SB Financial Group - 10-Q quarterly report FY2011 Q3

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________to___________________________

Commission file number 0-13507

RURBAN FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

Ohio		34-1395608
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

401 Clinton Street, Defiance, Ohio 43512

(Address of principal executive offices)

(Zip Code)

(419) 783-8950

(Registrant’s telephone number, including area code)

None

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

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

Common Shares, without par value	4,861,779 shares
(class)	(Outstanding at November 14, 2011)

RURBAN FINANCIAL CORP.

FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	[Reserved]	43
Item 5.	Other Information	43
Item 6.	Exhibits	44

Signatures		45

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

The interim condensed consolidated financial statements of Rurban Financial Corp. (“Rurban” or the “Company”) are unaudited; however, the information contained herein reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of financial condition and results of operations for the interim periods presented. All adjustments reflected in these financial statements are of a normal recurring nature in accordance with Rule 10-01 of Regulation S-X. Results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of results for the complete year.

Rurban Financial Corp.

Condensed Consolidated Balance Sheets

September 30, 2011 and December 31, 2010

	September			December
	2011			2010
	(unaudited)
ASSETS
Cash and due from banks	$	13,764,025		$	30,417,813

Investment Securities:
Securities available for sale, at fair value		104,614,877			132,762,058
Non-marketable securities - FRB and FHLB Stock		3,748,250			3,748,250
Total investment securities		108,363,127			136,510,308

Loans held for sale		10,589,706			9,055,268

Loans, net of unearned income		438,926,037			427,544,414
Allowance for loan losses		(6,235,230	)		(6,715,397	)
Net Loans		432,690,807			420,829,017

Premises and equipment, net		14,120,118			14,622,541
Purchased software		805,286			1,021,036
Cash surrender value of life insurance		12,133,693			13,211,247
Goodwill		16,733,830			16,733,830
Core deposits and other intangibles		2,005,945			2,585,132
Foreclosed assets held for sale, net		1,970,028			1,538,307
Mortgage servicing rights		2,709,222			3,190,389
Accrued interest receivable		2,061,201			2,068,965
Other assets		5,846,400			8,503,832
Total assets	$	623,793,388		$	660,287,685

LIABILITIES AND EQUITY
Deposits
Non interest bearing demand	$	62,079,685		$	62,745,906
Interest bearing NOW		103,229,318			105,708,472
Savings		48,145,958			47,662,315
Money Market		79,163,033			84,635,537
Time Deposits		221,730,681			214,925,512
Total deposits		514,348,675			515,677,742

Notes payable		2,865,123			3,290,471
Advances from Federal Home Loan Bank		12,939,598			22,807,351
Repurchase Agreements		18,777,909			45,785,254
Trust preferred securities		20,620,000			20,620,000
Accrued interest payable		2,704,466			1,971,587
Other liabilities		3,985,333			4,111,182
Total liabilities		576,241,104			614,263,587

Equity
Common stock		12,568,583			12,568,583
Additional paid-in capital		15,302,194			15,235,206
Retained earnings		20,192,317			18,802,106
Accumulated other comprehensive income (loss)		1,258,501			1,187,514
Treasury stock		(1,769,311	)		(1,769,311	)
Total Equity		47,552,284			46,024,098

Total liabilities and equity	$	623,793,388		$	660,287,685

See notes to condensed consolidated financial statements (unaudited)

Note:

The balance sheet at December 31, 2010 has been derived from the audited consolidated financial statements at that date

Rurban Financial Corp.

Condensed Consolidated Statements of Operations (Unaudited)

Three and Nine Months Ended

	Three Months Ended						Nine Months Ended
	September			September			September			September
	2011			2010			2011			2010
Interest income
Loans
Taxable	$	6,250,747		$	6,281,157		$	18,273,348		$	19,442,383
Nontaxable		24,140			13,664			50,564			49,960
Securities
Taxable		446,342			596,362			1,623,475			1,679,203
Nontaxable		171,739			353,755			809,264			1,055,707
Other		56			24			142			211
Total interest income		6,893,024			7,244,962			20,756,793			22,227,464

Interest expense
Deposits		976,336			1,275,607			3,035,899			3,935,731
Other borrowings		24,691			32,367			73,777			101,145
Repurchase Agreements		71,900			436,369			841,634			1,295,994
Federal Home Loan Bank advances		79,033			231,122			325,428			872,947
Trust preferred securities		355,632			388,854			1,047,923			1,178,502
Total interest expense		1,507,592			2,364,319			5,324,661			7,384,319

Net interest income		5,385,432			4,880,643			15,432,132			14,843,145

Provision for loan losses		297,368			898,570			1,694,648			8,788,713

Net interest income after provision for loan losses		5,088,064			3,982,073			13,737,484			6,054,432

Noninterest income
Data service fees		743,114			2,044,400			2,959,026			8,682,575
Trust fees		628,994			650,511			1,993,476			1,883,994
Customer service fees		663,691			643,816			1,884,784			1,846,161
Gain on sale of mortgage loans and OMSR's		1,100,557			1,435,581			2,090,736			2,653,693
Mortgage loan servicing fees, net		(795,995	)		(423,939	)		(661,110	)		(397,577	)
Gain on sale of non-mortgage loans		-			125,122			80,423			233,071
Net realized gain (loss) on sales of securities		-			-			1,871,387			451,474
Investment securities recoveries		-			-			-			73,774
Loss on sale or disposal of assets		(26,816	)		(128,985	)		(287,478	)		(159,066	)
Other income		161,377			188,055			503,469			544,094
Total non-interest income		2,474,922			4,534,561			10,434,713			15,812,193

Noninterest expense
Salaries and employee benefits		3,582,982			4,058,316			10,686,191			14,064,591
Net occupancy expense		568,173			486,695			1,669,644			1,639,386
Equipment expense		689,662			872,681			2,118,539			5,423,343
FDIC Insurance expense		145,261			259,646			716,839			676,462
Software impairment expense		-			-			-			4,892,231
Data processing fees		157,686			211,129			493,231			635,393
Professional fees		377,322			619,430			1,427,610			1,823,449
Marketing expense		89,192			139,987			235,060			330,213
Printing and office supplies		86,071			111,414			280,735			369,842
Telephone and communication		140,995			267,344			441,001			992,891
Postage and delivery expense		260,477			388,666			863,407			1,415,529
State, local and other taxes		102,577			154,391			380,133			118,835
Employee expense		143,355			147,739			411,040			654,968
Other intangible amortization expense		184,763			200,344			579,187			600,613
OREO Impairment		-			-			-			215,000
Other expenses		294,621			820,633			1,978,489			2,550,747
Total non-interest expense		6,823,137			8,738,415			22,281,106			36,403,493

Income (loss) before income tax expense		739,849			(221,781	)		1,891,091			(14,536,868	)
Income tax expense (benefit)		137,356			(247,696	)		500,880			(5,507,954	)

Net income (loss)	$	602,493		$	25,915		$	1,390,211		$	(9,028,914	)

Common share data:
Basic earnings (loss) per common share	$	0.12		$	0.01		$	0.29		$	(1.86	)
Diluted earnings (loss) per common share	$	0.12		$	0.01		$	0.29		$	(1.86	)

See notes to condensed consolidated financial statements (unaudited)

Rurban Financial Corp.

Condensed Consolidated Statements of Changes in

Stockholders’ Equity (Unaudited)

	Three Months Ended				Nine Months Ended
	Sept. 30, 2011		Sept. 30, 2010		Sept. 30, 2011		Sept. 30, 2010

Balance at beginning of period	$	46,013,910	$	53,201,167	$	46,024,098	$	61,707,655
Net Income (Loss)		602,493		25,915		1,390,211		(9,028,914	)
Unrealized gains on securities
Unrealized holding gains arising during the year, net of tax		914,632		811,939		1,306,102		1,665,178
Less: reclassification adjustment for gains realized in net income, net of tax		-		-		1,235,115		297,974
Total comprehensive income (loss)		1,517,125		837,854		1,461,198		(7,661,710	)

Share-based compensation		21,249		29,317		66,988		22,393

Balance at end of period	$	47,552,284	$	54,068,338	$	47,552,284	$	54,068,338

See notes to condensed consolidated financial statements (unaudited)

Rurban Financial Corp.

Condensed Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended

	Sept. 30, 2011			Sept. 30, 2010
Operating Activities
Net Income/(loss)	$	1,390,211		$	(9,028,914	)
Items not requiring (providing) cash
Depreciation and amortization		1,344,273			3,554,271
Provision for loan losses		1,694,648			8,788,713
Expense of share-based compensation plan		66,988			22,392
Amortization of premiums and discounts on securities		1,225,101			1,091,077
Amortization of intangible assets		579,187			600,402
Amortization of mortgage servicing rights		415,771			233,597
Impairment of mortgage servicing rights		897,499			575,000
Deferred income taxes		(36,568	)		(3,537,222	)
Proceeds from sale of loans held for sale		135,730,072			171,718,730
Originations of loans held for sale		(135,093,351	)		(165,428,100	)
Gain from sale of mortgage loans		(2,090,736	)		(2,653,693	)
Gain from sale of non-mortgage loans		(80,423	)		(233,071	)
Gain on available for sale securities		(1,871,387	)		(451,474	)
Software and fixed asset impairment		-			4,892,231
OREO Impairment		-			215,000
Loss on sale of foreclosed assets		296,778			139,699
(Gain) / Loss on sale of fixed assets		(9,300	)		19,367
Income from bank owned life insurance		(276,208	)		(322,307	)
Changes in
Interest receivable		7,764			(236,070	)
Other assets		1,850,553			582,983
Interest payable and other liabilities		607,030			(2,041,941	)

Net cash from operating activities		6,647,902			8,500,670

Investing Activities
Purchase of available-for-sale securities		(36,704,998	)		(52,231,341	)
Proceeds from maturities of available-for-sale securities		21,274,023			32,756,818
Proceeds from sales of available-for-sale-securities		44,331,997			9,995,724
Proceeds from bank owned life insurance		1,353,762			-
Net change in loans		(15,707,317	)		13,572,294
Purchase of premises and equipment and software		(626,100	)		(1,564,571	)
Proceeds from sales of premises and equipment		9,300			(94,932	)
Proceeds from sale of foreclosed assets		1,397,156			4,303,594

Net cash from investing activities	$	15,327,823		$	6,737,586

See notes to condensed consolidated financial statements (unaudited)

Rurban Financial Corp.

