    $
    11,450,053
    
    
    
    
    
    
    $
    11,450,053Non-interest income  external
customers
    
    
    3,279,579
    
    
    
    10,312,757
    
    
    
    2,586,971
    
    
    
    16,179,307
    
    
    
    
    
    
    
    16,179,307Non-interest income  other segments
    
    
    
    
    
    
    1,206,824
    
    
    
    3,158,435
    
    
    
    4,365,259
    
    
    
    (4,365,259
    )
    
    
    Total revenue
    
    
    16,178,362
    
    
    
    11,354,946
    
    
    
    4,461,311
    
    
    
    31,994,619
    
    
    
    (4,365,259
    )
    
    
    27,629,360Non-interest expense
    
    
    16,308,394
    
    
    
    9,117,085
    
    
    
    3,484,342
    
    
    
    28,909,821
    
    
    
    (4,365,259
    )
    
    
    24,544,562Significant non-cash items:Depreciation and
amortization
    
    
    618,779
    
    
    
    1,839,815
    
    
    
    182,377
    
    
    
    2,640,971
    
    
    
    
    
    
    
    2,640,971Provision for loan losses
    
    
    337,321
    
    
    
    
    
    
    
    
    
    
    
    337,321
    
    
    
    
    
    
    
    337,321Income tax expense (benefit)
    
    
    437,205
    
    
    
    760,873
    
    
    
    (500,410
    )
    
    
    697,668
    
    
    
    
    
    
    
    697,668Segment profit (loss)
    
    $
    1,513,762
    
    
    $
    1,476,987
    
    
    $
    (940,940
    )
    
    $
    2,049,809
    
    
    $
    
    
    
    $
    2,049,809Balance sheet information:Total assets
    
    $
    553,658,309
    
    
    $
    19,981,151
    
    
    $
    11,827,875
    
    
    $
    585,467,335
    
    
    $
    (15,480,222
    )
    
    $
    569,987,113Goodwill and intangibles
    
    
    12,270,962
    
    
    
    7,273,716
    
    
    
    
    
    
    
    19,544,678
    
    
    
    
    
    
    
    19,544,678Premises and equipment expenditures
    
    
    386,232
    
    
    
    2,519,955
    
    
    
    112,709
    
    
    
    3,018,896
    
    
    
    
    
    
    
    3,018,896
 20




---



##### Table of Contents



Data
    
    
    
    
    
    
    Total
    
    
    Intersegment
    
    
    ConsolidatedIncome statement information:
    
    Banking
    
    
    Processing
    
    
    Other
    
    
    Segments
    
    
    Elimination
    
    
    TotalsNet interest income (expense)
    
    $
    9,955,738
    
    
    $
    (183,276
    )
    
    $
    (865,757
    )
    
    $
    8,906,705
    
    
    
    
    
    
    $
    8,906,705Non-interest income  external
customers
    
    
    2,159,638
    
    
    
    9,312,961
    
    
    
    92,718
    
    
    
    11,565,317
    
    
    
    
    
    
    
    13,865,317Non-interest income  other segments
    
    
    
    
    
    
    1,016,193
    
    
    
    1,321,091
    
    
    
    2,337,284
    
    
    
    (2,337,284
    )
    
    
    Total revenue
    
    
    12,115,376
    
    
    
    10,145,878
    
    
    
    548,052
    
    
    
    22,809,306
    
    
    
    (2,337,284
    )
    
    
    22,772,022Non-interest expense
    
    
    11,872,865
    
    
    
    8,357,156
    
    
    
    3,532,678
    
    
    
    23,762,699
    
    
    
    (2,337,284
    )
    
    
    21,425,415Significant non-cash items:Depreciation and
amortization
    
    
    482,951
    
    
    
    1,712,128
    
    
    
    85,765
    
    
    
    2,280,844
    
    
    
    
    
    
    
    2,280,844Provision for loan losses
    
    
    (30,000
    )
    
    
    
    
    
    
    
    
    
    
    (30,000
    )
    
    
    
    
    
    
    (30,000
    )Income tax expense (benefit)
    
