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| 8-K - SB FINANCIAL GROUP, INC. | v209379_8k.htm |
EXHIBIT
99.1
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Rurban
Financial Corp.
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Ticker
Symbol:
RBNF
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Event:
Fourth
Quarter 2010
Earnings
Call
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DATE:
January
27, 2011; 1:00 PM EST
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[Operator]: Good
Afternoon and Welcome, Ladies and Gentlemen, to the Rurban Financial Corp.
Fourth Quarter 2010 Financial Conference Call and Web Cast. 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 & Answers following
the presentation. I will now turn the conference over to Linda
Sickmiller, Investor Relations. Please go ahead, Linda.
Linda
Sickmiller, Investor Relations
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
on our web site www.rurbanfinancial.net
until February 28, 2011. Joining me today are Mark Klein, President
and Chief Executive Officer, Tony Cosentino, Chief Financial Officer and Jon
Gathman, Executive Vice President and Senior Lending Officer.
This call
may contain forward looking statements regarding Rurban’s financial performance,
anticipated plans, operational results and
objectives. Forward-looking statements are based on management’s
expectations and are subject to a number of risks and uncertainties that could
cause actual results to differ materially from those expressed or implied in our
webcast today. We have identified a number of different factors
within the Forward Looking Statement at the end of our Earnings Release, and you
are encouraged to review those factors. Rurban undertakes no
obligation to update any forward looking statement, except as required by law,
after the date of this call.
I will
now turn the call over to Mark Klein. Please go ahead,
Mark.
Mark
A. Klein, President and Chief Executive Officer
Thank
you, Linda, and good afternoon everyone. First, I want to provide an overview of
Rurban’s performance this past quarter, including each of our two subsidiaries,
RDSI Banking Systems and The State Bank and Trust Company. Our CFO, Tony
Cosentino will then expand on my comments.
This
hasn’t been an easy year for Rurban, but for entirely different regions than for
most banks. Rurban escaped most of the recession-related impacts on asset
quality through prudent lending practices we learned in the previous credit
cycle. Our data services company, RDSI, has been the source of this past year’s
frustration. A very good, profitable company was turned on its head and we’ve
been working hard to turn it back in the right direction.
We
reported a $10 million loss for the year, primarily as a result of one-time
charges to fix RDSI. Results for the fourth quarter were an improvement over
earlier quarters, but still a disappointing loss of $853,000. This includes net
income for State Bank of $517,000, a loss of $870,000 at RDSI, plus corporate
overhead.
Our
priority has been to stabilize RDSI; reducing expenses to keep pace with the
revenues we lost from the de-conversion of data processing customers. We believe
we finally have RDSI under reasonable control with a major new item processing
customer on board and new products under development. We don’t have all the
answers just yet, but we are certainly getting closer every
quarter.
As we
shift our strategy to a new business model, based on item processing
exclusively, we look to generate a positive cash flow based on business already
on the books. At this time that means 44 client banks. Our revenues have finally
stabilized this past quarter, so we are no longer chasing a moving target as we
adjust our cost structure downward.
We do
have a few more steps to take before we have all of our costs in line with
current revenues. Going forward, we believe network, services, imaging and
consulting will generate additional revenue later this year, but we want to work
from a base plan that is profitable and cash flows with existing
revenue.
Compared
to the many community banks, especially banks the size of State Bank, we have
escaped the recession relatively unscathed. We admit that State Bank has
experienced a higher level of non-performing assets over the past few quarters,
certainly higher than I would like to see, but nothing that was
unmanageable.
Our
problem assets equate to approximately 2% of total assets, and we see ongoing
improvement. We are cleaning up our existing bad loans and fewer problem loans
are surfacing every quarter. Our OREO is only $1.5 million, and we have managed
to keep it at that level throughout the past year. I admit, we hit a road bump
this quarter when a large commercial real estate loan moved to non-performing
status, but overall, we have been consistently proactive in our workout and
charge-off strategies, so as not to become bogged down with administrative
duties.
Somewhat
by design, our loan portfolio declined to $437 million, or approximately 7%,
from the prior year, including the loans held for sale. Not only was this
decline a reflection of exiting selective relationships, but net charge-offs as
well. Total loan balances for this quarter compared to the linked quarter
remained essentially unchanged.
We are
optimistic though that our regional leadership model, driven by 20-plus year
seasoned executives in each of our six distinctly different markets, will
deliver loan growth in 2011. Our pipeline to close in the next 90 days is over
$8 million. Sales calls, business expansions, interdepartmental referrals
and a slightly improving economy are providing the lift.
A trend
that continues to define our retail banking operation is residential real estate
lending. For the year, we originated over $235 million in salable residential
real estate loans. Over 53% originated from our three-year-old Columbus market
and over 46% from our traditional Northwest, Ohio footprint. Of particular
interest is that approximately 77% of all of our originations in 2010 came from
refinancing loans at our competition. Residential loan sale revenue increased to
$2.9 million this year from $1.6 million last year.
Our
servicing portfolio now stands at over $328 million, generating $820,000 in
service revenue annually. Another bright spot, and one that continues from prior
quarters, was our ability to track and retain low cost core deposit. In fact, we
have increased core deposit to over $300 million, for an over $25 million
increase and 9.33% increase over the prior year end.
Increased
calling efforts in the commercial arena, improved cross selling of over three
additional banking services per new DDA for the first time in 2010, growth in
our Private Client Group segment and our clients’ flight to safety with expanded
FDIC coverage have all propelled our retail banking group to improved
performance.