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

Nine Months Ended

	Sept. 30, 2011			Sept. 30, 2010
Financing Activities
Net (decrease)/increase in demand deposits, money market, interest checking and savings accounts	$	(8,134,236	)	$	23,134,502
Net increase in certificates of deposit		6,805,169			7,944,267
Net (decrease)/increase in securities sold under agreements to repurchase		(27,007,345	)		3,074,211
Net decrease in federal funds purchased		-			(5,000,000	)
Proceeds from Federal Home Loan Bank advances		23,000,000			2,000,000
Repayment of Federal Home Loan Bank advances		(32,867,753	)		(11,836,839	)
Proceeds from notes payable		-			2,250,000
Repayment of notes payable		(425,348	)		(1,028,510	)

Net cash (used in) / from financing activities		(38,629,513	)		20,537,631

(Decrease)/Increase in Cash and Cash Equivalents		(16,653,788	)		35,775,887

Cash and Cash Equivalents, Beginning of Year		30,417,813			24,824,785

Cash and Cash Equivalents, End of Period	$	13,764,025		$	60,600,672

Supplemental Cash Flows Information

Interest Paid	$	4,591,782		$	7,208,724

Transfer of loans to foreclosed assets	$	2,150,879		$	4,621,993

See notes to condensed consolidated financial statements (unaudited)

RURBAN FINANCIAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A—BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly present the financial position, results of operations and cash flows of the Company. Those adjustments consist only of normal recurring adjustments. Results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of results for the complete year.

The condensed consolidated balance sheet of the Company as of December 31, 2010 has been derived from the audited consolidated balance sheet of the Company as of that date.

For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

NOTE B—EARNINGS PER SHARE

Earnings per share (EPS) have been computed based on the weighted average number of shares outstanding during the periods presented. For the periods ended September 30, 2011 and 2010, share based awards totaling 306,974 and 365,102 common shares, respectively, were not considered in computing EPS as they were anti-dilutive. The number of shares used in the computation of basic and diluted earnings per share were:

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2011		2010		2011		2010
Basic earnings per share		4,861,779		4,861,779		4,861,779		4,861,779
Diluted earnings per share		4,861,779		4,861,779		4,861,779		4,861,779

NOTE C – LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table presents the Company’s loan categories at September 30, 2011 and December 31, 2010.

	Total Loans						Non-Accrual Loans				Non-Accrual Percentage
	Sept. 30, 2011			Dec. 31, 2010			Sept. 30, 2011		Dec. 31, 2010		Sept. 30, 2011			Dec. 31, 2010
Construction & Development	$	15,992		$	16,177		$	-	$	-		0.00	%		0.00	%
Commercial real estate		160,204			152,508			2,210		5,428		1.38	%		3.56	%
Commercial & Industrial		72,622			69,510			2,466		3,032		3.40	%		4.36	%
Agricultural & Farmland		38,601			40,829			87		-		0.23	%		0.00	%
Residential real estate		98,772			96,257			2,107		3,285		2.13	%		3.41	%
Home Equity		38,569			38,681			440		474		1.14	%		1.23	%
Consumer, net of deferred fees		9,475			10,653			21		64		0.22	%		0.60	%
Other		4,691			2,929			-		-		0.00	%		0.00	%
Total	$	438,926		$	427,544		$	7,331	$	12,283		1.67	%		2.87	%

Residential Loans held for sale		10,590			9,055
Allowance for loan and lease losses	$	(6,235	)	$	(6,715	)

The following tables present the balance of the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method for both the three and nine months ended as of September 30, 2011and the year ended as of December 31, 2010.

For the Nine Months Ended				Commercial
Sept. 30, 2011	Commercial			RE &			Agricultural		Residential			Home Equity
($'s in thousands)	& Industrial			Construction			& Farmland		Real Estate			& Consumer			Other			Unallocated			Total

Beginning balance	$	1,723		$	3,774		$	16	$	643		$	401		$	128		$	30		$	6,715
Charge Offs		(607	)		(1,560	)		-		(238	)		(350	)		(4	)		-			(2,759	)
Recoveries		416			27			3		115			19			4			-			584
Provision		20			875			21		402			408		$	(29	)		(2	)		1,695
Ending Balance	$	1,552		$	3,116		$	40	$	922		$	478		$	99		$	28		$	6,235

Ending balance:
individually
evaluated for
impairment	$	732		$	429		$	-	$	153		$	119		$	-		$	-		$	1,433
Ending balance:
collectively
evaluated for
impairment	$	820		$	2,687		$	40	$	769		$	359		$	99		$	28		$	4,802

Loans:
Ending balance:
individually
evaluated for
impairment	$	2,391		$	2,675		$	-	$	1,311		$	95		$	-		$	-		$	6,472
Ending balance:
collectively
evaluated for
impairment	$	70,231		$	173,521		$	38,601	$	97,461		$	47,949		$	4,691		$	-		$	432,454

For the nine months ended September 30, 2010, the beginning balance for the allowance for loan loss was $7.03 million. During the nine month period of 2010, the Company incurred charge-offs of $9.74 million, received recoveries of $0.38 million, and had provision for loan loss of $8.79 million, for an ending balance of $6.45 million.

For the Three Months Ended				Commercial
Sept. 30, 2011	Commercial			RE &			Agricultural		Residential			Home Equity
($'s in thousands)	& Industrial			Construction			& Farmland		Real Estate			& Consumer			Other			Unallocated			Total

Beginning balance	$	1,522		$	3,444		$	27	$	894		$	427		$	99		$	31		$	6,444
Charge Offs		(11	)		(352	)		-		(72	)		(87	)		(5	)		-			(527	)
Recoveries		2			11			1		1			1			5			-			21
Provision		39			13			12		99			137			-			(3	)		297
Ending Balance	$	1,552		$	3,116		$	40	$	922		$	478		$	99		$	28		$	6,235

Ending balance:
individually
evaluated for
impairment	$	732		$	429		$	-	$	153		$	119		$	-		$	-		$	1,433
Ending balance:
collectively
evaluated for
impairment	$	820		$	2,687		$	40	$	769		$	359		$	99		$	28		$	4,802
Loans:
Ending balance:
individually
evaluated for
impairment	$	2,391		$	2,675		$	-	$	1,311		$	95		$	-		$	-		$	6,472
Ending balance:
collectively
evaluated for
impairment	$	70,231		$	173,521		$	38,601	$	97,461		$	47,949		$	4,691		$	-		$	432,454

For the three months ended September 30, 2010, the beginning balance for the allowance for loan loss was $7.00 million. During the three month period of 2010, the Company incurred charge-offs of $1.58 million, received recoveries of $0.13 million, and had provision for loan loss of $0.90 million, for an ending balance of $6.45 million.

For the Year Ended				Commercial
December 31, 2010	Commercial			RE &			Agricultural			Residential			Home Equity
($'s in thousands)	& Industrial			Construction			& Farmland			Real Estate			& Consumer			Other			Unallocated		Total

Beginning balance	$	2,604		$	3,210		$	92		$	715		$	255		$	154		$	-	$	7,030
Charge Offs		(4,739	)		(4,748	)		-			(1,210	)		(542	)		(95	)		-		(11,334	)
Recoveries		182			171			11			53			-			14			-		431
Provision		3,676			5,141			(87	)		1,085			688			55			30		10,588
Ending Balance	$	1,723		$	3,774		$	16		$	643		$	401		$	128		$	30	$	6,715

Ending balance:
individually
evaluated for
impairment	$	684		$	1,187		$	-		$	-		$	-		$	-		$	-	$	1,871
Ending balance:
collectively
evaluated for
impairment	$	1,039		$	2,587		$	16		$	643		$	401		$	128		$	30	$	4,844
Loans:
Ending balance:
individually
evaluated for
impairment	$	2,874		$	5,946		$	-		$	616		$	43		$	-		$	-	$	9,479
Ending balance:
collectively
evaluated for
impairment	$	66,636		$	162,739		$	40,829		$	95,641		$	49,291		$	2,929		$	-	$	418,065

Credit Risk Profile

The Company uses a nine tier risk rating system to grade its loans. The grade of a loan may change at any time during the life of the loan. The risk ratings are described as follows:

One (1) Superior - Risk is negligible. Loans are to well-seasoned borrowers, displaying sound financial condition, consistent superior earnings performance, strong capitalization, and access to a range of financing alternatives.

Two (2) Excellent - Risk is minimal. Borrower is well capitalized, operates in a stable industry, financial ratios exceed peers, and financial trends are positive.

Three (3) Good - Risk is modest. Borrower has good overall financial condition and adequate capitalization to withstand temporary setbacks. Financial trends are positive, and there is clear ability to service debt from the primary source.

Four (4) Average - Risk is acceptable. Borrowers in this category may be characterized by acceptable asset quality, but may face a degree of uncertainty due to new business, untried market, high degree of leverage, expansion, management change, or industry conditions.

Four Monitored (4m) = Monitored Pass Credits - Risk is increasing. Borrowers in this category may be characterized by an increasing amount of risk due to one or more of the following characteristics listed below. Additionally, these borrowers require a higher than normal amount of monitoring by the relationship manager and bank management. Borrowers who are placed in this category may also demonstrate the potential for an upgrade in the next 12 months given improvement in one or more of the factors listed below:

Declining trends in the earnings and cash flow of the company is evident by moderate to severe losses although debt service coverage remains within policy limits.

