Rurban Financial Corp. Reports First Quarter 2013 Results

• Consolidated earnings up 36 percent year over year
   
• Nonperforming assets declined to 1.30 percent of total assets
   
• Portfolio loans increased $15.7 million, or 3.6 percent, year over year
   
• Tangible leverage of 5.87 percent, up 20 percent year over year
   
• Expense levels remained flat to the prior year
   
• Net interest margin at 3.86 percent, up 26 basis points year over year

DEFIANCE, Ohio, April 22, 2013 (GLOBE NEWSWIRE) -- Rurban Financial Corp. (Nasdaq:RBNF) ("Rurban" or the "Company"), a diversified financial services company providing full-service community banking, mortgage banking, wealth management and item processing services, today reported earnings for the first quarter ended March 31, 2013.

Consolidated earnings for Rurban Financial Corp. include the results of Rurban's Banking Group, consisting primarily of The State Bank and Trust Company ("State Bank" or the "Bank"), and Rurban's data services subsidiary, Rurbanc Data Services, Inc. (dba "RDSI Banking Systems" or "RDSI"). For the quarter ended March 31, 2013, Rurban reported net income of $1.32 million, or $0.27 per diluted share, compared to net income of $0.97 million, or $0.20 per diluted share for the quarter ended March 31, 2012, and net income of $1.52 million, or $0.31 per diluted share, for the quarter ended December 31, 2012.

Mark Klein, president and chief executive officer of Rurban Financial Corp., stated, "Our first quarter results continued our progress toward higher performance. Earnings are up 36 percent, our loan portfolio experienced nearly $16 million in growth and asset quality showed another quarter of improvement. The hallmark of our success over these last two years has been our relentless focus on asset quality, solid steady loan growth and revenue diversity. These traits have served us well in this quarter and should continue to provide momentum in the future. We were also pleased to have met another benchmark, when earlier this month we initiated shareholder dividends after an extended absence."

RESULTS OF OPERATIONS

Consolidated Revenue

Total revenue, consisting of net interest income fully tax equivalent (FTE) and noninterest income, was $8.96 million for the first quarter of 2013, up $0.42 million, or 4.9 percent, from the first quarter of 2012, but lower by $0.94 million, or 9.5 percent, from the linked quarter.  Revenue was impacted in the quarter by the 23.1 percent decline in mortgage originations from the linked quarter.

Net interest income (FTE) for the 2013 first quarter was $5.39 million, up 8.6 percent year over year, from the combined impact of increases in earning assets and lower funding costs. The net interest margin (FTE) was 3.86 percent for the first quarter of 2013 compared to 3.60 percent for the first quarter of 2012. Mr. Klein continued, "We have focused on shifting our earning assets into higher yielding products. Compared to the year prior, we have seen a reduction of $12 million from lower yielding securities and an increase of $16 million in loans. The margin this quarter also benefited from the lower interest rate on our trust preferred securities that were brought current at the end of 2012."

Noninterest Income

Noninterest income was $3.57 million for the first quarter of 2013, which held steady to the prior year but was lower than the linked quarter by $1.08 million. While mortgage production continued its strong momentum, the drop off from the record setting fourth quarter of 2012 drove down mortgage banking revenue by 27.3 percent.

Mortgage loan originations for the first quarter of 2013 were $72.0 million, up $3.64 million, or 5.3 percent, from the $68.3 million generated in the first quarter of 2012. Sales into the secondary market were also higher: $68.4 million, up $4.22 million, or 6.6 percent, above the $64.2 million sold in the year ago-quarter. In addition to the higher volume of sales, first quarter 2013 spreads were also stronger, totaling 2.17 percent of loans sold compared to 1.84 percent for the year-earlier quarter.

Net mortgage banking income, consisting of gains on the sale of mortgage loans and net loan servicing fees, was $1.66 million for the first quarter of 2013 compared to $2.29 million for the linked quarter and $1.51 million for the year-ago first quarter. The mortgage servicing valuation adjustment in the first quarter of 2013 was a favorable $0.17 million, compared to $0.20 million for the linked quarter. The mortgage servicing portfolio at the end of the first quarter 2013 was $548.5 million, up $125.7 million, or 29.7 percent, from the end of the first quarter 2012.

Our fee income diversity also includes wealth management, deposit fees and income from bank owned life insurance. Wealth management increased revenue by 6.1 percent from the linked quarter as assets under management grew by $20.6 million in the first quarter. In addition, this quarter we sold several FSA agriculture credits which generated gains of $0.16 million. Noninterest income contributed 39.8 percent of first quarter 2013 revenue (FTE); this compares to a 41.9 percent contribution of revenue (FTE) for first quarter 2012.

Gross revenue generated by RDSI, including services provided to Rurban/State Bank, was $0.75 million for the first quarter of 2013. Net data services fees, excluding Rurban/State Bank intercompany transactions, were $0.41 million in the first quarter of 2013, down $0.23 million from the year-ago quarter.

