Cautionary Statement Regarding Forward-Looking Information

Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance. Examples of forward-looking statements include: (a) projections of income or expense, earnings per share, the payments or non-payments of dividends, capital structure and other financial items; (b) statements of plans and objectives of the Company or our management or Board of Directors, including those relating to products or services; (c) statements of future economic performance; and (d) statements of assumptions underlying such statements. Words such as "anticipates," "believes," "plans," "intends," "expects," "projects," "estimates," "should," "may," "would be," "will allow," "will likely result," " will continue," "will remain," or other similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying those statements. Forward-looking statements are based on management's expectations and are subject to a number of risks and uncertainties. Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include, without limitation, changes in interest rates, changes in the competitive environment, and changes in banking regulations or other regulatory or legislative requirements affecting bank holding companies. Additional detailed information concerning a number of important factors which could cause actual results to differ materially from the forward-looking statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations is available in the Company's filings with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, including the disclosure under the heading "Item 1A. Risk Factors" of Part I of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008. Undue reliance should not be placed on the forward-looking statements, which speak only as of the date hereof. Except as may be required by law, the Company undertakes no obligation to update any forward-looking statement to reflect unanticipated events or circumstances after the date on which the statement is made.

Overview of Rurban

Rurban is a bank holding company registered with the Federal Reserve Board. Rurban's wholly-owned subsidiary, The State Bank and Trust Company ("State Bank" or "The Bank"), is engaged in commercial banking. Rurban's technology subsidiary, Rurbanc Data Services, Inc. ("RDSI"), provides computerized data and item processing services to community banks and businesses.

Rurban Statutory Trust I ("RST") was established in August 2000. In September 2000, RST completed 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 of the Company with terms substantially similar to the Capital Securities. The sole assets of RST are the junior subordinated debentures, and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee by the Company of the obligations of RST under the Capital Securities.

Rurban Statutory Trust II ("RST II") was established in August 2005. In September 2005, RST II completed 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 of the Company with terms substantially similar to the Capital Securities. The sole assets of RST II are the junior subordinated debentures, and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee by the Company of the obligations of RST II under the Capital Securities.

RFCBC, Inc. ("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.

Rurban Investments, Inc. ("RII") is a Delaware corporation and a wholly-owned subsidiary of the Bank that was incorporated in January 2009. RII holds mortgage backed and municipal securities.

Recent Regulatory Developments

On February 27, 2009, the Board of Directors of the Federal Deposit Insurance Corporation ("FDIC") voted to amend the restoration plan for the Deposit Insurance Fund. The changes that are expected to affect the Company include a special assessment, a change in the assessment rates and a change to the assessment system, which includes higher rates for institutions that rely significantly on secured liabilities.

The FDIC proposed to impose a special assessment on insured institutions of 20 basis points on outstanding deposits as of June 30, 2009. This assessment is to be collected on September 30, 2009. The interim rule would also permit the Board to impose an emergency special assessment after June 30, 2009, of up to 10 basis points on outstanding deposits, if deemed necessary by the Board. This interim rule was subject to a 30 day comment period and is subject to change. On March 5, 2009, the FDIC announced its intention to cut the agency's planned special emergency assessment in half, from 20 to 10 basis points, provided that Congress clears legislation expanding the FDIC's line of credit with the Treasury to $100 billion.

Previously, most banks in the best risk category paid anywhere from 12 cents per $100 of deposits to 14 cents per $100 of deposits for insurance. Under the final rule, beginning April 1, 2009, banks in this category will pay initial base rates ranging from 12 cents per $100 to 16 cents per $100 on an annual basis.

Finally, changes to the assessment system include higher rates for institutions that rely significantly on secured liabilities. These liabilities can include brokered deposits and FHLB advances. The Company had no brokered deposits at March 31, 2009, and has not utilized brokered deposits in the past. The Company does, however, utilize FHLB advances and, as such, could experience higher assessments as a result.