Lines of credit that have been evergreen (75% of maximum availability) for more than two consecutive years.

Absence of relevant financial information or stale financial information provided.

Restructure or modification to the loan agreement for the purpose of additional funds to support ongoing operations of the company.

The borrower demonstrates a material weakness or declining trend in collateral support for the given loans.

Five (5) Special Mention - Defined as having potential weaknesses that deserve management's close attention. If uncorrected these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects for the credit or the institution's credit position. Special mention credits are not considered as part of the classified extensions of credit category and do not expose State Bank to sufficient risk to warrant classification. Extensions of credit that might be detailed in this category include those in which:

The lending officer may be unable to properly supervise the credit because of an inadequate loan or credit agreement.

Questions exist regarding the condition of and/or control over collateral.

Economic or market conditions may unfavorably affect the obligor in the future.

A declining trend in the obligor's operations or an imbalanced position in the balance sheet exists, but not to the point that repayment is jeopardized.

Other deviations from prudent lending practices are present.

The special mention category should not be used to identify an extension of credit that has as its sole weakness credit-data or documentation exceptions not material to the repayment of the credit. It should also not be used to list extensions of credit that contain risks usually associated with that particular type of lending. Any extension of credit involves certain risks, regardless of the collateral or the borrower's capacity and willingness to repay the debt.

Six (6) Substandard - A "substandard" extension of credit is inadequately protected by the sound worth and paying capacity of the obligor or of the collateral pledged, if any. Extensions of credit so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that State Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard credits, does not have to exist in individual extensions of credit classified substandard.

Seven (7) Doubtful - Has all the weaknesses in one classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to the advantage of and strengthen the credit, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include a proposed merger or acquisition, liquidation proceedings, capital injection, perfecting liens on additional collateral, or refinancing plans.

An entire credit is not classified as doubtful when collection of a specific portion appears highly probable. An example of proper use of the doubtful category is the case of a company being liquidated, with the trustee-in-bankruptcy indicating a minimum disbursement of forty percent (40%) and a maximum of sixty-five percent (65%) to unsecured creditors including State Bank. In this situation, estimates are based on liquidation-value appraisals with actual values yet to be realized. By definition, the only portion of the credit that is doubtful is the twenty-five percent (25%) difference between forty percent (40%) and sixty-five percent (65%). A proper classification of such a credit would show forty percent (40%) substandard, twenty-five percent (25%) doubtful, and thirty-five percent (35%) loss.

Eight (8) Loss - Considered uncollectible and of such little value that continuance as a Bank asset is not warranted. This classification does not mean that the credit has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset, even though partial recovery may be affected in the future. Loans failing to meet the minimum conditions of the Doubtful classifications are charged off.

The following tables present the credit risk profile of the Company’s loan portfolio based on rating category as of September 30, 2011 and December 31, 2010 (dollars in thousands).

Sept. 30, 2011	Commercial		Comm. RE		Agricultural		Residential		Home Equity
Loan Grade	& Industrial		& Construction		& Farmland		Real Estate		& Consumer		Other		Total
1-2	$	667	$	414	$	171	$	1,593	$	126	$	57	$	3,028
3		24,531		63,571		14,538		76,862		44,916		1,317		225,735
4		42,928		97,121		23,748		14,593		2,457		3,317		184,164
Total Pass		68,126		161,106		38,457		93,048		47,499		4,691		412,927

Special Mention		236		9,706		5		1,126		28		-		11,101
Substandard		1,819		3,188		51		1,731		87		-		6,876
Doubtful		2,441		2,196		88		2,867		430		-		8,022
Loss		-		-		-		-		-		-		-
Total	$	72,622	$	176,196	$	38,601	$	98,772	$	48,044	$	4,691	$	438,926

December 31, 2010	Commercial		Comm. RE		Agricultural		Residential		Home Equity
Loan Grade	& Industrial		& Construction		& Farmland		Real Estate		& Consumer		Other		Total
1-2	$	863	$	690	$	180	$	1,837	$	107	$	-	$	3,677
3		24,020		61,050		15,968		75,405		46,019		1,221		223,683
4		38,195		91,755		24,186		11,527		2,299		1,708		169,670
Total Pass		63,078		153,495		40,334		88,769		48,425		2,929		397,030

Special Mention		1,021		7,141		6		2,568		204		-		10,940
Substandard		2,739		3,076		489		2,797		411		-		9,512
Doubtful		2,672		4,973		-		2,123		294		-		10,062
Loss		-		-		-		-		-		-		-
Total	$	69,510	$	168,685	$	40,829	$	96,257	$	49,334	$	2,929	$	427,544

The following tables present the Company’s loan portfolio aging analysis as of September 30, 2011 and December 31, 2010 (dollars in thousands).

	30-59 Days		60-89 Days		Greater Than		Total Past				Total Loans
Sept. 30, 2011	Past Due		Past Due		90 Days		Due		Current		Receivable

Commercial & Industrial	$	13	$	-	$	2,391	$	2,405	$	70,217	$	72,622
Commercial RE & Construction		-		-		2,553		2,553		173,643		176,196
Agricultural & Farmland		-		-		87		87		38,514		38,601
Residential Real Estate		223		35		730		988		97,784		98,772
Home Equity & Consumer		336		111		291		738		47,306		48,044
Other		-		-		-		-		4,691		4,691
Loans		573		146		6,052		6,771		432,155		438,926
Loans held for Sale		-		-		-		-		10,590		10,590
Total	$	573	$	146	$	6,052	$	6,771	$	442,744	$	449,515

	30-59 Days		60-89 Days		Greater Than		Total Past				Total Loans
December 31, 2010	Past Due		Past Due		90 Days		Due		Current		Receivable

Commercial & Industrial	$	242	$	73	$	2,744	$	3,059	$	66,451	$	69,510
Commercial RE & Construction		148		10		5,617		5,775		162,910		168,685
Agricultural & Farmland		-		88		-		88		40,741		40,829
Residential Real Estate		427		372		1,584		2,383		93,874		96,257
Home Equity & Consumer		255		25		547		827		48,507		49,334
Other		-		-		-		-		2,929		2,929
Loans		1,072		568		10,492		12,132		415,412		427,544
Loans held for Sale		-		-		-		-		9,055		9,055
Total	$	1,072	$	568	$	10,492	$	12,132	$	424,466	$	436,598

There were no loans greater than 90 days past due still accruing interest at September 30, 2011 and December 31, 2010.

The following tables present impaired loan activity for the three and nine months ended September 30, 2011 and for the year ended December 31, 2010.

Nine Months Ended
Sept. 30, 2011			Unpaid
($'s in thousands)	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Commercial & Industrial	$	165	$	515	$	-
Commercial Real Estate		504		1,367		-
Agricultural & Farmland		-		-		-
Residential Real Estate		438		485		-
Home Equity & Consumer		43		43		-
All Impaired Loans < $100,000		1,381		1,381		-
With a specific allowance recorded:
Commercial & Industrial		2,226		4,074		732
Commercial Real Estate		2,171		3,260		480
Agricultural & Farmland		-		-		-
Residential Real Estate		873		1,081		221
Home Equity & Consumer		52		87		-
All Impaired Loans < $100,000		-		-		-
Totals:
Commercial & Industrial	$	2,391	$	4,589	$	732
Commercial Real Estate	$	2,675	$	4,627	$	480
Agricultural & Farmland	$	-	$	-	$	-
Residential Real Estate	$	1,311	$	1,567	$	221
Home Equity & Consumer	$	95	$	130	$	-
All Impaired Loans < $100,000		1,381		1,381		-

Sept. 30, 2011	Nine Months Ended				Three Months Ended
($'s in thousands)	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial & Industrial	$	210	$	-	$	210	$	-
Commercial RE & Construction		700		-		504		-
Agricultural & Farmland		-		-		-		-
Residential Real Estate		531		17		525		5
Home Equity & Consumer		43		-		43		-
All Impaired Loans < $100,000		1,381		-		1,381		-
With a specific allowance recorded:
Commercial & Industrial		2,663		-		2,664		-
Commercial RE & Construction		3,121		13		3,133		4
Agricultural & Farmland		-		-		-		-
Residential Real Estate		1,106		22		1,120		8
Home Equity & Consumer		83		3		82		1
All Impaired Loans < $100,000		-		-		-		-
Totals:
Commercial & Industrial	$	2,873	$	-	$	2,874	$	-
Commercial RE & Construction	$	3,821	$	13	$	3,637	$	4
Agricultural & Farmland	$	-	$	-	$	-	$	-
Residential Real Estate	$	1,637	$	39	$	1,645	$	12
Home Equity & Consumer	$	126	$	3	$	125	$	1
All Impaired Loans < $100,000	$	1,381	$	-	$	1,381	$	-

December 31, 2010			Unpaid				Average		Interest
($'s in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial & Industrial	$	436	$	786	$	-	$	2,075	$	4
Commercial RE & Construction		2,744		4,040		-		4,195		52
Agricultural & Farmland		-		-		-		-		10
Residential Real Estate		616		741		-		1,045		2
Home Equity & Consumer		43		43		-		72		-
All Impaired Loans < $100,000		1,062		1,062		-		1,062		-
With a specific allowance recorded:
Commercial & Industrial		2,438		3,938		684		2,147		(48	)
Commercial RE & Construction		3,202		3,202		1,187		3,147		44
Agricultural & Farmland		-		-		-		-		-
Residential Real Estate		-		-		-		-		-
Home Equity & Consumer		-		-		-		-		-
All Impaired Loans < $100,000		-		-		-		-		-
Totals:
Commercial & Industrial	$	2,874	$	4,724	$	684	$	4,222	$	(44	)
Commercial RE & Construction	$	5,946	$	7,242	$	1,187	$	7,342	$	96
Agricultural & Farmland	$	-	$	-	$	-	$	-	$	10
Residential Real Estate	$	616	$	741	$	-	$	1,045	$	2
Home Equity & Consumer	$	43	$	43	$	-	$	72	$	-
All Impaired Loans < $100,000	$	1,062	$	1,062	$	-	$	1,062	$	-

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable State Bank will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include non-performing loans but also include loans modified and reclassified as troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

Troubled Debt Restructured (TDR) Loans

TDR’s are modified loans where a concession was provided to a borrower experiencing financial difficulties. Loan modifications are considered TDR’s when the concessions provided are not available to the borrower through either normal channels or other sources. However, not all loan modifications are TDR’s.

