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First Defiance Financial Corp. Reports $5.4 Million of Net Income For The 2012 Third Quarter, Up 34% From Third Quarter 2011

- Net Income of $5.4 million for 2012 third quarter, up from $4.1 million in the third quarter of 2011

- Diluted earnings per share for the 2012 third quarter of $0.54 up from $0.36 in the third quarter of 2011

- Provision for Loan Losses of $705,000, down from $3.1 million in the third quarter of 2011

- Net Interest Margin of 3.80%, down from 3.89% for the third quarter of 2011

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DEFIANCE, Ohio, Oct 22, 2012 /PRNewswire/ -- First Defiance Financial Corp. (NASDAQ: FDEF) announced today that net income for its third quarter ended September 30, 2012 totaled $5.4 million, or $0.54 per diluted common share, compared to $4.1 million or $0.36 per diluted common share for the same period in 2011.

"We are extremely pleased with the earnings results this quarter, not just with the strong bottom line number, but with the overall quality behind the earnings. The third quarter highlight was the substantial reduction in the level of provision of loan loss, which helped drive our earnings growth for the quarter," said William J. Small, Chairman, President, and Chief Executive Officer of First Defiance Financial Corp. "We are also pleased that we continued to see loan growth during the quarter, as well as improvement in our linked quarter margin."

Credit Quality

The third quarter results include expense for provision for loan losses of $705,000, compared with $3.1 million for the same period in 2011 and $4.1 million in the second quarter of 2012.   

Non-performing loans totaled $42.1 million at September 30, 2012, a decrease of $3.2 million or 7% from $45.3 million at June 30, 2012. The September 30, 2012 balance included $37.8 million of loans that are on non-accrual and another $4.3 million of loans that are still accruing, but are considered non-performing because of changes in terms granted to borrowers. In addition, First Defiance had $2.8 million of real estate owned at September 30, 2012 which is down from $5.8 million at September 30, 2011. For the third quarter of 2012, First Defiance recorded net charge-offs of $804,000, which when annualized, represented 0.22% of average loans outstanding at September  30, 2012, down from the second quarter of 2012 level of 1.78%. The allowance for loan loss as a percentage of total loans decreased to 1.74% at September 30, 2012 from 2.24% and 2.61% at December 31, 2011 and September 30, 2011, respectively.

"We saw a substantial decline in the level of charge offs during the quarter reaching the lowest levels since before the economic downturn.  We have also made continued improvement in our levels of non-performing assets," Small said. "We believe we are at a point where declines in property values have materially slowed and has led to a more stable loan portfolio valuation."

Net Interest Margin down from 2011 Third Quarter

Net interest income was $17.2 million in the third quarter of 2012 compared to $17.6 million for the same period in 2011.  Net interest margin was 3.80% for the third quarter of 2012 compared to 3.75% in the second quarter of 2012 and 3.89% in the third quarter of 2011. The cost of interest-bearing liabilities and non-interest-bearing demand deposits decreased by 24 basis points, to 0.66% from 0.90% for the third quarter of 2011, but this was offset by a decline in the yield on interest earning assets of 32 basis points, to 4.44% for the third quarter of 2012 from 4.76% for the 2011 third quarter.

"The challenges on the net interest margin in this low rate environment persist and will continue as competitive pressures increase," said Small. "We are very pleased that we were able to maintain our overall consistent asset yield compared with the second quarter of 2012."

Non-Interest Income

First Defiance's non-interest income for the third quarter of 2012 was $7.8 million compared with $6.9 million for the same period in 2011. Service fees and other charges were $2.8 million for the third quarter of 2012, compared with $3.1 million in the third quarter of 2011. Non-sufficient funds income was $1.1 million in the third quarter of 2012, down $379,000 from the third quarter of 2011. Other non-interest income increased to $316,000 in the third quarter of 2012 from a loss of $34,000 for the same period of 2011. This was the result of an increase of $75,000 in the value of the assets of the deferred compensation plan in the third quarter of 2012, compared to a decrease in those assets of $285,000 for the same period in 2011.  Mortgage banking income increased to $2.2 million for the third quarter of 2012 from $1.4 million in the third quarter of 2011. Gains from the sale of mortgage loans increased in the third quarter of 2012 to $2.9 million from $2.1 million in the third quarter of 2011. Mortgage loan servicing revenue was down slightly at $824,000 in the third quarter of 2012 compared with $852,000 in the third quarter of 2011.  

