(Source: PrimeNewswire)
DEFIANCE, Ohio, Jan. 27, 2010 (GLOBE NEWSWIRE) -- Rurban Financial Corp. (Nasdaq:RBNF), a leading provider of full-service community banking, investment management, trust services and bank data and item processing, reported 2009 earnings of $382 thousand, or $0.07 per diluted share, a decrease from the $5.22 million, or $1.06 per diluted share, reported in 2008. The year-to-date earnings were impacted by an increased provision for loan loss reserve of $5.1 million compared to the 2008 provision, increased FDIC insurance assessments of $1.1 million over the prior year, $897 thousand in legal and accounting fees associated with the contemplated RDSI spin-off and the related merger of RDSI with New Core Banking Systems, $1.0 million in accelerated depreciation at RDSI and $875 thousand in expenses incurred at RDSI to ramp-up for converting client banks to the Single Source(TM) system. Partially offsetting these extraordinary costs were gains from the sale of securities of $960 thousand. The net after-tax impact of these identified items was $5.3 million.
The fourth quarter 2009 earnings were a loss of $1.88 million, or $0.39 per diluted share, compared to fourth quarter 2008 earnings of $1.33 million, or $0.27 per diluted share. The quarterly results have been impacted by an increased provision for loan loss reserve of $3.4 million, compared to the 2008 fourth quarter provision, an increase in FDIC insurance expense of $542 thousand over the prior-year quarter, $486 thousand in legal and accounting fees associated with the contemplated RDSI spin-off and the related merger of RDSI with New Core Banking Systems, $659 thousand in additional accelerated depreciation at RDSI and $442 thousand in expenses incurred at RDSI to ramp-up for converting client banks to the Single Source(TM) system. Offsetting these costs were gains from the sale of securities of $483 thousand recognized in the fourth quarter. The net after-tax impact of these items was $3.3 million for the fourth quarter.
Highlights of fourth quarter 2009 include:
-- While late in impacting Rurban Financial Corp., the commercial real
estate and general credit effects of the economic downturn have
adversely affected results for the fourth quarter of 2009 and the
full-year results. The build-up in the Allowance for the Loan Losses was
increased as $3.5 million was added in the fourth quarter and $5.7
million was added for the year. Charge-offs increased to $2.5 million in
the fourth quarter and $3.8 million for 2009 from $764 thousand for
2008. The Company also experienced an increase in non-performing assets
moving to 3.02 percent of total assets.
-- Included within The State Bank and Trust Company's ("State Bank") $3.5
million in provision for loan losses discussed above, was a provision
for a $1.15 million loss recorded due to mortgage fraud with an external
title insurance company. State Bank plans to pursue aggressive
litigation against the principal involved, the local title insurance
company, and a national title company for recovery of the fraud loss.
-- Rurban continued to pay a dividend to their shareholders during the past
two years, while many banks eliminated dividends. The Board of Directors
has elected to suspend its quarterly dividend and will assess the
economic recovery and its impact on Rurban on a quarterly basis going
forward.
-- During the fourth quarter, State Bank identified approximately $1.2
million in annualized expense reductions and began execution of actions
to effect those reductions. The majority of these reductions will be
realized immediately, while the rest will be realized within the first
six months of 2010.
-- RDSI filed the necessary initial Form 10 Registration Statement with the
SEC on December 31, 2009 relative to the planned spin-off from Rurban
Financial Corp. Management remains optimistic as a significant number
of RDSI client banks continue to examine the core software package and
give consideration to signing a contract utilizing the new Single
Source(TM) software. RDSI has received 11 Letters of Intent from its
client banks as of December 31, 2009 to convert to the new software. New
Core Banking Systems likewise, continues to market the software with
five signed contracts as of December 31, 2009.
Kenneth A. Joyce, Executive Vice Chairman of Rurban Financial Corp., stated, "The banking environment has obviously been adversely affected by the economic environment and Rurban's banking segment, The State Bank and Trust Company, is not immune to economic conditions. Unemployment rates in our market areas range from nearly 9 percent in Columbus to over 14 percent in several of the northwest Ohio counties in which we operate. The inevitable impact has been seen in an increase in residential and commercial real estate foreclosures and declines in both residential and commercial real estate values. We have aggressively addressed these issues by increasing our reserves and charging off unrecoverable loan or asset values. I would expect to see these asset trends continue at least within the first and second quarter of 2010. The positive news is that we have been able to absorb the losses within our earnings, a position I have previously stated.
