EX-99.I 3 exhibit99-1.txt EXHIBIT 99.1 For Immediate Release Contact: William J. Small Chairman, President and CEO First Defiance Financial Corp. (419) 782-5015 bsmall@first-fed.com -------------------- FIRST DEFIANCE ANNOUNCES SECOND QUARTER EARNINGS HIGHLIGHTS o Second quarter 2003 net income was $2.9 million or $.46 per diluted share. o Gains from sale of mortgage loans totaled $2.5 million for the 2003 second quarter and $4.3 million for the six month period ended June 30, 2003, increases of 358% and 301% respectively from 2002 amounts. o Asset quality remains strong. Net charge-offs just $172,000 for 2003 second quarter. Year-to-date charge-offs just $79,000 after first-quarter net recoveries. o Total assets grow to $1.05 billion following June 2003 branch acquisition. o Net interest margin declines just 1 basis point from 2003 first quarter. DEFIANCE, OHIO (July 21, 2003) - FlashResults First Defiance Financial Corp. (Nasdaq: FDEF) (Numbers in Thousands, Except Per Share Data) 2Q 2003 1Q 2003 2Q 2002 Tax-equivalent Net Interest Income $7,074 $6,661 $5,908 Net Income from Continuing Operations $2,879 $2,718 $1,386 EPS from Continuing Operations $ .46 $ .43 $ .21 Net Income $2,879 $2,718 $8,718 Net Income per Share $ .46 $ .43 $ 1.30 First Defiance Financial Corp. (NASDAQ: FDEF) today announced net income of $2.9 million or $.46 per diluted share for the quarter ended June 30, 2003 compared to $8.7 million or $1.30 per share for the second quarter of 2002. The 2002 amount includes $7.3 million ($1.09 per share) of income from discontinued operations related primarily to the gain from the sale of the Company's Leader Mortgage subsidiary (The Leader) to US Bank on April 1, 2002. First Defiance's income from continuing operations for the second quarter of 2002 was $1.4 million or $0.21 per share. Net income for the six-month period ended June 30, 2003 was $5.6 million or $0.89 per share compared to $11.4 million or $1.71 for the same period in 2002. The 2002 amount includes discontinued operations of $9.3 million or $1.46 per share. Income from continuing operations for the first six months of 2002 before the cumulative effect of a change in accounting for goodwill was $2.3 million or $0.34 per share. The results for the second quarter of 2003 include 24 days of operations of three branches that First Defiance acquired on June 6, 2003 from RFC Banking Company, a subsidiary of Rurban Financial Corp. Those branches, which are located in Findlay, Ottawa and McComb, Ohio, added $87.2 million in loans and $165.7 million in deposits to First Defiance's balance sheet. Continuing Operations Increase Due Primarily to Mortgage Gains, Increase in Net Interest Income The increase in income from continuing operations in 2003 compared to 2002 for both the second quarter period and the six month period is due in part to a large increase in gains from the sale of mortgage loans. Gains from the sale of mortgage loans totaled $2.5 million for the second quarter of 2003 compared to $549,000 for the second quarter of 2002, an increase of 358.1%. For the year-to-date period, gains from the sale of mortgage loans totaled $4.3 million compared to $1.1 million during the first half of 2002, an increase of 301.5%. "Our mortgage origination activity for the first six months has been amazing," said William J. Small, First Defiance Chairman, President and Chief Executive Officer. "We originated a total of 1,890 mortgages during the first half of 2003 with balances totaling $186.5 million. That compares to 793 mortgages with balances of just $75.0 million originated during the first two quarters of 2002. It's a tribute to our lenders and to our loan-processing department that we've handled this kind of volume without significant increases in staffing. We also have improved our pipeline management and are realizing more efficient pricing on the sale of the loans and therefore better gains." In addition to the increase from mortgage loan sales, First Defiance's net interest income for the three months ended June 30, 2003 increased to $6.8 million from $5.6 million for the same period in 2002. This increase is due to the growth in loans outstanding, which averaged $633.8 million for the 2003 second quarter compared to $511.2 million for the same period in 2002, and to a substantial decline in the cost of funds between the 2002 and 2003 second quarters. The growth in loans has been primarily in the commercial loan and non-residential real estate loan categories, which increased from $80.8 million and $191.5, million respectively, at June 30, 2002 to $107.5 million and $272.4 million at June 30, 2003, excluding the loans acquired as part of the branch acquisition. An additional $16.8 million of commercial loans and $35.4 million of non-residential real estate loans were acquired as part of that branch transaction. The growth in loan balances over the last year improved the overall mix of the First Defiance balance sheet as it was funded with excess cash realized following the sale of The Leader. Interest-earning deposits on First Defiance's balance sheet were $96.3 million for the second quarter of 2002 immediately following the sale of The Leader at a yield of just 1.70%. With the growth in loans, the average balance of interest-earning deposits has dropped to just $24.7 million for the second quarter of 2003. The increased interest income from the improved asset mix has been partially offset by lower yields in both the loan and investment portfolios. The tax-equivalent yield on loans has declined from 7.17% for the quarter ended June 30, 2002 to 6.35% for the same period in 2003. Also, the tax equivalent yield on the Company's investment portfolio dropped 59 basis points, from 5.43% for the three months ended June 30, 2002 to 4.84% for the three months ended June 30, 2003. During that same