DEFIANCE, Ohio, July 19 /PRNewswire-FirstCall/ --
-- Net Income of $2.1 million for 2010 second quarter -- Provision for Loan Losses of $5.4 million reflects continued challenging credit environment -- Charge of $571,000 on previously recorded MSR assets -- Other-Than-Temporary Impairment of $71,000 recognized on certain investment securities -- Net Interest Income increased by $1.4 million or 8.5% over 2009 second quarter -- Net Interest Margin of 3.89% up from 2009 second quarter
First Defiance Financial Corp. today announced that net income for its quarter ended June 30, 2010 totaled $2.1 million, or $0.19 per diluted common share, compared to $2.9 million or $0.29 per diluted common share for the quarter ended June 30, 2009. The 2010 results included $37,000 of acquisition-related charges associated with the company's May 2010 purchase of the group benefits business line from Andres O'Neil & Lowe Insurance Agency.
For the six month period ended June 30, 2010, First Defiance earned $3.6 million or $0.31 per diluted common share compared to $6.3 million or $0.65 per diluted common share for the six month period ended June 30, 2009. Excluding the after-tax cost of the $24,000 acquisition-related charges in 2010, First Defiance earned $3.6 million, or $0.32 per diluted common share for the first half of 2010.
"We are encouraged by our overall second quarter results," said William J. Small, Chairman, President and Chief Executive Officer of First Defiance Financial Corp. "Credit quality once again had a major impact on our second quarter earnings with a higher provision for loan losses, but we are seeing some positive movement toward improving credit quality over the last several quarters. We are also pleased with the improvement in the net interest margin this quarter despite the low interest rate environment. We do foresee a continuation of a difficult economic environment throughout 2010."
Credit Quality
The second quarter 2010 results include expense for provision for loan losses of $5.4 million, compared with $4.0 million in the same period in 2009 and $6.9 million in the first quarter of 2010.
Non-performing loans totaled $40.7 million at June 30, 2010, a slight increase from $40.4 million at June 30, 2009. The June 30, 2010 balance included $31.8 million of loans that are 90 days past due and or are on non-accrual status and another $8.9 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 $12.7 million of Real Estate Owned at June 30, 2010, up from $8.6 million at June 30, 2009. For the second quarter of 2010, First Defiance recorded net charge-offs of $5.6 million, which represented 1.44% of average loans outstanding (annualized) for the quarter.
"First Federal Bank has a history of excellent asset quality and we are working diligently to get back to levels in line with our long term goals. The higher level of charge-offs this quarter was not unexpected, and was accounted for in our provision for loan losses in the quarter as more loans move through the credit cycle. We continue to closely monitor the portfolio and the economic environment in our markets and are encouraged by our recent credit metric trends," Small said.
Net Interest Margin
Net interest income increased to $17.6 million for the second quarter of 2010, a $1.4 million or 8.5% increase over the second quarter of 2009. Net interest margin was 3.89% for the 2010 second quarter compared to 3.61% in the second quarter of 2009 and 3.85% in the first quarter of 2010. Yield on interest earning assets declined by 14 basis points, to 5.36% from 5.50% in the 2009 second quarter while the cost of interest-bearing liabilities and non-interest-bearing demand deposits decreased by 44 basis points to 1.51% from 1.95%.
"We are pleased with the improvement in the net interest margin although the challenges to net interest margin are far from over," said Small. "It's a low rate environment, which requires that we focus on a disciplined pricing strategy to strengthen net interest margin for the remainder of the year."
Investment Portfolio
The Other-Than-Temporary Impairment (OTTI) charge recognized by First Defiance in the second quarter of 2010 totaled $71,000 compared with $875,000 in the second quarter of 2009. The 2010 second quarter OTTI charge related to two Trust Preferred Collateralized Debt Obligations (CDOs) with a remaining book value of $1.6 million.
First Defiance also has other Trust Preferred CDO investments with a total book value of $2.2 million and fair value of $1.1 million at June 30, 2010. Two of these investments with a book value of $2.0 million and a fair value of $1.0 million continue to pay principal and interest in accordance with the contractual terms of the securities. The decline in value of those investments is primarily due to the overall lack of liquidity in the CDO market. 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. The remaining investment with a book value of $197,000 and a fair value of $91,000 has been written down with OTTI charges in prior periods, but the second quarter of 2010 analysis did not result in additional OTTI for this investment.
Non-Interest Income
Non-interest income for the 2010 second quarter decreased to $5.8 million from $8.4 million in the second quarter of 2009. Most of the decrease was in mortgage banking income, which declined to $1.0 million in the 2010 second quarter from $4.0 million for the same period in 2009. Gains from the sale of mortgage loans declined $1.7 million in the second quarter of 2010 to $1.2 million from $2.9 million in the second quarter of 2009. Mortgage loan servicing revenue increased to $754,000 in the second quarter of 2010 from $695,000 in the 2009 second quarter. The charges for the amortization of servicing rights decreased to $410,000 in the second quarter of 2010 from $1.2 million in the second quarter of 2009.
