NEWS RELEASE   Contact:              William J. Small Chairman, President and CEO (419) 782-5015 bsmall@first-fed.com

 

For Immediate Release

Exhibit 99.1

 

FIRST DEFIANCE FINANCIAL CORP. ANNOUNCES 2013

RECORD SECOND QUARTER EARNINGS

 

·

Net Income of $6.1 million for 2013 second quarter, up from $3.9 million in the 2012 second quarter

·

Average loans increased $20.5 million, or improving 1.4% from the 2013 first quarter

·

Provision for loan losses of $448,000, down from $4.1 million in the 2012 second quarter

·

Net Interest Margin of 3.82%, up from 3.75% for the second quarter of 2012

 

DEFIANCE, OHIO (July 22, 2013) – First Defiance Financial Corp. (NASDAQ: FDEF) announced today that net income for the second quarter ended June 30, 2013 totaled $6.1 million, or $0.60 per diluted common share, compared to $3.9 million or $0.38 per diluted common share for the quarter ended June 30, 2012.

 

“The momentum that we carried from the strong finish in 2012 has continued into the first half of this year and resulted in record earnings for the second consecutive quarter in 2013,” said William J. Small, Chairman, President, and CEO of First Defiance Financial Corp. “We are still very cognizant of the challenges the banking industry faces, but we believe we are well positioned to deal with them.”

 

Credit Quality

 

Asset quality continues to improve with non-performing loans decreasing 31% from June 30, 2012 and 19% decrease from the prior quarter. Non-performing loans totaled $28.7 million at June 30, 2013, a decrease from $41.7 million at June 30, 2012. In addition, First Defiance had $6.5 million of real estate owned at June 30, 2013 compared to $3.5 million at June 30, 2012. Accruing troubled debt restructured loans were $28.7 million at June 30, 2013 compared with $3.6 million at June 30, 2012. For the second quarter of 2013, First Defiance recorded net charge-offs of $637,000, down from $6.5 million in the second quarter of 2012 and relatively flat with the first quarter of 2013. The allowance for loan loss as a percentage of total loans was 1.68% at June 30, 2013 compared with 1.76% at June 30, 2012.

 

The second quarter results include expense for provision for loan losses of $448,000, compared with $4.1 million for the same period in 2012 and $425,000 in the first quarter of 2013.

 

 

“We are pleased with the significant improvement in asset quality during the quarter including significant declines in nonperforming loans, net charge-offs and classified loans. We also saw improvement in delinquency levels in all categories of our loan portfolio.” said Small. “As a result of this progress, provision expense was well below the level recorded in the 2012 second quarter.”

 

Net Interest Income down compared to second quarter 2012

 

Net interest income of $16.9 million in the second quarter of 2013 was down from $17.2 million in the second quarter of 2012. The net interest margin increased to 3.82% in the second quarter of 2013 compared with 3.75% in the second quarter of 2012 and 3.78% in the first quarter of 2013. Yield on interest earning assets declined by 22 basis points, to 4.22% in the second quarter of 2013 from 4.44% in the second quarter of 2012. The cost of interest-bearing liabilities decreased by 36 basis points in the second quarter of 2013 to 0.50% from 0.86% in the second quarter of 2012.

 

“We still face significant net interest income challenges, but are pleased with the improvement versus the linked quarter,” said Small. “The increase in the net interest margin this quarter was driven by a boost in loan balances. The challenges on the net interest margin in this low rate environment persist and will continue as competitive pressures remain strong.”

 

Non-Interest Income down slightly from second quarter 2012

 

First Defiance’s non-interest income for the second quarter of 2013 was $7.8 million compared with $8.0 million in the second quarter of 2012. Mortgage banking income increased to $2.4 million in the second quarter of 2013, up from $2.3 million in the second quarter of 2012. Gains from the sale of mortgage loans decreased in the second quarter of 2013 to $1.9 million from $2.5 million in the second quarter of 2012. Mortgage loan servicing revenue was $875,000 in the second quarter of 2013, up slightly from $832,000 in the second quarter of 2012. Service fees and other charges were $2.5 million in the second quarter of 2013, down from $2.7 million in the second quarter of 2012.

