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 2018

SECOND QUARTER EARNINGS

 

·

Diluted earnings per share of $0.54 for 2018 second quarter, up from $0.41 in the 2017 second quarter

·

Net income of $11.1 million for 2018 second quarter, up from $8.3 million in the 2017 second quarter

·

Return on average assets of 1.48% for the 2018 second quarter, compared to 1.15% in the 2017 second quarter

·

Net interest margin of 3.95% for the 2018 second quarter, up from 3.89% in the 2017 second quarter

·

Loan growth of $27.0 million during 2018 second quarter

·

Non-performing assets of $20.1 million for 2018 second quarter, compared to $31.0 million for 2017 second quarter

 

DEFIANCE, OHIO (July 16, 2018) – First Defiance Financial Corp. (NASDAQ: FDEF) announced today its unaudited financial results for the three and six-month periods ended June 30, 2018. All share data has been adjusted to reflect First Defiance’s two-for-one stock split announced on June 22, 2018, to be issued on July 12, 2018.

 

Net income for the second quarter ended June 30, 2018, totaled $11.1 million, or $0.54 per diluted common share compared to $8.3 million or $0.41 per diluted common share for the quarter ended June 30, 2017. Earnings per diluted share for the second quarter 2018 were up $0.13, or 31.7% from the second quarter 2017, which included a positive impact from the lower corporate tax rate resulting from the Tax Cuts and Jobs Act enacted in December 2017, which improved earnings approximately $0.08 per diluted share for the second quarter 2018.

 

“Enhanced profitability, steady growth, and improved asset quality metrics from a year ago were all reflected in our very strong financial performance for the quarter,” said Donald P. Hileman, President and Chief Executive Officer of First Defiance Financial Corp. “Including the benefit of the lower corporate tax rate, our return on assets in the second quarter was 1.48%, up solidly from 1.15% in the second quarter last year. In addition, total assets have grown 5.2% over the last year; and non-accrual loans are down 40% from a year ago. Our outlook remains extremely positive for the rest of the year.”

 

 

Net Interest Income up Compared to Second Quarter 2017

 

Net interest income of $26.5 million in the second quarter of 2018 was up from $24.6 million in the second quarter of 2017. The increase was primarily due to the growth in earning assets supplemented by expansion in the net interest margin versus the second quarter last year. Net interest margin was 3.95% for the second and first quarter of 2018, but up from 3.89% in the second quarter of 2017. Yield on interest earning assets increased by 18 basis points, to 4.51% in the second quarter of 2018 from 4.33% in the second quarter of 2017. The cost of interest-bearing liabilities increased by 16 basis points in the second quarter of 2018 to 0.74% from 0.58% in the second quarter of 2017.

 

“As the Federal Reserve has increased rates over the last year, our net interest margin has remained strong despite the flattening of the yield curve. Combined with the steady organic growth of our balance sheet, we continue to generate solid growth in net interest income,” said Hileman. “Net interest income for the second quarter was up 7.8% over the second quarter last year, and our interest rate risk position remains well-balanced to future interest rate changes.”

 

Non-Interest Income up from Second Quarter 2017

 

First Defiance’s non-interest income for the second quarter of 2018 was $10.2 million compared with $10.1 million in the second quarter of 2017. The second quarter of 2018 had no gains or losses from the sale of securities gains or losses, while the second quarter 2017 included gains of $267,000 from the sale of securities.

 

Mortgage banking income was $2.0 million in the second quarter of 2018, up from $1.8 million in the second quarter of 2017. Mortgage originations totaled $80.5 million in the second quarter of 2018, up seasonally from the first quarter of 2018 and up from $64.2 million in the same quarter last year. Gains from the sale of mortgage loans increased in the second quarter of 2018 to $1.4 million from $1.3 million in the second quarter of 2017. Mortgage loan servicing revenue was $933,000 in the second quarter of 2018, up slightly from $924,000 in the second quarter of 2017. First Defiance had a positive change in the valuation adjustment in mortgage servicing assets of $47,000 in the second quarter of 2018 compared with a positive adjustment of $16,000 in the second quarter of 2017. In addition, gains on the sale of non-mortgages, which include SBA and FSA loans, totaled $43,000 in the second quarter 2018 compared to $90,000 in the second quarter of 2017.