    
    150,152
    
    
    
    648,504
    
    
    
    (438,995
    )
    
    
    359,661
    
    
    
    
    
    
    
    359,661Segment profit (loss)
    
    $
    712,325
    
    
    $
    1,140,218
    
    
    $
    (835,597
    )
    
    $
    1,016,946
    
    
    $
    
    
    
    $
    1,016,946Balance sheet information:Total assets
    
    $
    433,565,505
    
    
    $
    10,182,412
    
    
    $
    15,405,372
    
    
    $
    459,153,289
    
    
    $
    (20,571,189
    )
    
    $
    438,582,100Goodwill and intangibles
    
    
    7,300,167
    
    
    
    
    
    
    
    
    
    
    
    7,300,167
    
    
    
    
    
    
    
    7,300,167Premises and equipment expenditures
    
    
    700,081
    
    
    
    1,935,221
    
    
    
    125,265
    
    
    
    2,760,567
    
    
    
    
    
    
    
    2,760,567
 21




---



##### Table of Contents



Data
    
    
    
    
    
    
    Total
    
    
    Intersegment
    
    
    ConsolidatedIncome statement information:
    
    Banking
    
    
    Processing
    
    
    Other
    
    
    Segments
    
    
    Elimination
    
    
    TotalsNet interest income (expense)
    
    $
    4,265,179
    
    
    $
    (67,045
    )
    
    $
    (442,600
    )
    
    $
    3,755,534
    
    
    
    
    
    
    $
    3,755,534Non-interest income  external
customers
    
    
    1,180,606
    
    
    
    3,785,037
    
    
    
    937,113
    
    
    
    5,902,756
    
    
    
    
    
    
    
    5,902,756Non-interest income  other segments
    
    
    
    
    
    
    366,823
    
    
    
    1,017,005
    
    
    
    1,383,828
    
    
    
    (1,383,828
    )
    
    
    Total revenue
    
    
    5,445,785
    
    
    
    4,084,815
    
    
    
    1,511,518
    
    
    
    11,042,118
    
    
    
    (1,383,828
    )
    
    
    9,658,290Non-interest expense
    
    
    5,390,224
    
    
    
    3,361,095
    
    
    
    1,147,165
    
    
    
    9,898,484
    
    
    
    (1,383,828
    )
    
    
    8,514,656Significant non-cash items:Depreciation and
amortization
    
    
    208,502
    
    
    
    653,730
    
    
    
    60,995
    
    
    
    923,227
    
    
    
    
    
    
    
    923,227Provision for loan losses
    
    
    35,000
    
    
    
    
    
    
    
    
    
    
    
    35,000
    
    
    
    
    
    
    
    35,000Income tax expense (benefit)
    
    
    205,231
    
    
    
    246,065
    
    
    
    (156,403
    )
    
    
    294,893
    
    
    
    
    
    
    
    294,893Segment profit (loss)
    
    $
    629,172
    
    
    $
    477,655
    
    
    $
    (293,086
    )
    
    $
    813,741
    
    
    $
    
    
    
    $
    813,741Balance sheet information:Total assets
    
    $
    553,658,309
    
    
    $
    19,981,151
    
    
    $
    1,827,875
    
    
    $
    575,467,335
    
    
    $
    (15,480,222
    )
    
    $
    559,987,113Goodwill and intangibles
    
    
    12,270,962
    
    
    
    7,273,716
    
    
    
    
    
    
    
    19,544,678
    
    
    
    
    
    
    
    19,544,678Premises and equipment expenditures
    
    
    3,353
    
    
    
    303,676
    
    
    
    9,270
    
    
    
    316,299
    
    
    
    
    
    
    
    316,299
 22




---



##### Table of Contents



Data
    
    
    
    
    
    
    Total
    
    
    Intersegment
    
    
    ConsolidatedIncome statement information:
    
    Banking
    
    
    Processing
    
    
    Other
    
    
    Segments
    
    
    Elimination
    
    
    TotalsNet interest income (expense)
    
    $
    3,347,683
    
    
    $
    (58,972
    )
    
    $
    (306,236
    )
    
