-- Net Income of $329,000 for 2009 third quarter, even with
$322,000 in the third quarter of 2008 -- Provision for Loan Losses
of $8.1 million -- Other-Than-Temporary Impairment of $994,000
recognized on certain investment securities -- Charge of $772,000
on previously recorded Mortgage Servicing Rights -- Third quarter
loan growth of $7.8 million DEFIANCE, Ohio, Oct. 19
/PRNewswire-FirstCall/ -- First Defiance Financial Corp.
(NASDAQ:FDEF) today announced that net income for its third quarter
ended September 30, 2009 totaled $329,000, or ($0.02) per diluted
common share, compared to $322,000 or $0.04 per diluted common
share for the quarter ended September 30, 2008. For the nine month
period ended September 30, 2009, First Defiance earned $6.6 million
or $0.63 per diluted common share compared to $6.5 million or $0.83
per diluted common share for the nine month period ended September
30, 2008. Excluding the after-tax cost of $700,000 of
acquisition-related charges from the 2008 results, First Defiance
earned $7.1 million or $0.91 per diluted common share for the first
nine months of 2008. "The impact of the economic environment
continues to be reflected in our results for the third quarter,"
said William J. Small, Chairman, President, and Chief Executive
Officer of First Defiance Financial Corp. "Most core operating
metrics were again very solid; however, higher provision expense
and additional expenses related to collections and OREO had a
negative effect on earnings. Through all of this, net income
remained flat with the third quarter 2008 due primarily to better
net interest margin and a larger loan base this year compared to
September 30, 2008." Credit Quality The third quarter 2009 results
include expense for provision for loan losses of $8.1 million,
compared with $4.9 million in the same period in 2008 and $4.0
million in the second quarter of 2009. "In light of the continued
environment of high unemployment, as well as the continued
uncertainty of the commercial real estate market, we believe it is
prudent to build general reserves," said Small. "This decision
drove the provision expense increase in the third quarter." The
allowance for loan loss as a percentage of average total loans
increased to 1.92% at September 30, 2009 from 1.60% at June 30,
2009 and 1.47% at September 30, 2008. Non-performing loans totaled
$40.1 million at September 30, 2009, down slightly from $40.4
million at June 30, 2009. The September 30, 2009 balance included
$35.5 million of loans that are on non-accrual or 90 days past due
and another $4.6 million of loans considered non-performing because
of changes in terms granted to borrowers although the loans are
still accruing interest. In addition, First Defiance had $9.4
million of Real Estate Owned at September 30, 2009. For the third
quarter of 2009, First Defiance recorded net charge-offs of $2.6
million, which represented 0.66% of average loans outstanding
(annualized) for the quarter, down from 0.96% in the second quarter
of 2009. "Asset quality continues to be a drag on earnings in this
economy," Small said. "However, our delinquency numbers improved in
the third quarter over the second quarter results and we hope this
indicates a positive trend. We also saw a reduction in charge-offs
in the linked quarters. We continue to devote significant resources
to the monitoring and early recognition of any weaknesses in the
portfolio. While we are not seeing new specific loan problems arise
in the portfolio, we are focused on the overall economic
environment we are operating in. The overall reserve build was
appropriate based on our general view regarding the near term
direction of the economy." Investment Portfolio The
Other-Than-Temporary Impairment (OTTI) charge recognized by First
Defiance in the third quarter of 2009 totaled $994,000. The OTTI
charge for the quarter related to one security with a book value of
$163,000 at June 30, 2009, which was written down to zero in the
third quarter, and four other Trust Preferred Collateralized Debt
Obligations (CDOs) with a remaining book value of $2.2 million.
First Defiance also has another CDO investment that had an OTTI
charge in the first quarter of 2009, which has a remaining book
value of $243,000 and market value of $170,000 at September 30,
2009, which has seen positive upward movement in its discounted
cash flows and resulted in no additional OTTI charge for the
current and previous quarter. OTTI charges are due to the
deterioration of the underlying collateral and relate to the credit
component of the security. First Defiance also has other Trust
Preferred CDO investments with a total book value of $2.9 million
and market value of $1.2 million at September 30, 2009. The decline
in value of those investments is primarily due to the overall lack
of liquidity in the CDO market. These investments continue to pay
principal and interest payments in accordance with the contractual
terms of the securities. Management has not deemed the impairment
in value of these CDO investments to be Other-Than-Temporary, and,
therefore, has not recognized the reduction in value of those
investments in earnings. Net Interest Margin Net interest income
increased to $17.6 million in the third quarter of 2009 compared to
$16.4 million in the 2008 third quarter, and was up from $16.2
million for the second quarter of 2009. Net interest margin was
3.88% for the 2009 third quarter compared to 3.61% in the second
quarter of 2009 and 3.81% in the third quarter of 2008. Yield on
interest earning assets declined by 58 basis points, to 5.60% in
the third quarter of 2009 from 6.18% in the 2008 third quarter
while the cost of interest-bearing liabilities and
non-interest-bearing demand deposits decreased by 62 basis points,
to 1.77% from 2.39%. "Our disciplined pricing strategy resulted in
the improved net interest margin," said Small. "We will continue to
focus on managing the margin and adjusting our pricing strategy in
this challenging rate environment." Non-Interest Income
Non-interest income for the 2009 third quarter increased to $5.6
million from $4.1 million in the third quarter of 2008. Loss on
investment securities, net of gains of $154,000, for the third
quarter of 2009 was $840,000, which included $994,000 of OTTI
charges compared with a loss of $2.1 million in the third quarter
of 2008 related to OTTI charges. Mortgage banking income decreased
to $980,000 in the third quarter of 2009, from $1.0 million for the
same period in 2008. Gains from the sale of mortgage loans
increased in the third quarter of 2009 to $1.5 million from
$624,000 in the third quarter of 2008. Mortgage loan servicing
revenue increased slightly for the 2009 third quarter compared to
2008. The increases in gains and servicing revenue were offset by
expense increases of $246,000 for the amortization of mortgage
servicing rights and increases of $736,000 for valuation
adjustments. First Defiance recorded a charge of $772,000 on
mortgage servicing rights (MSR) valuation adjustment in the third
quarter of 2009 compared with a charge of $36,000 in the third
quarter of 2008. The MSR valuation adjustment is a reflection of
the decrease in the fair value of certain sectors of the Company's
portfolio of mortgage servicing rights. "Other Than Temporary
Impairment charges and the adjustment to the valuation of the
mortgage servicing rights more than offset the large increase in
the gain on sale of mortgages this quarter, but we increased
non-interest income $1.5 million over the third quarter 2008,"
commented Small. "We did see a reduction in mortgage originations
compared to the first two quarters of 2009, a trend we expect to
continue, but originations are still ahead of the 2008 pace."
