Exhibit 99.1
NEWS RELEASE
Contact: William J. Small
[LOGO] FIRST DEFIANCE Chairman, President and CEO
FINANCIAL CORP. (419) 782-5015
bsmall@first-fed.com
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For Immediate Release
FIRST DEFIANCE ANNOUNCES 2005
FOURTH QUARTER AND ANNUAL EARNINGS
DEFIANCE, OHIO (January 16, 2006) - First Defiance Financial Corp.
(NASDAQ: FDEF) today announced that net income for the fiscal year ended
December 31, 2005 totaled $12.0 million, or $1.68 per diluted share compared to
$10.8 million or $1.69 per diluted share for the year ended December 31, 2004.
The per share amount declined despite the increase in net income because of the
issuance of 733,755 shares in conjunction with the first quarter 2005
acquisition of ComBanc, Inc. (ComBanc), based in Delphos, Ohio.
In addition to the acquisition of ComBanc, First Defiance also acquired
The Genoa Savings and Loan Company, Genoa, Ohio (Genoa) in an all-cash
transaction completed in the 2005 second quarter. As a result of the two
purchases, First Defiance incurred acquisition-related charges totaling $3.5
million ($2.3 million after tax) during 2005. In the 2004 third quarter the
Company recognized $1.9 million of expense ($1.3 million after tax) associated
with the settlement of contingent liabilities related to the sale of a former
subsidiary. If the acquisition- related charges are excluded from the 2005
results and the net cost of the contingency settlement is excluded from 2004,
core operating earnings for those years would have been $14.2 million or $2.00
per diluted share for 2005, and $12.0 million or $1.89 per diluted share for
2004. The attached schedules include a reconciliation of GAAP-basis earnings to
core operating earnings for both the quarter and full year.
For the 2005 fourth quarter ended December 31, 2005, First Defiance
earned $3.4 million or $0.48 per diluted share compared to $3.5 million or $0.55
per diluted share for the fourth quarter in 2004.
"By most measures, 2005 was a very good year for us," commented William
J. Small, Chairman, President and Chief Executive Officer of First Defiance. "We
grew total assets from $1.12 billion to $1.46 billion through a combination of
acquisitions and organic growth. We successfully integrated two acquisitions in
a timely fashion. In the Genoa acquisition, we had very little deposit run-off
and in ComBanc's case deposits have actually increased since the closing date.
Net interest income increased year-over-year by $13 million or 37.6% and our
core operating earnings increased by almost $2.2 million. In addition, our
credit quality ratios, which were already good, improved in the fourth quarter."
1
"Although we were disappointed that results for the fourth quarter
declined to $0.48 per share from the $0.51 that we reported from core operating
earnings in the 2005 third quarter, we believe fourth quarter results were
actually better than they might appear," continued Mr. Small. "Three factors
contributed to the lower earnings level in the fourth quarter compared with the
third quarter: lower gains from the sale of mortgage loans, an increase in other
non-interest expenses, and a significant increase in our effective tax rate to
reflect changes resulting from the year-end analysis of the tax accounts. The
lower mortgage gains is primarily a seasonal issue. The increase in other
non-interest espenses includes year-end charitable contributions, a significant
increase in bad check losses, an increased postage cost due to some non-routine
mailings, and a $65,000 increase in consulting expenses for initiatives related
to sales training, employee benefits planning and documentation of internal
control procedures which generally will not be recurring on a quarterly
basis.The changes related to the year-end analysis of the tax accounts increased
tax expense for the fourth by $122,000 compared with the third quarter despite
the fact that pretax income was just $61,000 higher between those periods. These
items overshadowed continued growth in both margin and in non-mortgage fee
income, as well as a reduction in our overall benefits costs."
Net Interest Income Increased 38%
Net interest income for the 2005 fourth quarter was $12.6 million, a
37.7% increase over the $9.2 million earned in the fourth quarter of 2004. Net
interest margin for the 2005 fourth quarter, on a tax-equivalent basis, was
3.92%, a 24 basis point improvement from the fourth quarter of 2004 and a seven
basis point improvement from the 2005 third quarter margin, which was 3.85%. The
higher margin in 2005 versus 2004 is due to an improved mix between loans and
investment securities, an increase in the interest rate spread from 3.45% in the
fourth quarter of 2004 to 3.66% in the fourth quarter of 2005, and a significant
increase in average non-interest bearing liabilities between the two periods.
Average interest-earning assets grew from $1.01 billion in the fourth
quarter of 2004 to $1.29 billion in the fourth quarter of 2005, an increase of
27.2%. The average balance of loans outstanding increased from $859.0 million in
the 2004 fourth quarter to $1.15 billion in the fourth quarter of 2005, while
the average balance of investment securities dropped from $141.7 million to
$113.8 million between those same periods. Approximately $117.3 million of the
increase in average loan balances related to the ComBanc acquisition, which
closed on January 21, 2005, and $66.9 million related to the Genoa acquisition,
which closed on April 8, 2005. The remainder of the increase, $106.8 million, is
due to year-over-year balance growth. Yields on loans improved to 6.73% for the
2005 fourth quarter from 5.99% in the fourth quarter of 2004 due to recent
increases in the prime interest rate. Overall, yields on interest-earning assets
improved to 6.55% in the 2005 fourth quarter compared to 5.82% during that same
period in 2004. The fourth quarter asset yield was also a 30 basis point
improvement over the 6.25% yield realized in the 2005 third quarter. Yields also
were favorably impacted in the 2005 fourth quarter by increased amortization of
loan-purchase discounts, which contributed an additional $99,000 to interest
income for the quarter.
