 | Exhibit 99.1 NEWS RELEASE | |
| Contact: | William J. Small | |
| Chairman, President and CEO | ||
| (419) 782-5015 | ||
| bsmall@first-fed.com | ||
For Immediate Release
FIRST DEFIANCE ANNOUNCES 2007
FOURTH QUARTER AND ANNUAL EARNINGS
DEFIANCE, OHIO (January 21, 2008) – First Defiance Financial Corp. (NASDAQ: FDEF) today announced that net income for the fiscal year ended December 31, 2007 totaled $13.9 million, or $1.94 per diluted share compared to $15.6 million or $2.18 per diluted share for the year ended December 31, 2006. For the fourth quarter ended December 31, 2007, First Defiance earned $3.6 million or $0.50 per diluted share compared to $4.0 million, or $0.55 per diluted share for the fourth quarter of 2006.
“We’re encouraged by the fourth quarter results,” said William J. Small, First Defiance’s Chairman, President and Chief Executive Officer. “We saw improvement in our reported earnings compared with this year’s third quarter, where we earned $0.44 per share; our margin, while nine basis points lower than last year’s fourth quarter, was up five basis points from last quarter in a falling rate environment; our commercial loan balances and non-interest-bearing deposit accounts both had large balance increases over the third quarter; and our loan charge-offs were at their lowest level for a quarterly period since the second quarter of 2005. Further, these results were achieved in a quarter where we wrote down other real estate owned (OREO) properties by $598,000 and where we recognized $364,000 of expense to repair damages to our Ottawa and Findlay offices caused by the severe flooding in August of 2007.”
Net Charge-Offs Low, Asset Quality Ratios Stable
“Given the current operating environment, we have been very cautious in determining the appropriate levels for the allowance for loan losses and in analyzing asset values,” said Mr. Small. “Our non-accrual loans increased at year-end, to $9.2 million from $8.5 million at the end of September, the result of one large mortgage loan going 90-days delinquent. The allowance against that loan, which we recorded in 2006, will be adequate to cover any shortfall that occurs when that loan is resolved. We also recorded $598,000 of expense in the 2007 fourth quarter to write down property in OREO to reflect the general weakness in the real estate market. Our OREO balance at December 31, 2007 was $2.5 million. One property, which we are actively marketing, comprises more than half of that balance.”
Loan charge-offs recorded in the 2007 fourth quarter totaled $247,000 and First Defiance realized recoveries of $107,000 for net charge-offs of $140,000. As an annualized percentage of average loans, net charge-offs were just 0.04%. By comparison, in the fourth quarter of 2006, First Defiance charged off $1.1 million of loans and had recoveries of just $93,000, a net of $1.0 million or 0.34% of average loans. First Defiance’s allowance for loan losses at December 31,
1
Exhibit 99.1
2007 was $13.89 million, which is 1.08% of loans and 150.7% of non-performing loans. First Defiance’s provision for loan losses for the 2007 fourth quarter was $603,000 compared to $318,000 in the 2006 fourth quarter and $671,000 in the 2007 third quarter.
“I’ve stated it before but it’s worth repeating that we have never been involved in making or investing in sub-prime mortgage loans,” said Mr. Small. “Like all community banks, we have some exposure to falling property values, especially in our residential mortgage and home equity portfolios, but we are not aware of any specific weakness at this time that will result in higher than normal charge-offs.”
Net Interest Income Increased
Net interest income for the 2007 fourth quarter was $12.5 million, a 2.3% increase from the 2006 fourth quarter, when the Company reported net interest income of $12.2 million. The net interest margin declined between the 2006 and 2007 fourth quarters from 3.61% to 3.52% however average loan volumes increased by $39.7 million between the two periods, resulting in the overall increase in net interest income. The 2007 fourth quarter margin was a five basis point improvement from the 3.47% margin reported for the 2007 third quarter. On a tax equivalent basis, net interest income in the 2007 fourth quarter increased by 4.1% from the 2007 third quarter.
“Our average non-interest bearing deposits for the 2007 fourth quarter increased by 14.4% from last year’s fourth quarter and were up by more than 10% from the 2007 third quarter,” said Mr. Small. “Results like that are critical to our success and demonstrate that strategically we are on the right track. Also, during the just-completed quarter our loan balances increased by $24.6 million as commercial real estate loans grew from $592.9 million at September 30, 2007 to $601.9 million at December 31 and commercial loans grew from $267.9 million to $283.1 million during that same period.”
Non-Interest Income Up 7% for Fourth Quarter
Total non-interest income increased to $5.3 million in the 2007 fourth quarter, from $4.9 million for the 2006 fourth quarter. The increase was primarily in insurance commissions, the result of the acquisition in the first quarter of 2007 of an insurance agency, and in income from bank-owned life insurance, which included a $157,000 death benefit in the 2007 fourth quarter.
Non-Interest Expenses Increased by 8.5% in 2007 Fourth Quarter
Non-interest expenses increased to $12.2 million in the 2007 fourth quarter, up from $11.2 million during the last three months of 2006. Compensation and benefits were essentially flat between the two periods at $5.9 million in the 2007 fourth quarter compared to $5.8 million in the same period of 2006. Occupancy expenses increased by $466,000 in the 2007 fourth quarter compared to 2006, however the 2007 amount included $364,000 of flood repairs. Other significant expense increases in the quarter include franchise tax expense (up $213,000), and expenses of writing down or maintaining OREO properties (up $598,000). These increases were partially offset by a $131,000 decline in printing and office forms expense, a $93,000 decline in audit and examination fees, an $85,000 reduction in postage and an $84,000 decline in charitable contributions.
