SB FINANCIAL GROUP, INC. - Annual Report: 2008 (Form 10-K)

Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2008
	OR
¨	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
incorporation or organization)		Identification No.)

401 Clinton Street, Defiance, Ohio		43512
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:		(419) 783-8950

Securities registered pursuant to Section 12(b) of the Act:

	Title of each class	Name of each exchange on which registered
	Common Shares, Without Par Value	The NASDAQ Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act:

Not Applicable

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ¨ No x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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

The aggregate market value of the common shares of the registrant held by non-affiliates computed by reference to the price at which the common shares were last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was $43,311,868.

The number of common shares of the registrant outstanding at March 11, 2009 was 4,873,351.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement for its Annual Meeting of Shareholders to be held on April 16, 2009 are incorporated by reference into Part III of this Annual Report on Form 10-K.

RURBAN FINANCIAL CORP.

2008 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I

Item 1.	Business	4
Item 1A.	Risk Factors	24
Item 1B.	Unresolved Staff Comments	28
Item 2.	Properties	28
Item 3.	Legal Proceedings	29
Item 4.	Submission of Matters to a Vote of Security Holders	29
Supplemental Item: Executive Officers of the Registrant		30

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31
Item 6.	Selected Financial Data	34
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 7A.	Qualitative and Quantitative Disclosures about Market Risk	55
Item 8.	Financial Statements and Supplementary Data	55
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	55
Item 9A.	Controls and Procedures	55
Item 9B.	Other Information	56

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	56
Item 11.	Executive Compensation	57
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	57
Item 13.	Certain Relationships and Related Transactions, and Director Independence	58
Item 14.	Principal Accountant Fees and Services	58

PART IV

Item 15.	Exhibits and Financial Statement Schedules	59

Signatures and Certifications		60

PART I

Item 1. Business.

General

Rurban Financial Corp., an Ohio corporation (the “Company”), is a bank holding company registered under the Bank Holding Company Act of 1956, as amended, and is subject to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). The Company was organized in 1983. The executive offices of the Company are located at 401 Clinton Street, Defiance, Ohio 43512.

Through its direct and indirect subsidiaries, The State Bank and Trust Company (“State Bank”), RFCBC, Inc. (“RFCBC”), RDSI Banking Systems (“RDSI”), Rurban Mortgage Company (“RMC”), Rurban Statutory Trust I (“RST I”), and Rurban Statutory Trust II (“RST II”), the Company is engaged in a variety of activities, including commercial banking, data and item processing, and trust and financial services, as explained in more detail below. State Bank owns all of the outstanding stock of Rurban Mortgage Company (“RMC”).

General Description of Holding Company Group

State Bank

State Bank is an Ohio state-chartered bank. State Bank presently operates five branch offices in Defiance County, Ohio (four in the city of Defiance and one in Ney), two branch offices in adjacent Paulding County, Ohio (one each in Paulding and Oakwood), three branch offices in Fulton County, Ohio (one each in Delta, Lyons and Wauseon), two branch offices in Allen County, Ohio (two in the city of Lima), three branch offices in Wood County, Ohio (one each in Luckey, Walbridge and Perrysburg), five branch offices in Williams County, Ohio (two in the city of Montpelier and one each in Bryan, Pioneer, and West Unity) and one office in Lucas County, Ohio (Sylvania), a Commercial and Mortgage Loan Production Office in Franklin County, and one branch office in Allen County, Indiana. At December 31, 2008, State Bank had 197 full-time equivalent employees.

State Bank offers a full range of commercial banking services, including checking accounts, passbook savings, money market accounts and time certificates of deposit; automatic teller machines; commercial, consumer, agricultural and residential mortgage loans (including “Home Value Equity” line of credit loans); personal and corporate trust services; commercial leasing; bank credit card services; safe deposit box rentals; Internet and telephone banking and other personalized banking services.

Reliance Financial Services (“RFS”) is the trust and financial services division of State Bank. RFS offers various trust and financial services, including asset management services for individuals and corporate employee benefit plans, as well as brokerage services through Raymond James Financial, Inc.

RMC

RMC is an Ohio corporation and wholly-owned subsidiary of State Bank. RMC is a mortgage company; however, it ceased originating mortgage loans in the second quarter of 2000 and is presently inactive.

At December 31, 2008, RMC had no employees.

RFCBC

RFCBC is an Ohio corporation and wholly-owned subsidiary of the Company that was incorporated in August 2004. RFCBC operates as a loan subsidiary in servicing and working out problem loans. At December 31, 2008, RFCBC had no employees.

RDSI

RDSI has been in operation since 1964 and became an Ohio corporation in June 1976. RDSI has one operating location in Defiance, Ohio. In September 2006, RDSI acquired Diverse Computer Marketers, Inc. (“DCM”) which was merged into RDSI effective December 31, 2007 and now operates as a division of RDSI doing business as “DCM”. DCM has one operating location in Lansing, Michigan.

RDSI delivers software systems to the banking industry which provide a broad range of data processing and item processing services in an outsourced environment utilizing Information Technology Inc. (ITI) software.

At December 31, 2008, RDSI had 94 full-time equivalent employees.

RST I

RST I is a trust that was organized in August 2000. In September 2000, RST I closed a pooled private offering of 10,000 Capital Securities with a liquidation amount of $1,000 per security. The proceeds of the offering were loaned to the Company in exchange for junior subordinated debentures with terms similar to the Capital Securities. The sole assets of RST I are the junior subordinated debentures and the back-up obligations, which in the aggregate, constitute a full and unconditional guarantee by the Company of the obligations of RST I under the Capital Securities.

RST II

RST II is a trust that was organized in August 2005. In September 2005, RST II closed a pooled private offering of 10,000 Capital Securities with a liquidation amount of $1,000 per security. The proceeds of the offering were loaned to the Company in exchange for junior subordinated debentures with terms similar to the Capital Securities. The sole assets of RST II are the junior subordinated debentures and the back-up obligations, which in the aggregate, constitute a full and unconditional guarantee by the Company of the obligations of RST II under the Capital Securities.

Recent Developments

During the fourth quarter of 2008, Rurban acquired NBM Bancorp, Inc. and its subsidiary the National Bank of Montpelier, through the merger of NBM Bancorp, Inc. into the Company. Upon closing of the acquisition, the National Bank of Montpelier was merged into State Bank. The merger has allowed the State Bank to expand its footprint into Williams County, Ohio and now has five full service branches in Williams County. The acquisition is expected to be immediately accretive to earnings.

In addition to the Loan Production Office in Columbus, Ohio, which opened in December, 2007, State Bank added a mortgage origination group to the Columbus region during the fourth quarter of 2008.

On April 12, 2007, Rurban initiated a stock repurchase program, authorizing the repurchase of up to 250,000 shares, or approximately 5%, of the Company’s outstanding shares. As of the end of 2008, Rurban had repurchased a total of 145,981 shares at an average cost of $11.05 per share.

Rurban increased its dividend to shareholders from $0.26 per share in 2007 to $0.34 per share in 2008.

Competition

State Bank experiences significant competition in attracting depositors and borrowers. Competition in lending activities comes principally from other commercial banks in the lending areas of State Bank, and, to a lesser extent, from savings associations, insurance companies, governmental agencies, credit unions, securities brokerage firms and pension funds. The primary factors in competing for loans are interest rates charged and overall banking services.

State Bank’s competition for deposits comes from other commercial banks, savings associations, money market funds and credit unions as well as from insurance companies and securities brokerage firms. The primary factors in competing for deposits are interest rates paid on deposits, account liquidity and convenience of office location.

RDSI and DCM also operate in a highly competitive field. RDSI and DCM compete primarily on the basis of the value and quality of their data processing and item processing services and service and convenience to their customers.

RFS operates in the highly competitive trust services field and its competition consists primarily of other Ohio bank trust departments.

Supervision and Regulation

The following is a summary of certain statutes and regulations affecting the Company and its subsidiaries. The summary is qualified in its entirety by reference to such statutes and regulations.

Regulation of Bank Holding Companies and Their Subsidiaries in General

The Company is a bank holding company and, as such, is subject to regulation under the Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”). The Bank Holding Company Act requires the prior approval of the Federal Reserve Board before a bank holding company may acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank (unless the bank is already majority owned by the bank holding company), acquire all or substantially all of the assets of another bank or bank holding company, or merge or consolidate with any other bank holding company. Subject to certain exceptions, the Bank Holding Company Act also prohibits a bank holding company from acquiring 5% of the voting shares of any company that is not a bank and from engaging in any business other than banking or managing or controlling banks. The primary exception to this prohibition allows a bank holding company to own shares in any company the activities of which the Federal Reserve Board had determined, as of November 19, 1999, to be so closely related to banking as to be a proper incident thereto.

The Company is subject to the reporting requirements of, and examination and regulation by, the Federal Reserve Board. The Federal Reserve Board has extensive enforcement authority over bank holding companies, including, without limitation, the ability to assess civil money penalties, issue cease and desist or removal orders, and require that a bank holding company divest subsidiaries, including its subsidiary banks. In general, the Federal Reserve Board may initiate enforcement actions for violations of laws and regulations and unsafe or unsound practices. A bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with extensions of credit and/or the provision of other property or services to a customer by the bank holding company or its subsidiaries.

Under Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength to its subsidiary bank and to commit resources to support its subsidiary bank. Pursuant to this policy, the Federal Reserve Board may require a bank holding company to contribute additional capital to an undercapitalized subsidiary bank.

State Bank is a member of the Federal Reserve System, so its primary federal regulator is the Federal Reserve Board. The Federal Reserve Board issues regulations governing the operations of State Bank and examines State Bank. The Federal Reserve Board may initiate enforcement action against insured depository institutions and affiliated persons for violations of laws and regulations and for engaging in unsafe or unsound practices. The deposits of State Bank are insured by the Federal Deposit Insurance Corporation (“FDIC”) and are subject to the applicable provisions of the Federal Deposit Insurance Act.

As a state-chartered bank incorporated under Ohio law, State Bank is also subject to regulation, supervision and examination by the Ohio Division of Financial Institutions (the “Division”). The Division may initiate supervisory measures or formal enforcement actions against Ohio state-chartered banks and, if the grounds provided by law exist, the Division may place an Ohio bank in conservatorship or receivership. Whenever the Division considers it necessary or appropriate, the Division may also examine the affairs of any holding company or any affiliate or subsidiary of an Ohio bank.

Various requirements and restrictions under the laws of the United States and the State of Ohio affect the operations of State Bank, including requirements to maintain reserves against deposits, restrictions on the nature and amount of loans which may be made and the interest that may be charged thereon, restrictions relating to investments and other activities, limitations on credit exposure to correspondent banks, limitations on activities based on capital and surplus, limitations on payment of dividends, and limitations on branching. Various consumer laws and regulations also affect the operations of State Bank.

The Federal Home Loan Banks (“FHLBs”) provide credit to their members in the form of advances. As a member of the FHLB of Cincinnati, State Bank must maintain certain minimum investments in the capital stock of the FHLB of Cincinnati. State Bank was in compliance with these requirements at December 31, 2008.

Dividends

The ability of the Company to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends that may be declared by its subsidiaries. State Bank may not pay dividends to the Company if, after paying such dividends, it would fail to meet the required minimum levels under the risk-based capital guidelines and the minimum leverage ratio requirements. State Bank must obtain the approval of the Federal Reserve Board and the Division if a dividend in any year would cause the total dividends for that year to exceed the sum of the current year’s net profits and the retained net profits for the preceding two years, less required transfers to surplus. Payment of dividends by State Bank may be restricted at any time at the discretion of the regulatory authorities, if they deem such dividends to constitute an unsafe and/or unsound banking practice. These provisions could have the effect of limiting the Company’s ability to pay dividends on its outstanding common shares. Moreover, the Federal Reserve Board expects the Company to serve as a source of strength to its subsidiary banks, which may require it to retain capital for further investment in the subsidiary, rather than for dividends to shareholders of the Company.

Transactions with Affiliates, Directors, Executive Officers and Shareholders

Sections 23A and 23B of the Federal Reserve Act and Federal Reserve Board Regulation W restrict transactions by banks and their subsidiaries with their affiliates. Any company or entity that controls, is controlled by or is under common control with a bank is generally considered to be an affiliate of the bank.

In general, Sections 23A and 23B and Regulation W:

limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of the bank’s capital stock and surplus (i.e., tangible capital);

limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with all affiliates to 20% of the bank’s capital stock and surplus; and

require that all covered transactions be on terms substantially the same, or at least as favorable to the bank or subsidiary, as those provided to non-affiliates.

The term “covered transaction” includes the making of loans, purchase of assets, issuance of a guarantee and similar types of transactions.

A bank’s authority to extend credit to executive officers, directors and greater than 10% shareholders, as well as entities such persons control, is subject to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated thereunder by the Federal Reserve Board. Among other things, these loans must be made on terms substantially the same as those offered to unaffiliated individuals (or be made under a benefit or compensation program and on terms widely available to employees) and must not involve a greater than normal risk of repayment. In addition, the amount of loans a bank may make to these persons is based, in part, on the bank’s capital position, and specified approval procedures must be followed in making loans which exceed specified amounts.

Regulatory Capital

The Federal Reserve Board has adopted risk-based capital guidelines for bank holding companies and for state member banks, such as State Bank. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk weighted assets by assigning assets and off-balance-sheet items to broad risk categories. The minimum ratio of total capital to risk weighted assets (including certain off-balance-sheet items, such as standby letters of credit) is 8%. Of that 8%, 4% is to be comprised of common shareholders’ equity (including retained earnings but excluding treasury stock), non-cumulative perpetual preferred stock, a limited amount of cumulative perpetual preferred stock, and minority interests in equity accounts of consolidated subsidiaries, less goodwill and certain other intangible assets (“Tier 1 capital”). The remainder of total risk-based capital (“Tier 2 capital”) may consist, among other things, of certain amounts of mandatory convertible debt securities, subordinated debt, preferred stock not qualifying as Tier 1 capital, an allowance for loan and lease losses and net unrealized gains, after applicable taxes, on available-for-sale equity securities with readily determinable fair values, all subject to limitations established by the guidelines. The Federal Reserve Board also imposes a minimum leverage ratio (Tier 1 capital to total assets) of 3% for bank holding companies and state member banks that meet certain specified conditions, including no operational, financial or supervisory deficiencies, and including having the highest regulatory rating. The minimum leverage ratio is 1%-2% higher for other bank holding companies and state member banks based on their particular circumstances and risk profiles and those experiencing or anticipating significant growth. Failure to meet applicable capital guidelines could subject a banking institution to a variety of enforcement remedies available to federal and state regulatory authorities, including the termination of deposit insurance by the FDIC.

The federal banking regulators have established regulations governing prompt corrective action to resolve capital deficient banks. The regulations establish five capital level categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under these regulations, institutions which become undercapitalized can become subject to mandatory regulatory scrutiny and limitations, which increase as capital decreases. Such institutions may also be required to file capital plans with their primary federal regulator, and their holding companies may be required to guarantee the capital shortfall up to 5% of the assets of the capital deficient institution at the time it becomes undercapitalized.

The Company’s management believes that the Company and State Bank, at year end 2008, satisfied all requirements to be deemed “well capitalized”.

Federal Deposit Insurance Corporation (“FDIC”)

The FDIC is an independent federal agency which insures the deposits of federally-insured banks and savings associations up to certain prescribed limits and safeguards the safety and soundness of financial institutions. State Bank’s deposits are subject to the deposit insurance assessments of the FDIC. Under the FDIC’s deposit insurance assessment system, the assessment rate for any insured institution may vary according to regulatory capital levels of the institution and other factors such as supervisory evaluations.

The FDIC is authorized to prohibit any insured institution from engaging in any activity that poses a serious threat to the insurance fund and may initiate enforcement actions against a bank, after first giving the institution’s primary regulatory authority an opportunity to take such action. The FDIC may also terminate the deposit insurance of any institution that has engaged in or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, order or condition imposed by the FDIC.

Monetary Policy and Economic Conditions

The commercial banking business is affected not only by general economic conditions, but also by the policies of various governmental regulatory authorities, including the Federal Reserve Board. The Federal Reserve Board regulates money and credit conditions and interest rates in order to influence general economic conditions primarily through open market operations in U.S. Government securities, changes in the discount rate on bank borrowings and changes in reserve requirements against bank deposits. These policies and regulations significantly affect the overall growth and distribution of bank loans, investments and deposits, and the interest rates charged on loans as well as the interest rates paid on deposits and accounts.

