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First Defiance Announces 2009 Second Quarter Earnings
-- Net Income of $2.9 million for 2009 second quarter up from $2.7 million in the second quarter of 2008
-- Provision for Loan Losses of $4.0 million reflects challenging credit environment
-- Recapture of $1.5 million of previously recorded MSR impairment
-- Other-Than-Temporary Impairment of $874,000 recognized on certain investment securities
-- FDIC special assessment of $900,000
-- Second quarter loan growth of $24.6 million
DEFIANCE, Ohio, July 20 /PRNewswire-FirstCall/ -- First Defiance Financial Corp. (Nasdaq: FDEF) today announced that net income for its second quarter ended June 30, 2009 totaled $2.9 million, or $0.29 per diluted common share, compared to $2.74 million or $0.34 per diluted common share for the quarter ended June 30, 2008. The 2008 results included $262,000 of acquisition-related charges associated with the March 14, 2008 acquisition of Pavilion Bancorp of Adrian, Michigan (Pavilion) and its subsidiary the Bank of Lenawee.
For the six month period ended June 30, 2009, First Defiance earned $6.3 million or $0.65 per diluted common share compared to $6.15 million or $0.80 per diluted common share for the six month period ended June 30, 2008. Excluding the after-tax cost of the $1.0 million acquisition-related charges from the 2008 results, First Defiance earned $6.81 million, or $0.88 per diluted common share for the first half of 2008.
"Given the economic environment, we are pleased with our second quarter results," said William J. Small, Chairman, President and Chief Executive Officer of First Defiance Financial Corp. "Net income increased compared to last year's second quarter, and record-breaking mortgage volume boosted non-interest income. Credit quality was once again the major drag on the results for the quarter as many of our borrowers continue to face challenges. The FDIC special assessment, which was assessed on all FDIC insured institutions to rebuild the insurance reserves, and some additional other-than-temporary impairment also negatively impacted earnings. Even in this environment we were able to grow loans and deposits including 10% growth in non-interest bearing demand deposits from the first quarter of 2009."
Credit Quality
The second quarter 2009 results include expense for provision for loan losses of $4.0 million, compared with $2.8 million in the same period in 2008 and $2.7 million in the first quarter of 2009.
Non-performing loans totaled $41.8 million at June 30, 2009, an increase from $36.7 million at March 31, 2009. The June 30, 2009 balance included $35.5 million of loans that are 90 days past due and another $6.3 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 $8.6 million of Real Estate Owned at June 30, 2009. For the second quarter of 2009, First Defiance recorded net charge-offs of $3.8 million, which represented 0.96% of average loans outstanding (annualized) for the quarter.
"First Federal Bank has a long history of excellent asset quality, but in the current economic situation, we, like most other banks, continue to see deterioration in some credits in our portfolio. These charge-offs were not unexpected, and were accounted for in our provision for loan losses in the quarter. Two credit relationships, one a land development credit and the other a manufacturing business, accounted for more than 60% of the charge-off amount this quarter. We continue to monitor the portfolio and the economic environments in our markets closely and react quickly to any identified weaknesses," Small said.
Investment Portfolio
The Other-Than-Temporary Impairment (OTTI) charge recognized by First Defiance in the second quarter of 2009 totaled $874,000. The OTTI charge for the quarter related to four Trust Preferred Collateralized Debt Obligations (CDOs) with a remaining book value of $2.3 million. First Defiance also has one other 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 $163,000 at June 30, 2009. The OTTI charge is due to the credit deterioration of the underlying collateral.
First Defiance also has other Trust Preferred CDO investments with a total book value of $3.8 million and market value of $1.4 million at June 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 was basically flat compared to the 2008 second quarter, with a slight decrease to $16.2 million for the second quarter of 2009. Net interest margin was 3.61% for the 2009 second quarter compared to 3.71% in the first quarter of 2009 and 3.91% in the second quarter of 2008. Yield on interest earning assets declined by 79 basis points, to 5.50% from 6.29% in the 2008 second quarter while the cost of interest-bearing liabilities and non-interest-bearing demand deposits decreased by 44 basis points, to 1.95% from 2.39%.
"Despite the fact that we are seeing some encouraging signs of economic recovery in our markets, 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."
Non-Interest Income
Non-interest income for the 2009 second quarter increased to $8.4 million from $6.2 million in the second quarter of 2008. Most of the increase was in mortgage banking income, which increased to $4.0 million in the 2009 second quarter from $1.5 million for the same period in 2008. Gains from the sale of mortgage loans nearly tripled in the second quarter of 2009 to $2.9 million from $1.0 million in the second quarter of 2008. Mortgage loan servicing revenue remained relatively flat for the 2009 second quarter compared to 2008. The increases in gains and servicing revenue were offset by expense increases of $765,000 for the amortization of mortgage servicing rights due to the higher refinance activity during the quarter.