On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (EESA), which creates the Troubled Asset Relief Program ( "TARP") and provides the U.S. Treasury with broad authority to implement certain actions to help restore stability and liquidity to U.S. markets. On October 14, 2008 the U.S. Treasury announced a voluntary Capital Purchase Program pursuant to TARP to encourage U.S. financial institutions to build capital to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy. Under the program, Treasury will purchase up to $250 billion of senior preferred shares on standardized terms as described in the program's term sheet. The program was made available to qualifying U.S. controlled banks, savings associations, and certain bank and savings and loan holding companies engaged only in financial activities that applied to participate before 5:00 pm (EDT) on November 14, 2008.

On November 12, 2008, the Company announced that, after a careful review of the Company's strategic plan, its capital position, and the constraints and uncertainties of the TARP Capital Purchase Program, the Company's Board of Directors elected not to apply or participate in the U.S. Treasury's Capital Purchase Program.

Also announced on October 14, 2008 by the FDIC was a Temporary Liquidity Guarantee Program (TLGP) designed to strengthen confidence and encourage liquidity in the banking system. The new program will guarantee newly issued senior unsecured debt of eligible institutions, including FDIC-insured banks and thrifts, as well as certain holding companies.

After careful consideration of the risks and benefits of the Temporary Liquidity Guarantee Program the Company has concluded that it will not participate in the program.

Finally, as part of the TLGP the FDIC also announced that it would provide a temporary 100% guarantee of all balances in non-interest-bearing transaction accounts ("Transaction Account Guarantee Program"). This coverage is for traditional checking accounts that don't earn interest. The extended coverage under the FDIC's Transaction Account Guarantee Program will continue through December 31, 2009.

The Company evaluated the benefits of the Transaction Account Guarantee Program and elected to participate in the program.

Critical Accounting Policies

Note 1 to the Notes to the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008 describes the significant accounting policies used in the development and presentation of the Company's financial statements. 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 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 the 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. To the extent that actual results differ from management's estimates, additional loan loss provisions may be required that could adversely impact earnings for future periods.

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 or 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. A decrease in earnings resulting from these or other factors could lead to an impairment of goodwill that could adversely impact earnings of future periods.

Impact of Accounting Changes

None

Three Months Ended March 31, 2009 compared to Three Months Ended March 31, 2008

Net Income: Net income for the first quarter of 2009 was $1.10 million, or $0.23 per diluted share, compared to $1.11 million, or $0.22 per diluted share, for the first quarter of 2008. The quarter reflects a $1.20 million increase in net interest income. This increase is partially offset by an increase in the provision for loan losses of $303,000, a decrease of $68,000 in non-interest income, and an increase of $874,000 in non-interest expense. The primary driver of the increase in net interest income was an increase of $62.8 million in average earning assets, acquired mainly in the acquisition of National Bank of Montpelier (NBM), coupled with a 41 basis point increase in the net interest margin. The increase in non-interest expense was driven by the addition of five retail branches associated with the purchase of NBM.

Net Interest Income: Net interest income was $5.02 million, an increase of $1.20 million, or 31.4 percent, from the 2008 first quarter. As previously mentioned average earning assets increased $62.8 million, or 12.6 percent, over the 12-month period. The increase in earning assets is a result of loan growth over the past twelve months of $42.1 million, or 10.7 percent, reaching $434.1 million at March 31, 2009. This growth was due mainly to NBM as $43.7 million in loans were acquired. Sixty-five percent of State Bank's loan portfolio is commercial, and $22.9 million of the Bank's growth was derived from this sector, with $16.8 million derived from residential growth. Loan balances declined during the first quarter of 2009, decreasing $16.1 million, or 14.3 percent annualized, from the fourth quarter of 2008. The decrease in loans is largely attributable to residential loans, which decreased $8.11 million during the quarter. This was due to refinancing activities, as the Company refinanced portfolio loans and sold them into the secondary market. Commercial loans accounted for an additional $6.45 million decrease from year end. This was due to several pay downs and pay-offs of commercial credits where the borrower was deleveraging, or sold a portion of their company. Year-over-year, the net interest margin increased 41 basis points from 3.26 percent for the first quarter 2008 to 3.67 percent for the first quarter 2009. The 3.67 percent represents a 16 basis point decrease from the linked quarter of 3.83 percent. The year-over-year increase is a result of being liability sensitive in a decreasing rate environment. Management's focus will now turn to becoming asset sensitive as we feel rates are nearing their low points and that rates will start to increase into the future.

