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 "and in "Item 1A. Risk Factors" of Part II of the Quarterly Report on form 10-Q". 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 May 22, 2009, The Board of Directors of the Federal Deposit Insurance Corporation (the "FDIC") issued a final rule imposing a special assessment on insured institutions as part of the agency's efforts to rebuild the Deposit Insurance Fund (DIF) and help maintain public confidence in the banking system. The final rule established a special assessment of five basis points on each FDIC-insured depository institution's assets, minus its Tier 1 capital, as of June 30, 2009. The special assessment will be collected September 30, 2009. State Bank and Trust expensed $300,000 for this assessment during the second quarter of 2009. In its final rule, the FDIC also announced that another five basis point special assessment later in 2009 is probable.

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 was authorized to 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 concluded that it would 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 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 June 30, 2009 compared to Three Months Ended June 30, 2008

Net Income: Net income for the second quarter of 2009 was $1.00 million, or $0.20 per diluted share, compared to $1.36 million, or $0.28 per diluted share, for the second quarter of 2008. The quarter reflects an increase in non-interest expense of $2.00 million and an increase in the provision for loan losses of $586 thousand. These items are partially offset by a $929 thousand increase in net interest income and a $1.10 million increase in non-interest income. The primary driver of the increase in net interest income was an increase of $64.7 million in average earning assets, acquired mainly in the acquisition of National Bank of Montpelier (NBM), coupled with a 27 basis point increase in the net interest margin. The main driver behind the increase in non-interest income was mortgage banking and associated fees and loan sale gains, as production for the second quarter of 2009 was $66.7 million compared with $11.5 million for the 2008 second quarter. The increase in non-interest expense was driven by the addition of five retail branches associated with the purchase of NBM, additional expenses associated with mortgage banking and the one-time $300 thousand FDIC assessment.

Net Interest Income: Net interest income was $5.36 million, an increase of $929,000, or 21.0 percent, from the 2008 second quarter. As previously mentioned, average earning assets increased $64.7 million, or 12.7 percent, over the prior year second quarter. The increase in earning assets is a result of loan growth over the past twelve months of $36.8 million, or 9.1 percent, reaching $441.2 million at June 30, 2009. This growth was due mainly to NBM as $43.7 million in loans were acquired. Sixty-six percent of State Bank's loan portfolio is commercial, and $17.9 million of the Bank's growth was derived from this sector, with $14.0 million derived from residential growth. Loan balances declined during the second quarter of 2009, decreasing $8.90 million, or 3.9 percent annualized, from the fourth quarter of 2008. The decrease in loans is largely attributable to residential loans, which decreased $13.3 million during the first half of 2009. This was due to refinancing activities, as the Company refinanced portfolio loans and sold them into the secondary market. Commercial loans increased $10.4 million from the previous quarter end. Year-over-year, the net interest margin increased 27 basis points from 3.55 percent for the second quarter 2008 to 3.82 percent for the second quarter 2009. The 3.82 percent represents a 15 basis point increase from the linked quarter of 3.67 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 $799,000 for the second quarter of 2009 compared to a $213,000 provision for the second quarter of 2008. The Company experienced an increase in losses quarter over quarter, which is reflected in net charge-offs of $275,000 compared to $18,000 of net recoveries in the 2008 second quarter. For the second quarter ended June 30, 2009, net charge-offs as a percentage of average loans was 0.25 percent annualized. At quarter end, consolidated non-performing assets were $11.5 million, or 1.74 percent of total assets compared with $6.71 million, or 1.16 percent of total assets for the prior-year second quarter.

                                                      June 30,      December 31,       June 30,
($ in Thousands)                                        2009            2008             2008
Net charge-offs                                      $      275     $         280     $      (18 )
Non-performing loans                                 $   10,173     $       5,178     $    5,141
OREO / OAO                                           $    1,346     $       1,409     $    1,566
Non-performing assets                                $   11,519     $       6,587     $    6,707
Non-performing assets / Total assets                       1.74 %            1.00 %         1.16 %
Allowance for loan losses / Total loans                    1.33 %            1.12 %         1.04 %
Allowance for loan losses / Non-performing assets          51.0 %            76.2 %         63.3 %

Non-interest Income: Non-interest income was $7.90 million for the second quarter of 2009 compared with $6.80 million for the prior-year second quarter, an increase of $1.10 million, or 16.1 percent. The second quarter results were primarily driven by the increase in the gain on sale of loans of $755,000 and gains on the sale of securities of $424,000. The increases were partially offset by trust fees which decreased $175,000 quarter over quarter. Non-interest income accounted for approximately 63 percent of Rurban's total second quarter 2009 revenue. Offsetting projected new business at RDSI is the loss of RDSI's largest client bank in the third quarter of 2009.

On July 28, 2009 RDSI reached an agreement with Information Technology, Inc. and Fiserv Solutions, Inc. (collectively, "Fiserv") to wind down their licensing relationship. After December 31, 2010 Fiserv will no longer license its Premier suite of products to RDSI and RDSI will exclusively market New Core Banking Systems' Single Source™. RDSI customers which presently rely on the Premier platform will be provided the opportunity to continue their processing with RDSI and convert to Single Source™, or to move their processing to Fiserv and continue to use Premier. RDSI and Fiserv have agreed to cooperate in transitioning RDSI clients to their choice of core software prior to December 31, 2010.

In accordance with the above-referenced agreement, on July 30, 2009, Fiserv dismissed the civil action it filed against RDSI relating to the Premier license agreements. The civil action, which was filed by Fiserv on May 20, 2009 in the United States District Court for the District of Nebraska, was previously disclosed on the Form 8-K filed by the Company on May 29, 2009.