    $
    2,982,475
    
    
    
    
    
    
    $
    2,982,475Non-interest income  external
customers
    
    
    770,013
    
    
    
    3,042,996
    
    
    
    781,601
    
    
    
    4,594,610
    
    
    
    
    
    
    
    4,594,610Non-interest income  other segments
    
    
    
    
    
    
    366,826
    
    
    
    410,848
    
    
    
    777,674
    
    
    
    (777,674
    )
    
    
    Total revenue
    
    
    4,117,696
    
    
    
    3,350,850
    
    
    
    886,213
    
    
    
    8,354,759
    
    
    
    (777,674
    )
    
    
    7,577,085Non-interest expense
    
    
    4,051,078
    
    
    
    2,845,219
    
    
    
    1,100,454
    
    
    
    7,996,751
    
    
    
    (777,674
    )
    
    
    7,219,077Significant non-cash items:Depreciation and
amortization
    
    
    183,340
    
    
    
    569,276
    
    
    
    32,132
    
    
    
    784,748
    
    
    
    
    
    
    
    784,748Provision for loan losses
    
    
    (382,000
    )
    
    
    
    
    
    
    
    
    
    
    (382,000
    )
    
    
    
    
    
    
    (382,000
    )Income tax expense (benefit)
    
    
    166,848
    
    
    
    214,296
    
    
    
    (133,320
    )
    
    
    247,824
    
    
    
    
    
    
    
    247,824Segment profit (loss)
    
    $
    452,708
    
    
    $
    291,335
    
    
    $
    (251,859
    )
    
    $
    492,184
    
    
    $
    
    
    
    $
    492,184Balance sheet information:Total assets
    
    $
    433,565,505
    
    
    $
    10,182,412
    
    
    $
    15,405,372
    
    
    $
    459,153,289
    
    
    $
    (20,571,189
    )
    
    $
    438,582,100Goodwill and intangibles
    
    
    7,300,167
    
    
    
    
    
    
    
    
    
    
    
    7,300,167
    
    
    
    
    
    
    
    7,300,167Premises and equipment expenditures
    
    
    366,076
    
    
    
    392,296
    
    
    
    77,996
    
    
    
    836,368
    
    
    
    
    
    
    
    836,368
 23




---



##### Table of Contents



NOTE I
 ACQUISITIONS
    Assets:Cash
    
    $
    96,423Accounts receivable
    
    
    547,533Premises and equipment
    
    
    213,585Goodwill and other intangibles
    
    
    7,290,383Other assets
    
    
    152,303Total Assets
    
    
    8,300,227Liabilities:Accounts payable
    
    
    1,188,289Borrowings
    
    
    1,284,427Other liabilities
    
    
    927,511Total Liabilities
    
    
    3,400,227Net assets acquired
    
    $
    4,900,000
   24




---



##### Table of Contents



25
    Table of Contents   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Cautionary Statement Regarding Forward-Looking Information
  Overview of Rurban
    26




---



##### Table of Contents



Critical Accounting Policies
  Allowance for Loan Losses 
  27




---



##### Table of Contents



Goodwill and Other Intangibles 
 Impact of Accounting Changes
 Accounting for
Servicing of Financial Assets: an amendment of FASB Statement No. 140
 Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109
 28




---



##### Table of Contents



Fair Value
Measurements
 Three Months Ended September 30, 2006 compared to Three Months Ended September 30, 2005
 Net Income:
 Net Interest Income:
 Provision for Loan Losses:
 29




---



##### Table of Contents



Non-interest Income:
 Non-interest Expense:
 Nine Months September 30, 2006 compared to Nine Months September 30, 2005
 Net Income:
 Net Interest Income:
 Provision for Loan Losses: 30
    Table of Contents   September
    
    December
    
    September(dollars in , 000)
    