Recognizing the reduction in revenue at the Holding Company level occurring with the spin-off of RDSI, we have carefully reviewed the expenses at State Bank and initiated an aggressive expense reduction plan, which should capture about $1.2 million in pretax expense savings.
Looking forward past the asset issues, which we believe are short-term, State Bank is well-positioned to move forward. The net interest margin is 4 percent at the banking level and we have positioned the balance sheet to benefit from future increases in interest rates. Profitability, once past the asset issues, should be strong given the current level of earnings, a return to "normal" loan loss provision, and the benefits of the recent expense reductions being recognized.
We share our investors certain disappointment that we have suspended the dividend payments. However, it is important to take a longer view and preserve capital as we work through the known credit issues and monitor any pending or threatening credit issues. However, that assumes we have identified the major credit issues and wash them out over the next two quarters. Uncertainty continues as the economic climate is a major controlling element of asset quality.
We can control some elements and we need to be prudent in our future planning, which we have always taken pains to do, and to be transparent to our shareholders. It is our anticipation that the banking industry as a whole will return to a measure of normalcy in 2010. By keeping control on expenditures and aggressively addressing our asset issues, we believe we will see the impact of these efforts. Each step we take is with the end result and our shareholders in mind."
FOURTH QUARTER RESULTS
Fourth Quarter
Ended
Earnings: December 31
(Dollars in thousands
except per share data) 2009 2008
Net interest income $5,285 $4,830
Non-interest income 7,174 6,755
Revenue 12,459 11,585
Provision for loan
losses 3,546 138
Non-interest expense 12,096 9,566
Net income (loss) (1,884) 1,328
Diluted EPS $(0.39) $0.27
Net interest income increased to $5.29 million for the quarter, compared to $4.83 million for the fourth quarter of 2008. This 9.4 percent increase is partially due to the National Bank of Montpelier acquisition, as only 31 days of operation were included in the 2008 results. The acquisition also helped increased total average earning assets to $577 million in the fourth quarter 2009, compared to $519 million in 2008 fourth quarter. It is also noted that the 2008 quarter included $275,000 in interest collected on non-accrual loans that were resolved. Counter to this 2008 entry was approximately $100 thousand in interest reversals as loans were moved to non-accrual status in the fourth quarter of 2009.
Non-interest income increased to $7.17 million for 2009, compared to $6.76 million for 2008. Increase in mortgage production provided a $466 thousand increase in Gain-on-Sale of loans, compared to the fourth quarter of 2008. The Company elected to move the balance sheet to a more asset-sensitive position by selling securities which generated $483 thousand of gains during the quarter. Offsetting these increases was an $880 thousand decrease in data servicing fees associated with RDSI. This decrease was mainly attributable to the seven client banks that left RDSI during the fourth quarter, and the loss of the largest RDSI client bank in July of 2009.
Non-interest expense for the 2009 fourth quarter totaled $12.1 million, compared to $9.6 million for the fourth quarter of 2008, and $11.5 million for the linked quarter. Approximately $388 thousand is attributable to the core operating expenses related to the December 2008 acquisition of National Bank of Montpelier and its Williams County Banking Centers. Also contributing to the increase, was the aforementioned increase in legal and accounting fees associated with the planned spin-off of RDSI of $486 thousand, accelerated depreciation of the ITI software and hardware used at RDSI of $659 thousand, and expenses incurred at RDSI for ramp-up for converting clients to the Single Source(TM) system totaling $442 thousand. Mortgage banking expenses increased by $537 thousand for the fourth quarter 2009 compared to the fourth quarter 2008.
2009 FINANCIAL RESULTS
Year Ended
Earnings: December 31
(Dollars in thousands
except per share data) 2009 2008
Net interest income $20,999 $17,528
Non-interest income 29,595 28,061
Total revenue 50,594 45,589
Provision for loan
losses 5,738 690
Non-interest expense 45,133 37,557
Net income 382 5,217
Diluted EPS $0.07 $1.06
Net interest income was $21.0 million for 2009, compared to $17.5 million for 2008, an increase of 19.8 percent, which primarily resulted from the increase in average earning assets of $58.6 million. State Bank has also been actively managing the balance sheet, which has aided in the rapid decrease in cost of funds during the past twelve months. The consolidated 2009, or full year margin improved 17 basis points to 3.97 percent for 2009, compared to 3.80 percent for 2008. With the cost of funding being close to historic lows, the Company will focus considerable efforts on the asset side of the balance sheet in 2010.