First Defiance recorded a negative valuation allowance adjustment of $571,000 on mortgage servicing rights (MSR) valuation adjustment in the second quarter of 2010 compared with a positive adjustment of $1.5 million in the second quarter of 2009. The MSR valuation adjustment is a reflection of the change in the fair value of certain sectors of the Company's portfolio of mortgage servicing rights.
Loss on investment securities for the second quarter of 2010 was $71,000, all of which related to OTTI charges. In the second quarter of 2009, loss on investment securities was $750,000 which included OTTI charges of $875,000 and gain on the sale of securities of $125,000.
"Mortgage banking activity in the second quarter declined dramatically from the record highs set in 2009," commented Small. "In 2009, we broke records that were in place from the refinancing boom of 2002 through 2004. In the second quarter of 2010 we generated $67.0 million in loans compared with $198.2 million in loans in the second quarter of 2009. Due to the lower rate environment, we recorded impairment on our previously recorded servicing rights."
Non-Interest Expenses
Total non-interest expense decreased to $15.0 million, including $37,000 of acquisition charges, for the quarter ended June 30, 2010, a decrease from the $16.1 million of non-interest expense recognized in the 2009 second quarter. FDIC insurance expense decreased to $929,000 in the second quarter of 2010 from $1.5 million in the same period of 2009. The second quarter of 2009 included a special assessment of $904,000.
Compensation and benefits decreased to $6.6 million from $7.6 million in the second quarter of 2009. Other non-interest expense increased to $3.8 million in the second quarter of 2010 from $3.0 million in the second quarter of 2009. The period over period compensation and benefit expense reduction was offset partially by credit, collection and OREO-related costs, which increased $265,000 over the second quarter of 2009, and $346,000 of charges incurred this quarter related to the core system conversion scheduled for the fourth quarter of 2010.
Year-To-Date Results
For the six month period ended June 30, 2010, net interest income totaled $34.6 million, compared with $32.2 million in the first six months of 2009. Average interest-earning assets increased to $1.84 billion for the first half of 2010 compared to $1.80 billion for the first half of 2009. Net interest margin for the first six months of 2010 was 3.87%, up 21 basis points from the 3.66% margin reported in the six month period ended June 30, 2009.
The provision for loan losses for the first half of 2010 was $12.3 million, compared to $6.7 million recorded during the first six months of 2009.
Non-interest income for the first half of 2010 was $12.6 million compared to $15.2 million during the same period of 2009. Most of the non-interest income decrease was in mortgage banking, which decreased 58% to $2.8 million for the first six months of 2010 compared to $6.7 million in the first six months of 2009. Service fees and other charges were $6.6 million for the first half of 2010, compared to $6.4 million during the first half of 2009. The 2010 first half non-interest income was reduced by $141,000 of OTTI charges recognized for impaired investment securities compared with $1.5 million in the first half of 2009.
Non-interest expense decreased to $29.9 million for the first six months of 2010 from $31.1 million in 2009. Occupancy costs were $3.5 million in the first half of 2010 compared with $4.0 million in the first half of 2009. Credit, collection and OREO-related costs have increased $699,000 in the first six months of 2010 over the first six months of 2009. Year to date 2010 non-interest expense included the $37,000 of charges associated with the acquisition of a group medical benefits book of business and $417,000 related to the core system conversion that will take place later this year.
"These continue to be very challenging times in banking," said Small. "We are confident in our ability to meet the challenges, and we are keeping a watchful eye on the federal government initiatives that are coming down the road. Regulation changes, stimulus package ramifications and special assessments by the FDIC will certainly have an impact on our operations in the future."
Total Assets at $2.04 Billion
Total assets at June 30, 2010 were $2.04 billion, compared to $2.02 billion at June 30, 2009. Net loans receivable (excluding loans held for sale) were $1.53 billion at June 30, 2010 compared to $1.58 billion at June 30, 2009. Total cash and cash equivalents were $122.1 million at June 30, 2010 compared with $88.8 million at June 30, 2009, an increase of $33.3 million. Total deposits at June 30, 2010 were $1.58 billion compared to $1.55 billion at June 30, 2009, an increase of $27.4 million. Non-interest bearing deposits at June 30, 2010 were $190.1 million compared to $180.0 million at June 30, 2009. Total stockholders' equity was $238.4 million at June 30, 2010 compared to $232.7 million at June 30, 2009. Also at June 30, 2010, goodwill and other intangible assets totaled $64.4 million compared to $64.2 million at June 30, 2009.
Conference Call
First Defiance Financial Corp. will host a conference call at 11 a.m. EDT on Tuesday, July 20, 2010, to discuss the company's strategy and the second quarter results. The conference call may be accessed by calling 1-800-860-2442.
