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EXHIBIT
99.1
RURBAN
FINANCIAL CORP.
Moderator:
Valda Colbart
April
29, 2010
4:00
pm ET
Operator: Good
afternoon and welcome, ladies and gentlemen, to the Rurban Financial Corp. First
Quarter 2010 Financial Results Conference Call and Webcast.
At this
time, I would like to inform you that this conference call is being recorded and
that all participants are in a listen-only mode. We will open the
conference up to the investment community for questions and answers following
the presentations.
I will
now turn the conference over to Valda Colbart, Investor Relations
Officer. Please go ahead.
Valda
Colbart: Good afternoon everyone. I would like to remind
you that this conference call is being broadcast live over the Internet and will
also be archived and available at our website, www.rurbanfinancial.net, until
May 20, 2010.
Joining
me today are Ken Joyce, Executive Vice Chairman, Mark Klein, President and Chief
Executive Officer, and Tony Cosentino, Chief Financial Officer.
Before we
get started, I’d like to make our usual Safe Harbor statement and remind
everyone that comments made during this conference call regarding Rurban’s
anticipated future performance are forward looking, and therefore, involve risks
and uncertainties that could cause the results or developments to differ
significantly from those indicated in these statements. These risks
and uncertainties include, but are not limited to, risks and uncertainties
inherent in general and local banking, insurance and mortgage conditions,
competitive factors specific to markets in which the Company and its
subsidiaries operate, future interest rate levels, changes in local real estate
markets, legislative and regulatory decisions or capital market conditions and
other factors set forth in the company’s filings with the Securities and
Exchange Commission.
I will
now turn the call over to Mark Klein – Mark...
Mark
Klein: Thank you, Valda and good afternoon everyone and
welcome. I would like to start today’s call by introducing the newest
member of our Executive Management Team, Tony Cosentino.
Tony
joined us March 1st as an Executive Vice President and successor CFO and brings
a wealth of experience to the banking industry, specifically
Rurban. Tony was recently appointed CFO for Rurban and The State Bank
and Trust Company by our Board of Directors at the April meeting. As
we have mentioned in the past, our technology subsidiary, RDSI Banking Systems,
is slated for spin-off and Duane Sinn, Rurban’s former CFO, is transitioning to
RDSI to become CFO of this business segment.
Regarding
RDSI, we continue to make progress on the separation of the two
companies. Significantly, on March 19th State Bank converted to the
Single Source™ banking software. The conversion of State Bank was a
critical milestone in the process to establish RDSI as a separate
entity. We continue to anticipate the spin-off of RDSI occurring in
the very near term.
We have
begun to see some positive signs in our marketplace, and especially in our level
of non-performing assets; however, the distressed economic conditions negatively
impacted our earnings by way of our increased loan loss provision. In
addition, the quarter included significant expenses related to the pending
spin-off of RDSI. For the quarter, Rurban reported a loss of
$848,000. State Bank, however, reported earnings for the quarter of
$538,000, which included a loan loss provision of $1.4 million, up nearly
$900,000 from the first quarter of 2009.
Non-performing
assets, which were above $20 million at year-end, have declined significantly
during the first quarter. Non-performers now stand at approximately
$16 million, a drop of approximately $4.3 million, or a 21%
reduction. Our ratio of non-performing assets to total assets has
declined to 2.38 %, down from 3.02% at year-end.
At this
time, I’d like to turn the meeting over to Ken Joyce for an update on the events
surrounding RDSI – Ken…
Ken
Joyce: Well, thank you, Mark. And as you know, Mark Klein
has succeeded me as CEO and President of Rurban Financial
Corp.
The Board
of Directors has worked carefully to ensure a smooth and orderly transition of
management and Mark has been carefully chosen for his new role. He
has displayed outstanding leadership capabilities over the 4-plus years he’s
been at Rurban, and I am excited about him taking the reins of Rurban and taking
it to a higher performance level. I am transitioning to take an
exclusive role with RDSI, Rurban’s data processing company, as its President and
CEO.
In 2008,
RDSI began to seek a vendor that would fit its spin-off plans and allow it to
own the core programming it was offering to its client banks. The
criteria for this partnership was very specific and we found one partner that
met our requirements, New Core Banking Systems, and we entered a strategic
partnership with them in 2009 in what is intended to end up with RDSI and New
Core Banking Systems merging and offering the new core banking system… Single
Source™. RDSI will be servicing client banks exclusively with Single
Source™ software beginning January 2011.
New Core
Banking Systems was established in 2004 as a vision of John Aranowicz, the
founder of the Company. New Core was formed to create a new core
system that uses the latest technology instead of the 30-plus year-old
technology of the legacy systems offered by most of the old-line core provider
companies. The developer group that has been brought together under
the New Core Banking System’s banner is experienced in banking and program
development, with an average for the lead developers of over 18 years in bank
software development. The core of this group has been responsible for
the development of well-known and well-tested banking products in their
careers. They are also all plank holders, as they have been part of
the development process and ownership structure since the Company’s
inception.
As Mark
mentioned, RDSI converted Rurban’s lead bank, The State Bank and Trust Company,
on March 19th to the
Single Source™ system. The system has been stable since the
conversion and we have made substantial progress in strengthening the software,
having the advantage of it operating in a live site, with a large bank that has
a complex mix of services. Although we have identified many fixes and
enhancements, the introduction of the new core system has been a major
accomplishment for both RDSI and the staff at The State Bank and Trust
Company.
Rurban
continues to plan on a spin-off of RDSI as a separate company. The
documentation for this spin-off is detailed in the Form 10 that was most
recently submitted to the SEC on March 31, 2010 and is available on Rurban’s
website. Our comments, as a result of this filing, are by necessity
very limited in nature.
