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8-K - FORM 8-K - PREMIER FINANCIAL CORPv444388_8k.htm

 

Exhibit 99.1

 

  NEWS RELEASE
 
Contact:       Donald P. Hileman
President and CEO
(419) 782-5104
dhileman@first-fed.com

 

 

 

For Immediate Release

 

FIRST DEFIANCE FINANCIAL CORP. ANNOUNCES 2016

SECOND QUARTER EARNINGS

 

·Diluted earnings per share of $0.80 for 2016 second quarter up, from $0.70 in the 2015 second quarter
·Net income of $7.3 million for 2016 second quarter up, from $6.6 million in the 2015 second quarter
·Return on average assets of 1.22% for the 2016 second quarter, up from 1.19% in the 2015 second quarter
·Net interest margin of 3.71% for the 2016 second quarter, compared to 3.81% in the 2015 second quarter
·Loan growth of $36.4 million during 2016 second quarter
·Deposit growth of $49.1 million during 2016 second quarter
·Non-performing assets down 21% from 2015 second quarter

 

DEFIANCE, OHIO (July 18, 2016) – First Defiance Financial Corp. (NASDAQ: FDEF) announced today that net income for the second quarter ended June 30, 2016 totaled $7.3 million, or $0.80 per diluted common share, compared to $6.6 million or $0.70 per diluted common share for the quarter ended June 30, 2015.

 

“Our very strong financial performance results for the second quarter reflect our continued success in growing profitably,” said Donald P. Hileman, President and Chief Executive Officer of First Defiance Financial Corp. “At quarter-end, our total assets exceeded $2.4 billion, up 9.7% from a year ago; and second quarter diluted earnings per share grew to $0.80, a 14.3% increase over second quarter last year.”

 

Net Interest Income up Compared to Second Quarter 2015

 

Net interest income of $19.4 million in the second quarter of 2016 was up from $18.4 million in the second quarter of 2015. Net interest margin was 3.71% for the second quarter of 2016, down from 3.80% in the first quarter of 2016, and down from 3.81% in the second quarter of 2015. Yield on interest earning assets decreased by 5 basis points, to 4.10% in the second quarter of 2016 from 4.15% in the second quarter of 2015. The cost of interest-bearing liabilities increased by 7 basis points in the second quarter of 2016 to 0.51% from 0.44% in the second quarter of 2015.

 

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“Our healthy growth momentum continued in the second quarter. Loan growth was $36.4 million as steady loan demand persisted across our market area, and deposit growth of $49.1 million was generated by our relationship sales and service model,” said Hileman. “This combination kept our balance sheet and net interest margin strong resulting in net interest income rising $1.0 million, or 5.6% over the second quarter last year.”

 

Non-Interest Income up from Second Quarter 2015

 

First Defiance’s non-interest income for the second quarter of 2016 was $8.6 million compared with $7.8 million in the second quarter of 2015. The second quarter of 2016 included gains of $227,000 from the sale of securities, compared to no gains or losses in the second quarter of 2015.

 

Mortgage banking income was $1.8 million in the second quarter of 2016, even with $1.8 million in the second quarter of 2015. Mortgage originations totaled $76.0 million in the second quarter of 2016, up seasonally from the first quarter of 2016 but down slightly from $76.9 million in the same quarter last year. Gains from the sale of mortgage loans increased in the second quarter of 2016 to $1.4 million from $1.2 million in the second quarter of 2015. Mortgage loan servicing revenue was $876,000 in the second quarter of 2016, up slightly from $852,000 in the second quarter of 2015. First Defiance had a negative change in the valuation adjustment in mortgage servicing assets of $104,000 in the second quarter of 2016 compared with a positive adjustment of $141,000 in the second quarter of 2015. In addition, gains on the sale of non-mortgages, which include SBA and FSA loans, totaled $411,000 in the second quarter 2016 compared to $197,000 in the second quarter 2015.

 

For the second quarter of 2016, commissions from the sale of insurance products was $2.5 million, up from $2.3 million in the second quarter of 2015; and service fees and other charges were $2.8 million in the second quarter of 2016, up from $2.7 million in the second quarter of 2015. Trust income was $409,000 in the second quarter of 2016, up 11.4% from $367,000 in the second quarter of 2015.