 

For the second quarter of 2018, commissions from the sale of insurance products were $3.5 million, up from $3.3 million in the second quarter of 2017 primarily due to added commissions from the Corporate One Benefits Agency Inc. (“Corporate One”) merger. Service fees and other charges were $3.3 million in the second quarter of 2018, up from $3.2 million in the second quarter of 2017. Trust income was $522,000 in the second quarter of 2018, up 12.5% from $464,000 in the second quarter of 2017. Other non-interest income was $281,000 in the second quarter of 2018, down from $612,000 in the second quarter of 2017 mainly due to gains from the sale of real estate owned in the prior year period.

 

“Our non-interest income growth this quarter reflects continued contributions from all of our key business lines. Insurance commissions and bank service fees had strong gains compared to the second quarter of last year, which more than offset the decline in gains on sales of non-mortgage loans,” continued Hileman. “Total non-interest income, excluding securities gains, increased 3.5% over the second quarter of last year.”

 

 

Non-Interest Expenses up from Second Quarter 2017

 

Total non-interest expense was $22.7 million in the second quarter of 2018, an increase from $20.6 million in the second quarter of 2017. Compensation and benefits increased to $12.9 million in the second quarter of 2018, compared to $11.5 million in the second quarter of 2017. The increase in compensation and benefits versus the prior year reflects merit increases, additional increases to minimum pay levels, higher incentive compensation and increases in staff related to growth strategies. Other non-interest expense of $4.6 million in the second quarter of 2018 was up from $4.0 million in the second quarter of 2017.

 

Credit Quality

 

Non-performing loans totaled $18.3 million at June 30, 2018, a decrease from $30.4 million at June 30, 2017. In addition, First Defiance had $1.8 million of real estate owned at June 30, 2018, compared to $672,000 at June 30, 2017. Accruing troubled debt restructured loans were $15.5 million at June 30, 2018, compared with $10.5 million at June 30, 2017.

 

The second quarter 2018 results include net charge-offs of $369,000 and a provision for loan losses of $423,000 compared with net charge-offs of $2.0 million and a provision of $2.1 million for the same period in 2017.

 

The allowance for loan loss as a percentage of total loans was 1.15% at June 30, 2018, compared with 1.16% at March 31, 2018, and 1.15% at June 30, 2017.

 

“We were especially pleased with the decrease in our non-performing assets and improvements in our asset quality ratios this quarter,” said Hileman. “While non-performing assets at June 30, 2018, were only 0.66% of assets, noticeably down from 1.07% a year ago, we continue to work toward further improvements in this area.”

 

Year-To-Date Results

 

For the six-month period ended June 30, 2018, net income totaled $22.8 million, or $1.12 per diluted common share, compared to $13.5 million, or $0.68 per diluted common share for the six months ended June 30, 2017. The first six months of 2017 included approximately four months of operations of the Commercial Savings Bank (“CSB”) acquisition completed on February 24, 2017 and three months of operations from Corporate One acquired on April 1, 2017. In comparison, the first six months of 2018 results fully include the operations from both CSB and Corporate One. In addition, the first six months of 2017 includes merger and conversion expenses related to the acquisitions of $3.9 million, which had an after tax impact of $2.8 million, or $0.28 per diluted share.

 

Net interest income was $52.2 million for the first six months of 2018 compared with $46.3 million in the first six months of 2017. Average interest-earning assets increased to $2.69 billion in the first six months of 2018 compared to $2.47 billion in the first six months of 2017. Net interest margin for the first six months of 2018 was 3.95%, up 9 basis points from the 3.86% margin reported in the six-month period ended June 30, 2017.