Average interest-bearing deposits increased to $965.6 million in the
2005 fourth quarter compared with $723.0 million during the same period of 2004,
an increase of $242.6 million or 33.6%. The ComBanc acquisition added $146.0
million in average balances of interest-bearing
2
Exhibit 99.1
deposits while the Genoa acquisition added $71.8 million in average balances.
The average interest-bearing deposit balance also reflects a decrease in
brokered certificates of deposits (CDs), which averaged $53.5 million in the
2004 fourth quarter compared to $41.5 million in the 2005 period. Excluding the
acquisitions and brokered CDs, average interest-earning deposits increased by
$36.8 million in the 2005 fourth quarter compared with the fourth quarter of
2004. The cost of interest-bearing deposits increased 64 basis points, to 2.56%
for the 2005 fourth quarter from 1.92% for the 2004 fourth quarter and the cost
of Federal Home Loan Bank (FHLB) advances increased 29 basis points, to 4.57% in
the 2005 fourth quarter from 4.28% in the 2004 fourth quarter. The Company also
increased its leverage during the quarter by issuing $20.0 million of
subordinated debentures through a related unconsolidated subsidiary trust. Those
trust preferred securities carry an interest rate equal to 90-day LIBOR plus
1.38%. Total interest expense on the subordinated debentures totaled $201,000 in
the 2005 fourth quarter. Overall, total funding costs for interest-bearing
liabilities increased by 52 basis points, to 2.89% in the 2005 fourth quarter
from 2.37% in the same period in 2004. Comparing the 2005 fourth quarter to the
2005 third quarter, the cost of interest-bearing liabilities increased by 26
basis points. As a result of the above factors, the interest rate spread
improved to 3.67% in the 2005 fourth quarter from 3.45% during the fourth
quarter of 2004.
The net interest margin also benefited from growth in the average
balance of non-interest bearing deposits, which increased to $93.0 million in
the 2005 fourth quarter compared with $61.4 million during the 2004 fourth
quarter, an increase of 51.5%. Of that $31.6 million increase, $17.7 million was
due to the ComBanc acquisition, $5.0 million was due to the Genoa acquisition,
and the remaining increase of $8.9 million resulted from other Company
initiatives to grow those balances.
Credit Quality Continues to be a Strength
The provision for loan losses was $378,000 for the fourth quarter of
2005 compared to $304,000 for the fourth quarter of 2004. The 2005 quarterly
provision level reflects continued generally favorable experience with the First
Defiance loan portfolios, especially those loans that were originated under
First Federal Bank's underwriting standards. Total charge-offs for the three
months ended December 31, 2005 were $376,000 while recoveries were $47,000
compared with $168,000 of charge-offs and $108,000 in recoveries during the
fourth quarter of 2004. Net charge-offs as a percentage of average loans were
0.11% in the 2005 fourth quarter (annualized) compared to 0.03% for the fourth
quarter of 2004 (annualized). At December 31, 2005 the percentage of
non-performing assets to total loans plus real estate owned was 0.45% compared
to 0.22% at December 31, 2004. The reason for the apparent deterioration of some
of the credit-quality statistics between the periods being compared relates to
the portfolios acquired from ComBanc and Genoa. The increase in the provision
for loan losses between the 2004 and 2005 fourth quarters is a function of the
higher volume of lending between the two periods.
Total non-performing loans increased to $5.0 million at December 31,
2005 from $1.9 million at December 31, 2004 and non-performing assets increased
to $5.4 million from $2.0 million. The December 31, 2005 amounts represent
significant decreases from September 30, 2005, when non-performing loans were
$6.7 million and non-performing assets totaled $6.9 million. Of the $5.0 million
in non-performing loans at December 31, 2005, $3.7 million were acquired in the
2005 acquisitions and $1.3 million related to loans originated by First
Defiance.
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Exhibit 99.1
First Defiance's allowance for loan losses as a percentage of non-performing
loans declined to 276.1% at December 31, 2005 from 525.9% at December 31, 2004
but that ratio increased from 202.7% at September 30, 2005. The decrease in the
coverage ratios since the beginning of 2005 is primarily due to delinquent loans
acquired in the acquisitions. However, those ratios also are impacted by the
accounting guidance which requires that estimated losses on loans deemed
impaired as of the acquisition date be recorded as a purchase discount, which
directly reduces the loan balance, as opposed to establishing an allowance for
loan losses. As a result of this accounting, net loan balances totaling $1.9
million (after deducting appropriate purchase discounts) at December 31, 2005
are deemed impaired and have no loan loss reserve recorded for them.
Approximately $893,000 of these impaired loans are included in the $5.0 million
of non-performing loans with no offsetting loan loss reserve. In management's
opinion, the allowance for loan losses at December 31, 2005 is sufficient and
the provision for loan losses for both the three months and year ended December
31, 2005 are consistent with historical charge-offs and other information
available as of that date.
"We have dedicated a substantial amount of resources, both internally
and externally, to improve the credit quality ratios, which declined as a result
of the two acquisitions," said Mr. Small. "We're making progress working through
the problem loans we acquired. That is shown in the improvement in both the
level of non-performing loans and the asset quality ratios at December 31
compared to September 30. I want to emphasize again that most of these
non-performing loans were acquired by way of the two acquisitions. We knew about
these situations before we made the acquisitions and we knew it would take both
time and money to work out these loans. I am pleased to report that the
portfolio that has been originated under our strict underwriting standards,
which represents the vast majority of our outstanding loans, continues to
perform very well from an asset quality perspective."
