EX-99.1 2 ex99-1.txt Exhibit 99.1 NEWS RELEASE [Logo] Contact: William J. Small FIRST DEFIANCE Chairman, President and CEO FINANCIAL CORP. First Defiance Financial Corp. (419) 782-5015 bsmall@first-fed.com -------------------------------------------------------------------------------- For Immediate Release FIRST DEFIANCE ANNOUNCES SECOND QUARTER EARNINGS DEFIANCE, OHIO (July 18, 2005) - First Defiance Financial Corp. (NASDAQ: FDEF) today announced net income of $2.0 million or $0.28 per diluted share for the quarter ended June 30, 2005 compared to $3.1 million or $0.49 per diluted share for the quarter ended June 30, 2004. Net income and diluted earnings per share for the 2005 second quarter include the operations of the Genoa Savings and Loan Company (Genoa Savings) subsequent to its acquisition by First Defiance on April 8, 2005 and include $1.6 million in after-tax merger-related expenses recognized in the quarter relating to the Genoa acquisition as well as the acquisition of ComBanc, Inc., which occurred in the first quarter of 2005. For the six-month period ended June 30, 2005, First Defiance realized income of $4.9 million or $0.70 per share compared to $5.6 million or $0.88 per share for the first six months of 2004. Total after-tax merger-related charges recorded during the first six months of 2005 were $2.2 million ($2.39 million before tax or $1.55 million after tax related to Genoa and $975,000 before tax or $634,000 after tax related to ComBanc). Core operating earnings, which reflect income from continuing operations adjusted to exclude the merger, integration and restructuring expenses, were $3.6 million for the 2005 second quarter, up 15.7% from $3.1 million for the second quarter of 2004. Core operating earnings per diluted share for the 2005 second quarter were $0.51, up from $0.49 in the 2004 second quarter. For the six-month period ended June 30, 2005, core operating earnings were $7.1 million, up 25.7% from the first six months of 2004. On a per share basis, core operating earnings for the first six months of 2005 were $1.01 per share compared to diluted EPS of $0.88 for the first six months of 2004, an increase of 14.8%. The attached schedules include a reconciliation of GAAP-basis earnings to core operating earnings. "We are pleased to report another quarter of solid results," said William J. Small, Chairman, President and Chief Executive Officer. "The continued increase in our core operating earnings reflects progress in the strategic initiatives of our business plan. We continue to have substantial loan growth, our net interest margins continue to improve, and our credit quality remains very good. And, for the second quarter in a row, I am pleased to report that we successfully completed an acquisition with the April 8 closing of the Genoa Savings transaction which further strengthens our First Federal Bank branch network." 1 Net Interest Income Increased 43.3% for the quarter, 36.8% YTD Net interest income for the 2005 second quarter was $11.7 million, a 43.3% increase over the $8.1 million earned in the second quarter of 2004. Net interest margin for the 2005 second quarter, on a tax-equivalent basis, was 3.87%, a 31 basis point improvement from the second quarter of 2004 and a five basis point improvement over the margin reported for the 2005 first quarter. The improved margin is due to an improved mix between loans and investment securities and lower cost of funds due to growth in the average balance of non-interest bearing deposits. Average interest-earning assets grew from $957.2 million in the second quarter of 2004 to $1.25 billion in the second quarter of 2005, an increase of 30.2%. The average balance of loans outstanding increased from $786.6 million in the 2004 second quarter to $1.09 billion in the second quarter of 2005, while the average balance of investment securities dropped from $155.0 million to $121.8 million between the second quarter of 2004 and the second quarter of 2005. Approximately $117 million of the increase in average loan balances related to the ComBanc acquisition, which closed on January 21, 2005, and $62 million related to the Genoa Savings acquisition, which closed on April 8, 2005. The remainder of the $125.6 million total increase is due to year-over-year balance growth. Yields on loans improved to 6.27% for the 2005 second quarter from 5.77% in the second quarter of 2004. Overall yields on interest-earning assets improved to 6.06% in the 2005 second quarter compared to 5.61% during that same period in 2004. The second quarter yield was also a 17 basis point improvement over the 5.89% yield realized in the 2005 first quarter. Average interest-bearing deposits increased to $957.1 million in the 2005 second quarter compared with $687.3 million during the same period of 2004, an increase of $269.8 million or 39.3%. The ComBanc acquisition added $146 million in average balances of interest-bearing deposits while the Genoa Savings acquisition added $66 million in average balances for the quarter. The average balance in interest-bearing deposits also reflects an increase in brokered certificates