Rurban Financial Corp. Announces Second Quarter 2010 Results
DEFIANCE, OH — July 28, 2010 — Rurban Financial Corp. (NASDAQ: RBNF) (“Rurban” or the “Company”), a diversified financial services company providing full-service community banking, wealth management, and data/item processing services, reported a second quarter 2010 loss of $8.1 million, or ($1.67) per diluted share, compared to a net loss of $0.85 million, or ($0.17) per diluted share, for the first quarter of 2010 (the “linked quarter”), and net income of $1.0 million, or $0.20 per diluted share, for the 2009 second quarter. The Company recorded a net loss of $8.9 million, or ($1.84) per diluted share, for the first six months of 2010, compared to net income of $2.1 million, or $0.43 per diluted share, for the first six months of 2009.
Mark A. Klein, President and CEO of Rurban, commented, “Results for the second quarter signal an important shift in strategic direction for one of our units, Rurbanc Data Services, Inc. dba RDSI Banking Systems (“RDSI”). We have determined that the planned spin-off of RDSI and the merger with New Core Holdings, Inc. (“New Core”) cannot be successfully completed, and we are working with New Core to address a wind-down of our relationships to enable both companies to pursue their separate strategic directions. As a result of this determination, together with the loss of RDSI’s data processing client base and associated revenue, we took a sizeable write-down of hardware, software and developmental costs this quarter. However, this move does not signal the end of our involvement in the bank technology sector. It is more of a time to take stock of our strengths, and also market opportunities. Management of RDSI has changed over completely this past quarter, and the Boards of Directors of Rurban and RDSI have been significantly restructured.
“We are currently reviewing RDSI’s four business lines – data processing, item processing, network services and consulting -- talking to our customers and evaluating their needs. We already have strong indications that RDSI has been doing an excellent job in many important areas, and it appears that we have a viable, profitable business without the inclusion of a data processing product at the present time.
“We have also identified the individual from within our present organization with the right combination of experience and leadership to lead RDSI through the transition. Gary Saxman has 13 years of RDSI experience, serving in diverse capacities of increasing responsibility. He has accepted the task of spearheading our efforts to reposition RDSI for future success and I and the Rurban Board of Directors have promised him the support and resources he will need during this process.
“But at the present time, the transition requires that we record impairment charges for remaining assets involved in our old data processing business to the tune of $5.6 million pre-tax this quarter, and $7.0 million year-to-date. This charge, most of which is non-cash, was partially responsible for the $8.1 million loss we reported for the second quarter. We also recorded a $3.0 million loan provision and associated charge-off at RDSI relating to a loan for software development costs.
“We also took a larger than normal loan loss provision at the bank this quarter -- $3.5 million -- despite substantial improvement in non-performing assets (“NPAs”) over the past six months. We felt it prudent to build our reserves to higher than historical levels since the economy is still so fragile.”
Significant events during the second quarter:
| | · | We have determined that the planned spin-off of RDSI and the merger with New Core Holdings, Inc. (“New Core”) cannot be successfully completed. We are working with New Core to address a wind-down of our relationships to enable both companies to pursue their separate strategic directions. |
| | · | RDSI recorded a $10.0 million pretax loss for the quarter, which included $8.6 million in impairment charges and write-downs of hardware, software and development costs related to RDSI’s data processing business. |
| | · | The retention of RDSI as part of the Rurban holding company results in $5 million of capital retained within the consolidated holding company. The estimated June 30, 2010 ratios for Tier 1 leverage and total risk based capital were 7.07 percent and 11.20 percent, respectively. |
| | · | Non-performing assets have been reduced by $2.0 million, or 12 percent, since March 31, 2010 and by $6.3 million, or 31 percent, over the past six months. NPAs now stand at $14.1 million, or 2.2 percent of assets as of June 30, 2010. |
| | · | At its July 2010 meeting, the Board of Directors of Rurban approved a restructuring of the Boards of Directors of Rurban and The State Bank and Trust Company (“State Bank”). The restructuring will reduce the size of both Boards from 11 to 9 members and is intended to facilitate the future direction and vision of the Company. In connection with this restructuring, Rurban accepted the retirements of four current directors of Rurban and State Bank, Steven VanDemark (Chairman), Thomas Callan, John Compo and J. Michael Walz, effective as of July 31, 2010. The Board of Directors of Rurban also appointed Richard Hardgrove to replace Steven VanDemark as Chairman of the Board effective upon Mr. VanDemark’s retirement. “The retiring Rurban directors served the Company for many years through some difficult and challenging economic times and we thank them for that,” stated Mr. Klein. |
CONSOLIDATED OPERATIONS
For the second quarter of 2010, the combined operations of Rurban and its two subsidiaries, State Bank and RDSI, accounted for a pretax loss of $12.7 million. This compares to a pretax loss of $1.5 million for the linked-quarter and pretax income of $1.4 million for the year ago quarter.