Internet access to the call is also available (in listen-only mode) at the following URL:
http://www.talkpoint.com/viewer/starthere.asp?Pres=130999
The audio replay of the conference call Webcast will be available at http://www.fdef.com/ until Tuesday, August 3, 2010 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 33 full service branches and 45 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, Bryan, Archbold 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, 2009. 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) December June 30, 31, June 30, (in thousands) 2010 2009 2009 -------------- ---- ---- ---- Assets Cash and cash equivalents Cash and amounts due from depository institutions $33,528 $29,613 $31,606 Interest-bearing deposits 88,544 91,503 57,178 ------ ------ ------ 122,072 121,116 88,784 Securities Available-for sale, carried at fair value 159,131 137,458 133,009 Held-to-maturity, carried at amortized cost 1,836 1,920 831 ----- ----- --- 160,967 139,378 133,840 Loans 1,571,413 1,617,122 1,610,460 Allowance for loan losses (38,852) (36,547) (25,840) ------- ------- ------- Loans, net 1,532,561 1,580,575 1,584,620 Loans held for sale 16,000 10,346 23,835 Mortgage servicing rights 8,720 8,958 8,919 Accrued interest receivable 6,973 6,851 7,023 Federal Home Loan Bank stock 21,376 21,376 21,376 Bank Owned Life Insurance 30,767 30,804 28,884 Office properties and equipment 42,378 43,597 46,835 Real estate and other assets held for sale 12,735 13,527 8,567 Goodwill 57,556 56,585 56,585 Core deposit and other intangibles 6,841 6,888 7,598 Deferred taxes 3,495 3,289 52 Other assets 16,215 14,233 6,645 ------ ------ ----- Total Assets $2,038,656 $2,057,523 $2,023,563 ========== ========== ========== Liabilities and Stockholders' Equity Non-interest-bearing deposits $190,140 $189,132 $180,035 Interest-bearing deposits 1,390,380 1,391,094 1,373,109 --------- --------- --------- Total deposits 1,580,520 1,580,226 1,553,144 Advances from Federal Home Loan Bank 126,906 146,927 146,947 Notes payable and other interest-bearing liabilities 44,702 48,398 40,284 Subordinated debentures 36,083 36,083 36,083 Advance payments by borrowers for tax and insurance 379 665 389 Other liabilities 11,628 11,138 14,033 ------ ------ ------ Total liabilities 1,800,218 1,823,437 1,790,880 Stockholders' Equity Preferred stock- including warrants and amortization of discount on preferred shares 37,000 37,000 37,000 Preferred stock discount (625) (707) (789) Common stock, net 127 127 127 Common stock warrant 878 878 878 Additional paid-in-capital 140,767 140,677 140,567 Accumulated other comprehensive loss 1,460 (158) (1,813) Retained earnings 131,459 128,900 129,344 Treasury stock, at cost (72,628) (72,631) (72,631) ------- ------- ------- Total stockholders' equity 238,438 234,086 232,683 Total liabilities and stockholders' equity $2,038,656 $2,057,523 $2,023,563 ========== ========== ========== Consolidated Statements of Income (Unaudited) First Defiance Financial Corp. Three Months Six Months Ended Ended June 30, June 30, -------- -------- (in thousands, except per share amounts) 2010 2009 2010 2009 --------------------- ---- ---- ---- ---- Interest Income: Loans $22,477 $23,086 $44,874 $46,463 Investment securities 1,569 1,474 3,021 2,966 Interest-bearing deposits 69 33 130 47 FHLB stock dividends 234 229 453 468 --- --- --- --- Total interest income 24,349 24,822 48,478 49,944 Interest Expense: Deposits 5,126 6,859 10,524 14,042 FHLB advances and other 1,220 1,279 2,438 2,598 Subordinated debentures 327 369 650 795 Notes Payable 115 136 220 293 --- --- --- --- Total interest expense 6,788 8,643 13,832 17,728 ----- ----- ------ ------ Net interest income 17,561 16,179 34,646 32,216 Provision for loan losses 5,440 3,965 12,329 6,711 ----- ----- ------ ----- Net interest income after provision for loan losses 12,121 12,214 22,317 25,505 Non-interest Income: Service fees and other charges 3,397 3,326 6,555 6,412 Mortgage banking income 985 3,983 2,792 6,697 Gain on sale of non- mortgage loans 50 45 87 100 Gain on securities - 125 6 125 Impairment on securities (71) (875) (141) (1,547) Insurance and investment sales commissions 1,309 1,293 2,417 2,816 Trust income 132 103 254 205 Income from Bank Owned Life Insurance 212 78 691 137 Other non-interest income (223) 