TDR Concession Types

The Company’s standards relating to loan modifications consider, among other factors, minimum verified income requirements, cash flow analysis, and collateral valuations. Each potential loan modification is reviewed individually and the terms of the loan are modified to meet a borrower’s specific circumstances at a point in time. All loan modifications, including those classified as TDR’s, are reviewed and approved. The types of concessions provided to borrowers include:

Interest rate reduction: A reduction of the stated interest rate to a nonmarket rate for the remaining original life of the debt. The Company also may grant interest rate concessions for a limited timeframe on a case by case basis.

Amortization or maturity date change beyond what the collateral supports, including any of the following:

(1)

Lengthens the amortization period of the amortized principal beyond market terms. This concession reduces the minimum monthly payment and increases the amount of the balloon payment at the end of the term of the loan. Principal is generally not forgiven.

(2)

Reduces the amount of loan principal to be amortized. This concession also reduces the minimum monthly payment and increases the amount of the balloon payment at the end of the term of the loan. Principal is generally not forgiven.

(3)

Extends the maturity date or dates of the debt beyond what the collateral supports. This concession generally applies to loans without a balloon payment at the end of the term of the loan. In addition, there may be instances where renewing loans potentially require non-market terms and would then be reclassified as TDRs.

Other: A concession that is not categorized as one of the concessions described above. These concessions include, but are not limited to: principal forgiveness, collateral concessions, covenant concessions, and reduction of accrued interest. Principal forgiveness may result from any TDR modification of any concession type.

The table below presents our accruing and nonaccruing TDR’s at period-end for each of the past five quarters:

($'s in thousands)	September		June		March		December		September
	2011		2011		2011		2010		2010
TDR's - accruing:

Commercial & Industrial	$	-	$	-	$	-	$	-	$	1
Commercial RE & Construction		569		547		576		581		587
Agricultural & Farmland		5		5		5		6		6
Residential Real Estate		675		683		440		452		587
Home Equity & Consumer		62		50		52		68		47
Other		-		-		-		-		-
Total TDR's - accruing:		1,311		1,285		1,073		1,107		1,228

TDR's - nonaccruing:

Commercial & Industrial	$	1,884	$	1,908	$	2,119	$	1,907	$	2,166
Commercial RE & Construction		-		138		190		190		-
Agricultural & Farmland		-		-		-		-		-
Residential Real Estate		338		236		419		399		316
Home Equity & Consumer		-		-		-		-		22
Other		-		-		-		-		-
Total TDR's - nonaccruing:		2,222		2,282		2,728		2,496		2,504

Total TDR loans		3,533		3,567		3,801		3,603		3,732

	Three Months Ended September 30, 2011						Nine Months Ended September 30, 2011
	Number of Contracts		Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Contracts		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Residential Real Estate		1	$	102	$	102		2	$	315	$	315

There were no loans modified in a TDR from October 1, 2010 through September 30, 2011 that subsequently defaulted during the three and nine months ended September 30, 2011.

NOTE D - NEW ACCOUNTING PRONOUNCEMENTS

ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.

In April 2011, FASB issued ASU No. 2011-02 due to concerns about whether additional guidance or clarification is needed to help creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist:

The restructuring constitutes a concession.

The debtor is experiencing financial difficulties.

The amendments in this update are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The Company adopted this standard effective July 1, 2011 retroactive to January 1, 2011. The effect of this adoption has had no impact on the financial results of the Company. These new disclosures are included in Note C - Loans and Allowance for Loan Losses.

ASU No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements (April 2011).

In April 2011, FASB issued ASU No. 2011-03 in order to improve the accounting for repurchase agreements (repos) and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The transferor is deemed to have maintained effective control over the financial assets transferred (and thus must account for the transaction as a secured borrowing), for agreements that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity, if all of the following conditions are met:

The financial assts to be repurchased or redeemed are the same or substantially the same as those transferred.

The agreement is to repurchase or redeem them before maturity, at a fixed or determinable price.

The agreement is entered into contemporaneously with, or in contemplation of, the transfer.

The amendments in this update are effective for the first interim or annual period beginning on or after December 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption.

ASU 2011-04, Fair Value Measurements and Disclosures (Topic 820:) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.

The ASU amends Topic 820 to add both additional clarifications to existing fair value measurement and disclosure requirements and changes to existing principles and disclosure guidance. Clarifications were made to the relevancy of the highest and best use valuation concept, measurement of an instrument classified in an entity's shareholder's equity and disclosure of quantitative information about the unobservable inputs for level 3 fair value measurements. Changes to existing principles and disclosures included measurement of financial instruments managed within a portfolio, the application of premiums and discounts in fair value measurement, and additional disclosures related to fair value measurements. The updated guidance and requirements are effective for financial statements issued for the first interim or annual period beginning after December 15, 2011, and should be applied prospectively. Early adoption is permitted. Management does not believe the principle amendments will have a material impact on Rurban's Condensed Consolidated Financial Statements.

ASU 2011-05, Other Comprehensive Income (Topic 220): Presentation of Comprehensive Income.

The ASU amends Topic 220 to require an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. An entity is also required to present on the face of the financial statement reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The amendments do not change items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income, only the format for presentation. The updated guidance and requirements are effective for financial statements issued for the fiscal years, and the interim periods within those years, beginning after December 15, 2011. The amendments should be applied retrospectively. On October 21, 2011, the FASB exposed a proposed deferral of the requirement that companies present reclassification adjustments for each component of OCI in both net income and OCI on the face of the financial statements. Early adoption is permitted. Management is currently evaluating the impact of the guidance on Rurban's Condensed Consolidated Financial Statements.

ASC 2011-08 - Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment.

The ASU amends Topic 350 to permit an entity the option to first assess qualitative factors to determine whether it is more likely than not (50% threshold) that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity's financial statements for the most recent annual or interim period have not yet been issued. Management has decided to adopt the ASU as of September 30, 2011.

NOTE E – SEGMENT INFORMATION

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

NOTE E — SEGMENT INFORMATION

As of and for the three months ended September 30, 2011

			Data						Total		Intersegment			Consolidated
Income statement information	Banking		Processing			Other			Segments		Elimination			Totals

Net interest income (expense)	$	5,786,550	$	(75,832	)	$	(325,286	)	$	5,385,433				$	5,385,432

Non-interest income - external customers		1,719,808		747,650			7,464			2,474,922					2,474,922

Non-interest income - other segments		126,045		332,623			34,325			492,993		(492,993	)		-

Total revenue		7,632,403		1,004,441			(283,497	)		8,353,348		(492,993	)		7,860,354

Non-interest expense		5,744,248		1,257,739			314,143			7,316,130		(492,993	)		6,823,137

Significant non-cash items:
Depreciation and amortization		215,492		227,348			2,423			445,263		-			445,263
Provision for loan losses		297,368		-			-			297,368		-			297,368

Income tax expense (benefit)		429,321		(86,121	)		(205,844	)		137,356		-			137,356

Segment profit (loss)	$	1,161,466	$	(167,177	)	$	(391,796	)	$	602,493	$	-		$	602,493

Balance sheet information

Total assets	$	618,000,292	$	4,894,805		$	5,885,002		$	628,780,099	$	(4,986,711	)	$	623,793,388

Goodwill and intangibles	$	18,359,027	$	380,748		$	-		$	18,739,775	$	-		$	18,739,775

Premises and equipment expenditures	$	19,126	$	103,932		$	13,218		$	136,276	$	-		$	136,276

NOTE E — SEGMENT INFORMATION

As of and for the three months ended September 30, 2010

			Data						Total			Intersegment			Consolidated
Income statement information	Banking		Processing			Other			Segments			Elimination			Totals

Net interest income (expense)	$	5,336,846	$	(95,642	)	$	(360,561	)	$	4,880,643					$	4,880,643

Non-interest income - external customers		3,072,667		2,033,803			20,466			5,126,936						5,126,936

Non-interest income - other segments		23,399		297,671			-			321,070			(321,070	)		-

Total revenue		8,432,912		2,235,832			(340,095	)		10,328,649			(321,070	)		10,007,579

Non-interest expense		6,985,683		2,317,726			348,452			9,651,861			(321,070	)		9,330,791

Significant non-cash items:
Depreciation and amortization		235,390		555,208			12,977			803,575			-			803,575
Fixed asset & software impairment		-		-			-			-						-
Provision for loan losses		898,570		-			-			898,570			-			898,570

Income tax expense (benefit)		244		(27,803	)		(220,137	)		(247,696	)		-			(247,696	)

Segment profit (loss)	$	548,415	$	(54,091	)	$	(468,410	)	$	25,914		$	-		$	25,914

Balance sheet information

Total assets	$	668,817,793	$	12,150,499		$	5,439,547		$	686,407,839		$	(5,218,082	)	$	681,189,757

Goodwill and intangibles	$	18,991,531	$	6,800,370		$	-		$	25,791,901		$	-		$	25,791,901

Premises and equipment expenditures	$	253,022	$	17,250		$	-		$	270,272		$	-		$	270,272

NOTE E — SEGMENT INFORMATION

As of and for the nine months ended September 30, 2011

			Data						Total		Intersegment			Consolidated
Income statement information	Banking		Processing			Other			Segments		Elimination			Totals

Net interest income (expense)	$	16,622,347	$	(232,379	)	$	(957,836	)	$	15,432,132				$	15,432,132

