##### Table of Contents



U.S. 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 March 31, 2006
  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
  
   
  þ o
 o Accelerated Filer
o Non-Accelerated
Filer þ
 o þ
  Common Stock, par value $2.50 per share
    
    5,027,433 shares(class)
    
    (Outstanding at April 28, 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. ExhibitsExhibit 31.1  Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer)Exhibit 31.2  Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer)Exhibit 32.1  Section 1350 Certification (Principal Executive Officer)Exhibit 32.2  Section 1350 Certification (Principal Executive Officer)SignaturesEX-31.1EX-31.2EX-32.1EX-32.2
  2




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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
  3




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Rurban Financial Corp.
Condensed Consolidated Balance Sheets
March 31, 2006, December 31, 2005 and March 31, 2005
 (Unaudited)
    
    
    
    
    
    
    (Unaudited)March 31,
    
    
    December 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2005AssetsCash and due from banks
    
    $
    12,289,142
    
    
    $
    12,650,839
    
    
    $
    8,773,625Federal funds sold
    
    
    4,228,000
    
    
    
    
    
    
    
    4,300,000Cash and cash equivalents
    
    
    16,517,142
    
    
    
    12,650,839
    
    
    
    13,073,625Interest-bearing deposits
    
    
    150,000
    
    
    
    150,000
    
    
    
    150,000Available-for-sale securities
    
    
    130,124,716
    
    
    
    139,353,329
    
    
    
    102,673,228Loans held for sale
    
    
    40,000
    
    
    
    224,000
    
    
    
    260,000Loans, net of unearned income
    
    
    337,729,277
    
    
    
    327,048,229
    
    
    
    266,046,311Allowance for loan losses
    
    
    (4,348,541
    )
    
    
    (4,699,827
    )
    
    
    (4,800,293
    )Premises and equipment
    
    
    14,017,625
    
    
    
    13,346,632
    
    
    
    7,837,007Purchased software
    
    
    4,498,803
    
    
    
    3,916,913
    
    
    
    4,622,428Federal Reserve and Federal Home Loan Bank stock
    
    
    3,649,400
    
    
    
    3,607,500
    
    
    
    2,818,400Foreclosed assets held for sale, net
    
    
    2,383,852
    
    
    
    2,309,900
    
    
    
    757,476Interest receivable
    
    
    2,766,999
    
    
    
    3,010,355
    
    
    
    1,937,445Goodwill
    
    
    8,805,347
    
    
    
    8,917,373
    
    
    
    2,144,304Core deposits and other intangibles
    
    
    3,625,573
    
    
    
    3,742,333
    
    
    
    520,740Cash value of life insurance
    
    
    10,528,528
    
    
    
    10,443,487
    
    
    
    9,242,417Other
    
    
    7,712,506
    
    
    
    6,521,213
    
    
    
    7,197,400Total assets
    
    $
    538,201,227
    
    
    $
    530,542,276
    
    
    $
    414,480,488
 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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(Unaudited)
    
    
    
    
    
    
    (Unaudited)March 31,
    
    
    December 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2005Liabilities and Stockholders EquityLiabilitiesDepositsDemand
    
    $
    45,380,636
    
    
    $
    52,073,751
    
    
    $
    36,498,890Savings, interest checking and money market
    
    
    129,111,866
    
    
    
    124,206,115
    
    
    
    96,376,323Time
    
    
    224,033,626
    
    
    
    208,558,046
    
    
    
    152,042,228Total deposits
    
    
    398,526,128
    
    
    
    384,837,912
    
    
    
    284,917,441Notes payable
    
    
    
    
    
    
    938,572
    
    
    
    2,757,609Federal Home Loan Bank advances
    
    
    43,500,000
    
    
    
    45,500,000
    
    
    
    53,500,000Federal funds purchased
    
    
    
    
    
    
    4,600,000
    
    
    
    5,000,000Retail repurchase agreements
    
    
    15,403,500
    
    
    
    6,080,420
    
    
    
    4,352,712Trust preferred securities
    
    
    20,620,000
    
    
    
    20,620,000
    
    
    
    10,310,000Interest payable
    
    
    1,486,845
    
    
    
    1,373,044
    
    
    
    934,065Deferred income taxes
    
    
    244,928
    
    
    
    1,140,001
    
    
    
    622,618Other liabilities
    
    
    4,367,894
    
    
    
    11,001,679
    
    
    
    2,309,282Total liabilities
    
    
    484,149,295
    
    
    
    476,091,628
    
    
    
    364,703,727Commitments and Contingent LiabilitiesStockholders EquityCommon stock, $2.50 stated value; authorized
10,000,000 shares; issued 5,027,433; outstanding
March 31, 2006  5,027,433, December 31, 2005 
5,027,433 and March 31, 2005  4,568,488 shares
    