Non-Interest Expenses Total non-interest expense was $14.8 million
for the quarter ended September 30, 2009, a decrease from the $15.2
million of non-interest expense, which included $20,000 of
acquisition related charges recognized in the 2008 third quarter.
Compensation and benefits decreased by $1.4 million or 18%,
compared to 2008 third quarter. The decrease is primarily due to
adjustments in performance based variable compensation. FDIC
insurance expense increased to $649,000 in the third quarter of
2009 from $327,000 in the same period of 2008 as a result of the
FDIC rate increases and higher insured deposits. Other non-interest
expense increased to $3.7 million in the third quarter of 2009 from
$2.8 million in the third quarter of 2008. Credit, collection and
OREO-related costs increased $777,000 over the third quarter of
2008. Deferred compensation expense increased $462,000 from the
third quarter of 2008. These increases were partially offset by
decreases in marketing, credit card servicing charges and
miscellaneous other operating expenses. Year-To-Date Results For
the nine month period ended September 30, 2009, net interest income
totaled $49.8 million, compared with $46.2 million in the first
nine months of 2008. Average interest-earning assets increased to
$1.81 billion for the nine months of 2009 compared to $1.63 billion
for the first nine months of 2008. Net interest margin for the
first nine months of 2009 was 3.73%, down 10 basis points from the
3.83% margin reported in the nine month period ended September 30,
2008. The provision for loan losses for the nine months of 2009 was
$14.8 million, compared to $8.8 million recorded during the first
nine months of 2008. Non-interest income for the first nine months
of 2009 was $20.7 million compared to $16.3 million during the same
period of 2008. Most of the non-interest income increase was in
mortgage banking, which increased 112% to $7.7 million for the
first nine months of 2009 compared to $3.6 million in the first
nine months of 2008. In addition, service fees and other charges
were $10.0 million for the first nine months of 2009 compared to
$9.8 million during the first nine months of 2008. Non-interest
income for the first nine month period of 2009 was reduced by $2.5
million of OTTI charges recognized for impaired investment
securities. Non-interest expense increased to $45.9 million for the
first nine months of 2009 from $44.2 million in 2008. Excluding
one-time acquisition-related charges of $1.0 million, non-interest
expense was $43.2 million for the first nine months of 2008. For
the nine months ending September 30, 2009 compared to the same
period in 2008, FDIC insurance expense increased by $1.9 million
due to increases in the assessment rates, a 2009 special assessment
of $900,000 recorded in the second quarter and full utilization
early in the 2008 first quarter of credits issued by the FDIC.
Credit, collection and OREO-related costs have increased $1.9
million. Year to date 2008 non-interest expense included the
$752,000 of expense associated with losses related to a former
investment advisor. "We are proceeding cautiously in this tentative
environment," said Small. "We believe that we will see indications
of improvement in the national and local economies, but we realize
there are still many challenges out there for certain sectors. We
also are monitoring the Washington scene for new regulatory
initiatives and potential FDIC premium increases and additional
assessments." Total Assets at $2.02 Billion Total assets at
September 30, 2009 were $2.02 billion, compared to $1.96 billion at
December 31, 2008. Net loans receivable (excluding loans held for
sale) were $1.59 billion at September 30, 2009 compared to $1.59
billion at December 31, 2008. Total cash and cash equivalents were
$77.3 million at September 30, 2009 compared with $46.1 million at
December 31, 2008, an increase of $31.1 million. Total deposits at
September 30, 2009 were $1.54 billion compared to $1.47 billion at
December 31, 2008, an increase of $73.2 million. Non-interest
bearing deposits at September 30, 2009 were $174.1 million compared
to $176.1 million at December 31, 2008. Total stockholders' equity
was $234.5 million at September 30, 2009 compared to $229.2 million
at the December 31, 2008. Also at September 30, 2009, goodwill and
other intangible assets totaled $63.8 million compared to $64.9
million at December 31, 2008. Conference Call First Defiance
Financial Corp. will host a conference call at 11:00 a.m. (EDT) on
Tuesday, October 20th 2009 to discuss the earnings results and
business trends. The conference call may be accessed by calling
1-800-860-2442. A live webcast may be accessed at
http://www.talkpoint.com/viewer/starthere.asp?Pres=127665. Audio
replay of the Internet Web cast will be available at
http://www.fdef.com/ until Wednesday November 4th, 2009 at 9:00
a.m. First Defiance Financial Corp. First Defiance Financial Corp.,
headquartered in Defiance, Ohio, is the holding company for First
Federal Bank of the Midwest and First Insurance & Investments.