Service Fees, Mortgage Banking Income, Sales Commissions All Increase
Total non-interest income decreased to $3.8 million for the 2005 fourth
quarter from $3.9 million for the same period in 2004. However, the 2004 fourth
quarter included $732,000 of gains from sale of investment securities and a
$182,000 life insurance settlement. Excluding those items, non-interest income
increased by $738,000 or 24.4%. Most of that overall increase was in service
fees, which increased by $485,000, mortgage banking income, which was $177,000
higher, and insurance and investment sales commissions, which increased by
$96,000.
Non-interest expense increased by almost $3.0 million or 38.5% in the
2005 fourth quarter compared to the same period in 2004. Significant increases
occurred in compensation and benefits, which increased by $1.5 million,
occupancy which increased by $353,000, data processing, which increased by
$196,000 and amortization of intangibles, which increased by $186,000. All of
those increases are primarily the result of the two acquisitions completed in
the first half of 2005, or due to the related increase in staffing to support
the larger organization. First Defiance also realized a $679,000 increase in
other non-interest expense in the 2005 fourth quarter compared with the prior
year. The most significant period-to-period increases included in other
non-interest expense were in advertising (which increased by $158,000), postage
(up $132,000), checking account related charge-offs (up $125,000) and credit and
collection expense (up $70,000). Much of the increase in advertising and postage
expense related to raising the public's overall awareness of the Company in its
new markets.
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Exhibit 99.1
Annual Results
On an annual basis, core operating earnings for 2005 were $14.2
million, an increase of 18.1% or $2.2 million over core operating earnings for
2004. Net interest income for the year in 2005 totaled $47.3 million, an
improvement of $12.9 million or 37.6% over 2004. For 2005, net interest margin,
stated on a tax equivalent basis, improved to 3.87% from 3.62% for the year
ended December 31, 2004. During that period, despite significant growth in the
loan portfolio, the provision for loan losses declined to $1.4 million in 2005
from $1.5 million in 2004.
Non-interest income increased by $1.9 million or 13.8%, to $15.9
million for the year ended December 31, 2005 from $14.0 million for 2004.
Service fees accounted for $1.4 million of the increase while mortgage banking
income increased by $574,000 or 20.7% during 2005, to $3.3 million from $2.8
million in 2004. Most of the increase in mortgage banking related to $418,000 of
favorable adjustments to the Company's mortgage servicing rights valuation
reserves.
Non-interest expense totaled $43.9 million for 2005 compared to $31.2
million in 2004. Those expenses include $3.5 million of acquisition-related
costs incurred in 2005 and $1.9 million recorded in 2004 related to the
settlement of contingencies related to the 2002 sale of a former subsidiary.
When those items are excluded, non-interest expense was $40.5 million in 2005
and $29.3 million in 2004, an increase of $11.2 million or 38.2%. Compensation
and benefits increased by $6.0 million between 2004 and 2005 while occupancy
costs were up by $1.4 million and data processing increased by $884,000. The
higher cost levels were primarily the result of the two acquisitions.
Assets Increase to $1.46 Billion
Total assets at December 31, 2005 totaled $1.46 billion compared with
$1.13 billion at December 31, 2004. At December 31, 2005, net loans totaled
$1.17 billion, deposits totaled $1.07 billion and stockholders equity was $151.0
million. At December 31, 2004, net loans, deposits and equity were $881.2
million, $797.7 million and $126.9 million, respectively. Goodwill and other
intangible assets were $39.3 million at December 31, 2005 compared to $18.9
million at December 31, 2004.
Looking Ahead
"A year ago at this time, we were preparing for the completion of our
two announced acquisitions," said Mr. Small. "Looking back, I think that
everyone involved did an outstanding job of making those transitions happen as
smoothly as possible. There was very little disruption to our customers and we
are extremely pleased with the way we've been able to integrate our new
markets."
"Successfully integrating the two acquisitions required a lot of our
energy in 2005. Our focus for 2006 will be on improving our overall
profitability by growing our revenues and controlling our costs," added Mr.
Small. "At the same time, I think we've had some growing pains resulting from
the acquisitions that we need to address. Some of our internal customer service
levels have been impacted as we've added volumes of loans and deposits without
adding additional support in the loan servicing, deposit servicing and
accounting areas. The level of
5
Exhibit 99.1
service we provide our customers is what sets us apart in some very competitive
markets and we must do everything possible to keep those service levels high. We
also need to continue to build our brand identity, especially in the markets
that we've recently entered. These initiatives are not without a cost and they
are reflected in our 2006 budget."
In preparing its profit plan for 2006, management made the following
assumptions:
o Loans are budgeted to grow from $1.17 billion (after
allowance) at December 31, 2005 to $1.36 billion at the end of
2006, which represents growth of approximately 16%. While most
of the growth is forecasted in commercial and non-residential
real estate loans, the Company also expects mortgage loan
balances and home equity balances to grow.
o Interest-bearing deposits (excluding national CDs) are
budgeted to grow from the fourth quarter average of
approximately $925 million to approximately $1.02 billion in
the 2006 fourth quarter. Also, management is budgeting
non-interest-bearing deposits to increase from the $93.0
million average balance in the 2005 fourth quarter to
approximately $115 million in the 2006 fourth quarter. Based
on projected loan growth, management anticipates it will need
to tap alternative funding sources such as FHLB advances or
brokered CDs for up to $70 million by the end of 2006.