    
    12,568,583
    
    
    
    12,568,583
    
    
    
    11,439,255Additional paid-in capital
    
    
    14,841,050
    
    
    
    14,835,110
    
    
    
    11,003,574Retained earnings
    
    
    28,973,991
    
    
    
    28,702,817
    
    
    
    29,353,780Accumulated other comprehensive loss
    
    
    (2,331,692
    )
    
    
    (1,655,862
    )
    
    
    (1,743,600
    )Treasury stock, at cost
Common; March 31, 2006  0, December 31, 2005 
0 and March 31, 2005  7,214 shares
    
    
    
    
    
    
    
    
    
    
    (276,248
    )Total stockholders equity
    
    
    54,051,932
    
    
    
    54,450,648
    
    
    
    49,776,761Total liabilities and stockholders equity
    
    $
    538,201,227
    
    
    $
    530,542,276
    
    
    $
    414,480,488
 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.
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Rurban Financial Corp.
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended
 March 31,
    
    
    March 31,2006
    
    
    2005Interest IncomeLoansTaxable
    
    $
    5,554,154
    
    
    $
    3,913,966Tax-exempt
    
    
    12,235
    
    
    
    15,506SecuritiesTaxable
    
    
    1,312,600
    
    
    
    1,054,459Tax-exempt
    
    
    131,833
    
    
    
    42,024Other
    
    
    36,267
    
    
    
    18,258Total interest income
    
    
    7,047,089
    
    
    
    5,044,213Interest ExpenseDeposits
    
    
    2,121,214
    
    
    
    1,103,421Other borrowings
    
    
    26,299
    
    
    
    70,274Retail repurchase agreements
    
    
    124,277
    
    
    
    17,648Federal Home Loan Bank advances
    
    
    482,821
    
    
    
    586,552Trust preferred securities
    
    
    428,422
    
    
    
    269,408Total interest expense
    
    
    3,183,033
    
    
    
    2,047,303Net Interest Income
    
    
    3,864,056
    
    
    
    2,996,910Provision for Loan Losses
    
    
    246,000
    
    
    
    Net Interest Income After Provision for
Loan Losses
    
    
    3,618,056
    
    
    
    2,996,910Non-interest IncomeData service fees
    
    
    3,241,134
    
    
    
    3,157,519Trust fees
    
    
    815,451
    
    
    
    804,493Customer service fees
    
    
    550,067
    
    
    
    436,716Net gains on loan sales
    
    
    61,046
    
    
    
    8,070Net realized losses on sales of
available-for-sale securities
    
    
    
    
    
    
    (8,750
    )Loan servicing fees
    
    
    86,694
    
    
    
    66,843Loss on sale of assets
    
    
    (19,126
    )
    
    
    (38,958
    )Other
    
    
    273,034
    
    
    
    186,406Total non-interest income
    
    
    5,008,300
    
    
    
    4,612,339
 See notes to condensed consolidated financial statements (unaudited)
 6




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Condensed Consolidated Statements of Operations (continued)
 March 31,
    
    
    March 31,2006
    
    
    2005Non-interest ExpenseSalaries and employee benefits
    
    $
    3,857,734
    
    
    $
    3,231,323Net occupancy expense
    
    
    439,948
    
    
    
    290,155Equipment expense
    
    
    1,375,828
    
    
    
    1,253,099Data processing fees
    
    
    136,590
    
    
    
    91,197Professional fees
    
    
    519,365
    
    
    
    518,530Marketing expense
    
    
    126,448
    
    
    
    80,716Printing and office supplies
    
    
    152,984
    
    
    
    151,242Telephone and communications
    
    
    402,367
    
    
    
    351,617Postage and delivery expense
    
    
    131,994
    
    
    
    74,051State, local and other taxes
    
    
    133,858
    
    
    
    144,527Employee expense
    
    
    249,388
    
    
    
    236,071Other
    
    
    423,527
    
    
    
    299,186Total non-interest expense
    
    
    7,950,031
    
    
    
    6,721,714Income Before Income Tax
    
    
    676,325
    
    
    
    887,535Provision for Income Taxes
    
    
    153,780
    
    
    
    249,070Net Income
    
    $
    522,545
    
    
    $
    638,465Basic Earnings Per Share
    
    $
    0.10
    
    
    $
    0.14Diluted Earnings Per Share
    
    $
    0.10
    
    
    $
    0.14Dividends 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 CHANGES IN STOCKHOLDERS
EQUITY (UNAUDITED)
 Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31, 2006
    
    
    March 31, 2005Total
    
    
    TotalStockholders
    
    
    StockholdersEquity
    
    
    EquityBalance at beginning of period
    
    $
    54,450,648
    
    
    $
    50,305,795Net Income
    
    
    522,545
    
    
    