Holding Company Activities

In November 1999, the Gramm-Leach-Bliley Act was enacted, permitting bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized under the Federal Deposit Insurance Corporation Act of 1991 prompt corrective action provisions, is well managed, and has at least a satisfactory rating under the Community Reinvestment Act by filing a declaration that the bank holding company wishes to become a financial holding company. No regulatory approval is required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board.

The Gramm-Leach-Bliley Act defines “financial in nature” to include: (i) securities underwriting, dealing and market making; (ii) sponsoring mutual funds and investment companies; (iii) insurance underwriting and agency; (iv) merchant banking activities; and (v) activities that the Federal Reserve Board has determined to be closely related to banking.

The Company has not elected to become a financial holding company. The Company intends to continue to analyze the proposed advantages and disadvantages of becoming a financial holding company on a periodic basis.

SEC Regulation

The Company is subject to the jurisdiction of the Securities and Exchange Commission (the “SEC”) and certain state securities authorities relating to the offering and sale of its securities. The Company is subject to the registration, reporting and other regulatory requirements of the Securities Act of 1933, as amended, and the Exchange Act and the rules adopted by the SEC under those acts. The Company’s common shares are listed on The NASDAQ Global Market under the symbol “RBNF”, and the Company is subject to the rules and regulations of The NASDAQ Stock Market, Inc. (“NASDAQ”) applicable to listed companies.

Sarbanes-Oxley Act of 2002 and Related Rules Affecting Corporate Governance

As mandated by the Sarbanes-Oxley Act of 2002, the SEC has adopted rules and regulations governing, among other issues, corporate governance, auditing and accounting and executive compensation, and enhanced the timely disclosure of corporate information. The SEC has also approved corporate governance rules promulgated by NASDAQ. The Board of Directors of the Company has taken a series of actions to comply with the new NASDAQ and SEC rules and to further strengthen its corporate governance practices. The Company has adopted and implemented a Code of Conduct and Ethics and a copy of that policy can be found on the Company’s website at www.rurbanfinancial.net by first clicking “Corporate Governance” and then “Code of Conduct”. The Company has also adopted charters of the Audit Committee, the Compensation Committee and the Executive Governance and Nominating Committee, which charters are available on the Company’s website at www.rurbanfinancial.net by first clicking “Corporate Governance” and then “Supplementary Info”.

Patriot Act

The Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “Patriot Act”) gives the United States Government greater powers over financial institutions to combat money laundering and terrorist access to the financial system in our country. The Patriot Act requires regulated financial institutions to establish programs for obtaining identifying information from customers seeking to open new accounts and establish enhanced due diligence policies, procedures and controls designed to detect and report suspicious activity.

Effect of Environmental Regulation

Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect upon the capital expenditures, earnings or competitive position of the Company and its subsidiaries. The Company believes that the nature of the operations of its subsidiaries has little, if any, environmental impact. The Company, therefore, anticipates no material capital expenditures for environmental control facilities for its current fiscal year or for the foreseeable future. The Company’s subsidiaries may be required to make capital expenditures for environmental control facilities related to properties which they may acquire through foreclosure proceedings in the future; however, the amount of such capital expenditures, if any, is not currently determinable.

Available Information

The Company will provide, without charge, to each shareholder, upon written request to Rurban Financial Corp., P.O. Box 467, Defiance, Ohio 43512, Attention: Valda Colbart, Investor Relations Department, a copy of the Company's Annual Report on Form 10-K, including the Financial Statements and Schedules thereto required to be filed with the SEC, for the Company's most recent fiscal year.

10.

Statistical Financial Information Regarding the Company

The following schedules and tables analyze certain elements of the consolidated balance sheets and statements of income of the Company and its subsidiaries, as required under Exchange Act Industry Guide 3 promulgated by the SEC, and should be read in conjunction with the narrative analysis presented in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements of the Company and its subsidiaries included at pages F-1 through F-53 of this Annual Report on Form 10-K.

11.

I.	DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;

INTEREST RATES AND INTEREST DIFFERENTIAL

The following are the condensed average balance sheets for the years ending December 31 and the interest earned or paid on such amounts and the average interest rate thereon:

				2008								2007								2006
($in thousands)	Average					Average			Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate
Assets:
Securities
Taxable	$	84,301		$	4,293		5.09	%	$	84,389		$	4,284		5.08	%	$	119,394		$	5,212		4.37	%
Non-taxable (1)		17,193			1,040		6.05	%		16,405			978		5.96	%		14,497			848		5.85	%
Federal funds sold		4,985			134		2.68	%		5,072			225		4.44	%		2,259			177		7.84	%
Loans, net (2)(3)		401,770			27,601		6.87	%		381,449			27,893		7.31	%		354,400			25,055		7.07	%
Total earning assets		508,250			33,067		6.51	%		487,315			33,380		6.85	%		490,550			31,292		6.38	%
Cash and due from banks		9,570								11,605								11,827
Allowance for loan losses		(4,182	)							(3,843	)							(4,495	)
Premises and equipment		21,145								19,788								19,387
Other assets		40,708								41,707								36,825

Total assets	$	575,491							$	556,572							$	554,094

Liabilities
Deposits
Savings and interest-bearing demand deposits	$	158,765		$	1,748		1.10	%	$	138,314		$	2,714		1.96	%	$	127,179		$	1,656		1.30	%
Time deposits		213,891		$	8,319		3.89	%		231,605			10,882		4.70	%		228,193			9,366		4.10	%
Short-term borrowings		44,891			1,874		4.18	%		36,588			1,653		4.52	%		21,965			946		4.30	%
Advances from FHLB		33,377			1,508		4.52	%		19,329			1,037		5.36	%		41,353			2,106		5.09	%
Junior subordinated debentures		20,620			1,692		8.20	%		20,620			1,809		8.77	%		20,620			1,787		8.67	%
Other borrowed funds		-			-		N/A			1,641			127		7.74	%		939			75		7.98	%
Total interest-bearing liabilities		471,544			15,141		3.21	%		448,097			18,222		4.07	%		440,249			15,936		3.62	%

Demand deposits		35,386								42,848								47,176
Other liabilities		8,597								7,682								12,168
Total liabilities		515,527								498,627								499,593
Shareholders' equity		59,964								57,945								54,501

Total liabilities and shareholders' equity	$	575,491							$	556,572							$	554,094

Net interest income (tax equivalent basis)				$	17,926							$	15,158							$	15,356

Net interest income as a percent of average interest-earning assets							3.53	%							3.11	%							3.13	%

(1)	Interest is computed on a tax equivalent basis using a 34% statutory tax rate. The tax equivalent adjustment was $354,000, $333,000 and $288,000 in 2008, 2007 and 2006, respectively.

(2)	Nonaccruing loans and loans held for sale are included in the average balances.

(3)	Interest is computed on a tax equivalent basis using a 34% statutory tax rate. The tax equivalent adjustment was $44,000, $38,000 and $33,000 in 2008, 2007 and 2006 respectively.

12.

I.	DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;

INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)

The following tables set forth the effect of volume and rate changes on interest income and expense for the periods indicated. For purposes of these tables, changes in interest due to volume and rate were determined as follows:

Volume Variance - change in volume multiplied by the previous year's rate.

Rate Variance - change in rate multiplied by the previous year's volume.

Rate/Volume Variance - change in volume multiplied by the change in rate. This variance was allocated to volume variance and rate variance in proportion to the relationship of the absolute dollar amount of the change in each.

Interest on non-taxable securities has been adjusted to a fully tax equivalent basis using a statutory tax rate of 34% in 2008, 2007 and 2006.

	Total
	Variance			Variance Attributable To
	2008/2007			Volume			Rate
	(dollars in thousands)
Interest income
Securities
Taxable	$	11		$	(4	)	$	15
Non-taxable		62			48			14
Federal funds sold		(94	)		(4	)		(90	)
Loans, net of unearned income and deferred loan fees		(292	)		1,444			(1,736	)
		(313	)		1,484			(1,797	)

Interest expense
Deposits
Savings and interest-bearing demand deposits		(966	)		357			(1,323	)
Time deposits		(2,563	)		(788	)		(1,775	)
Short-term borrowings		221			354			(133	)
Advances from FHLB		471			656			(185	)
Trust preferred securities		(117	)		-			(117	)
Other borrowed funds		(127	)		(127	)		-
	$	(3,081	)	$	452		$	(3,533	)

Net interest income	$	2,768		$	1,032		$	1,736

13.

I.	DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;

INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)

	Total
	Variance			Variance Attributable To
	2007/2006			Volume			Rate
	(dollars in thousands)
Interest income
Securities
Taxable	$	(928	)	$	(1,688	)	$	760
Non-taxable		130			113			17
Federal funds sold		48			149			(101	)
Loans, net of unearned income and deferred loan fees		2,838			1,958			880
		2,088			532			1,556

Interest expense
Deposits
Savings and interest-bearing demand deposits		1,058			156			902
Time deposits		1,516			142			1,374
Short-term borrowings		707			659			48
Advances from FHLB		(1,069	)		(1,176	)		107
Trust preferred securities		22			-			22
Other borrowed funds		52			54			(2	)
	$	2,286		$	(165	)	$	2,451

Net interest income	$	(198	)	$	697		$	(895	)

14.

II.	INVESTMENT PORTFOLIO

The book value of securities available for sale as of December 31 in each of the following years are summarized as follows:

Book Value of Securities

	2008		2007		2006
	(dollars in thousands)
U.S. Treaury and government agencies	$	15,184	$	40,189	$	58,123
State and political subdivisions		22,801		16,019		15,465
Mortgage-backed securities		64,546		36,380		28,770
Other securities		52		50		81
Marketable equity securities		23		23		23

Total	$	102,606	$	92,661	$	102,462

The maturity distribution and weighted average interest rates of securities available for sale at December 31, 2008 are set forth in the table below. The weighted average interest rates are based on coupon rates for securities purchased at par value and on effective interest rates considering amortization or accretion if the securities were purchased at a premium or discount:

	Maturing
				After One Year			After Five Years
	Within			but within			but within			After
	One Year			Five Years			Ten Years			Ten Years
	(dollars in thousands)
U.S. Treaury and government agencies	$	-		$	2,160		$	9,002		$	4,023
State and political subdivisions		1,750			3,654			5,537			11,861
Mortgage-backed securities		12			3,742			1,164			59,627
Other securities		-			51			-			-

Total	$	1,762		$	9,607		$	15,703		$	75,511

Marketable equity securities with no maturity	$	23

Weighted average yield (1)		2.84	%		3.60	%		4.78	%		5.14	%

(1)

Yields are not presented on a tax-equivalent basis.

Excluding those holdings of the investment portfolio in U.S. Treasury securities and other agencies of the U.S. Government, there were no other securities of any one issuer which exceeded 10% of the shareholders' equity of the Company at December 31, 2008.

15.

III.	LOAN PORTFOLIO

Types of Loans - Total loans on the balance sheet are comprised of the following classifications at December 31 for the years indicated:

Types of Loans

(dollars in thousands)	2008		2007		2006		2005		2004

Commercial and Agricultural	$	288,853	$	253,202	$	225,827	$	187,667	$	188,532
Real estate mortgage		107,905		84,621		94,389		89,086		63,828
Consumer loans to individuals		53,339		51,358		49,314		48,877		31,949
Leases		266		330		857		1,661		5,128

Total loans	$	450,363	$	389,511	$	370,387	$	327,291	$	264,750

Real estate mortgage loans held for resale	$	3,824	$	1,650	$	390	$	224	$	113

Concentrations of Credit Risk: The Company grants commercial, real estate and installment loans to customers mainly in Northwest Ohio. Commercial loans include loans collateralized by commercial real estate, business assets and, in the case of agricultural loans, crops and farm equipment and the loans are expected to be repaid from cash flow from operations of businesses. As of December 31, 2008, commercial and agricultural loans made up approximately 64.1% of the loan portfolio. As of December 31, 2008, residential first mortgage loans made up approximately 24% of the loan portfolio and are collateralized by first mortgages on residential real estate. As of December 31, 2008, consumer loans to individuals made up approximately 11.9% of the loan portfolio and are primarily collateralized by consumer assets.

Maturities and Sensitivities of Loans to Changes in Interest Rates - The following table shows the amounts of commercial and agricultural loans outstanding as of December 31, 2008 which, based on remaining scheduled repayments of principal, are due in the periods indicated. Also, the amounts have been classified according to sensitivity to changes in interest rates for commercial and agricultural loans due after one year. (Variable-rate loans are those loans with floating or adjustable interest rates.)

Maturing (dollars in thousands)	Commercial and Agricultural
Within one year	$	56,815
After one year but within five years		73,404
After five years		158,634

Total commercial and agricultural loans	$	288,853

16.

III.

LOAN PORTFOLIO (Continued)

Commercial And Agricultural

	Interest Sensitivity
	Fixed		Variable
	Rate		Rate		Total
	(dollars in thousands)

Due after one year but within five years	$	24,860	$	48,544	$	73,404
Due after five years		20,490		138,144		158,634

Total	$	45,350	$	186,688	$	232,038

Risk Elements

Non-accrual, Past Due, Restructured and Impaired Loans – The following schedule summarizes non-accrual, past due, restructured and impaired loans at December 31 in each of the following years.

	2008		2007		2006		2005		2004
	(dollars in thousands)
(a) Loans accounted for on a non-accrual basis	$	5,178	$	5,990	$	3,828	$	6,270	$	13,384
(b) Accuring loans which are contractually past due
90 days or more as to interest or principal payments		-		-		-		5		11
(c) Loans not included in (a) which are "Troubled Debt
Restructurings" as defined by Statement of Financial
Accounting Standards No. 15		151		159		166		825		1,570
Total non-performing loans	$	5,329	$	6,149	$	3,994	$	7,100	$	14,965

(d) Other loans defined as impaired	$	1,868	$	593	$	82	$	3,283	$	4,671

	2008
	($ In thousands)
Cash basis interest income recognized on impaired loans outstanding at December 31, 2008	$	15

Interest income actually recorded on impaired loans and included in net income for the period		12

2008 unrecorded interest income on non-accrual loans		155

17.

III.	LOAN PORTFOLIO (Continued)

Management believes the allowance for loan losses at December 31, 2008 is adequate to absorb any losses on non-performing loans, as the allowance balance is maintained by management at a level considered adequate to cover losses that are probable based on past loss experience, general economic conditions, information about specific borrower situations, including their financial position and collateral values, and other factors and estimates which are subject to change over time.

Discussion of the Non-accrual Policy

The accrual of interest income is discontinued when the collection of a loan or interest, in whole or in part, is doubtful. When interest accruals are discontinued, interest income accrued in the current period is reversed. While loans which are past due 90 days or more as to interest or principal payments are considered for non-accrual status, management may elect to continue the accrual of interest when the estimated net realizable value of collateral, in management’s judgment, is sufficient to cover the principal balance and accrued interest. These policies apply to both commercial and consumer loans.

Potential Problem Loans

As of December 31, 2008, in addition to the $5,329,000 of non-performing loans reported under Item III.C.1. above (which amount includes all loans classified by management as doubtful or loss), there were approximately $6,778,000 in other outstanding loans where known information about possible credit problems of the borrowers caused management to have concerns as to the ability of such borrowers to comply with the present loan repayment terms (loans classified as substandard by management) and which may result in disclosure of such loans pursuant to Item III.C.1. at some future date. In regard to loans classified as substandard, management believes that such potential problem loans have been adequately evaluated in the allowance of loan losses.

18.

III.	LOAN PORTFOLIO (Continued)

Foreign Outstandings

None

Loan Concentrations

At December 31, 2008, loans outstanding related to agricultural operations or collateralized by agricultural real estate and equipment aggregated approximately $43,641,000, or 9.7 % of total loans.

Other Interest-Bearing Assets

There were no other interest-bearing assets as of December 31, 2008 which would be required to be disclosed under Item III.C.1 or Item III.C.2. if such assets were loans.

19.