o Net interest margin is expected to be approximately 3.85% in
the first quarter, dropping closer to 3.65% by the fourth
quarter based on expected increases in funding costs,
especially as alternative sources of funding are tapped. That
budget includes just one additional increase in the targeted
Fed Funds rate. Net interest income is projected to increase
in a rising rate environment by less than 2% when compared
with a flat rate environment and it is projected to decline by
approximately 1.5% in a falling rate environment.
o Mortgage gains are projected to range from $750,000 to
$820,000 on a quarterly basis. Those gains are based on more
aggressive mortgage origination goals in most markets than
were in place in 2005.
o Other non-interest income (excluding mortgage banking income)
is projected to increase by approximately $2 million in 2006
compared to 2005. The majority of the increase is expected in
deposit fees, debit card transaction fees and as an increase
in income from Bank Owned Life Insurance due to a recent $5
million additional BOLI purchase. It is expected that more of
those fee increases will be realized in the second half of the
year than the first half.
o Non-interest expenses are projected to increase by
approximately $5 million in 2006 compared to 2005.
Approximately $3 million of that increase will be in
compensation and benefits. The increase is attributable to the
projected addition of 37 staff over the course of 2006, a full
year's compensation for the two companies acquired in 2005,
pay increases in the 3.5% to 4% range and benefit
6
Exhibit 99.1
cost increases in the 10% range. Occupancy will increase by
approximately 20%. Also the Company is anticipating a $350,000
increase in Ohio franchise tax based on a higher capital level
at the beginning of 2006 compared to 2005.
o Projected compensation expense also includes $280,000 of
expense related to the expensing of stock options under the
Financial Accounting Standards Board Statement No. 123R, Share
Based Payments. As all unvested outstanding options are
Incentive Stock Options, the option expense will not be
tax-deductible.
Based on these factors, management estimates that net income per share
for 2006 will range from $2.08 to $2.16 per share. On a quarterly basis,
management expects that the 2006 first quarter will be in the $0.49 to $0.51
range increasing to the $0.55 to $0.57 range by the fourth quarter. Factors such
as changes in interest rates, economic conditions or competitive pressures, as
well as future management decisions on acquisitions, de novo branching and a
variety of other matters may impact these estimates. Further, unexpected credit
losses could also negatively impact expected results.
"We're comfortable with our estimate in the range of $2.08 to $2.16 per
share," said Mr. Small. "Obviously many factors make up those projections but
the bottom line for us is we need continued strong loan growth, a significant
increase in deposit balances, preferably in our low or no cost accounts, a
higher level of mortgage originations from all of our locations, and a
persistent focus on providing superior customer service."
Conference Call
First Defiance Financial Corp. will host a conference call at 11:00
a.m. (EDT) on Tuesday, January 17, 2006 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 3456983. 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-
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eventDetails&c=90296&eventID=1179227 (Due to URL length, please copy and
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paste into browser.)
The audio replay of the Internet Web cast will be available at
www.fdef.com until February 28, 2006.
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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 25 full service branches and 31 ATM
locations in northwest Ohio. First Insurance & 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.
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7
Exhibit 99.1
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
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, 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.
8
Exhibit 99.1
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Consolidated Balance Sheets
First Defiance Financial Corp.
December 31, December 31,
(in thousands) 2005 2004
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Assets
Cash and cash equivalents
Cash and amounts due from depository institutions $ 44,075 $ 19,891
Interest-bearing deposits 5,190 630
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49,265 20,521
Securities
Available-for sale, carried at fair value 113,079 137,003
Held-to-maturity, carried at amortized cost 1,775 2,255
----------- -----------
114,854 139,258
Loans held for sale 2,206 2,295
Loans 1,181,049 888,868
Allowance for loan losses (13,673) (9,956)
----------- -----------
Loans, net 1,169,582 881,207
Mortgage servicing rights 5,063 3,598
Accrued interest receivable 6,207 4,653
Federal Home Loan Bank stock and other interest-bearing assets 17,544 13,376
Bank Owned Life Insurance 24,346 18,581
Office properties and equipment 32,689 24,248
Real estate and other assets held for sale 404 98
Goodwill 35,168 18,340
Core deposit and other intangibles 4,116 593
Other assets 1,136 2,194
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Total Assets $ 1,460,374 $ 1,126,667
=========== ===========
Liabilities and Stockholders' Equity
Non-interest-bearing deposits $ 103,498 $ 62,450
Interest-bearing deposits 966,003 735,251
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Total deposits 1,069,501 797,701
Advances from Federal Home Loan Bank 180,960 178,213