 

The prolonged low rate environment helped contribute to solid second quarter 2013 mortgage originations, although they were down slightly from the second quarter of 2012. The Company had a positive change in the valuation adjustment in mortgage servicing assets (“MSR”) of $312,000 in the second quarter of 2013 compared with a negative adjustment of $177,000 in the second quarter of 2012. The MSR positive valuation adjustment is a reflection of the increase in fair value of certain sectors of the Company’s portfolio of MSRs. The increase was driven by an increase in market rates in the quarter which also contributed to lower amortization of servicing rights.

 

Income from the sale of insurance and investment products increased to $2.3 million in the second quarter of 2013, from $2.2 million in the second quarter of 2012.

 

“We are satisfied with the ongoing strong mortgage banking contribution this quarter even though we experienced a decline in refinance business” continued Mr. Small. “The slower refinance activity has been partially offset by an increase in purchase business. We are hopeful the strengthening housing market will result in additional purchase activity throughout the second half of 2013.”

 

 

Non-Interest Expenses

 

Total non-interest expense was $15.7 million in the second quarter of 2013, an increase from $15.5 million in the second quarter of 2012.

 

Compensation and benefits increased to $8.5 million in the second quarter of 2013 compared to $8.0 million in the second quarter of 2012. The Company accrued for incentive payments based on exceeding 2013 targeted performance in the first half of 2013. FDIC insurance costs decreased to $275,000 in the second quarter of 2013 from $672,000 in the second quarter of 2012 due to the improvement in the Company’s risk category late in the first quarter of 2013. Data processing cost increased to $1.3 million in the second quarter of 2013 from $1.2 million in the second quarter of 2012. Other non-interest expense was $3.0 million in the second quarter of 2013, flat with the second quarter of 2012. Credit, collection and real estate owned costs were $474,000 in the second quarter of 2013 compared to $485,000 in the same period of 2012, and secondary market buy-back losses were $61,000 in the second quarter of 2013 compared to $73,000 in the same period of 2012.

 

Year-To-Date Results

 

For the six month period ended June 30, 2013, net interest income totaled $33.4 million, compared with $34.4 million in the first six months of 2012. Average interest-earning assets decreased to $1.824 billion in the first half of 2013, compared to $1.892 billion in the first half of 2012. Net interest margin for the first six months of 2013 was 3.78%, up 2 basis points from the 3.76% margin reported in the six month period ended June 30, 2012.

 

The provision for loan losses in the first half of 2013 was $873,000, compared to $7.6 million recorded during the first six months of 2012.

 

Non-interest income in the first half of 2013 was $16.8 million, compared to $16.4 million during the same period of 2012. Service fees and other charges were $4.9 million in the first half of 2013, down from $5.4 million in the first half of 2012. Mortgage banking income increased to $5.3 million in the first half of 2013, compared with $4.7 million in the first half of 2012. Insurance and investment sales revenues increased to $5.3 million in the first half of 2013, compared with $4.7 million during the first half of 2012. Non-interest income in the first half of 2013 included $97,000 of gain on the sale of securities compared with $425,000 in the first half of 2012.

 

Non-interest expense increased to $32.9 million in the first six months of 2013 from $31.8 million in the first half of 2012. Compensation and benefits expense was $17.3 million in the first half of 2013 compared with $16.5 million in the first half of 2012. Credit, collection and real estate owned costs have decreased $84,000 in the first six months of 2013 from the first six months of 2012 and secondary market buy-back losses have increased $569,000 in the first six months of 2013 from the first six months of 2012. An accrual of $581,000 was established in the first quarter of 2013 for estimated secondary market buy-back losses based on an estimated exposure of repurchase requests notifications from Fannie Mae’s post-foreclosure review process. As of June 30, 2013, the accrual for estimated buy-back losses is $567,000.

 

 

Total Assets at $2.07 Billion

 

Total assets at June 30, 2013 were $2.07 billion, compared to $2.05 billion at December 31, 2012. Net loans receivable (excluding loans held for sale) were $1.54 billion at June 30, 2013, compared to $1.50 billion at December 31, 2012. Total cash and cash equivalents were $127.7 million at June 30, 2013 compared with $136.8 million at December 31, 2012 and $103.5 million at June 30, 2012. Also, at June 30, 2013, goodwill and other intangible assets totaled $65.6 million compared to $66.3 million at December 31, 2012 and $67.0 million at June 30, 2012.

 

Total deposits at June 30, 2013 were $1.64 billion compared with $1.67 billion at December 31, 2012 and $1.61 billion at June 30, 2012. Non-interest bearing deposits at June 30, 2013 were $301.7 million compared to $315.1 million at December 31, 2012 and $261.2 million at June 30, 2012. Total stockholders’ equity was $264.5 million at June 30, 2013 compared to $258.1 million at December 31, 2012 and $249.9 million at June 30, 2012.