of deposits (CDs), which averaged $39.2 million in the 2004 second quarter and increased to $46.3 million in the 2005 period. Excluding the acquisitions and brokered CDs, interest-earning deposits increased by $50.4 million in the 2005 second quarter compared with the second quarter of 2004. The cost of interest-bearing deposits increased 26 basis points, to 2.06% for the 2005 second quarter from 1.80% in 2004 and the cost of Federal Home Loan Bank (FHLB) advances increased 24 basis points, to 4.59% in the 2005 second quarter from 4.35% in the 2004 second quarter. However, an improved mix between advances and deposits resulted in an overall increase in funding costs of just 13 basis points, to 2.41% for the 2005 second quarter from 2.28% in the 2004 second quarter. As a result, the interest rate spread improved to 3.65% in the 2005 second quarter from 3.33% during the second quarter of 2004. The net interest margin also benefited from significant growth in the average balance of non-interest bearing deposits, which increased to $91.9 million in the 2005 second quarter compared with $54.8 million during the 2004 second quarter, an increase of 67.7%. Of that $37.1 million increase, $17.7million was due to the ComBanc acquisition, $4.6 million was due to the Genoa Savings acquisition, and the remaining increase of $14.8 million resulted from other Company initiatives to grow those balances. 2 For the six months ended June 30, 2005, net interest margin improved to 3.85% from 3.57% in the first half of 2004. The improvement resulted from a 36 basis point increase in the overall yield of interest earning assets, to 5.98% for the 2005 period from 5.62% during the first six months of 2004. During that same period, the cost of interest-bearing liabilities increased just nine basis points, to 2.37% in the first half of 2005 compared to 2.28% in 2004. The average balance of non-interest bearing deposits increased by $29.2 million or 54.1% between the first half of 2004 and the first half of 2005. Non-Interest Income Up $278,000 Non-interest income increased to $4.4 million for the 2005 second quarter compared to $4.1 million during the same period in 2004. First Defiance realized $515,000 of gains from sales of investment securities during the 2005 second quarter compared with $293,000 of such gains in the 2004 period. Excluding securities gains, non-interest income grew by $56,000 in the 2005 second quarter over the same period in 2004. Service fee income increased to $1.75 million from $1.37 million but the increase was offset by a reduction in insurance and investment sales commission income, which dropped to $1.1 million in the 2005 second quarter from $1.2 million in the same period of 2004, and a decline in gains from sale of loans, which fell to $588,000 in the 2005 second quarter from $804,000 in the 2004 second quarter. Year-to-date, non-interest income increased to $8.8 million for the first half of 2005 from $7.6 million recognized in the first six months of 2004. If gains from the sale of securities of $1.1 million and $392,000 for the first half of 2005 and 2004, respectively, are excluded, non-interest income increased by $483,000. Those year-to-date increases were primarily in service fees and other charges, which increased to $3.2 million from $2.6 million while gains from loan sales declined to $1.1 million from $1.4 million. Non-Interest Expense Increased Due to Acquisitions Non-interest expense for the 2005 second quarter was $12.8 million compared with $7.1 million in the 2004 second quarter. The 2005 amount includes acquisition-related charges of $2.5 million related to the Genoa Savings and ComBanc acquisitions. Acquisition-related charges consist of items incurred directly as a result of the acquisitions such as costs to terminate data processing agreements, severance costs to employees not retained and one-time charges necessary to effect the integration of the acquisition. A flattening of the yield curve and a decline in the rate of 10-year Treasury securities during the 2005 second quarter resulted in a decline in the market value of mortgage servicing rights (MSRs). As a result, First Defiance recorded $95,000 of MSR impairment during the quarter. In the 2004 second quarter, First Defiance recaptured $524,000 of previously recorded impairment reserves, a fluctuation of $619,000 between the two periods. At June 30, 2005, First Defiance has $481,000 of remaining reserves for MSR impairment. Excluding acquisition-related charges and MSR impairment-related items, First Defiance incurred non-interest expenses totaling $10.3 million for the 2005 second quarter compared to $7.7 million in the second quarter of 2004, an increase of $2.6 million or 34.1%. Compensation and benefits increased by $1.5 million due to the acquisitions as well as the addition of several new lending positions and a significant number of new support positions in the credit 3 administration, loan processing, deposit operations, data processing and accounting areas. These new positions have been added to both support growth and assure compliance with regulatory and