First Federal operates 35 full service branches and 47 ATM
locations in northwest Ohio, southeast Michigan and Fort Wayne,
Indiana. First Insurance & Investments specializes in property
and casualty and group health and life insurance, with offices in
Defiance and Bowling Green, Ohio. For more information, visit the
company's Web site at http://www.fdef.com/. Financial Statements
and Highlights Follow- Safe Harbor Statement This news release may
contain certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section
21 B of the Securities Act of 1934, as amended, which are intended
to be safe harbors created thereby. Those statements may include,
but are not limited to, all statements regarding intent, beliefs,
expectations, projections, forecasts and plans of First Defiance
Financial Corp. and its management, and specifically include
statements regarding: changes in economic conditions, the nature,
extent and timing of governmental actions and reforms, future
movements of interest rates, the production levels of mortgage loan
generation, the ability to continue to grow loans and deposits, the
ability to benefit from a changing interest rate environment, the
ability to sustain credit quality ratios at current or improved
levels, the ability to sell OREO properties, continued strength in
the market area for First Federal Bank of the Midwest, and the
ability of the Company to grow in existing and adjacent markets.
These forward-looking statements involve numerous risks and
uncertainties, including those 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, legislative and regulatory
decisions or capital market conditions and other risks and
uncertainties detailed from time to time in the Company's
Securities and Exchange Commission (SEC) filings, including the
Company's Annual Report on Form 10-K for the year ended December
31, 2008. One or more of these factors have affected or could in
the future affect the Company's business and financial results in
future periods and could cause actual results to differ materially
from plans and projections. Therefore, there can be no assurances
that the forward-looking statements included in this news release
will prove to be accurate. In light of the significant
uncertainties in the forward-looking statements included herein,
the inclusion of such information should not be regarded as a
representation by the Company or any other persons, that the
objectives and plans of the Company will be achieved. All
forward-looking statements made in this news release are based on
information presently available to the management of the Company.
The Company assumes no obligation to update any forward-looking
statements. Consolidated Balance Sheets First Defiance Financial
Corp. (Unaudited) Sept. 30, Dec. 31, Sept. 30, (in thousands) 2009
2008 2008
-----------------------------------------------------------------------
Assets Cash and cash equivalents Cash and amounts due from
depository institutions $30,207 $40,980 $34,230 Interest-bearing
deposits 47,109 5,172 358 ------ ---------------------- 77,316
46,152 34,588 Securities Available-for sale, carried at fair value
126,985 117,575 113,036 Held-to-maturity, carried at amortized cost
1,697 886 978 ----- ---------------------- 128,682 118,461 114,014
Loans 1,623,627 1,617,235 1,596,327 Allowance for loan losses
(31,248) (24,592) (23,445) ------- ---------------------- Loans,
net 1,592,379 1,592,643 1,572,882 Loans held for sale 24,340 10,960
9,363 Mortgage servicing rights 8,350 6,611 9,335 Accrued interest
receivable 8,110 7,293 8,672 Federal Home Loan Bank stock 21,376
21,376 21,376 Bank Owned Life Insurance 30,585 28,747 29,174 Office
properties and equipment 46,372 47,756 47,379 Real estate and other
assets held for sale 9,352 7,000 4,776 Goodwill 56,585 56,585
56,830 Core deposit and other intangibles 7,242 8,344 8,771
Deferred taxes 1,305 336 - Other assets 6,604 5,136 4,866 -----
---------------------- Total Assets $2,018,598 $1,957,400
$1,922,026 ========== ====================== Liabilities and
Stockholders' Equity Non-interest-bearing deposits $174,145
$176,063 $158,139 Interest-bearing deposits 1,368,940 1,293,849
1,277,665 --------- ---------------------- Total deposits 1,543,085
1,469,912 1,435,804 Advances from Federal Home Loan Bank 146,937
156,067 173,581 Notes payable and other interest-bearing
liabilities 43,280 49,454 70,238 Subordinated debentures 36,083
36,083 36,083 Advance payments by borrowers for tax and insurance
492 652 496 Deferred taxes - - 1,469 Other liabilities 14,192
16,073 14,679 ------ ---------------------- Total liabilities
1,784,069 1,728,241 1,732,350 Stockholders' Equity Preferred stock-
including warrants and amortization of discount on preferred shares
37,000 37,000 - Preferred stock discount (748) (867) - Common
stock, net 127 127 127 Common stock warrant 878 878 - Additional
paid-in- capital 140,622 140,449 140,360 Accumulated other
comprehensive income (loss) 446 (1,904) (4,933) Retained earnings
128,835 126,114 126,760 Treasury stock, at cost (72,631) (72,638)
(72,638) ------- ---------------------- Total stockholders' equity
234,529 229,159 189,676 ------- ---------------------- Total
liabilities and stockholders' equity $2,018,598 $1,957,400
$1,922,026 ========== ====================== Consolidated
Statements of Income (Unaudited) First Defiance Financial Corp.