    638,465Other comprehensive loss:Net change in unrealized gains (losses)
on securities available for sale, net of taxes
    
    
    (675,829
    )
    
    
    (940,408
    )Total comprehensive loss
    
    
    (153,284
    )
    
    
    (301,943
    )Cash dividend
    
    
    (251,372
    )
    
    
    (228,424
    )Stock options exercised
    
    
    
    
    
    
    1,333Stock option expense
    
    
    5,940
    
    
    
    Balance at end of period
    
    $
    54,051,932
    
    
    $
    49,776,761
 See notes to condensed consolidated financial statements (unaudited)
 8




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Rurban Financial Corp.
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
 March 31,
    
    
    March 31,2006
    
    
    2005Operating ActivitiesNet income
    
    $
    522,545
    
    
    $
    638,465Adjustments to reconcile net income to net cash provided by
operating activitiesDepreciation and amortization
    
    
    847,743
    
    
    
    736,990Provision for loan losses
    
    
    246,000
    
    
    
    Expense of stock option plan
    
    
    5,940
    
    
    
    Amortization of premiums and discounts on securities
    
    
    74,956
    
    
    
    13,587Amortization of intangible assets
    
    
    116,760
    
    
    
    22,238Deferred income taxes
    
    
    (868,939
    )
    
    
    583,961Gain from sale of loans
    
    
    (61,046
    )
    
    
    (8,070
    )Loss on sales of foreclosed assets
    
    
    6,452
    
    
    
    48,278FHLB Stock Dividends
    
    
    (41,900
    )
    
    
    (25,400
    )(Gain) loss on sales of premises and equipment
    
    
    12,674
    
    
    
    (9,320
    )Net realized losses on available-for-sale securities
    
    
    
    
    
    
    8,750Changes in
Proceeds from sale of loans held for sale
    
    
    3,489,321
    
    
    
    660,670Originations of loans held for sale
    
    
    (3,244,275
    )
    
    
    (799,700
    )Interest receivable
    
    
    243,356
    
    
    
    47,007Other assets
    
    
    (1,156,765
    )
    
    
    (661,081
    )Interest payable and other liabilities
    
    
    (66,900
    )
    
    
    (703,370
    )Net cash provided by operating activities
    
    
    125,922
    
    
    
    553,005Investing ActivitiesPurchases of available-for-sale securities
    
    
    (9,659,256
    )
    
    
    (4,004,375
    )Proceeds from maturities of available-for-sale securities
    
    
    2,577,430
    
    
    
    4,476,852Proceeds from the sales of available-for-sale securities
    
    
    15,562,738
    
    
    
    4,127,585Net change in loans
    
    
    (11,439,615
    )
    
    
    (1,977,925
    )Purchase of premises and equipment
    
    
    (2,137,041
    )
    
    
    (891,509
    )Cash paid to shareholders of Exchange Bank Acquisition
    
    
    (6,453,084
    )
    
    
    Proceeds from sales of premises and equipment
    
    
    23,741
    
    
    
    9,320Proceeds from the sale of foreclosed assets
    
    
    44,115
    
    
    
    125,356Net cash provided by (used in) investing activities
    
    
    (11,480,972
    )
    
    
    1,865,304
 See notes to condensed consolidated financial statements (unaudited)
 9




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Condensed Consolidated Statements of Cash Flows (continued)
 March 31,
    
    
    March 31,2006
    
    
    2005Financing ActivitiesNet increase (decrease) in demand deposits, money market,
interest checking and savings accounts
    
    $
    (1,787,363
    )
    
    $
    7,247,773Net increase (decrease) in certificates of deposit
    
    
    15,475,580
    
    
    
    (1,954,646
    )Net increase in securities sold under agreements to repurchase
    
    
    9,323,080
    
    
    
    293,561Net decrease in federal funds purchased
    
    
    (4,600,000
    )
    
    
    (2,500,000
    )Proceeds from Federal Home Loan Bank advances
    
    
    10,400,000
    
    
    
    12,500,000Repayment of Federal Home Loan Bank advances
    
    
    (12,400,000
    )
    
    
    (15,000,000
    )Repayment of notes payable
    
    
    (938,572
    )
    
    
    (322,047
    )Dividends paid
    
    
    (251,372
    )
    
    
    (228,424
    )Proceeds from stock options exercised
    
    
    
    
    
    
    1,333Net cash provided by financing activities
    
    
    15,221,353
    
    
    
    37,550Increase in Cash and Cash Equivalents
    
    
    3,866,303
    
    
    
    2,455,859Cash and Cash Equivalents, Beginning of Year
    
    
    12,650,839
    
    
    