    30, 2006
    
    31, 2005
    
    30, 2005Non-performing loans
    
    $
    5,636
    
    
    $
    6,270
    
    
    $
    12,507Allowance for loan losses / Total loans
    
    
    1.24
    %
    
    
    1.44
    %
    
    
    1.77
    %Allowance for loan
losses/Non-performing loans
    
    
    80.2
    %
    
    
    75.0
    %
    
    
    38.5
    %
 Non-interest Income
 Non-interest Expense 31
    Table of Contents   Changes in Financial Condition
September 30, 2006 vs. December 31, 2005
    Capital Resources
  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
    
    $
    62.4
    
    
    
    16.3
    %
    
    $
    30.7
    
    
    
    8.0
    %
    
    $
    
    
    
    
    N/AState Bank
    
    
    38.4
    
    
    
    12.2
    
    
    
    25.1
    
    
    
    8.0
    
    
    
    31.4
    
    
    
    10.0Exchange Bank
    
    
    7.8
    
    
    
    13.1
    
    
    
    4.7
    
    
    
    8.0
    
    
    
    5.9
    
    
    
    10.0
 32
    Table of Contents   LIQUIDITY
       Off-Balance-Sheet Borrowing Arrangements:
 33
    Table of Contents      ASSET LIABILITY MANAGEMENT
    34
    Table of Contents      
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 35
    Table of Contents  Principal/Notional Amount Maturing or Assumed to Withdraw In:
(Dollars in Thousands)
 First
    
    
    YearsComparison of 2006 to 2005:
    
    Year
    
    
    2  5
    
    
    Thereafter
    
    
    TotalTotal rate-sensitive assets:At September 30, 2006
    
    $
    201,940
    
    
    $
    169,048
    
    
    $
    125,644
    
    
    $
    496,632At December 31, 2005
    
    
    215,721
    
    
    
    162,891
    
    
    
    92,014
    
    
    
    470,626Increase (decrease)
    
    $
    (13,784
    )
    
    $
    6,157
    
    
    $
    33,629
    
    
    $
    26,006Total rate-sensitive liabilities:At September 30, 2006
    
    $
    230,863
    
    
    $
    228,539
    
    
    $
    46,949
    
    
    $
    506,351At December 31, 2005
    
    
    200,846
    
    
    
    221,267
    
    
    
    40,464
    
    
    
    462,577Increase (decrease)
    
    $
    30,017
    
    
    $
    7,272
    
    
    $
    6,484
    
    
    $
    43,773
   
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  
    
    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
 36
    Table of Contents  
    
    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 are effective as of the
end of the quarterly period covered by this Quarterly Report on Form 10-Q to ensure
that material information relating to the Company and its consolidated subsidiaries is
made known to them, particularly during the period in which this Quarterly Report on
Form 10-Q is being prepared.
 Changes in Internal Control Over Financial Reporting
  37
    Table of Contents   
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 a.
    
    Not applicableb.
    
    Not applicablec.
    
    The following table provides information regarding repurchases of the Companys common
shares during the nine months ended September 30, 2006:
 Maximum Number(or ApproximateTotal Number of
    
    
    Dollar Value) ofShares Purchased as
    
    
    Shares that May YetPart of Publicly
    
    
    Be Purchased UnderTotal Number of
    
    
    Average Price
    
    
    Announced Plans or
    
    
    the Plans orPeriod
    
    Shares Purchased (1)
    
    
    Paid per Share
    
    
    Programs
    
    
    ProgramsJuly 1 through July 31, 2006
    

    355
    
    

    $11.09
    
    

    
    
August 1
through August 31, 2006
    
1,554
    
    
$11.29
    
    

    
    
September 1
through September 30, 2006
    
923
    
    
$11.55
    
    

    
    

 
 (1)
    
    All of the repurchased shares were purchased by Reliance Financial Services, N.A., an
indirect subsidiary of the Company, in its capacity as the administrator of the Companys
Employee Stock Ownership and Savings Plan. 
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
 Item 6.
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)
 38
    Table of Contents  SIGNATURES
  RURBAN FINANCIAL CORP.Date:       November 14, 2006
    By:
    /s/ Kenneth A. JoyceKenneth A. JoycePresident & Chief Executive OfficerBy:
    /s/ Duane L. SinnDuane L. SinnExecutive Vice President & Chief Financial Officer 39