The third quarter of 2012 saw a continuation of the low interest rate environment which led to a negative adjustment to previously recorded mortgage servicing rights ("MSR") impairment. First Defiance had a negative change in the valuation adjustment in mortgage servicing assets of $600,000 in the third quarter of 2012, compared with a negative valuation adjustment of $1,072,000 in the third quarter of 2011. The negative MSR valuation adjustment is a reflection of the decrease in the fair value of certain sectors of the Company's portfolio of MSRs for this period. The interest rate environment that gives rise to increased mortgage origination activity also typically causes increases in MSR amortization and impairment, creating a natural hedge in the mortgage banking line of business. 

"We have been able to steadily increase our mortgage banking income which drove the year over year improvement in our non-interest income," said Small.

Non-Interest Expenses

Total non-interest expense was $16.5 million for the third quarter of 2012, compared with $15.5 million in the third quarter of 2011.

Compensation and benefits expense increased $72,000 to $8.2 million, compared to the third quarter of 2011 and $8.0 million in the second quarter of 2012.  Other non-interest expense increased to $3.2 million in the third quarter of 2012 from $2.7 million for the third quarter of 2011. The other non-interest expense increase is mainly attributable to the $107,000 increase in the value of the liabilities of the deferred compensation plan for the third quarter of 2012 compared to a decrease in those liabilities of $283,000 for the same period of 2011.  Credit, collection and real estate owned costs were $456,000 for the third quarter of 2012 compared to $573,000 in the same period of 2011 and secondary market buy-back losses were $115,000 in the third quarter of 2012 compared to $99,000 in the same period of 2011. 

"These continue to be very challenging economic times which are compounded by the distraction of the elections," said Small. "While the earnings for the quarter were positively impacted by lower provision expense and stronger mortgage banking income, we are not losing focus on our base operating strategy and core results. We continue to concentrate on improvement in asset quality which will result in lower credit costs as well as to focus on ways to become more efficient in our delivery of quality products and services."

Year-To-Date Results

Net income for the first nine months of 2012 totaled $13.5 million, or $1.29 per diluted common share, compared to $11.5 million or $1.06 per diluted common share for the same period in 2011.  The YTD EPS results include the positive impact of $.06 per diluted share relating to the redemption of the TARP preferred shares.

For the nine month period ended September 30, 2012, net interest income totaled $51.6 million, compared with $52.4 million in the first nine months of 2011. Average interest-earning assets increased to $1.878 billion for the first nine months of 2012, compared to $1.844 billion for the first nine months of 2011. Net interest margin for the first nine months of 2012 was 3.78%, down 11 basis points from the 3.89% margin reported in the nine month period ended September 30, 2011.

The provision for loan losses for the first nine months of 2012 was $8.3 million, flat with the same period in 2011.

Non-interest income for the first nine months of 2012 was $24.2 million, compared to $19.6 million during the same period of 2011. Service fees and other charges were $8.1 million for the first nine months of 2012, down $287,000 compared to the first nine months of 2011. Mortgage banking income increased to $6.9 million in the first nine months of 2012, compared with $4.5 million in the first nine months of 2011. Insurance and investment sales revenues increased to $6.7 million for the first nine months of 2012, compared with $5.1 million during the first nine months of 2011. Non-interest income for the first nine months of 2012 included $528,000 of gain on the sale of securities compared with $49,000 in the first nine months of 2011.

Non-interest expense increased to $48.2 million for the first nine months of 2012 from $47.2 million in the first nine months of 2011. Compensation and benefits expense increased $1.3 million in the first nine months of 2012 compared to the first nine months of 2011 mainly resulting from the insurance acquisition in July 2011 which added $1.2 million in compensation and benefits expense in the first nine months of 2012 compared to $415,000 for the same period in 2011.  Credit, collection and real estate owned costs have decreased $766,000 in the first nine months of 2012 from the first nine months of 2011 and secondary market buy-back losses have declined $201,000 in the first nine months of 2012 from the first nine months of 2011.