281 (103) 218 ---- --- ---- --- Total Non-interest Income 5,791 8,359 12,558 15,163 Non-interest Expense: Compensation and benefits 6,589 7,585 13,047 14,950 Occupancy 1,701 1,924 3,529 4,041 FDIC insurance premium 929 1,497 1,975 2,064 State franchise tax 516 596 1,079 1,097 Data processing 1,174 1,176 2,370 2,230 Amortization of intangibles 345 355 782 746 One time acquisition related charges 37 - 37 - Other non-interest expense 3,754 3,000 7,058 6,001 ----- ----- ----- ----- Total Non-interest Expense 15,045 16,133 29,877 31,129 ------ ------ ------ ------ Income before income taxes 2,867 4,440 4,998 9,539 Income taxes 808 1,539 1,432 3,230 --- ----- ----- ----- Net Income $2,059 $2,901 $3,566 $6,309 ====== ====== ====== ====== Dividends Accrued on Preferred Shares (462) (468) (925) (930) Accretion on Preferred Shares (42) (40) (82) (78) === === === === Net Income Applicable to Common Shares $1,555 $2,393 $2,559 $5,301 ====== ====== ====== ====== Earnings per common share: Basic $0.19 $0.29 $0.32 $0.65 Diluted $0.19 $0.29 $0.31 $0.65 Core operating earnings per common share*: Basic $0.19 $0.29 $0.32 $0.65 Diluted $0.19 $0.29 $0.32 $0.65 Average Shares Outstanding: Basic 8,118 8,117 8,118 8,117 Diluted 8,193 8,182 8,169 8,117 * - See Non-GAAP Disclosure Reconciliations Financial Summary and Comparison First Defiance Financial Corp. (Unaudited) Three Months Ended June 30, -------- (dollars in thousands, except per share data) 2010 2009 % change ----------------------- ---- ---- -------- Summary of Operations Tax-equivalent interest income (1) $24,655 $25,117 (1.8) Interest expense 6,788 8,643 (21.5) Tax-equivalent net interest income (1) 17,867 16,474 8.5 Provision for loan losses 5,440 3,965 37.2 Tax-equivalent NII after provision for loan loss (1) 12,427 12,509 (0.7) Investment securities gains (losses) (71) (750) (90.5) Non-interest income (excluding securities gains/losses) 5,862 9,109 (35.6) Non-interest expense 15,045 16,133 (6.7) Income taxes 808 1,539 (47.5) Net Income 2,059 2,901 (29.0) Dividends Declared on Preferred Shares (462) (468) (1.3) Accretion on Preferred Shares (42) (40) 5.0 Net Income Applicable to Common Shares 1,555 2,393 (35.0) Tax equivalent adjustment (1) 306 295 3.7 ------------------------- --- --- --- At Period End Assets 2,038,656 2,023,563 0.7 Earning assets 1,858,300 1,846,689 0.6 Loans 1,571,413 1,610,460 (2.4) Allowance for loan losses 38,852 25,840 50.4 Deposits 1,580,520 1,553,144 1.8 Stockholders' equity 238,438 232,683 2.5 -------------------- ------- ------- --- Average Balances Assets 2,060,925 2,027,760 1.6 Earning assets 1,845,306 1,828,272 0.9 Deposits and interest- bearing liabilities 1,808,944 1,778,848 1.7 Loans 1,551,396 1,592,513 (2.6) Deposits 1,597,820 1,552,533 2.9 Stockholders' equity 237,076 231,397 2.5 Stockholders' equity / assets 11.50% 11.41% 0.8 ---------------------- ----- ----- --- Per Common Share Data Net Income Basic $0.19 $0.29 (34.5) Diluted 0.19 0.29 (34.5) Dividends - 0.085 (100.0) Market Value: High $14.85 $14.25 4.2 Low 8.53 6.10 39.8 Close 8.94 13.00 (31.2) Book Value 24.78 24.10 2.8 Tangible Book Value 16.85 16.19 4.1 Shares outstanding, end of period (000) 8,118 8,118 - -------------------------- ----- ----- --- Performance Ratios (annualized) Tax-equivalent net interest margin (1) 3.89% 3.61% 7.7 Return on average assets -GAAP 0.40% 0.57% (30.2) Return on average equity- GAAP 3.48% 5.03% (30.7) Efficiency ratio (2) -GAAP 63.40% 63.06% 0.5 Effective tax rate 28.18% 34.66% (18.7) Dividend payout ratio (basic) 0.00% 29.31% (100.0) --------------------- ---- ----- ------ First Defiance Financial Corp. (Unaudited) Six Months Ended June 30, -------- (dollars in thousands, except per share data) 2010 2009 % change ----------------------- ---- ---- -------- Summary of Operations Tax-equivalent interest income (1) $49,082 $50,496 (2.8) Interest expense 13,832 17,728 (22.0) Tax-equivalent net interest income (1) 35,250 32,768 7.6 Provision for loan losses 12,329 6,711 83.7 Tax-equivalent NII after provision for loan loss (1) 22,921 26,057 (12.0) Investment securities gains (losses) (135) (1,422) (90.5) Non-interest income (excluding securities gains/losses) 12,693 16,585 (23.5) Non-interest expense 29,877 31,129 (4.0) Income taxes 1,432 3,230 (55.7) Net Income 3,566 6,309 (43.5) Dividends