We expect
SEC comments shortly and we will respond to those comments with another filing,
and add to that next filing refreshed audited financial statements as of
year-end 2009 for both RDSI and New Core Banking Systems. We do not
control this process in any significant manner, other than making timely
responses, so we need to wait and carefully address the comments and continue to
move this process forward.
RDSI and
New Core Banking Systems continue to obtain additional contracts and have a full
calendar of conversions planned for the second half of 2010. Of the
original RDSI client banks, there are four pending decisions and RDSI has ten
banks under contract for the Single Source™ product, including State Bank and
Trust. The New Core Banking Systems group has six banks under
contract, with one of those banks, a South Carolina bank, currently operating
under the software and has been so for the last year plus.
I will
now turn the meeting over to Tony to provide the financial information on our
Company for the quarter – Tony...
Tony
Cosentino: Thank you, Ken. Good afternoon
everyone.
As Mark
has indicated earlier, the bottom-line result was not to our liking, but we feel
that the Company made major strides during the quarter to position ourselves for
the rest of 2010 and beyond.
Regarding
RDSI, as we have previously indicated, we have been accelerating the
depreciation of this – of the ITI software and that continued in the first
quarter. Specifically, the accelerated depreciation was $750,000, and
we booked an impairment of $568,000 at quarter-end to reflect the value of that
software. Normalizing these two expenses to the 2009 level would have
brought the Holding Company close to break-even for the quarter.
In
addition, we continued to file all of the necessary documentation with the SEC
and our primary regulators to complete the spin-off. We set aside
$1.4 million in loan loss provision for the quarter and had charge-offs totaling
$2.3 million. Both of these numbers are down from the linked quarter,
but are up significantly from the first quarter of 2009.
Our
improvement in non-performing assets for the quarter, down over $4.3 million,
was a key event for our bank. Management and the Board of Directors
have developed a plan to significantly improve asset quality in 2010 and we feel
the first quarter was a major step forward.
Our
balance sheet remained flat from the linked quarter with total assets of $674
million, up just slightly from the prior year. Deposit levels have
remained strong, up over $11 million from the prior year, and up over $7 million
from the linked quarter. Our percentage of core deposits has improved
to 57.6% of total deposits from 52.2% in March 2009. Our capital
ratios ended the quarter above the 12/31 level and, of course, above the
well-capitalized minimums.
Mark, I’m
going to turn the call back to you.
Mark
Klein: Great. Thank you, Tony. It is a pleasure
to have you on board with us.
As we
have discussed, while the results from this quarter are disappointing from a
bottom-line perspective, we do feel encouraged by the progress made on several
key initiatives. We’re especially pleased with the improvement in our
asset quality, as evidenced by decline in our non-performing
assets. These, coupled with continued expense control and meaningful
economic activity, we remain optimistic about our future.
Valda,
I’ll now turn the webcast back over to you to see if we have any questions from
our investment community.
Valda
Colbart: Thank you, Mark.
It’s now
time for the question-and-answer session. If you are using a
speakerphone, please pick up the handset before pressing any numbers and unmute
your phone. If you have a question, we would like you to press star 1
on your telephone. That’s star 1 if you have a question, and if for
some reason someone asks a question you would have liked to and you need to
withdraw your question, press star 2. So again if you have a
question, please press star 1 on your telephone and we will take the questions
in the order they are received. We’ll stand by for just a few
moments.
While we
are waiting, I would like to remind everyone that this call is being recorded
and is available on our website until May the 20th, at our
website, www.rurbanfinancial.net.
Operator: And
we’ll take a question from George Geissbuhler with Sweney Cartwright &
Company. Please go ahead.
George
Geissbuhler: Yes, this is more for Ken probably. How – how
you guys doing?
Ken
Joyce: All right, George, I’m here.
George
Geissbuhler: I had one question here. In your press
release you mentioned that you had lost some clients from the
RDSI.
Ken
Joyce: Yes.
George
Geissbuhler: Can you give some color on how many you had and how many
you lost, or any feel for the numbers there?
Ken
Joyce: Yes, we’ve – when we began we had in the low 70’s, in terms of
data processing customers.
George
Geissbuhler: Right.
Ken
Joyce: And we had some 40-plus item processing
customers. We’re going to – I don’t know exactly how many we have
through year-end, because they’re still converting off, but of those we have ten
contracts of that group and we have four pending for a decision, so of that
total the maximum number we’d get is 14. And then we’ve got the six
contracts from New Core Banking Systems, and beginning the process of selling,
but we’ve got the second half of 2010 that is really full, in terms of the
capability.
George
Geissbuhler: How many of those seven – do you think you can retain
them and – because I’ve always thought that RDSI is a real jewel and cash cow
for Rurban and want to see that machine running smoothly.
Ken
Joyce: Yes.
Ken
Joyce: Well, we’re going to spin it off and – I mean that is our
intent, and it’s going to be separate company, so we’re going to do rebuilding
of that structure and it’s going to look a lot like startup, as we have our –
our own intellectual property, which is our own software, so we’re – we’re going
to have a significant restructuring in 2010 and it’s going to be a – a very
challenging year. 2011 will be certainly probably better and we see
good years after that, but it’s going to take a while to – to recapture
that.
George
Geissbuhler: OK, thanks a lot.
Ken
Joyce: OK, George.
George
Geissbuhler: Appreciate it.
Ken
Joyce: Take care.
Operator: If
there are no further questions, I will now turn the conference back to Mark
Klein.
Mark
Klein: Thank you. We appreciate you taking the time to
listen to Rurban’s financial update, and goodbye for now and have a great
day.
Operator: All
parties may now disconnect.
END