 

 

The provision for loan losses in the first six months of 2018 was a credit provision of $672,000 compared to an expense of $2.2 million recorded during the first six months of 2017.

 

Non-interest income for the first six months of 2018 was $20.9 million compared to $20.7 million during the same period of 2017. The first six months of 2017 included a $1.5 million enhancement value gain related to the purchase of bank owned life insurance in the first quarter of 2017.

 

Service fees and other charges were $6.4 million for the first six months of 2018, up from $5.9 million during the same period of 2017. Mortgage banking income was $3.8 million for the first six months of 2018 compared with $3.6 million during the same period of 2017. Insurance commissions rose to $7.8 million for the first six months of 2018 compared with $6.8 million for the same period of 2017. Non-interest income for the first six months of 2018 included no gains or losses from the sale of securities compared with securities gains of $267,000 during the same period of 2017.

 

Non-interest expense was $45.9 million for the first six months of 2018, up from $43.8 million for the same period of 2017. Compensation and benefits expense was $26.1 million for the first six months of 2018 compared with $25.8 million during the same period of 2017. Expenses also included increases in occupancy of $306,000, data processing of $230,000, amortization of intangibles of $112,000 and other expenses of $1.2 million.

 

Total Assets at $3.0 Billion

 

Total assets at June 30, 2018, were $3.04 billion compared to $2.99 billion at December 31, 2017, and $2.89 billion at June 30, 2017. Net loans receivable (excluding loans held for sale) were $2.36 billion at June 30, 2018, compared to $2.32 billion at December 31, 2017, and $2.23 billion at June 30, 2017. Also, at June 30, 2018, goodwill and other intangible assets totaled $103.6 million compared to $104.3 million at December 31, 2017, and $104.7 million at June 30, 2017. Total deposits at June 30, 2018, were $2.49 billion compared with $2.44 billion at December 31, 2017, and $2.33 billion at June 30, 2017. Total stockholders’ equity was $386.9 million at June 30, 2018, compared to $373.3 million at December 31, 2017, and $361.4 million at June 30, 2017.

 

Dividend to be Paid August 24

 

The Board of Directors declared a quarterly cash dividend of $0.17 per common share payable August 24, 2018, to shareholders of record at the close of business on August 17, 2018. The dividend represents an annual dividend of 2.08 percent based on the First Defiance common stock closing price on July 13, 2018. First Defiance has approximately 20,396,178 common shares outstanding.

Conference Call

 

First Defiance Financial Corp. will host a conference call at 11:00 a.m. ET on Tuesday, July 17, 2018, 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 https://services.choruscall.com/links/fdef180717.html.

 

The replay of the conference call Webcast will be available at www.fdef.com until 9:00 a.m. ET on July 17, 2019.

 

 

First Defiance Financial Corp.

 

First Defiance Financial Corp. (NASDAQ:FDEF), headquartered in Defiance, Ohio, is the holding company for First Federal Bank of the Midwest and First Insurance Group. First Federal Bank operates 43 full-service branches and numerous ATM locations in northwest and central Ohio, southeast Michigan and northeast Indiana and a loan production office in Ann Arbor, Michigan. First Insurance Group is a full-service insurance agency with nine offices throughout northwest Ohio.

 

For more information, visit the company’s website 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, 2017. 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, 2018 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.

 

  

Consolidated Balance Sheets (Unaudited)

First Defiance Financial Corp.

 