IV.	SUMMARY OF LOAN LOSS EXPERIENCE

The following schedule presents an analysis of the allowance for loan losses, average loan data and related ratios for the years ended December 31:

Summary of Loan Loss Experience

	2008			2007			2006			2005			2004
	(dollars in thousands)
Loans
Loans outstanding at end of period	$	450,112		$	389,269		$	370,102		$	327,048		$	264,481

Average loans outstanding during period	$	401,770		$	381,453		$	354,726		$	268,158		$	271,503

Allowance for loan losses
Balance at beginning of period	$	3,990		$	3,717		$	4,700		$	4,899		$	10,181
Balance, of ALLL acquired in Exchange acquisition											910
Balance, of ALLL acquired in Montpelier acquisition		1,104
Loans charged-off
Commercial and agricultural loans		(489	)		(104	)		(1,277	)		(2,760	)		(6,599	)
Real estate mortgage		(172	)		(81	)		(100	)		(133	)		(12	)
Leases		-			-			-			(208	)		(70	)
Consumer loans to individuals		(261	)		(247	)		(440	)		(308	)		(308	)
		(922	)		(432	)		(1,817	)		(3,409	)		(6,989	)
Recoveries of loans previously charged-off
Commercial and agricultural loans		91			85			419			1,566			1,835
Real estate mortgage		4			4			75			2			52
Leases		-			-			-			4			31
Consumer loans to individuals		63			95			162			145			188
		158			184			656			1,717			2,106
Net loans charged-off		(764	)		(248	)		(1,160	)		(1,692	)		(4,883	)
Provision for loan losses		690			521			178			583			(399	)
Balance at end of period	$	5,020		$	3,990		$	3,717		$	4,700		$	4,899
Ratio of net charge-offs during the period to average loans
outstanding during the period		0.19	%		0.07	%		0.33	%		0.63	%		1.80	%

The allowance for loan losses balance and the provision for loan losses are determined by management based upon periodic reviews of the loan portfolio. In addition, management considered the level of charge-offs on loans as well as the fluctuations of charge-offs and recoveries on loans in the factors which caused these changes. Estimating the risk of loss and the amount of loss is necessarily subjective. Accordingly, the allowance is maintained by management at a level considered adequate to cover losses that are currently anticipated based on past loss experience, economic conditions, information about specific borrower situations including their financial position and collateral values and other factors and estimates which are subject to change over time.

20.

IV.	SUMMARY OF LOAN LOSS EXPERIENCE (Continued)

The following schedule provides a breakdown of the allowance for loan losses allocated by type of loan and related ratios.

	Allocation of the Allowance for Loan Losses
			Percentage					Percentage					Percentage					Percentage					Percentage
			of Loans In					of Loans In					of Loans In					of Loans In					of Loans In
			Each					Each					Each					Each					Each
			Category to					Category to					Category to					Category to					Category to
	Allowance		Total			Allowance		Total			Allowance		Total			Allowance		Total			Allowance		Total
	Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans
	December 31, 2008					December 31, 2007					December 31, 2006					December 31, 2005					December 31, 2004
											(dollars in thousands)
Commercial and agricultural	$	3,559		70.9	%	$	2,945		73.8	%	$	2,945		79.2	%	$	3,728		57.3	%	$	4,502		61.9	%
Residential first mortgage		884		17.6	%		590		14.8	%		317		8.5	%		291		27.2	%		141		24.1	%
Consumer loans to individuals		577		11.5	%		455		11.4	%		455		12.3	%		681		15.5	%		256		14.0	%
	$	5,020		100.0	%	$	3,990		100.0	%	$	3,717		100.0	%	$	4,700		100.0	%	$	4,899		100.0	%

While management's periodic analysis of the adequacy of the allowance for loan losses may allocate portions of the allowance for specific problem loan situations, the entire allowance is available for any loan charge-offs that occur.

21.

DEPOSITS

The average amount of deposits and average rates paid are summarized as follows for the years ended December 31:

	2008					2007					2006
	Average		Average			Average		Average			Average		Average
	Amount		Rate			Amount		Rate			Amount		Rate
	(dollars in thousands)
Savings and interest-bearing demand
deposits	$	158,765		1.10	%	$	138,314		1.96	%	$	127,179		1.30	%
Time deposits		213,891		3.89	%		231,604		4.70	%		228,193		4.10	%
Demand deposits (non-interest-bearing)		35,386		—			42,849		—			47,176		—
	$	408,042				$	412,767				$	402,548

Maturities of time certificates of deposit and other time deposits of $100,000 or more outstanding at December 31, 2008 are summarized as follows:

	Amount
	(dollars in thousands)

Three months or less	$	10,404
Over three months and through six months		14,356
Over six months and through twelve months		12,404
Over twelve months		22,602

Total	$	59,766

22.

VI.	RETURN ON EQUITY AND ASSETS

The ratio of net income to average shareholders' equity and average total assets and certain other ratios are as follows for periods ended December 31:

Return on Equity and Assets

	2008			2007			2006
	(dollars in thousands)
Average total assets	$	575,491		$	556,572		$	554,094

Average shareholders’ equity	$	59,964		$	57,945		$	54,501

Net income	$	5,217		$	3,257		$	2,760

Cash dividends declared	$	1,677		$	1,303		$	1,056

Return on average total assets		0.91	%		0.59	%		0.50	%

Return on average shareholders' equity		8.70	%		5.62	%		5.06	%

Dividend payout ratio (1)		32.14			40.01			38.25

Average shareholders' equity to average total assets		10.42	%		10.41	%		9.84	%

(1) Cash dividends declared divided by net income.

VII.	SHORT-TERM BORROWINGS

The following information is reported for short-term borrowings for 2008, 2007 and 2006:

	2008			2007			2006
	(dollars in thousands)
Amount outstanding at end of year	$	43,426		$	43,006		$	32,271

Weighted average interest rate at end of year		3.91	%		4.38	%		4.43	%

Maximum amount outstanding at any month end	$	49,554		$	46,966		$	32,584

Average amount outstanding during the year	$	44,891		$	36,588		$	21,965

Weighted average interest rate during the year		4.10	%		4.51	%		4.30	%

23.

Item 1A. Risk Factors

Cautionary Statement Regarding Forward-Looking Information

Certain statements contained in this Annual Report on Form 10-K, and in other statements that we make from time to time in filings by the Company with the SEC, in press releases, and in oral and written statements made by or with the approval of the Company which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements preceded by or that include the words or phrases “anticipates,” “believes,” “plans,” “intends,” “expects,” “projects,” “estimates,” “should,” “may,” “would be,” “will allow,” “will likely result,” “will continue,” “will remain,” or similar expressions.

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the forward-looking statements. We desire to take advantage of the “safe harbor” provisions of the Act.

Forward-looking statements involve risks and uncertainties. Actual results may differ materially from those predicted by the forward-looking statements because of various factors and possible events, including those factors identified below. There is also the risk that the Company’s management or Board of Directors incorrectly analyzes these risks and forces, or that the strategies the Company develops to address them are unsuccessful.

Forward-looking statements speak only as of that date on which they are made. Except as may be required by law, the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made to reflect unanticipated events.

All forward-looking statements attributable to the Company or any person acting on our behalf are qualified in their entirety by the following cautionary statements.

Adverse economic conditions in our markets could adversely affect our financial condition and results of operations.

As a consequence of the current U.S. recession, businesses across a wide range of industries face serious difficulties due to the lack of consumer spending and the lack of liquidity in the global credit markets. Unemployment has also increased significantly. A sustained weakness or weakening in business and economic conditions generally or specifically in the markets in which we do business could adversely affect our businesses by, among other things, decreasing the demand for loans and other products and services that we offer, causing impairment of certain intangible assets, such as goodwill, and increasing the number of borrowers who become delinquent, file for protection under bankruptcy laws or default on their loans or other obligations to us.

Current levels of market volatility are unprecedented and may adversely affect our businesses, financial condition and results of operations.

The capital and credit markets have been experiencing volatility and disruption for more than a year and have reached unprecedented levels in recent months. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength. If current levels of market disruption and volatility continue or worsen, there can be no assurance that we will not experience an adverse effect, which may be material, on our businesses, financial condition and results of operations.

24.

Recent developments in the residential mortgage and related markets and the economy may adversely affect our business.

The residential mortgage market in the United States, including Ohio, has been negatively impacted recently by increasing rates and payments on adjustable-rate mortgages, decreasing housing values, increased credit standards for borrowers and other economic factors. As a result, delinquencies, foreclosures and losses with respect to residential construction and mortgage loans have increased and may continue to increase. Additionally, the lower housing prices and appraisal values may result in additional delinquencies and loan losses. While the residential real estate loans held in our portfolio are typically originated using conservative underwriting standards and do not include sub-prime loans, we do originate and hold fixed- and adjustable-rate loans and residential construction loans. If the residential loan market continues to deteriorate, especially in our local markets, our financial condition and results of operations could be adversely affected.

Changes in interest rates could have a material adverse effect on our financial condition and results of operations.

Our earnings depend substantially on our interest spread, which is the difference between the rates we earn on loans, securities and other earning assets and the interest rates we pay on deposits and other borrowings. These rates will depend on many factors that are partly or entirely outside of our control, including general economic conditions and the policies of various governmental and regulatory authorities. While we have taken measures intended to manage the risks of operating in a changing rate environment, there can be no assurance that such measures will be effective in avoiding undue interest rate risk. As market interest rates rise, we will have competitive pressures to increase the rates we pay on deposits, which will result in a decrease in net interest income and could have a material adverse effect on our financial condition and results of operations.

We operate in an extremely competitive market, and our business will suffer if we are unable to compete effectively.

In our market area, we encounter significant competition from other commercial banks, savings and loan associations, credit unions, mortgage banking firms, consumer finance companies and other financial institutions. The increasingly competitive environment is a result primarily of changes in regulation, changes in technology and product delivery systems and the accelerating pace of consolidation among financial service providers. If we fail to adequately address each of the competitive pressures in the banking industry, our financial condition and results of operations could be adversely affected.

If our actual loan losses exceed our allowance for loan losses, our net income will decrease.

Our loan customers may not repay their loans according to their terms, and the collateral securing the payment of these loans may be insufficient to pay any remaining loan balance. We may experience significant loan losses, which could have a material adverse effect on our operating results. In accordance with accounting principles generally accepted in the United States, we maintain an allowance for loan losses to provide for loan defaults and non-performance, which when combined, we refer to as the allowance for loan losses. Our allowance for loan losses may not be adequate to cover actual credit losses, and future provisions for credit losses could have a material adverse effect on our operating results. Our allowance for loan losses is based on prior experience, as well as an evaluation of the risks in the current portfolio. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates that may be beyond our control, and these losses may exceed current estimates. Federal regulatory agencies, as an integral part of their examination process, review our loans and allowance for loan losses. We cannot assure you that we will not further increase the allowance for loan losses or that regulators will not require us to increase this allowance. Either of these occurrences could have a material adverse effect on our financial condition and results of operations.

25.

Our earnings are significantly affected by federal regulation and the monetary policies of the federal government and its agencies.

Any changes to state and federal banking laws and regulations may negatively impact our ability to expand our services and to increase the value of our business. We are subject to extensive state and federal regulation, supervision, and legislation that govern almost all aspects of our operations. These laws may change from time to time and are mainly intended for the protection of consumers, depositors and the deposit insurance funds. In addition, our earnings are affected by the monetary policies of the Board of Governors of the Federal Reserve. These policies, which include regulating the national supply of bank reserves and bank credit, can have a major effect upon the source and cost of funds and the rates of return earned on loans and investments. The Federal Reserve influences the size and distribution of bank reserves through its open market operations and changes in cash reserve requirements against member bank deposits. Future changes in laws or regulations or their interpretation or enforcement could be materially adverse to our business and shareholders.

FDIC insurance premiums may increase materially, which could negatively affect our profitability.

The FDIC insures deposits at FDIC insured financial institutions, including State Bank. The FDIC charges the insured financial institutions premiums to maintain the Deposit Insurance Fund at a certain level. Current economic conditions have increased bank failures and expectations for further failures, in which case the FDIC insures payment of deposits up to insured limits from the Deposit Insurance Fund. In late 2008, the FDIC announced an increase in insurance premium rates of seven basis points for the first quarter of 2009. On February 27, 2009, the FDIC announced its adoption of an interim final rule imposing a one-time special assessment of 20 basis points and a final rule adjusting the risk-based calculation used to determine the premiums due from each financial institution. Management of the Company expects that the special assessment and the changes to the premium calculation could significantly increase the Company’s insurance expense in 2009. Additional increases may be announced in the future, which could negatively affect our net income.

Our business strategy includes significant growth plans. Our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.

The financial services industry is extensively regulated. We are subject to state and federal regulation, supervision and legislation that govern almost all aspects of our operations. Laws and regulations may change from time to time and are primarily intended for the protection of consumers, depositors, federal deposit insurance funds and the banking system as a whole, and not to benefit our shareholders. The impact of any changes to laws and regulations or other actions by regulatory agencies may negatively impact us. In light of current conditions in the global financial markets and the global economy, regulators have increased their focus on the regulation of the financial services industry. Most recently, government has intervened on an unprecedented scale in responding to the stresses experienced in the global financial markets. Some of the measures subject us and other financial institutions to additional restrictions, oversight or costs that may have an impact on our business, results of operations or the price of our common shares.

Our success depends upon our ability to attract and retain key personnel.

Our success depends upon the continued service of our senior management team and upon our ability to attract and retain qualified financial services personnel. Competition for qualified employees is intense. We can not assure you that we will be able to retain our existing key personnel or attract additional qualified personnel. If we lose the services of our key personnel, or are unable to attract additional qualified personnel, our business, financial condition and results of operations could be adversely affected.

26.

We depend upon the accuracy and completeness of information about customers.

In deciding whether to extend credit or enter into other transactions with customers, we may rely on information provided to us by customers, including financial statements and other financial information. We may also rely on representations of customers as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to a business, we may assume that the customer’s audited financial statements conform with generally accepted accounting principles and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer, and we may also rely on the audit report covering those financial statements. Our financial condition and results of operations could be negatively impacted to the extent we rely on financial statements that do not comply with generally accepted accounting principles or that are materially misleading.

Our ability to pay cash dividends is limited, and we may be unable to pay cash dividends in the future even if we elect to do so.

We are dependent primarily upon the earnings of our operating subsidiaries for funds to pay dividends on our common shares. The payment of dividends by us is also subject to regulatory restrictions. As a result, any payment of dividends in the future will be dependent, in large part, on our ability to satisfy these regulatory restrictions and our subsidiaries’ earnings, capital requirements, financial condition and other factors. Although our financial earnings and financial condition have allowed us to declare and pay periodic cash dividends to our shareholders, there can be no assurance that our dividend policy or size of dividend distribution will continue in the future. Our failure to pay dividends on our common shares could have a material adverse effect on the market price of our common shares.

RDSI relies on the continued functioning of its data center and the integrity of the data it processes.

RDSI’s data center is an integral part of its business. Damage to RDSI’s data center due to acts of terrorism, fire, power loss, telecommunications failure and other disasters could have a material adverse effect on RDSI’s business, operating results and financial condition. In addition, RDSI relies on the integrity of the data it processes. If this data is incorrect or somewhat tainted, client relations and confidence in RDSI’s services could be impaired, which would harm RDSI’s business.

A limited trading market exists for our common shares which could lead to price volatility.

Your ability to sell or purchase our common shares depends upon the existence of an active trading market for our common shares. While our stock is quoted on the NASDAQ Global Market, it trades infrequently. As a result, you may be unable to sell or purchase our common shares at the volume, price and time you desire. The limited trading market for our common shares may cause fluctuations in the market value of our common shares to be exaggerated, leading to price volatility in excess of that which would occur in a more active trading market.

The preparation of our financial statements requires the use of estimates that may vary from actual results.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make significant estimates that affect the financial statements. Two of our most critical estimates are the level of the allowance for loan losses and the accounting for goodwill and other intangibles. Because of the inherent nature of these estimates, we cannot provide complete assurance that we will not be required to charge earnings for significant unexpected loan losses, nor that we will not recognize a material provision for impairment of our goodwill. For additional information regarding these critical estimates, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations beginning on page 35 of this Annual Report on Form 10-K.

27.

Changes in accounting standards could impact our results of operations.

The accounting standard setters, including the Financial Accounting Standards Board, the SEC and other regulatory bodies, periodically change the financial accounting and reporting standards that govern the preparation of our consolidated financial statements. These changes can be difficult to predict and can materially affect how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, which would result in the restatement of our financial statements for prior periods.

Item 1B. Unresolved Staff Comments

Not Applicable

Item 2. Properties.

The Company’s principal executive offices are located at 401 Clinton Street, Defiance, Ohio. This facility is owned by State Bank, and a portion of the facility is leased to the Company.

