- GAAP EPS of $0.34 per share, Core EPS of $0.36 per share for 2008 second
quarter
- Provision for Loan Losses increases in difficult credit environment
- Net Interest Income increased by $4.1 million or 34% over 2007 second
quarter
- Net Interest Margin up 16 basis points from 2008 first quarter and 34
basis points from 2007 second quarter due to improved deposit mix and
continued loan growth
- Results include $752,000 ($489,000 or $0.06 per share after tax) of
expense associated with denial of claim for losses under fidelity bond
DEFIANCE, Ohio, July 21 /PRNewswire-FirstCall/ -- First Defiance
Financial Corp. (Nasdaq: FDEF) today announced that net income for its
second quarter ended June 30, 2008 totaled $2.74 million, or $0.34 per
diluted share, compared to $3.61 million or $0.50 per diluted share for the
quarter ended June 30, 2007. The 2008 second quarter 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. Excluding the after-tax impact of those
charges, First Defiance had earnings of $2.91 million, or $0.36 per diluted
share, for the quarter ended June 30, 2008.
For the six month period ended June 30, 2008, First Defiance earned
$6.15 million or $0.80 per share compared to $7.22 million or $1.00 per
share for the six month period ended June 30, 2007. Excluding the after-tax
cost of $1.0 million of acquisition related charges from the 2008 results,
First Defiance earned $6.81 million, or $0.89 per share for the first half
of 2008.
The quarter results include expense for provision for loan losses of
$2.8 million in the 2008 second quarter, compared with just $575,000 in the
same period in 2007. In addition to the provision expense, the 2008 second
quarter also included approximately $752,000 of expense ($489,000 or $0.06
per share after tax) related to losses associated with a former First
Defiance investment advisor. While management believes there is a
possibility that part of the loss may ultimately be recovered, the expense
was recognized in the 2008 second quarter after a claim under the Company's
fidelity bond was denied by the insurance carrier. First Defiance also
recognized $432,000 of other-than-temporary impairment expense ($281,000 or
$0.03 per share after tax) on certain investment securities in the 2008
second quarter.
"Like most banks, we navigated into strong headwinds this quarter,
especially on the credit side," said William J. Small, Chairman, President
and Chief Executive Officer of First Defiance. "The increase in our
provision expense is due primarily to the deterioration of several large
credits in our commercial portfolio. The impairment expense relates to a
number of pooled trust preferred stock investments we purchased several
years ago, which included a small amount of the higher yielding equity.
Recent high-profile bank failures have significantly affected the value of
those equity notes, which bear the initial default risk in the trust
preferred pools, resulting in our recording some other-than-temporary
impairment expense."
"Despite the bottom-line quarterly results, I believe there are a lot
of positive developments this quarter," said Mr. Small. "Our margin
improved again this quarter and at 3.92% is up 40 basis points from the
margin we reported just six month ago for the 2007 fourth quarter. Our loan
growth continues to be very solid; our mortgage origination business is
very steady; and our deposit mix continues to improve with
non-interest-bearing deposits up to 12.7% of total deposits at June 30,
from 10.0% at December 31, 2007. Also, the integration of the former Bank
of Lenawee offices continues to be successful. Overall our deposit balances
in those offices has increased by $299,000 or 0.15% from the acquisition
date and our core deposits, which exclude certificates of deposit, have
increased by $5.6 million or 5.0%."
Charge-offs Slightly Elevated; Acquisition Impacts Non-Performing
Assets
Charge-offs in the 2008 second quarter totaled $894,000 and recoveries
totaled $81,000 for a net of $813,000, or 0.21% of average loans
(annualized). While the level of net charge-offs is slightly elevated from
the last three reported quarters, charge-offs actually declined from the
2007 second quarter when First Defiance reported $910,000 of net
charge-offs, which represented 0.30% of average loans (annualized). Total
non-performing assets at June 30, 2008 increased to $20.86 million, which
included $17.73 million of loans 90 days or more past due and $3.13 million
of Other Real Estate Owned (OREO). This compares to $11.7 million of
non-performing assets at December 31, 2007 ($9.2 million of loans 90 days
or more past due and $2.5 million of OREO) and $9.8 million at June 30,
2007 ($6.4 million of loans 90 days or more past due and $3.3 million of
OREO). Non-performing assets at June 30, 2008 include $6.8 million in loans
and $2.0 million in OREO related to the former Pavilion operation.