Three Months Ended Nine Months Ended September 30, September 30,
(in thousands, except per ------------- ------------- share
amounts) 2009 2008 2009 2008
------------------------------------------------------------------------
Interest Income: Loans $23,766 $24,902 $70,229 $72,220 Investment
securities 1,422 1,435 4,388 4,382 Interest-bearing deposits 41 5
89 119 FHLB stock dividends 258 301 726 797 --- --- --- --- Total
interest income 25,487 26,643 75,432 77,518 Interest Expense:
Deposits 6,163 7,658 20,206 23,851 FHLB advances and other 1,267
1,603 3,865 4,803 Subordinated debentures 344 461 1,139 1,445 Notes
Payable 140 555 433 1,217 --- --- --- ----- Total interest expense
7,914 10,277 25,643 31,316 ----- ------ ------ ------ Net interest
income 17,573 16,366 49,789 46,202 Provision for loan losses 8,051
4,907 14,762 8,761 ----- ----- ------ ----- Net interest income
after provision for loan losses 9,522 11,459 35,027 37,441
Non-interest Income: Service fees and other charges 3,577 3,717
9,989 9,756 Mortgage banking income 980 1,011 7,677 3,627 Gain on
sale of non-mortgage loans 151 134 251 177 Loss on securities (840)
(2,051) (2,262) (2,564) Insurance and investment sales commissions
1,129 1,179 3,945 4,381 Trust income 101 114 306 343 Income from
Bank Owned Life Insurance 201 224 338 751 Other non-interest income
257 (188) 475 (166) --- ---- --- ---- Total Non-interest Income
5,556 4,140 20,719 16,305 Non-interest Expense: Compensation and
benefits 6,551 7,980 21,501 22,421 Occupancy 1,860 1,949 5,901
5,562 FDIC insurance premium 649 327 2,713 792 State franchise tax
571 533 1,668 1,540 Acquisition related charges - 20 - 1,032 Data
processing 1,100 1,221 3,330 3,384 Amortization of intangibles 355
424 1,101 1,035 Other non-interest expense 3,700 2,779 9,701 8,458
----- ----- ----- ----- Total Non-interest Expense 14,786 15,233
45,915 44,224 ------ ------ ------ ------ Income before income
taxes 292 366 9,831 9,522 Income taxes (37) 44 3,193 3,046 --- --
----- ----- Net Income $329 $322 $6,638 $6,476 ==== ==== ======
====== ---- -- ------ -- Dividends Accrued on Preferred Shares
(473) - (1,403) - Accretion on Preferred Shares (40) - (118) - ===
== ==== == ----- ---- ------ ------ Net Income Applicable to Common
Shares $(184) $322 $5,117 $6,476 ===== ==== ====== ====== Earnings
per common share: Basic $(0.02) $0.04 $0.63 $0.83 Diluted $(0.02)
$0.04 $0.63 $0.83 Core operating earnings per common share*: Basic
$(0.02) $0.04 $0.63 $0.91 Diluted $(0.02) $0.04 $0.63 $0.91 Average
Shares Outstanding: Basic 8,117 8,113 8,117 7,813 Diluted 8,117
8,123 8,172 7,842 * - See Non-GAAP Disclosure Reconciliations
Financial Summary and Comparison First Defiance Financial Corp.
(Unaudited) (Unaudited) Three Months Ended Nine Months Ended
(dollars in September 30, September 30, thousands, except
------------- ------------- per share data) 2009 2008 % change 2009
2008 % change
-------------------------------------------------------------------------
Summary of Operations Tax- equivalent interest income (1) 25,796
26,876 (4.0) 76,293 78,171 (2.4) Interest expense 7,914 10,277
(23.0) 25,643 31,316 (18.1) Tax-equivalent net interest income (1)
17,882 16,599 7.7 50,650 46,855 8.1 Provision for loan losses 8,051
4,907 64.1 14,762 8,761 68.5 Tax-equivalent NII after provision for
loan loss (1) 9,831 11,692 (15.9) 35,888 38,094 (5.8) Securities
losses (840) (2,051) (59.0) (2,262) (2,564) (11.8) Non-interest
income- excluding securities losses 6,396 6,191 3.3 22,981 18,869
21.8 Non-interest expense 14,786 15,233 (2.9) 45,915 44,224 3.8
Non-interest expense- excluding non-core charges 14,786 15,213
(2.8) 45,915 43,192 6.3 One time acquisition related charges - 20
NM - 1,032 NM Income taxes (37) 44 (184.1) 3,193 3,046 4.8 Net
Income 329 322 2.2 6,638 6,476 2.5 Dividends Declared on Preferred
Shares (473) - NM (1,403) - NM Accretion on Preferred Shares (40) -
NM (118) - NM Net Income Applicable to Common Shares (184) 322
(157.1) 5,117 6,476 (21.0) Core operating earnings (2) 329 335
(1.8) 6,638 7,147 (7.1) Tax equivalent adjustment (1) 309 233 32.6
861 653 31.9
-------------------------------------------------------------------------
At Period End Assets 2,018,598 1,922,026 5.0 Earning assets
1,845,134 1,741,438 6.0 Loans 1,623,627 1,596,327 1.7 Allowance for
loan losses 31,248 23,445 33.3 Deposits 1,543,085 1,435,804 7.5