The following is a listing and brief description of the properties owned or leased by State Bank and used in its business:

State Bank’s main office is owned and located at 401 Clinton Street, Defiance, Ohio. State Bank leases portions of this facility to the Company and the RFS division of State Bank. (Banking and Other)

State Bank owns a drive-thru branch office located at 510 Third Street, Defiance, Ohio. (Banking)

State Bank owns a full service branch office located at 150 West Main Street, Ney, Ohio. (Banking)

State Bank leases a parcel of land for a full service branch office (Owned) located at 1600 North Clinton Street, Defiance, Ohio, pursuant to a 9-year lease. (Banking)

State Bank owns a full service branch office located at 220 North Main Street, Paulding, Ohio. (Banking)

State Bank owns a full service branch office located at 312 Main Street, Delta, Ohio. (Banking)

State Bank owns a full service branch office located at 133 E. Morenci Street, Lyons, Ohio. (Banking)

State Bank owns a full service branch office located at 515 Parkview, Wauseon, Ohio. (Banking)

State Bank leases a full service branch office located in the Chief Market Square supermarket at 705 Deatrick Street, Defiance, Ohio, pursuant to a 15-year lease. (Banking)

10.

State Bank owns a full service branch office located at 218 North First Street, Oakwood, Ohio. (Banking)

11.

State Bank owns a full service branch office located at 930 West Market Street, Lima, Ohio. (Banking)

28.

12.

State Bank owns a full service branch office located at 2903 Elida Road, Lima, Ohio. (Banking)

13.

State Bank owns a full service branch office located at 12832 Coldwater Road, Fort Wayne, Indiana. (Banking)

14.

State Bank owns a full service branch office located at 235 Main Street, Luckey, Ohio. (Banking)

15.

State Bank owns a full service branch office located at 311 Main Street, Walbridge, Ohio. (Banking)

16.

State Bank owns a full service branch office located at 610 East South Boundary, Perrysburg, Ohio. (Banking)

17.

State Bank owns a full service branch office located at 6401 Monroe Street, Sylvania, Ohio. (Banking)

18.

State Bank leases a loan production office located at 109 South High Street, #8, Dublin, Ohio. (Banking)

19.

State Bank owns a full service branch office located at 1201 East Main Street, Montpelier, Ohio. (Banking)

20.

State Bank owns a full service branch office located at 302 West Main Street, Montpelier, Ohio. (Banking)

21.

State Bank owns a full service branch office located at 119 South State Street, Pioneer, Ohio. (Banking)

22.

State Bank owns a full service branch office located at 112 East Jackson Street, West Unity, Ohio. (Banking)

23.

State Bank owns a full service branch office located at 1419 West High Street, Bryan, Ohio. (Banking)

RDSI leases office space located at 7622 St Rt. 66, Defiance, Ohio, office space located at 2010 S. Jefferson Ave., Defiance, Ohio and office space located at 105 East Holland Street, Archbold, Ohio.

RDSI (DCM) leases office space located at 3101 Technology Blvd., Suite B, Lansing, Michigan.

Item 3. Legal Proceedings.

There are no pending legal proceedings to which the Company or any of its subsidiaries is a party or to which any of their property is subject, except routine legal proceedings incidental to their business. None of such proceedings are considered by the Company to be material.

Item 4. Submission of Matters to a Vote of Security Holders.

Not applicable.

29.

Supplemental Item: Executive Officers of the Registrant.

The following table lists the names and ages of the executive officers of the Company as of March 19, 2009, the positions presently held by each executive officer and the business experience of each executive officer during the past five years. Unless otherwise indicated, each person has held his principal occupation(s) for more than five years.

Name	Age	Position(s) Held with the Company and its Subsidiaries and Principal Occupation(s)

Kenneth A. Joyce	60	President and Chief Executive Officer of the Company since 2002; Chairman, Chief Executive Officer and a Director of RDSI Banking Systems (“RDSI”) since 1997; Director of State Bank since 2002; Director of RFCBC since 2004; Member of Investment Committee of Reliance Financial Services (now a division of State Bank) (“RFS”) since March 2007; Director of Promedica-Defiance Regional Medical Center and Promedica Physicians Group; Chairman of Promedica-Defiance Regional Medical Center Finance Committee; Director of United Way (non-profit); Chairman and Director of Kettenring Country Club.

Henry R. Thiemann	62	President of RDSI since September, 2007; President & Chief Executive Officer of RFCBC; Former President, Chief Executive Officer and Director of The Exchange Bank from 2006 to March 2007; Chief Operating Officer of the Company from May 2005 to December 2005; Executive Vice President and Chief Operating Officer of State Bank from 2002 to May 2005; President, Chief Executive Officer and Director of RFCBC since 2004.

Duane L. Sinn	38	Executive Vice President and Chief Financial Officer of the Company since December 2005; Senior Vice President and Financial Analysis Manager of State Bank from 2004 to December 2005; Senior Vice President and Controller of the Company from 2000 to 2004.

Mark A. Klein	54	President and Chief Executive Officer of State Bank since January 2006; Senior Vice President Private Banking of Sky Bank, Toledo, Ohio from 2004 to January 2006; Vice President and Team Leader of Sky Bank, Toledo, Ohio from 2000 to 2004; Director of State Bank since 2006; Member of RFS Investment Committee since March 2007.

30.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

The common shares of the Company are traded on The NASDAQ Global Market (symbol “RBNF”). The table below sets forth the high and low sales prices and the cash dividends declared with respect to the common shares of the Company for the indicated periods. The high and low prices reflect actual prices for purchases and sales of the Company's common shares as reported by NASDAQ and not inter-dealer prices.

	Per Share				Per Share
	Sales Prices				Dividends
2008	High		Low		Declared

First Quarter	$	12.60	$	9.79	$	.080
Second Quarter		10.96		7.52		.080
Third Quarter		10.24		7.72		.090
Fourth Quarter		9.50		7.54		.090

2007	High		Low		Declared

First Quarter	$	11.92	$	10.66	$	.060
Second Quarter		12.82		11.71		.060
Third Quarter		12.90		12.46		.070
Fourth Quarter		13.25		10.25		.070

The Company plans to continue to pay regular quarterly cash dividends. However, there can be no assurance as to the amount of dividends which will be declared with respect to the common shares of the Company in the future, since such dividends are subject to the discretion of the Company’s Board of Directors, cash needs, general business conditions, dividends from the subsidiaries and applicable governmental regulations and policies. For a discussion of the regulatory limitations on our ability to pay dividends, see “Supervision and Regulation – Dividends” in Part I of this Annual Report on Form 10-K.

During the Fourth Quarter 2008, there were no sales of unregistered securities.

The approximate number of holders of the outstanding common shares of the Company, as of February 18, 2009, was 2,498.

31.

Repurchases of Common Shares

The following table provides information regarding repurchases of the Company’s common shares during the three months ended December 31, 2008:

Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (2)
October 1 through October 31, 2008		4,375	$	8.70		3,800		124,393
November 1 through November 30, 2008		4,305	$	8.64		3,850		120,543
December 1 through December 31, 2008		18,369	$	8.31		16,524		104,019

(1)

All of the repurchased shares, other than the shares repurchased as part of the publicly announced plan, were purchased in the open market by Reliance Financial Services, an indirect subsidiary of the Company, in its capacity as the administrator of the Company’s Employee Stock Ownership and Savings Plan.

(2)

On July 22, 2008 the Company announced that its Board of Directors had authorized an extension to the stock repurchase program for an additional twelve months. The original stock repurchase program was announced in April, 2007 for fifteen months authorizing the purchase of 250,000 common shares.

Share Performance

The following graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be deemed to be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into such filing.

Provided below is a line graph comparing the yearly percentage change in the Company’s cumulative total shareholder return on its common shares with an index for the NASDAQ Stock Market (U.S. Companies) comprised of all domestic common shares traded on the NASDAQ Global Market System and the NASDAQ Small-Cap Market and an index for NASDAQ Bank Stocks comprised of all depository institutions (SIC Code #602) and holding and other investment companies (SIC Code #671) that are traded on the NASDAQ Global Market System and the NASDAQ Small-Cap Market (“NASDAQ Bank Stocks”) for the five-year period ended December 31, 2008.

32.

Rurban Financial Corp.

	Period Ending
Index	12/31/03		12/31/04		12/31/05		12/31/06		12/31/07		12/31/08
Rurban Financial Corp.		100.00		100.36		86.33		80.33		95.15		60.01
NASDAQ Composite		100.00		108.59		110.08		120.56		132.39		78.72
NASDAQ Bank		100.00		110.99		106.18		117.87		91.85		69.88

Source : SNL Financial LC, Charlottesville, VA

33.

Item 6. Selected Financial Data.

SUMMARY OF SELECTED FINANCIAL DATA

FINANCIAL HIGHLIGHTS

(Dollars in thousands except per share data)

	Year Ended December 31
	2008			2007			2006			2005			2004

EARNINGS
Interest income	$	32,669		$	33,010		$	30,971		$	21,422		$	20,028
Interest expense		15,141			18,222			15,936			9,368			7,951
Net interest income		17,528			14,788			15,035			12,054			12,077
Provision (credit) for loan losses		690			521			178			583			(399	)
Noninterest income		28,061			26,861			23,755			18,338			17,376
Noninterest expense		37,557			36,637			34,904			29,054			26,009
Provision (credit)
for income taxes		2,125			1,234			948			81			1,109
Net income (loss)		5,217			3,257			2,760			673			2,734


PER SHARE DATA
Basic earnings	$	1.06		$	0.65		$	0.55		$	0.15		$	0.60
Diluted earnings		1.06			0.65			0.55			0.15			0.60
Cash dividends declared		0.34			0.26			0.21			0.20			N/A


AVERAGE BALANCES
Average shareholders’ equity	$	59,964		$	57,945		$	54,501		$	51,083		$	49,279
Average total assets		575,491			556,572			554,095			433,366			417,801


RATIOS
Return on average
shareholders' equity		8.70	%		5.62	%		5.06	%		1.32	%		5.55	%
Return on average total assets		0.91			0.59			0.50			0.16			0.65
Cash dividend payout
ratio (cash dividends
divided by net income)		32.14			40.01			38.25			133.33			N/A
Average shareholders'
equity to average total
assets		10.42			10.41			9.84			11.79			11.79


PERIOD END TOTALS
Total assets	$	657,619		$	561,214		$	556,007		$	530,542		$	415,349
Total investments and
fed funds sold		112,606			94,661			111,562			139,353			108,720
Total loans and leases		450,112			389,269			370,102			327,048			264,481
Loans held for sale		3,824			1,650			390			224			113
Total deposits		484,221			406,031			414,555			384,838			279,624
Notes Payable		1,000			922			2,589			939			3,080
Advances from FHLB		36,647			24,000			21,000			45,500			56,000
Trust Preferred Securities		20,620			20,620			20,620			20,620			10,310
Shareholders' equity		61,662			59,325			56,955			54,451			50,306
Shareholders' equity
per share	$	12.63		$	11.92		$	11.33		$	10.83		$	11.01

34.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Rurban Financial Corp. (the “Company”), is a bank holding company registered with the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended. Through its direct and indirect subsidiaries, Rurban is engaged in commercial banking, computerized data and item processing, and trust and financial services.

The following discussion is intended to provide a review of the consolidated financial condition and results of operations of Rurban and its subsidiaries (collectively, the “Company”). This discussion should be read in conjunction with the Company’s consolidated financial statements and related notes for the year ended December 31, 2008.

Critical Accounting Policies

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 Company’s significant accounting policies are described in detail in the notes to the Company’s consolidated financial statements for the year ended December 31, 2008. 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 each impaired 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.

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 by SFAS 141. Goodwill is subject, at a minimum, to annual tests for impairment. Other intangible assets are amortized over their estimated useful lives using straight-line and 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.

Impact of Accounting Changes

On June 16, 2008, the FASB issued Staff Position EITF 03-6-1 “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (FSP EITF 03-6-1”). The FSP addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method described in paragraphs 60 and 61 of FASB Statement No. 128, Earnings per Share. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. The adoption of FSP EITF 03-6-1 is not expected to impact the Corporation’s consolidated financial statements.

Accounting Standards No. 161 “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Management is currently evaluating the impact of SFAS No. 161 on the Corporation’s disclosures.

On December 4, 2007, the FASB issued FASB Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51.” SFAS No. 160 amends ARB No. 51 to establish new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions. The statement also requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. SFAS No. 160 is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008. Early application is prohibited. SFAS No. 160 is effective for the Company’s fiscal year that begins on January 1, 2009.

On December 4, 2007, the FASB amended SFAS No. 141 (revised 2007), “Business Combinations.” SFAS No. 141R, establishes requirements and principles for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. SFAS No. 141R will apply to business combinations for which the acquisition date is on or after the beginning of the first reporting period for fiscal year beginning on or after December 15, 2008. Earlier adoption is prohibited. Accordingly, a calendar year-end company is required to record and disclose business combinations following existing GAAP until January 1, 2009. Management has adopted SFAS 141 effective January 1, 2009.

In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115 (SFAS No. 159). SFAS No. 159 permits the Company to choose to measure certain financial assets and liabilities at fair value that are not currently required to be measured at fair value (i.e. the Fair Value Option). Election of the Fair Value Option is made on an instrument-by-instrument basis and is irrevocable. At the adoption date, unrealized gains and losses on financial assets and liabilities for which the Fair Value Option has been elected would be reported as a cumulative adjustment to beginning retained earnings. If the Company elects the Fair Value Option for certain financial assets and liabilities, the Company will report unrealized gains and losses due to changes in their fair value in earnings at each subsequent reporting date. SFAS No. 159 is effective as of January 1, 2008. The Company has not elected the Fair Value Option for any financial assets or liabilities at December 31, 2008.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). FAS 157 enhances existing guidance for measuring assets and liabilities using fair value. Prior to the issuance of FAS 157, guidance for applying fair value was incorporated in several accounting pronouncements. FAS 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. FAS 157 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets. Under FAS 157, fair value measurements are disclosed by level within that hierarchy. While FAS 157 does not add any new fair value measurements, it does change current practice. Changes to practice include: (1) a requirement for an entity to include its own credit standing in the measurement of its liabilities; (2) a modification of the transaction price presumption; (3) a prohibition on the use of block discounts when valuing large blocks of securities for broker-dealers and investment companies; and (4) a requirement to adjust the value of restricted stock for the effect of the restriction even if the restriction lapses within one year. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company adopted FAS 157 effective for the first quarter of 2008.

At its September 2006 meeting, the Emerging Issues Task Force (“EITF”) reached a final consensus on Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. The consensus stipulates that an agreement by an employer to share a portion of the proceeds of a life insurance policy with an employee during the postretirement period is a postretirement benefit arrangement required to be accounted for under Statement No. 106 (“SFAS No. 106”) or Accounting Principles Board (APB) Opinion No. 12, Omnibus Opinion-1967. The consensus concludes that the purchase of a split-dollar life insurance policy does not constitute a settlement under SFAS No. 106 and, therefore, a liability for the postretirement obligation must be recognized under SFAS No. 106 if the benefit is offered under an arrangement that constitutes a plan or under APB No. 12 if it is not part of a plan. Issue 06-04 is effective for annual or interim reporting periods beginning after December 15, 2007. The Company has endorsement split-dollar life insurance policies. A liability has been recorded through a cumulative-effect adjustment to retained earnings as of January 1, 2008 in the amount of $116,305. There was no material impact to the financial position and results of operations as a result of the implementation of EITF 06-04.

37.

Acquisitions

On December 1, 2008, the Company acquired NBM Bancorp, Incorporated (“NBM Bancorp”) and its subsidiary, National Bank of Montpelier (“NBM”), headquartered in Montpelier, Ohio through the merger of NBM Bancorp into the Company and the merger of NBM into The State Bank and Trust Company. As a result of this acquisition, management expects that the Company will have an opportunity to increase its loan and deposit base and reduce transaction costs. The Company also expects to reduce costs through economies of scale.

As a result of the merger and in accordance with the terms of the Agreement and Plan of Merger dated as of May 22, 2008, each of the 219,334 shares of common stock of NBM Bancorp outstanding at the time of the merger were converted into the right to receive $113.98 in cash, which will result in the payment by the Company in aggregate of approximately $24 million in cash to NBM Bancorp shareholders. Approximately $1 million was recorded as a payable on the Company’s books as of December 31, 2008.

At the time of the merger, NBM had five banking centers in Williams County, two located in Montpelier and one each in Pioneer, West Unity and Bryan, Ohio. Upon the completion of the merger, these banking centers became banking centers of The State Bank and Trust Company, a wholly-owned subsidiary of Rurban.