    10,617,766Cash and Cash Equivalents, End of Period
    
    $
    16,517,142
    
    
    $
    13,073,625Supplemental Cash Flows InformationInterest paid
    
    $
    3,069,232
    
    
    $
    2,107,352Transfer of loans to foreclosed assets
    
    $
    244,088
    
    
    $
    313,633
 See notes to condensed consolidated financial statements (unaudited)
 10




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RURBAN FINANCIAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE ABASIS OF PRESENTATION
    Stock Based Compensation
  Accounting for Stock Issued to Employees,
  11




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Three Months Ended March 31, 2006Using Previous
    
    
    SFAS 123(R)
    
    
    AsAccounting
    
    
    Adjustment
    
    
    ReportedIncome before tax expense
    
    $
    682,265
    
    
    $
    (5,940
    )
    
    $
    676,325Income taxes
    
    
    153,780
    
    
    
    
    
    
    
    153,780Net income
    
    $
    528,485
    
    
    $
    (5,940
    )
    
    $
    522,545Earnings per share:Basic
    
    $
    0.10
    
    
    
    
    
    
    $
    0.10Diluted
    
    $
    0.10
    
    
    
    
    
    
    $
    0.10
 Three Months Ended March 31, 2005SFAS 123(R)As Reported
    
    
    Adjustment
    
    
    ProformaIncome before tax expense
    
    $
    887,535
    
    
    $
    (11,880
    )
    
    $
    875,655Income taxes
    
    
    249,070
    
    
    
    
    
    
    
    249,070Net income
    
    $
    638,465
    
    
    $
    (11,880
    )
    
    $
    626,585Earnings per share:Basic
    
    $
    0.14
    
    
    
    
    
    
    $
    0.14Diluted
    
    $
    0.14
    
    
    
    
    
    
    $
    0.14
 NOTE BEARNINGS PER SHARE
  Three Months EndedMarch 31,2006
    
    
    2005Basic earnings per share
    
    
    5,027,433
    
    
    
    4,568,399Diluted earnings per share
    
    
    5,028,183
    
    
    
    4,572,788
 12




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NOTE C  LOANS, RISK ELEMENTS AND ALLOWANCE FOR LOAN LOSSES
  March 31,
    
    
    December 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2005Commercial
    
    $
    85,599,534
    
    
    $
    79,359,126
    
    
    $
    60,130,766Commercial real estate
    
    
    71,609,379
    
    
    
    68,071,738
    
    
    
    65,039,558Agricultural
    
    
    42,881,753
    
    
    
    40,236,664
    
    
    
    42,077,524Residential real estate
    
    
    88,529,167
    
    
    
    89,086,024
    
    
    
    62,903,667Consumer
    
    
    48,150,518
    
    
    
    48,876,788
    
    
    
    32,072,744Lease financing
    
    
    1,226,816
    
    
    
    1,661,126
    
    
    
    4,074,254Total loans
    
    
    337,997,167
    
    
    
    327,291,466
    
    
    
    266,298,513LessNet deferred loan fees, premiums and discounts
    
    
    (267,890
    )
    
    
    (243,237
    )
    
    
    (252,202
    )Loans, net of unearned income
    
    $
    337,729,277
    
    
    $
    327,048,229
    
    
    $
    266,046,311Allowance for loan losses
    
    $
    (4,348,541
    )
    
    $
    (4,699,827
    )
    
    $
    (4,800,293
    )
  March 31,
    
    
    December 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2005Balance, beginning of year
    
    $
    4,699,827
    
    
    $
    4,899,063
    
    
    $
    4,899,063Balance, Exchange Bank
    
    
    
    
    
    
    910,004
    
    
    
    Provision charged to expense
    
    
    246,000
    
    
    
    583,402
    
    
    
    Recoveries
    
    
    143,301
    
    
    
    1,716,815
    
    
    
    183,580Loans charged off
    
    
    (740,587
    )
    
    
    (3,409,457
    )
    
    
    (282,350
    )Balance, end of period
    
    $
    4,348,541
    
    
    $
    4,699,827
    
    
    $
    4,800,293
 13




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March 31,
    
    
    December 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2005Non-accrual loans
    
    $
    6,029,000
    
    
    $
    6,270,000
    
    
    $
    14,817,000Accruing
loans which are contractually past due 90 days or more as to interest or
principal payments
    
    
    1,900
    
    
    
    5,200
    
    
    
    50,100Total non-performing loans
    
    $
    6,030,900
    
    
    $
    6,275,200
    
    
    $
    14,867,100
  March 31,
    
    
    December 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2005Loans with no allowance for loan losses allocated
    
    $
    897,000
    
    
    $
    1,676,000
    
    
    $
    923,000Loans with allowance for loan losses allocated
    
    
    5,756,000
    
    
    
    4,460,000
    
    
    