 

Conference Call

First Defiance Financial Corp. will host a conference call at 11:00 a.m. (EDT) on Tuesday, July 23, 2013 to discuss the earnings results and business trends. The conference call may be accessed by calling 1-888-317-6016. A live webcast may be accessed at http://services.choruscall.com/links/fdef130723.html.

 

Audio replay of the Internet Webcast will be available at www.fdef.com until July 23, 2014 at 9:00 a.m.

 

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 Group. First Federal operates 33 full service branches and 42 ATM locations in northwest Ohio, southeast Michigan and northeast Indiana. First Insurance Group is a full-service insurance agency with six offices throughout northwest Ohio.

 

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: changes in economic conditions, the nature, extent and timing of governmental actions and reforms, future movements of interest rates, the production levels of mortgage loan generation, the ability to continue to grow loans and deposits, the ability to benefit from a changing interest rate environment, the ability to sustain credit quality ratios at current or improved levels, the ability to sell real estate owned properties, continued strength in the market area for First Federal Bank of the Midwest, and the ability of the Company to grow in existing and adjacent markets. These forward-looking statements involve numerous risks and uncertainties, including those inherent in general and local banking, insurance and mortgage conditions, competitive factors specific to markets in which the Company and its subsidiaries operate, future interest rate levels, legislative and regulatory decisions or capital market conditions and other risks and uncertainties detailed from time to time in the Company's Securities and Exchange Commission (SEC) filings, including the Company's Annual Report on Form 10-K for the year ended December 31, 2012. One or more of these factors have affected or could in the future affect the Company's business and financial results in future periods and could cause actual results to differ materially from plans and projections. Therefore, there can be no assurances that the forward-looking statements included in this news release will prove to be accurate. In light of the significant uncertainties in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other persons, that the objectives and plans of the Company will be achieved. All forward-looking statements made in this news release are based on information presently available to the management of the Company. The Company assumes no obligation to update any forward-looking statements.

 

 

Consolidated Balance Sheets
First Defiance Financial Corp.		(Unaudited)								(Unaudited)
		June 30,				December 31,				June 30,
(in thousands)		2013				2012				2012
Assets
Cash and cash equivalents
Cash and amounts due from depository institutions		$	39,743			$	45,832			$	31,517
Interest-bearing deposits			88,000				91,000				72,000
			127,743				136,832				103,517
Securities
Available-for sale, carried at fair value			188,079				194,101				278,829
Held-to-maturity, carried at amortized cost			445				508				600
			188,524				194,609				279,429
Loans			1,562,666				1,525,257				1,500,637
Allowance for loan losses			(26,270	)			(26,711	)			(26,409	)
Loans, net			1,536,396				1,498,546				1,474,228
Loans held for sale			14,808				22,064				13,125
Mortgage servicing rights			8,731				7,833				8,274
Accrued interest receivable			5,891				5,594				6,063
Federal Home Loan Bank stock			19,353				20,655				20,655
Bank Owned Life Insurance			42,292				41,832				41,347
Office properties and equipment			38,866				39,663				40,825
Real estate and other assets held for sale			6,546				3,805				3,538
Goodwill			61,525				61,525				61,525
Core deposit and other intangibles			4,090				4,738				5,427
Deferred taxes			2,291				78				-
Other assets			9,160				9,174				9,663
Total Assets		$	2,066,216			$	2,046,948			$	2,067,616
Liabilities and Stockholders’ Equity
Non-interest-bearing deposits		$	301,742			$	315,132			$	261,211
Interest-bearing deposits			1,333,966				1,352,340				1,352,400
Total deposits			1,635,708				1,667,472				1,613,611
Advances from Federal Home Loan Bank			62,773				12,796				81,819
Notes payable and other interest-bearing liabilities			47,560				51,702				50,527
Subordinated debentures			36,083				36,083				36,083
Advance payments by borrowers for tax and insurance			1,844				1,473				989
Deferred taxes			-				-				1,376
Other liabilities			17,751				19,294				33,341
Total liabilities			1,801,719				1,788,820				1,817,746
Stockholders’ Equity
Preferred stock, net of discount			-				-				992
Common stock, net			127				127				127
Common stock warrant			878				878				878
Additional paid-in-capital			136,111				136,046				136,025
Accumulated other comprehensive income			204				4,274				4,660
Retained earnings			173,679				164,103				154,500
Treasury stock, at cost			(46,502	)			(47,300	)			(47,312	)
Total stockholders’ equity			264,497				258,128				249,870
Total Liabilities and Stockholders’ Equity		$	2,066,216			$	2,046,948			$	2,067,616

 

 

 Consolidated Statements of Income (Unaudited)

First Defiance Financial Corp.