Total Assets at $2.06 Billion

Total assets at September 30, 2012 were $2.06 billion, compared to $2.07 billion at December 31, 2011 and $2.06 billion at September 30, 2011. Net loans receivable (excluding loans held for sale) were $1.49 billion at September 30, 2012, compared to $1.45 billion at December 31, 2011 and $1.42 billion at September 30, 2011. Total cash and cash equivalents were $92.4 million at September 30, 2012, compared with $174.9 million at December 31, 2011 and $190.2 million at September 30, 2011. Also at September 30, 2012, goodwill and other intangible assets totaled $66.6 million, compared to $67.7 million at December 31, 2011 and $68.1 million at September 30, 2011.

Total deposits at September 30, 2012 were $1.61 billion compared with $1.60 billion at December 31, 2011 and $1.59 billion at September 30, 2011. Non-interest bearing deposits at September 30, 2012 were $271.3 million, compared to $245.9 million at December 31, 2011 and $239.6 million at September 30, 2011. Total stockholders' equity was $255.1 million at September 30, 2012, compared to $278.1 million at December 31, 2011 and $275.1 million at the September 30, 2011.

Conference Call

First Defiance Financial Corp. will host a conference call at 11:00 a.m. (EST) on Tuesday, Oct 23, 2012 to discuss the earnings results and business trends. The conference call may be accessed by calling 1-877-317-6789. A live webcast may be accessed at http://services.choruscall.com/links/fdef121023.html

Audio replay of the Internet Web cast will be available at www.fdef.com until October 23, 2013 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 Group. First Federal operates 33 offices and 42 ATM locations in northwest Ohio, southeast Michigan and Fort Wayne, Indiana. First Insurance Group specializes in property and casualty and group health and life insurance, with six offices throughout northwest 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 real estate owned 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, 2011. 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) 




 (Unaudited) 








September 30,


December 31, 


September 30,

(in thousands)

2012


2011


2011







Assets






Cash and cash equivalents






     Cash and amounts due from depository institutions 

$32,406


$31,931


$30,234

     Interest-bearing deposits

60,000


143,000


160,000


92,406


174,931


190,234

Securities






     Available-for sale, carried at fair value

269,098


232,919


232,628

     Held-to-maturity, carried at amortized cost

585


661


736


269,683


233,580


233,364







Loans

1,512,132


1,487,076


1,460,514

Allowance for loan losses

(26,310)


(33,254)


(38,110)

Loans, net

1,485,822


1,453,822


1,422,404

Loans held for sale

12,201


13,841


12,951

Mortgage servicing rights

7,752


8,690


8,660

Accrued interest receivable

6,819


6,142


6,654

Federal Home Loan Bank stock

20,655


20,655


20,655

Bank Owned Life Insurance

41,591


35,908


35,682

Office properties and equipment

40,324


40,045


40,428

Real estate and other assets held for sale

2,843


3,628


5,805

Goodwill

61,525


61,525


61,568

Core deposit and other intangibles

5,083


6,151


6,499

Deferred taxes

-


629


2,988

Other assets

8,968


8,643


10,465

     Total Assets

$2,055,672


$2,068,190


$2,058,357







Liabilities and Stockholders' Equity






Non-interest-bearing deposits

$271,305


$245,927


$ 239,594

Interest-bearing deposits

1,338,045


1,350,314


1,350,386

      Total deposits 

1,609,350


1,596,241


1,589,980

Advances from Federal Home Loan Bank

81,807


81,841


81,852

Notes payable and other interest-bearing liabilities

51,991


60,386


55,477

Subordinated debentures

36,083


36,083


36,083

Advance payments by borrowers for tax and insurance

971


1,402


897

Deferred taxes

1,479


-


-

Other liabilities

18,855


14,110


18,950

      Total liabilities 

1,800,536


1,790,063


1,783,239

Stockholders' Equity






      Preferred stock, net of discount 

-


36,641


36,594

      Common stock, net 

127


127


127

      Common stock warrant 

878


878


878

      Additional paid-in-capital 

136,138


135,825


135,763

      Accumulated other comprehensive income  

5,863


3,997


4,179

      Retained earnings 

159,433


148,010


144,937

      Treasury stock, at cost 

(47,303)