internal control requirements. The addition of these new positions also has resulted in a significant increase in the Company's health insurance expense in 2005 compared with 2004. Occupancy costs increased by $356,000 and data processing costs increased by $199,000 between the second quarter of 2004 and the second quarter of 2005. Non-interest expense also included amortization of core deposit intangibles totaling $214,000 in the 2005 second quarter compared to just $27,000 in the 2004 second quarter, a result of additional core deposit intangibles acquired as part of both acquisitions. The efficiency ratio for the second quarter of 2005 was 81.78% based on GAAP earnings and 66.02% on a core operating earnings basis. The efficiency ratio for the second quarter of 2004 was 58.67%, a ratio that was favorably impacted by the $524,000 of impairment recapture. For the year-to-date period ended June 30, 2005 non-interest expenses totaled $23.0 million compared to $14.6 million for the first half of 2004. Excluding acquisition-related charges, non-interest expense was $19.7 million for the six months ended June 30, 2005, which was an increase of $5.1 million. Compensation and benefits accounted for $2.7 million of the year-to-date increase while occupancy increased by $545,000, data processing costs increased by $469,000 and core deposit intangibles increased by $273,000. Credit Quality Continues to be a Strength The provision for loan losses was $349,000 for the second quarter of 2005 compared to $490,000 for the second quarter of 2004. This quarter's provision level reflects continued favorable experience with the First Defiance loan portfolios. Total charge-offs for the three months ended June 30, 2005 were just $204,000 while recoveries were $77,000 compared with $167,000 of charge-offs and $47,000 in recoveries during the second quarter of 2004. Charge-offs as a percentage of average loans were just 0.05% in the 2005 second quarter (annualized) compared to 0.06% for the second quarter of 2004. At June 30, 2005 the percentage of non-performing assets to total loans plus Real Estate Owned was 0.50% compared to 0.37% at June 30, 2004 and 0.22% at December 31, 2004. Total non-performing loans increased to $4.7 million from $1.9 million at December 31, 2004 and non-performing assets increased to $5.2 million from $2.0 million. Of the $4.7 million in non-performing loans at June 30, 2005, $3.2 million were acquired in one of the acquisitions and $1.5 million related to loans originated by First Defiance. First Defiance's allowance for loan losses as a percentage of non-performing loans declined to 283.7% at June 30, 2005 from 525.9% at December 31, 2004. The increase in non-performing loan balances and the decrease in the related coverage ratios is also due in part to the accounting guidance which requires that estimated losses on loans deemed impaired as of the acquisition date be recorded as a purchase discount, as opposed to establishing an allowance for loan losses. Net loan balances totaling $2.9 million (after deducting appropriate purchase discounts) are deemed impaired and have no loan loss reserve recorded for them. In management's opinion, all non-performing loans acquired were adequately provided for at the acquisition dates and the allowance for loan losses at June 30, 2005 is sufficient. 4 "Credit quality has always been a focus and our numbers through the second quarter remain excellent," said Mr. Small. "We knew prior to the two acquisitions that our overall credit quality ratios would suffer but at this point we have not encountered any credit issues that we didn't anticipate through our due diligence. We have dedicated resources to concentrate on the problem credits we purchased and believe that with this level of effort we'll be able to get the majority of the issues resolved. Since the acquisition dates, the acquired offices have operated under our diligent credit quality procedures." Total Assets Reach $1.4 Billion Total assets at June 30, 2005 totaled $1.40 billion compared with $1.13 billion at December 31, 2004 and $1.07 billion at June 30, 2004. At June 30, 2005, loans totaled $1.13 billion, deposits totaled $1.05 billion and stockholders equity was $147.6 million. At December 31, 2004, loans, deposits and equity were $881.2 million, $797.7 million and $126.9 million respectively. Goodwill and other intangible assets were $39.7 million at June 30, 2005 compared to $18.9 million at December 31, 2004. Strategic Overview "I am very pleased at how successfully we have been able to integrate the two acquisitions that we completed this year," commented Mr. Small. "Our staff has made the transitions as smooth as possible for our new customers. As a result of those efforts, we have been able to retain balances and build new customer relationships. While we have a strong market share in many of our communities, we have significant growth opportunities throughout our market area, especially in the Toledo, Findlay and Lima areas." "We continue to make progress in our strategy of growing our community banking and financial services businesses