Notes payable and other interest-bearing liabilities 25,748 14,804
Subordinated debentures 20,051 --
Advance payments by borrowers for tax and insurance 605 278
Deferred taxes 1,052 934
Other liabilities 11,506 7,863
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Total liabilities 1,309,423 999,793
Stockholders' Equity
Preferred stock -- --
Common stock, net 71 63
Additional paid-in-capital 73,026 52,131
Stock acquired by ESOP (1,053) (1,479)
Deferred compensation (2) (4)
Accumulated other comprehensive income (22) 2,131
Retained earnings 78,931 74,032
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Total stockholders' equity 150,951 126,874
----------- -----------
Total liabilities and stockholders' equity $ 1,460,374 $ 1,126,667
=========== ===========
9
Exhibit 99.1
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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) 2005 2004 2005 2004
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Interest Income:
Loans $19,505 $12,933 $69,708 $47,345
Investment securities 1,294 1,505 5,273 6,731
Interest-bearing deposits 87 6 364 43
FHLB stock dividends 251 142 829 612
------- ------- ------- -------
Total interest income 21,137 14,586 76,174 54,731
Interest Expense:
Deposits 6,220 3,497 20,615 12,950
FHLB advances and other 1,975 1,899 7,625 7,317
Subordinated debentures 201 -- 201 --
Notes Payable 139 39 451 114
------- ------- ------- -------
Total interest expense 8,535 5,435 28,892 20,381
------- ------- ------- -------
Net interest income 12,602 9,151 47,282 34,350
Provision for loan losses 378 304 1,442 1,548
------- ------- ------- -------
Net interest income after provision for loan losses 12,224 8,847 45,840 32,802
Non-interest Income:
Service fees and other charges 1,581 1,096 5,603 4,215
Mortgage banking income 875 698 3,345 2,771
Gain on sale of securities -- 732 1,222 1,426
Insurance and investment sales commissions 956 860 4,185 4,052
Trust income 53 58 282 225
Income from Bank Owned Life Insurance 224 368 765 947
Other non-interest income 79 132 523 360
------- ------- ------- -------
Total Non-interest Income 3,768 3,944 15,925 13,996
Non-interest Expense:
Compensation and benefits 5,870 4,360 23,446 17,422
Occupancy 1,227 842 4,651 3,294
SAIF deposit insurance premiums 35 27 136 40
State franchise tax 420 401 1,285 868
Acquisition related charges 20 -- 3,476 --
Data processing 843 647 3,247 2,363
Amortization of intangibles 214 28 755 110
Settlement of contingent liability -- -- -- 1,927
Other non-interest expense 2,055 1,408 6,946 5,176
------- ------- ------- -------
Total Non-interest Expense 10,684 7,713 43,942 31,200
------- ------- ------- -------
Income before income taxes 5,308 5,078 17,823 15,598
Income taxes 1,864 1,599 5,853 4,802
------- ------- ------- -------
Net income $ 3,444 $ 3,479 $11,970 $10,796
======= ======= ======= =======
Earnings per share:
Basic $ 0.49 $ 0.57 $ 1.74 $ 1.77
Diluted $ 0.48 $ 0.55 $ 1.68 $ 1.69
Core operating earnings per share*:
Basic $ 0.49 $ 0.57 $ 2.07 $ 1.98
Diluted $ 0.48 $ 0.55 $ 2.00 $ 1.89
Average Shares Outstanding:
Basic 6,991 6,063 6,872 6,094
Diluted 7,223 6,341 7,122 6,371
* - See Non-GAAP Disclosure Reconciliations
10
Exhibit 99.1
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Financial Summary and Comparison
First Defiance Financial Corp.
Three months ended Twelve months ended
December 31, December 31,
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(dollars in thousands, except per share data) 2005 2004 % change 2005 2004 % change
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Summary of Operations
Tax-equivalent interest income (1) 21,283 14,781 44.0 76,798 55,514 38.3
Interest expense 8,535 5,435 57.0 28,892 20,381 41.8
Tax-equivalent net interest income (1) 12,748 9,346 36.4 47,906 35,133 36.4
Provision for loan losses 378 304 24.3 1,442 1,548 (6.8)
Tax-equivalent NII after provision for loan loss (1) 12,370 9,042 36.8 46,464 33,585 38.3
Securities gains -- 732 (100.0) 1,222 1,426 (14.3)
Non-interest income-excluding securities gains 3,768 3,212 17.3 14,703 12,570 17.0
Non-interest expense 10,684 7,713 38.5 43,942 31,200 40.8
Non-interest expense-excluding non-core charges 10,664 7,713 38.3 40,466 29,273 38.2
One time acquisition related charges 20 -- NM 3,476 -- NM
Settlement of contingent liability -- -- NM -- 1,927 NM
Income taxes 1,864 1,599 16.6 5,853 4,802 21.9
Net Income 3,444 3,479 (1.0) 11,970 10,796 10.9
Core operating earnings (2) 3,457 3,479 (0.6) 14,229 12,049 18.1
Tax equivalent adjustment (1) 146 195 (25.1) 624 783 (20.3)
- ------------------------------------------------------------------------------------------------------------------------
At Period End
Assets 1,460,374 1,126,667 29.6
Earning assets 1,320,843 1,044,427 26.5
Loans 1,183,255 891,163 32.8
Allowance for loan losses 13,673 9,956 37.3
Deposits 1,069,501 797,701 34.1
Stockholders' equity 150,951 126,874 19.0
- ------------------------------------------------------------------------------------------------------------------------
Average Balances
Assets 1,429,953 1,108,979 28.9 1,364,797 1,070,803 27.5
Earning assets 1,290,007 1,014,424 27.2 1,238,214 976,482 26.8
Deposits and interest-bearing liabilities 1,265,623 972,498 30.1 1,209,284 935,399 29.3
Loans 1,149,937 858,971 33.9 1,089,942 806,877 35.1
Deposits 1,058,660 784,466 35.0 1,018,777 755,328 34.9
Stockholders' equity 150,063 126,101 19.0 144,983 125,920 15.1
Stockholders' equity / assets 10.49% 11.37% (7.7) 10.62% 11.76% (9.7)
- ------------------------------------------------------------------------------------------------------------------------
Per Common Share Data
Net Income
Basic $ 0.49 $ 0.57 (14.0) $ 1.74 $ 1.77 (1.7)
