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.

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.

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, . . .