		June 30,				December 31,
(in thousands)		2018				2017
Assets
Cash and cash equivalents
Cash and amounts due from depository institutions		$	53,885			$	58,693
Interest-bearing deposits			53,000				55,000
			106,885				113,693
Securities
Available-for sale, carried at fair value			286,350				260,650
Held-to-maturity, carried at amortized cost			607				648
			286,957				261,298
Loans			2,385,344				2,348,713
Allowance for loan losses			(27,321	)			(26,683	)
Loans, net			2,358,023				2,322,030
Loans held for sale			15,422				10,435
Mortgage servicing rights			9,948				9,808
Accrued interest receivable			9,475				8,706
Federal Home Loan Bank stock			15,989				15,992
Bank Owned Life Insurance			66,860				66,230
Office properties and equipment			40,444				40,217
Real estate and other assets held for sale			1,795				1,532
Goodwill			98,569				98,569
Core deposit and other intangibles			5,024				5,703
Deferred taxes			1,106				231
Other assets			23,092				38,959
Total Assets		$	3,039,589			$	2,993,403
Liabilities and Stockholders’ Equity
Non-interest-bearing deposits		$	548,147			$	571,360
Interest-bearing deposits			1,940,981				1,866,296
Total deposits			2,489,128				2,437,656
Advances from Federal Home Loan Bank			85,722				84,279
Notes payable and other interest-bearing liabilities			6,899				26,019
Subordinated debentures			36,083				36,083
Advance payments by borrowers for tax and insurance			5,207				2,925
Other liabilities			29,630				33,155
Total Liabilities			2,652,669				2,620,117
Stockholders’ Equity
Preferred stock			-				-
Common stock, net			127				127
Additional paid-in-capital			160,847				160,940
Accumulated other comprehensive income (loss)			(3,235	)			217
Retained earnings			279,122				262,900
Treasury stock, at cost			(49,941	)			(50,898	)
Total stockholders’ equity			386,920				373,286
Total Liabilities and Stockholders’ Equity		$	3,039,589			$	2,993,403

 

 

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)		2018				2017				2018				2017
Interest Income:
Loans		$	27,660			$	25,318			$	54,186			$	47,288
Investment securities			2,039				1,752				3,890				3,507
Interest-bearing deposits			373				201				670				346
FHLB stock dividends			227				187				458				353
Total interest income			30,299				27,458				59,204				51,494
Interest Expense:
Deposits			3,144				2,170				5,755				3,966
FHLB advances and other			282				414				601				780
Subordinated debentures			320				229				600				443
Notes Payable			6				13				14				28
Total interest expense			3,752				2,826				6,970				5,217
Net interest income			26,547				24,632				52,234				46,277
Provision for loan losses			423				2,118				(672	)			2,172
Net interest income after provision for loan losses			26,124				22,514				52,906				44,105
Non-interest Income:
Service fees and other charges			3,296				3,161				6,427				5,920
Mortgage banking income			2,013				1,830				3,755				3,568
Gain on sale of non-mortgage loans			43				90				267				90
Gain on sale of securities			-				267				-				267
Insurance commissions			3,493				3,294				7,770				6,752
Trust income			522				464				1,074				914
Income from Bank Owned Life Insurance			566				422				966				2,245
Other non-interest income			281				612				658				933
Total Non-interest Income			10,214				10,140				20,917				20,689
Non-interest Expense:
Compensation and benefits			12,885				11,473				26,134				25,808
Occupancy			2,026				1,954				4,097				3,791
FDIC insurance premium			202				353				562				643
Financial institutions tax			531				535				1,062				1,014
Data processing			2,083				2,019				4,188				3,958
Amortization of intangibles			332				334				679				567
Other non-interest expense			4,606				3,962				9,194				7,991
Total Non-interest Expense			22,665				20,630				45,916				43,772
Income before income taxes			13,673				12,024				27,907				21,022
Income taxes			2,564				3,677				5,061				7,534
Net Income		$	11,109			$	8,347			$	22,846			$	13,488
Earnings per common share:
Basic		$	0.54			$	0.41			$	1.12			$	0.69
Diluted		$	0.54			$	0.41			$	1.12			$	0.68
Average Shares Outstanding:
Basic			20,388				20,294				20,359				19,586
Diluted			20,492				20,408				20,466				19,696

 

 