Non-interest income was $29.6 million for 2009, compared to $28.1 million for 2008, representing a $1.53 million, or 5.47 percent, increase year-over-year. This increase was driven by a $2.6 million increase in Gain-on-Sale of Loans from Mortgage Banking operation and a $960 thousand increase in Gain-on-Sale of Securities. The increase in Gain-on-Sale of Loans was driven by sold Mortgage Loan production of $213 million in 2009, compared to only $38 million in 2008. The increase in Gain-on-Sale of Securities is due to repositioning the balance sheet at State Bank to become more asset-sensitive as long-term investments were liquidated for a gain. Offsetting these increases were decreases of $1.3 million and $573 thousand in Data Servicing Fees and Trust Fees, respectively. The decrease in Data Servicing Fees was attributable to loss of client banks. The continued decline in the equity markets has negatively impacted trust fees, which are generally calculated on invested balances.
Non-interest expense increased to $45.1 million for 2009, compared to $37.6 million for 2008. The acquisition of National Bank of Montpelier contributed approximately $1.7 million of this increase and the growth in Mortgage Banking increased operating expenses by $2.4 million year-over-year. Also contributing to the increase, was the aforementioned increase in legal and accounting fees associated with the planned spin-off of RDSI of $897 thousand, accelerated depreciation of the ITI software and hardware used at RDSI of $1.0 million, and expenses incurred at RDSI for ramp-up for converting clients to the Single Source(TM) system totaling $875 thousand.
CONSOLIDATED BALANCE SHEET
Total assets at December 31, 2009 were $673.0 million, compared to $657.6 million at December 31, 2008. Loans (excluding loans held for sale) were $452.6 million at December 31, 2009, compared to $450.1 million at December 31, 2008. Total deposits were $491.2 million at year-end 2009, compared to $484.2 million at December 31, 2008. Non-interest bearing deposits at December 31, 2009 were $57.2 million, compared to $52.2 million at December 31, 2008. Total shareholders' equity was $61.7 million at year-end 2009, virtually unchanged from the prior year-end.
BANK OPERATING RESULTS
Mr. Joyce commented, "While State Bank works to stabilize its asset quality, the outlook for the industry as a whole continues to indicate a struggle with many challenges to overcome. Unfortunately, there is no "quick cure" for this economic climate, and it will take 2010, or potentially longer, to recover, assuming there is an accompanying economic recovery. We are hopeful, but we need to remain realistic and cautious. Despite what Wall Street is saying, the future level of non-performing assets will be largely dependent on the recovery of the economy in general."
Net income for the Banking Segment was $2.0 million for 2009, compared with $4.5 million reported for the prior fiscal year.
Total loans were $452.5 million at December 31, 2009. Commercial loans were the only category that had significant growth during 2009, up $17.2 million, or 5.95 percent, to $306.0 million. Offsetting this increase was a decrease in Residential Portfolio loans of $14.9 million, or 13.8 percent caused by heavy refinancing during 2009. The Serviced Residential Mortgage Portfolio now exceeds $200 million as of year-end, and provides for a relatively significant annuity earnings stream going forward.
Total deposits at December 31, 2009 were $491.2 million, compared to $484.2 million at December 31, 2008. The cost of deposits dropped to 1.12 percent for the fourth quarter 2009, compared to the year-ago quarter of 2.00 percent. "This reduction in funding cost is attributable to the successful management of the balance sheet to a liability-sensitive position that took advantage of falling interest rates throughout 2008. We are now focusing on extending our liabilities and shortening the duration of assets to become more "asset-sensitive" to position our balance sheet for increasing interest rates," commented Mr. Joyce. "Our balance sheet management has been very successful as our net interest margin continues to hover around 4.00 percent at the bank level. Our acquisitions over the past 3 years and resulting liquidity improvement have made it possible to price our deposits downward more aggressively than our competition," continued Joyce. State Bank's deposit mix continues to shift toward core transaction deposits (DDA, NOW, SAV & MMA), which accounted for 55.9 percent of total deposits for 2009, compared with 49.9 percent at prior year-end.