Provision for Loan Losses: The provision for loan losses was $495,000 in the first quarter of 2009 compared to a $192,000 provision for the first quarter of 2008. The Company experienced a slight increase in losses quarter over quarter, which is reflected in net charge-offs of $167,000 compared to $166,000 of net charge-offs in the 2008 first quarter. For the first quarter ended March 31, 2009, net charge-offs as a percentage of average loans was 0.15 percent annualized. At quarter end, consolidated non-performing assets, including those of RFCBC (the loan workout subsidiary), were $10.6 million, or 1.59 percent of total assets compared with $7.00 million, or 1.22 percent of total assets for the prior-year first quarter.

                                                      March 31,        December 31,        March 31,
($ in Thousands)                                         2009              2008               2008
Net charge-offs                                      $        167     $           280     $        166
Non-performing loans                                        9,163               5,178            5,305
OREO / OAO                                                  1,426               1,409            1,662
Non-performing assets                                      10,589               6,587            6,967
Non-performing assets / Total assets                         1.59 %              1.00 %           1.22 %
Allowance for loan losses / Total loans                      1.23 %              1.12 %           1.02 %
Allowance for loan losses / Non-performing assets            50.5 %              76.2 %           57.6 %

Non-performing assets (loans + OREO + OAO = NPA) were $10.6 million, or 1.59 percent, of total assets at March 31, 2009, an increase of $3.6 million from a year-ago and $4.00 million from the linked quarter. The acquisition of the National Bank of Montpelier has increased non-performing assets, adding 28 basis point to our ratio compared to the linked quarter. Management has been aggressive in classifying and collecting these problem loans. The Company also had a $1.8 million loan go ninety days past due and was moved into non-performing status. Management has aggressively reserved for what is seen as the potential loss on this credit during the first quarter. In addition to the above mentioned non-performers, management was very proactive in reaching out to customers to restructure loans. During the first quarter, approximately $6.8 million in loans were restructured and are currently paying under the new terms.

Non-interest Income: Non-interest income was $7.45 million for the first quarter of 2009 compared with $7.52 million for the prior-year first quarter, a decrease of $68,000, or 0.90 percent. The flat results were primarily driven by the increase in the gain on sale of loans of $803,000, data service fees decreased $292,000, and Trust Fees decreased $271,000. Also accounting for the year-over-year decrease are net proceeds from the VISA IPO of $132,000 and the recovery on investment securities of $197,000, which were received in the first quarter of 2008. Non-interest income accounted for approximately 60 percent of Rurban's total first quarter 2009 revenue. RDSI also has a strong pipeline of prospects, but this will be a challenging year, as we expect to have offsetting client losses as banks seek to lower their costs. Offsetting our projected new business is the loss of our largest client bank in the fourth quarter of 2009. We continue to position RDSI for a strong recovery on the other side of this economic environment.

Non-interest Expense: Non-interest expense was $10.5 million for the first quarter of 2009, compared with $9.60 million for the first quarter of 2008. The acquisition of NBM contributed approximately $488,000 of this increase. Incentive salaries linked to mortgage production totaled $400,000 for the quarter. Additionally, an impairment charge of $150,000 on mortgage servicing rights associated with the Company's serviced loan portfolio was taken in the first quarter of 2009.

Changes in Financial Condition

March 31, 2009 vs. December 31, 2008

At March 31, 2009, total assets were $665.8 million, representing an increase of $8.19 million, or 1.3 percent, from December 31, 2008. The increase is primarily attributable to an increase of $25.3 million, or 24.6 percent in available-for-sale securities, and an increase in loans held for sale of $5.27 million or 137.8 percent. Loan balances decreased $16.1 million, or 3.6 percent. Cash and cash equivalents decreased $5.04 million, or 18.0 percent.