2
Exhibit 99.1
Year-end adjustments based on a detailed analysis of tax accounts resulted in a drop in the effective tax rate to 29.3% for the 2007 fourth quarter. Through three quarters, First Defiance recorded income taxes at a rate of 32.6%. The positive impact of these favorable adjustments for the quarter was approximately $123,000. Overall for 2007 the effective tax rate was 31.8%.
Annual Results
On an annual basis, earnings for 2007 were $13.9 million, a decrease of $1.7 million or 10.9% from 2006. Net interest income for 2007 totaled $48.7 million, a decline of $360,000 or 0.7% from 2006. For 2007, net interest margin, stated on a tax equivalent basis, declined to 3.55% from 3.68% for the year ended December 31, 2006. During that period the provision for loan losses increased to $2.3 million in 2007 from $1.8 million in 2006.
Non-interest income increased by $2.5 million, or 12.8%, to $22.1 million for the year ended December 31, 2007 from $19.6 million for 2006. Service fees, primarily associated with overdraft privilege fees and debit card revenue, increased by $1.5 million, insurance commissions increased by $747,000, and mortgage banking income increased by $223,000. Also, income from bank-owned life insurance increased by $396,000 due both to the fourth quarter death benefit and an increase in overall investment. Other non-interest income in 2006 also included a $400,000 gain from the sale of the credit card portfolio. There were no items of that nature in the 2007 results.
Non-interest expense totaled $48.1 million for 2007 and $43.8 million for 2006, an increase of $4.3 million, or 9.7%. Compensation and benefits increased by $1.4 million between 2006 and 2007, an increase of 6.0%, while occupancy costs were up by $997,000. Total flood-related costs in occupancy in 2007 were $497,000, which included clean-up expenses, and the cost to repair or replace computer equipment, heating and air conditioning units, drywall, window coverings and carpeting. In addition to occupancy costs, $87,000 of other costs associated with the flooding were recorded in 2007. Other significant cost increases include advertising expense, which was up $399,000, management consulting fees which increased by $113,000, fraud losses which increased by $175,000 and fees for the overdraft privilege product, which increased by $120,000 in 2007.
Assets End Year at $1.61 Billion
Total assets at December 31, 2007 totaled $1.61 billion compared with $1.53 billion at December 31, 2006. At December 31, 2007, net loans totaled $1.28 billion, deposits totaled $1.22 billion and stockholders equity was $166.0 million. At December 31, 2006, net loans, deposits and equity were $1.23 billion, $1.14 billion and $159.8 million, respectively. Goodwill and other intangible assets were $40.4 million at December 31, 2007 compared to $38.5 million at December 31, 2006.
First Defiance Gears for Acquisition
On October 2, 2007, First Defiance entered into an agreement to acquire Pavilion Bancorp and its subsidiary, the Bank of Lenawee ($279 million in assets), located in Adrian, Michigan. The Pavilion transaction, which is scheduled to close late in the 2008 first quarter subject to customary regulatory and shareholder approval, will add approximately $230 million in loans and $200-$210 million in deposits.
3
Exhibit 99.1
“Factoring in our expected cost savings, which we believe will approximate $3.0 to $3.5 million annually, this acquisition will be accretive to our earnings in 2008,” commented Mr. Small. “That is without any assumptions regarding revenue enhancements and excludes the one-time impact of acquisition related charges, which will be in the range of $3.5 to $3.8 million on a pre-tax basis. We’re optimistic about this opportunity. Staffs from both First Defiance and Pavilion have been working very hard to prepare for a smooth transition of the Bank of Lenawee customers to First Federal Bank and we anticipate an efficient integration.”
“The Michigan economy continues to struggle,” continued Mr. Small. “For much of that state including the markets we are acquiring, there are concerns about loan collateral values, especially with residential real estate loans. We are monitoring market conditions and working with Pavilion’s management to identify and address weaknesses in the Bank of Lenawee portfolio. Long-term we are very excited about the opportunity to expand our franchise. This acquisition adds the type of communities that have been very responsive to our ‘Customer First’ style of banking. In addition, Bank of Lenawee has a solid reputation and a base of commercial and retail customers that is similar to our existing franchise. We will continue with a local decision-making strategy that the market is accustomed to and that has served us well in our other markets.”
Looking Ahead
“We expect to continue to grow in 2008,” stated Mr. Small. “Our budget reflects period-end net loans, including the Bank of Lenawee, of $1.65 billion. Most of our growth will be in commercial and commercial real estate loans, which we are budgeting to grow by more than $120 million. We have budgeted year-end deposits to total $1.56 billion, with $170 million of those being non-interest bearing. Our margin for the year is budgeted to be in the 3.6% range in the first quarter, increasing to near 3.9% by year-end. Part of that increase reflects the improved mix of deposits we’ll have following the acquisition. While a lower Fed Funds rate will probably negatively impact that margin, we have thus far been able to offset loan rate decreases with reductions to our deposit costs.”
“Excluding the Bank of Lenawee, our non-interest income is expected to grow by 5%,” continued Mr. Small. “On the expense side, our compensation and benefits will increase by 15% over 2007 levels, excluding compensation costs associated with the Bank of Lenawee, primarily because of staffing increases in centralized operation and support areas needed to handle the higher volume of transactions. These costs were modeled as part of the acquisition’s net cost savings. Budgeted compensation costs related to Bank of Lenawee reflect offsetting staffing reductions. Overall wages will increase by approximately 4% and we budgeted a 10% increase in group medical costs.”
“We believe that 2008 will be a challenging year for most community banks,” said Mr. Small. “Asset quality issues will be everyone’s focus and with declining rates, net interest margin will continue to be a challenge. Overall, I believe the environment will offer significant opportunities to companies that stay disciplined in both loan underwriting and in loan and deposit pricing. We plan to be a company that takes advantage of these opportunities.”