through high-touch service and good corporate citizenship in the communities we serve," said Mr. Small. "We have proven we can successfully grow loans and our loan demand remains very strong. The challenge continues to be finding the most cost effective way to fund that growth. While our deposit growth has improved, we haven't met our targets in that area yet, and we won't be able to meet our ultimate profitability goals without additional improvement in those areas. Expense controls are also a priority. Through the recent acquisitions and related transitions, we have slipped some in our efforts to improve our efficiency. As we look to the balance of 2005, our management is now refocused on controlling expenses and becoming more efficient." Conference Call First Defiance Financial Corp. will host a conference call at 11:00 a.m. (EDT) on Tuesday, July 19, 2005 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 7607405. 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://phx.corporate-ir.net/phoenix.zhtml?p=irol- ------------------------------------------------- eventDetails&c=90296&eventID=1096635 (Due to URL length, please copy and paste ------------------------------------ into browser.) 5 The audio replay of the Internet Web cast will be available at www.fdef.com until August 31, 2005. ------------ About 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 and Investments. First Federal operates 25 full service branches and 31 ATM locations in northwest Ohio. First Insurance and Investments is the largest property and casualty insurance agency in the Defiance, Ohio area and it also specializes in life and group health insurance and financial planning. 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: the future recapture of mortgage servicing impairment reserves, future movements of interest rates and particularly 10-year Treasury notes, the production levels of mortgage loan generation, the ability to continue to grow loans and deposits, the ability to benefit from a rising interest rate environment, the ability to sustain credit quality ratios at current or improved levels, a secondary market for packaged mortgage loan securities, future repurchases of First Defiance Financial Corp. stock and the positive impact of exercised stock options on shareholders' equity, ability to achieve expected earnings, expense reductions and levels of one-time costs including acquisition-related and restructuring charges, 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, 2004. 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. 6
---------------------------------------------------------------------------------------------------------- Consolidated Balance Sheets First Defiance Financial Corp. June 30, December 31, June 30, (in thousands) 2005 2004 2004 ---------------------------------------------------------------------------------------------------------- Assets Cash and cash equivalents Cash and amounts due from depository institutions $ 31,100 $ 19,891 $ 19,414 Interest-bearing deposits 7,244 630 1,125 ----------- ----------- ----------- 38,344 20,521 20,539 Securities Available-for sale, carried at fair value 110,515 137,003 150,869 Held-to-maturity, carried at amortized costs 2,059 2,255 2,582 ----------- ----------- ----------- 112,574 139,258 153,451 Loans held for sale 7,224 2,295 3,948 Loans 1,133,661 888,868 818,769 Allowance for loan losses (13,460) (9,956) (9,537) ----------- ----------- ----------- Loans, net 1,127,425 881,207 813,180 Mortgage servicing rights 4,625 3,598 3,783 Accrued interest receivable 5,772 4,653 4,725 Federal Home Loan Bank stock and other interest-bearing assets 17,083 13,376 13,095 Bank Owned Life Insurance 18,939 18,581 18,337 Office properties and equipment 31,690 24,248 23,890 Real estate and other assets held for sale 487 98 206 Goodwill and other intangibles 39,704 18,933 19,310 Other assets 2,983 2,194 2,650 ----------- ----------- ----------- Total Assets $ 1,399,626 $ 1,126,667 $ 1,073,166 =========== =========== =========== Liabilities and Stockholders' Equity Non-interest-bearing deposits $ 87,172 $ 62,450 $ 56,659 Interest-bearing deposits 959,309 735,251 696,731 ----------- ----------- ----------- Total deposits 1,046,481 797,701 753,390 Advances from Federal Home Loan Bank 173,716 178,213 176,623 Notes payable and other interest-bearing liabilities 20,875 14,804 9,360 Advance payments by borrowers for tax and insurance 291 278 83 Deferred taxes 1,538 934 950 Other liabilities 9,175 7,863 8,308 ----------- ----------- ----------- Total liabilities 1,252,076 999,793 948,714 Stockholders' Equity Preferred stock - - - Common stock 70 63 63 Additional paid-in-capital 72,246 52,131 51,760 Stock acquired by ESOP (1,159) (1,479) (1,585) Deferred compensation (3) (4) (7) Accumulated other comprehensive income 1,010 2,131 1,865 Retained earnings 75,386 74,032 72,356 ----------- ----------- ----------- Total stockholders' equity 147,550 126,874 124,452 ----------- ----------- ----------- Total liabilities and stockholders' equity $ 1,399,626 $ 1,126,667 $ 1,073,166 =========== =========== ===========
7