First Defiance recaptured $1.5 million of the mortgage servicing rights (MSR) valuation adjustment in the second quarter of 2009 compared with a recapture of $167,000 in the second quarter of 2008. The MSR valuation adjustment is a reflection of the increase 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 2009 was $750,000, which included $874,000 of OTTI charges compared with a loss of $432,000 in the second quarter of 2008 related to OTTI charges.
"Mortgage banking activity in the second quarter surpassed all expectations," commented Small. "We broke records that were in place from the refinancing boom of 2002 through 2004. It's an accomplishment for a bank our size to generate $198.0 million in loans in a single quarter. We were also able to recapture a sizeable amount of the mortgage servicing impairment that we took in the 2008 fourth quarter to offset the increased amortization of the mortgage servicing rights due to the heavy refinancing during the quarter. We believe that the mortgage production will drop off in the second half of the year as mortgage rates have risen off the early-year lows. However, we are seeing a pick up in mortgages for the purchase of homes in recent months compared to most of the activity earlier in the year being for refinancing of existing mortgages."
Non-Interest Expenses
Total non-interest expense increased to $16.1 million for the quarter ended June 30, 2009, an increase from the $15.5 million of non-interest expense, which included $262,000 of acquisition related charges, recognized in the 2008 second quarter. FDIC insurance expense increased to $1.5 million in the second quarter of 2009 from $431,000 in the same period of 2008 as a result of the FDIC rate increases, higher insured deposits and a special assessment of $900,000.
Compensation and benefits increased by 3.6% compared to 2008, driven largely by increased medical costs. Other non-interest expense decreased to $3.0 million in the second quarter of 2009 from $3.5 million in the second quarter of 2008. The second quarter of 2008 included an expense of $752,000 associated with losses related to a former investment advisor. The period over period expense reduction benefit was offset partially by credit, collection and OREO-related costs, which increased $574,000 over the second quarter of 2008.
Year-To-Date Results
For the six month period ended June 30, 2009, net interest income totaled $32.2 million, compared with $29.8 million in the first six months of 2008. Average interest-earning assets increased to $1.81 billion for the first half of 2009 compared to $1.58 billion for the first half of 2008. Net interest margin for the first six months of 2009 was 3.66%, down 18 basis points from the 3.84% margin reported in the six month period ended June 30, 2008.
The provision for loan losses for the first half of 2009 was $6.7 million, compared to $3.9 million recorded during the first six months of 2008.
Non-interest income for the first half of 2009 was $15.2 million compared to $12.2 million during the same period of 2008. Most of the non-interest income increase was in mortgage banking, which increased 156% to $6.7 million for the first six months of 2009 compared to $2.6 million in the first six months of 2008. In addition, service fees and other charges were $6.4 million for the first half of 2009 compared to $6.0 million during the first half of 2008. The 2009 first half non-interest income was reduced by $1.6 million of OTTI charges recognized for impaired investment securities.
Non-interest expense increased to $31.1 million for the first six months of 2009 from $29.0 million in 2008. Excluding one-time acquisition-related charges of $1.0 million, non-interest expense was $28.0 million for the first six months of 2008. Most of the 2009 increase relates to ongoing costs of operating the eight branches acquired in the Pavilion acquisition for the full period in 2009. In addition, FDIC insurance expense has increased by $1.6 million due to changes in the assessment rates, a 2009 special assessment of $900,000 and full utilization early in the 2008 first quarter of credits issued by the FDIC. Credit, collection and OREO-related costs have increased $1.1 million in the first six months of 2009 over the first six months of 2008. Year to date 2008 non-interest expense included the $752,000 of expense associated with losses related to a former investment advisor.
"These are interesting times in banking," said Small. "We are proud of our ability to meet the challenges to date, 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 $2.02 Billion
Total assets at June 30, 2009 were $2.02 billion, compared to $1.93 billion at June 30, 2008. Net loans receivable (excluding loans held for sale) were $1.58 billion at June 30, 2009 compared to $1.56 billion at June 30, 2008. Total cash and cash equivalents were $88.8 million at June 30, 2009 compared with $44.7 million at June 30, 2008, an increase of $44.1 million. Total deposits at June 30, 2009 were $1.55 billion compared to $1.43 billion at June 30, 2008, an increase of $126 million. Non-interest bearing deposits at June 30, 2009 were $180.0 million compared to $181.0 million at June 30, 2008. Total stockholders' equity was $231.6 million at June 30, 2009 compared to $193.8 million at June 30, 2008. Also at June 30, 2009, goodwill and other intangible assets totaled $64.2 million compared to $65.3 million at June 30, 2008.