period, the Company's cost of deposits dropped 84 basis points, to 2.27% for the three months ended June 30, 2003 from 3.11% for the quarter ended June 30, 2002. Also, the average cost of Federal Home Loan Bank Advances, which are primarily fixed rate, dropped to 4.91% for the three months ended June 30, 2003 from 5.16% for the three months ended June 30, 2002 due to the addition of several lower cost advances during late 2002 and early 2003. Overall, First Defiance's tax-equivalent net interest margin increased to 3.36% for the 2003 second quarter from 2.99% in the same period in 2002. The 3.36% net interest margin represented just a one basis point drop from the 3.37% net interest margin reported for the previous quarterly period ended March 31, 2003. The slight quarter over quarter decline is primarily the result of an increase in low yielding liquidity securities, primarily interest-earning deposits, which increased from an average balance of $6.9 million in the 2003 first quarter to $24.7 million in the 2003 second quarter. That increase was caused by accelerated prepayments in the securities portfolio and liquidity acquired as part of the branch acquisition. Overall, comparing the 2003 second quarter to the 2003 first quarter, yields on earning assets fell 19 basis points, while the cost of funds dropped 24 basis points. "While our margin has held up fairly well in this interest rate environment compared with prior periods, it continues to be a concern," commented Mr. Small. "This rate environment has generated substantial earnings for us in the mortgage loan area, but it has also caused our net interest margin to be lower than where we thought it would be based on the change in mix of our balance sheet. Our expectation is that interest rates will remain low and that our margin will stay in the same general range through the rest of 2003. While we believe mortgage volumes will continue to be strong through at least the third quarter, it will be a challenge for us to maintain our earnings at this level in this interest rate environment once those mortgage volumes return to more normal levels." Credit Quality Remains Good, Non-Interest Income Grows First Defiance's provision for loan losses for the 2003 second quarter was $353,000 compared to $156,000 for the same period in 2002. Non-performing loans and non-performing assets were both $3.3 million at June 30, 2003, both $2.8 million at March 31, 2003 and $2.5 million and $2.7 million, respectively, at December 31, 2002. Net charge-offs for the 2003 second quarter were $172,000, compared to $61,000 for the same period of 2002. Net charge-offs to average loans was just 11 basis points (annualized) for the 2003 second quarter. "We continue to be very encouraged by the credit quality of our loan portfolio," said Mr. Small. "Our non-performing loans have remained low in a very soft economy and our charge-offs continue to be minimal. We also have conservatively accounted for the loans we acquired as part of our branch acquisition, discounting them by nearly $3 million as part of the allocation of the purchase price of the acquisition." Non-interest income for the three months ended June 30, 2003 totaled $5.3 million, which included the $2.5 million in gains from the sale of mortgage loans and an additional $288,000 of gains from the sale of securities. During the same period of 2002, non-interest income totaled $2.7 million of which $549,000 was due to gain from sale of mortgages. There were no securities gains in the second quarter of 2002. Excluding mortgage and securities gains, non-interest income increased from $2.2 million for the three months ended June 30, 2002 to $2.5 million for the same period of 2003. Service fee income increased by $178,000 or 18.6% between those periods, while commission income from insurance and securities sales increased by $140,000 or 16.9%. Mortgage Servicing Amortization, Impairment Expense Increases Non-interest expense increased to $7.7 million for the three months ended June 30, 2003 from $6.3 million for the same period in 2002, an increase of 22.0%. Of the increase, $619,000 was due to an increase in the amortization of mortgage servicing rights. In addition, First Defiance recorded $366,000 of impairment of mortgage servicing rights during the 2003 second quarter, due to a decline in the market value of the Company's mortgage servicing portfolio in the face of falling interest rates. There was $168,000 of impairment recorded in the second quarter of 2002. Excluding amortization and impairment of mortgage servicing rights, non-interest expense increased by $571,000 or 9.5%. Compensation and benefits increased $482,000 or 13.8% between the two periods. The increase in compensation is due to wage increases of 4%, an addition of 13 staff members between June 30, 2002 and June 30, 2003 (excluding the branch acquisition), $58,000 in compensation expense related to the new branches for the 26 day period they were in operations, and a $139,000 increase (27%, including addition of new employees) in group health insurance costs. Year-to-Date Results For the year-to-date period ended June 30, 2003, net interest income increased to $13.3 million from $11.3 million. That increase is due to significant growth in interest-earning assets as a result of the sale of The Leader and the reinvestment of the proceeds from that sale. Net interest margin for the six-month period ended June 30, 2003 was 3.37% compared to 3.43% for the same six-month period in 2002. Provision for loan losses for the first half of 2003 totaled $688,000 compared to $738,000 for the first half of 2002. Because of net recoveries of $93,000 in the 2003 first quarter, First Defiance's net charge-offs for the first six months of 2003 were just $79,000, compared to $258,000 for the first half of 2002. Net charge-offs to average