 

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(in thousands, except per share amounts)		2013				2012				2013				2012
Interest Income:
Loans		$	17,047			$	18,197			$	33,843			$	36,847
Investment securities			1,406				1,994				2,809				3,777
Interest-bearing deposits			72				114				130				206
FHLB stock dividends			207				214				426				443
Total interest income			18,732				20,519				37,208				41,273
Interest Expense:
Deposits			1,511				2,116				3,158				4,485
FHLB advances and other			92				750				182				1,501
Subordinated debentures			150				310				302				641
Notes Payable			61				97				121				201
Total interest expense			1,814				3,273				3,763				6,828
Net interest income			16,918				17,246				33,445				34,445
Provision for loan losses			448				4,097				873				7,600
Net interest income after provision for loan losses			16,470				13,149				32,572				26,845
Non-interest Income:
Service fees and other charges			2,549				2,687				4,934				5,358
Mortgage banking income			2,443				2,258				5,273				4,704
Gain on sale of non-mortgage loans			2				33				17				42
Gain on sale of securities			44				382				97				425
Insurance and investment sales commissions			2,277				2,192				5,313				4,727
Trust income			186				169				349				323
Income from Bank Owned Life Insurance			231				219				460				439
Other non-interest income			116				54				367				396
Total Non-interest Income			7,848				7,994				16,810				16,414
Non-interest Expense:
Compensation and benefits			8,475				8,049				17,273				16,514
Occupancy			1,694				1,760				3,348				3,548
FDIC insurance premium			275				672				931				1,341
State franchise tax			627				512				1,256				1,026
Data processing			1,313				1,169				2,494				2,337
Amortization of intangibles			312				349				648				724
Other non-interest expense			2,978				3,021				6,923				6,302
Total Non-interest Expense			15,674				15,532				32,873				31,792
Income before income taxes			8,644				5,611				16,509				11,467
Income taxes			2,535				1,690				4,841				3,393
Net Income		$	6,109			$	3,921			$	11,668			$	8,074
Dividends Accrued on Preferred Shares			-				(435	)			-				(897	)
Accretion on Preferred Shares			-				(305	)			-				(351	)
Redemption of Preferred Shares			-				642				-				642
Net Income Applicable to Common Shares		$	6,109			$	3,823			$	11,668			$	7,468
Earnings per common share:
Basic		$	0.63			$	0.39			$	1.20			$	0.77
Diluted		$	0.60			$	0.38			$	1.15			$	0.75
Average Shares Outstanding:
Basic			9,774				9,729				9,755				9,728
Diluted			10,156				9,985				10,130				9,980

 

 

Financial Summary and Comparison

First Defiance Financial Corp.