Conference Call
First Defiance Financial Corp. will host a conference call at 11:00 a.m. (EDT) on Tuesday, July 21, 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=126299.
Audio replay of the Internet Web cast will be available at www.fdef.com until Wednesday August 5, 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 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)
June 30, December 31, June 30,
(in thousands) 2009 2008 2008
-------------- ---- ---- ----
Assets
Cash and cash equivalents
Cash and amounts due from
depository institutions $31,606 $40,980 $44,621
Interest-bearing deposits 57,178 5,172 59
------ ----- --
88,784 46,152 44,680
Securities
Available-for sale, carried
at fair value 133,009 117,575 118,825
Held-to-maturity, carried at
amortized cost 831 886 1,035
--- --- -----
133,840 118,461 119,860
Loans 1,610,460 1,617,235 1,582,751
Allowance for loan losses (25,840) (24,592) (20,578)
------- ------- -------
Loans, net 1,584,620 1,592,643 1,562,173
Loans held for sale 23,835 10,960 11,711
Mortgage servicing rights 8,919 6,611 9,348
Accrued interest receivable 7,023 7,293 7,650
Federal Home Loan Bank stock 21,376 21,376 21,118
Bank Owned Life Insurance 28,884 28,747 28,950
Office properties and equipment 46,835 47,756 47,999
Real estate and other assets held
for sale 8,567 7,000 3,158
Goodwill 56,585 56,585 56,111
Core deposit and other intangibles 7,598 8,344 9,195
Deferred taxes 52 336 -
Other assets 6,645 5,136 6,233
----- ----- -----
Total Assets $2,023,563 $1,957,400 $1,928,186
========== ========== ==========
Liabilities and Stockholders' Equity
Non-interest-bearing deposits $180,035 $176,063 $181,034
Interest-bearing deposits 1,373,109 1,293,849 1,246,107
--------- --------- ---------
Total deposits 1,553,144 1,469,912 1,427,141
Advances from Federal Home Loan Bank 146,947 156,067 191,895
Notes payable and other interest-
bearing liabilities 40,284 49,454 59,039
Subordinated debentures 36,083 36,083 36,083
Advance payments by borrowers for
tax and insurance 389 652 599
Deferred taxes - - 3,623
Other liabilities 14,033 16,073 16,006
------ ------ ------
Total liabilities 1,790,880 1,728,241 1,734,386
Stockholders' Equity
Preferred stock-
including warrants and
amortization of discount
on preferred shares 37,000 37,000 -
Preferred stock discount (789) (867) -
Common stock, net 127 127 127
Common stock warrant 878 878 -
Additional paid-in-capital 140,567 140,449 140,297
Accumulated other
comprehensive loss (1,813) (1,904) (2,533)
Retained earnings 129,344 126,114 128,536
Treasury stock, at cost (72,631) (72,638) (72,627)
------- ------- -------
Total stockholders' equity 232,683 229,159 193,800
------- ------- -------
Total liabilities and
stockholders' equity $2,023,563 $1,957,400 $1,928,186
========== ========== ==========
Consolidated Statements of Income (Unaudited)
First Defiance Financial Corp.