    13,303,000Total impaired loans
    
    $
    6,653,000
    
    
    $
    6,136,000
    
    
    $
    14,226,000Amount of allowance allocated
    
    $
    1,660,000
    
    
    $
    1,993,000
    
    
    $
    1,660,000
 NOTE D  REGULATORY MATTERS
    14




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##### Table of Contents



To Be Well Capitalized UnderMinimum Required For
    
    
    Prompt Corrective ActionActual
    
    
    Capital Adequacy Purposes
    
    
    ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioAs of March 31, 2006
Total Capital
           (to Risk-Weighted Assets)
     Consolidated
    
    $
    68.3
    
    
    
    18.9
    %
    
    $
    28.9
    
    
    
    8.0
    %
    
    $
    
    
    
    
    N/AState Bank
    
    
    37.1
    
    
    
    12.7
    
    
    
    23.3
    
    
    
    8.0
    
    
    
    29.2
    
    
    
    10.0Exchange Bank
    
    
    7.6
    
    
    
    13.4
    
    
    
    4.5
    
    
    
    8.0
    
    
    
    5.7
    
    
    
    10.0Tier I Capital
     (to Risk-Weighted Assets)
Consolidated
    
    
    62.7
    
    
    
    17.3
    
    
    
    14.5
    
    
    
    4.0
    
    
    
    
    
    
    
    N/AState Bank
    
    
    33.9
    
    
    
    11.6
    
    
    
    11.7
    
    
    
    4.0
    
    
    
    17.5
    
    
    
    6.0Exchange Bank
    
    
    6.9
    
    
    
    12.2
    
    
    
    2.3
    
    
    
    4.0
    
    
    
    3.4
    
    
    
    6.0Tier I Capital
     (to Average Assets)
Consolidated
    
    
    62.7
    
    
    
    12.0
    
    
    
    20.9
    
    
    
    4.0
    
    
    
    
    
    
    
    N/AState Bank
    
    
    33.9
    
    
    
    8.0
    
    
    
    17.2
    
    
    
    4.0
    
    
    
    21.4
    
    
    
    5.0Exchange Bank
    
    
    6.9
    
    
    
    9.1
    
    
    
    3.0
    
    
    
    4.0
    
    
    
    3.8
    
    
    
    5.0As of December 31, 2005
Total 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
 NOTE E  CONTINGENT LIABILITIES
  15




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##### Table of Contents



NOTE F  NEW ACCOUNTING PRONOUNCEMENTS
 Accounting for Servicing of Financial Assets Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,
 NOTE G  COMMITMENTS AND CREDIT RISK
  NOTE H  SEGMENT INFORMATION
  16




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##### Table of Contents



Data
    
    
    
    
    
    
    Total
    
    
    Intersegment
    
    
    ConsolidatedBanking
    
    
    Processing
    
    
    Other
    
    
    Segments
    
    
    Elimination
    
    
    TotalsIncome statement information:Net interest income (expense)
    
    $
    4,328,142
    
    
    $
    (45,927
    )
    
    $
    (418,159
    )
    
    $
    3,864,056
    
    
    
    
    
    
    $
    3,864,056Non-interest income  external
customers
    
    
    931,585
    
    
    
    3,241,134
    
    
    
    835,581
    
    
    
    5,008,300
    
    
    
    
    
    
    
    5,008,300Non-interest income  other segments
    
    
    
    
    
    
    442,168
    
    
    
    1,192,086
    
    
    
    1,634,254
    
    
    
    (1,634,254
    )
    
    
    Total revenue
    
    
    5,259,727
    
    
    
    3,637,375
    
    
    
    1,609,508
    
    
    
    10,506,610
    
    
    
    (1,634,254
    )
    
    
    8,872,356Non-interest expense
    
    
    5,589,767
    
    
    
    2,807,194
    
    
    
    1,187,324
    
    
    
    9,584,285
    
    
    
    (1,634,254
    )
    
    
    7,950,031Significant non-cash items:Depreciation and
amortization
    
    
    201,818
    
    
    
    594,519
    
    
    
    51,406
    
    
    
    847,743
    
    
    
    
    
    
    
    847,743Provision for loan losses
    
    
    246,000
    
    
    
    
    
    
    
    
    
    
    
    246,000
    
    
    
    
    
    
    
    246,000Income tax expense (benefit)
    
    
    40,265
    
    
    
    282,262
    
    
    
    (168,747
    )
    
    
    153,780
    
    
    
    
    
    
    
    153,780Segment profit (loss)
    
    $
    292,287
    
    
    $
    547,919
    
    
    $
    (317,661
    )
    
    $
    522,545
    
    
    $
    
    
    
    $
    522,545Balance sheet information:Total assets
    
    $
    528,169,239
    
    
    $
    12,954,276
    
    
    $
    11,720,563
    
    
    $
    552,844,078
    
    
    $
    (14,642,851
    )
    