		(Unaudited)												(Unaudited)
		Three Months Ended												Six Months Ended
		June 30,												June 30,
(dollars in thousands, except per share data)		2013				2012				% change				2013				2012				% change
Summary of Operations
Tax-equivalent interest income (1)		$	19,143			$	20,935				(8.6	)%		$	38,028			$	42,080				(9.6	)%
Interest expense			1,814				3,273				(44.6	)			3,763				6,828				(44.9	)
Tax-equivalent net interest income (1)			17,329				17,662				(1.9	)			34,265				35,252				(2.8	)
Provision for loan losses			448				4,097				(89.1	)			873				7,600				(88.5	)
Tax-equivalent NII after provision for loan loss (1)			16,881				13,565				24.4				33,392				27,652				20.8
Investment Securities gains			44				382				(88.5	)			97				425				(77.2	)
Impairment losses on securities			-				-				-				-				-				-
Non-interest income (excluding securities gains/losses)			7,804				7,612				2.5				16,713				15,989				4.5
Non-interest expense			15,674				15,532				0.9				32,873				31,792				3.4
Income taxes			2,535				1,690				50.0				4,841				3,393				42.7
Net Income			6,109				3,921				55.8				11,668				8,074				44.5
Dividends Declared on Preferred Shares			-				(435	)			(100.0	)			-				(897	)			(100.0	)
Accretion on Preferred Shares			-				(305	)			(100.0	)			-				(351	)			(100.0	)
Redemption on Preferred Shares			-				642				NM				-				642				NM
Net Income Applicable to Common Shares			6,109				3,823				59.8				11,668				7,468				56.2
Tax equivalent adjustment (1)			411				416				(1.2	)			820				807				1.6
At Period End
Assets			2,066,216				2,067,616				(0.1	)
Earning assets			1,873,351				1,885,846				(0.7	)
Loans			1,562,666				1,500,637				4.1
Allowance for loan losses			26,270				26,409				(0.5	)
Deposits			1,635,708				1,613,611				1.4
Stockholders’ equity			264,497				249,870				5.9
Average Balances
Assets			2,030,707				2,102,675				(3.4	)			2,029,307				2,091,589				(3.0	)
Earning assets			1,825,730				1,903,714				(4.1	)			1,824,105				1,892,190				(3.6	)
Loans			1,520,708				1,462,312				4.0				1,510,465				1,459,559				3.5
Deposits and interest-bearing liabilities			1,745,084				1,800,036				(3.1	)			1,745,588				1,790,873				(2.5	)
Deposits			1,644,777				1,629,094				1.0				1,647,774				1,619,685				1.7
Stockholders’ equity			264,293				281,031				(6.0	)			261,959				280,440				(6.6	)
Stockholders’ equity / assets			13.01	%			13.37	%			(2.6	)			12.91	%			13.41	%			(3.7	)
Per Common Share Data
Net Income
Basic		$	0.63			$	0.39				61.5			$	1.20			$	0.77				55.8
Diluted			0.60				0.38				57.9				1.15				0.75				53.3
Dividends			0.10				0.05				100.0				0.20				0.10				100.0
Market Value:
High		$	23.75			$	17.46				36.0			$	23.75			$	17.76				33.7
Low			20.80				15.23				36.6				18.42				14.41				27.8
Close			22.55				17.12				31.7				22.55				17.12				31.7
Common Book Value			26.97				25.49				5.8				26.97				25.49				5.8
Tangible Common Book Value			20.25				18.61				8.8				20.25				18.61				8.8
Shares outstanding, end of period (000)			9,776				9,729				0.5				9,776				9,729				0.5
Performance Ratios (annualized)
Tax-equivalent net interest margin (1)			3.82	%			3.75	%			2.0				3.78	%			3.76	%			0.5
Return on average assets			1.21	%			0.75	%			60.9				1.16	%			0.77	%			49.4
Return on average equity			9.27	%			5.61	%			65.2				8.96	%			5.77	%			55.1
Efficiency ratio (2)			62.36	%			61.45	%			1.5				64.48	%			62.04	%			3.9
Effective tax rate			29.33	%			30.12	%			(2.6	)			29.32	%			29.59	%			(0.9	)
Dividend payout ratio (basic)			15.87	%			12.82	%			23.8				16.67	%			12.99	%			NM

 

(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 or losses, net.

NM

Percentage change not meaningful

 

 

 Income from Mortgage Banking

 

Revenue from sales and servicing of mortgage loans consisted of the following: 

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(dollars in thousands)		2013				2012				2013				2012
Gain from sale of mortgage loans		$	1,890			$	2,458			$	4,066			$	5,002
Mortgage loan servicing revenue (expense):
Mortgage loan servicing revenue			875				832				1,745				1,675
Amortization of mortgage servicing rights			(634	)			(855	)			(1,323	)			(1,718	)
Mortgage servicing rights valuation adjustments			312				(177	)			785				(255	)
			553				(200	)			1,207				(298	)
Total revenue from sale and servicing of mortgage loans		$	2,443			$	2,258			$	5,273			$	4,704

 

 

 Yield Analysis

First Defiance Financial Corp.