Non-interest income - external customers		7,440,049		2,968,327			26,337			10,434,713					10,434,713

Non-interest income - other segments		225,643		1,054,121			109,325			1,389,089		(1,389,089	)		-

Total revenue		24,288,039		3,790,069			(822,174	)		27,255,934		(1,389,089	)		25,866,845

Non-interest expense		18,377,084		4,121,215			1,171,896			23,670,195		(1,389,089	)		22,281,106

Significant non-cash items:
Depreciation and amortization		660,666		676,626			6,981			1,344,273		-			1,344,273
Provision for loan losses		1,694,648		-			-			1,694,648		-			1,694,648

Income tax expense (benefit)		1,065,375		(112,589	)		(451,906	)		500,880		-			500,880

Segment profit (loss)	$	3,150,932	$	(218,557	)	$	(1,542,164	)	$	1,390,211	$	-		$	1,390,211

Balance sheet information

Total assets	$	618,000,292	$	4,894,805		$	5,885,002		$	628,780,099	$	(4,986,711	)	$	623,793,388

Goodwill and intangibles	$	18,359,027	$	380,748		$	-		$	18,739,775	$	-		$	18,739,775

Premises and equipment expenditures	$	508,950	$	103,932		$	13,218		$	626,100	$	-		$	626,100

NOTE E — SEGMENT INFORMATION

As of and for the nine months ended September 30, 2010

				Data						Total			Intersegment			Consolidated
Income statement information	Banking			Processing			Other			Segments			Elimination			Totals

Net interest income (expense)	$	16,317,471		$	(367,603	)	$	(1,106,723	)	$	14,843,145					$	14,843,145

Non-interest income - external customers		7,850,469			8,671,978			98,343			16,620,790						16,620,790

Non-interest income - other segments		73,209			893,824			428,773			1,395,806			(1,395,806	)		-

Total revenue		24,241,149			9,198,199			(579,607	)		32,859,741			(1,395,806	)		31,463,935

Non-interest expense		19,687,929			17,563,271			1,356,697			38,607,897			(1,395,806	)		37,212,091

Significant non-cash items:
Depreciation and amortization		741,837			3,120,117			44,489			3,906,443			-			3,906,443
Fixed asset & software impairment		-			4,892,231			-			4,892,231						4,892,231
Provision for loan losses		5,788,713			3,000,000			-			8,788,713			-			8,788,713

Income tax expense (benefit)		(842,714	)		(3,986,484	)		(678,756	)		(5,507,954	)		-			(5,507,954	)

Segment profit (loss)	$	(392,779	)	$	(7,378,588	)	$	(1,257,548	)	$	(9,028,915	)	$	-		$	(9,028,915	)

Balance sheet information

Total assets	$	668,817,793		$	12,150,499		$	5,439,547		$	686,407,839		$	(5,218,082	)	$	681,189,757

Goodwill and intangibles	$	18,991,531		$	6,800,370		$	-		$	25,791,901		$	-		$	25,791,901

Premises and equipment expenditures	$	411,571		$	1,153,000		$	-		$	1,564,571		$	-		$	1,564,571

NOTE F – FAIR VALUE OF ASSETS AND LIABILITIES

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1

Quoted prices in active markets for identical assets or liabilities

Level 2

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Available-for-Sale Securities

The fair value of available-for-sale securities are determined by various valuation methodologies. Level 1 securities include money market mutual funds. Level 1 inputs include quoted prices in an active market. Level 2 securities include U.S. government agencies, mortgage-backed securities, and obligations of political and state subdivisions. Level 2 inputs do not include quoted prices for individual securities in active markets; however, they do include inputs that are either directly or indirectly observable for the individual security being valued. Such observable inputs include interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, credit risks and default rates. Also included are inputs derived principally from or corroborated by observable market data by correlation or other means.

The following table presents the fair value measurements of assets measured at fair value on a recurring basis and the level within ASC 820 fair value hierarchy in which the fair value measurements fall at September 30, 2011 and December 31, 2010:

Fair Value Measurements Using:
Description	9/30/2011		(Level 1)		(Level 2)		(Level 3)
Available-for-Sale Securities:
U.S. Treasury and Government Agencies	$	25,777,477		-	$	25,777,477		-
Mortgage-backed securities		61,083,547		-		61,083,547		-
State and political subdivisions		17,493,801		-		17,493,801		-
Money Market Mutual Fund		237,052		237,052		-		-
Equity securities		23,000		-		23,000		-

Fair Value Measurements Using:
Description	Fair Values at 12/31/2010		(Level 1)		(Level 2)		(Level 3)
Available-for-Sale Securities:
U.S. Treasury and Government Agencies	$	43,651,132		-	$	43,651,132		-
Mortgage-backed securities		54,628,092		-		54,628,092		-
State and political subdivisions		32,297,779		-		32,297,779		-
Money Market Mutual Funds		2,162,055		2,162,055		-		-
Equity Securities		23,000		-		23,000		-

Level 1 – Quoted Prices in Active Markets for Identical Assets

Level 2 – Significant Other Observable Inputs

Level 3 – Significant Unobservable Inputs

Impaired Loans

Loans for which it is probable the Company will not collect all principal and interest due according to contractual terms are measured for impairment. If the impaired loan is collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining an independent appraisal of the collateral and applying a discount factor to the value based on the Company’s loan review policy. All impaired loans held by the Company were collateral dependent at September 30, 2011 and December 31, 2010.

Mortgage Servicing Rights

Mortgage servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models associated with the servicing rights and discounting the cash flows using discount market rates. The servicing portfolio has been valued using all relevant positive and negative cash flows including servicing fees, miscellaneous income and float; marginal costs of servicing; the cost of carry of advances; and foreclosure losses; and applying certain prevailing assumptions used in the marketplace. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy.

Foreclosed Assets Held for Sale

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value (based on current appraised value) at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Management has determined fair value measurements on other real estate owned primarily through evaluations of appraisals performed, and current and past offers for the other real estate under evaluation.

Goodwill

Goodwill is evaluated independently for its fair value. This measurement uses projected cash flows from operations and discounts those using appropriate discount rates to calculate fair value. Management engaged a third party to determine the fair value of Goodwill in line with procedures pursuant to FASB Accounting Standards Codification Topic 350-20.

Intangible

Intangible assets are evaluated independently for fair value on an annual basis. The measurement of these intangible assets is in line with procedures pursuant to FASB Accounting Standards Codification Topic 350-30.

The following table presents the fair value measurements of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2011 and December 31, 2010:

Fair Value Measurements Using:
Description	Fair Values at 09/30/11		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	4,374,881		-		-	$	4,374,881
Mortgage Servicing Rights	$	2,709,222		-		-	$	2,709,222

Fair Value Measurements Using:
Description	Fair Values at 12/31/2010		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	6,709,231		-		-	$	6,709,231
Mortgage Servicing Rights	$	3,190,389		-		-	$	3,190,389
Foreclosed Assets	$	1,054,500		-		-	$	1,054,500
Goodwill (RDSI)	$	380,748		-		-	$	380,748
Intangible (RDSI)	$	107,000		-		-	$	107,000

There were no changes in the inputs or methodologies used to determine fair value during the quarter ended September 30, 2011 as compared to the quarter ended December 31, 2010.

The following table presents estimated fair values of the Company’s financial instruments. The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments, and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.

Cash and Cash Equivalents and Federal Reserve and Federal Home Loan Bank Stock and Accrued Interest Payable and Receivable

The carrying amount approximates the fair value.

Loans

The estimated fair value for loans receivable, including loans held for sale, net, is based on estimates of the rate State Bank would charge for similar loans at September 30, 2011 and December 31, 2010, applied for the time period until the loans are assumed to re-price or be paid.

Deposits & Other Borrowings

Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates the fair value. The estimated fair value for fixed-maturity time deposits, as well as borrowings, is based on estimates of the rate State Bank could pay on similar instruments with similar terms and maturities at September 30, 2011 and December 31, 2010.

The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The estimated fair value for other financial instruments and off-balance-sheet loan commitments approximate cost at September 30, 2011 and are not considered significant to this presentation.

	Carrying		Fair
	Amount		Value

Financial assets
Cash and cash equivalents	$	13,764,025	$	13,764,000
Available-for-sale securities		104,614,877		104,615,000
Loans held for sale		10,589,706		10,872,000
Loans, net of allowance for loan losses		432,690,807		435,075,000
Federal Reserve and FHLB Bank stock		3,748,250		3,748,000
Accrued interest receivable		2,061,201		2,061,000

Financial liabilities
Deposits	$	514,348,675	$	516,396,000
Short-term borrowings		18,777,909		18,957,000
Notes payable		2,865,123		2,883,000
FHLB advances		12,939,598		13,314,000
Trust preferred securities		20,620,000		21,596,000
Accrued interest payable		2,704,466		2,704,000

	Carrying		Fair
	Amount		Value

Financial assets
Cash and cash equivalents	$	30,417,813	$	30,418,000
Available-for-sale securities		132,762,058		132,762,000
Loans held for sale		9,055,268		9,055,000
Loans, net of allowance for loan losses		420,829,017		424,144,000
Federal Reserve and FHLB Bank stock, at cost		3,748,250		3,748,000
Interest receivable		2,068,965		2,069,000

Financial liabilities
Deposits	$	515,677,742	$	519,123,000
Short-term borrowings		45,785,254		47,515,000
Notes payable		3,290,471		3,276,000
Federal Home Loan Bank advances		22,807,351		23,243,000
Trust preferred securities		20,620,000		20,862,000
Interest payable		1,971,587		1,972,000

NOTE G - SECURITIES

The amortized cost and approximate fair value of securities were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Approximate
	Cost		Gains		Losses			Fair Value
Available-for-Sale Securities:
September 30, 2011:
U.S. Treasury and
Government agencies	$	25,598,965	$	183,237	$	(4,725	)	$	25,777,477
Mortgage-backed securities		60,298,111		848,499		(63,063	)		61,083,547
State and political subdivisions		16,550,930		947,546		(4,675	)		17,493,801
Money Market Mutual Fund		237,052		-		-			237,052
Equity securities		23,000		-		-			23,000

	$	102,708,058	$	1,979,282	$	(72,463	)	$	104,614,877

			Gross		Gross
	Amortized		Unrealized		Unrealized			Approximate
	Cost		Gains		Losses			Fair Value
December 31, 2010:
U.S. Treasury and
Government agencies	$	43,572,741	$	298,653	$	(220,262	)	$	43,651,132
Mortgage-backed securities		53,652,288		1,395,036		(419,232	)		54,628,092
State and political subdivisions		31,552,709		895,794		(150,724	)		32,297,779
Money Market Mutual Fund		2,162,055		-		-			2,162,055
Equity securities		23,000		-		-			23,000

	$	130,962,793	$	2,589,483	$	(790,218	)	$	132,762,058

During the year, the Company realized gains from the sale of securities totaling $1,871,387. These gains were part of a balance sheet deleveraging. These trades were executed with the assistance of an independent broker and were executed with market pricing. The broker utilized for the trades was approved by the Company’s Board of Directors.