(47,351)


(47,360)

      Total stockholders' equity 

255,136


278,127


275,118

      Total Liabilities and Stockholders' Equity 

$2,055,672


$2,068,190


$2,058,357

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)

2012


2011


2012


2011

Interest Income:








     Loans

$18,000


$19,488


$54,847


$59,553

     Investment securities

1,842


1,865


5,619


5,231

     Interest-bearing deposits

43


110


249


351

     FHLB stock dividends

213


203


656


662

Total interest income

20,098


21,666


61,371


65,797

Interest Expense:








     Deposits

1,909


2,791


6,394


9,648

     FHLB advances and other

759


768


2,260


2,442

     Subordinated debentures

172


333


813


945

     Notes Payable

83


127


284


397

Total interest expense

2,923


4,019


9,751


13,432

Net interest income

17,175


17,647


51,620


52,365

Provision for loan losses

705


3,097


8,306


8,335

Net interest income after provision for loan losses

16,470


14,550


43,314


44,030

Non-interest Income:








     Service fees and other charges

2,790


3,071


8,148


8,435

     Mortgage banking income

2,220


1,355


6,924


4,549

     Gain on sale of non-mortgage loans

8


52


50


351

     Gain on sale of securities

103


-


528


49

     Impairment on securities

-


-


-


(2)

     Insurance and investment sales commissions

1,952


2,042


6,679


5,146

     Trust income

147


143


470


465

     Income from Bank Owned Life Insurance 

244


228


683


703

     Other non-interest income

316


(34)


712


(56)

Total Non-interest Income

7,780


6,857


24,194


19,640

Non-interest Expense:








     Compensation and benefits

8,245


8,173


24,760


23,458

     Occupancy

2,170


1,779


5,718


5,423

     FDIC insurance premium

691


674


2,031


2,264

     State franchise tax

623


541


1,649


1,625

     Data processing

1,140


1,077


3,477


3,117

     Acquisition related charges

-


99


-


234

     Amortization of intangibles

344


386


1,068


1,051

     Other non-interest expense

3,237


2,733


9,538


10,003

Total Non-interest Expense

16,450


15,462


48,241


47,175

Income before income taxes 

7,800


5,945


19,267


16,495

Income taxes

2,366


1,884


5,759


5,024

Net Income

$5,434


$4,061


$13,508


$11,471









Dividends Accrued on Preferred Shares

(3)


(463)


(900)


(1,388)

Accretion on Preferred Shares

(8)


(45)


(359)


(132)

Redemption of Preferred Shares

0


0


642


0









Net Income Applicable to Common Shares

$5,423


$3,553


$12,891


$9,951









Earnings per common share:








    Basic

$0.56


$0.37


$1.33


$1.08

    Diluted

$0.54


$0.36


$1.29


$1.06









Average Shares Outstanding:








     Basic

9,729


9,725


9,728


9,248

     Diluted

10,000


9,895


9,993


9,417

Financial Summary and Comparison







First Defiance Financial Corp.

(Unaudited)


(Unaudited)


Three Months Ended


Nine Months Ended


September 30,


September 30,

(dollars in thousands, except per share data)

2012

2011

% change


2012

2011

%change

Summary of Operations
















Tax-equivalent interest income (1)

$20,525

$22,052

(6.9)%


$62,605

$66,881

(6.4)%

Interest expense

2,923

4,019

(27.3)


9,751

13,432

(27.4)

Tax-equivalent net interest income (1)

17,602

18,033

(2.4)


52,854

53,449

(1.1)

Provision for loan losses

705

3,097

(77.2)


8,306

8,335

(0.3)

Tax-equivalent NII after provision for loan loss (1)

16,897

14,936

13.1


44,548

45,114

(1.3)

Investment Securities gains 

103

-

 NM 


528

49

 NM 

Impairment losses on securities                                                

-

-

-


-

(2)

(100.0)

Non-interest income (excluding securities gains/losses)

7,677

6,857

12.0


23,666

19,593

20.8

Non-interest expense

16,450

15,462

6.4


48,241

47,175

2.3

Income taxes

2,366

1,884

25.6


5,759

5,024

14.6

Net Income

5,434

4,061

33.8


13,508

11,471

17.8

Dividends Declared on Preferred Shares

(3)