4
Exhibit 99.1
Conference Call
First Defiance Financial Corp. will host a conference call at 11:00 a.m. (EDT) on Tuesday, January 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 URL: http://www.talkpoint.com/viewer/starthere.asp?pres=120042 .
The audio replay of the Internet Web cast will be available at www.fdef.com until February 1, 2008.
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 & Investments. First Federal operates 27 full service branches and 36 ATM locations in northwest Ohio and Fort Wayne, Indiana. First Insurance & Investments, with offices in Defiance and Bowling Green, 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
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 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 grow fee income, the ability to sustain credit quality ratios at current or improved levels, 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, 2006. 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.
5
Consolidated Balance Sheets | ||||||||
First Defiance Financial Corp. | ||||||||
| December 31, | December 31, | |||||||
| (in thousands) | 2007 | 2006 | ||||||
| Assets | ||||||||
| Cash and cash equivalents | ||||||||
| Cash and amounts due from depository institutions | $ | 53,976 | $ | 47,668 | ||||
| Interest-bearing deposits | 11,577 | 2,355 | ||||||
| 65,553 | 50,023 | |||||||
| Securities | ||||||||
| Available-for sale, carried at fair value | 112,370 | 110,682 | ||||||
| Held-to-maturity, carried at amortized cost | 1,117 | 1,441 | ||||||
| 113,487 | 112,123 | |||||||
| Loans | 1,289,696 | 1,239,889 | ||||||
| Allowance for loan losses | (13,890 | ) | (13,579 | ) | ||||
| Loans, net | 1,275,806 | 1,226,310 | ||||||
| Loans held for sale | 5,751 | 3,426 | ||||||
| Mortgage servicing rights | 5,973 | 5,529 | ||||||
| Accrued interest receivable | 6,755 | 6,984 | ||||||
| Federal Home Loan Bank stock and other interest-bearing assets | 18,586 | 18,586 | ||||||
| Bank Owned Life Insurance | 28,423 | 25,326 | ||||||
| Office properties and equipment | 40,545 | 34,899 | ||||||
| Real estate and other assets held for sale | 2,460 | 2,392 | ||||||
| Goodwill | 36,820 | 35,090 | ||||||
| Core deposit and other intangibles | 3,551 | 3,397 | ||||||
| Other assets | 5,694 | 3,794 | ||||||
| Total Assets | $ | 1,609,404 | $ | 1,527,879 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Non-interest-bearing deposits | $ | 121,563 | $ | 106,328 | ||||
| Interest-bearing deposits | 1,096,295 | 1,032,117 | ||||||
| Total deposits | 1,217,858 | 1,138,445 | ||||||
| Advances from Federal Home Loan Bank | 139,536 | 162,228 | ||||||
| Notes payable and other interest-bearing liabilities | 30,055 | 30,424 | ||||||
| Subordinated debentures | 36,083 | 20,619 | ||||||
| Advance payments by borrowers for tax and insurance | 762 | 667 | ||||||
| Deferred taxes | 1,462 | 1,295 | ||||||
| Other liabilities | 17,694 | 14,376 | ||||||
| Total liabilities | 1,443,450 | 1,368,054 | ||||||
| Stockholders’ Equity | ||||||||
| Preferred stock | - | - | ||||||
| Common stock, net | 117 | 117 | ||||||
| Additional paid-in-capital | 112,651 | 110,285 | ||||||
| Stock acquired by ESOP | (202 | ) | (628 | ) | ||||
| Accumulated other comprehensive income | (415 | ) | (671 | ) | ||||
| Retained earnings | 126,630 | 120,112 | ||||||
| Treasury stock, at cost | (72,827 | ) | (69,390 | ) | ||||
| Total stockholders’ equity | 165,954 | 159,825 | ||||||
| Total liabilities and stockholders’ equity | $ | 1,609,404 | $ | 1,527,879 | ||||
6
| Consolidated Statements of Income (Unaudited) | ||||||||||||||||
| First Defiance Financial Corp. | ||||||||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| (in thousands, except per share amounts) | 2007 | 2006 | 2007 | 2006 | ||||||||||||
| Interest Income: | ||||||||||||||||
| Loans | $ | 22,984 | $ | 22,608 | $ | 90,866 | $ | 86,213 | ||||||||
| Investment securities | 1,447 | 1,405 | 5,735 | 5,645 | ||||||||||||
| Interest-bearing deposits | 438 | 20 | 924 | 165 | ||||||||||||
| FHLB stock dividends | 328 | 277 | 1,226 | 1,042 | ||||||||||||
| Total interest income | 25,197 | 24,310 | 98,751 | 93,065 | ||||||||||||
| Interest Expense: | ||||||||||||||||
| Deposits | 10,227 | 9,438 | 40,356 | 33,273 | ||||||||||||
| FHLB advances and other | 1,636 | 2,107 | 6,889 | 8,885 | ||||||||||||