2010 and 2009 financial results contain certain nonrecurring and non-core items that have significantly impacted the Company’s operating performance. With respect to RDSI, Rurban recorded a total pretax charge of $8.6 million ($5.6 million after tax) in the second quarter of 2010, and $10.0 million year-to-date ($6.5 million after tax) for impairments and write-offs of software, hardware and developmental costs related to RDSI’s data processing business; a 2009 second quarter special FDIC assessment of $0.3 million; and net gains from the sale of securities of $0.52 million and $0.48 million, respectively, for the first six months of 2010 and 2009. The net pretax impact for the 2010 first and second quarters were losses of $.96 million and $8.7 million, respectively, and for 2009, a loss of $0.07 million in the first quarter and a loss of $.05 million in the second quarter. Excluding these amounts from results, the second quarter 2010 loss from operations was $3.0 million compared to net income from operations of $1.1 million for the year-ago quarter and net income of $1.2 million for the linked quarter.
(Dollars in thousands except per share data)
| | State Bank | | | RDSI | | | Rurban (Consolidated) | |
| Revenue | | $ | 7,750 | | | $ | 2,625 | | | $ | 9,772 | |
| Loan Loss Provision | | | 3,499 | | | | 3,000 | | | | 6,499 | |
| Operating Expenses | | | 6,515 | | | | 9,567 | | | | 15,963 | |
| Pre-tax Income | | | (2,264 | ) | | | (9,951 | ) | | | (12,691 | ) |
| Earnings: | | | 2Q 2010 | | | | 1Q 2010 | | | | 2Q 2009 | |
| Net interest income | | $ | 5,062 | | | $ | 4,904 | | | $ | 5,361 | |
| Noninterest income | | | 4,710 | | | | 6,783 | | | | 7,897 | |
| Revenue | | | 9,772 | | | | 11,687 | | | | 13,258 | |
| Provision (credit) for loan losses | | | 6,499 | | | | 1,391 | | | | 799 | |
| Noninterest expense | | | 15,963 | | | | 11,792 | | | | 11,108 | |
| Pretax income (loss) | | | (12,691 | ) | | | (1,496 | ) | | | 1,351 | |
| Net income (loss) | | | (8,078 | ) | | | (848 | ) | | | 1,003 | |
| Diluted EPS | | $ | (1.67 | ) | | $ | (.17 | ) | | $ | 0.20 | |
Total revenue on a recurring basis , consisting of net interest income and recurring noninterest income, was $9.8 million for the second quarter of 2010 compared to $13.3 million earned in the prior-year second quarter. Net interest income for the 2010 second quarter was $5.1 million, a decline of 5.9 percent from the $5.4 million earned in the year-ago second quarter.
Non-interest income for the 2010 second quarter was $4.7 million compared to $7.5 million generated in the 2009 second quarter, excluding securities gains. Lower data processing income, due to the winding-down of the RDSI data processing client base, accounted for the decline in non-interest income over the past twelve months.
Non-interest expense was $16.0 million, up compared to both the linked quarter level of $11.8 million and the $11.1 million in the year-ago quarter. This quarter’s expense included $5.5 million in one-time expense related to RDSI.
