Rurban Financial Corp. Reports 2012 First Quarter Results

DEFIANCE, Ohio, April 24, 2012 (GLOBE NEWSWIRE) -- Rurban Financial Corp. (Nasdaq:RBNF) ("Rurban" or "the Company"), a diversified financial services company providing full-service community banking, mortgage banking, wealth management and item processing services, today reported earnings for the first quarter ended March 31, 2012.

Consolidated earnings for Rurban Financial Corp. include the results of Rurban's Banking Group, consisting primarily of The State Bank and Trust Company ("State Bank" or "the Bank"), and Rurban's data services subsidiary, Rurbanc Data Services, Inc. (dba "RDSI Banking Systems" or "RDSI"). For the quarter ended March 31, 2012, Rurban reported net income of $0.97 million, or $0.20 per diluted share, compared to net income of $11,000, or $0.00 per diluted share for the quarter ended March 31, 2011, and net income of $0.27 million, or $0.06 per diluted share, for the quarter ended December 31, 2011.

Key items for the 2012 first quarter include:

• Rurban continues to build profitability, reporting a fifth consecutive quarter of positive earnings and a quarterly ROA of 61 basis points.
   
• Noninterest income benefited from strong first quarter 2012 mortgage banking activity. Net mortgage banking revenue of $1.5 million was the second strongest quarter ever, based on strong loan sales ($64.2 million), a fairly robust spread (1.84 percent) and a favorable mortgage servicing valuation adjustment due to lower refinancings.
   
• Quarterly noninterest expense appears to have stabilized at approximately $6.7 million, reflecting a halt to the downsizing of RDSI. Full-time equivalent employees declined by 24, or 11 percent, since March 31, 2011 and by seven since year-end 2011.
   
• Portfolio loans increased $17.6 million, or 4.2 percent, over the past twelve months; this loan growth consisted primarily of commercial real estate and commercial non-real estate loans.
   
• Year over year, nonperforming assets declined by $4.4 million, or 31 percent, to $9.9 million, or 1.54 percent of total assets. Reserve coverage of nonperforming loans at quarter-end was 82 percent compared to 49 percent at March 31, 2011.
   
• On a consolidated level, Rurban's tangible leverage improved by 75 basis points from the prior year. At 4.88 percent, it still remains a focus of management attention.

Mark Klein, President and Chief Executive Officer of Rurban Financial Corp., stated, "This has been another encouraging quarter for us. We have seen greater stability in our earnings stream, as well as stronger profitability. Our entire organization appears to be moving in a positive direction, perhaps at different rates, but still making discrete progress step by step.

"Loans are growing at a comfortable rate, along with low-cost deposits. Our fee-based businesses continue to make a strong contribution; this quarter, they provided 42 percent of total revenue. Our mortgage bankers have started off the year with an exceptionally strong first quarter for originations, assisted by a less frenetic level of refinancing activity. This has provided the basis for near-record mortgage banking revenue in the first quarter of the year. We are in the process of expanding our highly successful Columbus mortgage lending operation, and we will shortly have a second office in place.

"Although we have stepped up virtually every source of revenue, our data services operation, RDSI, still lags behind, constrained by regulatory and other factors from marketing its expanded product line. The Bank has taken data processing in-house, and will continue to provide what RDSI has done for us in the past. We believe this will be a more efficient solution for all parties concerned. With a more modest infrastructure firmly in place, and management realigned to focus on item processing, RDSI is solidly positioned to move ahead once the constraints have been lifted.

"We look to the rest of the year with tempered optimism. We have made tremendous progress by leveraging upon the strengths of our people: to build revenue, to create greater efficiencies, and to connect in meaningful ways with our customers. We plan to continue down this successful path."

RESULTS OF OPERATIONS

Consolidated Revenue

Total operating revenue, consisting of net interest income fully tax equivalent (FTE) and noninterest income from operations, was $8.5 million for the first quarter of 2012, up $0.53 million, or 6.7 percent, from the first quarter of 2011, but lower by $0.3 million, or 3.8 percent, from the linked quarter.

Net interest income (FTE) for 2012 first quarter was $5.0 million, down one percent year over year, from the combined impact of minor declines in earning assets and net interest margin. The net interest margin (FTE) was 3.60 percent for the first quarter 2012 compared to 3.61 percent for the first quarter of 2011. Continued downward pressure on earning asset yields is driving margin compression, since the cost of interest-bearing liabilities has stabilized relative to the continued decline in earning asset yields.

Noninterest Income

Noninterest income was $3.6 million for the first quarter of 2012, an increase of $0.7 million, or 25.1 percent, from the $2.9 million reported for the first quarter 2011. Noninterest income benefited primarily from strong mortgage loan sales for the first quarter of 2012 compared to the year-earlier first quarter.

Gross revenue generated by RDSI, including services provided to Rurban/State Bank, was $1.44 million for the first quarter of 2012. Of this total, $0.55 million consisted of one-time contract buyout fees from former clients, including $0.46 million paid by State Bank to RDSI following State Bank's purchase of data processing software and equipment from RDSI. Net data services fees, excluding Rurban/State Bank intercompany transactions, were $0.64 million in the first quarter of 2012, down $0.27 million from the year-ago quarter.