ASSET QUALITY
Provision for Loan Losses were $5.7 million in 2009, compared to $690 thousand in 2008. The 2009 fourth quarter provision for loan losses was $3.5 million, compared to $138 thousand for the year-ago quarter. For 2009, the net charge-offs totaled $3.8 million, or 0.84 percent of average loans.
(Dollars in thousands except
percent data)
4Q
ASSET QUALITY 4Q 2009 3Q 2009 2008
------------------------------ ------- ------- ------
Net charge-offs $2,547 $837 $280
Net charge-offs to avg. loans
(Annualized) 2.19% 0.73% 0.27%
Non-performing loans $18,543 $9,646 $5,178
OREO + OAO $1,775 $1,748 $1,409
Non-performing assets (NPA's) $20,319 $11,394 $6,587
NPA / Total assets 3.02% 1.69% 1.00%
Allowance for loan losses $7,030 $5,934 $5,020
Allowance for loan losses /
Loans 1.55% 1.32% 1.12%
Non-performing assets (loans + OREO + OAO) were $20.3 million, or 3.02 percent, of total assets at December 31, 2009, an increase of $8.9 million from the linked quarter. In addition to the above mentioned non-performers, total restructured loan balances declined to $1.4 million for the fourth quarter, compared to $6.9 million reported last quarter. Approximately $5.8 million of previous quarters reported Troubled Debt Restructured loans deteriorated to Non-Performing Assets during the quarter. Excluding the Troubled Debt Restructured loans, there was only one large $3.3 million Commercial Real Estate credit that was added to the non-performing loan category during the quarter. Delinquency trends continue to remain steady at 3.77 percent, including all non-performing assets.
RDSI RESULTS
Revenue for the Data and Item Processing segment was $20.3 million, down $1.3 million compared to the $21.6 million reported for year-end 2008. For the fourth quarter, revenue totaled $4.5 million compared to the linked quarter of $5.2 million. Operating expenses totaled $18.9 million in 2009, compared to $17.3 million in 2008, reflecting a $1.6 million, or 9.4 percent increase. This increase is related to the accelerated depreciation of the ITI software and hardware and expenses incurred at RDSI for the ramp-up to convert clients to the Single Source(TM) system. RDSI continues to provide data and item processing services to a total of 110 community banks at year-end 2009.
Net Income for the 2009 fiscal year was $875 thousand, compared to $2.82 million for the 2008 fiscal year. "RDSI's planned acquisition of intellectual property, by signing the Merger Agreement with New Core Banking Systems for the contemplated merger, will position the Company for 2010, and the years ahead. As previously stated, we expect 2010 to be a very challenging year for RDSI from an earnings perspective; however, the excitement in the market for this new product continues to grow," said Mr. Joyce.
Mr. Joyce concluded, "RDSI has always prided itself in providing outstanding customer service and value and delivering on that promise. These factors were certainly instrumental in RDSI reaching an agreement to partner, and ultimately merge with, New Core Banking Systems, which prides itself on product development and sales. We are excited about the opportunities that New Core and its Single Source(TM) software provides. We have filed an initial Form 10 Registration Statement with the SEC and continue to move forward in contemplation of a spin-off of RDSI and merger with New Core."
ABOUT RURBAN FINANCIAL CORP.
Rurban Financial Corp. is a publicly-held financial services holding company based in Defiance, Ohio. Rurban's wholly-owned subsidiaries are The State Bank and Trust Company, including Reliance Financial Services and RDSI Banking Systems (RDSI), including DCM. The State Bank and Trust Company offers financial services through its 19 banking centers in Allen, Defiance, Fulton, Lucas, Paulding, Williams and Wood Counties, Ohio and Allen County, Indiana and a Loan Production Office in Franklin County, Ohio. Reliance Financial Services, a division of the Bank, offers a diversified array of trust and financial services to customers throughout the Midwest. RDSI and DCM provide data and item processing services to community banks in Arkansas, Illinois, Indiana, Kansas, Michigan, Missouri, Nebraska, Nevada, Ohio and Wisconsin. Rurban's common stock is quoted on the NASDAQ Global Market under the symbol RBNF. The Company currently has 10,000,000 shares of stock authorized and 4,861,779 shares outstanding. The Company's website is http://www.rurbanfinancial.net.
FORWARD-LOOKING STATEMENTS
Certain statements within this document, which are not statements of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties and actual results may differ materially from those predicted by the forward-looking statements.