CONSOLIDATED BALANCE SHEET
Total assets were $648.5 million as of June 30, 2010, down $13.0 million, or 2.0 percent, over the past twelve months and $24.5 million, or 3.6 percent, from the $673.8 million reported in the linked-quarter. Since the second quarter of 2009, RDSI has written down $11.2 million in assets due to software, hardware and investment impairments. Total loans, net of unearned income, were $439.8 million at June 30, 2010, compared to $444.1 million and $441.2 million as of March 31, 2010 and June 30, 2009, respectively. Total deposits as of June 30, 2010 were $484.4 million, down $14.3 million from the linked-quarter but up $11.4 million over the past twelve months. Liquidity remains strong, as reliance on wholesale funds is down $11 million from the prior year. Total shareholders’ equity totaled $53.3 million at June 30, 2010, compared to $60.9 at March 31, 2010 and $63.4 at June 30, 2009.
BANK OPERATING RESULTS
Rurban Financial’s banking subsidiary, The State Bank and Trust Company, recorded a net operating loss of $1.4 million for the second quarter of 2010 compared to net income of $0.5 million and $1.0 million for the linked- and prior-year quarters, respectively. State Bank’s operating results in the 2010 second quarter were impacted by the $3.5 million provision for loan losses taken to strengthen State Bank’s reserves.
State Bank’s total revenue, consisting of net interest income and non-interest income, was $7.8 million as of June 30, 2010, compared to $7.6 million and $8.3 million, excluding securities gain, for the linked- and year-ago quarters, respectively.
State Bank had $447.5 million in total loans as of June 30, 2010. Commercial lending, including small business loans (“C&I”), commercial real estate loans (“CRE”) and agricultural loans, represented 67 percent of total loans. CRE loans account for the majority of the commercial loans, with $176.8 million, or approximately 40 percent, of total loans outstanding. Residential real estate loans account for $96.3 million, or 22 percent, of total loans. C&I, consumer and agricultural loans represent the balance of the loan portfolio with 18, 12, and 8 percent of total loans, respectively.
Total deposits as of June 30, 2010 were $483.7 million compared to $498.9 million and $473.0 million at March 31, 2010 and June 30, 2009, respectively. Core deposits account for the majority, approximately 57 percent, of State Bank’s total deposits. Over the past twelve months, core deposits as a percent of total deposits have increased from 53.6 percent as Non-interest DDA, Savings, and NOW accounts grew by $4.2 million, $7.1 million and $12.4 million, respectively.
ASSET QUALITY
Rurban’s 2010 second quarter provision for loan losses was $3.5 million, compared to $1.4 million as of March 31, 2010 and $0.8 million at June 30, 2009. For the 2010 second quarter, net charge-offs were $2.6 million (2.28 percent of average loans annualized) compared to $2.3 million (2.05 percent of average loans annualized) and $0.3 million (0.25 percent of average loans annualized) for the linked- and year-ago quarters, respectively. The Bank’s allowance for loan losses was 1.59 percent of total loans at June 30, 2010, compared to 1.37 percent at March 31, 2010 and 1.33 percent as of June 30, 2009.
| The State Bank and Trust Company | | Non-accrual Loans + 90 PD | |
| | | 6/30/2010 | | | 3/31/2010 | | | 12/31/2009 | | | 9/30/2009 | | | 6/30/2009 | |
| Secured by RE | | | | | | | | | | | | | | | |
| C&D 1-4 Family | | | 29 | | | | 29 | | | | 32 | | | | 32 | | | | 32 | |
| C&D CRE | | | 593 | | | | 596 | | | | 596 | | | | 1,241 | | | | 1,386 | |
| Farmland | | | - | | | | 2 | | | | - | | | | - | | | | - | |
| HELOC | | | 439 | | | | 308 | | | | 402 | | | | 353 | | | | 344 | |
| 1-4 Family properties | | | 3,420 | | | | 4,730 | | | | 5,088 | | | | 4,365 | | | | 4,446 | |
| Multi-family | | | - | | | | - | | | | 3,443 | | | | 87 | | | | 87 | |
| CRE - owner occ | | | 465 | | | | 326 | | | | 618 | | | | 616 | | | | 874 | |
| CRE - non-owner occ | | | 4,674 | | | | 2,777 | | | | 4,032 | | | | 1,118 | | | | 1,121 | |