Loan Loss Provision

The loan loss provision was $0.30 million for the first quarter of 2013, a decline of $0.15 million from the first quarter of 2012. The decreased provision expense reflects a 15.7 percent decline in nonperforming loans and a 68.1 percent reduction in net charge-offs from the prior year. The loan loss reserve at first quarter-end 2013 was 1.54 percent of total loans, providing 114.9 percent coverage of nonperforming loans; this compares to reserve coverage of 81.6 percent at first quarter-end 2012.

Noninterest Expense

For the first quarter of 2013, noninterest expense was $6.67 million, level with the $6.68 million reported for the 2012 first quarter. Compared to the linked quarter, expense levels are down $0.54 million, a 7.5 percent reduction. Linked quarter reductions centered on compensation, due to lower mortgage commission and legal costs from the settlement of the New Core litigation. Mr. Klein added "We are encouraged that our expense levels were flat to the prior year this quarter and down significantly from the linked quarter. We were able to maintain our expense levels while increasing revenue 4.9 percent over the prior year." 

Balance Sheet

Total assets as of March 31, 2013 were $641.3 million, a decline of $3.68 million, or 0.6 percent, from first quarter-end 2012. Total deposits as of first quarter-end 2013 were $532.3 million, lower by $3.23 million than at first quarter-end 2012. As a result of the balance sheet deleveraging, combined with lower cash reserves, State Bank was able to reduce its reliance on higher cost repos and FHLB advances from the prior-year; they now stand at $28.5 million.

Total loans held for investment (HFI) were $455.4 million at March 31, 2013 compared to $439.7 million for the prior-year quarter-end, up $15.7 million, or 3.6 percent. Commercial real estate loans ("CRE") accounted for the majority of growth, up $10.6 million, or 5.6 percent, and residential real estate loans, up $4.90 million, or 5.8 percent. Year-to-date, loans declined by $7.95 million, primarily from a $4.33 million decline in agriculture loans.

Asset Quality

Rurban continues to improve on its asset quality, reporting nonperforming assets of $8.35 million for the current quarter, lower by $1.56 million, or 15.7 percent, than the prior year first quarter. Net charge-offs of $0.12 million were just 10 basis points for the quarter and were down from both the prior year and the linked quarter of $0.37 and $0.29 million respectively. Delinquency levels have remained steady, with the 30-89 day category totaling $0.69 million at the end of the 2013 first quarter compared to $0.57 million for the prior-year first quarter, and down significantly from the $2.60 million for the linked quarter. Mr. Klein continued "all of our asset quality measures have shown improvement. Total delinquencies are just 0.64 percent of our portfolio and nonperforming assets are at 1.3 percent of total assets. We have been at or below the 1.5 percent nonperforming asset level for five consecutive quarters. This is a testament to our strong underwriting and credit administration expertise."

Capitalization

Capital ratios continue to improve, however it still remains a primary focus of management. The tangible leverage ratio improved by 99 basis points over the past twelve months, and now stands at 5.87 percent. All bank regulatory ratios remain in excess of "well-capitalized" levels. At March 31, 2013, State Bank's Total Risk-Based Capital was estimated to be $58.0 million, $20.7 million above the well-capitalized level. The Total Risk-based Capital Ratio is estimated at 12.1 percent.

About Rurban Financial Corp.

Based in Defiance, Ohio, Rurban Financial Corp. is a financial services holding company with two wholly-owned operating subsidiaries: The State Bank and Trust Company (State Bank) and RDSI Banking Systems (RDSI). State Bank operates through 17 banking centers in seven Northwestern Ohio counties, one center in Fort Wayne, Indiana; and three loan production offices: two in Columbus, Ohio and one in Angola, Indiana. The Bank offers a full range of financial services for consumers and small businesses, including wealth management, mortgage banking, commercial and agricultural lending. RDSI provides item processing services to community banks located in the Midwest. Rurban's common stock is listed on the NASDAQ Global Market under the symbol RBNF.

Forward-Looking Statements

Certain statements within this document, which are not statements of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties and actual results may differ materially from those predicted by the forward-looking statements. These risks and uncertainties include, but are not limited to, risks and uncertainties inherent in the national and regional banking, insurance and mortgage industries, competitive factors specific to markets in which Rurban and its subsidiaries operate, future interest rate levels, legislative and regulatory actions, capital market conditions, general economic conditions, geopolitical events, the loss of key personnel and other factors. Additional factors that could cause results to differ from those described above can be found in Rurban's Annual Report on Form 10-K and documents subsequently filed by Rurban with the Securities and Exchange Commission. Forward-looking statements speak only as of the date on which they are made, and Rurban undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made except as required by law. All subsequent written and oral forward-looking statements attributable to Rurban or any person acting on its behalf are qualified by these cautionary statements.

Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this release contains certain non-GAAP financial measures. Management believes that providing certain non-GAAP financial measures provides investors with information useful in understanding Rurban's financial performance, its performance trends and financial position. Specifically, Rurban provides measures based on "core operating earnings," which excludes merger, integration and restructuring expenses that are not reflective of on-going operations or not expected to recur. These non-GAAP measures should not be considered a substitute for GAAP basis measures and results.