    $
    538,201,227Goodwill and intangibles
    
    
    12,430,920
    
    
    
    
    
    
    
    
    
    
    
    12,430,920
    
    
    
    
    
    
    
    12,430,920Premises and equipment
expenditures, Three months
ended March 31, 2006
    
    
    294,177
    
    
    
    1,811,257
    
    
    
    31,607
    
    
    
    2,137,041
    
    
    
    
    
    
    
    2,137,041
 17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
     18




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##### Table of Contents



Critical Accounting Policies
  Allowance for Loan Losses 
   19




---



##### Table of Contents



Goodwill
and Other Intangibles 
 Impact of Accounting Changes
 Accounting for Servicing of Financial Assets Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,
 Quarterly Earnings Summary
   20




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##### Table of Contents



Changes in Financial Condition
 March 31, 2006 vs. December 31, 2005
   March 31, 2006 vs. March 31, 2005
  Linked Quarter Comparison
  21




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##### Table of Contents



LinkedThree Months Ended
    
    Quarter03/31/06
    
    12/31/05
    
    % Change(dollars in millions, except per share data)Total Assets
    
    $
    538
    
    
    $
    531
    
    
    
    +1
    %Loans Held for Sale
    
    
    0.0
    
    
    
    0.2
    
    
    
    Loans (net of unearned income)
    
    
    338
    
    
    
    327
    
    
    
    +3
    %Allowance for Loan Losses
    
    
    4.3
    
    
    
    4.7
    
    
    
    -9
    %Total Deposits
    
    
    399
    
    
    
    385
    
    
    
    +4
    %Net interest Income
    
    
    3.9
    
    
    
    3.1
    
    
    
    +26
    %Loan Loss Provision
    
    
    0.2
    
    
    
    0.6
    
    
    
    Non-interest Income
    
    
    5.0
    
    
    
    4.5
    
    
    
    +11
    %Non-interest Expense
    
    
    8.0
    
    
    
    7.6
    
    
    
    +5
    %Net Income
    
    
    0.5
    
    
    
    (0.3
    )
    
    
    Basic Earnings Per Share
    
    $
    0.10
    
    
    $
    (0.08
    )
    
    
    Diluted Earnings Per Share
    
    $
    0.10
    
    
    $
    (0.08
    )
    
    
    
  Total Revenue
 Three Months Ended03/31/06
    
    
    12/31/05
    
    
    $Change
    
    
    %Change(dollars in thousands)Total Revenue
    
    $
    8,872
    
    
    $
    7,623
    
    
    $
    +1,249
    
    
    
    +16
    %
  22




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##### Table of Contents



Net Interest Income
 Three Months Ended03/31/06
    
    
    12/31/05
    
    
    $Change
    
    
    %Change(dollars in thousands)Net Interest Income
    
    $
    3,864
    
    
    $
    3,147
    
    
    $
    +717
    
    
    
    +23
    %
  Loan Loss Provision
  Non-interest Income
 Three Months Ended03/31/06
    
    
    12/31/05
    

    

    $Change
    
    
    %Change(dollars in thousands)Total Non-interest Income
    
    $
    5,008
    
    
    $
    4,477
    
    
    $
    +531
    
    
    
    +12
    %- Data Service Fees
    
    
    3,241
    
    
    
    3,399
    
    
    
    -158
    
    
    
    -5
    %- Trust Fees
    
    
    815
    
    
    
    782
    
    
    
    +33
    
    
    
    +4
    %- Deposit Service Fees
    
    
    550
    
    
    
    450
    
    
    
    +100
    
    
    
    +22
    %- Gains on Sale of Loans
    
    
    61
    
    
    
    (483
    )
    
    
    +544
    
    
    
    - Gain (Loss) on Assets
    
    
    (19
    )
    
    
    (65
    )
    
    
    +46
    
    
    
    +71
    %- Other
    
    
    360
    
    
    
    394
    
    
    
    -34
    
    
    
    -9
    %
  Non-interest Expense
 Three Months Ended03/31/06
    
    
    12/31/05
    
    
    $Change
    
    
    %Change(dollars in thousands)Total Non-interest Expense
    
    $
    7,950
    
    
    $
    7,632
    
    
    $
    +318
    
    
    
    +4
    %- Salaries & Employee Benefits
    
    
    3,858
    
    
    
    3,179
    
    
    
    +679
    
    
    
    +21
    %- Equipment Expense
    
    
    1,376
    
    
    
    1,317
    
    
    
    +59
    
    
    
    +4
    %- Professional Fees
    
    
    519
    
    
    
    1,033
    
    
    
    -514
    
    
    
    -50
    %- All Other
    
    
    2,197
    
    
    
    2,103
    
    
    
    +94
    
    
    
    +4
    %
 23




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##### Table of Contents



Loans
 As of% of
    
    
    