Diluted 0.48 0.55 (12.7) 1.68 1.69 (0.6)
Core operating earnings (2)
Basic $ 0.49 $ 0.57 (13.8) $ 2.07 $ 1.98 4.7
Diluted $ 0.48 $ 0.55 (12.8) 2.00 1.89 5.6
Dividends 0.24 0.22 9.1 0.90 0.82 9.8
Market Value:
High $ 30.06 $ 28.90 4.0 $ 31.44 $ 29.00 8.4
Low 25.56 25.20 1.4 25.29 22.01 14.9
Close 27.09 28.85 (6.1) 27.09 28.85 (6.1)
Book Value 21.31 20.20 5.5 21.31 20.20 5.5
Tangible Book Value 15.76 17.19 (8.3) 15.76 17.19 (8.3)
Shares outstanding, end of period (000) 7,085 6,280 12.8 7,085 6,280 12.8
- ------------------------------------------------------------------------------------------------------------------------
Performance Ratios (annualized)
Tax-equivalent net interest margin (1) 3.92% 3.68% 6.6 3.87% 3.62% 7.1
Return on average assets --GAAP 0.96% 1.25% (23.2) 0.88% 1.01% (13.0)
Return on average assets -- Core Operating 0.97% 1.25% (22.9) 1.04% 1.13% (7.3)
Return on average equity -- GAAP 9.18% 11.04% (16.8) 8.26% 8.57% (3.7)
Return on average equity -- Core Operating 9.21% 11.04% (16.5) 9.81% 9.57% 2.6
Efficiency ratio (3) -- GAAP 64.69% 61.42% 5.3 70.18% 65.40% 7.3
Efficiency ratio (3) -- Core Operating 64.57% 61.42% 5.1 64.63% 61.37% 5.3
Effective tax rate 35.12% 31.49% 11.5 32.84% 30.79% 6.7
Dividend payout ratio (basic) 48.98% 38.60% 26.9 51.72% 46.33% 11.6
- ------------------------------------------------------------------------------------------------------------------------
(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) 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
11
Exhibit 99.1
- --------------------------------------------------------------------------------
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 Twelve months ended
December 31, December 31,
(dollars in thousands, except per share data) 2005 2004 2005 2004
- -------------------------------------------------------------------------------------------
Core Operating Earnings
Net Income $ 3,444 $ 3,479 $ 11,970 $ 10,796
One-time acquisition related charges 20 -- 3,476 --
Settlement of contingent liability -- -- -- 1,927
Tax effect (7) -- (1,217) (674)
-------------------- --------------------
After-tax non-operating items 13 -- 2,259 1,253
-------------------- --------------------
Core operating earnings $ 3,457 $ 3,479 $ 14,229 $ 12,049
==================== ====================
One-time acquisition related charges in 2005 reflect charges associated with the
acquisition of ComBanc, Inc. and Genoa Savings and Loan Company.
Settlement of contingent liability relates to the Company's 2002 sales of The
Leader Mortgage Company subsidiary. 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.
- --------------------------------------------------------------------------------
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) 2005 2004 2005 2004
- ------------------------------------------------------------------------------------------------------
Gain from sale of mortgage loans $ 609 $ 527 $ 2,291 $ 2,350
Mortgage loan servicing revenue (expense):
Mortgage loan servicing revenue 385 295 1,421 1,126
Amortization of mortgage servicing rights (171) (157) (784) (704)
Mortgage servicing rights valuation adjustments 52 33 417 (1)
-------------------- --------------------
266 171 1,054 421
-------------------- --------------------
Total revenue from sale and servicing of mortgage loans $ 875 $ 698 $ 3,345 $ 2,771
==================== ====================
12
Exhibit 99.1
- ------------------------------------------------------------------------------------------------------------------------------------
Yield Analysis
First Defiance Financial Corp.
Three Months Ended December 31,
-----------------------------------------------------------------------------
2005 2004
------------------------------------ -------------------------------------
Average Yield Average Yield
Balance Interest(1) Rate(2) Balance Interest(1) Rate(2)
Interest-earning assets:
Loans receivable $1,149,937 $ 19,511 6.73% $ 858,971 $ 12,936 5.99%
Securities 113,766 1,434 5.00% 141,684 1,697 4.90%
Interest Bearing Deposits 9,008 87 3.83% 533 6 4.48%
FHLB stock 17,296 251 5.76% 13,236 142 4.27%
---------- ---------- ---------- ----------
Total interest-earning assets 1,290,007 21,283 6.55% 1,014,424 14,781 5.82%
Non-interest-earning assets 139,946 94,555
---------- ----------
Total assets $1,429,953 $1,108,979
========== ==========
Deposits and Interest-bearing liabilities:
Interest bearing deposits $ 965,629 $ 6,220 2.56% $ 723,047 $ 3,497 1.92%
FHLB advances and other 171,645 1,975 4.57% 176,324 1,899 4.28%
Other Borrowings 21,555 139 2.56% 11,708 39 1.33%
Subordinated debentures 13,763 201 5.79% -- -- 0.00%
---------- ---------- ---------- ----------
Total interest-bearing liabilities 1,172,592 8,535 2.89% 911,079 5,435 2.37%
Non-interest bearing deposits 93,031 -- -- 61,419 -- --
---------- ---------- ---------- ----------
Total including non-interest-bearing demand deposits 1,265,623 8,535 2.68% 972,498 5,435 2.22%
Other non-interest-bearing liabilities 14,268 10,380
---------- ----------
Total liabilities 1,279,891 982,878
Stockholders' equity 150,063 126,101
---------- ----------
Total liabilities and stockholders' equity $1,429,954 $1,108,979
========== ---------- ========== ----------
Net interest income; interest rate spread $ 12,748 3.66% $ 9,346 3.45%
========== ========== ========== ==========
Net interest margin (3) 3.92% 3.68%
========== ==========
Average interest-earning assets to average interest
bearing liabilities 110% 111%
========== ==========
Twelve Months Ended December 31,
-----------------------------------------------------------------------------
2005 2004
------------------------------------ -------------------------------------