Stockholders' equity 234,529 189,676 23.6
-------------------------------------------------------------------------
Average Balances Assets 2,029,970 1,928,987 5.2 2,014,238 1,824,197
10.4 Earning assets 1,826,400 1,727,343 5.7 1,812,230 1,630,873
11.1 Deposits and interest- bearing liabilities 1,778,223 1,712,212
3.9 1,764,667 1,611,785 9.5 Loans 1,613,529 1,585,489 1.8 1,600,878
1,485,455 7.8 Deposits 1,550,369 1,437,273 7.9 1,538,986 1,365,631
12.7 Stockholders' equity 234,241 194,452 20.5 231,912 187,330 23.8
Stockholders' equity / assets 11.54% 10.08% 14.5 11.51% 10.27% 12.1
-------------------------------------------------------------------------
Per Common Share Data Net Income Basic $(0.02) $0.04 (150.0) $0.63
$0.83 (24.1) Diluted (0.02) 0.04 (150.0) 0.63 0.83 (24.1) Core
operating earnings (2) Basic $(0.02) $0.04 (154.9) $0.63 $0.91
(31.1) Diluted (0.02) 0.04 (155.0) 0.63 0.91 (31.3) Dividends 0.04
0.26 (84.6) 0.295 0.78 (62.2) Market Value: High $18.33 $17.66 3.8
$18.33 $22.51 (18.6) Low 12.00 10.00 20.0 3.76 10.00 (62.4) Close
14.91 11.01 35.4 14.91 11.01 35.4 Book Value 24.32 23.37 4.1 24.32
23.37 4.1 Tangible Book Value 16.45 15.29 7.6 16.45 15.29 7.6
Shares outstanding, end of period (000) 8,118 8,117 0.0 8,118 8,117
0.0
-------------------------------------------------------------------------
Performance Ratios (annualized) Tax-equivalent net interest margin
(1) 3.88% 3.81% 1.8 3.73% 3.83% (2.6) Return on average assets
-GAAP 0.06% 0.07% (3.2) 0.44% 0.47% (7.1) Return on average assets
-Core Operating 0.06% 0.07% (6.9) 0.44% 0.52% (15.8) Return on
average equity- GAAP 0.56% 0.66% (15.4) 3.83% 4.62% (17.1) Return
on average equity-Core Operating 0.56% 0.69% (18.7) 3.83% 5.10%
(24.9) Efficiency ratio (3) - GAAP 60.90% 66.84% (8.9) 62.36%
67.29% (7.3) Efficiency ratio (3) - Core Operating 60.90% 66.75%
(8.8) 62.36% 65.72% (5.1) Effective tax rate -12.67% 12.02% (205.4)
32.48% 31.99% 1.5 Dividend payout ratio (basic) -200.00% 650.00%
(130.8) 46.83% 93.98% (50.2)
-------------------------------------------------------------------------
(1) Interest income on tax-exempt securities and loans has been
adjusted to a tax-equivalent basis using the statutory federal
income tax rate of 35% (2) Core operating earnings = Net income
plus after tax effect of acquisition related and other one-time
charges. See Non-GAAP Disclosure Reconciliation. (3) Efficiency
ratio = Non-interest expense divided by sum of tax- equivalent net
interest income plus non-interest income, excluding securities
gains or losses, net. NM Percentage change not meaningful
--------------------------------------------------------------------------
Non-GAAP Disclosure Reconciliations First Defiance Financial Corp.
Management believes that the presentation of the non-GAAP financial
measures in this release assists investors when comparing results
period- to-period in a more meaningful and consistent manner and
provides a better measure of results for First Defiance's ongoing
operations. Core operating earnings are net income adjusted to
exclude discontinued operations, merger, integration and
restructuring expenses and the results of certain significant
transactions not representative of ongoing operations. Three Months
Nine Months Ended Ended Core Operating Earnings September 30,
September 30, (dollars in thousands, except per share ------------
------------- data) 2009 2008 2009 2008
--------------------------------------------------------------------------
Net Income $329 $322 $6,638 $6,476 Acquisition related charges - 20
- 1,032 Tax effect - (7) - (361) ------------ ---------------
After-tax non-operating items - 13 - 671 ------------
--------------- Core operating earnings $329 $335 $6,638 $7,147
============ =============== Acquisition related charges in 2008
reflect charges associated with the acquisition of Pavilion
Bancorp. Core operating earnings is used as the numerator to
calculate core operating return on average assets, core operating
return on average equity and core operating earnings per share.
Additionally, non-operating items are deducted from non-interest
expense in the numerator and non- interest income in the
denominator of the core operating efficiency ratio disclosed in the
tables. Comparable information on a GAAP basis is also provided in
the tables.