----------------------------------------------------------------------------------------------------- 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) 2005 2004 2005 2004 ----------------------------------------------------------------------------------------------------- Interest Income: Loans $ 17,045 $ 11,279 $ 31,808 $ 22,207 Investment securities 1,286 1,727 2,724 3,592 Interest-bearing deposits 134 4 205 36 -------- -------- -------- -------- Total interest income 18,465 13,010 34,737 25,835 Interest Expense: Deposits 4,911 3,071 8,856 6,069 FHLB advances and other 1,791 1,790 3,591 3,575 Notes Payable 114 20 195 43 -------- -------- -------- -------- Total interest expense 6,816 4,881 12,642 9,687 -------- -------- -------- -------- Net interest income 11,649 8,129 22,095 16,148 Provision for loan losses 349 490 696 868 -------- -------- -------- -------- Net interest income after provision for loan losses 11,300 7,639 21,399 15,280 Non-interest Income: Service fees and other charges 1,755 1,373 3,188 2,578 Dividends on stock and other interest income 204 153 369 330 Gain on sale of loans 588 804 1,098 1,393 Gain on sale of securities 515 293 1,136 392 Insurance and investment sales commissions 1,050 1,223 2,263 2,286 Trust income 61 50 139 98 Income from Bank Owned Life Insurance 180 192 357 385 Other non-interest income 56 43 231 92 -------- -------- -------- -------- Total Non-interest Income 4,409 4,131 8,781 7,554 Non-interest Expense: Compensation and benefits 6,006 4,473 11,518 8,788 Occupancy 1,198 842 2,227 1,682 SAIF deposit insurance premiums (credit) 37 28 68 (14) State franchise tax 290 157 574 312 Acquisition related charges 2,476 - 3,360 - Data processing 778 579 1,591 1,122 Amortization of mortgage servicing rights 230 233 396 406 Impairment (recovery) of mortgage servicing rights 95 (524) (126) (287) Amortization of intangibles 214 27 328 55 Other non-interest expense 1,519 1,319 3,098 2,536 -------- -------- -------- -------- Total Non-interest Expense 12,843 7,134 23,034 14,600 -------- -------- -------- -------- Income before income taxes 2,866 4,636 7,146 8,234 Income taxes 838 1,492 2,247 2,597 -------- -------- -------- -------- Net income $ 2,028 $ 3,144 $ 4,899 $ 5,637 ======== ======== ======== ======== Earnings per share: Basic $ 0.29 $ 0.51 $ 0.72 $ 0.92 Diluted $ 0.28 $ 0.49 $ 0.70 $ 0.88 Core operating earnings per share*: Basic $ 0.53 $ 0.51 $ 1.05 $ 0.92 Diluted $ 0.51 $ 0.49 $ 1.01 $ 0.88 Average Shares Outstanding: Basic 6,887 6,125 6,771 6,115 Diluted 7,134 6,385 7,031 6,402
* - See Non-GAAP Disclosure Reconciliations 8
---------------------------------------------------------------------------------------------------------------------------------- Financial Summary and Comparison First Defiance Financial Corp. Three months ended Six months ended June 30, June 30, -------- -------- (dollars in thousands, except per share data) 2005 2004 % change 2005 2004 % change ---------------------------------------------------------------------------------------------------------------------------------- Summary of Operations Tax-equivalent interest income (1) 18,626 13,202 41.1 35,068 26,213 33.8 Interest expense 6,816 4,881 39.6 12,642 9,687 30.5 Tax-equivalent net interest income (1) 11,810 8,321 41.9 22,426 16,526 35.7 Provision for loan losses 349 490 (28.8) 696 868 (19.8) Tax-equivalent NII after provision for loan loss (1) 11,461 7,831 46.4 21,730 15,658 38.8 Securities gains 515 293 75.8 1,136 392 189.8 Non-interest income-excluding securities gains 3,894 3,838 1.5 7,645 7,162 6.7 Non-interest expense 12,843 7,134 80.0 23,034 14,600 57.8 One time acquisition related charges 2,476 - NM 3,360 - NM Income taxes 838 1,492 (43.8) 2,247 2,597 (13.5) Net Income 2,028 3,144 (35.5) 4,899 5,637 (13.1) Core operating earnings (2) 3,637 2,493 45.9 7,083 5,637 25.7 Tax equivalent adjustment (1) 161 192 (16.1) 331 378 (12.4) ---------------------------------------------------------------------------------------------------------------------------------- At Period End Assets 1,399,626 1,073,166 30.4 Earning assets 1,264,326 980,851 28.9 Loans 1,140,885 822,717 38.7 Allowance for loan losses 13,460 9,537 41.1 Deposits 1,046,481 753,390 38.9 Stockholders' equity 147,550 124,452 18.6 ---------------------------------------------------------------------------------------------------------------------------------- Average Balances Assets 1,382,129 1,050,462 31.6 1,308,905 1,043,517 25.4 Earning assets 1,246,479 957,173 30.2 1,195,013 949,258 25.9 Deposits and interest-bearing liabilities 1,224,350 917,422 33.5 1,160,497 908,853 27.7 Loans 1,091,178 786,575 38.7 1,036,652 768,211 34.9 Deposits 1,048,961 742,088 41.4 985,078 734,195 34.2 Stockholders' equity 147,200 125,909 16.9 140,269 125,890 11.4 Stockholders' equity / assets 10.65% 11.99% (11.1) 10.72% 12.06% (11.2) ---------------------------------------------------------------------------------------------------------------------------------- Per Common Share Data Net Income Basic $ 0.29 $ 0.51 (43.1) $ 0.72 $ 0.92 (21.7) Diluted 0.28 0.49 (42.9) 0.70 0.88 (20.5) Core