(463)

(99.4)


(900)

(1,388)

(35.2)

Accretion on Preferred Shares

(8)

(45)

(82.2)


(359)

(132)

172.0

Net Income Applicable to Common Shares

5,423

3,553

52.6


12,891

9,951

29.5

Tax equivalent adjustment (1)

427

386

10.6


1,234

1,084

13.8

At Period End








Assets

2,055,672

2,058,357

(0.1)





Earning assets

1,874,671

1,887,484

(0.7)





Loans

1,512,132

1,460,514

3.5





Allowance for loan losses

26,310

38,110

(31.0)





Deposits

1,609,350

1,589,980

1.2





Stockholders' equity 

255,136

275,118

(7.3)





Average Balances








Assets

2,047,139

2,056,111

(0.4)


2,076,772

2,055,199

1.0

Earning assets

1,849,715

1,843,881

0.3


1,878,032

1,843,811

1.9

Deposits and interest-bearing liabilities

1,774,312

1,762,663

0.7


1,785,353

1,777,696

0.4

Loans

1,481,995

1,419,987

4.4


1,467,038

1,436,505

2.1

Deposits

1,605,749

1,583,173

1.4


1,615,039

1,588,526

1.7

Stockholders' equity

251,592

271,736

(7.4)


270,824

259,935

4.2

Stockholders' equity / assets

12.29%

13.22%

(7.0)


13.04%

12.65%

3.1

Per Common Share Data








Net Income








     Basic

$0.56

$0.37

51.4


$1.33

$1.08

23.1

     Diluted

0.54

0.36

50.0


1.29

1.06

21.7

Dividends

0.05

-

 NM 


0.10

-

 NM 

Market Value:








     High

$18.06

$15.51

16.4


$18.06

$15.51

16.4

     Low

15.80

12.60

25.4


14.41

11.89

21.2

     Close

17.26

13.14

31.4


17.26

13.14

31.4

Common Book Value

26.13

24.43

7.0


26.13

24.43

7.0

Tangible Common Book Value

19.29

17.44

10.6


19.29

17.44

10.6

Shares outstanding, end of period (000)

9,729

9,726

0.0


9,729

9,726

0.0

Performance Ratios (annualized)








Tax-equivalent net interest margin (1) 

3.80%

3.89%

(2.2)


3.78%

3.89%

(3.0)

Return on average assets

1.06%

0.78%

34.8


0.87%

0.75%

16.4

Return on average equity

8.59%

5.93%

44.9


6.66%

5.90%

12.9

Efficiency ratio (2)

65.07%

62.12%

4.8


63.04%

64.59%

(2.4)

Effective tax rate

30.33%

31.69%

(4.3)


29.89%

30.46%

(1.9)

Dividend payout ratio (basic)

8.93%

0.00%

 NM 


7.52%

0.00%

 NM 









(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

Income from Mortgage Banking (Unaudited)












Revenue from sales and servicing of mortgage loans consisted of the following:





Three Months Ended


Nine Months Ended


September 30,


September 30,

(dollars in thousands)

2012

2011


2012

2011







Gain from sale of mortgage loans

$2,888

$2,128


$7,890

$3,954

Mortgage loan servicing revenue (expense):






  Mortgage loan servicing revenue

824

852


2,499

2,529

  Amortization of mortgage servicing rights

(892)

(553)


(2,610)

(1,349)

  Mortgage servicing rights valuation adjustments

(600)

(1,072)


(855)

(585)


(668)

(773)


(966)

595

Total revenue from sale and servicing of mortgage loans

$2,220

$1,355


$6,924

$4,549

Yield Analysis

First Defiance Financial Corp.