--------------------------------------------------------------------------
Income from Mortgage Banking Revenue from sales and servicing of
mortgage loans consisted of the following: Three Months Nine Months
Ended Ended September 30, September 30, ------------- -------------
(dollars in thousands) 2009 2008 2009 2008
--------------------------------------------------------------------------
Gain from sale of mortgage loans $1,541 $624 $7,276 $2,808 Mortgage
loan servicing revenue (expense): Mortgage loan servicing revenue
725 691 2,109 1,839 Amortization of mortgage servicing rights (514)
(268) (2,625) (1,008) Mortgage servicing rights valuation
adjustments (772) (36) 917 (12) -------------- -------------- (561)
387 401 819 -------------- -------------- Total revenue from sale
and servicing of mortgage loans $980 $1,011 $7,677 $3,627
============== ============== Yield Analysis First Defiance
Financial Corp. Three Months Ended September 30,
--------------------------------------------------------- 2009 2008
---------------------------- ---------------------------- Average
Interest Yield Average Interest Yield Balance (1) Rate(2) Balance
(1) Rate(2) Interest-earning assets: Loans receivable $1,613,529
$23,812 5.85% $1,585,489 $24,934 6.26% Securities 130,673 1,685
5.08% 118,502 1,636 5.31% Interest Bearing Deposits 60,822 41 0.27%
2,231 5 0.89% FHLB stock 21,376 258 4.79% 21,121 301 5.67%
---------- ------- ---------- ------- Total interest- earning
assets 1,826,400 25,796 5.60% 1,727,343 26,876 6.18% Non- interest-
earning assets 203,570 201,644 ---------- ---------- Total assets
$2,029,970 $1,928,987 ========== ========== Deposits and Interest-
bearing liabilities: Interest bearing deposits $1,374,441 $6,163
1.78% $1,268,016 $7,658 2.40% FHLB advances and other 146,941 1,267
3.42% 174,343 1,603 3.66% Other Borrowings 44,685 140 1.24% 64,368
555 3.43% Subordinated debentures 36,228 344 3.77% 36,228 461 5.06%
---------- ------- ---------- ------- Total interest- bearing
liabilities 1,602,295 7,914 1.96% 1,542,955 10,277 2.65%
Non-interest bearing deposits 175,928 - - 169,257 - - ----------
------- ---------- ------- Total including non-interest- bearing
demand deposits 1,778,223 7,914 1.77% 1,712,212 10,277 2.39% Other
non- interest- bearing liabilities 17,506 22,323 ----------
---------- Total liabilities 1,795,729 1,734,535 Stockholders'
equity 234,241 194,452 ---------- ---------- Total liabilities and
stockholders' equity $2,029,970 $1,928,987 ========== -------
========== ------- Net interest income; interest rate spread
$17,882 3.64% $16,599 3.53% ======= ===== ======= ===== Net
interest margin (3) 3.88% 3.81% ===== ===== Average interest-
earning assets to average interest bearing liabilities 114% 112%
==== ==== Nine Months Ended September 30,
--------------------------------------------------------- 2009 2008
---------------------------- ---------------------------- Average
Interest Yield Average Interest Yield Balance (1) Rate(2) Balance
(1) Rate(2) Interest-earning assets: Loans receivable $1,600,878
$70,333 5.87% $1,485,455 $72,297 6.50% Securities 126,883 5,145
5.36% 118,908 4,959 5.50% Interest Bearing Deposits 63,093 89 0.19%
6,311 119 2.52% FHLB stock 21,376 726 4.54% 20,199 797 5.27%
---------- ------- ---------- ------- Total interest- earning
assets 1,812,230 76,293 5.61% 1,630,873 78,172 6.40% Non- interest-
earning assets 202,008 193,324 ---------- ---------- Total assets
$2,014,238 $1,824,197 ========== ========== Deposits and Interest-
bearing liabilities: Interest bearing deposits $1,366,645 $20,206
1.98% $1,210,631 $23,851 2.63% FHLB advances and other 146,994
3,865 3.52% 161,891 4,803 3.96% Other Borrowings 42,446 433 1.36%
48,018 1,217 3.39% Subordinated debentures 36,241 1,139 4.19%
36,245 1,445 5.33% ---------- ------- ---------- ------- Total
interest- bearing liabilities 1,592,326 25,643 2.15% 1,456,785
31,316 2.87% Non-interest bearing deposits 172,341 - - 155,000 - -
---------- ------- ---------- ------- Total including non-interest-
bearing demand deposits 1,764,667 25,643 1.94% 1,611,785 31,316
2.60% Other non- interest-bearing liabilities 17,659 25,082
---------- ---------- Total liabilities 1,782,326 1,636,867
Stockholders' equity 231,912 187,330 ---------- ---------- Total
liabilities and stockholders' equity $2,014,238 $1,824,197
========== ========== Net interest income; interest rate spread
$50,650 3.46% $46,856 3.53% ======= ===== ======= ===== Net
interest margin (3) 3.73% 3.83% ===== ===== Average interest-
earning assets to average interest bearing liabilities 114% 112%
==== ==== (1) Interest on certain tax exempt loans and securities
is not taxable for Federal income tax purposes. In order to compare
the tax-exempt yields on these assets to taxable yields, the
interest earned on these assets is adjusted to a pre-tax equivalent
amount based on the marginal corporate federal income tax rate of
35%. (2) Annualized (3) Net interest margin is net interest income
divided by average interest-earning assets. Selected Quarterly
Information First Defiance Financial Corp. (dollars in thousands,
except per 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr share data) 2009
2009 2009 2008 2008
--------------------------------------------------------------------------