Year- over-year, average assets increased $99.2 million, or 17.5 percent. Loan growth over the past twelve months was approximately $42.1 million, or 10.7 percent, reaching $434.1 million at March 31, 2009; this growth was primarily due to the acquisition of NBM. Commercial loan growth accounted for $22.9 million of the Bank's growth, with $16.8 million derived from residential growth.

At March 31, 2009, liabilities totaled $602.2 million, an increase of $6.24 million since December 31, 2008. Of this increase, significant changes include customer repurchase agreements, which increased $4.47 million (10.3 percent); total deposits increased $3.41 million (0.70 percent) and notes payable increased $1.5 million (150 percent). Other liabilities decreased $2.32 million (28.7 percent). Of the $3.41 million increase in total deposits, savings, interest checking and money market deposits increased $12.8 million while time deposits decreased $9.38 million. The decrease in time deposits was due to excess liquidity which allowed management to run off higher cost municipal deposits.

From December 31, 2008 to March 31, 2009, total shareholders' equity increased $1.96 million, or 3.18 percent, to $63.6 million. Of this increase, retained earnings increased $665,000, which is the result of $1.10 million in net income less $439,000 in cash dividends to shareholders. Additional paid-in-capital increased $30,000 as the result of share-based compensation expense incurred during the year. Accumulated other comprehensive income increased $1.34 million as the result of an increase in market value of the available-for-sale securities portfolio. The stock repurchase plan also reduced capital by $80,000 during the first three months of 2009.

Capital Resources

At March 31, 2009, actual capital levels (in millions) and minimum required
levels were as follows:

                                                                                             Minimum Required
                                                           Minimum Required               To Be Well Capitalized
                                                             For Capital                  Under Prompt Corrective
                                 Actual                   Adequacy Purposes                 Action Regulations
                          Amount         Ratio         Amount            Ratio            Amount              Ratio

Total capital (to
risk weighted assets)
Consolidated            $     60.7          13.5 %   $      36.0              8.0 %   $            -              N/A
State Bank                    50.7          11.6            35.1              8.0               43.9             10.0

Both the Company and State Bank were categorized as well capitalized at March 31, 2009.

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 $160.0 million at March 31, 2009 compared to $134.5 million at December 31, 2008.

The Company's commercial real estate and residential first mortgage portfolio of $257.8 million at March 31, 2009 and $211.4 million at December 31, 2008, which can and has been 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 March 31, 2009, 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 the three months ended March 31, 2009 and 2008 follows.

The Company experienced negative cash flows from operating activities for the three months ended March 31, 2009 and positive cash flows for the three months ended March 31, 2008. Net cash used in operating activities was $6.17 million for the three months ended March 31, 2009. Net cash provided in operating activities was $2.18 million for the three months ended March 31, 2008.

Net cash flow from investing activities was a use of cash of $7.15 million and $6.50 million for the three months ended March 31, 2009 and 2008, respectively. The changes in net cash from investing activities at March 31, 2009 included available-for-sale securities purchases totaling $37.7 million. These cash payments were offset by $10.9 million in proceeds from maturities of available-for-sale securities, $15.7 million in net changes from loans and $3.39 million in proceeds from the sale of available-for-sale securities. The changes in net cash from investing activities at March 31, 2008 included the purchase of available-for-sale securities of $36.2 million, partially offset by the proceeds from maturities or calls of available-for-sale securities of $35.0 million, the net change in loans of $4.5 million, and the purchases of premises and equipment of $1.2 million.

Net cash flow from financing activities was $8.28 million and $9.29 million for the three month periods ended March 31, 2009 and 2008, respectively. The 2009 financing activities included a $12.8 million increase in demand deposits, money market, interest checking and savings accounts, which were offset by a $9.38 million decrease in certificates of deposits. Proceeds from advances from the Federal Home Loan Bank totaled $2.0 million, repurchase agreements increased $4.47 million and proceeds from notes payable totaled $1.5 million. Offsetting this increase were repayments of Federal Home Loan Bank advances of $2.59 million and cash dividends paid to shareholders of $439,000. The net cash provided by financing activities at March 31, 2008 was primarily due to a net . . .