 

“Non-interest income growth this quarter included contributions from all major business lines with mortgage banking, service fees, insurance commissions and trust income all reflecting solid increases in core revenues over the second quarter last year,” continued Hileman. “Total non-interest income, excluding securities gains, rose 6.9% over this same period in the prior year.”

 

Non-Interest Expenses up from Second Quarter 2015

 

Total non-interest expense was $17.3 million in the second quarter of 2016, an increase from $16.8 million in the second quarter of 2015. Compensation and benefits increased to $9.8 million in the second quarter of 2016, compared to $9.2 million in the second quarter of 2015. The increase in compensation and benefits from a year ago is mainly related to merit increases, staff additions to support growth strategies and higher medical insurance costs. Occupancy expense was $1.8 million and data processing costs were $1.6 million, both even with the second quarter of 2015. Other non-interest expense of $3.2 million in the second quarter of 2016 was down from $3.3 million in the second quarter of 2015, primarily due to OREO write-downs of $182,000 in the second quarter of 2015 compared to none in the second quarter of 2016.

 

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Credit Quality

 

Non-performing loans totaled $16.4 million at June 30, 2016, a decrease from $16.7 million at June 30, 2015. In addition, First Defiance had $1.1 million of real estate owned at June 30, 2016 compared to $5.4 million at June 30, 2015. Accruing troubled debt restructured loans were $9.6 million at June 30, 2016 compared with $22.2 million at June 30, 2015. For the second quarter of 2016, First Defiance recorded net recoveries of $227,000, compared to net recoveries of $82,000 in the second quarter of 2015. The allowance for loan loss as a percentage of total loans was 1.39% at June 30, 2016 compared with 1.49% at June 30, 2015.

 

The second quarter 2016 results include a provision for loan losses of $53,000 compared with no provision expense for the same period in 2015.

 

“We are pleased that our credit quality continues to strengthen as we grow our loan portfolio,” said Hileman. “Our total non-performing assets declined in the second quarter to 0.73% of total assets and reflect a 20.8% decrease from a year ago. In addition, our allowance for loan losses coverage of our non-performing loans now stands at 158.0%.”

 

Year-To-Date Results

 

For the six-month period ended June 30, 2016, net income totaled $14.4 million, or $1.59 per diluted common share, compared to $13.2 million, or $1.39 per diluted common share for the six months ended June 30, 2015.

 

The year-to-date net income for 2016 includes the second quarter adoption of ASU 2016-09, Improvements to Employee Share-based Payment Accounting. As a result of adoption, the first quarter 2016 net income was restated to reflect a $99,000 reduction to tax expense, which increased first quarter of 2016 net income by $99,000, or $0.01 per diluted common share.

 

Net interest income was $38.6 million for the first six months of 2016 compared with $36.6 million in the first six months of 2015. Average interest-earning assets increased to $2.126 billion in the first six months of 2016, compared to $1.975 billion in the first six months of 2015. Net interest margin for the first six months of 2016 was 3.75%, down 9 basis points from the 3.84% margin reported in the six month period ended June 30, 2015.

 

The provision for loan losses in the first six months of 2016 was $417,000, compared to $120,000 recorded during the first six months of 2015.

 

Non-interest income for the first six months of 2016 was $17.2 million, compared to $16.1 million during the same period of 2015. Service fees and other charges were $5.4 million for the first six months of 2016, up from $5.2 million during the same period of 2015. Mortgage banking income decreased to $3.3 million for the first six months of 2016, compared with $3.6 million during the same period of 2015. Insurance commissions rose to $5.6 million for the first six months of 2016, compared with $5.5 million for the same period of 2015. Non-interest income for the first six months of 2016 included $358,000 of gains on the sale of securities compared with no securities gains or losses during the same period of 2015.