Summary of Operations Tax-equivalent interest income (1) $25,796
$25,117 $25,379 $26,188 $26,876 Interest expense 7,914 8,643 9,085
9,952 10,277 Tax-equivalent net interest income (1) 17,882 16,474
16,294 16,236 16,599 Provision for loan losses 8,051 3,965 2,746
3,824 4,907 Tax-equivalent NII after provision for loan losses (1)
9,831 12,509 13,548 12,412 11,692 Investment securities gains
(losses) (840) (750) (672) (596) (2,051) Non-interest income
(excluding securities gains/losses) 6,396 9,109 7,476 3,360 6,191
Non-interest expense 14,786 16,133 14,996 13,571 15,233 Acquisition
and other on-time charges - - - 85 20 Income taxes (37) 1,539 1,691
482 44 Net income 329 2,901 3,408 880 322 Dividends Declared on
Preferred Shares (473) (468) (463) (134) - Accretion on Preferred
Shares (40) (40) (38) (11) - Net Income Applicable to Common Shares
(184) 2,393 2,907 735 322 Core operating earnings (2) 329 2,901
3,408 935 335 Tax equivalent adjustment (1) 309 295 257 243 233
--------------------------------------------------------------------------
At Period End Total assets $2,018,598 $2,023,563 $2,010,662
$1,957,400 $1,922,026 Earning assets 1,845,134 1,846,689 1,838,397
1,773,204 1,741,438 Loans 1,623,627 1,610,460 1,585,897 1,617,235
1,596,327 Allowance for loan losses 31,248 25,840 25,694 24,592
23,445 Deposits 1,543,085 1,553,144 1,540,235 1,469,912 1,435,804
Stockholders' equity 234,529 232,683 230,608 229,159 189,676
Stockholders' equity / assets 11.62% 11.50% 11.47% 11.71% 9.87%
Goodwill 56,585 56,585 56,585 56,585 56,830
--------------------------------------------------------------------------
Average Balances Total assets $2,029,970 $2,027,760 $1,984,985
$1,938,461 $1,928,987 Earning assets 1,826,400 1,828,272 1,782,019
1,730,284 1,727,343 Deposits and interest- bearing liabilities
1,778,223 1,778,848 1,736,933 1,718,315 1,712,212 Loans 1,613,529
1,592,513 1,596,592 1,591,144 1,585,489 Deposits 1,550,369
1,552,533 1,514,059 1,466,366 1,437,273 Stockholders' equity
234,241 231,397 230,099 201,499 194,452 Stockholders' equity /
assets 11.54% 11.41% 11.59% 10.39% 10.08%
--------------------------------------------------------------------------
Per Common Share Data Net Income: Basic $(0.02) $0.29 $0.36 $0.09
$0.04 Diluted (0.02) 0.29 0.36 0.09 0.04 Core operating earnings
(2) Basic (0.02) 0.29 0.36 0.10 0.04 Diluted (0.02) 0.29 0.36 0.10
0.04 Dividends 0.04 0.085 0.17 0.17 0.26 Market Value: High $18.33
$14.25 $8.95 $14.50 $17.66 Low 12.00 6.10 3.76 6.00 10.00 Close
14.91 13.00 6.08 7.73 11.01 Book Value 24.32 24.10 23.85 23.67
23.37 Shares outstanding, end of period (in thousands) 8,118 8,118
8,117 8,117 8,117
--------------------------------------------------------------------------
Performance Ratios (annualized) Tax-equivalent net interest margin
(1) 3.88% 3.61% 3.71% 3.72% 3.81% Return on average assets - GAAP
0.06% 0.57% 0.70% 0.18% 0.07% Return on average assets - Core
Operating 0.06% 0.57% 0.70% 0.19% 0.07% Return on average
equity-GAAP 0.56% 5.03% 6.02% 1.74% 0.66% Return on average equity-
Core Operating 0.56% 5.03% 6.02% 1.85% 0.69% Efficiency ratio (3) -
GAAP 60.90% 63.06% 63.09% 69.25% 66.84% Efficiency ratio (3) - Core
Operating 60.90% 63.06% 63.09% 68.82% 66.75% Effective tax rate
-12.67% 34.66% 33.16% 35.39% 12.02% Common dividend payout ratio
(basic) -200.00% 29.31% 47.22% 188.89% 650.00%
--------------------------------------------------------------------------
(1) Interest income on tax-exempt securities and loans has been
adjusted to a tax-equivalent basis using the statutory federal
income tax rate of 35% (2) See Non-GAAP Disclosure Reconciliation
(3) Efficiency ratio = Non-interest expense divided by sum of tax-
equivalent net interest income plus non-interest income, excluding
securities gains, net and asset sales gains, net. Selected
Quarterly Information First Defiance Financial Corp. (dollars in
thousands, except per share data) 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr
3rd Qtr 2009 2009 2009 2008 2008
-------------------------------------------------------------------------
Loan Portfolio Composition One to four family residential real
estate $233,958 $238,000 $241,119 $251,807 $250,244 Construction
53,605 44,670 50,534 72,938 75,822 Commercial real estate 802,434
768,636 764,841 755,740 746,676 Commercial 371,881 382,434 350,070
356,574 353,453 Consumer finance 36,416 38,074 38,676 41,012 41,964
Home equity and improvement 150,379 151,213 156,668 161,106 158,992
---------- ---------- -------------------------------- Total loans
1,648,673 1,623,027 1,601,908 1,639,177 1,627,151 Less: Loans in
process 23,957 11,602 14,954 20,892 29,794 Deferred loan
origination fees 1,089 965 1,057 1,050 1,030 Allowance for loan
loss 31,248 25,840 25,694 24,592 23,445 ---------- ----------
-------------------------------- Net Loans $1,592,379 $1,584,620
$1,560,203 $1,592,643 $1,572,882 ========== ==========
================================
-------------------------------------------------------------------------
Allowance for loan loss activity Beginning allowance 25,840 25,694
24,592 $23,445 $20,578 Provision for loan losses 8,051 3,965 2,746
3,824 4,907 Reserve from acquisitions - - - - 121 Credit loss
charge-offs: One to four family residential real estate 744 505 148
369 478 Commercial real estate 1,152 2,066 669 1,480 1,495