Average Yield Average Yield
Balance Interest(1) Rate(2) Balance Interest(1) Rate(2)
Interest-earning assets:
Loans receivable $1,089,942 $ 69,732 6.40% $ 806,877 $ 47,360 5.87%
Securities 121,510 5,873 4.88% 152,319 7,499 5.08%
Interest Bearing Deposits 10,410 364 3.50% 2,447 43 1.76%
FHLB stock 16,352 829 5.07% 14,839 612 4.12%
---------- ---------- ---------- ----------
Total interest-earning assets 1,238,214 76,798 6.20% 976,482 55,514 5.71%
Non-interest-earning assets 126,583 94,321
---------- ----------
Total assets $1,364,797 $1,070,803
========== ==========
Deposits and Interest-bearing liabilities:
Interest bearing deposits $ 932,036 $ 20,615 2.21% $ 699,087 $ 12,950 1.85%
FHLB advances and other 168,330 7,625 4.53% 169,463 7,317 4.32%
Other Borrowings 18,736 451 2.41% 10,608 114 1.07%
Subordinated debentures 3,441 201 5.84% -- -- 0.00%
---------- ---------- ---------- ----------
Total interest-bearing liabilities 1,122,543 28,892 2.58% 879,158 20,381 2.32%
Non-interest bearing deposits 86,741 -- -- 56,241 -- --
---------- ---------- ---------- ----------
Total including non-interest-bearing demand deposits 1,209,284 28,892 2.39% 935,399 20,381 2.18%
Other non-interest-bearing liabilities 10,530 9,484
---------- ----------
Total liabilities 1,219,814 944,883
Stockholders' equity 144,983 125,920
---------- ----------
Total liabilities and stockholders' equity $1,364,797 $1,070,803
========== ---------- ========== ----------
Net interest income; interest rate spread $ 47,906 3.63% $ 35,133 3.39%
========== ========== ========== ==========
Net interest margin (3) 3.87% 3.62%
========== ==========
Average interest-earning assets to average interest
bearing liabilities 110% 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.
13
Exhibit 99.1
- ---------------------------------------------------------------------------------------------------------------------
Selected Quarterly Information
First Defiance Financial Corp.
(dollars in thousands, except per share data) 4th Qtr 2005 3rd Qtr 2005 2nd Qtr 2005 1st Qtr 2005 4th Qtr 2004
- --------------------------------------------------------------------------------------------------------------------
Summary of Operations
Tax-equivalent interest income (1) $ 21,283 $ 20,079 $ 18,830 $ 16,607 $ 14,781
Interest expense 8,535 7,715 6,816 5,826 5,435
Tax-equivalent net interest income (1) 12,748 12,364 12,014 10,781 9,346
Provision for loan losses 378 368 349 347 304
Tax-equivalent NII after provision for loan losses (1) 12,370 11,996 11,665 10,434 9,042
Investment securities gains - 86 515 621 732
Non-interest income (excluding securities gains/losses) 3,768 3,930 3,365 3,641 3,212
Non-interest expense 10,684 10,496 12,518 10,246 7,713
Acquisition and other one-time charges 20 97 2,476 884 -
Income taxes 1,864 1,742 838 1,409 1,599
Net income 3,444 3,627 2,028 2,871 3,479
Core operating earnings (2) 3,457 3,690 3,553 3,446 3,479
Tax equivalent adjustment (1) 146 147 161 170 195
- --------------------------------------------------------------------------------------------------------------------
At Period End
Total assets $1,460,374 $1,417,577 $1,399,626 $1,283,911 $1,126,667
Earning assets 1,307,170 1,276,425 1,264,326 1,163,699 1,034,471
Loans 1,183,255 1,153,566 1,140,885 1,027,418 891,163
Allowance for loan losses 13,673 13,624 13,460 12,749 9,956
Deposits 1,069,501 1,071,057 1,046,481 950,586 797,701
Stockholders' equity 150,951 149,284 147,550 146,136 126,874
Stockholders' equity / assets 10.34% 10.53% 10.54% 11.38% 11.26%
Goodwill 35,168 35,345 35,356 29,993 18,340
- --------------------------------------------------------------------------------------------------------------------
Average Balances (3)
Total assets $1,429,953 $1,411,434 $1,382,129 $1,235,682 $1,108,979
Earning assets 1,290,007 1,275,117 1,246,479 1,143,549 1,014,424
Deposits and interest-bearing liabilities 1,265,623 1,250,513 1,224,350 1,096,645 972,498
Loans 1,149,937 1,136,526 1,091,178 982,125 858,971
Deposits 1,058,660 1,046,287 1,048,961 921,196 784,466
Stockholders' equity 150,063 149,332 147,200 134,005 126,101
Stockholders' equity / assets 10.49% 10.58% 10.65% 10.84% 11.37%
- --------------------------------------------------------------------------------------------------------------------
Per Common Share Data
Net Income:
Basic $ 0.49 $ 0.52 $ 0.29 $ 0.43 $ 0.57
Diluted 0.48 0.50 0.28 0.41 0.55
Core operating earnings (2)
Basic $ 0.49 $ 0.53 $ 0.53 $ 0.52 $ 0.57
Diluted 0.48 0.51 0.51 0.50 0.55
Dividends 0.24 0.22 0.22 0.22 0.22
Market Value:
High $ 30.06 $ 31.44 $ 30.46 $ 29.90 $ 28.90
Low 25.56 26.21 25.29 26.00 25.20
Close 27.09 27.43 26.69 26.00 28.85
Book Value 21.31 21.14 20.91 21.11 20.20
Shares outstanding, end of period (in thousands) 7,085 7,060 7,056 7,020 6,280
- --------------------------------------------------------------------------------------------------------------------
Performance Ratios (annualized)
Tax-equivalent net interest margin (1) 3.92% 3.85% 3.87% 3.82% 3.67%
Return on average assets -- GAAP (4) 0.96% 1.03% 0.59% 0.93% 1.25%
Return on average assets -- Core operating 0.97% 1.05% 1.03% 1.12% 1.25%
Return on average equity -- GAAP 9.18% 9.72% 5.51% 8.57% 11.04%
Return on average equity -- Core operating 9.21% 9.88% 9.65% 10.29% 11.04%
Efficiency ratio (5) -- GAAP 64.69% 64.42% 81.78% 70.93% 61.80%
Efficiency ratio -- Core operating 64.57% 63.82% 66.02% 64.91% 61.42%
Effective tax rate 35.12% 32.45% 29.24% 32.92% 31.49%
Dividend payout ratio (basic) 48.98% 42.31% 75.86% 51.00% 38.60%
- --------------------------------------------------------------------------------------------------------------------
(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.