Excluding the acquired assets, the Company's overall non-performing assets
have increased by just $300,000 or less than 3% since the beginning of
2008. The ratio of the allowance for loan losses to non-performing loans
has steadily declined and is at 116.1% at June 30, 2008, compared to 150.7%
at December 31, 2007. AICPA Statement of Position 03-3, Accounting for
Loans or Certain Debt Securities Acquired in a Transfer (SOP 03-3) require
that impaired loans acquired in a transaction be recorded at their fair
value net of any expected credit losses. As such, those loans are included
in the non- performing loan balance (net of expected credit losses) without
any offsetting allowance for loan losses, thus negatively impacting the
comparative coverage ratios.
"We believe our allowance for loan losses is an accurate reflection of
the credit risk in our portfolio at this point in time," said Mr. Small.
"The increase in our provision expense this quarter can primarily be
attributed to 12 loans that were either charged off or required specific
allowances totaling $1.7 million. Overall our allowance coverage is low in
relation to our historic standards but adequate for the potential losses
we've identified. The current credit environment will continue to present
major challenges to the banking industry for the foreseeable future and we
will be affected along with everyone else. However, our underwriting
standards have always been high and we are working hard to identify credit
problems early so they can be addressed and minimized."
"Delinquencies in our mortgage and home equity loan portfolios have
been better than anticipated but we remain concerned about these loans,"
said Mr. Small. "Although we don't have subprime loans on our balance
sheet, falling housing values in our market areas, especially in southeast
Michigan, could have a negative impact on our asset quality."
Net Interest Margin Increased by 16 Basis Points from the 2008 First
Quarter
Net interest income increased to $16.2 million for the second quarter
2008, a 34.0% increase from $12.1 million of net interest income earned in
the 2007 second quarter. Most of the increase can be attributed to the
March 14, 2008 Pavilion acquisition. Net interest margin improved to 3.92%
for the 2008 second quarter, a 34 basis point improvement over last year's
second quarter margin of 3.58% and a 16 basis point improvement from the
2008 first quarter margin of 3.76%. Yield on interest earning assets
declined by 90 basis points, to 6.30% from 7.20% in the 2007 second quarter
while the cost of interest- bearing liabilities decreased by 134 basis
points, to 2.67% from 4.01%. The margin also was favorably impacted by an
increase in non-interest bearing deposits, which had an average balance of
$171.1 million in the 2008 second quarter compared to $101.6 million in the
same period in 2007. The Pavilion acquisition had a favorable impact on the
margin as Pavilion has historically operated at a higher margin than First
Defiance.
"We are pleased with the continued improvement in our net interest
margin," said Mr. Small. "We anticipated some margin improvement resulting
from the Pavilion acquisition but we also aggressively cut deposit rates as
the Federal Reserve reduced the targeted Fed Funds rate. We expect pressure
on our margin will increase for the balance of the year as CD rates are
rising. We allowed a large amount of CDs to run off rather than match
competitors' pricing and it has greatly benefited our margin. However, the
need to fund our loan growth requires us to be more competitive with those
rates. Also, we are starting to see rates on money market and other core
savings products creep up."
Mortgage Banking, Service Fee Increases Highlight Non-Interest Income
Growth
Non-interest income for the 2008 second quarter increased to $6.2
million from $5.7 million in the second quarter of 2007. The increases were
primarily in service fees, which increased to $3.4 million from $2.7
million, and in mortgage banking income, which increased to $1.5 million
from $1.1 million. Those increases were partially offset by the $432,000
charge recorded in the 2008 second quarter for other-than-temporary
impairment of investment securities.
Non-Interest Expenses Rise Due to Acquisition, Other One-Time Expense
Total non-interest expense for First Defiance increased to $15.5
million for the quarter ended June 30, 2008, an increase of 30.6% from the
$11.9 million of non-interest expense recognized in the 2007 second
quarter. Increases across the board are attributable to the Pavilion
acquisition, which closed late in the 2008 first quarter.
Results for the 2008 second quarter period also included $262,000 of
one- time acquisition-related charges, primarily costs to terminate certain
contracts at Pavilion and costs to grant prior service credit to former
Pavilion employees in the Company's Retiree Medical Plan. Non-interest
expenses also included the $752,000 of losses recognized in the quarter
related to the former investment advisor. This expense was recorded in the
2008 second quarter after coverage under the Company's fidelity bond policy
was denied.
Year-To-Date Results
For the six month period ended June 30, 2008, net interest income
totaled $29.8 million, a $5.7 million or 23.8% increase over the first half
of 2007. Average interest-earning assets increased to $1.58 billion for the
first half of 2008 compared to $1.37 billion in 2007, the result of the
Pavilion acquisition. Net interest margin for the first six months of 2008
was 3.85%, up 24 basis points from the 3.61% margin reported in the six
month period ended June 30, 2007.