loans for the first six months of 2003 were just one basis point (annualized). Non-interest income for the first six months of 2003 was $10.1 million compared to $5.2 million for the first six months of 2002. Excluding gains from mortgage sales of $4.3 million and $1.1 million for the first six months of 2003 and 2002, respectively, and gains from sale of securities of $919,000 in 2003 and a loss of $15,000 in 2002, non-interest income increased to $4.9 million during the first six months of 2003 from $4.1 million in the same period of 2002. Service fees increased by $396,000 to $2.1 million in the first half of 2003 from $1.8 million in 2002 and commissions from insurance and securities sales increased to $1.9 million in the first half of 2003 from $1.7 million for 2002. Non-interest expense for the six-month period ended June 30, 2003 was $14.7 million compared to $12.3 million for the first half of 2002, an increase of 19.6%. The $2.4 million increase included an increase in amortization and impairment of mortgage servicing rights of $1.4 million, to $1.9 million from $529,000. Excluding the impact of mortgage servicing rights, non-interest expense increased by $1.1 million, or 9.0%. Most of the remaining increase was in compensation and benefits, which increased to $7.7 million for the first half of 2003 from $6.8 million during the same period in 2002. Acquisition Has Minimal Impact on Quarter, YTD Results; Assets Exceed $1 Billion The acquisition of the three branches had only a minor impact on the results of the quarter, as the transaction was completed in June and accounted for less than one month's activity. In total as a result of the acquisition, net interest income increased by $256,000, non-interest income increased by $18,000 and non-interest expense increased by $109,000, including $8,000 of amortization of the core deposit intangible. As of June 30, 2003, First Defiance reported total assets of $1.05 billion, total loans of $700.1 million, total deposits of $751.7 million and stockholders' equity of $121.6 million. At December 31, 2002, total assets were $884.2 million, total loans were $576.4 million, total deposits were $599.6 million and stockholders' equity was $120.1 million. As part of the branch acquisition, First Defiance's goodwill increased by $15.9 million and the Company also recorded a core deposit intangible of $772,000. The addition of those intangible assets caused the Company's tangible book value per share to fall from $18.35 at March 31, 2003 to $16.11 at June 30, 2003. Outlook For Balance of 2003 "We've been very pleased with what we've accomplished during the first-half of 2003," commented Mr. Small. "Our strategy has been to grow our community banking presence through acquisitions and through organic loan growth and we have been successful in both of those areas. The acquisition of the three branches from RFC was well executed by our operations staff and we look forward to opportunities to build on the solid relationships already established between those offices and their customers." "Looking ahead, we expect our margin will stay near the 3.40% that it's at today for the rest of year, which is less than where we originally hoped it would be," continued Mr. Small. "However, our earning assets are higher than we projected them to be, both because of the acquisition and because of greater than budgeted growth in commercial loans and in non-residential real estate loans. We expect that gains from the sale of mortgage loans will continue to be strong in the third quarter, though probably not at the levels they were in the just-completed quarter and we also expect that increases in other non-interest income will continue. On the expense side, our operating costs will increase due to the acquisition but if mortgage rates stabilize as expected, amortization of mortgage servicing rights will decline." Conference Call First Defiance Financial Corp. will host a conference call at 11:00 a.m. (EST) on Tuesday, July 22, 2003 to discuss the earnings results and business trends. The conference call may be accessed by calling 888-880-1525. The passcode for the conference call is "First Defiance." The conference identification number for the call is 1528378. Participants should be prepared to provide both the passcode and conference identification number to access the call. Internet access to the call is also available (in listen-only mode) at the following Web address: http://www.firstcallevents.com/service/ajwz383904312gf12.html. The audio replay of the Internet Web cast will be available at www.fdef.com ------------ until August 29, 2003. About First Defiance Financial Corp. First Defiance Financial Corp., headquartered in Defiance, OH, is the holding company for First Federal Bank of the Midwest and First Insurance and Investments. First Federal operates 17 full service branches, one commercial loan production office and 23 ATM locations in northwest Ohio. First Insurance and Investments is the largest property and casualty insurance company in the Defiance, OH area and it also specializes in life and group health insurance. For more information, visit the company's Web site at www.fdef.com. ------------- -Financial Statements and Highlights Follow- Safe Harbor Statement Statements contained herein, including management's expectations, and Mr. Small's comments, may not be based on historical facts and are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21B of the Securities Act of 1934, as amended. Actual results could vary materially depending on risks and uncertainties 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. The Company assumes no responsibility to update this information. For more details, please refer to the Company's SEC filings, including its most recent Annual Report on Form 10-K and quarterly reports on Form 10-Q.