 

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Non-interest expense was $34.6 million for the first six months of 2016, up from $33.7 million for the same period of 2015. Compensation and benefits expense was $20.0 million for the first six months of 2016 compared with $18.1 million during the same period of 2015. The increase in compensation and benefits over the prior year is mainly related to merit increases, staff additions to support growth strategies and higher medical insurance costs. Expenses also included an increase in occupancy of $40,000 and decreases in FDIC insurance premiums of $14,000, data processing of $20,000, amortization of intangibles of $75,000 and other expenses of $854,000. The decrease in other expenses was due to $705,000 of OREO write-downs in 2015 compared to only $53,000 in 2016 and lower management consulting costs.

 

Total Assets at $2.4 Billion

 

Total assets at June 30, 2016 were $2.41 billion compared to $2.30 billion at December 31, 2015 and $2.20 billion at June 30, 2015. Loans receivable (excluding loans held for sale) were $1.86 billion at June 30, 2016 compared to $1.80 billion at December 31, 2015 and $1.71 billion at June 30, 2015. Total cash and cash equivalents were $130.5 million at June 30, 2016 compared with $79.8 million at December 31, 2015 and $65.6 million at June 30, 2015. Also, at June 30, 2016, goodwill and other intangible assets totaled $63.4 million compared to $63.7 million at December 31, 2015 and $63.5 million at June 30, 2015.

 

Total deposits at June 30, 2016 were $1.92 billion compared with $1.84 billion at December 31, 2015 and $1.76 billion at June 30, 2015. Non-interest bearing deposits at June 30, 2016 were $442.8 million compared to $420.7 million at December 31, 2015 and $379.0 million at June 30, 2015. Total stockholders’ equity was $286.6 million at June 30, 2016 compared to $280.2 million at December 31, 2015 and $276.0 million at June 30, 2015.

 

Dividend to be Paid August 26

 

The Board of Directors declared a quarterly cash dividend of $0.22 per common share payable August 26, 2016 to shareholders of record at the close of business on August 19, 2016. The dividend represents an annual dividend of 2.23 percent based on the First Defiance common stock closing price on July 15, 2016. First Defiance has approximately 8,971,418 common shares outstanding.

 

Conference Call

 

First Defiance Financial Corp. will host a conference call at 11:00 a.m. ET on Tuesday, July 19, 2016 to discuss the earnings results and business trends. The conference call may be accessed by calling 1-877-444-1726. In addition, a live webcast may be accessed at http://services.choruscall.com/links/ fdef160719.

 

Audio replay of the Internet Webcast will be available at www.fdef.com until July 19, 2017 at 9:00 a.m. ET.

 

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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 Bank operates 34 full-service branches and numerous ATM locations in northwest Ohio, southeast Michigan and northeast Indiana and a loan production office in Columbus, Ohio. 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 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 First Defiance 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 our Securities and Exchange Commission (SEC) filings, including our Annual Report on Form 10-K for the year ended December 31, 2015. One or more of these factors have affected or could in the future affect First Defiance'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 First Defiance or any other persons, that our objectives and plans will be achieved. All forward-looking statements made in this news release are based on information presently available to the management of First Defiance. We assume no obligation to update any forward-looking statements.

 

As required by U.S. GAAP, First Defiance will evaluate the impact of subsequent events through the issuance date of its June 30, 2016 consolidated financial statements as part of its Quarterly Report on Form 10-Q to be filed with the SEC. Accordingly, subsequent events could occur that may cause First Defiance to update its critical accounting estimates and to revise its financial information from that which is contained in this news release.

 

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Consolidated Balance Sheets (Unaudited)

First Defiance Financial Corp.

 

   June 30,   December 31, 
(in thousands)  2016   2015 
         
Assets          
Cash and cash equivalents          
Cash and amounts due from depository institutions  $46,546   $38,769 
Interest-bearing deposits   84,000    41,000 
    130,546   79,769 
Securities          
Available-for sale, carried at fair value   227,974    236,435 
Held-to-maturity, carried at amortized cost   198    243 
    228,172    236,678 
           
Loans   1,861,403    1,802,217 
Allowance for loan losses   (25,948)   (25,382)
Loans, net   1,835,455    1,776,835 
Loans held for sale   13,142    5,523 
Mortgage servicing rights   9,136    9,248 
Accrued interest receivable   6,421    6,171 
Federal Home Loan Bank stock   13,800    13,801 
Bank Owned Life Insurance   52,369    51,908 
Office properties and equipment   37,571    38,166 
Real estate and other assets held for sale   1,079    1,321 
Goodwill   61,798    61,798 
Core deposit and other intangibles   1,567    1,871 
Other assets   18,543    14,587 
Total Assets  $2,409,599   $2,297,676 
           