Reliance
Financial Services, our wealth management division finished the year with a much
stronger performance. Net income for the year was $547,000 compared to $287,000
for 2009. Of course, the systemic market recovery provided additional earnings
momentum to this performance, but we are pleased with the positive net asset
growth we experienced in 2010;, again, client calls, retail and commercial
banker referrals and portfolio performance of their growth model, which by the
way exceeded the S&P 500, provided the lift.
Clearly,
our performance continues to reflect a challenging economy, marked with high
unemployment and a deleveraging retail and commercial client. We are, however,
pleased to be entering a new year with many distractions behind us as we welcome
some early positive momentum in real estate lending, our asset quality
improvement, our impending commercial real estate growth and our ability to
expand wealth management.
Clearly,
a common denominator in each is our bank-wide incentive plan that aligns the
interest of each employee to those of the shareholder. This pay for performance
link, coupled with over 2,000 inter-department referrals, on average the past
two years, ensures that our efforts will remain focused this year.
At this
time I would like to turn the call over to our CFO, Tony Cosentino.
Anthony
V. Cosentino, CPA, Executive Vice President and Chief Financial
Officer
Thanks,
Mark. Good afternoon everyone. I echo Mark’s comments that we are very pleased
to have 2010 in our rear view mirror. It has been a very trying year for all of
our team members. For 2010, Rurban suffered a loss of $9.9 million with the bulk
being from our first – second quarter write-downs related to RDSI. We also dealt
with significant asset quality issues during the year, as evidenced by the $7.6
million in provision we took through earnings.
Regarding
asset quality, we feel very good about our level of non-performing assets, which
ended the year at $13.8 million, or just slightly above 2% of total assets. We
have reduced those levels by $6.5 million from the 3% level at December 31st,
2009. Our current level of $13.8 million is dominated by six credits, a total of
58% of the balance. These large credits all have specific allocations that
approximate their realizable value.
Our loan
loss allowance has been reviewed and at 1.54% of outstanding loans and at 55% of
non-performing loans, it is deemed appropriate. Our total delinquency level
stands at 2.71% with our 31… 30 - 89 day level at 37 basis points.
This 30 - 89 delinquency level is down significantly from the 181 basis points,
this time last year.
The State
Bank had positive earnings in three of the four quarters during 2010, including
over $500,000 net income during the last two quarters. We continued to impact
earning significantly in the fourth quarter, as we set aside $1.8 million in
provision expense, and we also wrote down one of our OREO properties by over
$700,000. Offsetting this was a complete recapture of our temporary OMSR
impairment in this quarter. This recapture of $660,000 was mostly from the
impairments taken during the prior quarters of 2010.
Our
mortgage servicing portfolio now stands at $328 million which is up 58% from the
prior year. We feel very good about the parameters of this portfolio. 74% of the
portfolio has a coupon rate below 5% and the total delinquency level is just
1.15%.
RDSI was
a significant drain on our earnings and capital during this past year. Their
expense base is now more in line with revenues which will lessen their negative
impact on the corporation in 2011. We still have significant work to do to get
RDSI to the level that management is comfortable with. Gary Saxman and his team
know the challenges and we are committed to positive earnings and cash flow for
2011.
Capital
ratios at State Bank continue to be above the “well-capitalized “level. For
December, Tier 1 capital at 6.9%, and total risk based capital at 11.7%. State
Bank was very liquid in – early in the quarter and our average assets reflected
excess cash on the balance sheet. We had moved the bulk of that cash out by
year-end, and if we roll forward our year-end asset balance, it would increase
our Tier 1 ratio by over 30 basis points.
We have
had a very comprehensive process over the last 90 days preparing our strategic
plan for 2011 and beyond. We believe that our solid retail funding base coupled
with the diverse loan portfolio will result in solid core earnings. Our
non-performing assets at 2.07% are below peer levels and we’ve been encouraged
that the pipeline of new problem credits has remained low.
We look
forward to our results in 2011. Mark, I’m going to turn it back to
you.
Mark
A. Klein, President and Chief Executive Officer
Thank
you, Tony.
We have
developed a 2011 budget that incorporates efficiency enhancements including
back-room restructuring, modest loan and deposit growth, as well as expanded
non-interest income from the sale of both residential real estate loans and
government guaranteed commercial credits. It has certainly been a
turbulent year with numerous distractions but now we are prepared to get back to
the basics of banking.
Linda, I
am turning this Web Cast back to you to determine if we have any questions from
our investment community.
Linda
Sickmiller, Investor Relations
Thank
you, Mark. It’s now time for the question and answer session.
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If
you are using a speakerphone, please pick up the handset before pressing
any numbers and un-mute your phone.
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To
ask a question, please press
star-one.
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If
you would like to withdraw your question, please press
star-two.
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So
again, if you have a question, please press star one on your telephone and
we will take the questions in the order they are received, and we’ll stand
by for just a few moments.
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[Operator]: And we have no
questions at this time.
Linda
Sickmiller, Investor Relations
Since we
have no questions from the investor community, I do want to remind you that this
will be accessible on our website at www.rurbanfinancial.net
until February 28th,
2011. I’ll turn the call back over to Mark Klein.
Mark
A. Klein, President and Chief Executive Officer
Thank you
Linda, and thank you all for taking the time to listen to Rurban’s financial
update. We look forward to reporting our results for the first
quarter of 2011. Thank you.
[Operator]: Thank you,
sir. All parties may now disconnect.