The amortized cost and fair value of securities available for sale at September 30, 2011, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale
	Amortized		Fair
	Cost		Value

Within one year	$	857,178	$	861,935
Due after one year through five years		6,474,552		6,585,364
Due after five years through ten years		8,495,511		8,631,401
Due after ten years		26,322,654		27,192,578
		42,149,895		43,271,278

Mortgage-backed securities, equity securities and money market mutual funds		60,558,163		61,343,599

Totals	$	102,708,058	$	104,614,877

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $52,599,778 at September 30, 2011 and $30,412,621 at December 31, 2010. The securities delivered for repurchase agreements were $21,995,134 at September 30, 2011 and $58,621,708 at December 31, 2010.

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments was $13,567,012 at September 30, 2011 and $40,399,444 at December 31, 2010, which was approximately 13 and 30 percent, respectively, of the Company’s available-for-sale investment portfolio at such dates. Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

Securities with unrealized losses at September 30, 2011 and December 31, 2010 were as follows:

September 30, 2011	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available-for-Sale Securities:
U.S. Treasury and
Government agencies	$	2,495,275	$	(4,725	)	$	-	$	-		$	2,495,275	$	(4,725	)
Mortgage-backed securities		9,620,464		(35,254	)		950,018		(27,809	)		10,570,482		(63,063	)
State and political subdivisions		501,255		(4,675	)		-		-			501,255		(4,675	)

	$	12,616,994	$	(44,654	)	$	950,018	$	(27,809	)	$	13,567,012	$	(72,463	)

December 31, 2010	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available-for-Sale Securities:
U.S. Treasury and
Government agencies	$	11,483,130	$	(220,262	)	$	-	$	-		$	11,483,130	$	(220,262	)
Mortgage-backed securities		20,281,713		(319,935	)		1,164,431		(99,297	)		21,446,144		(419,232	)
State and political subdivisions		7,120,710		(126,113	)		349,460		(24,611	)		7,470,170		(150,724	)

	$	38,885,553	$	(666,310	)	$	1,513,891	$	(123,908	)	$	40,399,444	$	(790,218	)

The total unrealized losses on the mortgage-backed securities portfolio, all of which are residential mortgage-backed securities, is derived mainly from three private label senior tranche CMO securities. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concern warrants such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent of the Company to not sell the investment and whether it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost. Management has determined there is no other-than-temporary-impairment on these CMO securities.

The total unrealized loss on the municipal security portfolio is due to the holding of several municipal securities, all with individually insignificant losses. During the quarter ended September 30, 2011, the number of municipal securities held by the Company was reduced significantly.

NOTE H: DEBT COVENANT

Pursuant to a loan covenant agreement between First Tennessee Bank, National Association (“FTB”), the Company, and the Company’s subsidiary bank, The State Bank and Trust Company, certain financial ratios must be maintained. They include a minimum Tier 1 Capital ratio of 6 percent, a year-to-date ROA of 50 basis points and non-performing asset ratio (calculated as non-performing loans plus OREO divided by total loans plus OREO) of less than 2.25 percent.

As of September 30, 2011, the Company was in compliance with all debt covenants of a financial nature related to its line of credit with FTB. The non-performing asset ratio was 2.02 percent, the year-to-date ROA was 66 basis points and the Tier 1 Capital Ratio was 7.95 percent. In addition to the financial covenants, the loan agreement establishes the issuance of a regulatory order as an additional debt covenant violation. Due to RDSI entering into a Consent Order with the Federal Reserve on March 9, 2011, the company has violated this debt covenant. This covenant violation could result in the note being called by FTB. This note, which has an outstanding balance of $1.5 million, matured on June 30, 2011, and was extended to October 31, 2011. The Company and FTB have entered into a renewal of the loan agreement which requires periodic principal payments. This new agreement requires full payment of the obligation by the new maturity date of December 31, 2013.

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

Cautionary Statement Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains certain forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance. Examples of forward-looking statements include: (a) projections of income or expense, earnings per share, the payments or non-payments of dividends, capital structure and other financial items; (b) statements of plans and objectives of the Company or our management or Board of Directors, including those relating to products or services; (c) statements of future economic performance; and (d) statements of assumptions underlying such statements. Words such as “anticipates,” “believes,” “plans,” “intends,” “expects,” “projects,” “estimates,” “should,” “may,” “would be,” “will allow,” “will likely result,” “will continue,” “will remain,” or other similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying those statements. Forward-looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include, without limitation, changes in interest rates, changes in the competitive environment, and changes in banking regulations or other regulatory or legislative requirements affecting bank holding companies. Additional detailed information concerning a number of important factors which could cause actual results to differ materially from the forward-looking statements contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations is available in the Company’s filings with the Securities and Exchange Commission, including the disclosure under the heading “Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, and in “Item 1A. Risk Factors” of Part II of this Quarterly Report on Form 10-Q. Undue reliance should not be placed on the forward-looking statements, which speak only as of the date hereof. Except as may be required by law, the Company undertakes no obligation to update any forward-looking statement to reflect unanticipated events or circumstances after the date on which the statement is made.

Overview of Rurban

Rurban Financial Corp. (“Rurban” or the “Company”) is a bank holding company registered with the Federal Reserve Board. Rurban’s wholly-owned subsidiary, The State Bank and Trust Company (“State Bank”), is engaged in commercial banking. Rurban’s technology subsidiary, Rurbanc Data Services, Inc. (“RDSI”), provides computerized data and item processing services to community banks and businesses.

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

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

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

Rurban Investments, Inc. (“RII”) is a Delaware corporation and a wholly-owned subsidiary of State Bank that was incorporated in January 2009. RII holds agency, mortgage backed and municipal securities.

Unless the context indicates otherwise, all references herein to “Rurban”, “we”, “us”, “our”, or the “Company” refer to Rurban Financial Corp. and its consolidated subsidiaries.

Recent Regulatory Developments

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) was enacted into law on July 21, 2010. The Dodd-Frank Act is expected to significantly change the regulation of financial institutions and the financial services industry. Because the Dodd-Frank Act requires various federal agencies to adopt a broad range of regulations with significant discretion, many of the details of the new law and the effects they will have on the Company will not be known for months and even years.

The following changes that will be implemented pursuant to the Dodd-Frank Act may have an effect on the Company’s business:

the Dodd-Frank Act creates a Consumer Financial Protection Bureau with broad powers to adopt and enforce consumer protection regulations;

new capital regulations for bank holding companies will be adopted, which may impose stricter requirements, and any new trust preferred securities will no longer constitute Tier I capital;

the federal law prohibiting the payment of interest on commercial demand deposit accounts will be eliminated effective in July 2011;

the standard maximum amount of deposit insurance per customer is permanently increased to $250,000, and non-interest bearing transaction accounts will have unlimited insurance through December 31, 2012;

the assessment base for determining deposit insurance premiums will be expanded to include liabilities other than just deposits; and

new corporate governance requirements applicable generally to all public companies in all industries will require new compensation practices and disclosure requirements, including requiring companies to “claw back” incentive compensation under certain circumstances, to provide shareholders the opportunity to cast a non-binding vote on executive compensation and to consider the independence of compensation advisers.

Many provisions of the Dodd-Frank Act have not yet been implemented and will require interpretation and rule making by federal regulators. While the ultimate effect of the Dodd-Frank Act on the Company cannot yet be determined, the law is likely to increase compliance costs and fees paid to regulators, along with possible restrictions on the operations of the Company.

Recent Developments regarding RDSI

On March 9, 2011, Rurban Financial Corp. (“Rurban”) and its wholly-owned nonbank data services subsidiary, Rurbanc Data Services, Inc., dba RDSI Banking Systems (“RDSI”), entered into a Consent Order (the “Consent Order”) with the Board of Governors of the Federal Reserve System (the “FRB”) that directs RDSI to take certain actions to strengthen its financial condition and operations. Rurban’s banking subsidiary, The State Bank and Trust Company, is not a party to the Consent Order.

The Consent Order specifies, among other conditions, that RDSI must strengthen board oversight of critical areas of operations, maintain appropriate capital levels, strengthen working capital management, and modify its strategic plan to improve earnings. While the Consent Order remains in effect, RDSI is prohibited from declaring or paying any dividends to Rurban without the prior approval of the FRB, and Rurban is prohibited from making any capital investments in or loans to RDSI without the prior approval of the FRB.

Balance Sheet Deleveraging

In a series of transactions completed during June of 2011, the Company completed a balance sheet deleveraging. The deleveraging involved selling $43 million of investment securities with a weighted average yield of 3.97 percent, recognizing a gain on sale totaling $1.9 million. The proceeds from the transaction were applied to the pay down of $32 million in borrowings with a weighted average rate of 4.64 percent. The prepayment penalty for the pay down of $30 million in repos and $2 million in FHLB advances was $1.1 million.