Liabilities and Stockholders’ Equity          
Non-interest-bearing deposits  $442,811   $420,691 
Interest-bearing deposits   1,477,459    1,415,446 
Total deposits   1,920,270    1,836,137 
Advances from Federal Home Loan Bank   84,425    59,902 
Notes payable and other interest-bearing liabilities   52,989    57,188 
Subordinated debentures   36,083    36,083 
Advance payments by borrowers for tax and insurance   1,775    2,674 
Deferred Taxes   1,885    877 
Other liabilities   25,556    24,618 
Total Liabilities   2,122,983    2,017,479 
Stockholders’ Equity          
Preferred stock   -    - 
Common stock, net   127    127 
Common stock warrant   -    - 
Additional paid-in-capital   125,877    125,734 
Accumulated other comprehensive income   5,020    3,622 
Retained earnings   230,132    219,737 
Treasury stock, at cost   (74,540)   (69,023)
Total stockholders’ equity   286,616    280,197 
Total Liabilities and Stockholders’ Equity  $2,409,599   $2,297,676 

 

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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)  2016   2015   2016   2015 
Interest Income:                    
Loans  $19,666   $18,139   $38,978   $36,026 
Investment securities   1,543    1,721    3,173    3,413 
Interest-bearing deposits   134    41    183    80 
FHLB stock dividends   137    136    276    275 
Total interest income   21,480    20,037    42,610    39,794 
Interest Expense:                    
Deposits   1,545    1,312    2,978    2,584 
FHLB advances and other   321    173    618    283 
Subordinated debentures   182    150    357    297 
Notes Payable   36    37    73    75 
Total interest expense   2,084    1,672    4,026    3,239 
Net interest income   19,396    18,365    38,584    36,555 
Provision for loan losses   53    -    417    120 
Net interest income after provision for loan losses   19,343    18,365    38,167    36,435 
Non-interest Income:                    
Service fees and other charges   2,799    2,690    5,443    5,219 
Mortgage banking income   1,764    1,793    3,303    3,568 
Gain on sale of non-mortgage loans   411    197    456    233 
Gain on sale of securities   227    -    358    - 
Insurance commissions   2,504    2,344    5,640    5,483 
Trust income   409    367    836    725 
Income from Bank Owned Life Insurance   230    212    461    420 
Other non-interest income   231    206    714    443 
Total Non-interest Income   8,575    7,809    17,211    16,091 
Non-interest Expense:                    
Compensation and benefits   9,770    9,182    19,955    18,105 
Occupancy   1,828    1,809    3,613    3,573 
FDIC insurance premium   329    319    656    670 
Financial institutions tax   447    411    893    893 
Data processing   1,641    1,599    3,101    3,121 
Amortization of intangibles   147    162    304    379 
Other non-interest expense   3,185    3,314    6,099    6,953 
Total Non-interest Expense   17,347    16,796    34,621    33,694 
Income before income taxes   10,571    9,378    20,757    18,832 
Income taxes   3,307    2,815    6,324    5,668 
Net Income  $7,264   $6,563   $14,433   $13,164 
                     
Earnings per common share:                    
Basic  $0.81   $0.71   $1.61   $1.42 
Diluted  $0.80   $0.70   $1.59   $1.39 
                     
Average Shares Outstanding:                    
Basic   8,968    9,268    8,981    9,251 
Diluted   9,036    9,349    9,050    9,483 

 

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Financial Summary and Comparison (Unaudited)

First Defiance Financial Corp.