The provision for loan losses for the first half of 2008 was $3.9
million, compared to just $1.0 million recorded during the first six months
of 2007.
Non-interest income for the first half of 2008 was $12.2 million
compared to $11.3 million during the same period of 2007. The 2008 first
half non- interest income was reduced by $513,000 of other-than-temporary
impairment charges recognized for impaired investment securities. Most of
the non- interest income increase was in service fees and other charges,
which were $6.0 million for the first half of 2008 compared to $5.2 million
during the first half of 2007. In addition, mortgage banking income
increased by $758,000 and insurance commission income increased by $138,000
between 2007 and 2008.
Non-interest expense increased to $29.0 million for the first six
months of 2008 from $23.7 million in 2007. Excluding one-time acquisition
related charges of $1.0 million, non-interest expense increased by 18.3%.
Most of this increase relates to ongoing costs of operating the eight
branches acquired in the Pavilion acquisition. In addition, FDIC insurance
expense has increased by $397,000 due to changes in the assessment rates
and full utilization of credits issued by the FDIC early in the 2008 first
quarter. Also non-interest expense includes the $752,000 of expense
associated with losses related to a former investment advisor.
Total Assets at $1.93 Billion
Total assets at June 30, 2008 were $1.93 billion, compared to $1.61
billion at December 31, 2007. Net loans receivable (excluding loans held
for sale) were $1.56 billion at June 30, 2008 compared to $1.28 billion at
December 31, 2007. Total deposits at June 30, 2008 were $1.43 billion
compared to $1.22 billion at December 31, 2007, which included non-interest
bearing deposits at June 30, 2008 of $181.0 million compared to $121.6
million at December 31, 2007. Total stockholders' equity increased to
$194.3 million at June 30, 2008 compared to $166.0 million at the end of
2007, with the increase attributable to the 1,036,861 shares of First
Defiance issued in the Pavilion acquisition. Also at June 30, 2008,
goodwill and other intangible assets totaled $65.3 million compared to
$40.4 million at December 31, 2007. The balance sheet changes are primarily
attributable to the Pavilion acquisition.
Conference Call
First Defiance Financial Corp. will host a conference call at 11:00
a.m. (EDT) on Tuesday, July 22, 2008 to discuss the earnings results and
business trends. The conference call may be accessed by calling
800-860-2442.
Internet access to the call is also available (in listen-only mode) at
the following Web address:
http://www.talkpoint.com/viewer/starthere.asp?Pres=122283 .
The audio replay of the Internet Webcast will be available at
http://www.fdef.com until Wednesday, July 30, 2008.
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 36 full service branches and 47 ATM
locations in northwest Ohio, southeast Michigan and Fort Wayne, Indiana.
First Insurance & Investments specializes in property and casualty and
group health and life insurance, with offices in Defiance and Bowling
Green, Ohio.
For more information, visit the company's Web site at http://www.fdef.com.
Financial Statements and Highlights Follow-
Safe Harbor Statement
This news release may contain certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21 B of the Securities Act of 1934, as amended, which are intended
to be safe harbors created thereby. Those statements may include, but are
not limited to, all statements regarding intent, beliefs, expectations,
projections, forecasts and plans of First Defiance Financial Corp. and its
management, and specifically include statements regarding: 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, 2007.
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) 2008 2007 2007
Assets
Cash and cash equivalents
Cash and amounts due from
depository institutions $44,621 $53,976 $41,836
Interest-bearing deposits 59 11,577 635
44,680 65,553 42,471
Securities
Available-for sale, carried at
fair value 119,564 112,370 113,184
Held-to-maturity, carried at
amortized cost 1,035 1,117 1,288
120,599 113,487 114,472
Loans 1,582,751 1,289,696 1,245,027
Allowance for loan losses (20,578) (13,890) (13,417)
Loans, net 1,562,173 1,275,806 1,231,610
Loans held for sale 11,711 5,751 7,083
Mortgage servicing rights 9,348 5,973 5,777
Accrued interest receivable 7,650 6,755 7,445
Federal Home Loan Bank stock 21,118 18,586 18,586
Bank Owned Life Insurance 28,950 28,423 27,993
Office properties and equipment 47,999 40,545 36,212
Real estate and other assets held for
sale 3,158 2,460 3,324
Goodwill 56,111 36,820 36,551
Core deposit and other intangibles 9,195 3,551 3,834
Other assets 6,233 5,694 5,317
Total Assets $1,928,925 $1,609,404 $1,540,675
Liabilities and Stockholders' Equity
Non-interest-bearing deposits $181,034 $121,563 $107,111
Interest-bearing deposits 1,246,107 1,096,295 1,060,087
Total deposits 1,427,141 1,217,858 1,167,198
Advances from Federal Home Loan Bank 191,895 139,536 128,685
Notes payable and other interest-
bearing liabilities 59,039 30,055 27,572
Subordinated debentures 36,083 36,083 36,083
Advance payments by borrowers for tax
and insurance 599 762 470
Deferred taxes 3,882 1,306 990
Other liabilities 16,006 17,850 15,020
Total liabilities 1,734,645 1,443,450 1,376,018
Stockholders' Equity
Preferred stock - - -
Common stock, net 127 117 117
Additional paid-in-capital 140,297 112,651 112,289
Stock acquired by ESOP - (202) (309)
Accumulated other comprehensive
loss (2,053) (415) (1,181)
Retained earnings 128,536 126,630 123,521
Treasury stock, at cost (72,627) (72,827) (69,780)
Total stockholders' equity 194,280 165,954 164,657
Total liabilities and
stockholders' equity $1,928,925 $1,609,404 $1,540,675
Consolidated Statements of Income (Unaudited)
First Defiance Financial Corp.