Three Months Ended September 30,


(dollars in thousands)


2012


2011


Average




Yield


Average




Yield


Balance


Interest(1)


Rate (2)


Balance


Interest(1)


Rate (2)

Interest-earning assets:












   Loans receivable

$1,481,995


$18,024


4.84%


$1,419,987


$19,519


5.45%

   Securities

274,327


2,245


3.37%


220,040


2,220


4.10%

   Interest Bearing Deposits

72,738


43


0.24%


183,199


110


0.24%

   FHLB stock

20,655


213


4.10%


20,655


203


3.90%

   Total interest-earning assets

1,849,715


20,525


4.44%


1,843,881


22,052


4.76%

   Non-interest-earning assets 

197,424






212,230





Total assets

$2,047,139






$2,056,111





Deposits and Interest-bearing liabilities:












   Interest bearing deposits

$1,339,333


$1,909


0.57%


$1,353,009


$ 2,791


0.82%

   FHLB advances and other

81,812


759


3.69%


88,146


768


3.46%

   Other Borrowings

50,610


83


0.65%


55,149


127


0.91%

   Subordinated debentures

36,141


172


1.89%


36,195


333


3.65%

   Total interest-bearing liabilities

1,507,896


2,923


0.77%


1,532,499


4,019


1.04%

   Non-interest bearing deposits

266,416


-


-


230,164


-


-

Total including non-interest-bearing demand deposits

1,774,312


2,923


0.66%


1,762,663


4,019


0.90%

Other non-interest-bearing liabilities

21,235






21,712





Total liabilities

1,795,547






1,784,375





   Stockholders' equity

251,592






271,736





Total liabilities and stockholders' equity

$2,047,139






$2,056,111





Net interest income; interest rate spread



$17,602


3.67%




$18,033


3.72%

Net interest margin (3)





3.80%






3.89%

Average interest-earning assets  to average interest bearing liabilities





123%






120%














Nine Months Ended September 30,


2012


2011


Average




Yield


Average




Yield


Balance


Interest (1)


Rate


Balance


Interest (1)


Rate

Interest-earning assets:












   Loans receivable

$1,467,038


$54,925


5.00%


$1,436,505


$59,650


5.57%

   Securities

261,628


6,775


3.58%


195,640


6,218


4.33%

   Interest Bearing Deposits

128,711


249


0.26%


190,776


351


0.25%

   FHLB stock

20,655


656


4.24%


20,890


662


4.25%

   Total interest-earning assets

1,878,032


62,605


4.45%


1,843,811


66,881


4.86%

   Non-interest-earning assets 

198,740






211,388





Total assets

$2,076,772






$2,055,199





Deposits and Interest-bearing liabilities:












   Interest bearing deposits

$1,357,499


$6,394


0.63%


$1,362,239


$9,648


0.95%

   FHLB advances and other

81,823


2,260


3.69%


97,610


2,442


3.35%

   Other Borrowings

52,312


284


0.73%


55,341


397


0.96%

   Subordinated debentures

36,179


813


3.00%


36,219


945


3.50%

   Total interest-bearing liabilities

1,527,813


9,751


0.85%


1,551,409


13,432


1.16%

   Non-interest bearing deposits

257,540


-


-


226,287


-


-

Total including non-interest-bearing demand deposits

1,785,353


9,751


0.73%


1,777,696


13,432


1.01%

Other non-interest-bearing liabilities

20,595






17,568





Total liabilities

1,805,948






1,795,264





   Stockholders' equity

270,824






259,935





Total liabilities and stockholders' equity

$2,076,772






$2,055,199





Net interest income; interest rate spread



$52,854


3.60%




$53,449


3.70%

Net interest margin (3)





3.78%






3.89%

Average interest-earning assets  to average interest bearing liabilities





123%






119%

























(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)

3rd Qtr 2012

2nd Qtr 2012

1st Qtr 2012

4th Qtr 2011

3rd Qtr 2011

Summary of Operations






Tax-equivalent interest income (1)

$20,525

$20,935

$21,144

$21,665

$22,052

Interest expense

2,923

3,273

3,555

3,754

4,019

Tax-equivalent net interest income (1)

17,602

17,662

17,589

17,911

18,033

Provision for loan losses

705

4,097

3,503

4,099

3,097

Tax-equivalent NII after provision for loan losses (1)

16,897

13,565

14,086

13,812

14,936

Investment securities gains, including impairment

103

382

43

169

-

Non-interest income (excluding securities gains/losses)