------------------------------------------------------------------------------------------------------------------- Consolidated Balance Sheets First Defiance Financial Corp. June 30, December 31, June 30, (in thousands) 2003 2002 2002 ------------------------------------------------------------------------------------------------------------------- Assets Cash and cash equivalents Cash and amounts due from depository institutions $ 26,367 $ 17,263 $ 19,210 Interest-bearing deposits 46,220 11,395 62,335 ----------- ----------- ----------- 72,587 28,658 81,545 Securities Available-for sale, carried at fair value 177,028 209,604 217,506 Held-to-maturity, carried at amortized costs 3,280 3,921 4,624 ----------- ----------- ----------- 180,308 213,525 222,130 Loans held for sale 9,731 15,336 610 Loans 698,484 568,537 521,916 Allowance for loan losses (8,105) (7,496) (7,028) ----------- ----------- ----------- Loans, net 700,110 576,377 515,498 Mortgage servicing rights 1,861 2,090 2,211 Accrued interest receivable 4,834 4,533 5,115 Federal Home Loan Bank stock and other interest-bearing assets 17,414 18,302 21,716 Bank Owned Life Insurance 15,549 15,144 -- Office properties and equipment 22,670 19,958 20,228 Real estate and other assets held for sale 63 206 335 Goodwill 20,412 3,636 3,569 Deferred taxes -- -- -- Other assets 12,806 1,816 2,198 Assets held for sale -- -- 5,834 Assets of discontinued operations -- -- -- ----------- ----------- ----------- Total Assets $ 1,048,614 $ 884,245 $ 880,379 =========== =========== =========== Liabilities and Stockholders' Equity Non-interest-bearing deposits $ 51,798 $ 43,936 $ 32,388 Interest-bearing deposits 699,907 555,637 569,608 ----------- ----------- ----------- Total deposits 751,705 599,573 601,996 Advances from Federal Home Loan Bank 154,408 149,096 131,192 Notes payable and other interest-bearing liabilities 8,785 4,308 2,414 Advance payments by borrowers for tax and insurance 218 316 2,305 Deferred taxes 1,961 2,299 606 Other liabilities 9,952 8,543 13,791 Liabilities associated with assets held for sale -- -- 5,887 Liabilities of discontinued operations -- -- -- ----------- ----------- ----------- Total liabilities 927,029 764,135 758,191 Stockholders' Equity Preferred stock -- -- -- Common stock 63 64 68 Additional paid-in-capital 50,026 50,702 53,590 Stock acquired by ESOP (2,068) (2,387) (2,494) Deferred compensation (20) (30) (56) Accumulated other comprehensive income 6,695 6,455 3,174 Retained earnings 66,889 65,306 67,906 ----------- ----------- ----------- Total stockholders' equity 121,585 120,110 122,188 ----------- ----------- ----------- Total liabilities and stockholders' equity $ 1,048,614 $ 884,245 $ 880,379 =========== =========== ===========
------------------------------------------------------------------------------------------------------------------- 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) 2003 2002 2003 2002 ------------------------------------------------------------------------------------------------------------------- Interest Income: Loans $ 9,974 $ 9,081 19,312 18,041 Investment securities 2,108 2,424 4,532 3,175 Interest-bearing deposits 80 409 109 427 -------- -------- ------ ------ Total interest income 12,162 11,914 23,953 21,643 Interest Expense: Deposits 3,412 4,461 6,946 8,389 FHLB advances and other 1,895 1,690 3,709 1,774 Notes Payable 13 38 22 227 -------- -------- ------ ------ Total interest expense 5,320 6,189 10,677 10,390 -------- -------- ------ ------ Net interest income 6,842 5,725 13,276 11,253 Provision for loan losses 353 156 688 738 -------- -------- ------ ------ Net interest income after provision for loan losses 6,489 5,569 12,588 10,515 Non-interest Income: Service fees and other charges 1,133 955 2,149 1,753 Dividends on stock and other interest income 172 285 341 466 Gain on sale of loans 2,515 549 4,316 1,075 Gain (loss) on sale of securities 288 -- 919 (15) Insurance commissions 967 827 1,893 1,710 Trust income 38 24 70 54 Income from Bank Owned Life Insurance 204 -- 405 -- Other non-interest income 20 97 35 119 -------- -------- ------ ------ Total Non-interest Income 5,337 2,737 10,128 5,162 Non-interest Expense: Compensation and benefits 3,976 3,494 7,684 6,798 Occupancy 741 722 1,469 1,413 SAIF deposit insurance premiums 31 33 55 65 State franchise tax 285 351 566 645 Data processing 427 465 859 691 Amortization of mortgage servicing rights 756 137 1,279 265 Net impairment of mortgage servicing rights 366 168 606 264 Amortization of goodwill and other intangibles 8 -- 8 200 Other non-interest expense 1,111 943 2,189 1,964 -------- -------- ------ ------ Total Non-interest Expense 7,701 6,313 14,715 12,305 -------- -------- ------ ------ Income before income taxes 4,125 1,993 8,001 3,372 Income taxes 1,246 607 2,403 1,099 -------- -------- ------ ------ Income from continuing operations 2,879 1,386 5,598 2,273 Discontinued operations, net of tax -- 7,332 -- 9,347 -------- -------- ------ ------ Income before cumulative effect of a change in accounting principle 2,879 8,718 5,598 11,620 -------- -------- ------ ------ Cumulative effect in method of accounting for goodwill -- -- -- (194) Net income $ 2,879 $ 8,718 $ 5,598 $ 11,426 ======== ======== ====== ====== Earnings per share: Basic: From continuing operations $ 0.48 $ 0.22 $ 0.93 $ 0.35 Discontinued operations, net of tax -- 1.14 -- 1.46 Cumulative effect in method of accounting for goodwill -- -- -- (0.03) Net income 0.48 1.36 0.93 1.78 Diluted: From continuing operations $ 0.46 $ 0.21 $ 0.89 $ 0.34 Discontinued operations, net of tax -- 1.09 -- 1.40 Cumulative effect in method of accounting for goodwill -- -- -- (0.03) Net income 0.46 1.30 0.89 1.71 Average Shares Outstanding Basic 6,013 6,418 6,044 6,426 Diluted 6,254 6,689 6,293 6,672
------------------------------------------------------------------------------------------------------------------------------ Financial Summary and Comparison First Defiance Financial Corp. Three months ended Six months ended June 30, June 30, June 30, (in thousands, except per share data) 2003 2002 % change 2003 2002 % change ------------------------------------------------------------------------------------------------------------------------------ Summary of Operations Tax-equivalent interest income (1) $ 12,394 $ 12,097 2.5 24,413 21,921 11.4 Interest expense 5,320 6,189 (14.0) 10,677 10,390 2.8 Tax-equivalent net interest income (1) 7,247 5,908 22.7 14,077 11,997 17.3 Provision for loan losses 353 156 126.3 688 738 (6.8) Tax-equivalent NII after provision for loan loss (1) 6,894 5,752 19.9 13,389 11,259 18.9 Securities gains (losses) 288 - NM 919 (15) NM Non-interest income-excluding securities gains ( losses) 5,049 2,737 84.5 9,209 5,177 77.9 Non-interest expense 7,701 6,313 22.0 14,715 12,305 19.6 Income taxes 1,246 607 105.3 2,403 1,099 118.7 Income from continuing operations 2,880 1,386 107.8 5,598 2,273 146.3 Tax equivalent adjustment (1) 233 183 27.3 460 278 65.5 ------------------------------------------------------------------------------------------------------------------------------ At Period End Assets $ 1,048,614 $ 880,379 19.1 Total assets excluding those of discontinued operations 1,048,614 880,379 19.1 Earning assets 944,052 821,679 14.9 Loans 708,215 522,526 35.5 Allowance for loan losses 8,105 7,028 15.3 Deposits 751,705 601,996 24.9 Stockholders' equity 121,585 122,188 (0.5) ------------------------------------------------------------------------------------------------------------------------------ Average Balances Assets $ 939,077 $ 885,136 6.1 911,807 1,017,612 (10.4) Total assets excluding those of discontinued operations 939,077 885,136 6.1 911,807 782,680 16.5 Earning assets 865,144 830,516 4.2 843,226 705,301 19.6 Deposits and interest-bearing liabilities 808,433 741,922 9.0 780,934 647,842 20.5 Loans 633,755 511,238 24.0 611,796 503,955 21.4 Deposits 649,550 608,020 6.8 621,706 566,327 9.8 Stockholders' equity 120,888 119,166 1.4 120,566 115,626 4.3 Stockholders' equity / assets of continuing operations 12.87% 13.46% (4.4) 13.22% 14.77% (10.5) ------------------------------------------------------------------------------------------------------------------------------ Per Common Share Data Income from continuing operations Basic $ 0.48 $ 0.22 118.2 $ 0.93 $ 0.35 165.7 Diluted 0.46 0.21 119.0 0.89 0.34 161.8 Dividends 0.15 0.13 15.4 0.30 0.26 15.4 Market Value: High $ 20.55 $ 21.44 (4.2) $ 20.55$ 21.44 (4.2) Low 18.56 16.97 9.4 18.43 15.12 21.9 Close 19.84 20.05 (1.0) 19.84 20.05 (1.0) Book Value 19.36 17.94 7.9 19.36 17.94 7.9 Tangible Book Value 16.11 17.42 (7.5) 16.11 17.42 (7.5) Shares outstanding, end of period (000) 6,281 6,810 (7.8) 6,281 6,810 (7.8) ------------------------------------------------------------------------------------------------------------------------------ Performance Ratios (annualized-continuing operations only) Tax-equivalent net interest margin (1) 3.36% 2.99% 12.4 3.37% 3.43% (1.7) Return on average assets (2) 1.23 0.63 95.9 0.61 0.58 5.2 Return on average equity 9.53 4.65 104.8 4.64 3.93 18.1 Efficiency ratio (3) 62.63 74.60 (16.0) 63.20 74.89 (15.6) Effective tax rate 30.20 30.46 (0.8) 30.03 32.59 (7.8) Dividend payout ratio (basic) 31.25 59.09 (47.1) 32.26 74.29 (56.6) ------------------------------------------------------------------------------------------------------------------------------
(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) Income from continuing operations divided by assets, excluding those of discontinue operations. (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. NM Percentage change not meaningful