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
(dollars in thousands, except per share data)  2016   2015   % change   2016   2015   % change 
Summary of Operations                              
                               
Tax-equivalent interest income (1)  $21,940   $20,516    6.9%  $43,545   $40,737    6.9%
Interest expense   2,084    1,672    24.6    4,026    3,239    24.3 
Tax-equivalent net interest income (1)   19,856    18,844    5.4    39,519    37,498    5.4 
Provision for loan losses   53    -     NM     417    120    247.5 
Tax-equivalent NII after provision for loan loss (1)   19,803    18,844    5.1    39,102    37,378    4.6 
Investment Securities gains   227    -     NM     358    -     NM  
Non-interest income (excluding securities gains/losses)   8,348    7,809    6.9    16,853    16,091    4.7 
Non-interest expense   17,347    16,796    3.3    34,621    33,694    2.8 
Income taxes   3,307    2,815    17.5    6,324    5,668    11.6 
Net Income   7,264    6,563    10.7    14,433    13,164    9.6 
Tax equivalent adjustment (1)   460    479    (4.0)   935    943    (0.8)
At Period End                              
Assets   2,409,599    2,196,510    9.7                
Earning assets   2,200,517    1,998,580    10.1                
Loans   1,861,403    1,705,716    9.1                
Allowance for loan losses   25,948    25,384    2.2                
Deposits   1,920,270    1,763,390    8.9                
Stockholders’ equity   286,616    276,028    3.8                
Average Balances                              
Assets   2,391,064    2,212,603    8.1    2,352,634    2,196,281    7.1 
Earning assets   2,162,574    1,991,830    8.6    2,125,573    1,975,146    7.6 
Loans   1,828,984    1,673,750    9.3    1,812,592    1,660,404    9.2 
Deposits and interest-bearing liabilities   2,079,442    1,909,372    8.9    2,042,429    1,890,622    8.0 
Deposits   1,903,139    1,780,912    6.9    1,869,242    1,770,647    5.6 
Stockholders’ equity   282,573    274,239    3.0    280,812    277,078    1.3 
Stockholders’ equity / assets   11.82%   12.39%   (4.7)   11.94%   12.62%   (5.4)
Per Common Share Data                              
Net Income                              
Basic  $0.81   $0.71    14.1   $1.61   $1.42    13.4 
Diluted   0.80    0.70    14.3    1.59    1.39    14.4 
Dividends   0.22    0.20    10.0    0.44    0.375    17.3 
Market Value:                              
High  $41.21   $38.21    7.9   $41.21   $38.21    7.9 
Low   37.53    32.42    15.8    34.80    29.05    19.8 
Close   38.85    37.53    3.5    38.85    37.53    3.5 
Common Book Value   31.95    29.76    7.4    31.95    29.76    7.4 
Tangible Common Book Value   24.89    22.91    8.6    24.89    22.91    8.6 
Shares outstanding, end of period (000)   8,971    9,275    (3.3)   8,971    9,275    (3.3)
Performance Ratios (annualized)                              
Tax-equivalent net interest margin (1)   3.71%   3.81%   (2.7)   3.75%   3.84%   (2.4)
Return on average assets   1.22%   1.19%   2.7    1.23%   1.21%   2.1 
Return on average equity   10.34%   9.60%   7.7    10.34%   9.58%   7.9 
Efficiency ratio (2)   61.51%   63.02%   (2.4)   61.42%   62.87%   (2.3)
Effective tax rate   31.28%   30.02%   4.2    30.47%   30.10%   1.2 
Dividend payout ratio (basic)   27.16%   28.17%   (3.6)   27.33%   26.41%   3.5 

 

(1)Interest income on tax-exempt securities and loans has been adjusted to a tax-equivalent basis using the statutory federal income tax rate of 35%
(2)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

 

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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)  2016   2015   2016   2015 
                 
Gain from sale of mortgage loans  $1,426   $1,246   $2,420   $2,531 
Mortgage loan servicing revenue (expense):                    
Mortgage loan servicing revenue   876    852    1,753    1,727 
Amortization of mortgage servicing rights   (434)   (446)   (745)   (857)
Mortgage servicing rights valuation adjustments   (104)   141    (125)   167 
    338    547    883    1,037 
Total revenue from sale and servicing of mortgage loans  $1,764   $1,793   $3,303   $3,568 

 

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Yield Analysis

First Defiance Financial Corp.