operating earnings (2) Basic $ 0.53 $ 0.51 2.9 $ 1.05 $ 0.92 13.5 Diluted $ 0.51 $ 0.49 3.5 1.01 0.88 14.4 Dividends 0.22 0.20 10.0 0.44 0.40 10.0 Market Value: High $ 30.46 $ 28.88 5.5 $ 30.46 $ 29.00 5.0 Low 25.29 22.07 14.6 25.29 22.07 14.6 Close 26.69 22.10 20.8 26.69 22.10 20.8 Book Value 20.91 19.70 6.1 20.00 19.70 1.5 Tangible Book Value 15.28 16.64 (8.2) 20.91 16.64 25.7 Shares outstanding, end of period (000) 7,056 6,318 11.7 7,056 6,318 11.7 ---------------------------------------------------------------------------------------------------------------------------------- Performance Ratios (annualized) Tax-equivalent net interest margin (1) 3.87% 3.56% 8.6 3.85% 3.57% 7.7 Return on average assets --GAAP 0.59% 1.20% (51.0) 0.75% 1.08% (30.7) Return on average assets -- Core Operating 1.05% 0.95% 10.9 1.08% 1.08% 0.2 Return on average equity -- GAAP 5.51% 9.99% (44.8) 6.99% 8.96% (22.0) Return on average equity -- Core Operating 9.88% 7.92% 24.8 10.10% 8.96% 12.8 Efficiency ratio (3) -- GAAP 81.78% 58.67% 39.4 76.60% 61.63% 24.3 Efficiency ratio (3) -- Core Operating 66.02% 58.67% 12.5 65.43% 61.63% 6.2 Effective tax rate 29.24% 32.18% (9.1) 31.44% 31.54% (0.3) Dividend payout ratio (basic) 75.86% 39.22% 93.4 61.11% 43.48% 40.5 ----------------------------------------------------------------------------------------------------------------------------------
(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, net and asset sales gains, net. NM Percentage change not meaningful 9
------------------------------------------------------------------------------------------------------------ Non-GAAP Disclosure Reconciliations First Defiance Financial Corp. Core operating earnings are net income adjusted to exclude discontinued operations, merger, integration and restructuring expenses and the results of certain significant transactions not representative of ongoing operations. Three months ended Six months ended June 30, June 30, -------- -------- (dollars in thousands, except per share data) 2005 2004 2005 2004 ------------------------------------------------------------------------------------------------------------ Core Operating Earnings Net Income $ 2,028 $ 3,144 $ 4,899 $ 5,637 One-time acquisition related charges 2,476 - 3,360 - Tax effect (867) - (1,176) - ------- ------- ------- ------- After-tax non-operating items 1,609 - 2,184 - ------- ------- ------- ------- Core operating earnings $ 3,637 $ 3,144 $ 7,083 $ 5,637 ======= ======= ======= =======
One-time acquisition related charges in 2005 reflect charges associated with the acquisition of ComBanc, Inc. and Genoa Savings and Loan Company. Core Operating earnings is used as the numerator to calculate core operating return on average assets, core operating return on average equity and core operating earnings per share. Additionally, non-operating items are deducted from non-interest expense in the numerator and non-interest income in the denominator of the core operating efficiency ratio disclosed in the tables. Comparable information on a GAAP basis is also provided in the tables. 10
Yield Analysis First Defiance Financial Corp. Three Months Ended June 30 --------------------------------------------------------------------- 2005 2004 --------------------------------- --------------------------------- Average Yield Average Yield Balance Interest(1) Rate(2) Balance Interest(1) Rate(2) Interest-earning assets: Loans receivable $1,091,178 $ 17,053 6.27% $ 786,575 $ 11,283 5.77% Securities 121,792 1,439 4.74% 154,995 1,915 4.97% Interest Bearing Deposits 17,314 134 3.10% 347 4 4.64% FHLB stock and other 16,195 204 5.05% 15,256 153 4.03% ---------- ---------- ---------- ---------- Total interest-earning assets 1,246,479 18,830 6.06% 957,173 13,355 5.61% Non-interest-earning assets 135,650 93,289 ---------- ---------- Total assets $1,382,129 $1,050,462 ========== ========== Deposits and Interest-bearing liabilities: Interest bearing deposits $ 957,094 $ 4,911 2.06% $ 687,293 $ 3,071 1.80% FHLB advances and other 156,528 1,791 4.59% 165,668 1,790 4.35% Other Borrowings 18,861 114 2.42% 9,666 20 0.83% ---------- ---------- ---------- ---------- Total interest-bearing liabilities 1,132,483 6,816 2.41% 862,627 4,881 2.28% Non-interest bearing deposits 91,867 - - 54,795 - - ---------- ---------- ---------- ---------- Total including non-interest-bearing demand deposits 1,224,350 6,816 2.23% 917,422 4,881 2.14% Other non-interest-bearing liabilities 10,579 7,131 ---------- ---------- Total liabilities 1,234,929 924,553 Stockholders' equity 147,200 125,909 ---------- ---------- Total liabilities and stockholders' equity $1,382,129 $1,050,462 ========== ---------- ========== ---------- Net interest income; interest rate spread $ 12,014 3.65% $ 8,474 3.33% ========== ====== ========== ====== Net interest margin (3) 3.87% 3.56% ====== ====== Average interest-earning assets to average interest bearing liabilities 110% 111% ====== ======