Declared on Preferred Shares (925) (930) (0.5) Accretion on Preferred Shares (82) (78) 5.1 Net Income Applicable to Common Shares 2,559 5,301 (51.7) Tax equivalent adjustment (1) 604 552 9.4 ------------------------- --- --- --- At Period End Assets Earning assets Loans Allowance for loan losses Deposits Stockholders' equity -------------------- Average Balances Assets 2,054,716 2,006,373 2.4 Earning assets 1,838,587 1,805,144 1.9 Deposits and interest- bearing liabilities 1,803,674 1,757,890 2.6 Loans 1,555,901 1,594,553 (2.4) Deposits 1,586,979 1,533,295 3.5 Stockholders' equity 236,283 230,748 2.4 Stockholders' equity / assets 11.50% 11.50% (0.0) ---------------------- ----- ----- ---- Per Common Share Data Net Income Basic $0.32 $0.65 (50.8) Diluted 0.31 0.65 (52.3) Dividends - 0.255 (100.0) Market Value: High $14.85 $14.25 4.2 Low 8.53 3.76 126.9 Close 8.94 13.00 (31.2) Book Value 24.78 24.10 2.8 Tangible Book Value 16.85 16.19 4.1 Shares outstanding, end of period (000) 8,118 8,118 - -------------------------- ----- ----- --- Performance Ratios (annualized) Tax-equivalent net interest margin (1) 3.87% 3.66% 5.8 Return on average assets -GAAP 0.35% 0.63% (44.8) Return on average equity- GAAP 3.04% 5.51% (44.8) Efficiency ratio (2) -GAAP 62.32% 63.07% (1.2) Effective tax rate 28.65% 33.86% (15.4) Dividend payout ratio (basic) 0.00% 39.23% (100.0) --------------------- ---- ----- ------ (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) 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 ended Six Months Ended Core Operating Earnings June 30, June 30, -------- -------- (dollars in thousands, except per share data) 2010 2009 2010 2009 ----------------------- ---- ---- ---- ---- Net Income $2,059 $2,901 $3,566 $6,309 Acquisition related charges 37 - 37 - Tax effect (13) - (13) - --- --- --- --- After-tax non-operating items 24 - 24 - --- --- --- --- Core operating earnings $2,083 $2,901 $3,590 $6,309 ====== ====== ====== ====== Acquisition related charges in 2010 reflect charges associated with the purchase of the group benefits business from Andres, O'Neil & Lowe. Income from Mortgage Banking Revenue from sales and servicing of mortgage loans consisted of the following: Three months ended Six Months Ended June 30, June 30, -------- (dollars in thousands) 2010 2009 2010 2009 ---------------------- ---- ---- ---- ---- Gain from sale of mortgage loans $1,212 $2,922 $2,376 $5,735 Mortgage loan servicing revenue (expense): Mortgage loan servicing revenue 754 695 1,502 1,384 Amortization of mortgage servicing rights (410) (1,154) (836) (2,111) Mortgage servicing rights valuation adjustments (571) 1,520 (250) 1,689 ---- ----- ---- ----- (227) 1,061 416 962 ---- ----- --- --- Total revenue from sale and servicing of mortgage loans $985 $3,983 $2,792 $6,697 ==== ====== ====== ====== Yield Analysis First Defiance Financial Corp. Three Months Ended June 30, (dollars in thousands) ---------------------- 2010 ---- Average Yield Balance Interest(1) Rate(2) Interest-earning assets: Loans receivable $1,551,396 $22,514 5.82% Securities 156,263 1,838 4.78% Interest Bearing Deposits 116,271 69 0.24% FHLB stock 21,376 234 4.39% ------ --- Total interest-earning assets 1,845,306 24,655 5.36% Non-interest-earning assets 215,619 Total assets $2,060,925 ========== Deposits and Interest-bearing liabilities: Interest bearing deposits $1,404,202 $5,126 1.46% FHLB advances and other 126,910 1,220 3.86% Other Borrowings 47,986 115 0.96% Subordinated debentures 36,228 327 3.62% ------ --- Total interest-bearing liabilities 1,615,326 6,788 1.69% Non-interest bearing deposits 193,618 - - ------- --- Total including non-interest- bearing demand deposits 1,808,944 6,788 1.51% Other non-interest-bearing liabilities 14,905 ------ Total liabilities 1,823,849 Stockholders' equity 237,076 Total liabilities and stockholders' equity $2,060,925 ========== Net interest income; interest rate spread $17,867 3.67% ======= ==== Net interest margin (3) 3.89% ==== Average interest-earning assets to average interest bearing liabilities 114% === Three Months Ended June 30, (dollars in thousands) ---------------------- 2009 ---- Average Yield Balance Interest(1) Rate(2) Interest-earning assets: Loans receivable $1,592,513 $23,116 5.82% Securities 130,663 1,739 5.26% Interest Bearing Deposits 83,720 33 