------------------------------------------------------------------------------------------------------------------------------- Continuing Operations Yield Analysis First Defiance Financial Corp. Three Months Ended June 30 --------------------------------------------------------------------------------- 2003 2002 ------------------------------------ -------------------------------------- Average Yield Average Yield Balance Interest(1) Rate(2) Balance Interest(1) Rate(2) ------- ----------- ------- ------- ----------- ------- Interest-earning assets: Loans receivable $633,755 $10,030 6.35% $511,238 $ 9,140 7.17% Securities 189,448 2,284 4.84 188,361 2,548 5.43 Interest Bearing Deposits 24,697 80 1.30 96,337 409 1.70 FHLB stock and other 17,244 172 4.02 34,580 285 3.31 -------- ------- ---- -------- -------- ---- Total interest-earning assets 865,144 12,566 5.83 830,516 12,382 5.98 Non-interest-earning assets (including assets of discontinued operations) 73,933 54,620 -------- ------- Total assets $939,077 $885,136 ======== ======== Deposits and Interest- bearing liabilities: Interest bearing deposits $603,045 $ 3,412 2.27% $574,461 $ 4,461 3.11% FHLB advances and other 154,658 1,895 4.91 131,472 1,690 5.16 Warehouse and term notes payable 4,225 13 1.23 2,430 38 6.27 -------- ------- -------- -------- Total interest-bearing liabilities 761,928 5,320 2.80 708,363 6,189 3.50 Non-interest bearing deposits 46,505 -- -- 33,559 -- -- -------- ------- ---- -------- -------- ---- Total including non-interest- bearing demand deposits 808,433 5,320 2.64 741,922 6,189 3.35 Other non-interest-bearing liabilities 9,756 24,048 -------- ------- (including liabilities of discontinued operations ) Total liabilities 818,189 765,970 Stockholders' equity 120,888 119,166 -------- -------- Total liabilities and stock- holders' equity $939,077 $885,136 ======== ======== Net interest income; interest rate spread $7,246 3.03% $6,193 2.48% ====== ==== ====== ==== Net interest margin (3) 3.36% 2.99% ==== ==== Average interest-earning assets to average Interest-bearing liabilities 114% 117% === ===
(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.
------------------------------------------------------------------------------------------------------------------------------------ Continuing Operations Yield Analysis (Continued) First Defiance Financial Corp. Six Months Ended June 30 ----------------------------------------------------------------------------------- 2003 2002 ------------------------------------------ ----------------------------------- Average Yield Average Yield Balance Interest(1) Rate(2) Balance Interest(1) Rate(2) ------- ----------- ------- ------- ----------- ------- Interest-earning assets: Loans receivable $ 611,796 $ 19,428 6.40% $ 503,955 $18,143 7.26% Securities 198,046 4,875 4.96 120,930 3,350 5.59 Interest Bearing Deposits 15,782 109 1.39 54,972 427 1.57 FHLB stock and other 17,602 341 3.92 25,444 466 3.70 ---------- -------- ---- ---------- ------- Total interest-earning assets 843,226 24,753 5.92 705,301 22,386 6.40 Non-interest-earning assets (including assets of discontinued operations) 68,581 312,311 ---------- ---------- Total assets $ 911,807 $1,017,612 ========== ========== Deposits and Interest- bearing liabilities (4): Interest bearing deposits $ 579,285 $ 6,946 2.42% $ 535,478 $ 8,389 3.16% FHLB advances and other 155,610 3,709 4.81 69,585 1,774 5.14 Warehouse and term notes payable 3,618 22 1.23 11,930 227 3.84 ---------- -------- ---- ---------- ------- Total interest-bearing liabilities 738,513 10,677 2.92 616,993 10,390 3.40 Non-interest bearing deposits 42,421 -- -- 30,849 -- -- ---------- -------- ---- ---------- ------- ---- Total including non-interest- bearing demand deposits 780,934 10,677 2.76 647,842 10,390 3.23 Other non-interest-bearing liabilities 10,307 254,144 ---------- ---------- (including liabilities of discontinued operations ) Total liabilities 791,241 901,994 Stockholders' equity 120,566 115,626 ---------- ---------- Total liabilities and stock- holders' equity $ 911,807 $1,017,612 ========== ========== Net interest income; interest rate spread $ 14,076 3.00% $11,996 3.00% ========== ==== ======= ==== Net interest margin (3) 3.37% 3.43% ==== ==== Average interest-earning assets to average Interest-bearing liabilities 114% 114% === ===
-------------------------------------------------------- (1) Interest on certain tax exempt loans and securities is not taxable for Federal income tax purposes. In order to compare the tax-exempt yields on these assets to taxable yields, the interest earned on these assets is adjusted to a pre-tax equivalent amount based on the marginal corporate federal income tax rate of 35%. (2) Annualized (3) Net interest margin is net interest income divided by average interest-earning assets. (4) This analysis does not reflect borrowings to fund discontinued operations.