| Subordinated debentures | 596 | 346 | 2,115 | 1,308 | ||||||||||||
| Notes Payable | 210 | 174 | 729 | 577 | ||||||||||||
| Total interest expense | 12,669 | 12,065 | 50,089 | 44,043 | ||||||||||||
| Net interest income | 12,528 | 12,245 | 48,662 | 49,022 | ||||||||||||
| Provision for loan losses | 603 | 318 | 2,306 | 1,756 | ||||||||||||
| Net interest income after provision for loan losses | 11,925 | 11,927 | 46,356 | 47,266 | ||||||||||||
| Non-interest Income: | ||||||||||||||||
| Service fees and other charges | 2,790 | 2,645 | 10,788 | 9,303 | ||||||||||||
| Mortgage banking income | 833 | 845 | 3,612 | 3,389 | ||||||||||||
| Gain on sale of non-mortgage loans | 22 | 26 | 226 | 526 | ||||||||||||
| Gain on sale of securities | - | (2 | ) | 21 | (2 | ) | ||||||||||
| Insurance and investment sales commissions | 1,034 | 888 | 5,278 | 4,531 | ||||||||||||
| Trust income | 95 | 80 | 375 | 312 | ||||||||||||
| Income from Bank Owned Life Insurance | 446 | 249 | 1,375 | 979 | ||||||||||||
| Other non-interest income | 48 | 191 | 455 | 586 | ||||||||||||
| Total Non-interest Income | 5,268 | 4,922 | 22,130 | 19,624 | ||||||||||||
| Non-interest Expense: | ||||||||||||||||
| Compensation and benefits | 5,897 | 5,815 | 25,245 | 23,805 | ||||||||||||
| Occupancy | 1,776 | 1,310 | 6,100 | 5,103 | ||||||||||||
| State franchise tax | 506 | 293 | 1,579 | 1,288 | ||||||||||||
| Data processing | 986 | 929 | 3,824 | 3,689 | ||||||||||||
| Amortization of intangibles | 165 | 180 | 646 | 719 | ||||||||||||
| Other non-interest expense | 2,831 | 2,683 | 10,719 | 9,235 | ||||||||||||
| Total Non-interest Expense | 12,161 | 11,210 | 48,113 | 43,839 | ||||||||||||
| Income before income taxes | 5,032 | 5,639 | 20,373 | 23,051 | ||||||||||||
| Income taxes | 1,474 | 1,666 | 6,469 | 7,451 | ||||||||||||
| Net Income | $ | 3,558 | $ | 3,973 | $ | 13,904 | $ | 15,600 | ||||||||
| Earnings per share: | ||||||||||||||||
| Basic | $ | 0.51 | $ | 0.56 | $ | 1.96 | $ | 2.22 | ||||||||
| Diluted | $ | 0.50 | $ | 0.55 | $ | 1.94 | $ | 2.18 | ||||||||
| Average Shares Outstanding: | ||||||||||||||||
| Basic | 7,037 | 7,051 | 7,085 | 7,028 | ||||||||||||
| Diluted | 7,108 | 7,168 | 7,178 | 7,163 | ||||||||||||
7
| Financial Summary and Comparison | ||||||||||||||||||||||||
| First Defiance Financial Corp. | ||||||||||||||||||||||||
| Three Months Ended | Twelve months ended | |||||||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||||||
| (dollars in thousands, except per share data) | 2007 | 2006 | % change | 2007 | 2006 | % change | ||||||||||||||||||
| Summary of Operations | ||||||||||||||||||||||||
| Tax-equivalent interest income (1) | 25,383 | 24,484 | 3.7 | 99,477 | 93,661 | 6.2 | ||||||||||||||||||
| Interest expense | 12,669 | 12,065 | 5.0 | 50,089 | 44,043 | 13.7 | ||||||||||||||||||
| Tax-equivalent net interest income (1) | 12,714 | 12,419 | 2.4 | 49,388 | 49,618 | (0.5 | ) | |||||||||||||||||
| Provision for loan losses | 603 | 318 | 89.6 | 2,306 | 1,756 | 31.3 | ||||||||||||||||||
| Tax-equivalent NII after provision for loan loss (1) | 12,111 | 12,101 | 0.1 | 47,082 | 47,862 | (1.6 | ) | |||||||||||||||||
| Securities gains | - | (2 | ) | NM | 21 | (2 | ) | NM | ||||||||||||||||
| Non-interest income-excluding securities gains | 5,268 | 4,924 | 7.0 | 22,109 | 19,626 | 12.7 | ||||||||||||||||||
| Non-interest expense | 12,161 | 11,210 | 8.5 | 48,113 | 43,839 | 9.7 | ||||||||||||||||||
| Income taxes | 1,474 | 1,666 | (11.5 | ) | 6,469 | 7,451 | (13.2 | ) | ||||||||||||||||
| Net Income | 3,558 | 3,973 | (10.4 | ) | 13,904 | 15,600 | (10.9 | ) | ||||||||||||||||
| Tax equivalent adjustment (1) | 186 | 174 | 6.9 | 726 | 596 | 21.8 | ||||||||||||||||||
| At Period End | ||||||||||||||||||||||||
| Assets | 1,609,404 | 1,527,879 | 5.3 | |||||||||||||||||||||
| Earning assets | 1,439,097 | 1,376,379 | 4.6 | |||||||||||||||||||||
| Loans | 1,289,696 | 1,239,889 | 4.0 | |||||||||||||||||||||
| Allowance for loan losses | 13,890 | 13,579 | 2.3 | |||||||||||||||||||||
| Deposits | 1,217,858 | 1,138,445 | 7.0 | |||||||||||||||||||||
| Stockholders’ equity | 165,954 | 159,825 | 3.8 | |||||||||||||||||||||
| Average Balances | ||||||||||||||||||||||||
| Assets | 1,589,264 | 1,516,709 | 4.8 | 1,544,369 | 1,495,761 | 3.2 | ||||||||||||||||||
| Earning assets | 1,432,061 | 1,364,064 | 5.0 | 1,391,140 | 1,347,625 | 3.2 | ||||||||||||||||||