Small Business Lending Fund

The Company applied for $21.5 million in capital from the Small Business Lending Fund (SBLF) in January of 2011. Subsequent to that application, changes were made to the program that prevented the Company’s participation. The Company has no immediate plans to issue any of the preferred shares that were authorized by shareholders and contemplated to be issued as part of the SBLF application.

Critical Accounting Policies

Note 1 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 describes the significant accounting policies used in the development and presentation of the Company’s financial statements. The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States and conform to general practices within the banking industry. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. The Company’s financial position and results of operations can be affected by these estimates and assumptions and are integral to the understanding of reported results. Critical accounting policies are those policies that management believes are the most important to the portrayal of the Company’s financial condition and results, and they require management to make estimates that are difficult, subjective, or complex.

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

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

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

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

Impact of Accounting Changes

None

Nine Months Ended September 30, 2011 compared to Nine Months Ended September 30, 2010

Net Income: For the first nine months of 2011, Rurban reported net income of $1.39 million, or $0.29 per diluted share, compared to a net loss of $9.03 million, or ($1.86) per diluted share, for the first nine months of 2010.

Asset Quality Review ($ in Thousands)	Sept. 30, 2011			December 31, 2010			Sept. 30, 2010
Net charge-offs - for the quarter ended	$	506		$	1,535		$	1,448
Net charge-offs - year to date	$	2,175		$	10,902		$	9,367
Non-performing loans	$	7,331		$	12,283		$	10,107
OREO / OAO	$	1,970		$	1,538		$	1,947
Non-performing assets	$	9,301		$	13,822		$	12,054
Non-performing assets / Total assets		1.49	%		2.09	%		1.77	%
Allowance for loan losses / Total loans		1.42	%		1.57	%		1.52	%
Allowance for loan losses / Non-performing loans		85.1	%		54.7	%		63.8	%

Provision for Loan Losses: The provision for loan losses for the first nine months of 2011 was $1.7 million compared to $8.8 million for the prior year first nine months. The lower provision reflects the improving quality of State Bank’s loan portfolio and slower migration of problem credits to non-performing status, as well as a recovering economy. As of September 30, 2011, the allowance for loan losses stood at $6.2 million, or 1.42 percent of total loans, compared to 1.52 percent for the prior year. The Company’s non-performing assets (“NPAs”) at September 30, 2011 were $9.3 million, down $2.8 million, or 23.1 percent, since September 30, 2010. At September 30, 2011, NPAs were 1.49 percent of assets compared to 1.77 percent at September 30, 2010.

Consolidated Revenue: Total revenue, consisting of net interest income and noninterest income, was $25.9 million for the first nine months of 2011, a decline of $4.8 million, or 15.6 percent, from the $30.7 million generated during the first nine months of 2010. Absent securities gains in 2011 and 2010 of $1.9 million and $0.45 million, respectively, total revenue was down $6.2 million due to the large decline in data servicing fees and the lower gains on mortgage loan sales.

Net interest income was $15.4 million for the first nine months of 2011, an increase of $0.59 million, or 4.0 percent, from the $14.8 million reported in the year earlier period; a $4.2 million decline in average earning assets was partially offset by a fourteen basis point improvement in the tax equivalent net interest margin, to 3.79 percent.

Noninterest income was $10.4 million for the first nine months of 2011 compared to $15.8 million for the prior year period. During the second quarter of 2011, a significant deleveraging of the Company’s balance sheet was executed. This deleveraging resulted in net gains from the sales of securities of $1.9 million. Excluding $1.9 and $0.53 million of nonrecurring investment gains and recoveries from the first nine months of 2011 and 2010, respectively, noninterest income from operations declined by $6.8 million, or 44.4 percent, from the prior year, primarily from the $5.7 million decline in data service fees.

Wealth management fees generated by Reliance Financial Services, a division of State Bank, were $2.0 million for the first nine months of 2011, up $0.11 million, or 5.8 percent, from the prior year; assets under management now stand at $289 million. Customer service fees of $1.88 million for the first nine months of 2011 were virtually unchanged from the prior year.

State Bank originated $135.1 million of mortgage loans in the first nine months of 2011. These 2011 originations and subsequent sales resulted in $2.1 million of gains, which compares to gains of $2.65 million for the first nine months of 2010. The 21.2 percent decline in gains from mortgage sales in 2011 reflects the impact of a 20.9 percent decline in mortgages sold. In addition to the gains from mortgage sales, the Company sold other loans that generated gains of $0.08 million and $0.23 million in the first nine months of 2011 and 2010, respectively.

Consolidated Noninterest Expense: Noninterest expense for the first nine months of 2011 was $22.3 million compared to $36.4 million for the prior year. The prior year comparisons were significantly impacted by the large write-down’s taken in the second quarter of 2010 due to the failed implementation of the Single Source software. Total compensation and benefits was down $3.4 million from the prior year, which reflects a lower level of employees and reduced overtime cost as compared to 2010 due to the data processing conversion. Expenses related to client loss at RDSI were also significantly down from the prior year. The 42 full time equivalent (FTE) headcount decline represents a workforce reduction of 16 percent during the course of the year, from 257 FTE to 215 (FTE) at September 30, 2011. Year to date, the Company has incurred valuation adjustments on its Originated Mortgage Servicing Rights (OMSRs) of $0.89 million.

In the first nine months of 2010, RDSI incurred expense write-downs related to Single Source software in the amount of $6.9 million. These included equipment write-downs of $1.2 million and a software impairment of $4.9 million. The Company had an OREO impairment of $0.22 million. In addition, due to the higher level of data servicing fees, RDSI had significant expense relative to postage processing.

Income Taxes: Income taxes for the first nine months of 2011 were $0.50 million compared to a tax benefit of $5.5 million for the prior year. Due to the termination of several life insurance policies for prior executives, the Company generated a significant tax liability in the first quarter of 2011. While this liability may be offset against the Company’s tax losses going forward, the accounting treatment requires a tax expense in the current year. The prior year tax benefit was due to the significant losses the Company incurred due to the failed Single Source software implementation at RDSI.

Three Months Ended September 30, 2011 compared to Three Months Ended September 30, 2010

Net Income: Net income for the three months ended September 30, 2011 was $0.60 million or $0.12 per diluted share, compared to net income of $0.03 million, or $0.01 per diluted share, for the three months ended September 30, 2010. For the quarter, the Banking Group (consisting primarily of The State Bank and Trust Company), had net income of $1.16 million which is flat to the net income of $1.16 million from the linked quarter, but up from the net income of $0.55 million from the year ago quarter. RDSI reported a net loss of $0.17 million compared to net income of $0.14 million from the linked quarter and a net loss of $0.05 million from the year ago third quarter. In the linked quarter, RDSI had a contract buyout, which increased net income.

Provision for Loan Losses: The third quarter provision for loan losses was $0.3 million compared to $0.9 million and $0.9 million, respectively, for the linked and year-ago quarters. Total net charge-offs for the quarter were $0.51 million compared to $1.1 million for the linked quarter and $1.4 million for the prior year third quarter.

Consolidated Revenue: Total revenue, consisting of net interest income and noninterest income, was $7.9 million for the third quarter of 2011, compared to $10.3 million for the linked quarter and $9.4 million generated during the 2010 second quarter.

Net interest income was $5.4 million, an increase of $0.50 million, or 10.3 percent, from the $4.9 million reported in the year earlier quarter. Compared to the linked quarter, net interest income is up $172 thousand due to an increase in average earning assets and lower cost of funds.

Noninterest income was $2.5 million for the 2011 third quarter compared to $4.5 million for the prior year period with the reduction all due to data service fee declines. Compared to the linked quarter, adjusted for the $1.9 million gain realized in the linked quarter, noninterest income is down $0.70 million due to RDSI fees. During the quarter, the Banking Group generated fees from Wealth Management of $0.63 million, Customer service fees of $0.66 million and Gain on sale of mortgage loans of $1.1 million.

Consolidated Noninterest Expense: Noninterest expense for the third quarter of 2011 was $6.8 million compared to $8.7 million in the prior-year third quarter. Total compensation and benefits for the third quarter was down $0.5 million from the prior year, which reflects the reduction of 42 employees from the prior year. Compared to the linked quarter, expenses were down $1.6 million, which is an 18.8 percent decrease. The majority of the decrease was due to the FHLB prepayment penalty of $1.1 million in the linked quarter.

Income Taxes: Income taxes for the third quarter of 2011 were $0.14 million compared to a benefit of $0.25 million for the third quarter of 2010. The current quarter’s income tax rate of 18.6 percent is a reflection of the tax exempt level of securities and loans on the Company’s balance sheet. The tax rate will rise in future quarters as the Company reduced its exposure to tax exempt securities as part of the balance sheet deleveraging.

Changes in Financial Condition:

Total assets as of September 30, 2011 were $623.8 million, up by $5.7 million, or .9 percent, from the linked quarter, and down by $57.4 million, or 8.4 percent, from the year-earlier quarter. In a series of transactions completed during June of 2011, State Bank sold $43 million of investment securities with a weighted average yield of 3.97 percent, recognizing a gain on sale of $1.9 million. The proceeds were applied to the pay down of $32.0 million in borrowings with a weighted average rate of 4.64 percent. The prepayment penalty for the pay down of the $30 million in repos and $2 million in Federal Home Loan Bank (FHLB) advances was $1.1 million.