Three Months Ended Six Months Ended
(in thousands, except per share June 30, June 30,
amounts) 2008 2007 2008 2007
Interest Income:
Loans $24,506 $22,601 $47,319 $44,900
Investment securities 1,462 1,420 2,947 2,851
Interest-bearing deposits 15 210 113 221
FHLB stock dividends 254 301 497 593
Total interest income 26,237 24,532 50,876 48,565
Interest Expense:
Deposits 7,522 10,054 16,193 19,594
FHLB advances and other 1,545 1,614 3,200 3,617
Subordinated debentures 456 585 984 922
Notes Payable 468 157 662 326
Total interest expense 9,991 12,410 21,039 24,459
Net interest income 16,246 12,122 29,837 24,106
Provision for loan losses 2,797 575 3,855 1,032
Net interest income after provision
for loan losses 13,449 11,547 25,982 23,074
Non-interest Income:
Service fees and other charges 3,417 2,715 6,039 5,233
Mortgage banking income 1,501 1,076 2,616 1,858
Gain on sale of non-mortgage loans 8 61 43 66
Loss on securities (432) - (513) -
Insurance and investment sales
commissions 1,267 1,361 3,202 3,064
Trust income 118 99 229 185
Income from Bank Owned Life
Insurance 254 313 527 607
Other non-interest income 17 45 22 264
Total Non-interest Income 6,150 5,670 12,165 11,277
Non-interest Expense:
Compensation and benefits 7,318 6,634 14,441 13,186
Occupancy 1,944 1,405 3,613 2,808
State franchise tax 513 355 1,007 718
Acquisition related charges 262 - 1,012 -
Data processing 1,134 944 2,163 1,897
Amortization of intangibles 420 170 611 313
Other non-interest expense 3,924 2,374 6,144 4,731
Total Non-interest Expense 15,515 11,882 28,991 23,653
Income before income taxes 4,084 5,335 9,156 10,698
Income taxes 1,349 1,724 3,002 3,481
Net Income $2,735 $3,611 $6,154 $7,217
Earnings per share:
Basic $0.34 $0.51 $0.81 $1.01
Diluted $0.34 $0.50 $0.80 $1.00
Core operating earnings per share*:
Basic $0.36 $0.51 $0.89 $1.01
Diluted $0.36 $0.50 $0.89 $1.00
Average Shares Outstanding:
Basic 8,057 7,129 7,625 7,115
Diluted 8,089 7,229 7,664 7,220
* - See Non-GAAP Disclosure Reconciliations
Financial Summary and Comparison
First Defiance Financial Corp. (Unaudited)
Three Months Ended
(dollars in thousands, except per June 30,
share data) 2008 2007 % change
Summary of Operations
Tax-equivalent interest income (1) 26,453 24,709 7.1
Interest expense 9,991 12,410 (19.5)
Tax-equivalent net interest income (1) 16,462 12,299 33.8
Provision for loan losses 2,797 575 386.4
Tax-equivalent NII after provision
for loan loss (1) 13,665 11,724 16.6
Securities losses (432) - NM
Non-interest income-excluding
securities losses 6,582 5,670 16.1
Non-interest expense 15,515 11,882 30.6
Non-interest expense-excluding
non-core charges 15,253 11,882 28.4
One time acquisition related charges 262 - NM
Income taxes 1,349 1,724 (21.8)
Net Income 2,735 3,611 (24.3)
Core operating earnings (2) 2,905 3,611 (19.6)
Tax equivalent adjustment (1) 216 177 22.0
At Period End
Assets 1,928,925 1,540,675 25.2
Earning assets 1,736,238 1,385,803 25.3
Loans 1,582,751 1,245,027 27.1
Allowance for loan losses 20,578 13,417 53.4
Deposits 1,427,141 1,167,198 22.3
Stockholders' equity 194,280 164,657 18.0
Average Balances
Assets 1,898,165 1,527,863 24.2
Earning assets 1,689,398 1,376,030 22.8
Deposits and interest-bearing
liabilities 1,678,026 1,344,186 24.8