    
    
    
    % of
    
    
    Inc03/31/06
    
    
    Total
    
    
    12/31/05
    
    
    Total
    
    
    (Dec)(dollars in millions)Commercial
    
    $
    86
    
    
    
    26
    %
    
    $
    79
    
    
    
    24
    %
    
    $
    7Commercial real
estate
    
    
    72
    
    
    
    21
    %
    
    
    68
    
    
    
    21
    %
    
    
    4Agricultural
    
    
    43
    
    
    
    13
    %
    
    
    40
    
    
    
    12
    %
    
    
    3Residential
    
    
    88
    
    
    
    26
    %
    
    
    89
    
    
    
    27
    %
    
    
    (1
    )Consumer
    
    
    48
    
    
    
    14
    %
    
    
    49
    
    
    
    15
    %
    
    
    (1
    )Leasing loans
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    1
    %
    
    
    (1
    )Total
    
    $
    338
    
    
    
    
    
    
    $
    327
    
    
    
    
    
    
    $
    11Loans held for sale
    
    
    0.0
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    Total
    
    $
    338
    
    
    
    
    
    
    $
    327
    
    
    
    
    
    
    $
    11
  Asset Quality
 As
of and For the Quarter Ended
 03/31/06
    
    12/31/05
    
    ChangeNon-performing loans
    
    $
    6.0
    
    
    $
    6.3
    
    
    $
    -0.3Non-performing assets
    
    
    8.4
    
    
    
    8.9
    
    
    
    -0.5Non-performing assets/ loan plus OREO
    
    
    2.48
    %
    
    
    2.70
    %
    
    
    -0.22
    %Non-performing assets/ total assets
    
    
    1.56
    %
    
    
    1.67
    %
    
    
    -0.11
    %Net chargeoffs
    
    
    0.6
    
    
    
    1.6
    
    
    
    -1.0Net chargeoffs (annualized)/ total loans
    
    
    0.72
    %
    
    
    1.96
    %
    
    
    -1.24
    %Loan loss provision
    
    
    0.2
    
    
    
    0.6
    
    
    
    -0.4Allowance
for loan loss  $
    
    
    4.3
    
    
    
    4.7
    
    
    
    -0.4Allowance for loan loss  %
    
    
    1.29
    %
    
    
    1.44
    %
    
    
    -0.15
    %Allowance/non-performing loans
    
    
    72
    %
    
    
    75
    %
    
    
    Allowance/non-performing assets
    
    
    51
    %
    
    
    53
    %
    
    
    
  24




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##### Table of Contents



Allowance for Loan Losses
  
    
    Grade 5  Special Mention: Potential weaknesses that deserve managements close
attention;
    
    Grade 6  Substandard: Inadequately protected, with well-defined weakness that
jeopardize pay off of debt;
    
    Grade 7  Doubtful: Inherent weaknesses which are well-defined and a high
probability of loss (impaired) (these loans are typically reserved down to
collateralized values); or
    
    Grade 8  Loss: Considered uncollectible. May have recovery or salvage value with
future collection efforts (these loans are either fully reserved or charged off).
  03/31/06
    
    
    12/31/05Loan
    
    
    Allocation
    
    
    Loan
    
    
    AllocationBalance
    
    
    $
    
    
    %
    
    
    Balance
    
    
    $
    
    
    %Allocations for
individual
commercial loans
graded Doubtful
(impaired)
    
    $
    5.6
    
    
    $
    1.1
    
    
    
    19.64
    %
    
    $
    6.1
    
    
    $
    2.0
    
    
    
    32.79
    %Allocations for
individual
commercial loans
graded Substandard
    
    
    5.6
    
    
    
    0.4
    
    
    
    7.14
    
    
    
    7.7
    
    
    
    0.5
    
    
    
    6.49Allocation based on
Special Mention
loan balance
    
    
    14.1
    
    
    
    0.4
    
    
    
    2.84
    
    
    
    12.2
    
    
    
    0.4
    
    
    
    3.28General allowance
based on chargeoff
history of nine
categories of loans
    
    
    312.7
    
    
    
    2.4
    
    
    
    0.77
    
    
    
    301.5
    
    
    
    1.8
    
    
    
    0.60TOTAL
    
    $
    338.0
    
    
    $
    4.3
    
    
    
    1.29
    %
    
    $
    327.5
    
    
    $
    4.7
    
    
    
    1.44
    %
  25




---



##### Table of Contents



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
    
    $
    68.3
    
    
    
    18.9
    %
    
    $
    28.9
    
    
    
    8.0
    %
    
    $
    
    
    
    
    N/AState Bank
    
    
    37.1
    
    
    
    12.7
    
    
    
    23.3
    
    
    
    8.0
    
    
    
    29.2
    
    
    