The following table summarizes the estimated fair values of the net assets acquired and the computation of the purchase price and goodwill related to the acquisition:

Cash and cash equivalents	$	9,226,000
Investments		48,774,000
Loans		43,655,000
Core deposits		1,411,000
Goodwill		7,474,000
Premises and equipment		1,678,000
Other assets		1,223,000
Total assets acquired	$	113,441,000

Deposits	$	86,794,000
Other liabilities		1,417,000
Total liabilities assumed		88,211,000
Net assets acquired	$	25,230,000

38.

The only significant intangible asset acquired was the core deposit base, which has a useful life of seven years and will be amortized using the straight-line method. The $7.5 million of goodwill was assigned entirely to the banking segment of the business and is not expected to be deductible for tax purposes.

The following proforma disclosures, including the effect of the purchase accounting, depict the results of operations as though the acquisition of NBM had taken place at the beginning of each period.

	Year Ended December 31,
($ 000's) (except per share data)	2008		2007		2006
Net interest income	$	21,174	$	18,753	$	19,121
Net income	$	6,313	$	4,325	$	3,902
Per share - combined:
Basic net income	$	1.25	$	0.86	$	0.78
Diluted net income	$	1.25	$	0.86	$	0.78

39.

EARNINGS SUMMARY

Net income for 2008 was $5.2 million, or $1.06 per diluted share, compared with net income of $3.3 million, or $0.65 per diluted share, and net income of $2.8 million, or $0.55 per diluted share, reported for 2007 and 2006, respectively. Cash dividends per share were $0.34 in 2008, $0.26 in 2007 and $0.21 in 2006.

Rurban continued to make substantial progress in all business segments in 2008. The earnings improvement was driven by both the Banking and Data and Item Processing segments of Rurban. The leading drivers of profitability gains at The State Bank and Trust Company were significant improvements in net interest margin, consistent and sound underwriting, prudent loan growth, improvements in mortgage banking production, and continued attention to expense control. A key component to the Company’s growth plan is strategic acquisitions, with the resultant organization being immediately accretive. In concert with that plan, the Company completed the acquisition of NBM during 2008 as described above. RDSI Banking Systems (“RDSI”), Rurban’s technology subsidiary, which provides data and item processing services to the banking industry, produced another outstanding year with earnings increasing 14 percent over the 2007 levels. These earnings improvements were generated by additional sales of new client banks, additional products sold to existing clients and the attention to cost saving measures that took place on the item processing side of the business as the company gained efficiencies. Rurban will continue to focus its energies on growth, efficiency and profitability.

CHANGES IN FINANCIAL CONDITION

Balance sheet growth over the past twelve months has been achieved through organic growth and the acquisition of NBM. Total loans increased 15.6 percent or $60.8 million in 2008. $16.6 million, or 4 percent, of this growth was through organic growth over the course of 2008, funded largely by cash and the cash flow from investment securities. Due in large part to the acquisition of NBM, assets grew by 17 percent year-over-year to $657.6 million.

40.

Significant Events of 2008

The State Bank and Trust Company (“State Bank”), Rurban’s banking subsidiary, completed the acquisition of NBM, with five branches located in Williams County, on December 1, 2008. The acquisition was valued at $25.0 million. This acquisition increases State Bank’s banking center locations from 17 to 22. The acquisition is expected to be immediately accretive to earnings.

The turmoil in the banking industry during the majority of the year, and especially the fourth quarter, had many institutions electing to participate in the Government’s TARP/Capital Purchase Program. After thorough consideration of the program’s advantages and disadvantages, Rurban and its Board of Directors elected not to participate in the program due to Rurban’s strong capital position and the TARP program’s uncertainties relative to the Government’s intervention and expectation relative to the funds’ usage.

During 2008, State Bank expanded its reach into Columbus, Ohio’s high volume mortgage market by adding a Mortgage Origination Group to the Columbus Loan Production Office.

Asset quality essentially remained stable during 2008, with non-performing assets declining slightly to 1.00 percent of total assets. Net charge-offs remained moderate and significantly below peers at 0.19 percent of total loans for 2008.

RDSI, Rurban’s data and item processing subsidiary, reported another record year. Revenue increased to $21.6 million, a $946,000, or 4.6% increase, over the previous year’s results. Net income increased $346,000, or 14.0%, to $2.8 million for the year, representing another record result.

Rurban increased its dividend to shareholders from $0.26 per share during 2007 to $0.34 per share in 2008.

Significant Events of 2007

During the first quarter of 2007, Rurban merged Reliance Financial Services, N.A., its trust and investment subsidiary, and The Exchange Bank, its recently acquired community bank, into State Bank. This action allowed efficiencies leading to continuing core profit improvement at The State Bank and Trust Company.

State Bank continued to expand its reach to higher-growth markets during 2007. In January 2007, the Fort Wayne, Indiana Loan Production Office was converted to a full-service branch. State Bank continued its entrance to growth markets by opening a Loan Production Office in Columbus, Ohio in December, 2007.

RDSI and DCM (which was merged into RDSI on December 31, 2007), Rurban’s data and item processing subsidiaries, reported another record year. The total number of banks being processed increased by 5 to 117. Revenue increased to $20.6 million, a $4.3 million, or 27% increase, over the previous year’s results. Net income was a record $2.5 million for the year.

On April 12, 2007, Rurban initiated a stock repurchase program, authorizing the repurchase of up to 250,000 shares, or approximately 5%, of the Company’s outstanding shares. As of the end of the fourth quarter of 2007, Rurban had repurchased 48,500 shares at an average cost of $12.58.

Rurban increased its dividend to shareholders from $0.21 per share during 2006 to $0.26 per share in 2007.

RESULTS OF OPERATIONS

	Year Ended							Year Ended
	December 31,							December 31,
	2008		2007		% Change			2007		2006		% Change
	(dollars in thousands except per share data)

Total Assets	$	657,619	$	561,214		17	%	$	561,214	$	556,007		1	%
Total Securities		102,606		92,661		11	%		92,661		102,462		-10	%
Loans Held for Sale		3,824		1,650		132	%		1,650		390		323	%
Loans (Net)		445,091		385,278		16	%		385,278		366,384		5	%
Allowance for Loan Losses		5,020		3,990		26	%		3,990		3,717		7	%
Total Deposits	$	484,221	$	406,031		19	%	$	406,031	$	414,555		-2	%

Total Revenues	$	45,589	$	41,648		9	%	$	41,648	$	38,790		7	%
Net Interest Income		17,528		14,787		19	%		14,787		15,034		-2	%
Loan Loss Provision		690		521		32	%		521		178		193	%
Non-interest Income		28,061		26,861		4	%		26,861		23,755		13	%
Non-interest Expense		37,557		36,637		3	%		36,637		34,904		5	%
Net Income		5,217		3,257		60	%		3,257		2,760		18	%
Basic Earnings per Share	$	1.06	$	0.65		63	%	$	0.65	$	0.55		18	%
Diluted Earnings per Share	$	1.06	$	0.65		63	%	$	0.65	$	0.55		18	%

Net Interest Income

	Year Ended							Year Ended
	December 31,							December 31,
	2008		2007		% Change			2007		2006		% Change
	(dollars in thousands)

Net Interest Income	$	17,528	$	14,787		19	%	$	14,787	$	15,034		-2	%

Net interest income was $17.5 million for 2008 compared to $14.8 million for 2007, an increase of 18.5 percent , which resulted from the Banking segment being in a liability-sensitive position and core loan growth during the year of $16.6 million. Average earning assets also increased to $508.3 million in 2008 compared to $488.3 million in 2007 as a result of the yearly loan growth. The consolidated 2008, or full year, net interest margin improved 43 basis points to 3.53 percent for 2008, compared to 3.10 percent for 2007.

Net interest income was $14.8 million for 2007 compared to $15.0 million for 2006, a decrease of 1.6%, which primarily resulted from margin compression. Average earning assets also decreased to $488.3 million in 2007 compared to $490.6 million in 2006 as a result of repositioning the balance sheet to improve the net interest margin. Over a 12-month period, the Company was successful in converting lower yielding investments into a funding source for loan growth and converting higher cost deposits to core deposits and increasing wholesale funding due to favorable rates.

Loan Loss Provision

A Provision for Loan Losses of $690,000 was taken in 2008 compared to $521,000 taken for 2007; the $169,000 increase was due to the additional loan growth in 2008, along with a weakening economy. For 2008, net charge-offs totaled $764,000, or 0.19 percent of average loans. Consistent with external economic conditions, State Bank is seeing a slight increase in delinquencies within all segments of its portfolio; however, the current levels are not significant or alarming at this time. State Bank has managed through a difficult 2008, but it is not insulated from the economic factors facing the industry in 2009.

The Provision for Loan Losses of $521,000 was taken in 2007 compared to $178,000 taken for 2006; the $343,000 increase reflects a more normal accrual in 2007.

Non-interest Income

	December 31,							December 31,
	2008		2007		% Change			2007		2006			% Change
	(dollars in thousands)

Total Non-interest Income	$	28,061	$	26,861		4	%	$	26,861	$	23,755			13	%

Data Service Fees	$	20,165	$	19,382		4	%	$	19,382	$	15,011			29	%
Trust Fees	$	3,082	$	3,385		-9	%	$	3,385	$	3,192			6	%
Deposit Service Fees	$	2,416	$	2,244		8	%	$	2,244	$	2,161			4	%
Gains on Sale of Loans	$	741	$	574		29	%	$	574	$	1,249			-54	%
Investment Securities Recoveries	$	197	$	-		N/A		$	-	$	889			N/A
Net Proceeds from VISA IPO	$	132	$	-		N/A		$	-	$	-			N/A
Gains (losses) on Sale of Securities	$	-	$	2		N/A		$	2	$	(495	)		N/A
Other	$	1,328	$	1,274		4	%	$	1,274	$	1,748			-27	%

Total non-interest income was $28.1 million for 2008 compared to $26.9 million for 2007, representing a $1.2 million, or 4.5 percent increase year-over-year. This increase was driven by a $783,000, or 4.04 percent, increase in data service fees. Increases in customer service fees of $172,000, or 7.68 percent, and gains on sale of loans of $167,000, or 29.1 percent, were offset by decreases in trust fees of $303,000, or 8.96 percent. The continued decline in the equity markets has negatively impacted trust fees, which are generally calculated on invested balances. The improved customer service fees and gain on sale of loans are a result of State Bank’s continuing focus on its High Performance Checking program, well-developed referral program, and improving cross-selling of additional products.

Total non-interest income was $26.9 million for 2007 compared to $23.8 million for 2006, representing a $3.1 million, or 13.1% increase year-over-year. Non-interest income in 2006 was increased a net $1.1 million from the one-time impact of a $495,000 charge taken to restructure the bond portfolio, an $889,000 recovery of losses previously recorded on WorldCom bonds, and a gain associated with the sale of the credit card portfolio of $740,000. Excluding these 2006 one-time items, non-interest income increased $4.2 million, or 18.7%, year-over-year. This increase was driven by a $4.4 million, or 29% increase in data service fees, which were primarily attributable to the DCM acquisition.

44.

RDSI Banking Systems (“RDSI”)

	Year Ended							Year Ended
	December 31,							December 31,
	2008		2007		% Change			2007		2006		% Change
	(dollars in thousands)

Data Service Fees	$	20,165	$	19,382		4	%	$	19,382	$	15,011		29	%

Data service fees increased $783,000, or 4%, to $20.2 million in 2008 from $19.4 million in 2007, and increased $4.4 million, or 29%, from 2006 to 2007. Data processing fees contributed 71.9% of Rurban’s recurring non-interest income for 2008. The majority of the increase was due to RDSI now billing clients directly for postage use. This increase to revenue is offset by an increase in postage expense. RDSI serviced over 113 community banks in 2008.

Earnings for the 2008 fiscal year were $2.8 million compared to $2.5 million for 2007, up $346,000, or 14.0%. The Company continues to see a solid pipeline of potential customers for both the data processing and item processing business lines entering 2009, as six additional banks are scheduled to be converted by June of 2009.

RDSI, including DCM, provide data processing and item processing services for 113 community banks in Arkansas, Florida, Illinois, Indiana, Kansas, Michigan, Missouri, Nebraska, Nevada, Ohio and Wisconsin. RDSI and DCM differentiate themselves from their competition through the quality of their products and the excellence of their customer service. The applications utilized by RDSI are driven by world-class software. Customer service encompasses on-time delivery every morning and a discipline of responding to and resolving customer questions and issues within one hour. RDSI provides turnkey solutions for its clients through its partnerships with vendors experienced in a full array of banking products.

Non-interest Expense

	Year Ended							Year Ended
	December 31,							December 31,
	2008		2007		% Change			2007		2006		% Change
	(dollars in thousands)

Total Non-interest Expense	$	37,557	$	36,637		3	%	$	36,637	$	34,904		5	%
Salaries & Employee Benefits	$	17,318	$	17,007		2	%	$	17,007	$	16,584		3	%
Professional Fees	$	1,859	$	2,227		-17	%	$	2,227	$	2,396		-7	%
All Other	$	18,380	$	17,403		6	%	$	17,403	$	15,924		9	%

Non-interest expense increased for 2008 nominally by $920,000, or 2.51 percent. The acquisition of NBM contributed approximately $250,000 of this increase, primarily from the December operating expenses and the one-time acquisition cost. During 2008, RDSI switched from outsourcing its preparation and mailing activities to managing these mailings in-house. This increased postage expense by $760,000 during 2008 and this pass-through was offset by increases in revenue. RDSI also experienced an increase in non-federal taxes as it expanded into newer markets and sales tax expense in these new markets increased. Rurban controlled compensation and benefits with a mere 1.83 percent increase year-over-year. These increases were offset by expense reductions in equipment expenses (RDSI) and professional fees associated with loan workouts (State Bank). Data/Item Processing segment expenses were $17.3 million in 2008 compared to $16.9 million in 2007. This $400,000 increase in RDSI was partially due to the in-house processing of postage. Banking segment expenses were $20.1 million in 2008 compared with $20.3 million in 2007.

45.

Non-interest expense increased $1.7 million, or 4.9% in 2007, primarily from the additional expenses incurred within the Data/Item Processing segment relating to the incorporation of full-year expenses from the DCM acquisition, which occurred in September of 2006. Data/Item Processing segment expenses were $16.9 million in 2007 compared to $13.1 million in 2006. This $3.7 million increase in RDSI was partially offset by a $1.9 million improvement within our Banking segment. This non-interest expense reduction was primarily the result of reductions in professional fees associated with loan workouts and the reduction of 42 full-time positions within the Company, of which 23 were part of the Banking segment. This significantly reduced compensation and employee benefits expense. This reduction was also aided by approximately $500,000 of one-time expenses taken in the fourth quarter of 2006.

FINANCIAL CONDITION

Investments

The Company evaluates its securities portfolio for impairment throughout the year. An impairment is recorded against individual equity securities if their cost significantly exceeds their fair value for a substantial amount of time. An impairment is also recorded for investments in debt securities, unless the decrease in fair value is attributable to interest rates and management has the intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.

Management believes that it has the ability and intent to retain the investments with a loss evidenced by the Company’s liquidity position discussed later in the “Liquidity” section, and over the past three years, the Company has had net gains on the sale of securities and any losses were minimal.

Loans

			% of					% of			%					% of			%
	12/31/2008		Total			12/31/2007		Total			Inc/(Dec)			12/31/2006		Total			Inc/(Dec)
	(dollars in thousands)

Commercial	$	83,645		19	%	$	83,049		21	%		1	%	$	71,641		19	%		16	%
Commercial R.E.		161,566		35	%		126,785		33	%		27	%		109,503		30	%		16	%
Agricultural		43,641		10	%		43,369		11	%		1	%		44,683		12	%		-3	%
Residential		107,905		24	%		84,621		22	%		28	%		94,389		25	%		-10	%
Consumer		53,339		12	%		51,357		13	%		4	%		49,314		13	%		4	%
Leases		266		0	%		330		0	%		-19	%		857		1	%		-61	%
Loans	$	450,362				$	389,511					16	%	$	370,387					5	%

Loans held for sale		3,824					1,650								390
Total	$	454,186				$	391,161							$	370,777

Loans increased $60.8 million to $450.1 million at December 31, 2008. This growth was due to the acquisition of $44.2 million from the acquisition of NBM and $16.6 million of core loan growth.

In 2007, loans increased $19.2 million to $390 million at December 31, 2007. This growth was due to commercial loan increases as residential and consumer loan balances decreased slightly during 2007.

46.