Loans 1,544,409 1,231,192 25.4
Deposits 1,423,266 1,157,793 22.9
Stockholders' equity 195,845 164,591 19.0
Stockholders' equity / assets 10.32% 10.77% (4.2)
Per Common Share Data
Net Income
Basic $0.34 $0.51 (33.3)
Diluted 0.34 0.50 (32.0)
Core operating earnings (2)
Basic $0.36 $0.51 (28.8)
Diluted 0.36 0.50 (28.1)
Dividends 0.26 0.25 4.0
Market Value:
High $20.00 $30.00 (33.3)
Low 15.90 26.71 (40.5)
Close 16.01 29.82 (46.3)
Book Value 23.93 22.94 4.3
Tangible Book Value 15.89 17.31 (8.2)
Shares outstanding, end of period (000) 8,118 7,178 13.1
Performance Ratios (annualized)
Tax-equivalent net interest margin (1) 3.92% 3.58% 9.4
Return on average assets -GAAP 0.58% 0.95% (39.0)
Return on average assets -Core
Operating 0.62% 0.95% (35.2)
Return on average equity- GAAP 5.62% 8.80% (36.2)
Return on average equity- Core
Operating 5.97% 8.80% (32.2)
Efficiency ratio (3) -GAAP 67.33% 66.12% 1.8
Efficiency ratio (3) -Core Operating 66.19% 66.12% 0.1
Effective tax rate 33.03% 32.31% 2.2
Dividend payout ratio (basic) 76.47% 49.02% 56.0
Financial Summary and Comparison
First Defiance Financial Corp.
Six months ended
(dollars in thousands, except per June 30,
share data) 2008 2007 % change
Summary of Operations
Tax-equivalent interest income (1) 51,296 48,916 4.9
Interest expense 21,039 24,459 (14.0)
Tax-equivalent net interest income (1) 30,257 24,457 23.7
Provision for loan losses 3,855 1,032 273.5
Tax-equivalent NII after provision
for loan loss (1) 26,402 23,425 12.7
Securities losses (513) - NM
Non-interest income-excluding
securities losses 12,678 11,277 12.4
Non-interest expense 28,991 23,653 22.6
Non-interest expense-excluding
non-core charges 27,979 23,653 18.3
One time acquisition related charges 1,012 - NM
Income taxes 3,002 3,481 (13.8)
Net Income 6,154 7,217 (14.7)
Core operating earnings (2) 6,812 7,217 (5.6)
Tax equivalent adjustment (1) 420 351 19.7
At Period End
Assets
Earning assets
Loans
Allowance for loan losses
Deposits
Stockholders' equity
Average Balances
Assets 1,771,801 1,519,019 16.6
Earning assets 1,581,487 1,367,489 15.6
Deposits and interest-bearing
liabilities 1,561,570 1,338,096 16.7
Loans 1,435,438 1,228,716 16.8
Deposits 1,329,810 1,143,279 16.3
Stockholders' equity 183,769 162,860 12.8
Stockholders' equity / assets 10.37% 10.72% (3.3)
Per Common Share Data
Net Income
Basic $0.81 $1.01 (19.8)
Diluted 0.80 1.00 (20.0)
Core operating earnings (2)
Basic $0.89 $1.01 (11.9)
Diluted 0.89 1.00 (11.1)
Dividends 0.52 0.50 4.0
Market Value:
High $22.51 $30.25 (25.6)
Low 15.90 26.71 (40.5)
Close 16.01 29.82 (46.3)
Book Value 23.93 22.94 4.3
Tangible Book Value 15.89 17.31 (8.2)
Shares outstanding, end of period (000) 8,118 7,178 13.1
Performance Ratios (annualized)
Tax-equivalent net interest margin (1) 3.85% 3.61% 6.6
Return on average assets -GAAP 0.70% 0.96% (27.2)
Return on average assets -Core
Operating 0.77% 0.96% (19.5)
Return on average equity- GAAP 6.73% 8.94% (24.7)
Return on average equity- Core
Operating 7.45% 8.94% (16.6)
Efficiency ratio (3) -GAAP 67.52% 66.19% 2.0
Efficiency ratio (3) -Core Operating 65.17% 66.19% (1.5)
Effective tax rate 32.79% 32.54% 0.8
Dividend payout ratio (basic) 64.20% 49.50% 29.7
(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.