Total loans increased by $1.3 million from the linked quarter to $438.9 million, and are up from the prior year by $13.9 million, or 3.3 percent, when total loans were $425.0 million. As of September 30, 2011, real estate related loans comprised 77 percent of the loan portfolio. The total loan portfolio includes $98.8 million in residential real estate, $89.8 million in investor owned commercial real estate and $38.6 million in home equity loans. Total deposits at $514.3 million are up $18.4 million from the linked quarter but are down $8.0 million from the September 2010 quarter. Due to the deleveraging, total wholesale borrowings (FHLB, repos, fed funds) declined to $31.6 million from $75.5 million in the September 2010 quarter. Total equity balances are up $1.9 million from the linked quarter but are down $6.2 million from the prior year due to the losses at RDSI.

Capital Resources

At September 30, 2011, actual capital levels (in millions) and minimum required levels were as follows:

	Actual					Minimum Required For Capital Adequacy Purposes					Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio

Total capital (to risk weighted assets)

Consolidated	$	50.9		11.2	%	$	36.3		8.0	%	$	-		N/A
State Bank	$	53.3		11.9	%	$	36.0		8.0	%	$	45.0		10.0	%

Both the Company and State Bank were categorized as well capitalized at September 30, 2011.

LIQUIDITY

Liquidity relates primarily to the Company’s ability to fund loan demand, meet deposit customers’ withdrawal requirements and provide for operating expenses. Assets used to satisfy these needs consist of cash and due from banks, federal funds sold, interest-earning deposits in other financial institutions, securities available-for-sale and loans held for sale. These assets are commonly referred to as liquid assets. Liquid assets were $129.0 million at September 30, 2011 compared to $172.3 million at December 31, 2010.

On August 5, 2010, the Company notified the trustees of the Capital Securities of the Company’s election to defer (a) the next four quarterly interest payments on the RST II Capital Securities, beginning on September 15, 2010 and extending through September 15, 2011, and (b) the next two semi-annual interest payments on the RST I Capital Securities, beginning on September 7, 2010 and extending through September 7, 2011. During any interest deferral period, the trust preferred indentures prohibit the Company from paying common stock dividends or repurchasing shares of common stock.

As noted in Note H, the Company is in violation of a debt covenant related to its borrowing facility with First Tennessee Bank. This facility matured on October 31, 2011 and has been renewed to December 31, 2013.

The cash flow statements for the periods presented provide an indication of the Company’s sources and uses of cash, as well as an indication of the ability of the Company to maintain an adequate level of liquidity. A discussion of the cash flow statements for the nine months ended September 30, 2011 and September 30, 2010 follows.

The Company experienced positive cash flows from operating activities for the nine months ended September 30, 2011 and for the nine months ended September 30, 2010. Net cash from operating activities was $6.6 million for the nine months ended September 30, 2011 and $8.5 million for the nine months ended September 30, 2010. Highlights include $135.7 million in proceeds from the sale of loans, which is down $36.0 million from the prior year. Originations of loans held for sale was a use of cash of $135.1 million, which is also down from the prior year, by over $30.3 million. For the first nine months of 2011, the Company had depreciation and amortization of $1.3 million, provision for loan loss of $1.7 million, gain on sale of mortgage loans of $2.1 million and gain on sale of securities of $1.9 million. This compares to depreciation and amortization of $3.6 million, provision for loan loss of $8.8 million, gain on sale of mortgage loans of $2.5 million and gain on sale of securities of $0.5 million for the first nine months of 2010. In addition, the prior year included software and fixed asset impairments of $4.9 million.

The Company experienced positive cash flows from investing activities for the nine months ended September 30, 2011 and for the nine months ended September 30, 2010. Net cash flow from investing activities was $15.3 million for the nine months ended June 30, 2011 and $6.7 million for the nine months ended September 30, 2010. Highlights include $36.6 million in purchases of available-for-sale securities, which is down $15.5 million from the prior year. These cash payments were offset by $65.6 million in proceeds from maturities and sales of securities, which is up $22.8 million from the prior year. These transactions all related to the balance sheet restructuring detailed in the financial analysis discussion. The Company terminated several life insurance policies on retired executives and realized a cash inflow of $1.3 million. The Company experienced a $15.7 million negative change in loans, which is down $29.3 million from the prior year, when the change in loans was a positive $13.6 million. Sales of foreclosed assets provided cash of $1.4 million for the nine months ended September 30, 2011 and $4.3 million for the nine months ended September 30, 2010.

The Company experienced negative cash flows from financing activities in the amount of $38.6 million for the nine months ended September 30, 2011 and positive cash flow from financing activities in the amount of $20.5 million for the nine months ended September 30, 2010. Highlights include a $8.1 million decrease in non time deposits for the nine months ended September 30, 2011, which compares unfavorably with a $23.1 million increase in non time deposits for the nine months ended September 30, 2010. The Company had a net negative cash flow from FHLB advance activity of $9.9 million in the first nine months of 2011 and a net negative cash flow of $9.2 million for the first nine months of 2010. During the nine months ended September 30, 2011, the company sold repos of $27.0 million.

Off-Balance-Sheet Borrowing Arrangements:

Significant additional off-balance-sheet liquidity is available in the form of FHLB advances, unused federal funds lines from correspondent banks, and a line of credit with a regional bank. Management expects the risk of changes in off-balance-sheet arrangements to be immaterial to earnings.

The Company’s commercial real estate, residential first and multi-family mortgage portfolios are currently pledged to FHLB under a blanket lien. The total amount pledged to meet FHLB collateralization requirements as of September 30, 2011, and December 31, 2010, were $275.0 million, and $264.9 million, respectively. Based on the current collateralization requirements of the FHLB, the Company had approximately $20.5 million of additional borrowing capacity at September 30, 2011. The Company also had $27.8 million in unpledged securities that may be used to pledge for additional borrowings.

At September 30, 2011, the Company had federal funds lines totaling $11.5 million, with zero outstanding. The Company also has a $5.0 million line of credit with a regional bank (detailed in Note H), with advances totaling $1.5 million at September 30, 2011.

The Company’s contractual obligations as of September 30, 2011 were comprised of long-term debt obligations, other debt obligations, operating lease obligations and other long-term liabilities. Long-term debt obligations are comprised of FHLB advances of $12.9 and repos of $18.8 million. Other debt obligations are comprised of trust preferred securities of $20.6 million and notes payable of $2.9 million. Total time deposits at September 30, 2011 were $221.7 million, of which $98.1 million matures beyond one year. The operating lease obligations are leases on the RDSI-South building of $87.5 thousand per year, the RDSI-North building of $162 thousand per year, the DCM-Lansing facility of $104.6 thousand per year, the State Bank branch at Northtowne of $65 thousand per year and the State Bank branch at Chief of $24 thousand per year.

ASSET LIABILITY MANAGEMENT

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

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

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

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

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

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Management believes there has been no material change in the Company’s market risk from the information contained in the Company’s Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2010.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

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

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

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

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the Company’s fiscal quarter ended September 30, 2011, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

On January 18, 2011, the Company’s subsidiary, RDSI, filed a lawsuit against New Core Holdings, Inc. (“New Core”) in the Court of Common Pleas, Defiance County, Ohio (Case No. 11-CV-41125). RDSI’s complaint alleges, among other things, that New Core breached its loan agreement, promissory notes, merger agreement and certain other agreements entered into between RDSI and New Core in connection with the previously planned merger of RDSI with New Core. RDSI’s complaint seeks, among other things, recovery of an amount in excess of $3,260,000, plus costs and expenses, including attorneys’ fees, an order directing the release of certain software collateral, and a declaration that RDSI has no obligation to advance any additional loans or pay any additional funds to New Core. New Core subsequently removed this lawsuit to the United States District Court for the Northern District of Ohio (Case No. 3:11cv366). New Core filed an answer to the complaint on October 14, 2011. At this time, the Company is unable to predict the likelihood of RDSI’s success on its claims, or the amount of any damages that may be awarded to RDSI or New Core in this lawsuit.

In the ordinary course of our business, the Company and its subsidiaries are also parties to various legal actions which we believe are incidental to the operation of our business. Although the ultimate outcome and amount of liability, if any, with respect to these legal actions cannot presently be ascertained with certainty, in the opinion of management, based upon information currently available to us, any resulting liability is not likely to have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.

Item 1A. Risk Factors

There are certain risks and uncertainties in our business that could cause our actual results to differ materially from those anticipated. A detailed discussion of our risk factors is included in “Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. The following information updates certain of our risk factors and should be read in conjunction with the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

RDSI may continue to experience net operating losses as a result of the loss of customers.

RDSI currently provides data processing services exclusively to State Bank, as RDSI has discontinued offering data processing services to other client banks. However, RDSI continues to offer item processing and network services, and expects to maintain those primary businesses going forward. The current customer base at RDSI is significantly lower than the prior year and RDSI anticipates normal levels of attrition going forward. Should RDSI be unable to replace lost clients and expand its existing client base, revenue will decline and additional operating losses within that business segment are likely to occur. In addition, the issuance of a Consent Order at RDSI increases the chances that clients may choose to not utilize RDSI for processing services.

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

Repurchases of Common Shares

The Company did not have any repurchases of common shares during the nine months ended September 30, 2011.

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. [Reserved]

Item 5. Other Information

Not applicable

Item 6. Exhibits

Exhibits
31.1	–	Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer)
31.2	–	Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer)
32.1	–	Section 1350 Certification (Principal Executive Officer)
32.2	–	Section 1350 Certification (Principal Financial Officer)
101	–	The following materials from Rurban Financial Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010; (ii) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010 (unaudited); (iii) the Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2011 and 2010 (unaudited); (iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 (unaudited); and (v) the Notes to Condensed Consolidated Financial Statements (unaudited) tagged as blocks of text. *

		* Pursuant to Rule 406T of SEC Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are furnished and not deemed filed or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those Sections.

SIGNATURES

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

	RURBAN FINANCIAL CORP.

Date: November 14, 2011	By	/s/ Mark A. Klein
		Mark A. Klein
		President & Chief Executive Officer

	By	/s/ Anthony V. Cosentino
		Anthony V. Cosentino
		Executive Vice President &
		Chief Financial Officer

SB Financial Group - 10-Q quarterly report FY2011 Q3

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