Asset Quality

	Period Ended December 31,
	(dollars in millions)
	12/31/2008			12/31/2007			Change in Dollars / Percentages			12/31/2006			Change in Dollars / Percentages

Non-performing loans	$	5.2		$	6.0		$	(0.8	)	$	3.8		$	2.2
Non-performing assets	$	6.6		$	6.2		$	0.4		$	3.9		$	2.3
Non-performing assets/total assets		1.00	%		1.10	%		-0.10	%		0.70	%		0.40	%
Net chargeoffs	$	0.8		$	0.2		$	0.6		$	1.2		$	(1.0	)
Net chargeoffs/total loans		0.19	%		0.07	%		0.12	%		0.31	%		-0.24	%
Loan loss provision	$	0.7		$	0.5		$	0.2		$	0.2		$	0.3
Allowance for loan losses	$	5.0		$	4.0		$	1.0		$	3.7		$	0.3
Allowance/loans		1.12	%		1.03	%		0.09	%		1.00	%		0.03	%
Allowance/non-performing loans		76	%		65	%		11	%		97	%		-32	%
Allowance/non-performing assets		76	%		65	%		11	%		95	%		-30	%

Non-performing assets (loans + OREO + OAO) were $6.59 million, or 1.00 percent, of total assets at December 31, 2008, an increase of $425,000 from a year-ago. The acquisition of NBM contributed $845,000 in non-performing assets at year-end. Asset quality remains stable as we enter 2009. Consistent with external economic conditions, State Bank is seeing a slight increase in delinquencies within all segments of its portfolio; however, the current levels are not significant or alarming. State Bank has managed through a difficult 2008, but it is not insulated from the economic factors facing the industry in 2009.

CAPITAL RESOURCES

Stockholders’ equity at December 31, 2008, was $61.7 million, equivalent to 9.4% of total assets. On a tangible basis, the ratio was 5.8%. The total risk-based capital ratio was 13.2% at December 31, 2008, well in excess of the “well-capitalized” regulatory threshold of 10%.

Total consolidated regulatory (risk-based) capital was $59.5 million at December 31, 2008, and $64.2 million at December 31, 2007. As of December 31, 2008, all of the $20 million of trust preferred securities qualified as Tier 1 capital.

Goodwill and Intangibles

Goodwill is related to both our banking and data processing segments. We test for impairment of goodwill in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” We evaluate the fair value of our banking and data processing segments versus their carrying value as of each fiscal year end or more frequently if events or changes in circumstances indicate that the carrying value may exceed the fair value. The discount factors used in present value calculations are updated annually. We also use available market value information to evaluate fair value.

The methodology of calculating fair value for the Banking segment typically includes three different approaches. The income approach calculates a discounted cash flow analysis based on earnings capacity. The projections for the cash flow analysis are based on the Bank’s 2009 budget and assume modest increases in total assets and net income through 2013. A cost savings of 15 percent of the Bank’s overhead has also been factored into this equation.

47.

The asset approach is based on the estimated market difference between the value of assets and liabilities. This approach was not used in calculating fair value for year end 2008 because it does not render a “control level” indication of value.

The final approach is the market approach. This analysis is based on guideline transactions, including price-to-earnings multiples and price-to-book value ratios for selected bank sale transactions.

The methodology for calculating fair value for the data processing segment also utilizes a three step approach. The first approach is the capitalized net value approach. This approach assumes a value based on normalized cash flow capitalized assuming a discount rate of 14.65 percent and long-term growth rate of 3 percent. The data processing segments financial performance reflects the implementation of Rurban’s cost savings synergies; therefore no additional cost savings were assumed in this valuation method.

The net asset value approach estimates the market value of assets less the market value of liabilities. This approach was not utilized in determining the fair value of the data processing segment due to RDSI being a service oriented company. The value of the business is not based on the production of a tangible asset, and a minimal amount of tangible capital has been allocated to RDSI. Therefore, a valuation based on net asset value would not be meaningful.

The final approach utilized in determining the fair value of the data processing segment was the market comparables approach. This analysis is based on a review of guideline transactions including multiple of earnings, multiple of earnings before interest, taxes, depreciation and amortization (“EBITDA”) and multiple of revenue for selected financial technology companies. Indications of value are determined using publicly traded guidelines comparable multiples.

Significant changes in the estimates and assumptions used in calculating the fair value of the segments and the recoverability of goodwill or differences between estimates and actual results could result in impairment charges in the future.

Planned Purchases of Premises and Equipment

Management plans to purchase additional premises and equipment to meet the current and future needs of the Company’s customers. These purchases, including buildings and improvements and furniture and equipment (which includes computer hardware, software, office furniture and license agreements), are currently expected to total approximately $3.2 million over the next year. These purchases are expected to be funded by cash on hand and from cash generated from current operations.

48.

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 $134.5 million at December 31, 2008 compared to $111.5 million at December 31, 2007. During 2008, the Company continued to liquidate investments and use the funding to grow the loan portfolio. The acquisition of NBM also added liquidity to the organization. The loan to deposits ratio at NBM prior to the acquisition was 48%. Rurban liquidated approximately $39 million of the $51 million in investments during December of 2008, and used $25 million to pay the shareholders of NBM Bancorp. The Company anticipates using the rest of the liquidity to fund loan growth throughout 2009. The approximately $13 million in investments that were retained will also provide liquidity to the Company, as cash flows are expected on these investments over the next 3 years.

The Company’s commercial real estate and residential first mortgage portfolio of $269.5 million at December 31, 2008, and commercial real estate and residential first mortgage portfolio of $211.4 million at December 31, 2007, which can and has been readily used to collateralize borrowings, is an additional source of liquidity. Management believes the Company’s current liquidity level, without these borrowings, is sufficient to meet its liquidity needs. At December 31, 2008, all eligible commercial real estate and first mortgage loans were pledged under an FHLB blanket lien.

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 2008, 2007 and 2006 follows.

The Company experienced positive cash flows from operating activities in 2008, 2007 and 2006. Net cash from operating activities was $9.7 million, $5.9 million and $4.7 million for the years ended December 31, 2008, 2007 and 2006, respectively.

Cash flow from investing activities was a use of cash of $647,000, $12.8 million and $21.0 million for December 31, 2008, 2007, and 2006, respectively. The changes in net cash from investing activities for 2008 include the purchase of NBM of $14.8 million, and purchases of premises and equipment of $8.0 million. The changes in net cash from investing activities for 2007 include the purchase of bank owned life insurance of $1.0 million and purchases of premises and equipment of $3.7 million. The changes in net cash from investing activities for 2006 include the cash paid to the shareholders of Exchange Bank that totaled $6.5 million and cash paid to the shareholders of DCM that totaled $4.9 million. In 2008, 2007 and 2006, the Company received $36.5 million, $3.5 million and $33.3 million, respectively, from sales of securities available for sale, while proceeds from repayments, maturities and calls of securities were $48.1 million, $37.2 million and $19.5 million in 2008, 2007 and 2006, respectively.

Net cash flow provided from financing activities was $1.9 million, $1.6 million, and $26.1 million for the years ended December 31, 2008, 2007 and 2006, respectively. The net cash increase was primarily due to an increase in net borrowings from the FHLB of $12.6 million, $3.0 million and $(24.5) million for December 31, 2008, 2007 and 2006, respectively. Additionally, $(8.6) million, $(8.5) million and $29.7 million of the change is attributable to the change in deposits.

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 the national certificate of deposit market. Management expects the risk of changes in off-balance-sheet arrangements to be immaterial to earnings. Approximately $138.6 million commercial real estate and residential first mortgage loans of the Company’s $269.5 million portfolio qualify to collateralize FHLB borrowings and have been pledged to meet FHLB collateralization requirements as of December 31, 2008. Based on the current collateralization requirements of the FHLB, approximately $13.7 million of additional borrowing capacity existed at December 31, 2008.

49.

At December 31, 2008, the Company had $25.5 million in federal funds lines. As of December 31, 2007, the Company had $20.9 million in federal funds lines. There were no federal funds borrowed at December 31, 2008 and 2007. The Company also had $17.2 million in unpledged securities that may be used to pledge for additional borrowings.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

	Payment due by period
			Less than 1						More than 5
Contractual Obligations	Total		Year		1 - 3 years		3 - 5 years		years

Long-Term Debt Obligations	$	36,646,854	$	9,082,228	$	25,925,752	$	1,638,874	$	-
Other Debt Obligations		21,620,000		1,000,000		-		-		20,620,000
Operating Lease Obligations		2,143,078		447,183		652,283		423,200		620,412
Other Long-Term Liabilities
Reflected on the Registrant's
Balance Sheet under GAAP		242,516,203		158,844,618		69,090,559		12,155,618		2,425,408
Total	$	302,926,135	$	169,374,029	$	95,668,594	$	14,217,692	$	23,665,820

The Company’s contractual obligations as of December 31, 2008 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 $36.6 million. Other debt obligations are comprised of Trust Preferred securities of $20.6 million and Notes Payable of $1.0 million. The operating lease obligation is a lease on the RDSI-South building, of $99,600 per year, the RDSI-North building of $162,000 a year and the DCM-Lansing facility of $89,400 per year. Other long-term liabilities include time deposits of $242.5 million.

50.

ASSET LIABILITY MANAGEMENT

Asset liability management involves developing and monitoring strategies to maintain sufficient liquidity, maximize net interest income and minimize the impact that significant fluctuations in market interest rates would have on 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.

51.

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 terms of new loans or investments; 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.

Quantitative Market Risk Disclosure. The following table provides information about the Company’s financial instruments used for purposes other than trading that are sensitive to changes in interest rates as of December 31, 2008. It does not present when these items may actually reprice. For loans receivable, securities, and liabilities with contractual maturities, the table presents principal cash flows and related weighted-average interest rates by contractual maturities as well as the historical impact of interest rate fluctuations on the prepayment of loans and mortgage backed securities. For core deposits (demand deposits, interest-bearing checking, savings, and money market deposits) that have no contractual maturity, the table presents principal cash flows and applicable related weighted-average interest rates based upon the Company’s historical experience, management’s judgment and statistical analysis, as applicable, concerning their most likely withdrawal behaviors. The current historical interest rates for core deposits have been assumed to apply for future periods in this table as the actual interest rates that will need to be paid to maintain these deposits are not currently known. Weighted average variable rates are based upon contractual rates existing at the reporting date.

52.

Principal/Notional Amount Maturing or Assumed to be Withdrawn In:

(Dollars in thousands)

	2009			2010			2011			2012			2013			Thereafter			Total
Rate Sensitive Assets
Variable Rate Loans	$	58,629		$	8,865		$	4,518		$	2,973		$	1,921		$	3,931		$	80,837
Average interest rate		4.07	%		4.25	%		4.23	%		4.22	%		4.26	%		4.09	%		4.11	%
Adjustable Rate Loans	$	43,366		$	33,822		$	28,191		$	20,854		$	17,251		$	70,580		$	214,064
Average interest rate		6.51	%		6.41	%		6.48	%		6.48	%		6.49	%		6.46	%		6.47	%
Fixed Rate Loans	$	49,077		$	32,096		$	27,239		$	14,379		$	9,351		$	26,894		$	159,035
Average interest rate		6.37	%		6.47	%		6.49	%		6.34	%		6.24	%		5.55	%		6.26	%
Total Loans	$	151,072		$	74,783		$	59,948		$	38,206		$	28,523		$	101,405		$	453,936
Average interest rate		5.52	%		6.18	%		6.32	%		6.25	%		6.26	%		6.13	%		5.98	%
Fixed rate investment securities	$	21,306		$	10,018		$	5,655		$	4,123		$	4,760		$	50,651		$	96,513
Average interest rate		4.68	%		5.04	%		5.10	%		5.38	%		5.16	%		5.03	%		4.98	%
Var rate investment securities	$	417		$	395		$	390		$	348		$	185		$	8,603		$	10,338
Average interest rate		4.98	%		4.97	%		4.96	%		5.08	%		4.82	%		5.25	%		5.20	%
Fed Funds Sold & Other	$	10,000		$	-		$	-		$	-		$	-		$	-		$	10,000
Average interest rate		0.04	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.04	%
Total Rate Sensitive Assets	$	182,795		$	85,196		$	65,992		$	42,677		$	33,468		$	160,659		$	570,787
Average interest rate		5.12	%		6.04	%		6.20	%		6.16	%		6.09	%		5.73	%		5.69	%

Rate Sensitive Liabilities
Demand - Non Interest Bearing	$	10,456		$	10,457		$	10,457		$	10,457		$	10,416		$	-		$	52,243
Demand - Interest Bearing	$	14,628		$	14,628		$	14,628		$	14,628		$	14,611		$	-		$	73,123
Average interest rate		0.38	%		0.38	%		0.38	%		0.38	%		0.38	%		0.00	%		0.38	%
Money Market Accounts	$	16,404		$	16,404		$	16,404		$	16,404		$	16,409		$	-		$	82,025
Average interest rate		0.81	%		0.81	%		0.81	%		0.81	%		0.81	%		0.00	%		0.81	%
Savings	$	6,864		$	6,864		$	6,864		$	6,864		$	6,858		$	-		$	34,314
Average interest rate		0.24	%		0.24	%		0.24	%		0.24	%		0.24	%		0.00	%		0.24	%
Certificates of Deposit	$	156,203		$	54,595		$	12,334		$	9,283		$	3,548		$	6,553		$	242,516
Average interest rate		3.06	%		3.18	%		3.95	%		3.79	%		3.75	%		3.66	%		3.19	%
Fixed rate FHLB Advances	$	6,500		$	11,000		$	12,532		$	2,155		$	4,460		$	-		$	36,647
Average interest rate		4.36	%		5.38	%		4.17	%		3.26	%		3.42	%		0.00	%		4.42	%
Variable rate FHLB Advances	$	-		$	-		$	-		$	-		$	-		$	-		$	-
Average interest rate		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		4.99	%		4.88	%
Fixed rate Notes Payable	$	-		$	-		$	-		$	-		$	-		$	10,310		$	10,310
Average interest rate		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		10.60	%		10.60	%
Variable rate Notes Payable	$	1,000		$	-		$	-		$	-		$	-		$	10,310		$	11,310
Average interest rate		3.75	%		0.00	%		0.00	%		0.00	%		0.00	%		4.99	%		4.88	%
Fed Funds Purchased, Repos & Other	$	8,426		$	-		$	15,000		$	20,000		$	-		$	-		$	43,426
Average interest rate		0.55	%		0.00	%		4.77	%		4.74	%		0.00	%		0.00	%		3.94	%
Total Rate Sensitive Liabilities	$	220,481		$	113,948		$	88,219		$	79,791		$	56,302		$	27,173		$	585,914
Average interest rate		2.43	%		2.22	%		2.19	%		1.97	%		0.87	%		6.80	%		2.34	%

53.

Principal/Notional Amount Maturing or Assumed to be Withdrawn In:

(Dollars in thousands)

	First			Years
Comparison of 2008 to 2007	Year			2 - 5		Thereafter		Total
Total Rate Sensitive Assets:
At December 31, 2008	$	182,795		$	227,333	$	160,659	$	570,787
At December 31, 2007		176,907			179,502		133,191		489,600
Increase (decrease)	$	5,888		$	47,831	$	27,468	$	81,187

Total Rate Sensitive Liabilities:
At December 31, 2008	$	220,481		$	338,260	$	27,173	$	585,914
At December 31, 2007		231,589			241,378		21,612		494,579
Increase (decrease)	$	(11,108	)	$	96,882	$	5,561	$	91,335

The above table reflects expected maturities, not expected repricing. The contractual maturities adjusted for anticipated prepayments and anticipated renewals at current interest rates, as shown in the preceding table, are only part of the Company’s interest rate risk profile. Other important factors include the ratio of rate-sensitive assets to rate sensitive liabilities (which takes into consideration loan repricing frequency but not when deposits may be repriced) and the general level and direction of market interest rates. For core deposits, the repricing frequency is assumed to be longer than when such deposits actually reprice. For some rate sensitive liabilities, their repricing frequency is the same as their contractual maturity. For variable rate loans receivable, repricing frequency can be daily or monthly. For adjustable rate loans receivable, repricing can be as frequent as annually for loans whose contractual maturities range from one to thirty years. The Company continued to reposition its balance sheet over the past two years liquidating investments and reducing high cost certificates of deposit which had a positive impact on the margin and helped balance the gap position.