7,677

7,612

8,376

7,707

6,857

Non-interest expense

16,450

15,532

16,259

15,589

15,462

Income taxes

2,366

1,690

1,703

1,640

1,884

Net income

5,434

3,921

4,153

4,064

4,061

Dividends Declared on Preferred Shares

(3)

(435)

(462)

(462)

(463)

Accretion on Preferred Shares

(8)

(305)

(46)

(46)

(45)

Net Income Applicable to Common Shares

5,423

3,823

3,645

3,556

3,553

Tax equivalent adjustment (1)

427

416

390

395

386

At Period End






Total assets

$2,055,672

$2,067,616

$2,142,264

$2,068,190

$2,058,357

Earning assets

1,874,671

1,885,846

1,966,419

1,898,152

1,887,484

Loans

1,512,132

1,500,637

1,473,955

1,487,076

1,460,514

Allowance for loan losses

26,310

26,409

28,833

33,254

38,110

Deposits

1,609,350

1,613,611

1,671,370

1,596,241

1,589,980

Stockholders' equity

255,136

249,870

281,364

278,127

275,118

Stockholders' equity / assets

12.41%

12.08%

13.13%

13.45%

13.37%

Goodwill 

61,525

61,525

61,525

61,525

61,568

Average Balances 






Total assets

$2,047,139

$2,102,675

$2,080,502

$2,067,881

$2,056,111

Earning assets

1,849,715

1,903,714

1,879,393

1,861,186

1,843,881

Deposits and interest-bearing liabilities

1,774,312

1,800,036

1,781,710

1,772,812

1,762,663

Loans

1,481,995

1,462,312

1,456,807

1,440,839

1,419,987

Deposits

1,605,749

1,629,094

1,610,275

1,594,938

1,583,173

Stockholders' equity

251,592

281,031

279,848

275,848

271,736

Stockholders' equity / assets 

12.29%

13.37%

13.45%

13.34%

13.22%

Per Common Share Data






Net Income:






 Basic 

$0.56

$0.39

$0.37

$0.37

$0.37

 Diluted 

0.54

0.38

0.37

0.36

0.36

Dividends

0.05

0.05

0.05

0.05

-

Market Value:






 High

$18.06

$17.46

$17.76

$15.39

$15.51

 Low

15.80

15.23

14.41

13.00

12.60

 Close

17.26

17.12

16.86

14.59

13.14

Book Value

26.13

25.49

25.06

24.74

24.43

Shares outstanding, end of period (in thousands)

9,729

9,729

9,728

9,726

9,726

Performance Ratios (annualized)






Tax-equivalent net interest margin (1) 

3.80%

3.75%

3.78%

3.83%

3.89%

Return on average assets

1.06%

0.75%

0.80%

0.78%

0.78%

Return on average equity

8.59%

5.61%

5.97%

5.85%

5.93%

Efficiency ratio (2) 

65.07%

61.45%

62.62%

60.85%

62.12%

Effective tax rate

30.33%

30.12%

29.08%

28.75%

31.69%

Common dividend payout ratio (basic)

8.93%

12.82%

13.51%

13.51%

0.00%

(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)   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, except per share data)

3rd Qtr 2012


2nd Qtr 2012


1st Qtr 2012


4th Qtr 2011


3rd Qtr 2011

Loan Portfolio Composition










One to four family residential real estate

$210,053


$210,520


$202,132


$203,401


$189,669

Construction 

31,428


22,923


36,362


31,552


35,203

Commercial real estate

792,351


775,526


790,168


775,992


766,459

Commercial

365,510


372,266


326,904


349,053


339,128

Consumer finance

16,785


17,127


17,647


18,887


19,701

Home equity and improvement

111,563


112,427


114,891


122,143


124,956

Total loans

1,527,690


1,510,789


1,488,104


1,501,028


1,475,116

Less:










   Loans in process

14,831


9,439


13,430


13,243


13,709

   Deferred loan origination fees

727


713


719


709


893

  Allowance for loan loss

26,310


26,409


28,833


33,254


38,110

Net Loans

$1,485,822


$1,474,228


$1,445,122


$1,453,822


$1,422,404











Allowance for loan loss activity










Beginning allowance

$26,409


$28,833


$33,254


$38,110


$40,530

Provision for loan losses

705


4,097


3,503


4,099


3,097

   Credit loss charge-offs:










     One to four family residential real estate

217


584


738


666


647

     Commercial real estate

780


5,448


4,496


6,738


2,622

     Commercial

355


486


2666


1,423


2,533

     Consumer finance

19


14


41


27


36

     Home equity and improvement

203


254


211


251


290

Total charge-offs

1,574


6,786


8,152


9,105


6,128

Total recoveries

770


265


228


150


611

Net charge-offs (recoveries)

804


6,521


7,924


8,955


5,517

Ending allowance

$26,310


$26,409


$28,833


$33,254


$38,110











Credit Quality










Non-accrual loans

$37,803


$41,702


$45,351


$39,328


$48,297

Restructured loans, accruing

4,305


3,581


3,820


3,380


2,934

 Total non-performing loans (1) 

42,108


45,283


49,171


42,708


51,231

Real estate owned (REO)

2,843


3,538


3,408


3,628


5,805

 Total non-performing assets (2) 

$44,951


$48,821


$52,579


$46,336


$57,036

Net charge-offs

804


6,521


7,924


8,955


5,517











Allowance for loan losses / loans

1.74%


1.76%


1.96%


2.24%


2.61%

Allowance for loan losses / non-performing assets

58.53%


54.09%


54.84%


71.77%


66.82%

Allowance for loan losses / non-performing loans

62.48%


58.32%


58.64%


77.86%


74.39%

Non-performing assets / loans plus REO

2.97%


3.25%


3.56%


3.11%


3.89%

Non-performing assets / total assets

2.19%


2.36%


2.45%


2.24%


2.77%

Net charge-offs / average loans (annualized)

0.22%


1.78%


2.18%


2.49%


1.55%











Deposit Balances










Non-interest-bearing demand deposits 

$271,305


$261,211


$265,716


$245,927


$239,594

Interest-bearing demand deposits and money market

636,510


628,760


665,889


609,057


607,965

Savings deposits

166,155


165,699


165,325


155,101


155,244

Retail time deposits less than $100,000

356,369


370,443


383,471


428,222


429,686

Retail time deposits greater than $100,000

176,725


180,594


183,420


147,298


143,477

National/Brokered time deposits

2,286


6,904


7,549


10,636


14,014

Total deposits

$1,609,350


$1,613,611


$1,671,370


$1,596,241


$1,589,980











 (1)  Non-performing loans consist of non-accrual loans that are contractually past due 90 days and loans with known credit problems  that are not contractually past due.

 (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 thousands)

Total Balance

Current

30 to 89 days past due

Non Accrual Loans

Troubled Debt Restructuring







September 30, 2012






One to four family residential real estate

$210,053

$199,163

$2,181

$5,784

$2,925

Construction 

31,428

31,428

-

-

-

Commercial real estate

792,351

764,435

1,749

24,991

1,176

Commercial

365,510

358,264

388

6,670

188

Consumer finance

16,785

16,653

117

15

-

Home equity and improvement

111,563

109,540

1,664

343

16

Total loans

$1,527,690

$1,479,483

$6,099

$37,803

$4,305







December 31, 2011






One to four family residential real estate

$203,401

$195,752

$2,120

$3,890

$1,639

Construction 

31,552

31,552

-

-

-

Commercial real estate

775,992

742,868

3,441

28,150

1,533

Commercial

349,053

341,666

334

6,884

169

Consumer finance

18,887

18,713

164

10

-

Home equity and improvement

122,143

118,869

2,841

394

39

Total loans

$1,501,028

$1,449,420

$8,900

$39,328

$3,380







September 30, 2011






One to four family residential real estate

$189,669

$182,182

$2,287

$4,017

$1,183

Construction 

35,203

35,143

-

60

-

Commercial real estate

766,459

727,706

2,229

35,268

1,256

Commercial

339,128

330,117

360

8,478

173

Consumer finance

19,701

19,511

170

20

-

Home equity and improvement

124,956

121,965

2,215

454

322

Total loans

$1,475,116

$1,416,624

$7,261

$48,297

$2,934

 

SOURCE First Defiance Financial Corp.



RELATED LINKS
http://www.fdef.com

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