 

   Three Months Ended June 30, 
   (dollars in thousands) 
   2016   2015 
   Average       Yield   Average       Yield 
   Balance   Interest(1)   Rate(2)   Balance   Interest(1)   Rate(2) 
Interest-earning assets:                              
Loans receivable  $1,828,984   $19,716    4.34%  $1,673,750   $18,186    4.36%
Securities   224,494    1,953    3.62%   245,539    2,153    3.63%
Interest Bearing Deposits   95,296    134    0.57%   58,739    41    0.28%
FHLB stock   13,800    137    3.99%   13,802    136    3.95%
Total interest-earning assets   2,162,574    21,940    4.10%   1,991,830    20,516    4.15%
Non-interest-earning assets   228,490              220,773           
Total assets  $2,391,064             $2,212,603           
Deposits and Interest-bearing liabilities:                              
Interest bearing deposits  $1,463,086   $1,545    0.42%  $1,397,966   $1,312    0.38%
FHLB advances and other   84,506    321    1.53%   39,578    173    1.75%
Subordinated debentures   36,141    182    2.03%   36,128    150    1.67%
Notes payable   55,656    36    0.26%   52,754    37    0.28%
Total interest-bearing liabilities   1,639,389    2,084    0.51%   1,526,426    1,672    0.44%
Non-interest bearing deposits   440,053    -    -    382,946    -    - 
Total including non-interest-bearing demand deposits   2,079,442    2,084    0.40%   1,909,372    1,672    0.35%
Other non-interest-bearing liabilities   29,049              28,992           
Total liabilities   2,108,491              1,938,364           
Stockholders' equity   282,573              274,239           
Total liabilities and stockholders' equity  $2,391,064             $2,212,603           
Net interest income; interest rate spread       $19,856    3.59%       $18,844    3.71%
Net interest margin (3)             3.71%             3.81%
Average interest-earning assets  to average interest bearing liabilities             132%             130%

 

   Six Months Ended June 30, 
   2016   2015 
   Average       Yield   Average       Yield 
   Balance   Interest(1)   Rate   Balance   Interest(1)   Rate 
Interest-earning assets:                              
Loans receivable  $1,812,592   $39,079    4.34%  $1,660,404   $36,118    4.39%
Securities   229,154    4,007    3.64%   243,281    4,264    3.65%
Interest Bearing Deposits   70,026    183    0.53%   57,659    80    0.28%
FHLB stock   13,801    276    4.02%   13,802    275    4.02%
Total interest-earning assets   2,125,573    43,545    4.13%   1,975,146    40,737    4.18%
Non-interest-earning assets   227,061              221,135           
Total assets  $2,352,634             $2,196,281           
Deposits and Interest-bearing liabilities:                              
Interest bearing deposits  $1,441,783   $2,978    0.42%  $1,396,114   $2,584    0.37%
FHLB advances and other   81,598    618    1.52%   30,534    283    1.87%
Subordinated debentures   36,140    357    2.00%   36,129    297    1.66%
Notes payable   55,449    73    0.27%   53,312    75    0.28%
Total interest-bearing liabilities   1,614,970    4,026    0.50%   1,516,089    3,239    0.43%
Non-interest bearing deposits   427,459    -    -    374,533    -    - 
Total including non-interest-bearing demand deposits   2,042,429    4,026    0.40%   1,890,622    3,239    0.35%
Other non-interest-bearing liabilities   29,393              28,581           
Total liabilities   2,071,822              1,919,203           
Stockholders' equity   280,812              277,078           
Total liabilities and stockholders' equity  $2,352,634             $2,196,281           
Net interest income; interest rate spread       $39,519    3.63%       $37,498    3.75%
Net interest margin (3)             3.75%             3.84%
Average interest-earning assets  to average interest bearing liabilities             132%             130%

 

(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.

 

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Selected Quarterly Information

First Defiance Financial Corp.