    10.0Exchange Bank
    
    
    7.6
    
    
    
    13.4
    
    
    
    4.5
    
    
    
    8.0
    
    
    
    5.7
    
    
    
    10.0
  LIQUIDITY
       26




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##### Table of Contents



Off-Balance-Sheet Borrowing Arrangements:
    TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
March 31, 2006
 Payment Due by PeriodLess
    
    
    
    
    
    
    
    
    
    
    Morethan 1
    
    
    1  3
    
    
    3  5
    
    
    than 5Contractual Obligations
    
    Total
    
    
    year
    
    
    years
    
    
    years
    
    
    yearsLong-Term Debt Obligations
    
    $
    43,500,000
    
    
    $
    10,500,000
    
    
    $
    10,000,000
    
    
    $
    20,000,000
    
    
    $
    3,000,000Other Debt Obligations
    
    
    20,620,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    20,620,000Capital Lease Obligations
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Operating Lease Obligations
    
    
    1,978,320
    
    
    
    261,600
    
    
    
    523,200
    
    
    
    523,200
    
    
    
    670,320Purchase Obligations
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Other Long-Term
Liabilities Reflected on
the Registrants Balance
Sheet under GAAP
    
    
    224,033,626
    
    
    
    166,698,880
    
    
    
    52,322,690
    
    
    
    4,147,690
    
    
    
    864,366Total
    
    $
    290,131,946
    
    
    $
    177,460,480
    
    
    $
    62,845,890
    
    
    $
    24,670,890
    
    
    $
    25,154,686
  ASSET LIABILITY MANAGEMENT
  27




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##### Table of Contents



28




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  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 March 31, 2006
    
    $
    203,171
    
    
    $
    160,949
    
    
    $
    112,069
    
    
    $
    476,189At December 31, 2005
    
    
    215,721
    
    
    
    162,891
    
    
    
    92,014
    
    
    
    470,626Increase (decrease)
    
    $
    (12,550
    )
    
    $
    (1,942
    )
    
    $
    20,055
    
    
    $
    5,563Total rate-sensitive liabilities:At March 31, 2006
    
    $
    214,895
    
    
    $
    216,592
    
    
    $
    46,563
    
    
    $
    478,050At December 31, 2005
    
    
    200,846
    
    
    
    221,267
    
    
    
    40,464
    
    
    
    462,577Increase (decrease)
    
    $
    14,049
    
    
    $
    (4,675
    )
    
    $
    6,099
    
    
    $
    15,473
   29




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##### Table of Contents



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 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 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
  30




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##### 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 three months ended March 31, 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
    
    ProgramsJanuary 1
thru January 31, 2006
    
    
    5,951
    
    
    $
    11.68
    
    
    
    
    
    
    
    February 1
thru February 28, 2006
    
    
    1,982
    
    
    $
    12.54
    
    
    
    
    
    
    
    March 1 thru
March 31, 2006
    
    
    2,100
    
    
    $
    12.58
    
    
    
    
    
    
    
    
 
 (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
 I.
    
    Annual Meeting of Shareholders  April 20, 2006
 a.
    
    On April 20, 2006, Rurban Financial Corp. held its Annual Meeting of Shareholders. At
the close of business on the February 23, 2006 record date, 5,027,433 Rurban Financial Corp.
common shares were outstanding and entitled to vote. At the Annual Meeting,
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3,612,251 or 71.9% of the outstanding common shares entitle to vote were represented by proxy
or in person.b.
    
    Directors elected at the Annual Meeting for a three year term:Thomas A. Buis
Kenneth A. Joyce
Thomas L. Sauer
J. Michael WalzDirectors whose term of office continued after the Annual Meeting:Thomas M. Callan
John R. Compo
John Fahl
Robert A. Fawcett, Jr.
Richard L. Hardgrove
Rita A. Kissner
Steven D. VanDemarkc.
    
    Results of Matters voted upon at the Annual Meeting:
Election of Directors:
 Nominee
    
    Votes For
    
    Votes WithheldThomas A. Buis
    
    
    3,381,971
    
    
    
    223,562Kenneth A. Joyce
    
    
    3,418,461
    
    
    
    187,072Thomas L. Sauer
    
    
    3,419,802
    
    
    
    185,731J. Michael Walz
    
    
    3,395,350
    
    
    
    210,183
 d.
    
    Not applicable
 
 Item 5. Other Information
  
 Item 6. Exhibits
 a.
    
    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)
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##### Table of Contents



SIGNATURES
  RURBAN FINANCIAL CORP.Date: May 12, 2006
    
    By
    
    /s/ Kenneth A. JoyceKenneth A. JoycePresident & Chief Executive OfficerBy
    
    /s/ Duane L. SinnDuane L. SinnExecutive Vice President &
Chief Financial Officer
 33