Six Months Ended June 30 ---------------------------------------------------------------------- 2005 2004 --------------------------------- --------------------------------- Average Yield Average Yield Balance Interest(1) Rate(2) Balance Interest(1) Rate(2) Interest-earning assets: Loans receivable $1,036,652 $ 31,819 6.19% $ 768,211 $ 22,215 5.82% Securities 129,221 3,044 4.75% 160,117 3,962 4.98% Interest Bearing Deposits 13,627 205 3.03% 4,418 36 1.64% FHLB stock and other 15,513 369 4.80% 16,512 330 4.02% ---------- ---------- ---------- ---------- Total interest-earning assets 1,195,013 35,437 5.98% 949,258 26,543 5.62% Non-interest-earning assets 113,892 94,259 ---------- ---------- Total assets $1,308,905 $1,043,517 ========== ========== Deposits and Interest-bearing liabilities: Interest bearing deposits $ 901,961 $ 8,856 1.98% $ 680,243 $ 6,069 1.79% FHLB advances and other 158,671 3,591 4.56% 164,455 3,575 4.37% Other Borrowings 16,748 195 2.35% 10,203 43 0.85% ---------- ---------- ---------- ---------- Total interest-bearing liabilities 1,077,380 12,642 2.37% 854,901 9,687 2.28% Non-interest bearing deposits 83,117 - - 53,952 - - ---------- ---------- ---------- ---------- Total including non-interest-bearing demand deposits 1,160,497 12,642 2.20% 908,853 9,687 2.14% Other non-interest-bearing liabilities 8,139 8,774 ---------- ----------- Total liabilities 1,168,636 917,627 Stockholders' equity 140,269 125,890 ---------- ---------- Total liabilities and stockholders' equity $1,308,905 $1,043,517 ========== ---------- ========== ---------- Net interest income; interest rate spread $ 22,795 3.61% $ 16,856 3.34% ========== ====== ========== ====== Net interest margin (3) 3.85% 3.57% ====== ====== Average interest-earning assets to average interest bearing liabilities 111% 111% ====== ======
(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. 11
---------------------------------------------------------------------------------------------------------------------------- Selected Quarterly Information First Defiance Financial Corp. (dollars in thousands, except per share data) 2nd Qtr 2005 1st Qtr 2005 4th Qtr 2004 3rd Qtr 2004 2nd Qtr 2004 ---------------------------------------------------------------------------------------------------------------------------- Summary of Operations Tax-equivalent interest income (1) $ 18,626 $ 16,442 $ 14,639 $ 14,049 $ 13,202 Interest expense 6,816 5,826 5,435 5,258 4,881 Tax-equivalent net interest income (1) 11,810 10,616 9,204 8,791 8,321 Provision for loan losses 349 347 304 376 490 Tax-equivalent NII after provision for loan losses (1) 11,461 10,269 8,900 8,415 7,831 Investment securities gains 515 621 732 302 293 Non-interest income (excluding securities gains/losses) 3,894 3,751 3,478 3,248 3,838 Non-interest expense 12,843 10,191 7,837 9,469 7,134 Acquisition and other one-time charges 2,476 884 1,927 Income taxes 838 1,409 1,599 606 1,492 Net income 2,028 2,871 3,479 1,680 3,144 Core operating earnings (2) 3,553 3,446 3,479 2,933 3,144 Tax equivalent adjustment (1) 161 170 195 210 192 ---------------------------------------------------------------------------------------------------------------------------- At Period End Total assets $1,399,626 $1,283,911 $1,126,667 $1,102,370 $1,073,166 Earning assets 1,264,326 1,163,699 1,034,471 1,009,302 980,851 Loans 1,140,885 1,027,418 891,163 861,070 822,717 Allowance for loan losses 13,460 12,749 9,956 9,712 9,537 Deposits 1,046,481 950,586 797,701 779,256 753,390 Stockholders' equity 147,550 146,136 126,874 125,423 124,452 Stockholders' equity / assets 10.54% 11.38% 11.26% 11.38% 11.60% Goodwill 39,704 33,408 18,933 18,961 19,310 ---------------------------------------------------------------------------------------------------------------------------- Average Balances (3) Total assets $1,382,129 $1,235,682 $1,108,979 $1,087,205 $1,050,462 Earning assets 1,246,479 1,143,549 1,014,424 993,406 957,173 Deposits and interest-bearing liabilities 1,224,350 1,096,645 972,498 951,392 917,422 Loans 1,091,178 982,125 858,971 832,116 786,575 Deposits 1,048,961 921,196 784,466 768,455 742,088 Stockholders' equity 147,200 134,005 126,101 125,800 125,909 Stockholders' equity / assets 10.65% 10.84% 11.37% 11.57% 11.99% ---------------------------------------------------------------------------------------------------------------------------- Per Common Share Data Net Income: Basic $ 0.29 $ 0.43 $ 0.57 $ 0.28 $ 0.51 Diluted 0.28 0.41 0.55 0.26 0.49 Core operating earnings (2) Basic $ 0.53 $ 0.52 $ 0.57 $ 0.48 $ 0.51 Diluted 0.51 0.50 0.55 0.46 0.49 Dividends 0.22 0.22 0.22 0.20 0.20 Market Value: High $ 30.46 $ 29.90 $ 28.90 $ 26.73 $ 28.88 Low 25.29 26.00 25.20 22.01 22.07 Close 26.69 26.00 28.85 26.01 22.10 Book Value 20.91 21.11 20.20 19.94 19.70 Shares outstanding, end of period (in thousands) 7,056 7,020 6,280 6,286 6,318 ---------------------------------------------------------------------------------------------------------------------------- Performance Ratios (annualized) Tax-equivalent net interest margin (1) 3.87% 3.82% 3.67% 3.58% 3.52% Return on average assets -- GAAP (4) 0.59% 0.93% 1.25% 0.62% 1.20% Return on average assets -- Core operating 1.03% 1.12% 1.25% 1.08% 1.20% Return on average equity -- GAAP 5.51% 8.57% 11.04% 5.34% 9.99% Return on average equity -- Core operating 9.65% 10.29% 11.04% 9.32% 9.99% Efficiency ratio (5) -- GAAP 81.78% 70.93% 61.80% 78.65% 58.67% Efficiency ratio -- Core operating 66.02% 64.78% 61.80% 62.65% 58.67% Effective tax rate 29.24% 32.92% 31.49% 26.51% 32.18% Dividend payout ratio (basic) 75.86% 51.00% 38.60% 71.43% 39.22% ----------------------------------------------------------------------------------------------------------------------------