 

(dollars in thousands, except per share data)  2nd Qtr 2016   1st Qtr 2016   4th Qtr 2015   3rd Qtr 2015   2nd Qtr 2015 
Summary of Operations                         
Tax-equivalent interest income (1)  $21,940   $21,605   $21,256   $20,748   $20,516 
Interest expense   2,084    1,942    1,809    1,733    1,672 
Tax-equivalent net interest income (1)   19,856    19,663    19,447    19,015    18,844 
Provision for loan losses   53    364    43    (27)   - 
Tax-equivalent NII after provision for loan losses (1)   19,803    19,299    19,404    19,042    18,844 
Investment securities gains, net of impairment   227    131    22    -    - 
Non-interest income (excluding securities gains/losses)   8,348    8,505    7,708    7,982    7,809 
Non-interest expense   17,347    17,274    17,347    16,848    16,796 
Income taxes   3,307    3,017    2,744    2,998    2,815 
Net income   7,264    7,169    6,563    6,696    6,563 
Tax equivalent adjustment (1)   460    475    480    482    479 
At Period End                         
Total assets  $2,409,599   $2,358,931   $2,297,676   $2,228,281   $2,196,510 
Earning assets   2,200,517    2,158,177    2,099,219    2,030,218    1,998,580 
Loans   1,861,403    1,824,986    1,802,217    1,733,538    1,705,716 
Allowance for loan losses   25,948    25,668    25,382    25,209    25,384 
Deposits   1,920,270    1,871,157    1,836,137    1,793,053    1,763,390 
Stockholders’ equity   286,616    280,418    280,197    278,556    276,028 
Stockholders’ equity / assets   11.89%   11.89%   12.19%   12.50%   12.57%
Goodwill   61,798    61,798    61,798    61,798    61,525 
Average Balances                         
Total assets  $2,391,064   $2,314,203   $2,276,060   $2,222,843   $2,212,603 
Earning assets   2,162,574    2,088,582    2,051,331    2,000,284    1,991,830 
Loans   1,828,984    1,796,200    1,732,472    1,696,370    1,673,750 
Deposits and interest-bearing liabilities   2,079,442    2,005,395    1,967,199    1,918,587    1,909,372 
Deposits   1,903,139    1,835,345    1,823,396    1,786,814    1,780,912 
Stockholders’ equity   282,573    279,051    279,192    277,235    274,239 
Stockholders’ equity / assets   11.82%   12.06%   12.27%   12.47%   12.39%
Per Common Share Data                         
Net Income:                         
Basic  $0.81   $0.80   $0.72   $0.72   $0.71 
Diluted   0.80    0.79    0.71    0.72    0.70 
Dividends   0.22    0.22    0.200    0.200    0.200 
Market Value:                         
High  $41.21   $40.98   $42.46   $39.95   $38.21 
Low   37.53    34.80    35.01    35.03    32.42 
Close   38.85    38.41    37.78    36.56    37.53 
Common Book Value   31.95    31.29    30.78    30.37    29.76 
Shares outstanding, end of period (in thousands)   8,971    8,961    9,102    9,172    9,275 
Performance Ratios (annualized)                         
Tax-equivalent net interest margin (1)   3.71%   3.80%   3.77%   3.78%   3.81%
Return on average assets   1.22%   1.25%   1.14%   1.20%   1.19%
Return on average equity   10.34%   10.33%   9.33%   9.58%   9.60%
Efficiency ratio (2)   61.51%   61.32%   63.88%   62.41%   63.02%
Effective tax rate   31.28%   29.62%   29.48%   30.93%   30.02%
Common dividend payout ratio (basic)   27.16%   27.50%   27.78%   27.78%   28.17%

 

(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.

 

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Selected Quarterly Information

First Defiance Financial Corp.

 

(dollars in thousands, except per share data)  2nd Qtr 2016   1st Qtr 2016   4th Qtr 2015   3rd Qtr 2015   2nd Qtr 2015 
Loan Portfolio Composition                         
One to four family residential real estate  $206,861   $208,818   $205,330   $205,370   $205,044 
Construction   161,282    145,635    163,877    129,230    140,114 
Commercial real estate   1,001,315    989,468    948,428    922,207    885,125 
Commercial   428,599    412,911    419,349    402,681    401,247 
Consumer finance   16,690    15,679    16,281    15,774    14,911 
Home equity and improvement   116,685    116,856    116,962    113,781    109,694 
Total loans   1,931,432    1,889,367    1,870,227    1,789,043    1,756,135 
Less:                         
Undisbursed loan funds   68,850    63,267    66,902    54,484    49,477 
Deferred loan origination fees   1,179    1,114    1,108    1,021    942 
Allowance for loan loss   25,948    25,668    25,382    25,209    25,384 
Net Loans  $1,835,455   $1,799,318   $1,776,835   $1,708,329   $1,680,332 
                          