0.16% FHLB stock 21,376 229 4.30% ------ --- Total interest-earning assets 1,828,272 25,117 5.50% Non-interest-earning assets 199,488 Total assets $2,027,760 ========== Deposits and Interest-bearing liabilities: Interest bearing deposits $1,377,317 $6,859 2.00% FHLB advances and other 146,951 1,279 3.49% Other Borrowings 43,122 136 1.27% Subordinated debentures 36,242 369 4.08% ------ --- Total interest-bearing liabilities 1,603,632 8,643 2.16% Non-interest bearing deposits 175,216 - - ------- --- Total including non-interest- bearing demand deposits 1,778,848 8,643 1.95% Other non-interest-bearing liabilities 17,515 ------ Total liabilities 1,796,363 Stockholders' equity 231,397 Total liabilities and stockholders' equity $2,027,760 ========== Net interest income; interest rate spread $16,474 3.34% ======= ==== Net interest margin (3) 3.61% ==== Average interest-earning assets to average interest bearing liabilities 114% === Six Months Ended June 30, ------------------------- 2010 ---- Average Yield Balance Interest(1) Rate(2) Interest-earning assets: Loans receivable $1,555,901 $44,950 5.83% Securities 148,955 3,549 4.86% Interest Bearing Deposits 112,355 130 0.23% FHLB stock 21,376 453 4.27% ------ --- Total interest-earning assets 1,838,587 49,082 5.38% Non-interest-earning assets 216,129 Total assets $2,054,716 ========== Deposits and Interest-bearing liabilities: Interest bearing deposits $1,398,073 $10,524 1.52% FHLB advances and other 134,334 2,438 3.66% Other Borrowings 46,133 220 0.96% Subordinated debentures 36,228 650 3.62% ------ --- Total interest-bearing liabilities 1,614,768 13,832 1.72% Non-interest bearing deposits 188,906 - - ------- --- Total including non-interest- bearing demand deposits 1,803,674 13,832 1.55% Other non-interest-bearing liabilities 14,759 ------ Total liabilities 1,818,432 Stockholders' equity 236,283 Total liabilities and stockholders' equity $2,054,716 ========== Net interest income; interest rate spread $35,250 3.66% ======= ==== Net interest margin (3) 3.87% ==== Average interest-earning assets to average interest bearing liabilities 114% === 2009 ---- Average Yield Balance Interest(1) Rate(2) Interest-earning assets: Loans receivable $1,594,553 $46,521 5.88% Securities 124,988 3,460 5.51% Interest Bearing Deposits 64,227 47 0.15% FHLB stock 21,376 468 4.42% ------ --- Total interest-earning assets 1,805,144 50,496 5.61% Non-interest-earning assets 201,229 Total assets $2,006,373 ========== Deposits and Interest-bearing liabilities: Interest bearing deposits $1,362,747 $14,042 2.08% FHLB advances and other 147,021 2,598 3.56% Other Borrowings 41,327 293 1.43% Subordinated debentures 36,247 795 4.42% ------ --- Total interest-bearing liabilities 1,587,342 17,728 2.25% Non-interest bearing deposits 170,548 - - ------- --- Total including non-interest- bearing demand deposits 1,757,890 17,728 2.03% Other non-interest-bearing liabilities 17,735 ------ Total liabilities 1,775,625 Stockholders' equity 230,748 Total liabilities and stockholders' equity $2,006,373 ========== Net interest income; interest rate spread $32,768 3.36% ======= ==== Net interest margin (3) 3.66% ==== Average interest-earning assets to average interest bearing liabilities 114% === (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 share 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr data) 2010 2010 2009 2009 2009 ----------- ------- ------- ------- ------- ------- Summary of Operations Tax- equivalent interest income (1) $24,655 $24,427 $25,434 $25,796 $25,117 Interest expense 6,788 7,044 7,614 7,914 8,643 Tax- equivalent net interest income (1) 17,867 17,383 17,820 17,882 16,474 Provision for loan losses 5,440 6,889 8,470 8,051 3,965 Tax- equivalent NII after provision for loan losses (1) 12,427 10,494 9,350 9,831 12,509 Investment securities gains (losses) (71) (64) (1,394) (840) (750) Non- interest income (excluding securities gains/ losses) 5,862 6,830 6,970 6,396 9,109 Non- interest expense 15,045 14,832 14,609 14,786 16,133 Income taxes 808 624 (525) (37) 1,539 Net income 2,059 1,506 555 329 2,901 Dividends Declared on Preferred Shares (462) (463) (447) (473) (468) Accretion on Preferred Shares (42) (40) (41) (40) (40) Net Income Applicable to Common Shares 1,555 1,003 67 (184) 2,393 Tax equivalent adjustment (1) 306 298 287 309 