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)		2018				2017				% change				2018				2017				% change
Summary of Operations
Tax-equivalent interest income (2)		$	30,550			$	27,944				9.3	%		$	59,693			$	52,450				13.8	%
Interest expense			3,752				2,826				32.8				6,970				5,217				33.6
Tax-equivalent net interest income (2)			26,798				25,118				6.7				52,723				47,233				11.6
Provision for loan losses			423				2,118				NM				(672	)			2,172				NM
Tax-equivalent NII after provision for loan loss (2)			26,375				23,000				14.7				53,395				45,061				18.5
Investment Securities gains			-				267				NM				-				267				NM
Non-interest income (excluding securities gains/losses)			10,214				9,873				3.5				20,917				20,422				2.4
Non-interest expense			22,665				20,630				9.9				45,916				43,772				4.9
Income taxes			2,564				3,677				(30.3	)			5,061				7,534				(32.8	)
Net Income			11,109				8,347				33.1				22,846				13,488				69.4
Tax equivalent adjustment (2)			251				486				(48.4	)			489				956				(48.8	)
At Period End
Assets			3,039,589				2,890,507				5.2
Earning assets			2,756,712				2,596,674				6.2
Loans			2,385,344				2,254,435				5.8
Allowance for loan losses			27,321				25,915				5.4
Deposits			2,489,128				2,326,702				7.0
Stockholders’ equity			386,920				361,430				7.1
Average Balances
Assets			3,018,808				2,908,483				3.8				2,998,336				2,765,443				8.4
Earning assets			2,714,328				2,591,397				4.7				2,689,216				2,473,471				8.7
Loans			2,337,294				2,238,061				4.4				2,326,805				2,132,064				9.1
Deposits and interest-bearing liabilities			2,600,029				2,516,024				3.3				2,582,782				2,395,874				7.8
Deposits			2,487,430				2,346,336				6.0				2,460,934				2,227,986				10.5
Stockholders’ equity			381,165				357,523				6.6				377,579				335,983				12.4
Stockholders’ equity / assets			12.63	%			12.29	%			2.7				12.59	%			12.15	%			3.7
Per Common Share Data
Net Income
Basic		$	0.54			$	0.41				31.7			$	1.12			$	0.69				62.3
Diluted			0.54				0.41				31.7				1.12				0.68				64.7
Dividends			0.15				0.125				20.0				0.30				0.25				20.0
Market Value:
High		$	33.72			$	28.45				18.5			$	33.72			$	28.45				18.5
Low			27.63				24.39				13.3				25.51				23.14				10.3
Close			33.53				26.34				27.3				33.53				26.34				27.3
Common Book Value			18.97				17.81				6.5				18.97				17.81				6.5
Tangible Common Book Value (1)			13.89				12.66				9.7				13.89				12.66				9.7
Shares outstanding, end of period (000)			20,396				20,298				0.5				20,396				20,298				0.5
Performance Ratios (annualized)
Tax-equivalent net interest margin (2)			3.95	%			3.89	%			1.6				3.95	%			3.86	%			2.5
Return on average assets			1.48	%			1.15	%			28.2				1.54	%			0.98	%			56.2
Return on average equity			11.69	%			9.36	%			24.8				12.20	%			8.10	%			50.7
Efficiency ratio (3)			61.24	%			58.96	%			3.9				62.35	%			64.70	%			(3.6	)
Effective tax rate			18.75	%			30.58	%			(38.7	)			18.14	%			35.84	%			(49.4	)
Dividend payout ratio (basic)			27.78	%			30.49	%			(8.9	)			26.79	%			36.23	%			(26.1	)

 

(1)

Tangible common book value = total stockholders' equity less the sum of goodwill, core deposit and other intangibles, and preferred stock divided by shares outstanding at the end of the period.

(2)

Interest income on tax-exempt securities and loans has been adjusted to a tax-equivalent basis using the statutory federal income tax rate of 21% in 2018 and 35% in 2017.

(3)

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)		2018				2017				2018				2017
Gain from sale of mortgage loans		$	1,383			$	1,293			$	2,464			$	2,377
Mortgage loan servicing revenue (expense):
Mortgage loan servicing revenue			933				924				1,877				1,858
Amortization of mortgage servicing rights			(350	)			(403	)			(669	)			(715	)
Mortgage servicing rights valuation adjustments			47				16				83				48
			630				537				1,291				1,191
Total revenue from sale and servicing of mortgage loans		$	2,013			$	1,830			$	3,755			$	3,568

 

 

Yield Analysis

First Defiance Financial Corp.