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands, except per -------- --------
share amounts) 2009 2008 2009 2008
------------------------- ---- ---- ---- ----
Interest Income:
Loans $23,086 $24,506 $46,463 $47,319
Investment securities 1,474 1,462 2,966 2,947
Interest-bearing deposits 33 15 47 113
FHLB stock dividends 229 254 468 497
--- --- --- ---
Total interest income 24,822 26,237 49,944 50,876
Interest Expense:
Deposits 6,859 7,522 14,042 16,193
FHLB advances and other 1,279 1,545 2,598 3,200
Subordinated debentures 369 456 795 984
Notes Payable 136 468 293 662
--- --- --- ---
Total interest expense 8,643 9,991 17,728 21,039
----- ----- ------ ------
Net interest income 16,179 16,246 32,216 29,837
Provision for loan losses 3,965 2,797 6,711 3,855
----- ----- ----- -----
Net interest income after
provision for loan losses 12,214 13,449 25,505 25,982
Non-interest Income:
Service fees and other
charges 3,326 3,417 6,412 6,039
Mortgage banking income 3,983 1,501 6,697 2,616
Gain on sale of non-
mortgage loans 45 8 100 43
Loss on securities (750) (432) (1,422) (513)
Insurance and investment
sales commissions 1,293 1,267 2,816 3,202
Trust income 103 118 205 229
Income from Bank Owned
Life Insurance 78 254 137 527
Other non-interest income 281 17 218 22
--- -- --- --
Total Non-interest Income 8,359 6,150 15,163 12,165
Non-interest Expense:
Compensation and benefits 7,585 7,318 14,950 14,441
Occupancy 1,924 1,944 4,041 3,613
FDIC insurance premium 1,497 431 2,064 465
State franchise tax 596 513 1,097 1,007
Acquisition related charges - 262 - 1,012
Data processing 1,176 1,134 2,230 2,163
Amortization of intangibles 355 420 746 611
Other non-interest expense 3,000 3,493 6,001 5,679
----- ----- ----- -----
Total Non-interest Expense 16,133 15,515 31,129 28,991
------ ------ ------ ------
Income before income taxes 4,440 4,084 9,539 9,156
Income taxes 1,539 1,349 3,230 3,002
----- ----- ----- -----
Net Income $2,901 $2,735 $6,309 $6,154
====== ====== ====== ======
---- -- ---- --
Dividends Accrued on Preferred
Shares (468) - (930) -
Accretion on Preferred Shares (40) - (78) -
=== == === ==
------ ------ ------ ------
Net Income Applicable to Common
Shares $2,393 $2,735 $5,301 $6,154
====== ====== ====== ======
Earnings per common share:
Basic $0.29 $0.34 $0.65 $0.80
Diluted $0.29 $0.34 $0.65 $0.80
Core operating earnings per
common share*:
Basic $0.29 $0.36 $0.65 $0.89
Diluted $0.29 $0.36 $0.65 $0.88
Average Shares Outstanding:
Basic 8,117 8,094 8,117 7,662
Diluted 8,123 8,126 8,117 7,701
* - See Non-GAAP Disclosure Reconciliations
Financial Summary and Comparison
First Defiance Financial Corp.
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
(dollars in thousands, -------- --------
except per share % %
data) 2009 2008 change 2009 2008 change
---------------------- ---- ---- ------ ---- ---- ------
Summary of Operations
Tax-equivalent interest
income (1) 25,117 26,453 (5.1) 50,496 51,296 (1.6)
Interest expense 8,643 9,991 (13.5) 17,728 21,039 (15.7)
Tax-equivalent
net interest
income (1) 16,474 16,462 0.1 32,768 30,257 8.3
Provision for loan
losses 3,965 2,797 41.8 6,711 3,855 74.1
Tax-equivalent
NII after
provision for
loan loss (1) 12,509 13,665 (8.5) 26,057 26,402 (1.3)
Securities
losses (750) (432) 73.6 (1,422) (513) 177.2
Non-interest
income-excluding
securities losses 9,109 6,582 38.4 16,585 12,678 30.8
Non-interest
expense 16,133 15,515 4.0 31,129 28,991 7.4
Non-interest
expense-excluding
non-core charges 16,133 15,253 5.8 31,129 27,979 11.3
One time
acquisition
related charges - 262 NM - 1,012 NM
Income taxes 1,539 1,349 14.1 3,230 3,002 7.6
Net Income 2,901 2,735 6.1 6,309 6,154 2.5