| Deposits and interest-bearing liabilities | 1,404,065 | 1,340,179 | 4.8 | 1,361,920 | 1,324,398 | 2.8 | ||||||||||||||||||
| Loans | 1,265,307 | 1,225,567 | 3.2 | 1,241,817 | 1,209,498 | 2.7 | ||||||||||||||||||
| Deposits | 1,212,486 | 1,125,641 | 7.7 | 1,169,160 | 1,101,512 | 6.1 | ||||||||||||||||||
| Stockholders’ equity | 165,762 | 159,314 | 4.0 | 164,058 | 155,548 | 5.5 | ||||||||||||||||||
| Stockholders’ equity / assets | 10.43 | % | 10.50 | % | (0.7 | ) | 10.62 | % | 10.40 | % | 2.2 | |||||||||||||
| Per Common Share Data | ||||||||||||||||||||||||
| Net Income | ||||||||||||||||||||||||
| Basic | $ | 0.51 | $ | 0.56 | (8.9 | ) | $ | 1.96 | $ | 2.22 | (11.7 | ) | ||||||||||||
| Diluted | 0.50 | 0.55 | (9.1 | ) | $ | 1.94 | 2.18 | (11.0 | ) | |||||||||||||||
| Dividends | 0.26 | 0.25 | 4.0 | 1.01 | 0.97 | 4.1 | ||||||||||||||||||
| Market Value: | ||||||||||||||||||||||||
| High | $ | 26.93 | $ | 30.70 | (12.3 | ) | $ | 30.25 | $ | 30.70 | (1.5 | ) | ||||||||||||
| Low | 20.58 | 26.87 | (23.4 | ) | 20.58 | 25.09 | (18.0 | ) | ||||||||||||||||
| Close | 22.02 | 30.25 | (27.2 | ) | 22.02 | 30.25 | (27.2 | ) | ||||||||||||||||
| Book Value | 23.51 | 22.38 | 5.0 | 23.51 | 22.38 | 5.0 | ||||||||||||||||||
| Tangible Book Value | 17.79 | 16.99 | 4.7 | 17.79 | 16.99 | 4.7 | ||||||||||||||||||
| Shares outstanding, end of period (000) | 7,059 | 7,142 | (1.2 | ) | 7,059 | 7,142 | (1.2 | ) | ||||||||||||||||
| Performance Ratios (annualized) | ||||||||||||||||||||||||
| Tax-equivalent net interest margin (1) | 3.52 | % | 3.61 | % | (2.4 | ) | 3.55 | % | 3.68 | % | (3.5 | ) | ||||||||||||
| Return on average assets | 0.89 | % | 1.04 | % | (14.6 | ) | 0.90 | % | 1.04 | % | (13.4 | ) | ||||||||||||
| Return on average equity | 8.52 | % | 9.89 | % | (13.9 | ) | 8.48 | % | 10.03 | % | (15.5 | ) | ||||||||||||
| Efficiency ratio (2) | 67.63 | % | 64.64 | % | 4.6 | 67.29 | % | 63.31 | % | 6.3 | ||||||||||||||
| Effective tax rate | 29.29 | % | 29.54 | % | (0.8 | ) | 31.75 | % | 32.32 | % | (1.8 | ) | ||||||||||||
| Dividend payout ratio (basic) | 50.98 | % | 44.64 | % | 14.2 | 51.53 | % | 43.69 | % | 17.9 | ||||||||||||||
| (1) Interest income on tax-exempt securities and loans has been adjusted to a tax-equivalent basis using the statutory federal income tax rate of 35% | |||||||
| (2) Efficiency ratio = Non-interest expense divided by sum of tax-equivalent net interest income plus non-interest income, excluding securities | |||||||
| gains, net and asset sales gains, net. | |||||||
| NM Percentage change not meaningful | |||||||
8
| Income from Mortgage Banking | ||||||||||||||||
| Revenue from sales and servicing of mortgage loans consisted of the following: | ||||||||||||||||
| Three months ended | Twelve months ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| (dollars in thousands) | 2007 | 2006 | 2007 | 2006 | ||||||||||||
| Gain from sale of mortgage loans | $ | 598 | $ | 688 | $ | 2,590 | $ | 2,423 | ||||||||
| Mortgage loan servicing revenue (expense): | ||||||||||||||||
| Mortgage loan servicing revenue | 440 | 405 | 1,706 | 1,576 | ||||||||||||
| Amortization of mortgage servicing rights | (167 | ) | (154 | ) | (648 | ) | (612 | ) | ||||||||
| Mortgage servicing rights valuation adjustments | (38 | ) | (16 | ) | (36 | ) | 2 | |||||||||
| 235 | 235 | 1,022 | 966 | |||||||||||||
| Total revenue from sale and servicing of mortgage loans | $ | 833 | $ | 923 | $ | 3,612 | $ | 3,389 | ||||||||
9
| Yield Analysis | ||||||||||||||||||||||||
| First Defiance Financial Corp. | ||||||||||||||||||||||||
| Three Months Ended December 31, | ||||||||||||||||||||||||
| 2007 | 2006 | |||||||||||||||||||||||
| Average | Yield | Average | Yield | |||||||||||||||||||||
| Balance | Interest(1) | Rate(2) | Balance | Interest(1) | Rate(2) | |||||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||
| Loans receivable | $ | 1,265,307 | $ | 22,997 | 7.21 | % | $ | 1,225,567 | $ | 22,618 | 7.32 | % | ||||||||||||
| Securities | 112,910 | 1,620 | 5.68 | % | 118,227 | 1,569 | 5.27 | % | ||||||||||||||||
| Interest Bearing Deposits | 35,259 | 438 | 4.93 | % | 1,956 | 20 | 4.06 | % | ||||||||||||||||
| FHLB stock | 18,585 | 328 | 7.00 | % | 18,314 | 277 | 6.00 | % | ||||||||||||||||
| Total interest-earning assets | 1,432,061 | 25,383 | 7.03 | % | 1,364,064 | 24,484 | 7.12 | % | ||||||||||||||||