 

		Three Months Ended June 30,
		(dollars in thousands)
		2018												2017
		Average								Yield				Average								Yield
		Balance				Interest(1)				Rate(2)				Balance				Interest(1)				Rate(2)
Interest-earning assets:
Loans receivable		$	2,337,294			$	27,685				4.75	%		$	2,238,061			$	25,368				4.55	%
Securities			280,131				2,265				3.20	%(3)			259,619				2,188				3.42	%(3)
Interest Bearing Deposits			80,914				373				1.85	%			77,725				201				1.04	%
FHLB stock			15,989				227				5.69	%			15,992				187				4.69	%
Total interest-earning assets			2,714,328				30,550				4.51	%			2,591,397				27,944				4.33	%
Non-interest-earning assets			304,480												317,086
Total assets		$	3,018,808											$	2,908,483
Deposits and Interest-bearing liabilities:
Interest bearing deposits		$	1,933,409			$	3,144				0.65	%		$	1,785,895			$	2,170				0.49	%
FHLB advances and other			67,261				282				1.68	%			104,923				414				1.58	%
Subordinated debentures			36,198				320				3.55	%			36,156				229				2.54	%
Notes payable			9,140				6				0.26	%			28,609				13				0.18	%
Total interest-bearing liabilities			2,046,008				3,752				0.74	%			1,955,583				2,826				0.58	%
Non-interest bearing deposits			554,021				-				-				560,441				-				-
Total including non-interest-bearing demand deposits			2,600,029				3,752				0.58	%			2,516,024				2,826				0.45	%
Other non-interest-bearing liabilities			37,614												34,936
Total liabilities			2,637,643												2,550,960
Stockholders' equity			381,165												357,523
Total liabilities and stockholders' equity		$	3,018,808											$	2,908,483
Net interest income; interest rate spread						$	26,798				3.77	%						$	25,118				3.75	%
Net interest margin (4)											3.95	%											3.89	%
Average interest-earning assets  to average interest bearing liabilities											133	%											133	%

 

		Six Months Ended June 30,
		2018												2017
		Average								Yield				Average								Yield
		Balance				Interest(1)				Rate				Balance				Interest(1)				Rate
Interest-earning assets:
Loans receivable		$	2,326,805			$	54,236				4.70	%		$	2,132,064			$	47,390				4.48	%
Securities			271,864				4,329				3.21	%			257,230				4,361				3.46	%(3)
Interest Bearing Deposits			74,557				670				1.81	%			68,904				346				1.01	%
FHLB stock			15,990				458				5.78	%			15,273				353				4.66	%
Total interest-earning assets			2,689,216				59,693				4.48	%			2,473,471				52,450				4.28	%
Non-interest-earning assets			309,120												291,972
Total assets		$	2,998,336											$	2,765,443
Deposits and Interest-bearing liabilities:
Interest bearing deposits		$	1,911,199			$	5,755				0.61	%		$	1,706,318			$	3,966				0.47	%
FHLB advances and other			73,092				601				1.66	%			104,600				780				1.50	%
Subordinated debentures			36,195				600				3.34	%			36,153				443				2.46	%
Notes payable			12,561				14				0.22	%			27,135				28				0.21	%
Total interest-bearing liabilities			2,033,047				6,970				0.69	%			1,874,206				5,217				0.56	%
Non-interest bearing deposits			549,735				-				-				521,668				-				-
Total including non-interest-bearing demand deposits			2,582,782				6,970				0.54	%			2,395,874				5,217				0.44	%
Other non-interest-bearing liabilities			37,975												33,586
Total liabilities			2,620,757												2,429,460
Stockholders' equity			377,579												335,983
Total liabilities and stockholders' equity		$	2,998,336											$	2,765,443
Net interest income; interest rate spread						$	52,723				3.79	%						$	47,233				3.72	%
Net interest margin (4)											3.95	%											3.86	%
Average interest-earning assets  to average interest bearing liabilities											132	%											132	%

 

(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 21% in 2018 and 35% in 2017.