295 ----------- --- --- --- --- --- At Period End Total assets $2,038,656 $2,058,775 $2,057,523 $2,018,598 $2,023,563 Earning assets 1,858,300 1,884,650 1,879,725 1,845,134 1,846,689 Loans 1,571,413 1,576,602 1,617,122 1,623,627 1,610,460 Allowance for loan losses 38,852 38,980 36,547 31,248 25,840 Deposits 1,580,520 1,599,584 1,580,226 1,543,085 1,553,144 Stockholders' equity 238,438 235,655 234,086 234,529 232,683 Stockholders' equity / assets 11.70% 11.45% 11.38% 11.62% 11.50% Goodwill 57,556 56,585 56,585 56,585 56,585 -------- ------ ------ ------ ------ ------ Average Balances Total assets $2,060,925 $2,048,506 $2,058,219 $2,029,970 $2,027,760 Earning assets 1,845,306 1,831,867 1,852,401 1,826,400 1,828,272 Deposits and interest- bearing liabilities 1,808,944 1,798,408 1,805,090 1,778,223 1,778,848 Loans 1,551,396 1,560,405 1,600,265 1,613,529 1,592,513 Deposits 1,597,820 1,576,140 1,572,399 1,550,369 1,552,533 Stockholders' equity 237,076 235,492 235,152 234,241 231,397 Stockholders' equity / assets 11.50% 11.50% 11.43% 11.54% 11.41% ------------- ----- ----- ----- ----- ----- Per Common Share Data Net Income: Basic $0.19 $0.12 $0.01 $(0.02) $0.29 Diluted 0.19 0.12 0.01 (0.02) 0.29 Dividends - - - 0.04 0.09 Market Value: High $14.85 $12.33 $18.93 $18.33 $14.25 Low 8.53 9.20 10.06 12.00 6.10 Close 8.94 10.12 11.29 14.91 13.00 Book Value 24.78 24.45 24.26 24.32 24.10 Shares outstanding, end of period (in thousands) 8,118 8,117 8,118 8,118 8,118 ------------- ----- ----- ----- ----- ----- Performance Ratios (annualized) Tax- equivalent net interest margin (1) 3.89% 3.85% 3.82% 3.88% 3.61% Return on average assets 0.40% 0.30% 0.11% 0.06% 0.57% Return on average equity 3.48% 2.59% 0.94% 0.56% 5.03% Efficiency ratio (2) 63.40% 61.26% 58.93% 60.90% 63.06% Effective tax rate 28.18% 29.30% -1750.00% -12.67% 34.66% Common dividend payout ratio (basic) 0.00% 0.00% 0.00% -200.00% 29.31% --------- ---- ---- ---- ------- ----- (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) Efficiency ratio = Non-interest expense divided by sum of tax- equivalent net interest income plus non-interest income, excluding securities gains, net. Selected Quarterly Information First Defiance Financial Corp. (dollars in thousands, 2nd Qtr 1st Qtr 4th Qtr except per share data) 2010 2010 2009 ---------------------- -------- -------- -------- Loan Portfolio Composition One to four family residential real estate $217,603 $222,099 $227,592 Construction 43,333 46,369 48,625 Commercial real estate 790,521 797,449 806,890 Commercial 364,281 352,923 379,408 Consumer finance 28,961 31,718 34,105 Home equity and improvement 140,969 144,826 147,977 ------- ------- ------- Total loans 1,585,668 1,595,384 1,644,597 Less: Loans in process 13,283 17,794 26,494 Deferred loan origination fees 972 988 981 Allowance for loan loss 38,852 38,980 36,547 Net Loans $1,532,561 $1,537,622 $1,580,575 ========== ========== ========== Allowance for loan loss activity Beginning allowance 38,980 36,547 $31,248 Provision for loan losses 5,440 6,889 8,470 Credit loss charge-offs: One to four family residential real estate 1,135 326 884 Commercial real estate 1,243 3,191 1,912 Commercial 3,153 735 354 Consumer finance 16 25 75 Home equity and improvement 156 399 134 --- --- --- Total charge-offs 5,703 4,676 3,359 Total recoveries 135 220 188 --- --- --- Net charge-offs (recoveries) 5,568 4,456 3,171 Ending allowance $38,852 $38,980 $36,547 ======= ======= ======= Credit Quality Non-accrual loans $31,804 $33,567 $41,191 Restructured loans, accruing 8,918 7,023 6,715 ----- ----- ----- Total non-performing loans (1) 40,722 40,590 47,906 Real estate owned (REO) 12,735 12,768 13,527 Total non-performing assets (2) $53,457 $53,358 $61,433 ======= ======= ======= Net charge-offs 5,568 4,456 3,171 Allowance for loan losses /loans 2.47% 2.47% 2.26% Allowance for loan losses /non-performing assets 72.68% 73.05% 59.49% Allowance for loan losses /non-performing loans 95.41% 96.03% 76.29% Non-performing assets / loans plus REO 3.37% 3.36% 3.77% Non-performing assets / total assets 2.62% 2.59% 2.99% Net charge-offs / average loans (annualized) 1.44% 1.14% 0.79% Deposit Balances Non-interest-bearing demand deposits $190,140 $187,231 $189,132 Interest-bearing demand deposits and money market 517,170 525,311 499,575 Savings deposits 