| C&I | | | 2,437 | | | | 4,204 | | | | 3,837 | | | | 1,344 | | | | 1,367 | |
| Consumer | | | 61 | | | | 136 | | | | 165 | | | | 136 | | | | 138 | |
| NPL | | | 12,118 | | | | 13,108 | | | | 18,213 | | | | 9,292 | | | | 9,795 | |
The following chart and narrative summarizes the asset quality picture:
| (Dollars in thousands except percent data) | | | | | | | | | |
| | | | | | | | | | |
| ASSET QUALITY | | | 2Q 2010 | | | | 1Q 2010 | | | | 2Q 2009 | |
| Net charge-offs | | $ | 2,579 | | | $ | 2,346 | | | $ | 275 | |
| Net charge-offs to avg. loans (Annualized) | | | 2.28 | % | | | 2.05 | % | | | 0.25 | % |
| Non-performing loans | | $ | 12,401 | | | $ | 14,399 | | | $ | 10,173 | |
| OREO + OAO | | $ | 1,651 | | | $ | 1,616 | | | $ | 1,346 | |
| Non-performing assets (NPA’s) | | $ | 14,052 | | | $ | 16,016 | | | $ | 11,519 | |
| NPA / Total assets | | | 2.17 | % | | | 2.38 | % | | | 1.74 | % |
| Allowance for loan losses | | $ | 6,994 | | | $ | 6,075 | | | $ | 5,873 | |
| Allowance for loan losses / Loans | | | 1.59 | % | | | 1.37 | % | | | 1.33 | % |
Non-performing assets, consisting of non-accruing loans, other real estate owned (“OREO”) and other assets owned (“OAO”), were $14.1 million, or 2.17 percent of total assets as of June 30, 2010, a decrease of $2.0 million, or 12.3 percent, from $16.0 million (2.38 percent of assets) as of March 31, 2010. Since year-end 2009, non-performing assets have declined $6.3 million, or 30.8 percent, from $20.3 million, or 3.02 percent of total assets. Over the past six-months, non-performing loans have been reduced by $6.0 million while repossessed assets have been relatively unchanged.
RDSI OPERATING RESULTS
RDSI, Rurban’s item and bank data processing subsidiary, recorded a pretax loss of $10.0 million in the 2010 second quarter compared to a pretax loss of $1.3 million for the 2010 first quarter and pretax income of $0.9 million for the 2009 second quarter. RDSI’s performance was heavily impacted by the developments relating to its data processing business, including the run-off of its ITI data processing client base and associated revenue.
During the second quarter, Rurban took action to restructure and downsize the Board of Directors of RDSI, which resulted in the retirements of Don DeWitt, Dan Farrell and Ken Joyce from the RDSI Board of Directors and the appointment of a new Board of Directors comprised of Richard Hardgrove (Chair), Rita Kissner, Mark Klein and John Schock. In addition to the changes to the RDSI Board, Gary Saxman, a 13-year veteran of RDSI, was named to replace Ken Joyce as President of RDSI.
In view of the developments relating to RDSI’s data processing business, the Boards of Directors of Rurban and RDSI have taken action to restructure the business model of RDSI at this time to focus on generating income from RDSI’s Item Processing and Network Services businesses and reducing staffing levels and expenses.
Mr. Klein commented, “We have concluded that Item Processing and Network Services can be a very attractive stand-alone business. It has a stable customer base and is already generating pretax profit and positive cash flow without any further restructuring. We are excited to have Gary and his team contributing to the Holding Company for many years to come.”
About Rurban Financial Corp.
Based in Defiance, Ohio, Rurban Financial Corp. is a financial services holding company with two wholly-owned subsidiaries: The State Bank and Trust Company (State Bank) and RDSI Banking Systems (RDSI). State Bank operates through 18 banking centers in seven Ohio counties, one center in Indiana; and a loan production office in Franklin County, Ohio. The Bank offers a full-range of financial services for consumers and small businesses, including trust services, mortgage banking, commercial and agricultural lending. RDSI provides data and item processing services to community banks located primarily 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 our behalf are qualified by these cautionary statements.
Contact Information:
At Rurban Financial Corp.:
Anthony V. Cosentino, CFO
419-785-3663
Tony.Cosentino@rurban.net