(2)

Annualized

(3)

Securities yield = annualized interest income divided by the average balance of securities, excluding average unrealized gains/losses.

(4)

Net interest margin is tax equivalent 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 2018				1st Qtr 2018				4th Qtr 2017				3rd Qtr 2017				2nd Qtr 2017
Summary of Operations
Tax-equivalent interest income (1)		$	30,550			$	29,142			$	29,009			$	28,557			$	27,944
Interest expense			3,752				3,218				3,140				3,074				2,826
Tax-equivalent net interest income (1)			26,798				25,924				25,869				25,483				25,118
Provision for loan losses			423				(1,095	)			314				462				2,118
Tax-equivalent NII after provision for loan losses (1)			26,375				27,019				25,555				25,021				23,000
Investment securities gains, net of impairment			-				-				160				158				267
Non-interest income (excluding securities gains/losses)			10,214				10,703				9,737				9,337				9,873
Non-interest expense			22,665				23,251				21,141				20,440				20,630
Income taxes			2,564				2,497				4,430				4,219				3,677
Net income			11,109				11,737				9,399				9,381				8,347
Tax equivalent adjustment (1)			251				237				482				476				486
At Period End
Total assets		$	3,039,589			$	3,023,004			$	2,993,403			$	2,935,030			$	2,890,507
Earning assets			2,756,712				2,748,338				2,691,438				2,633,996				2,596,674
Loans			2,385,344				2,358,330				2,348,713				2,276,042				2,254,435
Allowance for loan losses			27,321				27,267				26,683				26,341				25,915
Deposits			2,489,128				2,491,801				2,437,656				2,360,675				2,326,702
Stockholders’ equity			386,920				379,214				373,286				367,924				361,430
Stockholders’ equity / assets			12.73	%			12.54	%			12.47	%			12.54	%			12.50	%
Goodwill			98,569				98,569				98,569				98,370				98,318
Average Balances
Total assets		$	3,018,808			$	2,977,864			$	2,968,445			$	2,906,795			$	2,908,483
Earning assets			2,714,328				2,664,114				2,646,643				2,590,463				2,591,397
Loans			2,337,294				2,316,316				2,279,358				2,251,071				2,238,061
Deposits and interest-bearing liabilities			2,600,029				2,565,537				2,560,258				2,507,805				2,516,024
Deposits			2,487,430				2,434,440				2,400,061				2,338,817				2,346,336
Stockholders’ equity			381,165				373,993				369,366				363,612				357,523
Stockholders’ equity / assets			12.63	%			12.56	%			12.44	%			12.51	%			12.29	%
Per Common Share Data
Net Income:
Basic		$	0.54			$	0.58			$	0.47			$	0.46			$	0.41
Diluted			0.54				0.58				0.46				0.46				0.41
Dividends			0.15				0.15				0.125				0.125				0.125
Market Value:
High		$	33.72			$	29.93			$	28.46			$	27.00			$	28.45
Low			27.63				25.51				25.14				23.51				24.39
Close			33.53				28.66				25.99				26.25				26.34
Common Book Value			18.97				18.62				18.38				18.13				17.81
Shares outstanding, end of period (in thousands)			20,396				20,364				20,312				20,298				20,298
Performance Ratios (annualized)
Tax-equivalent net interest margin (1)			3.95	%			3.95	%			3.88	%			3.91	%			3.89	%
Return on average assets			1.48	%			1.60	%			1.26	%			1.28	%			1.15	%
Return on average equity			11.69	%			12.73	%			10.10	%			10.24	%			9.36	%
Efficiency ratio (2)			61.24	%			63.48	%			59.37	%			58.70	%			58.96	%
Effective tax rate			18.75	%			17.54	%			32.03	%			31.02	%			30.58	%
Common dividend payout ratio (basic)			27.78	%			26.09	%			26.88	%			27.17	%			30.49	%

 

(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 21% in 2018 and 35% in 2017.