 

		Three Months Ended June 30,
		(dollars in thousands)
		2013												2012
		Average								Yield				Average								Yield
		Balance				Interest(1)				Rate(2)				Balance				Interest(1)				Rate(2)
Interest-earning assets:
Loans receivable		$	1,520,708			$	17,064				4.50	%		$	1,462,312			$	18,223				5.01	%
Securities			195,942				1,800				3.82	%			273,017				2,384				3.62	%
Interest Bearing Deposits			89,116				72				0.32	%			147,730				114				0.31	%
FHLB stock			19,964				207				4.16	%			20,655				214				4.17	%
Total interest-earning assets			1,825,730				19,143				4.22	%			1,903,714				20,935				4.44	%
Non-interest-earning assets			204,977												198,961
Total assets		$	2,030,707											$	2,102,675
Deposits and Interest-bearing liabilities:
Interest bearing deposits		$	1,343,678			$	1,511				0.45	%		$	1,368,144			$	2,116				0.62	%
FHLB advances and other			14,443				92				2.55	%			81,823				750				3.69	%
Notes payable			49,728				61				0.49	%			52,921				97				0.74	%
Subordinated debentures			36,136				150				1.66	%			36,198				310				3.44	%
Total interest-bearing liabilities			1,443,985				1,814				0.50	%			1,539,086				3,273				0.86	%
Non-interest bearing deposits			301,099				-				-				260,950				-				-
Total including non-interest-bearing demand deposits			1,745,084				1,814				0.42	%			1,800,036				3,273				0.73	%
Other non-interest-bearing liabilities			21,330												21,608
Total liabilities			1,766,414												1,821,644
Stockholders' equity			264,293												281,031
Total liabilities and stockholders' equity		$	2,030,707											$	2,102,675
Net interest income; interest rate spread						$	17,329				3.72	%						$	17,662				3.58	%
Net interest margin (3)											3.82	%											3.75	%
Average interest-earning assets  to average interest bearing liabilities											126	%											124	%

 

		Six Months Ended June 30,
		2013												2012
		Average								Yield				Average								Yield
		Balance				Interest(1)				Rate				Balance				Interest(1)				Rate
Interest-earning assets:
Loans receivable		$	1,510,465			$	33,878				4.50	%		$	1,459,559			$	36,902				5.08	%
Securities			196,257				3,594				3.81	%			255,279				4,529				3.68	%
Interest Bearing Deposits			97,724				130				0.27	%			156,697				206				0.26	%
FHLB stock			19,659				426				4.35	%			20,655				443				4.31	%
Total interest-earning assets			1,824,105				38,028				4.18	%			1,892,190				42,080				4.47	%
Non-interest-earning assets			205,202												199,399
Total assets		$	2,029,307											$	2,091,589
Deposits and Interest-bearing liabilities:
Interest bearing deposits		$	1,350,112			$	3,158				0.47	%		$	1,366,583			$	4,485				0.66	%
FHLB advances and other			13,616				182				2.68	%			81,828				1,501				3.69	%
Notes payable			48,062				121				0.50	%			53,162				201				0.76	%
Subordinated debentures			36,136				302				1.68	%			36,198				641				3.56	%
Total interest-bearing liabilities			1,447,926				3,763				0.52	%			1,537,771				6,828				0.89	%
Non-interest bearing deposits			297,662				-				-				253,102				-				-
Total including non-interest-bearing demand deposits			1,745,588				3,763				0.43	%			1,790,873				6,828				0.77	%
Other non-interest-bearing liabilities			21,760												20,276
Total liabilities			1,767,348												1,811,149
Stockholders' equity			261,959												280,440
Total liabilities and stockholders' equity		$	2,029,307											$	2,091,589
Net interest income; interest rate spread						$	34,265				3.66	%						$	35,252				3.58	%
Net interest margin (3)											3.78	%											3.76	%
Average interest-earning assets  to average interest bearing liabilities											126	%											123	%

 

(1)

Interest on certain tax exempt loans and securities is not taxable for Federal income tax purposes. In order to compare the tax-exempt yields on these assets to taxable yields, the interest earned on these assets is adjusted to a pre-tax equivalent amount based on the marginal corporate federal income tax rate of 35%.

(2)

Annualized

(3)

Net interest margin is net interest income divided by average interest-earning assets.

 

  

Selected Quarterly Information

First Defiance Financial Corp.