| Non-interest-earning assets | 157,203 | 152,645 | ||||||||||||||||||||||
| Total assets | $ | 1,589,264 | $ | 1,516,709 | ||||||||||||||||||||
| Deposits and Interest-bearing liabilities: | ||||||||||||||||||||||||
| Interest bearing deposits | $ | 1,098,408 | $ | 10,227 | 3.69 | % | $ | 1,025,941 | $ | 9,438 | 3.65 | % | ||||||||||||
| FHLB advances and other | 128,677 | 1,636 | 5.04 | % | 170,318 | 2,107 | 4.91 | % | ||||||||||||||||
| Other Borrowings | 26,605 | 210 | 3.13 | % | 23,601 | 174 | 2.92 | % | ||||||||||||||||
| Subordinated debentures | 36,297 | 596 | 6.51 | % | 20,619 | 346 | 6.66 | % | ||||||||||||||||
| Total interest-bearing liabilities | 1,289,987 | 12,669 | 3.90 | % | 1,240,479 | 12,065 | 3.86 | % | ||||||||||||||||
| Non-interest bearing deposits | 114,078 | - | - | 99,700 | - | - | ||||||||||||||||||
| Total including non-interest-bearing demand deposits | 1,404,065 | 12,669 | 3.58 | % | 1,340,179 | 12,065 | 3.57 | % | ||||||||||||||||
| Other non-interest-bearing liabilities | 19,437 | 17,216 | ||||||||||||||||||||||
| Total liabilities | 1,423,502 | 1,357,395 | ||||||||||||||||||||||
| Stockholders' equity | 165,762 | 159,314 | ||||||||||||||||||||||
| Total liabilities and stockholders' equity | $ | 1,589,264 | $ | 1,516,709 | ||||||||||||||||||||
| Net interest income; interest rate spread | $ | 12,714 | 3.13 | % | $ | 12,419 | 3.26 | % | ||||||||||||||||
| Net interest margin (3) | 3.52 | % | 3.61 | % | ||||||||||||||||||||
| Average interest-earning assets to average interest bearing liabilities | 111 | % | 110 | % | ||||||||||||||||||||
| Twelve Months Ended December 31, | ||||||||||||||||||||||||
| 2007 | 2006 | |||||||||||||||||||||||
| Average | Yield | Average | Yield | |||||||||||||||||||||
| Balance | Interest(1) | Rate(2) | Balance | Interest(1) | Rate(2) | |||||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||
| Loans receivable | $ | 1,241,817 | $ | 90,913 | 7.32 | % | $ | 1,209,498 | $ | 86,237 | 7.13 | % | ||||||||||||
| Securities | 112,577 | 6,414 | 5.68 | % | 116,718 | 6,217 | 5.30 | % | ||||||||||||||||
| Interest Bearing Deposits | 18,161 | 924 | 5.09 | % | 3,483 | 165 | 4.74 | % | ||||||||||||||||
| FHLB stock | 18,585 | 1,226 | 6.60 | % | 17,926 | 1,042 | 5.81 | % | ||||||||||||||||
| Total interest-earning assets | 1,391,140 | 99,477 | 7.15 | % | 1,347,625 | 93,661 | 6.95 | % | ||||||||||||||||
| Non-interest-earning assets | 153,229 | 148,136 | ||||||||||||||||||||||
| Total assets | $ | 1,544,369 | $ | 1,495,761 | ||||||||||||||||||||
| Deposits and Interest-bearing liabilities: | ||||||||||||||||||||||||
| Interest bearing deposits | $ | 1,064,960 | $ | 40,356 | 3.79 | % | $ | 1,006,468 | $ | 33,273 | 3.31 | % | ||||||||||||
| FHLB advances and other | 136,484 | 6,889 | 5.05 | % | 181,869 | 8,885 | 4.89 | % | ||||||||||||||||
| Other Borrowings | 23,841 | 729 | 3.06 | % | 20,398 | 577 | 2.83 | % | ||||||||||||||||
| Subordinated debentures | 32,435 | 2,115 | 6.52 | % | 20,619 | 1,308 | 6.34 | % | ||||||||||||||||
| Total interest-bearing liabilities | 1,257,720 | 50,089 | 3.98 | % | 1,229,354 | 44,043 | 3.59 | % | ||||||||||||||||
| Non-interest bearing deposits | 104,200 | - | - | 95,044 | - | - | ||||||||||||||||||
| Total including non-interest-bearing demand deposits | 1,361,920 | 50,089 | 3.68 | % | 1,324,398 | 44,043 | 3.33 | % | ||||||||||||||||
| Other non-interest-bearing liabilities | 18,391 | 15,815 | ||||||||||||||||||||||
| Total liabilities | 1,380,311 | 1,340,213 | ||||||||||||||||||||||
| Stockholders' equity | 164,058 | 155,548 | ||||||||||||||||||||||
| Total liabilities and stockholders' equity | $ | 1,544,369 | $ | 1,495,761 | ||||||||||||||||||||
| Net interest income; interest rate spread | $ | 49,388 | 3.17 | % | $ | 49,618 | 3.36 | % | ||||||||||||||||
| Net interest margin (3) | 3.55 | % | 3.68 | % | ||||||||||||||||||||
| Average interest-earning assets to average interest bearing liabilities | 111 | % | 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. | |||||||||||
10
| Selected Quarterly Information | ||||||||||||||||||||
| First Defiance Financial Corp. | ||||||||||||||||||||
| (dollars in thousands, except per share data) | 4th Qtr 2007 | 3rd Qtr 2007 | 2nd Qtr 2007 | 1st Qtr 2007 | 4th Qtr 2006 | |||||||||||||||
| Summary of Operations | ||||||||||||||||||||