(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) Average balances do not reflect borrowings to fund discontinued operations (4) Income from continuing operations divided by assets, excluding assets of discontinued operations (5) 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 and asset. 12
------------------------------------------------------------------------------------------------------------------------------------ Selected Quarterly Information First Defiance Financial Corp. (dollars in thousands, except per share data) 2nd Qtr 2005 1st Qtr 2005 4th Qtr 2004 3rd Qtr 2004 2nd Qtr 2004 ------------------------------------------------------------------------------------------------------------------------------------ Loan Portfolio Composition One to four family residential real estate $ 291,036 $ 229,887 $ 190,070 $ 186,688 $ 181,685 Construction 24,000 14,861 15,507 16,816 15,472 Commercial real estate 496,599 482,326 415,164 392,610 371,360 Commercial 172,351 160,749 141,643 141,264 140,178 Consumer finance 57,223 51,753 45,513 45,267 42,741 Home equity and improvement 111,291 95,200 90,839 87,755 80,312 ----------- ----------- ----------- ----------- ----------- Total loans 1,152,500 1,034,776 898,736 870,400 831,748 Less: Loans in process 10,372 6,170 6,340 8,155 7,925 Deferred loan origination fees 1,243 1,188 1,233 1,175 1,106 Allowance for loan loss 13,460 12,749 9,956 9,712 9,537 ----------- ----------- ----------- ----------- ----------- Net Loans $ 1,127,425 $ 1,014,669 $ 881,207 $ 851,358 $ 813,180 =========== =========== =========== =========== =========== ------------------------------------------------------------------------------------------------------------------------------------ Allowance for loan loss activity Beginning allowance $ 12,749 $ 9,956 $ 9,712 $ 9,537 $ 9,167 Provision for loan losses 349 349 304 376 490 Reserve from acquisitions 865 2,538 - - - Reclassification between allowance for loan loss and purchase loan discount on prior quarter acquisition (376) Credit loss charge-offs: One to four family residential real estate - - - - - Commercial real estate - 67 24 25 9 Commercial 104 45 107 144 125 Consumer finance 100 59 37 78 33 Home equity and improvement - - - - - ----------- ----------- ----------- ----------- ----------- Total charge-offs 204 171 168 247 167 Total recoveries 77 77 108 46 47 ----------- ----------- ----------- ----------- ----------- Net charge-offs (recoveries) 127 94 60 201 120 ----------- ----------- ----------- ----------- ----------- Ending allowance $ 13,460 $ 12,749 $ 9,956 $ 9,712 $ 9,537 =========== =========== =========== =========== =========== ------------------------------------------------------------------------------------------------------------------------------------ Credit Quality Non-accrual loans $ 4,745 $ 3,142 $ 1,893 $ 1,945 $ 2,863 Loans over 90 days past due and still accruing - - - - - ----------- ----------- ----------- ----------- ----------- Total non-performing loans (1) 4,745 3,142 1,893 1,945 2,863 Real estate owned (REO) 431 488 98 61 193 ----------- ----------- ----------- ----------- ----------- Total non-performing assets (1) $ 5,176 $ 3,630 $ 1,991 $ 2,006 $ 3,056 =========== =========== =========== =========== =========== Net charge-offs 127 94 60 201 120 Allowance for loan losses / loans 1.18% 1.24% 1.12% 1.13% 1.16% Allowance for loan losses / non-performing assets 260.05% 351.21% 500.05% 484.15% 312.07% Allowance for loan losses / non-performing loans 283.67% 405.76% 525.94% 499.33% 333.11% Non-performing assets / loans plus REO 0.45% 0.35% 0.22% 0.23% 0.37% Non-performing assets / total assets 0.37% 0.28% 0.18% 0.18% 0.28% Net charge-offs / average loans (annualized) 0.05% 0.04% 0.03% 0.10% 0.06% ------------------------------------------------------------------------------------------------------------------------------------ Deposit Balances Non-interest-bearing demand deposits $ 87,172 $ 76,644 $ 62,450 $ 55,321 $ 56,659 Interest-bearing demand deposits and money market 271,118 270,142 258,797 239,524 225,842 Savings deposits 94,391 85,581 52,132 53,143 53,965 Time deposits less than $100,000 426,204 389,844 289,878 285,939 303,909 Time deposits greater than $100,000 167,596 128,375 134,444 145,329 113,015 ----------- ----------- ----------- ----------- ----------- Total deposits $ 1,046,481 $ 950,586 $ 797,701 $ 779,256 $ 753,390 =========== =========== =========== =========== =========== ------------------------------------------------------------------------------------------------------------------------------------
(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. 13