 

(dollars in thousands, except per share data)		2nd Qtr 2013				1st Qtr 2013				4th Qtr 2012				3rd Qtr 2012				2nd Qtr 2012
Summary of Operations
Tax-equivalent interest income (1)		$	19,143			$	18,885			$	19,993			$	20,525			$	20,935
Interest expense			1,814				1,949				2,186				2,923				3,273
Tax-equivalent net interest income (1)			17,329				16,936				17,807				17,602				17,662
Provision for loan losses			448				425				2,618				705				4,097
Tax-equivalent NII after provision for loan losses (1)			16,881				16,511				15,189				16,897				13,565
Investment securities gains, net of impairment			44				53				1,606				103				382
Non-interest income (excluding securities gains/losses)			7,804				8,909				8,574				7,677				7,612
Non-interest expense			15,674				17,199				17,538				16,450				15,532
Income taxes			2,535				2,306				2,253				2,366				1,690
Net income			6,109				5,559				5,157				5,434				3,921
Dividends Declared on Preferred Shares			-				-				-				(3	)			(435	)
Accretion on Preferred Shares			-				-				-				(8	)			(305	)
Redemption on Preferred Shares			-				-				-				-				642
Net Income Applicable to Common Shares			6,109				5,559				5,157				5,423				3,823
Tax equivalent adjustment (1)			411				409				421				427				416
At Period End
Total assets		$	2,066,216			$	2,039,411			$	2,046,948			$	2,055,672			$	2,067,616
Earning assets			1,873,351				1,858,747				1,853,585				1,874,671				1,885,846
Loans			1,562,666				1,507,008				1,525,257				1,512,132				1,500,637
Allowance for loan losses			26,270				26,459				26,711				26,310				26,409
Deposits			1,635,708				1,656,348				1,667,472				1,609,350				1,613,611
Stockholders’ equity			264,497				262,643				258,128				255,136				249,870
Stockholders’ equity / assets			12.80	%			12.88	%			12.61	%			12.41	%			12.08	%
Goodwill			61,525				61,525				61,525				61,525				61,525
Average Balances
Total assets		$	2,030,707			$	2,027,906			$	2,023,890			$	2,047,139			$	2,102,675
Earning assets			1,825,730				1,823,089				1,815,263				1,849,715				1,903,714
Loans			1,520,708				1,500,222				1,509,611				1,481,995				1,462,312
Deposits and interest-bearing liabilities			1,745,084				1,746,092				1,744,274				1,774,312				1,800,036
Deposits			1,644,777				1,650,772				1,633,432				1,605,749				1,629,094
Stockholders’ equity			264,293				259,625				256,304				251,592				281,031
Stockholders’ equity / assets			13.01	%			12.80	%			12.66	%			12.29	%			13.37	%
Per Common Share Data
Net Income:
Basic		$	0.63			$	0.57			$	0.53			$	0.56			$	0.39
Diluted			0.60				0.55				0.52				0.54				0.38
Dividends			0.10				0.10				0.05				0.05				0.05
Market Value:
High		$	23.75			$	23.75			$	19.38			$	18.06			$	17.46
Low			20.80				18.42				15.75				15.80				15.23
Close			22.55				23.32				19.19				17.26				17.12
Common Book Value			26.97				26.80				26.44				26.13				25.49
Shares outstanding, end of period (in thousands)			9,776				9,766				9,729				9,729				9,729
Performance Ratios (annualized)
Tax-equivalent net interest margin (1)			3.82	%			3.78	%			3.92	%			3.80	%			3.75	%
Return on average assets			1.21	%			1.11	%			1.01	%			1.06	%			0.75	%
Return on average equity			9.27	%			8.68	%			8.00	%			8.59	%			5.61	%
Efficiency ratio (2)			62.36	%			66.55	%			66.48	%			65.07	%			61.45	%
Effective tax rate			29.33	%			29.32	%			30.40	%			30.33	%			30.12	%
Common dividend payout ratio (basic)			15.87	%			17.54	%			9.43	%			8.93	%			12.82	%

(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.

 

 

Selected Quarterly Information

First Defiance Financial Corp.

 