140,473 138,364 130,156 Retail time deposits less than $100,000 527,421 539,313 550,172 Retail time deposits greater than $100,000 158,069 161,071 163,838 National/Brokered time deposits 47,247 48,294 47,353 Total deposits $1,580,520 $1,599,584 $1,580,226 ========== ========== ========== (dollars in thousands, except per 3rd Qtr 2nd Qtr share data) 2009 2009 --------------------------------- -------- -------- Loan Portfolio Composition One to four family residential real estate $233,958 $238,000 Construction 53,605 44,670 Commercial real estate 802,434 768,636 Commercial 371,881 382,434 Consumer finance 36,416 38,074 Home equity and improvement 150,379 151,213 ------- ------- Total loans 1,648,673 1,623,027 Less: Loans in process 23,957 11,602 Deferred loan origination fees 1,089 965 Allowance for loan loss 31,248 25,840 ------ Net Loans $1,592,379 $1,584,620 ========== ========== Allowance for loan loss activity Beginning allowance $25,840 $25,694 Provision for loan losses 8,051 3,965 Credit loss charge-offs: One to four family residential real estate 744 505 Commercial real estate 1,152 2,066 Commercial 658 950 Consumer finance 39 83 Home equity and improvement 196 301 --- --- Total charge-offs 2,789 3,905 Total recoveries 146 86 --- --- Net charge-offs (recoveries) 2,643 3,819 Ending allowance $31,248 $25,840 ======= ======= Credit Quality Non-accrual loans $35,490 $35,528 Restructured loans, accruing 4,574 4,845 ----- ----- Total non-performing loans (1) 40,064 40,373 Real estate owned (REO) 9,352 8,567 Total non-performing assets (2) $49,416 $48,940 ======= ======= Net charge-offs 2,643 3,819 Allowance for loan losses / loans 1.92% 1.60% Allowance for loan losses /non- performing assets 63.23% 52.80% Allowance for loan losses /non- performing loans 78.00% 64.00% Non-performing assets /loans plus REO 3.03% 3.02% Non-performing assets /total assets 2.45% 2.42% Net charge-offs /average loans (annualized) 0.66% 0.96% Deposit Balances Non-interest-bearing demand deposits $174,145 $180,035 Interest-bearing demand deposits and money market 477,566 456,177 Savings deposits 132,333 135,821 Retail time deposits less than $100,000 544,957 568,595 Retail time deposits greater than $100,000 166,787 165,401 National/Brokered time deposits 47,297 47,115 Total deposits $1,543,085 $1,553,144 ========== ========== (1) Non-performing loans consist of non-accrual loans that are contractually past due 90 days or more and loans that are deemed impaired. (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. (dollars in Total 30 to 89 Troubled thousands) Balance Current days Non Accrual Debt ----------- ------- ------- past due Loans Restructuring -------- ----- ------------- June 30, 2010 ------------- One to four family residential real estate $217,603 $202,472 $4,790 $6,457 $3,884 Construction 43,333 43,079 - 254 - Commercial real estate 790,521 763,913 4,057 17,912 4,639 Commercial 364,281 356,500 508 6,898 375 Consumer finance 28,961 28,767 177 17 - Home equity and improvement 140,969 139,219 1,464 266 20 ------- ------- Total loans $1,585,668 $1,533,950 $10,996 $31,804 $8,918 ========== ========== ======= ======= ====== March 31, 2010 -------------- One to four family residential real estate $222,099 $207,733 $4,749 $6,572 $3,045 Construction 46,369 46,129 65 175 - Commercial real estate 797,449 768,335 6,962 18,241 3,911 Commercial 352,923 338,513 6,866 7,498 46 Consumer finance 31,718 31,489 170 59 - Home equity and improvement 144,826 142,598 1,185 1,022 21 ------- Total loans $1,595,384 $1,534,797 $19,997 $33,567 $7,023 ========== ========== ======= ======= ====== December 31, 2009 ------------ One to four family residential real estate $227,592 $215,209 $4,333 $5,349 $2,701 Construction 48,625 47,950 - 675 - Commercial real estate 809,890 775,604 3,280 24,042 3,964 Commercial 379,408 367,592 1,151 10,615 50 Consumer finance 34,105 33,669 377 59 - Home equity and improvement 147,977 145,481 2,045 451 - ------- Total loans $1,647,597 $1,585,505 $11,186 $41,191 $6,715 ========== ========== ======= ======= ====== 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 ========== ========== ======= ======= ======
First Defiance Financial Corp.
CONTACT: William J. Small, Chairman, President and CEO, +1-419-782-5104,
bsmall@first-fed.com
Web Site: http://www.fdef.com/