Dividends Declared
on Preferred
Shares (468) - NM (930) - NM
Accretion on
Preferred Shares (40) - NM (78) - NM
Net Income
Applicable to
Common Shares 2,393 2,735 (12.5) 5,301 6,154 (13.9)
Core operating
earnings (2) 2,901 2,905 (0.1) 6,309 6,812 (7.4)
Tax equivalent
adjustment (1) 295 216 36.6 552 420 31.4
--------------- --- --- ---- --- --- ----
At Period End
Assets 2,023,563 1,928,925 4.9
Earning assets 1,846,689 1,736,238 6.4
Loans 1,610,460 1,582,751 1.8
Allowance for loan
losses 25,840 20,578 25.6
Deposits 1,553,144 1,427,141 8.8
Stockholders'
equity 232,683 194,280 19.8
------------- ------- ------- ----
Average Balances
Assets 2,027,760 1,898,165 6.8 2,006,373 1,771,801 13.2
Earning assets 1,828,272 1,689,398 8.2 1,805,144 1,582,640 14.1
Deposits and
interest-bearing
liabilities 1,778,848 1,678,026 6.0 1,757,890 1,561,570 12.6
Loans 1,592,513 1,544,409 3.1 1,594,553 1,435,438 11.1
Deposits 1,552,533 1,423,266 9.1 1,533,295 1,329,810 15.3
Stockholders'
equity 231,397 195,845 18.2 230,748 183,769 25.6
Stockholders'
equity /assets 11.41% 10.32% 10.6 11.50% 10.37% 10.9
--------------- ----- ----- ---- ----- ----- ----
Per Common Share Data
Net Income
Basic $0.29 $0.34 (14.7) $0.65 $0.80 (18.8)
Diluted 0.29 0.34 (14.7) 0.65 0.80 (18.8)
Core operating
earnings (2)
Basic $0.29 $0.36 (17.9) $0.65 $0.89 (26.5)
Diluted 0.29 0.36 (17.6) 0.65 0.88 (26.2)
Dividends 0.085 0.26 (67.3) 0.255 0.52 (51.0)
Market Value:
High $14.25 $20.00 (28.8) $14.25 $22.51 (36.7)
Low 6.10 15.90 (61.6) 3.76 15.90 (76.4)
Close 13.00 16.01 (18.8) 13.00 16.01 (18.8)
Book Value 24.10 23.93 0.7 24.10 23.93 0.7
Tangible Book Value 16.19 15.89 1.9 16.19 15.89 1.9
Shares
outstanding,
end of period
(000) 8,118 8,118 (0.0) 8,118 8,118 (0.0)
-------------- ----- ----- ---- ----- ----- ----
Performance Ratios
(annualized)
Tax-equivalent
net interest
margin (1) 3.61% 3.92% (7.9) 3.66% 3.85% (5.0)
Return on average
assets -GAAP 0.57% 0.58% (1.1) 0.63% 0.70% (9.4)
Return on average
assets -Core
Operating 0.57% 0.62% (7.4) 0.63% 0.77% (17.6)
Return on average
equity-GAAP 5.03% 5.62% (10.5) 5.51% 6.73% (18.1)
Return on average
equity-Core
Operating 5.03% 5.97% (15.8) 5.51% 7.45% (26.0)
Efficiency ratio
(3) -GAAP 63.06% 67.33% (6.3) 63.07% 67.52% (6.6)
Efficiency ratio
(3) -Core Operating 63.06% 66.19% (4.7) 63.07% 65.17% (3.2)
Effective tax rate 34.66% 33.03% 4.9 33.86% 32.79% 3.3
Dividend payout
ratio (basic) 29.31% 76.47% (61.7) 39.23% 65.00% (39.6)
--------------- ----- ----- ----- ----- ----- -----
(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 and asset sales gains, 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) 2009 2008 2009 2008
--------------------------------- ---- ---- ---- ----
Net Income $2,901 $2,735 $6,309 $6,154
Acquisition related charges - 262 - 1,012
Tax effect - (92) - (354)
--- --- --- ----
After-tax non-operating items - 170 - 658
--- --- --- ---
Core operating earnings $2,901 $2,905 $6,309 $6,812
====== ====== ====== ======
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 Ended Six Months Ended
June 30, June 30,
-------- --------
(dollars in thousands) 2009 2008 2009 2008
---------------------- ---- ---- ---- ----
Gain from sale of mortgage loans $2,922 $1,041 $5,735 $2,184
Mortgage loan servicing revenue
(expense):
Mortgage loan servicing revenue 695 682 1,384 1,148
Amortization of mortgage servicing
rights (1,154) (389) (2,111) (740)
Mortgage servicing rights valuation
adjustments 1,520 167 1,689 24
----- --- ----- --
1,061 460 962 432
----- --- --- ---
Total revenue from sale and servicing
of mortgage loans $3,983 $1,501 $6,697 $2,616
====== ====== ====== ======
Yield Analysis
First Defiance Financial Corp.