| Tax-equivalent interest income (1) | $ | 25,383 | $ | 25,177 | $ | 24,709 | $ | 24,207 | $ | 24,484 | ||||||||||
| Interest expense | 12,669 | 12,962 | 12,410 | 12,049 | 12,065 | |||||||||||||||
| Tax-equivalent net interest income (1) | 12,714 | 12,215 | 12,299 | 12,158 | 12,419 | |||||||||||||||
| Provision for loan losses | 603 | 671 | 575 | 457 | 318 | |||||||||||||||
| Tax-equivalent NII after provision for loan losses (1) | 12,111 | 11,544 | 11,724 | 11,701 | 12,101 | |||||||||||||||
| Investment securities gains | - | 21 | - | - | (2 | ) | ||||||||||||||
| Non-interest income (excluding securities gains/losses) | 5,268 | 5,563 | 5,670 | 5,607 | 4,924 | |||||||||||||||
| Non-interest expense | 12,161 | 12,296 | 11,882 | 11,771 | 11,210 | |||||||||||||||
| Income taxes | 1,474 | 1,515 | 1,724 | 1,757 | 1,666 | |||||||||||||||
| Net income | 3,558 | 3,129 | 3,611 | 3,606 | 3,973 | |||||||||||||||
| Tax equivalent adjustment (1) | 186 | 188 | 177 | 174 | 174 | |||||||||||||||
| At Period End | ||||||||||||||||||||
| Total assets | $ | 1,609,404 | $ | 1,579,946 | $ | 1,540,675 | $ | 1,518,414 | $ | 1,527,879 | ||||||||||
| Earning assets | 1,439,097 | 1,432,735 | 1,385,803 | 1,372,475 | 1,376,379 | |||||||||||||||
| Loans | 1,289,696 | 1,264,872 | 1,245,027 | 1,237,072 | 1,239,889 | |||||||||||||||
| Allowance for loan losses | 13,890 | 13,427 | 13,417 | 13,752 | 13,579 | |||||||||||||||
| Deposits | 1,217,858 | 1,208,164 | 1,167,198 | 1,146,319 | 1,138,445 | |||||||||||||||
| Stockholders’ equity | 165,954 | 164,706 | 164,657 | 164,540 | 159,825 | |||||||||||||||
| Stockholders’ equity / assets | 10.31 | % | 10.42 | % | 10.69 | % | 10.84 | % | 10.46 | % | ||||||||||
| Goodwill | 36,820 | 36,515 | 36,551 | 36,464 | 35,090 | |||||||||||||||
| Average Balances | ||||||||||||||||||||
| Total assets | $ | 1,589,264 | $ | 1,550,174 | $ | 1,527,863 | $ | 1,510,176 | $ | 1,516,709 | ||||||||||
| Earning assets | 1,432,061 | 1,397,521 | 1,376,030 | 1,358,948 | 1,364,064 | |||||||||||||||
| Deposits and interest-bearing liabilities | 1,404,065 | 1,367,421 | 1,344,186 | 1,332,005 | 1,340,179 | |||||||||||||||
| Loans | 1,265,307 | 1,244,531 | 1,231,192 | 1,226,240 | 1,225,567 | |||||||||||||||
| Deposits | 1,212,486 | 1,177,594 | 1,157,793 | 1,128,765 | 1,125,641 | |||||||||||||||
| Stockholders’ equity | 165,762 | 164,751 | 164,591 | 161,128 | 159,314 | |||||||||||||||
| Stockholders’ equity / assets | 10.43 | % | 10.63 | % | 10.77 | % | 10.67 | % | 10.50 | % | ||||||||||
| Per Common Share Data | ||||||||||||||||||||
| Net Income: | ||||||||||||||||||||
| Basic | $ | 0.51 | $ | 0.44 | $ | 0.51 | $ | 0.51 | $ | 0.56 | ||||||||||
| Diluted | 0.50 | 0.44 | 0.50 | 0.50 | 0.55 | |||||||||||||||
| Dividends | 0.26 | 0.25 | 0.25 | 0.25 | 0.25 | |||||||||||||||
| Market Value: | ||||||||||||||||||||
| High | $ | 26.93 | $ | 29.64 | $ | 30.00 | $ | 30.25 | $ | 30.70 | ||||||||||
| Low | 20.58 | 23.99 | 26.71 | 27.25 | 26.87 | |||||||||||||||
| Close | 22.02 | 27.00 | 29.82 | 28.70 | 30.25 | |||||||||||||||
| Book Value | 23.51 | 23.21 | 22.94 | 22.77 | 22.38 | |||||||||||||||
| Shares outstanding, end of period (in thousands) | 7,059 | 7,095 | 7,178 | 7,227 | 7,142 | |||||||||||||||
| Performance Ratios (annualized) | ||||||||||||||||||||
| Tax-equivalent net interest margin (1) | 3.52 | % | 3.47 | % | 3.58 | % | 3.59 | % | 3.61 | % | ||||||||||
| Return on average assets | 0.89 | % | 0.80 | % | 0.95 | % | 0.97 | % | 1.04 | % | ||||||||||
| Return on average equity | 8.52 | % | 7.53 | % | 8.80 | % | 9.08 | % | 9.89 | % | ||||||||||
| Efficiency ratio (2) | 67.63 | % | 69.16 | % | 66.12 | % | 66.26 | % | 64.64 | % | ||||||||||
| Effective tax rate | 29.29 | % | 32.62 | % | 32.31 | % | 32.76 | % | 29.54 | % | ||||||||||
| Dividend payout ratio (basic) | 50.98 | % | 56.82 | % | 49.02 | % | 49.02 | % | 44.64 | % | ||||||||||
| (1) Interest income on tax-exempt securities and loans has been adjusted to a tax-equivalent basis using the statutory federal income tax rate of 35% | ||||||||||||||||||||
| (2) Efficiency ratio = Non-interest expense divided by sum of tax-equivalent net interest income plus non-interest income, excluding securities gains, net and asset sales gains, net. | ||||||||||||||||||||
11
| Selected Quarterly Information | ||||||||||||||||||||