The Company manages its interest rate risk by the employment of strategies to assure that desired levels of both interest-earning assets and interest-bearing liabilities mature or reprice with similar time frames. Such strategies include: 1) loans receivable which are renewed (and repriced) annually, 2) variable rate loans, 3) certificates of deposit with terms from one month to six years, 4) securities available for sale which mature at various times primarily from one through ten years, 5) federal funds borrowings with terms of one day to 90 days, and 6) Federal Home Loan Bank borrowings with terms of one day to ten years.

Impact of Inflation and Changing Prices

The majority of assets and liabilities of the Company are monetary in nature and therefore the Company differs greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories. However, inflation does have an important impact on the growth of total assets in the banking industry and the resulting need to increase equity capital at higher than normal rates in order to maintain an appropriate equity to assets ratio. Inflation significantly affects noninterest expense, which tends to rise during periods of general inflation.

Management believes the most significant impact on financial results is the Company’s ability to react to changes in interest rates. Management seeks to maintain an essentially balanced position between interest sensitive assets and liabilities and actively manages the amount of securities available for sale in order to protect against the effects of wide interest rate fluctuations on net income and shareholders’ equity.

54.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The disclosures required by this item appear under the caption “Asset Liability Management” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations beginning on page 51 of this Annual Report on Form 10-K.

Item 8. Financial Statements and Supplementary Data.

The Consolidated Balance Sheets of the Company and its subsidiaries as of December 31, 2008 and December 31, 2007, the related Consolidated Statements of Income, Changes in Shareholders’ Equity and Cash Flows for each of the years in the three-year period ended December 31, 2008, the related Notes to Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm, appear on pages F-1 through F-53 of this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Not Applicable.

Item 9A. 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 period covered by this Annual Report on Form 10-K. Based on that evaluation, the Company’s President and Chief Executive Officer and the Company’s Executive Vice President and Chief Financial Officer concluded that:

information required to be disclosed by the Company in this Annual Report on Form 10-K and the other reports that 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 Annual Report on Form 10-K and the other reports that 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 fiscal year covered by this Annual Report on Form 10-K.

Management’s Annual Report on Internal Control Over Financial Reporting

The “Management’s Report on Internal Control Over Financial Reporting” is provided on page F-0 of this Annual Report on Form 10-K.

55.

Changes in Internal Controls Over Financial Reporting

No changes were made 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 December 31, 2008, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

Not Applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Directors and Executive Officers

The information required by Item 401 of SEC Regulation S-K concerning the directors of the Company is incorporated herein by reference from the disclosure included in the Company’s definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 16, 2009 (the “2009 Proxy Statement”), under the caption “ELECTION OF DIRECTORS”. The information concerning the executive officers of the Company required by Item 401 of SEC Regulation S-K is set forth in the portion of Part I of this Annual Report on Form 10-K entitled “Supplemental Item: Executive Officers of the Registrant.”

Compliance with Section 16(a) of the Exchange Act

The information required by Item 405 of SEC Regulation S-K is incorporated herein by reference from the disclosure included in the Company’s 2009 Proxy Statement under the caption “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.”

Committee Charters and Code of Conduct and Ethics

The Company’s Board of Directors has adopted charters for each of the Audit Committee, the Compensation Committee and the Executive Governance and Nominating Committee. Copies of these charters are available on the Company’s Internet website at www.rurbanfinancial.net by first clicking “Corporate Governance” and then “Supplementary Info”. The Company has adopted a Code of Conduct and Ethics that applies to the Company’s directors, officers and employees. A copy of the Code of Conduct and Ethics is available on the Company’s Internet website at www.rurbanfinancial.net under the “Corporate Governance” tab. Interested persons may also obtain copies of the Code of Conduct and Ethics, the Audit Committee charter, the Compensation Committee charter and the Executive Governance and Nominating Committee charter, without charge, by writing to Rurban Financial Corp., Attn: Investor Relations, 401 Clinton Street, Defiance, OH 43512.

56.

Director Nominating Procedures

The information required by Item 407(c)(3) of SEC Regulation S-K is incorporated herein by reference from the disclosure included under the caption “CORPORATE GOVERNANCE – Nominating Procedures” in the Company’s 2009 Proxy Statement.

Audit Committee

The information required by Items 407(d)(4) and 407(d)(5) of SEC Regulation S-K is incorporated herein by reference from the disclosure included under the caption “MEETINGS AND COMMITTEES OF THE BOARD – Committees of the Board – Audit Committee” in the Company’s 2009 Proxy Statement.

Item 11. Executive Compensation.

The information required by Item 402 of SEC Regulation S-K is incorporated herein by reference to the information contained in the Company’s 2009 Proxy Statement under the captions “COMPENSATION OF EXECUTIVE OFFICERS” and “DIRECTOR COMPENSATION”.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by Item 403 of SEC Regulation S-K is incorporated herein by reference from the disclosure included in the Company’s 2009 Proxy Statement under the caption “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT”.

57.

Equity Compensation Plan Information

The Rurban Financial Corp. Stock Option Plan (the “1997 Plan”) was approved by the shareholders of the Company at the 1997 Annual Meeting of Shareholders. The 1997 Plan expired in accordance with its terms on March 12, 2007, and no additional stock options, stock appreciation rights (“SARS”) or other awards may be granted under the 1997 Plan. At the 2008 Annual Meeting of Shareholders, the shareholders of the Company approved the Rurban Financial Corp. 2008 Stock Incentive Plan (the “2008 Plan”). Only one award of 10,000 restricted common shares had been issued under the 2008 Plan as of December 31, 2008.

The following table shows, as of December 31, 2008 the number of common shares issuable upon exercise of outstanding stock options, he weighted-average exercise price of those stock option, and the number of common shares remaining for future issuance under the Company’s equity compensation plans (excluding common shares issuable upon exercise of outstanding stock options):

Number of securities

remaining available for

to be issued upon

Weighted-average

future issuance under equity

exercise of

exercise price of

compensation plans

outstanding options,

(excluding securities

Plan category

warrants and rights

reflected in column (a)

Equity compensation plans approved by security holders

315,763

(1)

12.60

240,000

(2)

Equity compensation plans not approved by security holders

N/A

(1)	Does not include "tandem" SARs awards under the 1997 Plan in connection with the grant of the same number of nonqualified stock options. A total of 28,000 "tandem" SARs, with a weighted-average price of $13.68, were outstanding as of December 31, 2008.

(2)

Represents common shares of the Company remaining available for future issuance under the 2008 Plan (subject to certain adjustments). The 1997 Plan expired in accordance with its terms on March 12, 2007, and no additional stock options, stock appreciation rights or other awards my be granted under the 1997 Plan.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by Item 404 of SEC Regulation S-K is incorporated herein by reference to the information contained in the Company’s 2009 Proxy Statement under the caption “TRANSACTIONS WITH RELATED PERSONS”.

The information required by Item 407(a) of SEC Regulation S-K is incorporated herein by reference to the information contained in the Company’s 2009 Proxy Statement under the caption “CORPORATE GOVERNANCE – Director Independence”.

Item 14. Principal Accountant Fees and Services

The information required to be disclosed in this Item 14 is incorporated herein by reference to the information contained in the Company’s 2009 Proxy Statement under the caption “AUDIT COMMITTEE DISCLOSURE” – Pre-Approval of Services Performed by Independent Registered Public Accounting Firm” and “AUDIT COMMITTEE DISCLOSURE” – Services of Independent Registered Public Accounting Firm for the 2008 Fiscal Year”.

58.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) (1) Financial Statements.

A list of all financial statements included in this Annual Report on Form 10-K is included under “INDEX TO CONSOLIDATED FINANCIAL STATEMENTS” on page 59 herein.

(a) (2) Financial Statement Schedules.

All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.

(a) (3) Exhibits.

The exhibits listed on the “INDEX TO EXHIBITS” beginning on page 113 of this Annual Report on Form 10-K are filed with this Annual Report on Form 10-K or incorporated herein by reference.

59.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	RURBAN FINANCIAL CORP.

	By:	/s/ Duane L. Sinn
Date: March 19, 2009		Duane L. Sinn, Executive Vice President and
		Chief Financial Officer

Power of Attorney

KNOW ALL MEN BY THESE PRESENTS, that each undersigned officer and/or director of Rurban Financial Corp., an Ohio corporation (the “Corporation”), which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report of the Corporation on Form 10-K for the fiscal year ended December 31, 2008, hereby constitutes and appoints Kenneth A. Joyce and Duane L. Sinn, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the NASDAQ Stock Market, granting unto said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all things that each of said attorneys-in-fact and agents, or either of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Name	Date	Capacity

/s/ Kenneth A, Joyce	March 19, 2009	President, Chief Executive Officer, and
Kenneth A. Joyce		Director

/s/ Duane L. Sinn	March 19, 2009	Executive Vice President and Chief
Duane L. Sinn		Financial Officer

/s/ Thomas A. Buis	March 19, 2009	Director
Thomas A. Buis

/s/ Thomas M. Callan	March 19, 2009	Director
Thomas M. Callan

60.

/s/ John R. Compo	March 19, 2009	Director
John R. Compo

/s/ Robert A. Fawcett, Jr.	March 19, 2009	Director
Robert A. Fawcett, Jr.

/s/ Richard L. Hardgrove	March 19, 2009	Director
Richard L. Hardgrove

/s/ Rita A. Kissner	March 19, 2009	Director
Rita A. Kissner

/s/ Thomas L. Sauer	March 19, 2009	Director
Thomas L. Sauer

/s/ Steven D. VanDemark	March 19, 2009	Director
Steven D. VanDemark

/s/ J. Michael Walz, D.D.S.	March 19, 2009	Director
J. Michael Walz, D.D.S

Date: March 19, 2009

61.

Rurban Financial Corp.

December 31, 2008 and 2007

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Management’s Report on Internal Control Over Financial Reporting		F- 0

Report of Independent Registered Public Accounting Firm		F-1

Consolidated Financial Statements
Balance Sheets	F-2 to F-3
Statements of Income	F-4 to F-5
Statements of Stockholders’ Equity		F-6
Statements of Cash Flows	F-7 to F-8
Notes to Financial Statements	F-9 to F-54

62.

Management’s Report on Internal Control Over Financial Reporting

The management of Rurban Financial Corp. (the “Corporation”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Corporation’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in conformity with U.S. generally accepted accounting principles. The Corporation’s internal control over financial reporting includes those policies and procedures that:

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporation and its consolidated subsidiaries;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in conformity with U.S. generally accepted accounting principles, and that receipts and expenditures of the Corporation and its consolidated subsidiaries are being made only in accordance with authorizations of management and directors of the Corporation; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets of the Corporation and its consolidated subsidiaries that could have a material effect on the financial statements.

With the supervision and participation of our President and Chief Executive Officer, and our Chief Financial Officer, management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2008, based on the criteria set forth for effective internal control over financial reporting by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control Integrated Framework.” Based on our assessment and those criteria, management concluded that, as of December 31, 2008, the Corporation’s internal control over financial reporting is effective.

This Annual Report does not include an attestation report of the Corporation’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Corporation’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Corporation to provide only management’s report in this Annual Report.

RURBAN FINANCIAL CORP.


Kenneth A. Joyce	Duane L. Sinn
President and Chief Executive Officer	Chief Financial Officer

February 17, 2009

F-0.

Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Stockholders

Rurban Financial Corp.

Defiance, Ohio

We have audited the accompanying consolidated balance sheets of Rurban Financial Corp. as of December 31, 2008 and 2007, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2008. The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Rurban Financial Corp. as of December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 24 to the financial statements, effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements.” Also, as discussed in Note 24 to the financial statements, effective January 1, 2008, the Company adopted Emerging Issues Task Force No. 06-4, “Accounting for Deferred Compensation and Post-retirement Benefit Aspects of Endorsement Split Dollar Life Insurance Arrangements.”

Cincinnati, Ohio

February 17, 2009

Rurban Financial Corp.

Consolidated Balance Sheets

December 31

Assets

	2008			2007

Cash and due from banks	$	18,059,532		$	15,183,627
Federal funds sold		10,000,000			2,000,000
Cash and cash equivalents		28,059,532			17,183,627
Available-for-sale securities		102,606,475			92,661,386
Loans held for sale		3,824,499			1,649,758
Loans, net of unearned income		450,111,653			389,268,744
Allowance for loan losses		(5,020,197	)		(3,990,455	)
Premises and equipment, net		17,621,262			15,128,754
Federal Reserve and Federal Home Loan Bank Stock, at cost		4,244,100			4,021,200
Foreclosed assets held for sale, net		1,384,335			124,131
Interest receivable		2,964,663			3,008,968
Goodwill		21,414,790			13,940,618
Core deposits and other intangibles		5,835,936			5,135,228
Purchased software		5,867,395			4,282,563
Cash value of life insurance		12,625,015			12,160,581
Other assets		6,079,451			6,638,895

Total assets	$	657,618,909		$	561,213,998

See Notes to Consolidated Financial Statements

Rurban Financial Corp.

Consolidated Balance Sheets

December 31

Liabilities and Stockholders’ Equity

	2008			2007
Liabilities
Deposits
Non interest bearing demand	$	52,242,626		$	41,541,297
Interest bearing NOW		73,123,095			54,308,665
Savings		34,313,586			25,320,126
Money Market		82,025,074			61,380,252
Time Deposits		242,516,203			223,480,842
Total deposits		484,220,584			406,031,182
Short-term borrowings		43,425,978			43,006,438
Notes payable		1,000,000			922,457
Federal Home Loan Bank advances		36,646,854			24,000,000
Trust preferred securities		20,620,000			20,620,000
Interest payable		1,965,842			2,532,914
Deferred income taxes		2,987,770			1,310,602
Other liabilities		5,089,877			3,465,171
Total liabilities		595,956,905			501,888,764

Commitments and Contingent Liabilities

Stockholders' Equity
Common stock, $2.50 stated value; authorized 10,000,000 shares; 5,027,433 shares issued		12,568,583			12,568,583
Additional paid-in capital		15,042,781			14,923,571
Retained earnings		35,785,317			32,361,106
Accumulated other comprehensive income (loss)		(121,657	)		82,235
Treasury stock, at cost
Common; 2008 - 145,981 shares, 2007 - 48,500 shares		(1,613,020	)		(610,260	)
Total stockholders' equity		61,662,004			59,325,235
Total liabilities and stockholders' equity	$	657,618,909		$	561,213,998

								Accumulated
								Other
	Common		Additional		Retained			Comprehensive			Treasury
	Stock		Paid-In Capital		Earnings			Income (Loss)			Stock			Total

Balance, January 1, 2006	$	12,568,583	$	14,835,110	$	28,702,817		$	(1,655,862	)	$	-		$	54,450,648
Comprehensive Income

Net Income						2,760,242									2,760,242

Change in unrealized gain (loss) on securities available for sale, net of reclassification adjustment and tax effect									775,969						775,969

Total comprehensive income															3,536,211

Dividends on common stock, $0.21 per share						(1,055,761	)								(1,055,761	)

Expense of stock option plan				24,055											24,055

Balance, December 31, 2006		12,568,583		14,859,165		30,407,298			(879,893	)		-			56,955,153
Comprehensive Income

Net Income						3,256,635									3,256,635

Change in unrealized gain (loss) on securities available for sale, net of reclassification adjustment and tax effect									962,128						962,128

Total comprehensive income															4,218,763

Dividends on common stock, $0.26 per share						(1,302,827	)								(1,302,827	)

Expense of stock option plan				64,406											64,406

Shares repurchased under stock repurchase plan												(610,260	)		(610,260	)

Balance, December 31, 2007		12,568,583		14,923,571		32,361,106			82,235			(610,260	)		59,325,235
Comprehensive Income

Net Income						5,217,239									5,217,239

Change in unrealized gain (loss) on securities available for sale, net of reclassification adjustment and tax effect									(203,892	)					(203,892	)

Total comprehensive income															5,013,347

Dividends on common stock, $0.34 per share						(1,676,723	)								(1,676,723	)

Expense of stock option plan				119,210											119,210

Cumulative effect adjustment for split dollar BOLI						(116,305	)								(116,305	)

Shares repurchased under stock repurchase plan												(1,002,760	)		(1,002,760	)

Balance, December 31, 2008	$	12,568,583	$	15,042,781	$	35,785,317		$	(121,657	)	$	(1,613,020	)	$	61,662,004