Allowance for loan loss activity                         
Beginning allowance  $25,668   $25,382   $25,209   $25,384   $25,302 
Provision for loan losses   53    364    43    (27)   - 
Credit loss charge-offs:                         
One to four family residential real estate   37    55    8    185    11 
Commercial real estate   0    13    103    64    146 
Commercial   18    336    0    43    23 
Consumer finance   18    0    32    5    13 
Home equity and improvement   66    30    10    110    187 
Total charge-offs   139    434    153    407    380 
Total recoveries   366    356    282    259    462 
Net charge-offs (recoveries)   (227)   78    (129)   148    (82)
Ending allowance  $25,948   $25,668   $25,382   $25,209   $25,384 
                          
Credit Quality                         
Total non-performing loans (1)  $16,423   $17,707   $16,261   $16,612   $16,737 
Real estate owned (REO)   1,079    1,111    1,321    4,936    5,371 
Total non-performing assets (2)  $17,502   $18,818   $17,582   $21,548   $22,108 
Net charge-offs (recoveries)   (227)   78    (129)   148    (82)
                          
Restructured loans, accruing (3)   9,648    11,284    11,178    13,786    22,234 
                          
Allowance for loan losses / loans   1.39%   1.41%   1.41%   1.45%   1.49%
Allowance for loan losses / non-performing assets   148.26%   136.40%   144.36%   116.99%   114.82%
Allowance for loan losses / non-performing loans   158.00%   144.96%   156.09%   151.75%   151.66%
Non-performing assets / loans plus REO   0.94%   1.03%   0.97%   1.24%   1.29%
Non-performing assets / total assets   0.73%   0.80%   0.77%   0.97%   1.01%
Net charge-offs / average loans (annualized)   -0.05%   0.02%   -0.03%   0.03%   -0.02%
                          
Deposit Balances                         
Non-interest-bearing demand deposits  $442,811   $426,053   $420,691   $392,103   $378,970 
Interest-bearing demand deposits and money market   805,550    783,016    767,201    745,233    722,813 
Savings deposits   240,316    233,546    219,655    216,613    218,055 
Retail time deposits less than $100,000   277,904    279,376    278,707    282,331    284,471 
Retail time deposits greater than $100,000   153,689    149,166    149,883    156,773    159,081 
Total deposits  $1,920,270   $1,871,157   $1,836,137   $1,793,053   $1,763,390 

 

(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.

 

 

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Loan Delinquency Information

First Defiance Financial Corp.

 

(dollars in thousands)  Total Balance   Current   30 to 89 days
past due
   Non Accrual
Loans
 
                 
June 30, 2016                    
One to four family residential real estate  $206,861   $203,534   $619   $2,708 
Construction   161,282    161,282    -    - 
Commercial real estate   1,001,315    988,342    2,174    10,799 
Commercial   428,599    424,107    2,269    2,223 
Consumer finance   16,690    16,629    45    16 
Home equity and improvement   116,685    115,376    632    677 
Total loans  $1,931,432   $1,909,270   $5,739   $16,423 
                     
December 31, 2015                    
One to four family residential real estate  $205,330   $201,806   $914   $2,610 
Construction   163,877    163,877    -    - 
Commercial real estate   948,428    937,844    736    9,848 
Commercial   419,349    416,114    157    3,078 
Consumer finance   16,281    16,215    30    36 
Home equity and improvement   116,962    115,465    808    689 
Total loans  $1,870,227   $1,851,321   $2,645   $16,261 
                     
June 30, 2015                    
One to four family residential real estate  $205,044   $201,629   $473   $2,942 
Construction   140,114    140,114    -    - 
Commercial real estate   885,125    872,654    2,685    9,786 
Commercial   401,247    397,653    148    3,446 
Consumer finance   14,911    14,885    16    10 
Home equity and improvement   109,694    108,238    903    553 
Total loans  $1,756,135   $1,735,173   $4,225   $16,737 

 

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