------------------------------------------------------------------------------------------------------------------------------------ Selected Quarterly Information First Defiance Financial Corp. (in thousands, except per share data) 2nd Qtr 2003 1st Qtr 2003 4th Qtr 2002 3rd Qtr 2002 2nd Qtr 2002 ------------------------------------------------------------------------------------------------------------------------------------ Summary of Operations Tax-equivalent interest income (1) $ 12,394 $ 12,018 $ 12,518 $ 12,405 $ 12,097 Interest expense 5,320 5,357 5,701 5,952 6,189 Tax-equivalent net interest income (1) 7,074 6,661 6,817 6,453 5,908 Provision for loan losses 353 335 328 386 156 Tax-equivalent NII after provision for loan losses (1) 6,721 6,326 6,489 6,067 5,752 Investment securities gains/(losses) 288 631 -- 36 -- Non-interest income (excluding securities gains/losses) 5,049 4,160 4,518 3,235 2,737 Non-interest expense 7,701 7,015 6,702 7,184 6,313 Income taxes 1,246 1,157 1,319 568 607 Income from continuing operations 2,880 2,718 2,765 1,382 1,386 Discontinued operations, net of tax -- -- (494) -- 7,332 Income before effect of a change in accounting principle -- -- 2,271 -- 8,718 Cumulative effect in method of accounting for goodwill -- -- -- -- -- Net income 2,880 2,718 2,271 1,382 8,718 Tax equivalent adjustment (1) 233 227 221 204 183 ------------------------------------------------------------------------------------------------------------------------------------ At Period End Total assets $ 1,048,614 $ 896,576 $ 884,245 $ 863,749 $ 880,379 Total assets excluding those of discontinued operations 1,048,614 896,576 884,245 863,749 880,379 Earning assets 944,052 821,678 819,599 809,061 821,679 Loans 708,215 594,431 583,873 553,465 522,526 Allowance for loan losses 8,105 7,924 7,496 7,256 7,028 Deposits 751,705 607,966 599,573 590,792 601,996 Stockholders' equity 121,585 120,147 120,110 124,888 112,118 Stockholders' equity / assets of continuing operations 11.59% 13.40% 13.58% 14.46% 12.74% Goodwill 20,412 3,658 3,636 3,602 3,569 ------------------------------------------------------------------------------------------------------------------------------------ Average Balances (2) Total assets $ 939,077 $ 884,538 $ 877,940 $ 872,808 $ 885,136 Total assets excluding those of discontinued operations 939,077 884,538 877,940 872,808 885,136 Earning assets 865,144 821,307 818,903 815,924 830,516 Deposits and interest-bearing liabilities 808,433 715,095 743,588 696,039 741,922 Loans 633,755 589,837 560,363 535,149 511,238 Deposits 649,550 593,863 596,053 593,780 608,020 Stockholders' equity 120,888 120,253 121,519 123,491 119,166 Stockholders' equity / assets of continuing operations 12.87% 13.60% 13.84% 14.15% 13.46% ------------------------------------------------------------------------------------------------------------------------------------ Per Common Share Data Basic: From continuing operations$ 0.48 $ 0.45 $ 0.45 $ 0.22 $ 0.22 Discontinued operations, net of tax -- -- (0.08) -- 1.14 Cumulative effect in method of accounting for goodwill -- -- -- -- -- Net income 0.48 0.45 0.37 0.22 1.36 Diluted: From continuing operations$ $ 0.46 $ 0.43 $ 0.43 $ 0.21 $ 0.21 Discontinued operations, net of tax -- -- (0.08) -- 1.09 Cumulative effect in method of accounting for goodwill -- -- -- -- -- Net income 0.46 0.43 0.35 0.21 1.30 Dividends 0.15 0.15 0.15 0.13 0.13 Market Value: High $ 20.55 $ 20.67 $ 19.70 $ 21.13 $ 21.44 Low 18.56 18.21 15.78 16.96 16.97 Close 19.84 18.55 18.90 17.17 20.05 Book Value 19.36 18.93 18.73 18.54 17.94 Shares outstanding, end of period (000) 6,281 6,347 6,412 6,737 6,810 ------------------------------------------------------------------------------------------------------------------------------------ Performance Ratios (annualized- continuing operations only) Tax-equivalent net interest margin 3.36% 3.37% 3.40% 3.25% 3.06% Return on average assets (3) 1.23 1.23 1.26 0.63 0.63 Return on average equity 9.53 9.04 9.10 4.48 4.65 Efficiency ratio(4) 62.63 64.84 59.12 73.88 73.02 Effective tax rate 30.20 29.86 32.30 29.13 30.46 Dividend payout ratio (basic) 31.25 33.33 33.33 59.09 59.09 ------------------------------------------------------------------------------------------------------------------------------------ (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) Average balances do not reflect borrowings to fund discontinued operations (3) Income from continuing operations divided by assets, excluding assets of discontinued operations (4) 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. (in thousands, except per share data) 2nd Qtr 2003 1st Qtr 2003 4th Qtr 2002 3rd Qtr 2002 2nd Qtr 2002 ------------------------------------------------------------------------------------------------------------------------------------ Loan Portfolio Composition One to four family residential real estate $167,412 $149,717 $157,691 $165,113 $165,072 Construction 15,559 13,342 15,357 11,646 8,977 Commercial real estate 307,871 252,939 227,754 202,069 191,471 Commercial 124,332 106,650 104,070 96,537 80,844 Consumer finance 42,189 35,938 37,579 38,725 39,279 Home equity and improvement 59,450 53,860 49,889 46,577 43,990 -------- -------- -------- -------- -------- Total loans 716,813 612,446 592,340 560,648 529,633 Less: Loans in process 7,431 5,407 7,255 6,049 6,028 Deferred loan origination fees 1,167 1,217 1,212 1,134 1,079 Allowance for loan loss 8,105 7,924 7,496 7,256 7,028 -------- -------- -------- -------- -------- Net Loans $700,110 $597,898 $576,377 $546,209 $515,498 ======== ======== ======== ======== ======== ------------------------------------------------------------------------------------------------------------------------------------ Allowance for loan loss activity Beginning allowance $ 7,924 $ 7,496 $ 7,256 $ 7,028 $ 6,933 Provision for loan losses 353 335 328 386 156 Credit loss charge-offs: One to four family residential real estate 18 - 28 18 15 Commercial real estate 162 - - 110 20 Commercial 38 25 16 20 - Consumer finance 38 50 86 64 93 Home equity and improvement - - - - - -------- -------- -------- -------- -------- Total charge-offs 257 75 130 212 128 Total recoveries 85 168 42 54 67 -------- -------- -------- -------- -------- Net charge-offs/(recoveries) 172 (93) 88 158 61 -------- -------- -------- -------- -------- Ending allowance $ 8,105 $ 7,924 $ 7,496 $ 7,256 $ 7,028 ======== ======== ======== ======== ======== ------------------------------------------------------------------------------------------------------------------------------------ Credit Quality Non-accrual loans $ 3,273 $ 2,756 $ 2,525 $ 3,287 $ 3,052 Loans over 90 days past due and still accruing - - - - - -------- -------- -------- -------- -------- Total non-performing loans (1) 3,273 2,756 2,525 3,287 3,052 Real estate owned (REO) 63 59 206 371 335 -------- -------- -------- -------- -------- Total non-performing assets (1) 3,336 2,815 2,731 3,658 3,387 ======== ======== ======== ======== ======== Net charge-offs 172 (93) 88 158 61 Allowance for loan losses / loans 1.16% 1.34% 1.32% 1.33% 1.35% Allowance for loan losses / non-performing assets 242.96 281.49 274.48 198.36 207.50 Allowance for loan losses / non-performing loans 247.63 287.52 296.87 220.75 230.28 Non-performing assets / loans plus REO 0.48 0.48 0.48 0.67 0.65 Non-performing assets / total assets of continuing operations 0.32 0.31 0.31 0.42 0.38 Net charge-offs / average loans ( annualized) 0.11 (0.06) 0.06 0.12 0.05 ------------------------------------------------------------------------------------------------------------------------------------ Deposit Balances Non-interest-bearing demand deposits $ 51,798 $ 47,673 $ 43,936 $ 34,542 $ 32,388 Interest-bearing demand deposits and money market 212,123 172,740 170,354 165,405 165,606 Savings deposits 51,693 41,375 39,363 39,569 39,766 Time deposits less than $100,000 341,880 264,938 282,464 276,296 291,438 Time deposits greater than $100,000 94,211 81,240 63,456 74,980 72,798 -------- -------- -------- -------- -------- Total deposits $751,705 $607,966 $599,573 $590,792 $601,996 ======== ======== ======== ======== ======== ------------------------------------------------------------------------------------------------------------------------------------
(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. Non-performing assets are non-performing loans plus real estate and other assets acquired by foreclosure or deed-in-lieu thereof.