Commercial 658 950 702 593 - Consumer finance 39 83 123 224 73 Home
equity and improvement 196 301 130 57 216 ---------- ----------
-------------------------------- Total charge-offs 2,789 3,905
1,772 2,723 2,262 Total recoveries 146 86 128 46 101 ----------
---------- -------------------------------- Net charge-offs
(recoveries) 2,643 3,819 1,644 2,677 2,161 ---------- ----------
-------------------------------- Ending allowance $31,248 $25,840
$25,694 $24,592 $23,445 ========== ==========
================================
-------------------------------------------------------------------------
Credit Quality Non-accrual loans $35,490 $35,528 $29,473 $28,017
$24,630 Restructured loans, accruing 4,574 4,845 7,199 6,250 905
---------- ---------- -------------------------------- Total non-
performing loans (1) 40,064 40,373 36,672 34,267 25,535 Real estate
owned (REO) 9,352 8,567 7,839 7,000 4,776 ---------- ----------
-------------------------------- Total non- performing assets (2)
$49,416 $48,940 $44,511 $41,267 $30,311 ========== ==========
================================ Net charge-offs 2,643 3,819 1,644
2,677 2,161 Allowance for loan losses / loans 1.92% 1.60% 1.62%
1.52% 1.47% Allowance for loan losses / non- performing assets
63.23% 52.80% 57.73% 59.59% 77.35% Allowance for loan losses / non-
performing loans 78.00% 64.00% 70.06% 71.77% 91.82% Non-performing
assets / loans plus REO 3.03% 3.02% 2.79% 2.54% 1.89%
Non-performing assets / total assets 2.45% 2.42% 2.21% 2.11% 1.58%
Net charge-offs / average loans (annualized) 0.66% 0.96% 0.41%
0.67% 0.55%
-------------------------------------------------------------------------
Deposit Balances Non-interest-bearing demand deposits $174,145
$180,035 $163,855 $176,063 $158,139 Interest-bearing demand
deposits and money market 477,566 456,177 413,104 374,488 365,251
Savings deposits 132,333 135,821 132,590 132,145 145,019 Retail
time deposits less than $100,000 544,957 568,595 608,811 578,245
557,643 Retail time deposits greater than $100,000 166,787 165,401
171,588 170,485 177,848 National/Brokered time deposits 47,297
47,115 50,287 38,486 31,904 ---------- ----------
-------------------------------- Total deposits $1,543,085
$1,553,144 $1,540,235 $1,469,912 $1,435,804 ========== ==========
================================ (1) Non-performing loans consist
of non-accrual loans that are contractually past due 90 days or
more and loans that are deemed impaired under the criteria of FASB
Statement No. 114. (2) Non-performing assets are non-performing
loans plus real estate and other assets acquired by foreclosure or
deed-in-lieu thereof. Loan Delinquency Information First Defiance
Financial Corp. Troubled 30 to 89 Non Debt Total days Accrual
Restru- (dollars in thousands) Balance Current past due Loans
cturing
--------------------------------------------------------------------------
September 30, 2009
--------------------------------------------------------------------------
One to four family residential real estate $233,958 $221,077 $4,637
$5,839 $2,405 Construction 53,605 53,340 71 194 - Commercial real
estate 802,434 765,469 11,570 23,279 2,116 Commercial 371,881
363,739 2,525 5,564 53 Consumer finance 36,416 35,913 454 49 - Home
equity and improvement 150,379 147,031 2,783 565 -
--------------------------------------------------- Total loans
$1,648,673 $1,586,569 $22,040 $35,490 $4,574
=================================================== June 30, 2009
--------------------------------------------------------------------------
One to four family residential real estate $238,000 $223,846 $5,594
$5,541 $3,019 Construction 44,670 44,416 194 60 - Commercial real
estate 768,636 727,983 13,212 25,672 1,769 Commercial 382,434
375,007 3,781 3,589 57 Consumer finance 38,074 37,595 440 39 - Home
equity and improvement 151,213 147,975 2,611 627 -
--------------------------------------------------- Total loans
$1,623,027 $1,556,822 $25,832 $35,528 $4,845
=================================================== December 31,
2008
--------------------------------------------------------------------------
One to four family residential real estate $251,807 $241,446 $4,676
$4,584 $1,101 Construction 72,938 72,814 52 72 - Commercial real
estate 755,740 728,150 5,406 19,979 2,205 Commercial 356,574
349,078 1,671 2,881 2,944 Consumer finance 41,012 40,428 515 69 -
Home equity and improvement 161,106 155,650 5,024 432 -
--------------------------------------------------- Total loans
$1,639,177 $1,587,566 $17,344 $28,017 $6,250
=================================================== September 30,
2008
--------------------------------------------------------------------------
One to four family residential real estate $250,244 $239,889 $4,053
$5,400 $902 Construction 75,822 74,232 101 1,489 - Commercial real
estate 746,676 726,013 6,914 13,749 - Commercial 353,453 348,504
1,371 3,575 3 Consumer finance 41,964 41,341 473 150 - Home equity
and improvement 158,992 156,645 2,080 267 -
--------------------------------------------------- Total loans
$1,627,151 $1,586,624 $14,992 $24,630 $905
=================================================== DATASOURCE:
First Defiance Financial Corp. CONTACT: William J. Small, Chairman,
President and CEO, +1-419-782-5015, Web Site: http://www.fdef.com/
Copyright