| First Defiance Financial Corp. | ||||||||||||||||||||
| (dollars in thousands, except per share data) | 4th Qtr 2007 | 3rd Qtr 2007 | 2nd Qtr 2007 | 1st Qtr 2007 | 4th Qtr 2006 | |||||||||||||||
| Loan Portfolio Composition | ||||||||||||||||||||
| One to four family residential real estate | $ | 231,921 | $ | 230,075 | $ | 234,819 | $ | 243,632 | $ | 250,808 | ||||||||||
| Construction | 13,146 | 15,392 | 16,346 | 14,277 | 17,339 | |||||||||||||||
| Commercial real estate | 601,851 | 592,914 | 583,046 | 579,463 | 579,860 | |||||||||||||||
| Commercial | 283,072 | 267,897 | 255,022 | 242,543 | 232,914 | |||||||||||||||
| Consumer finance | 37,743 | 38,280 | 40,693 | 40,857 | 43,770 | |||||||||||||||
| Home equity and improvement | 128,080 | 127,641 | 123,936 | 123,404 | 122,789 | |||||||||||||||
| Total loans | 1,295,813 | 1,272,199 | 1,253,862 | 1,244,176 | 1,247,480 | |||||||||||||||
| Less: | ||||||||||||||||||||
| Loans in process | 5,085 | 6,301 | 7,761 | 6,012 | 6,409 | |||||||||||||||
| Deferred loan origination fees | 1,032 | 1,026 | 1,074 | 1,092 | 1,182 | |||||||||||||||
| Allowance for loan loss | 13,890 | 13,427 | 13,417 | 13,752 | 13,579 | |||||||||||||||
| Net Loans | $ | 1,275,806 | $ | 1,251,445 | $ | 1,231,610 | $ | 1,223,320 | $ | 1,226,310 | ||||||||||
| Allowance for loan loss activity | ||||||||||||||||||||
| Beginning allowance | $ | 13,427 | $ | 13,417 | $ | 13,752 | $ | 13,579 | $ | 14,298 | ||||||||||
| Provision for loan losses | 603 | 671 | 575 | 457 | 318 | |||||||||||||||
| Credit loss charge-offs: | ||||||||||||||||||||
| One to four family residential real estate | 33 | 128 | 10 | 85 | 244 | |||||||||||||||
| Commercial real estate | 135 | 586 | 936 | 146 | 664 | |||||||||||||||
| Commercial | 7 | - | 11 | 81 | 62 | |||||||||||||||
| Consumer finance | 42 | 25 | 23 | 71 | 95 | |||||||||||||||
| Home equity and improvement | 30 | 10 | 41 | - | 65 | |||||||||||||||
| Total charge-offs | 247 | 749 | 1,021 | 383 | 1,130 | |||||||||||||||
| Total recoveries | 107 | 88 | 111 | 99 | 93 | |||||||||||||||
| Net charge-offs (recoveries) | 140 | 661 | 910 | 284 | 1,037 | |||||||||||||||
| Ending allowance | $ | 13,890 | $ | 13,427 | $ | 13,417 | $ | 13,752 | $ | 13,579 | ||||||||||
| Credit Quality | ||||||||||||||||||||
| Non-accrual loans | $ | 9,217 | $ | 8,523 | $ | 6,427 | $ | 8,211 | $ | 7,283 | ||||||||||
| Loans over 90 days past due and still accruing | - | - | - | - | - | |||||||||||||||
| Total non-performing loans (1) | 9,217 | 8,523 | 6,427 | 8,211 | 7,283 | |||||||||||||||
| Real estate owned (REO) | 2,460 | 3,392 | 3,324 | 2,581 | 2,392 | |||||||||||||||
| Total non-performing assets (1) | $ | 11,677 | $ | 11,915 | $ | 9,751 | $ | 10,792 | $ | 9,675 | ||||||||||
| Net charge-offs | 140 | 661 | 910 | 284 | 1,037 | |||||||||||||||
| Allowance for loan losses / loans | 1.08 | % | 1.06 | % | 1.08 | % | 1.11 | % | 1.10 | % | ||||||||||
| Allowance for loan losses / non-performing assets | 118.95 | % | 112.69 | % | 137.60 | % | 127.43 | % | 140.35 | % | ||||||||||
| Allowance for loan losses / non-performing loans | 150.70 | % | 157.54 | % | 208.76 | % | 167.48 | % | 186.45 | % | ||||||||||
| Non-performing assets / loans plus REO | 0.90 | % | 0.94 | % | 0.78 | % | 0.87 | % | 0.78 | % | ||||||||||
| Non-performing assets / total assets | 0.73 | % | 0.75 | % | 0.63 | % | 0.71 | % | 0.64 | % | ||||||||||
| Net charge-offs / average loans (annualized) | 0.04 | % | 0.21 | % | 0.30 | % | 0.09 | % | 0.34 | % | ||||||||||
| Deposit Balances | ||||||||||||||||||||
| Non-interest-bearing demand deposits | $ | 121,563 | $ | 109,128 | $ | 107,111 | $ | 101,089 | $ | 106,328 | ||||||||||
| Interest-bearing demand deposits and money market | 342,367 | 330,168 | 314,923 | 313,327 | 306,003 | |||||||||||||||
| Savings deposits | 105,873 | 98,719 | 97,004 | 88,345 | 74,491 | |||||||||||||||
| Retail time deposits less than $100,000 | 509,720 | 524,347 | 504,301 | 498,136 | 493,594 | |||||||||||||||
| Retail time deposits greater than $100,000 | 137,927 | 142,645 | 136,319 | 136,248 | 140,392 | |||||||||||||||
| National/Brokered time deposits | 408 | 3,157 | 7,540 | 9,174 | 17,637 | |||||||||||||||
| Total deposits | $ | 1,217,858 | $ | 1,208,164 | $ | 1,167,198 | $ | 1,146,319 | $ | 1,138,445 | ||||||||||
| (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. |
12