			Gross		Gross
	Amortized		Unrealized		Unrealized			Approximate
	Cost		Gains		Losses			Fair Value
Available-for-Sale Securities:
December 31, 2008:
U.S. Treasury and Government agencies	$	15,146,301	$	65,978	$	(28,396	)	$	15,183,883
Mortgage-backed securities		64,329,865		1,014,453		(797,893	)		64,546,425
State and political subdivisions		23,241,636		22,010		(462,215	)		22,801,431
Equity securities		23,000		-		-			23,000
Other securities		50,000		1,736		-			51,736

	$	102,790,802	$	1,104,177	$	(1,288,504	)	$	102,606,475

December 31, 2007:
U.S. Treasury and Government agencies	$	40,133,111	$	76,292	$	(20,040	)	$	40,189,363
Mortgage-backed securities		36,339,539		370,134		(330,074	)		36,379,599
State and political subdivisions		15,991,138		91,752		(64,211	)		16,018,679
Equity securities		23,000		-		-			23,000
Other securities		50,000		745		-			50,745

	$	92,536,788	$	538,923	$	(414,325	)	$	92,661,386

	Available for Sale
	Amortized		Fair
	Cost		Value

Within one year	$	1,749,631	$	1,749,631
Due after one year through five years		5,816,222		5,865,316
Due after five years through ten years		14,593,591		14,538,964
Due after ten years		16,278,493		15,883,139
		38,437,937		38,037,050

Mortgage-backed securities & Equity Securities		64,352,865		64,569,425

Totals	$	$102,790,802	$	$102,606,475

	Less than 12 Months					12 Months or Longer					Total
			Unrealized					Unrealized					Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Available-for-Sale Securities:
U.S. Treasury and Government agencies	$	974,720	$	(28,396	)	$	-	$	-		$	974,720	$	(28,396	)
Mortgage-backed securities		9,619,369		(571,239	)		1,590,836		(226,654	)		11,210,205		(797,893	)
State and political subdivisions		12,756,053		(441,439	)		1,194,919		(20,776	)		13,950,972		(462,215	)

	$	23,350,142	$	(1,041,074	)	$	2,785,755	$	(247,430	)	$	26,135,897	$	(1,288,504	)

	At December 31,
	2008		2007		2006
Year-end impaired loans with no allowance for loan losses allocated	$	1,706,246	$	1,786,931	$	607,469

Year-end loans with allowance for loan losses allocated	$	865,710	$	1,897,903	$	1,514,169
Total impaired loans	$	2,571,956	$	3,684,834	$	2,121,638
Amount of allowance allocated	$	322,190	$	332,805	$	224,630

Average of impaired loans during the year	$	2,158,106	$	2,805,689	$	4,177,213

Interest income recognized during impairment	$	11,970	$	63,425	$	46,917

Cash-basis interest income recognized	$	14,807	$	74,940	$	50,779

	2008			2007

Land	$	2,071,883		$	1,720,883
Buildings and improvements		14,781,372			12,327,515
Equipment		10,205,378			11,878,202
Construction in progress		1,064,890			447,295
		28,123,523			26,373,895

Less accumulated depreciation		(10,502,261	)		(11,245,141	)

Net premises and equipment	$	17,621,262		$	15,128,754

	2008					2007
	Gross Carrying		Accumulated			Gross Carrying		Accumulated
	Amount		Amortization			Amount		Amortization
Core deposits intangible	$	5,450,647	$	(1,794,702	)	$	4,039,615	$	(1,340,276	)
Customer relationship intangible		200,627		(96,458	)		200,627		(87,493	)
Banking intangibles		5,651,274		(1,891,160	)		4,240,242		(1,427,769	)

Customer relationship intangible		2,389,000		(371,623	)		2,389,000		(212,356	)
Trademark intangible		180,000		(140,000	)		180,000		(80,000	)
Non-compete intangible		83,000		(64,555	)		83,000		(36,889	)
Data processing intangibles		2,652,000		(576,178	)		2,652,000		(329,245	)

Purchased software - banking		469,515		(199,364	)		645,778		(447,930	)
Purchased software - data processing		11,172,252		(5,662,679	)		9,928,769		(6,010,019	)
Purchased software - other		351,660		(263,989	)		350,010		(184,045	)
Purchased software		11,993,427		(6,126,032	)		10,924,557		(6,641,994	)
Total	$	20,296,701	$	(8,593,370	)	$	17,816,799	$	(8,399,008	)

	2008		2007
Securities sold under repurchase agreements - retail	$	8,425,978	$	8,006,438
Securities sold under repurchase agreements - broker		35,000,000		35,000,000

Total short-term borrowings	$	43,425,978	$	43,006,438

	2008		2007

Note payable in the amount of $2,500,000, secured by all inventory, equipment and receivables of RDSI, monthly payments of $41,042 together with interest at a variable rate equal to the 5 Year Treasury Index plus 2.85%, maturing August 23, 2011 (paid off in May 2008)	$	-	$	922,457

Revolving Demand Note payable in the amount of $3,000,000, secured by all inventory, equipment and receivables of RDSI, monthly payments of interest at prime plus .5%	$	1,000,000	$	-


	$	1,000,000	$	922,457

		Debt

2009	$	9,082,228
2010		13,465,844
2011		12,459,908
2012		1,278,328
2013		360,546
Total	$	36,646,854

	For The Year Ended December 31,
	2008		2007			2006
Taxes currently payable	$	642,990	$	2,029,195		$	1,408,421
Deferred provision (benefit)		1,482,203		(795,035	)		(460,305	)

Income tax expense	$	2,125,193	$	1,234,160		$	948,116

	Actual					For Capital Adequacy Purposes					To Be Well-Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2008
Total Capital (to Risk-Weighted Assets)
Consolidated	$	59.5		13.0	%	$	36.5		8.0	%	$	-		N/A
State Bank		50.0		11.3	%		35.4		8.0	%		44.3		10.0	%

Tier 1 Capital (to Risk-Weighted Assets)
Consolidated		54.5		11.9	%		18.3		4.0	%		-		N/A
State Bank		45.0		10.2	%		17.7		4.0	%		26.6		6.0	%

Tier 1 Capital (to Average Assets)
Consolidated		54.5		9.5	%		23.1		4.0	%		-		N/A
State Bank		45.0		7.7	%		23.5		4.0	%		29.3		5.0	%

As of December 31, 2007
Total Capital (to Risk-Weighted Assets)
Consolidated	$	64.2		15.9	%	$	32.2		8.0	%	$	-		N/A
State Bank		49.5		12.7	%		31.3		8.0	%		39.1		10.0	%

Tier 1 Capital (to Risk-Weighted Assets)
Consolidated		59.9		14.9	%		16.1		4.0	%		-		N/A
State Bank		45.5		11.6	%		15.6		4.0	%		23.5		6.0	%

Tier 1 Capital (to Average Assets)
Consolidated		59.9		11.0	%		21.9		4.0	%		-		N/A
State Bank		45.5		8.4	%		21.8		4.0	%		27.3		5.0	%

	2008			2007

Balance, January 1	$	6,001,000		$	3,454,000
New Loans		3,243,000			3,751,000
Repayments		(3,815,000	)		(3,009,000	)
Other changes		36,000			1,805,000

Balance, December 31	$	5,465,000		$	6,001,000

	2007			2006

Expected volatility		27.0	%		18.5	%
Weighted-average volatility		27.01	%		18.5	%
Expected dividends		2.0	%		1.7	%
Expected term (in years)		10			10
Risk-free rate		4.72	%		2.3	%

	2008
	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value

Outstanding, beginning of year		341,979	$	12.86
Granted		-		-
Exercised		-		-
Forfeited		5,939		13.36
Expired		20,277		16.78
Outstanding, end of year		315,763	$	12.60		6.05	$	-

Exercisable, end of year		218,873	$	13.08		5.18	$	-

	Year Ended December 31, 2008
	Income		Weighted- Average Shares		Per Share Amount

Basic earnings per share
Net income available to common shareholders	$	5,217,239		4,925,694	$	1.06
Effect of dilutive securities
Stock options & restricted stock		-		-
Diluted earnings per share

Income available to common shareholders and assumed conversions	$	5,217,239		4,925,694	$	1.06

	Year Ended December 31, 2007
	Income		Weighted- Average Shares		Per Share Amount
Basic earnings per share
Net income available to common shareholders	$	3,256,635		5,010,987	$	0.65
Effect of dilutive securities
Stock options		-		4,324
Diluted earnings per share

Income available to common shareholders and assumed conversions	$	3,256,635		5,015,311	$	0.65

	Year Ended December 31, 2006
			Weighted-
			Average		Per Share
	Income		Shares		Amount

Basic earnings per share
Net income available to common shareholders	$	2,760,242		5,027,433	$	0.55
Effect of dilutive securities Stock options		-		1,442
Diluted earnings per share

Income available to common shareholders and assumed conversions	$	2,760,242		5,028,875	$	0.55

Fair Value Measurements Using:
Description	Fair Values at 12/31/2008		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-Sale Securities	$	102,606,475		-	$	102,606,475		-

	December 31, 2008				December 31, 2007
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value

Financial assets
Cash and cash equivalents	$	28,059,532	$	28,060,000	$	17,183,627	$	17,184,000
Available-for-sale securities	$	102,606,475	$	102,606,000	$	92,661,386	$	92,661,000
Loans, net of allowance for loan losses	$	448,915,955	$	455,629,000	$	386,928,047	$	388,253,000
Federal Reserve and FHLB Bank stock	$	4,244,100	$	4,244,000	$	4,021,200	$	4,021,000
Accrued interest receivable	$	2,964,663	$	2,965,000	$	3,008,968	$	3,009,000

Financial liabilities
Deposits	$	484,220,584	$	486,787,000	$	406,031,182	$	406,240,000
Securities sold under agreements to repurchase	$	43,425,978	$	45,976,000	$	43,006,438	$	43,110,000
Notes payable	$	1,000,000	$	1,000,000	$	922,457	$	922,000
FHLB advances	$	36,646,854	$	38,196,000	$	24,000,000	$	24,823,000
Trust preferred securities	$	20,620,000	$	19,996,000	$	20,620,000	$	20,503,000
Accrued interest payable	$	1,965,842	$	1,966,000	$	2,532,914	$	2,533,000

	2008		2007
Loan commitments and unused lines of credit	$	67,785,000	$	76,445,000
Standby letters of credit		5,436,000		377,000
Total	$	73,221,000	$	76,822,000

			Data						Total		Intersegment			Consolidated
2008	Banking		Processing			Other			Segments		Elimination			Totals

Income Statement information:

Net interest income (expense)	$	19,327,854	$	(109,864	)	$	(1,690,115	)	$	17,527,875	$	-		$	17,527,875
Other revenue - external customers		7,694,299		20,162,913			203,525			28,060,737		-			28,060,737
Other revenue - other segments		54,019		1,513,093			1,432,097			2,999,209		(2,999,209	)		-
Net interest income and other revenue		27,076,172		21,566,142			(54,493	)		48,587,821		(2,999,209	)		45,588,612
Noninterest expense		20,088,447		17,295,426			3,171,950			40,555,823		(2,999,209	)		37,556,614
Significant noncash items:
Depreciation and amortization		1,012,382		2,535,876			136,100			3,684,358		-			3,684,358
Provision for loan losses		689,567		-			-			689,567		-			689,567
Income tax expense		1,784,371		1,452,014			(1,111,193	)		2,125,192		-			2,125,192
Segment profit	$	4,513,787	$	2,818,702		$	(2,115,250	)	$	5,217,239	$	-		$	5,217,239

Balance sheet information:

Total assets	$	637,108,955	$	19,955,458		$	85,084,977		$	742,149,390	$	(84,530,481	)	$	657,618,909
Goodwill and intangibles		20,113,196		7,137,530			-			27,250,726		-			27,250,726
Premises and equipment expenditures	$	2,437,582	$	5,501,574		$	106,610		$	8,045,766	$	-		$	8,045,766

December 31, 2008	March		June		September		December
Interest income	$	8,125,216	$	8,315,525	$	8,021,596		8,206,108
Interest expense		4,308,000		3,883,367		3,573,107		3,376,096
Net interest income		3,817,216		4,432,158		4,448,489		4,830,012
Provision for loan losses		192,218		212,997		146,173		138,179
Noninterest income		7,515,513		6,801,158		6,988,712		6,755,354
Noninterest expense		9,601,360		9,110,346		9,278,898		9,566,009
Income tax expense		429,795		554,149		588,090		553,159
Net income		1,109,356		1,355,824		1,424,040		1,328,019

Earnings per share
Basis		0.22		0.28		0.29		0.27
Diluted		0.22		0.28		0.29		0.27

Dividends per share		0.08		0.08		0.09		0.09

December 31, 2007	March		June		September		December
Interest income	$	8,016,828	$	8,234,039	$	8,350,340		8,408,422
Interest expense		4,423,552		4,483,901		4,689,389		4,625,477
Net interest income		3,593,276		3,750,138		3,660,951		3,783,287
Provision for loan losses		92,640		145,594		140,409		142,663
Noninterest income		6,738,742		6,507,700		6,782,842		6,832,115
Noninterest expense		9,300,253		9,065,370		9,106,400		9,164,587
Income tax expense		236,672		261,829		333,384		402,275
Net income		702,453		785,045		863,601		905,536

Earnings per share
Basis		0.14		0.16		0.17		0.18
Diluted		0.14		0.16		0.17		0.18

Dividends per share		0.06		0.06		0.07		0.07

Exhibit No.	Description	Location

2.1	Agreement and Plan of Merger, dated as of May 22, 2008, by and among Rurban Financial Corp., Rurban Merger Corp, and NBM Bancorp, Incorporated	Incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed May 23, 2008 (File No. 0-13507).

3.1	Amended Articles of Registrant, as amended	Incorporated herein by reference to Exhibit 3(a)(i) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1989 (File No. 0-13507).

3.2	Certificate of Amendment to the Amended Articles of Rurban Financial Corp.	Incorporated herein by reference to Exhibit 3(b) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-13507).

3.3	Certificate of Amendment to the Amended Articles of Rurban Financial Corp.	Incorporated herein by reference to Exhibit 3(c) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 0-13507).

3.4	Amended and Restated Articles of Rurban Financial Corp. [Note: filed for purposes of SEC reporting compliance only – this document has not been filed with the Ohio Secretary of State.]	Incorporated herein by reference to Exhibit 3(d) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 0-13507).

3.5	Amended and Restated Regulations of Rurban Financial Corp.	Incorporated herein by reference to Exhibit 3.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (File No. 0-13507).

4.1	Indenture, dated as of September 15, 2005, by and between Rurban Financial Corp. and Wilmington Trust Company, as Debenture Trustee, relating to Floating Rate Junior Subordinated Deferrable Interest Debentures	Incorporated herein by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2005 (File No. 0-13507).

10.7*	Form of Stock Appreciation Rights under Rurban Financial Corp. 1997 Stock Option Plan	Incorporated herein by reference to Exhibit 10(b) to the Company’s Current Report on Form 8-K filed March 21, 2005 (File No. 0-13507).

10.8*	Rurban Financial Corp. 2008 Stock Incentive Plan	Incorporated herein by reference to Exhibit 10 to the Company’s Current Report on Form 8-K filed April 22, 2008 (File No. 0-13507).

10.9*	Form of Restricted Stock Award Agreement (For Employees) under Rurban Financial Corp. 2008 Stock Option Plan	In Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed April 22, 2008 (File No. 0-13507).

10.10*	Employees’ Stock Ownership and Savings Plan of Rurban Financial Corp.	Incorporated herein by reference to Exhibit 10(y) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (File No. 0-13507).

10.11*	Rurban Financial Corp. Employee Stock Purchase Plan	Incorporated herein by reference to Exhibit 10(z) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (File No. 0-13507).

10.12*	Employment Agreement, executed March 6, 2006 and effective as of March 1, 2006, by and between Rurban Financial Corp. and Kenneth A. Joyce	Incorporated herein by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (File No. 0-13507).

10.13*	First Amendment to Employment Agreement, executed May 19, 2006 and effective as of March 1, 2006, by and between Rurban Financial Corp. and Kenneth A. Joyce	Incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006 (File No. 0-13507).

10.14*	Second Amendment to Employment Agreement, effective as of December 31, 2008, by and between Rurban Financial Corp. and Kenneth A. Joyce	Filed herewith.

10.15*	Amended and Restated Supplemental Executive Retirement Plan Agreement, effective as of December 31, 2008, by and between Rurban Financial Corp. and Kenneth A. Joyce	Filed herewith.

10.16*	Schedule identifying other substantially identical Amended and Restated Supplemental Executive Retirement Plan Agreements with executive officers of Rurban Financial Corp. and its subsidiaries	Filed herewith.