Three Months Ended June 30,
--------------------------------------------------
2009 2008
----------------------- -----------------------
Yield Yield
Average Interest Rate Average Interest Rate
Balance (1) (2) Balance (1) (2)
Interest-earning
assets:
Loans receivable $1,592,513 $23,116 5.82% $1,544,409 $24,536 6.39%
Securities 130,663 1,739 5.26% 121,506 1,648 5.42%
Interest Bearing
Deposits 83,720 33 0.16% 2,616 15 2.31%
FHLB stock 21,376 229 4.30% 20,867 254 4.90%
------ --- ------ ---
Total interest-
earning assets 1,828,272 25,117 5.50% 1,689,398 26,453 6.29%
Non-interest-
earning assets 199,488 208,767
------- -------
Total assets $2,027,760 $1,898,165
========== ==========
Deposits and
Interest-bearing
liabilities:
Interest bearing
deposits $1,377,317 $6,859 2.00% $1,252,165 $7,522 2.42%
FHLB advances
and other 146,951 1,279 3.49% 164,811 1,545 3.77%
Other Borrowings 43,122 136 1.27% 53,724 468 3.50%
Subordinated
debentures 36,242 369 4.08% 36,225 456 5.06%
------ --- ------ ---
Total interest-
bearing
liabilities 1,603,632 8,643 2.16% 1,506,925 9,991 2.67%
Non-interest
bearing deposits 175,216 - - 171,101 - -
------- --- ------- ---
Total including
non-interest-
bearing demand
deposits 1,778,848 8,643 1.95% 1,678,026 9,991 2.39%
Other non-
interest-bearing
liabilities 17,515 24,294
------ ------
Total liabilities 1,796,363 1,702,320
Stockholders'
equity 231,397 195,845
------- -------
Total liabilities
and stockholders'
equity $2,027,760 $1,898,165
========== ------- ========== -------
Net interest
income; interest
rate spread $16,474 3.34% $16,462 3.62%
======= ==== ======= ====
Net interest
margin (3) 3.61% 3.91%
==== ====
Average
interest-earning
assets to average
interest bearing
liabilities 114% 112%
=== ===
Six Months Ended June 30,
--------------------------------------------------
2009 2008
----------------------- -----------------------
Yield Yield
Average Interest Rate Average Interest Rate
Balance (1) (2) Balance (1) (2)
Interest-earning
assets:
Loans receivable $1,594,553 $46,521 5.88% $1,435,438 $47,363 6.64%
Securities 124,988 3,460 5.51% 119,112 3,323 5.60%
Interest Bearing
Deposits 64,227 47 0.15% 8,352 113 2.72%
FHLB stock 21,376 468 4.42% 19,738 497 5.06%
------ --- ------ ---
Total interest-
earning assets 1,805,144 50,496 5.61% 1,582,640 51,296 6.52%
Non-interest-
earning assets 201,229 189,161
------- -------
Total assets $2,006,373 $1,771,801
========== ==========
Deposits and
Interest-bearing
liabilities:
Interest bearing
deposits $1,362,747 $14,042 2.08% $1,181,938 $16,193 2.76%
FHLB advances
and other 147,021 2,598 3.56% 155,666 3,200 4.13%
Other Borrowings 41,327 293 1.43% 39,841 662 3.34%
Subordinated
debentures 36,247 795 4.41% 36,253 984 5.46%
------ --- ------ ---
Total interest-
bearing
liabilities 1,587,342 17,728 2.25% 1,413,698 21,039 2.99%
Non-interest
bearing deposits 170,548 - - 147,872 - -
------- --- ------- ---
Total including
non-interest-
bearing demand
deposits 1,757,890 17,728 2.03% 1,561,570 21,039 2.71%
Other non-
interest-bearing
liabilities 17,735 26,462
------ ------
Total liabilities 1,775,625 1,588,032
Stockholders'
equity 230,748 183,769
------- -------
Total liabilities
and stockholders'
equity $2,006,373 $1,771,801
========== ------- ========== -------
Net interest
income; interest
rate spread $32,768 3.36% $30,257 3.53%
======= ==== ======= ====
Net interest
margin (3) 3.66% 3.84%
==== ====
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 share data)
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
2009 2009 2008 2008 2008
-------- -------- -------- -------- --------
Summary of
Operations
Tax-equivalent
interest
income (1) $25,117 $25,379 $26,188 $26,876 $26,453
Interest
expense 8,643 9,085 9,952 10,277 9,991
Tax-equivalent
net interest
income (1) 16,474 16,294 16,236 16,599 16,462
Provision for loan
losses 3,965 2,746 3,824 4,907 2,797
Tax-equivalent
NII after
provision
for loan
losses (1) 12,509 13,548 12,412 11,692 13,665
Investment
securities
gains (losses) (750) (672) (596) (2,051) (432)
Non-interest
income