14
Exhibit 99.1
- ------------------------------------------------------------------------------------------------------------------------------------
Selected Quarterly Information
First Defiance Financial Corp.
(dollars in thousands, except per share data) 4th Qtr 2005 3rd Qtr 2005 2nd Qtr 2005 1st Qtr 2005 4th Qtr 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Loan Portfolio Composition
One to four family residential real estate $ 257,847 $ 280,436 $ 291,036 $ 229,887 $ 190,070
Construction 21,173 22,434 24,000 14,861 15,507
Commercial real estate 575,798 524,305 496,599 482,326 415,164
Commercial 170,225 167,990 172,351 160,749 141,643
Consumer finance 55,297 57,018 57,223 51,753 45,513
Home equity and improvement 113,000 111,234 111,291 95,200 90,839
---------- ---------- ---------- ---------- ---------
Total loans 1,193,340 1,163,417 1,152,500 1,034,776 898,736
Less:
Loans in process 8,782 8,601 10,372 6,170 6,340
Deferred loan origination fees 1,303 1,250 1,243 1,188 1,233
Allowance for loan loss 13,673 13,624 13,460 12,749 9,956
---------- ---------- ---------- ---------- ---------
Net Loans $1,169,582 $1,139,942 $1,127,425 $1,014,669 $ 881,207
========== ========== ========== ========== =========
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for loan loss activity
Beginning allowance $ 13,624 $ 13,460 $ 12,749 $ 9,956 $ 9,712
Provision for loan losses 378 368 349 349 304
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 150 32 -- -- --
Commercial real estate 25 134 -- 67 24
Commercial 55 65 104 45 107
Consumer finance 121 74 100 59 37
Home equity and improvement 25 -- -- -- --
---------- ---------- ---------- ---------- ---------
Total charge-offs 376 305 204 171 168
Total recoveries 47 101 77 77 108
---------- ---------- ---------- ---------- ---------
Net charge-offs (recoveries) 329 204 127 94 60
---------- ---------- ---------- ---------- ---------
Ending allowance $ 13,673 $ 13,624 $ 13,460 $ 12,749 $ 9,956
========== ========== ========== ========== =========
- ------------------------------------------------------------------------------------------------------------------------------------
Credit Quality
Non-accrual loans $ 4,952 $ 6,720 $ 4,745 $ 3,142 $ 1,893
Loans over 90 days past due and still accruing -- -- -- -- --
---------- ---------- ---------- ---------- ---------
Total non-performing loans (1) 4,952 6,720 4,745 3,142 1,893
Real estate owned (REO) 404 168 431 488 98
---------- ---------- ---------- ---------- ---------
Total non-performing assets (1) $ 5,356 $ 6,888 $ 5,176 $ 3,630 $ 1,991
========== ========== ========== ========== =========
Net charge-offs 329 204 127 94 60
Allowance for loan losses / loans 1.16% 1.18% 1.18% 1.24% 1.12%
Allowance for loan losses / non-performing assets 255.28% 197.79% 260.05% 351.21% 500.05%
Allowance for loan losses / non-performing loans 276.11% 202.74% 283.67% 405.76% 525.94%
Non-performing assets / loans plus REO 0.45% 0.60% 0.45% 0.35% 0.22%
Non-performing assets / total assets 0.37% 0.49% 0.37% 0.28% 0.18%
Net charge-offs / average loans (annualized) 0.11% 0.07% 0.05% 0.04% 0.03%
- ------------------------------------------------------------------------------------------------------------------------------------
Deposit Balances
Non-interest-bearing demand deposits $ 103,498 $ 92,720 $ 87,172 $ 76,644 $ 62,450
Interest-bearing demand deposits and money market 276,558 262,544 271,118 270,142 258,797
Savings deposits 82,766 88,994 94,391 85,581 52,132
Retail time deposits less than $100,000 408,384 424,607 412,797 356,763 272,098
Retail time deposits greater than $100,000 161,305 139,752 137,558 125,551 102,750
National/Brokered time deposits 36,990 62,440 43,445 35,905 49,474
---------- ---------- ---------- ---------- ---------
Total deposits $1,069,501 $1,071,057 $1,046,481 $ 950,586 $ 797,701
========== ========== ========== ========== =========
- ------------------------------------------------------------------------------------------------------------------------------------
(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.
15