Non-interest Expense: Non-interest expense was $11.1 million for the second quarter of 2009, compared with $9.11 million for the second quarter of 2008. The acquisition of NBM contributed approximately $407,000 of this increase. The special FDIC assessment was $300,000, and $190,000 of expenses was incurred related to the potential RDSI spin-off and merger with New Core. Mortgage banking expenses increased $572,000 quarter-over-quarter. Offsetting these expenses was the recovery of impairment on mortgage servicing rights associated with the Company's serviced loan portfolio of $125,000.

Six Months Ended June 30, 2009 compared to Six Months Ended June 30, 2008

Net Income: Rurban had net income of $2.11 million or $0.43 per diluted share for the six months ended June 30, 2009, compared to $2.47 million or $0.50 per diluted share for the six months ended June 30, 2008. This represents a $358,000, or 14.5 percent, decrease in comparison of the six-month periods. Significant changes from period to period include an increase in non-interest expenses of $2.87 million and an increase in loan loss provision of $889 thousand. Offsetting these items are an increase in net interest income of $2.13 million and a $1.03 million increase in non-interest income.

Net Interest Income: For the six months ended June 30, 2009, net interest income was $10.4 million, an increase of $2.13 million or 25.8 percent, from the six-month period ended June 30, 2008. This increase is primarily the result of the acquisition of the five banking centers in Williams County, coupled with a 40 basis point increase in the year-over-year net interest margin. The ability to restructure the balance sheet from a negative gap to a positive gap over the past six to nine months has been instrumental to the increase in the net interest margin over that time frame.

Provision for Loan Losses: The provision for loan losses was $1.29 million for the six months ended June 30, 2009, compared to $405,000 for the six months ended June 30, 2008. The additional loan loss is reflective of deterioration of four specific credits. While an additional $1.10 million was allocated to these four credits, several other credits improved and the associated reserves were accordingly reduced.

Non-interest Income: Non-interest income was $15.3 million for the six months ended June 30, 2009, compared with $14.3 million for the six months ended June 30, 2008. The first six months of 2009 saw a $1.56 million increase in gains on sale of loans and mortgage servicing rights associated with sold loans. Gains on the sale of securities contributed an additional $478,000. Offsetting these items were trust fee income, which decreased $446,000 from the prior year, due to the poor equity markets, and proceeds from the VISA IPO of $132,000 and investment security recoveries of $197,000, both of which were one-time items in 2008.

Non-interest Expense: For the six months ended June 30, 2009, total non-interest expense was $21.6 million compared with 18.7 million for the six months ended June 30, 2008. This represents a $2.87 million, or 15.4 percent, increase period over period. Of the overall increase, salary and benefits expense accounted for $1.35 million, due primarily to the addition of the five Williams County branches and numerous growth initiatives. Occupancy expenses were $507,000 more than the prior year six month period, again due to the addition of the five Williams County branches. Professional fees increased $286,000 year-over-year, primarily due to the one-time FDIC assessment of $300,000 and legal fees of $190,000 associated with the contemplated RDSI spin-off and potential merger of RDSI with New Core.

Changes in Financial Condition

June 30, 2009 vs. December 31, 2008

At June 30, 2009, total assets were $661.5 million, representing an increase of $3.93 million, or 0.60 percent, from December 31, 2008. The increase is primarily attributable to an increase of $7.38 million, or 7.19 percent in available-for-sale securities, and an increase in loans held for sale of $9.49 million. Loan balances decreased $8.89 million, or 1.98 percent. Cash and cash equivalents decreased $2.44 million, or 8.70 percent.

Year- over-year, average assets increased $90.3 million, or 15.8 percent. Loan growth over the past twelve months was approximately $36.8 million, or 9.09 percent, reaching $441.2 million at June 30, 2009; this growth was primarily due to the acquisition of NBM. Commercial loan growth accounted for $17.9 million of the Bank's growth, with $14.0 million derived from residential growth.

At June 30, 2009, liabilities totaled $598.1 million, an increase of $2.18 million since December 31, 2008. Of this increase, significant changes include federal funds purchased, which increased $10.0 million, advances from the Federal Home Loan Bank, which increased $3.82 million and notes payable, which increased $1.56 million. Offsetting the increases was a decrease of $11.2 million in total deposits, as time deposits decreased $23.0 million, while savings, interest checking and money market deposits increased $11.7 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 June 30, 2009, total shareholders' equity increased $1.75 million, or 2.84 percent, to $63.4 million. Of this increase, retained earnings increased $1.23 million, which is the result of $2.11 million in net income less $877,000 in cash dividends to shareholders. Additional paid-in-capital increased $60,000 as the result of share-based compensation expense incurred during the year. Accumulated other comprehensive income increased $600,000 as the result of an increase in market value of the available-for-sale securities portfolio. The stock repurchase plan reduced capital by $139,000 during the first six months of 2009.

Capital Resources

At June 30, 2009, actual capital levels (in millions) and minimum required
levels were as follows:

                                                                                                  Minimum Required To Be Well
                                                      Minimum Required For Capital Adequacy        Capitalized Under Prompt
                                 Actual                             Purposes                     Corrective Action Regulations
                          Amount         Ratio          Amount                     Ratio             Amount            Ratio
Total capital (to
risk weighted assets)
Consolidated            $     63.2          13.7 %   $        36.8                       8.0 %   $             -           N/A
State Bank                    51.5          11.6              35.6                       8.0                44.5          10.0

Both the Company and State Bank were categorized as well capitalized at June 30, 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 $148.9 million at June 30, 2009 compared to $134.5 million at December 31, 2008.

The Company's commercial real estate and residential first mortgage portfolio of $261.8 million at June 30, 2009 and $269.5 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 June 30, 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 six months ended June 30, 2009 and 2008 follows.

The Company experienced negative cash flows from operating activities for the . . .