(dollars in thousands, except per share data)		2nd Qtr 2013				1st Qtr 2013				4th Qtr 2012				3rd Qtr 2012				2nd Qtr 2012
Loan Portfolio Composition
One to four family residential real estate		$	196,802			$	197,675			$	200,826			$	210,053			$	210,520
Construction			41,519				33,398				37,788				31,428				22,923
Commercial real estate			820,412				802,098				797,385				792,351				775,526
Commercial			396,158				365,551				383,817				365,510				372,266
Consumer finance			16,817				15,549				15,936				16,785				17,127
Home equity and improvement			106,570				106,524				108,718				111,563				112,427
Total loans			1,578,278				1,520,795				1,544,470				1,527,690				1,510,789
Less:
Loans in process			14,876				13,084				18,478				14,831				9,439
Deferred loan origination fees			736				703				735				727				713
Allowance for loan loss			26,270				26,459				26,711				26,310				26,409
Net Loans		$	1,536,396			$	1,480,549			$	1,498,546			$	1,485,822			$	1,474,228
Allowance for loan loss activity
Beginning allowance			26,459				26,711				26,310				26,409			$	28,833
Provision for loan losses			448				425				2,618				705				4,097
Credit loss charge-offs:
One to four family residential real estate			184				206				976				217				584
Commercial real estate			283				266				593				780				5,448
Commercial			316				205				541				355				486
Consumer finance			8				46				59				19				14
Home equity and improvement			170				272				497				203				254
Total charge-offs			961				995				2,666				1,574				6,786
Total recoveries			324				318				449				770				265
Net charge-offs (recoveries)			637				677				2,217				804				6,521
Ending allowance		$	26,270			$	26,459			$	26,711			$	26,310			$	26,409
Credit Quality
Total non-performing loans (1)		$	28,650			$	35,283			$	32,570			$	37,803			$	41,702
Real estate owned (REO)			6,546				4,313				3,805				2,843				3,538
Total non-performing assets (2)		$	35,196			$	39,596			$	36,375			$	40,646			$	45,240
Net charge-offs			637				677				2,217				804				6,521
Restructured loans, accruing (3)			28,732				27,981				28,203				4,305				3,581
Allowance for loan losses / loans			1.68	%			1.76	%			1.75	%			1.74	%			1.76	%
Allowance for loan losses / non-performing assets			74.64	%			66.82	%			73.43	%			64.73	%			58.38	%
Allowance for loan losses / non-performing loans			91.69	%			74.99	%			82.01	%			69.60	%			63.33	%
Non-performing assets / loans plus REO			2.24	%			2.62	%			2.38	%			2.68	%			3.01	%
Non-performing assets / total assets			1.70	%			1.94	%			1.78	%			1.98	%			2.19	%
Net charge-offs / average loans (annualized)			0.17	%			0.18	%			0.59	%			0.22	%			1.78	%
Deposit Balances
Non-interest-bearing demand deposits		$	301,742			$	291,765			$	315,132			$	271,305			$	261,211
Interest-bearing demand deposits and money market			659,249				681,061				664,857				636,510				628,760
Savings deposits			182,784				177,336				166,945				166,155				165,699
Retail time deposits less than $100,000			321,422				330,870				342,472				356,369				370,443
Retail time deposits greater than $100,000			168,573				173,379				176,029				176,725				180,594
National/Brokered time deposits			1,938				1,937				2,037				2,286				6,904
Total deposits		$	1,635,708			$	1,656,348			$	1,667,472			$	1,609,350			$	1,613,611

 

(1)

Non-performing loans consist of non-accrual loans.

(2)

Non-performing assets are non-performing loans plus real estate and other assets acquired by foreclosure or deed-in-lieu thereof.

(3)

Accruing restructured loans are loans with known credit problems that are not contractually past due and therefore are not included in non-performing loans.

 

 

 Loan Delinquency Information

First Defiance Financial Corp.

 

(dollars in thousands)		Total Balance				Current				30 to 89 days past due				Non Accrual Loans
June 30, 2013
One to four family residential real estate		$	196,802			$	192,257			$	1,480			$	3,065
Construction			41,519				41,519				-				-
Commercial real estate			820,412				799,070				1,348				19,994
Commercial			396,158				390,510				258				5,390
Consumer finance			16,817				16,628				189				-
Home equity and improvement			106,570				105,163				1,206				201
Total loans		$	1,578,278			$	1,545,147			$	4,481			$	28,650
December 31, 2012
One to four family residential real estate		$	200,826			$	195,188			$	2,036			$	3,602
Construction			37,788				37,788				-				-
Commercial real estate			797,385				773,170				1,125				23,090
Commercial			383,817				376,548				1,608				5,661
Consumer finance			15,936				15,701				235				-
Home equity and improvement			108,718				106,002				2,499				217
Total loans		$	1,544,470			$	1,504,397			$	7,503			$	32,570
June 30, 2012
One to four family residential real estate		$	210,520			$	200,839			$	1,578			$	5,352
Construction			22,923				22,923				-				-
Commercial real estate			775,526				744,657				1,234				29,000
Commercial			372,266				364,164				1,043				6,900
Consumer finance			17,127				16,906				217				4
Home equity and improvement			112,427				110,977				968				446
Total loans		$	1,510,789			$	1,460,466			$	5,040			$	41,702