(excluding
securities
gains/losses) 9,109 7,476 3,360 6,191 6,582
Non-interest
expense 16,133 14,996 13,571 15,233 15,515
Acquisition
and other on-
time charges - - 85 20 262
Income taxes 1,539 1,691 482 44 1,349
Net income 2,901 3,408 880 322 2,735
Dividends
Declared on
Preferred Shares (468) (463) (134) - -
Accretion on
Preferred
Shares (40) (38) (11) - -
Net Income
Applicable
to Common Shares 2,393 2,907 735 322 2,735
Core
operating
earnings (2) 2,901 3,408 935 335 2,905
Tax
equivalent
adjustment (1) 295 257 243 233 216
--------------- --- --- --- --- ---
At Period End
Total assets $2,023,563 $2,010,662 $1,957,400 $1,922,026 $1,928,925
Earning assets 1,846,689 1,838,397 1,773,204 1,741,438 1,736,238
Loans 1,610,460 1,585,897 1,617,235 1,596,327 1,582,751
Allowance
for loan
losses 25,840 25,694 24,592 23,445 20,578
Deposits 1,553,144 1,540,235 1,469,912 1,435,804 1,427,141
Stockholders'
equity 232,683 230,608 229,159 189,676 194,280
Stockholders'
equity /
assets 11.50% 11.47% 11.71% 9.87% 10.07%
Goodwill 56,585 56,585 56,585 56,830 56,111
--------- ------ ------ ------ ------ ------
Average
Balances
Total assets $2,027,760 $1,984,985 $1,938,461 $1,928,987 $1,898,165
Earning
assets 1,828,272 1,782,019 1,730,284 1,727,343 1,689,398
Deposits and
interest-
bearing
liabilities 1,778,848 1,736,933 1,718,315 1,712,212 1,678,026
Loans 1,592,513 1,596,592 1,591,144 1,585,489 1,544,409
Deposits 1,552,533 1,514,059 1,466,366 1,437,273 1,423,266
Stockholders'
equity 231,397 230,099 201,499 194,452 195,845
Stockholders'
equity /
assets 11.41% 11.59% 10.39% 10.08% 10.32%
------------- ----- ----- ----- ----- -----
Per Common
Share Data
Net Income:
Basic $0.29 $0.36 $0.09 $0.04 $0.34
Diluted 0.29 0.36 0.09 0.04 0.34
Core operating
earnings (2)
Basic 0.29 0.36 0.10 0.04 0.36
Diluted 0.29 0.36 0.10 0.04 0.36
Dividends 0.085 0.17 0.17 0.26 0.26
Market Value:
High $14.25 $8.95 $14.50 $17.66 $20.00
Low 6.10 3.76 6.00 10.00 15.90
Close 13.00 6.08 7.73 11.01 16.01
Book Value 24.10 23.85 23.67 23.37 23.93
Shares
outstanding,
end of period
(in thousands) 8,118 8,117 8,117 8,117 8,118
--------------- ----- ----- ----- ----- -----
Performance Ratios
(annualized)
Tax-equivalent
net interest
margin (1) 3.61% 3.71% 3.72% 3.81% 3.91%
Return on
average
assets -
GAAP 0.57% 0.70% 0.18% 0.07% 0.58%
Return on
average
assets -
Core
Operating 0.57% 0.70% 0.19% 0.07% 0.62%
Return on
average
equity-
GAAP 5.03% 6.02% 1.74% 0.66% 5.62%
Return on
average
equity-Core
Operating 5.03% 6.02% 1.85% 0.69% 5.97%
Efficiency
ratio (3) -
GAAP 63.06% 63.09% 69.25% 66.84% 67.33%
Efficiency
ratio (3) -
Core
Operating 63.06% 63.09% 68.82% 66.75% 66.19%
Effective
tax rate 34.66% 33.16% 35.39% 12.02% 33.03%
Common
dividend
payout ratio
(basic) 29.31% 47.22% 188.89% 650.00% 76.47%
------------- ----- ----- ------ ------ -----
(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)
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
2009 2009 2008 2008 2008
-------- -------- -------- -------- --------
Loan Portfolio
Composition
One to four
family
residential
real estate $238,000 $241,119 $251,807 $250,244 $251,887
Construction 44,670 50,534 72,938 75,822 83,279
Commercial real
estate 768,636 764,841 755,740 746,676 731,472
Commercial 382,434 350,070 356,574 353,453 351,812
Consumer
finance 38,074 38,676 41,012 41,964 41,251
Home equity and
improvement 151,213 156,668 161,106 158,992 153,715
------- ------- ------- ------- -------
Total loans 1,623,027 1,601,908 1,639,177 1,627,151 1,613,416
Less:
Loans in
process 11,602 14,954 20,892 29,794 29,585
Deferred loan
origination
fees 965 1,057 1,050 1,030 1,080
Allowance for
loan loss 25,840 25,694 24,592 23,445 20,578
------ ------ ------ ------ ------
Net Loans $1,584,620 $1,560,203 $1,592,643 $1,572,882 $1,562,173
========== ========== ========== ========== ==========
-------------
Allowance for
loan loss
activity
Beginning
allowance 25,694 24,592 $23,445 $20,578 $18,556
Provision for
loan losses 3,965 2,746 3,824 4,907 2,797
Reserve from
acquisitions - - - 121 38
Credit loss
charge-
offs:
One to four
family
residential
real estate 505 148 369 478 281
Commercial
real estate 2,066 669 1,480 1,495 319
Commercial 950 702 593 - 220
Consumer
finance 83 123 224 73 56
Home equity
and
improvement 301 130 57 216 18
--- --- -- --- --
Total charge-
offs 3,905 1,772 2,723 2,262 894
Total
recoveries 86 128 46 101 81
-- --- -- --- --
Net charge-offs
(recoveries) 3,819 1,644 2,677 2,161 813
----- ----- ----- ----- ---
Ending
allowance $25,840 $25,694 $24,592 $23,445 $20,578
======= ======= ======= ======= =======
--------------
Credit Quality
Non-accrual
loans $35,528 $29,473 $28,017 $24,630 $17,727
Restructured
loans,
accruing 4,845 7,199 6,250 905 -
----- ----- ----- ----- -----
Total non-
performing
loans (1) 40,373 36,672 34,267 25,535 17,727
Real estate
owned (REO) 8,567 7,839 7,000 4,776 3,158
----- ----- ----- ----- -----
Total non-
performing
assets (2) $48,940 $44,511 $41,267 $30,311 $20,885
======= ======= ======= ======= =======
Net charge-offs 3,819 1,644 2,677 2,161 813
Allowance for
loan losses /
loans 1.60% 1.62% 1.52% 1.47% 1.30%
Allowance for
loan losses /
non-performing
assets 52.80% 57.73% 59.59% 77.35% 98.53%
Allowance for
loan losses /
non-performing
loans 64.00% 70.06% 71.77% 91.82% 116.08%
Non-performing
assets /loans
plus REO 3.02% 2.79% 2.54% 1.89% 1.32%
Non-performing
assets /total
assets 2.42% 2.21% 2.11% 1.57% 1.08%
Net charge-offs /
average loans
(annualized) 0.96% 0.41% 0.67% 0.56% 0.21%
---------
Deposit
Balances
Non-interest-
bearing demand
deposits $180,035 $163,855 $176,063 $158,139 $181,034
Interest-
bearing demand
deposits and
money market 456,177 413,104 374,488 365,251 401,401
Savings
deposits 135,821 132,590 132,145 145,019 146,697
Retail time
deposits less
than $100,000 568,595 608,811 578,245 557,643 514,209
Retail time
deposits
greater than
$100,000 165,401 171,588 170,485 177,848 163,614
National/
Brokered time
deposits 47,115 50,287 38,486 31,904 20,186
------ ------ ------ ------ ------
Total deposits $1,553,144 $1,540,235 $1,469,912 $1,435,804 $1,427,141
========== ========== ========== ========== ==========
(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
(dollars in Total days past Accrual Restruct-
thousands) Balance Current due Loans uring
----------- ------- ------- --------- ------- ---------
June 30, 2009
-------------
One to four family
residential real
estate $238,000 $224,165 $5,594 $5,541 $3,019
Construction 44,670 44,416 194 60 -
Commercial real
estate 768,636 726,778 13,212 25,672 1,769
Commercial 382,434 374,761 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 $1,555,690 $25,832 $35,528 $4,845
========== ========== ======= ======= ======
March 31, 2009
--------------
One to four family
residential real
estate $241,119 $230,751 $4,201 $6,167 $1,333
Construction 50,534 50,112 297 125 -
Commercial real
estate 764,841 733,251 13,140 18,450 4,474
Commercial 350,070 342,951 3,111 4,008 1,369
Consumer finance 38,676 38,318 301 57 -
Home equity and
improvement 156,668 153,206 2,796 666 23
------- ------- ----- --- --
Total loans $1,601,908 $1,548,589 $23,846 $29,473 $7,199
========== ========== ======= ======= ======
December 31, 2008
-----------------
One to four family
residential real
estate $251,807 $242,547 $4,676 $4,584 $1,101
Construction 72,938 72,814 52 72 -
Commercial real
estate 755,740 730,355 5,406 19,979 2,205
Commercial 356,574 352,022 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 $1,593,816 $17,344 $28,017 $6,250
========== ========== ======= ======= ======
June 30, 2008
-------------
One to four family
residential real
estate $251,887 $243,444 $2,870 $5,573 $-
Construction 83,279 80,372 1,766 1,141 -
Commercial real
estate 731,472 710,980 11,230 9,262 -
Commercial 351,812 347,020 3,899 893 -
Consumer finance 41,251 40,714 352 185 -
Home equity and
improvement 153,715 151,217 1,825 673 -
------- ------- ----- --- --
Total loans $1,613,416 $1,573,747 $21,942 $17,727 $-
========== ========== ======= ======= ==
SOURCE First Defiance Financial Corp.
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