Core Operating Earnings Three months ended Six months ended
(dollars in thousands, except per June 30, June 30,
share data) 2008 2007 2008 2007
Net Income $2,735 $3,611 $6,154 $7,217
Acquisition related charges 262 - 1,012 -
Tax effect (92) - (354) -
After-tax non-operating items 170 - 658 -
Core operating earnings $2,905 $3,611 $6,812 $7,217
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
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) 2008 2007 2008 2007
Gain from sale of mortgage loans $1,041 $805 $2,184 $1,317
Mortgage loan servicing revenue
(expense):
Mortgage loan servicing revenue 682 423 1,148 844
Amortization of mortgage servicing
rights (389) (189) (740) (330)
Mortgage servicing rights valuation
adjustments 167 37 24 27
460 271 432 541
Total revenue from sale and servicing
of mortgage loans $1,501 $1,076 $2,616 $1,858
Three Months Ended June 30,
2008
Average Yield
Balance Interest(1) Rate(2)
Interest-earning assets:
Loans receivable $1,544,409 $24,536 6.39%
Securities 121,506 1,648 5.43%
Interest Bearing Deposits 2,616 15 2.31%
FHLB stock 20,867 254 4.90%
Total interest-earning assets 1,689,398 26,453 6.30%
Non-interest-earning assets 208,767
Total assets $1,898,165
Deposits and Interest-bearing
liabilities:
Interest bearing deposits $1,252,165 $7,522 2.42%
FHLB advances and other 164,811 1,545 3.77%
Other Borrowings 53,724 468 3.50%
Subordinated debentures 36,225 456 5.06%
Total interest-bearing liabilities 1,506,925 9,991 2.67%
Non-interest bearing deposits 171,101 - -
Total including non-interest-bearing
demand deposits 1,678,026 9,991 2.39%
Other non-interest-bearing liabilities 24,294
Total liabilities 1,702,320
Stockholders' equity 195,845
Total liabilities and stockholders'
equity $1,898,165
Net interest income; interest rate
spread $16,462 3.63%
Net interest margin (3) 3.92%
Average interest-earning assets to
average interest bearing liabilities 112%
Three Months Ended June 30,
2007
Average Yield
Balance Interest(1) Rate(2)
Interest-earning assets:
Loans receivable $1,231,192 $22,613 7.37%
Securities 111,756 1,585 5.67%
Interest Bearing Deposits 14,497 210 5.81%
FHLB stock 18,585 301 6.50%
Total interest-earning assets 1,376,030 24,709 7.20%
Non-interest-earning assets 151,833
Total assets $1,527,863
Deposits and Interest-bearing
liabilities:
Interest bearing deposits $1,056,187 $10,054 3.82%
FHLB advances and other 128,823 1,614 5.03%
Other Borrowings 21,323 157 2.95%
Subordinated debentures 36,247 585 6.47%
Total interest-bearing liabilities 1,242,580 12,410 4.01%
Non-interest bearing deposits 101,606 - -
Total including non-interest-bearing
demand deposits 1,344,186 12,410 3.70%
Other non-interest-bearing liabilities 19,086
Total liabilities 1,363,272
Stockholders' equity 164,591
Total liabilities and stockholders'
equity $1,527,863
Net interest income; interest rate
spread $12,299 3.19%
Net interest margin (3) 3.58%
Average interest-earning assets to
average interest bearing liabilities 111%
Six Months Ended June 30,
2008
Average Yield
Balance Interest(1) Rate(2)
Interest-earning assets:
Loans receivable $1,435,438 $47,363 6.64%
Securities 119,112 3,323 5.61%
Interest Bearing Deposits 8,352 113 2.72%
FHLB stock 18,585 497 5.38%
Total interest-earning assets 1,581,487 51,296 6.52%
Non-interest-earning assets 190,314
Total assets $1,771,801
Deposits and Interest-bearing
liabilities:
Interest bearing deposits $1,181,938 $16,193 2.76%
FHLB advances and other 155,666 3,200 4.13%
Other Borrowings 39,841 662 3.34%
Subordinated debentures 36,253 984 5.46%
Total interest-bearing liabilities 1,413,698 21,039 2.99%
Non-interest bearing deposits 147,872 - -
Total including non-interest-bearing
demand deposits 1,561,570 21,039 2.71%
Other non-interest-bearing liabilities 26,462