Mortgage loan originations were exceptionally strong for the first quarter of 2012: $68.3 million, up $40.3 million, or 144 percent, from the $28.0 million generated in the first quarter of 2011. Sales into the secondary market were also exceptionally strong: $64.2 million, up $34.2 million, or 114 percent, above the $30.0 million sold in the year ago-quarter. In addition to the higher volume of sales, first quarter 2012 spreads were also stronger, totaling 1.84 percent of loans sold compared to 1.42 percent for the year-earlier quarter.

Net mortgage banking income, consisting of gains on the sale of mortgage loans and net loan servicing fees, was $1.51 million for the first quarter of 2012 compared to $1.22 million for the linked quarter and $0.56 million for the year-ago first quarter, higher by $0.29 million and $0.95 million, respectively. The mortgage servicing valuation adjustment in the first quarter of 2012 was a favorable $0.42 million, compared to a charge of $0.22 million for the linked quarter. Valuation of the mortgage servicing portfolio benefited from a lower rate of prepayments this past quarter. The mortgage servicing portfolio at the end of the first quarter 2012 was $422.8 million, up $81.2 million, or 23.8 percent, from first quarter-end 2011.

The remainder of noninterest income, derived from wealth management and customer service fees, plus other income, primarily income from bank-owned life insurance, was $1.48 million for the first quarter of 2012, virtually unchanged from the linked and year-ago quarters. These areas have provided ongoing stability to Rurban's noninterest income stream. Rurban remains highly diversified for a bank of its asset size. Core noninterest income contributed 41.7 percent of first quarter 2012 core revenue; this compares to a 37.2 percent contribution for first quarter 2011.

Loan Loss Provision

The loan loss provision was $0.45 million for the first quarter of 2012, a decline of $0.05 million from the first quarter of 2011. The decreased provision expense reflects a 39 percent decline in nonperforming loans over the past twelve months, and lower net charge-offs. The loan loss reserve at first quarter-end 2012 was 1.50 percent of total loans, providing 82 percent coverage of nonperforming loans at quarter-end; this compares to reserve coverage of 49 percent at first quarter-end 2011. Nonperforming loans declined by $5.2 million year over year, while net charge-offs declined by $0.25 million.

Noninterest Expense

For the first quarter of 2012, noninterest expense was $6.7 million, a decline of $0.4 million, or 5.4 percent, from the $7.1 million reported for the 2011 first quarter. Although compensation expense was only minimally lower despite a decline of 24 FTE staff, cost savings were also achieved in virtually every expense category. For the quarter ended December 31, 2011, Rurban reported RDSI-related impairments totaling $1.0 million. Excluding these and other nonrecurring charges, noninterest expense from operations for the linked quarter was $6.8 million. Reflecting this improvement in first quarter 2012 operating revenue and expense, the efficiency ratio declined to 76.6 percent, from 86.1 percent for the year-ago quarter.

Balance Sheet

Total assets as of March 31, 2012 were $645.0 million, a decline of $10.0 million, or 1.5 percent, from first quarter-end 2011. The deleveraging transactions completed during June of 2011 contributed to a significant decline in the securities portfolio. Since the prior year, securities are lower by $20.5 million.

Total deposits as of first quarter-end 2012 were $535.5 million, higher by $22.5 million than at first quarter-end 2011. As a result of the balance sheet deleveraging, combined with lower cash reserves, State Bank was able to reduce higher cost repos and FHLB advances by $35.8 million since the prior-year; they now stand at $30.4 million.

Total loans held for investment (HFI) were $439.7 million at March 31, 2012 compared to $422.2 million for the prior-year quarter-end, up $17.6 million, or 4.2 percent. Commercial loans accounted for the majority of growth, namely, commercial real estate ("CRE"), up $7.2 million, or 4.0 percent, and commercial and industrial ("C&I") loans, up $7.7 million, or 10.8 percent. Year-to-date, loans declined by $2.8 million, primarily from a $2.9 million decline in residential mortgages held in portfolio.

Asset Quality

Rurban continues to improve on its asset quality, reporting nonperforming assets of $9.9 million for the current quarter, lower by $4.4 million, or 30.6 percent, than the prior year first quarter-end. Delinquency levels are down significantly, with the 30-89 day category totaling $0.57 million at the end of the 2012 first quarter compared to $0.90 million for the prior-year first quarter, and $1.98 million for the linked quarter.

Nonaccruing loans were $6.5 million as of March 31, 2011, a decline of $5.6 million, or 46 percent from the year-earlier level. The greatest improvement was reflected in the CRE portfolio, where nonaccrual loans declined by $3.9 million, or 72 percent, to $1.5 million over the past twelve months. As of March 31, 2012, only 0.8 percent of CRE loans were on nonaccrual status compared to 2.9 percent at the prior year quarter-end. Currently, Rurban has only three nonperforming relationships that exceed $1.0 million; together, they account for $4.0 million, or 40 percent, of nonperforming assets. 

About Rurban Financial Corp.

Based in Defiance, Ohio, Rurban Financial Corp. is a financial services holding company with two wholly-owned operating subsidiaries: The State Bank and Trust Company (State Bank) and RDSI Banking Systems (RDSI). State Bank operates through 18 banking centers in seven Northwestern Ohio counties, one center in Fort Wayne, Indiana; and loan production offices in Columbus, Ohio and Angola, Indiana. The Bank offers a full range of financial services for consumers and small businesses, including wealth management, mortgage banking, commercial and agricultural lending. RDSI provides item processing services to community banks located in the Midwest. Rurban's common stock is listed on the NASDAQ Global Market under the symbol RBNF.

Forward-Looking Statements

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

Non-GAAP Financial Measures

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