Total liabilities 1,588,032
Stockholders' equity 183,769
Total liabilities and stockholders'
equity $1,771,801
Net interest income; interest rate
spread $30,257 3.53%
Net interest margin (3) 3.85%
Average interest-earning assets to
average interest bearing liabilities 112%
Six Months Ended June 30,
2007
Average Yield
Balance Interest(1) Rate(2)
Interest-earning assets:
Loans receivable $1,228,716 $44,922 7.37%
Securities 112,377 3,180 5.70%
Interest Bearing Deposits 7,811 221 5.71%
FHLB stock 18,585 593 6.43%
Total interest-earning assets 1,367,489 48,916 7.21%
Non-interest-earning assets 151,530
Total assets $1,519,019
Deposits and Interest-bearing
liabilities:
Interest bearing deposits $1,043,509 $19,594 3.79%
FHLB advances and other 144,332 3,617 5.05%
Other Borrowings 21,912 326 3.00%
Subordinated debentures 28,573 922 6.51%
Total interest-bearing liabilities 1,238,326 24,459 3.98%
Non-interest bearing deposits 99,770 - -
Total including non-interest-bearing
demand deposits 1,338,096 24,459 3.69%
Other non-interest-bearing liabilities 18,063
Total liabilities 1,356,159
Stockholders' equity 162,860
Total liabilities and stockholders'
equity $1,519,019
Net interest income; interest rate
spread $24,457 3.23%
Net interest margin (3) 3.61%
Average interest-earning assets to
average interest bearing liabilities 110%
(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
2008 2008 2007 2007 2007
Summary of Operations
Tax-equivalent
interest
income (1) $26,453 $24,843 $25,383 $25,177 $24,709
Interest expense 9,991 11,048 12,669 12,962 12,410
Tax-equivalent net
interest
income (1) 16,462 13,795 12,714 12,215 12,299
Provision for loan
losses 2,797 1,058 603 671 575
Tax-equivalent NII
after provision
for loan
losses (1) 13,665 12,737 12,111 11,544 11,724
Investment
securities gains (432) (81) - 21 -
Non-interest income
(excluding
securities gains
/losses) 6,582 6,096 5,268 5,563 5,670
Non-interest
expense 15,515 13,476 12,161 12,296 11,882
Acquisition and
other on-time
charges 262 750 - - -
Income taxes 1,349 1,653 1,474 1,515 1,724
Net income 2,735 3,419 3,558 3,129 3,611
Core operating
earnings (2) 2,905 3,906 3,558 3,129 3,611
Tax equivalent
adjustment (1) 216 204 186 188 177
At Period End
Total assets $1,928,925 $1,886,047 $1,609,404 $1,579,946 $1,540,675
Earning assets 1,736,238 1,689,813 1,439,097 1,432,735 1,385,803
Loans 1,582,751 1,535,354 1,289,696 1,264,872 1,245,027
Allowance for
loan losses 20,578 18,556 13,890 13,427 13,417
Deposits 1,427,141 1,413,701 1,217,858 1,208,164 1,167,198
Stockholders'
equity 194,280 194,780 165,954 164,706 164,657
Stockholders'
equity / assets 10.07% 10.33% 10.31% 10.42% 10.69%
Goodwill 56,111 57,315 36,820 36,515 36,551
Average Balances
Total assets $1,898,165 $1,645,436 $1,589,264 $1,550,174 $1,527,863
Earning assets 1,689,398 1,475,882 1,432,061 1,397,521 1,376,030
Deposits and
interest-bearing
liabilities 1,678,026 1,445,113 1,404,065 1,367,421 1,344,186
Loans 1,544,409 1,326,468 1,265,307 1,244,531 1,231,192
Deposits 1,423,266 1,236,354 1,212,486 1,177,594 1,157,793
Stockholders'
equity 195,845 171,693 165,762 164,751 164,591
Stockholders'
equity / assets 10.32% 10.43% 10.43% 10.63% 10.77%
Per Common Share
Data
Net Income:
Basic $0.34 $0.48 $0.51 $0.44 $0.51
Diluted 0.34 0.47 0.50 0.44 0.50
Core operating
earnings (2)
Basic 0.36 0.54 0.51 0.44 0.51
Diluted 0.36 0.54 0.50 0.44 0.50
Dividends 0.26 0.26 0.26 0.25 0.25
Market Value:
High $20.00 $22.51 $26.93 $29.64 $30.00
Low 15.90 17.30 20.58 23.99 26.71
Close 16.01 18.35 22.02 27.00 29.82
Book Value 23.93 24.01 23.51 23.21 22.94
Shares outstanding,
end of period
(in thousands) 8,118 8,114 7,059 7,095 7,178
Performance
Ratios
(annualized)
Tax-equivalent
net interest
margin (1) 3.92% 3.76% 3.52% 3.47% 3.58%
Return on average
assets -GAAP 0.58% 0.84% 0.89% 0.80% 0.95%
Return on average
assets -Core
Operating 0.62% 0.95% 0.89% 0.80% 0.95%
Return on average
equity- GAAP 5.62% 8.01% 8.52% 7.53% 8.80%
Return on average
equity- Core
Operating 5.97% 9.15% 8.52% 7.53% 8.80%
Efficiency ratio (3)
-GAAP 67.33% 67.75% 67.63% 69.16% 66.12%
Efficiency ratio (3)
-Core Operating 66.19% 63.98% 67.63% 69.16% 66.12%
Effective tax rate 33.03% 32.59% 29.29% 32.62% 32.31%
Dividend payout
ratio (basic) 76.47% 54.17% 50.98% 56.82% 49.02%
(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
2008 2008 2007 2007 2007
Loan Portfolio
Composition
One to four family
residential real
estate $251,887 $262,710 $229,588 $230,075 $234,819
Construction 83,279 66,283 56,698 15,392(1) 16,346(1)
Commercial real
estate 731,472 706,442 580,621 592,914 583,046
Commercial 351,812 332,772 283,072 267,897 255,022
Consumer finance 41,251 41,209 37,743 38,280 40,693
Home equity and
improvement 153,715 151,563 128,080 127,641 123,936
Total loans 1,613,416 1,560,979 1,315,802 1,272,199 1,253,862
Less:
Loans in process 29,585 24,581 25,074 6,301 7,761
Deferred loan
origination
fees 1,080 1,044 1,032 1,026 1,074
Allowance for
loan loss 20,578 18,556 13,890 13,427 13,417
Net Loans $1,562,173 $1,516,798 $1,275,806 $1,251,445 $1,231,610
Allowance for
loan loss activity
Beginning allowance $18,556 $13,890 $13,427 $13,417 $13,752
Provision for loan
losses 2,797 1,058 603 671 575
Reserve from
acquisitions 38 4,099 - - -
Credit loss
charge-offs:
One to four
family
residential
real estate 281 57 33 128 10
Commercial real
estate 319 464 135 586 936
Commercial 220 - 7 - 11
Consumer
finance 56 27 42 25 23
Home equity
and
improvement 18 72 30 10 41
Total charge-offs 894 620 247 749 1,021
Total recoveries 81 129 107 88 111
Net charge-offs
(recoveries) 813 491 140 661 910
Ending allowance $20,578 $18,556 $13,890 $13,427 $13,417
Credit Quality
Non-accrual loans $17,727 $13,497 $9,217 $8,523 $6,427
Loans over 90 days
past due and
still accruing - - - - -
Total non-
performing
loans (2) 17,727 13,497 9,217 8,523 6,427
Real estate owned
(REO) 3,129 3,448 2,460 3,392 3,324
Total non-
performing
assets (2) $20,856 $16,945 $11,677 $11,915 $9,751
Net charge-offs 813 491 140 661 910
Allowance for loan
losses / loans 1.30% 1.21% 1.08% 1.06% 1.08%
Allowance for loan
losses / non-
performing assets 98.67% 109.51% 118.95% 112.69% 137.60%
Allowance for loan
losses / non-
performing loans 116.08% 137.48% 150.70% 157.54% 208.76%
Non-performing
assets / loans
plus REO 1.32% 1.10% 0.90% 0.94% 0.78%
Non-performing
assets / total
assets 1.08% 0.90% 0.73% 0.75% 0.63%
Net charge-offs
/ average loans
(annualized) 0.21% 0.15% 0.04% 0.21% 0.30%
Deposit Balances
Non-interest-
bearing demand
deposits $181,034 $168,049 $121,563 $109,128 $107,111
Interest-bearing
demand deposits
and money market 401,401 408,979 342,367 330,168 314,923
Savings deposits 146,697 144,184 105,873 98,719 97,004
Retail time
deposits less
than $100,000 514,209 529,990 509,720 524,347 504,301
Retail time
deposits greater
than $100,000 163,614 162,400 137,927 142,645 136,319
National/Brokered
time deposits 20,186 99 408 3,157 7,540
Total deposits $1,427,141 $1,413,701 $1,217,858 $1,208,164 $1,167,198
(1) Construction loans to commercial loan customers were included in
commercial real estate loans prior to December 31, 2007.
(2) 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. Non-performing assets are
non- performing loans plus real estate and other assets acquired by
foreclosure or deed-in-lieu thereof.
SOURCE First Defiance Financial Corp.
 back to top
Related links:
http://www.fdef.com
CONTACT:
William J. Small, Chairman, President and
CEO, +1-419-782-5015, bsmall@first-fed.com
|