(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 2018				1st Qtr 2018				4th Qtr 2017				3rd Qtr 2017				2nd Qtr 2017
Loan Portfolio Composition
One to four family residential real estate		$	307,480			$	275,547			$	274,862			$	271,048			$	276,578
Construction			283,911				251,944				265,476				244,920				234,688
Commercial real estate			1,283,698				1,282,027				1,235,221				1,205,695				1,182,087
Commercial			489,296				500,496				526,142				510,240				515,004
Consumer finance			29,724				28,035				29,109				29,009				28,860
Home equity and improvement			129,868				133,407				135,457				132,220				130,429
Total loans			2,523,977				2,471,456				2,466,267				2,393,132				2,367,646
Less:
Undisbursed loan funds			136,563				111,450				115,972				115,714				112,000
Deferred loan origination fees			2,070				1,676				1,582				1,379				1,211
Allowance for loan loss			27,321				27,267				26,683				26,341				25,915
Net Loans		$	2,358,023			$	2,331,063			$	2,322,030			$	2,249,698			$	2,228,520
Allowance for loan loss activity
Beginning allowance		$	27,267			$	26,683			$	26,341			$	25,915			$	25,749
Provision for loan losses			423				(1,095	)			314				462				2,118
Credit loss charge-offs:
One to four family residential real estate			78				16				170				60				0
Commercial real estate			254				55				29				0				110
Commercial			84				97				210				64				2,027
Consumer finance			72				31				27				20				21
Home equity and improvement			41				117				55				92				100
Total charge-offs			529				316				491				236				2,258
Total recoveries			160				1,995				519				200				306
Net charge-offs (recoveries)			369				(1,679	)			(28	)			36				1,952
Ending allowance		$	27,321			$	27,267			$	26,683			$	26,341			$	25,915
Credit Quality
Total non-performing loans (1)		$	18,340			$	27,925			$	30,715			$	29,152			$	30,359
Real estate owned (REO)			1,795				1,440				1,532				532				672
Total non-performing assets (2)		$	20,135			$	29,365			$	32,247			$	29,684			$	31,031
Net charge-offs (recoveries)			369				(1,679	)			(28	)			36				1,952
Restructured loans, accruing (3)			15,834				13,722				13,770				13,044				10,521
Allowance for loan losses / loans			1.15	%			1.16	%			1.14	%			1.16	%			1.15	%
Allowance for loan losses / non-performing assets			135.69	%			92.86	%			82.75	%			88.74	%			83.51	%
Allowance for loan losses / non-performing loans			148.97	%			97.64	%			86.87	%			90.36	%			85.36	%
Non-performing assets / loans plus REO			0.84	%			1.24	%			1.37	%			1.30	%			1.38	%
Non-performing assets / total assets			0.66	%			0.97	%			1.08	%			1.01	%			1.07	%
Net charge-offs / average loans (annualized)			0.06	%			-0.29	%			0.00	%			0.01	%			0.35	%
Deposit Balances
Non-interest-bearing demand deposits		$	548,147			$	550,742			$	571,360			$	519,911			$	520,778
Interest-bearing demand deposits and money market			1,021,445				1,055,416				1,005,519				989,514				967,834
Savings deposits			297,870				306,510				302,022				296,230				288,643
Retail time deposits less than $250,000			547,871				512,746				504,912				504,277				499,298
Retail time deposits greater than $250,000			73,795				66,387				53,843				50,743				50,149
Total deposits		$	2,489,128			$	2,491,801			$	2,437,656			$	2,360,675			$	2,326,702

 

(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, 2018
One to four family residential real estate		$	307,480			$	303,263			$	1,806			$	2,411
Construction			283,911				283,911				-				-
Commercial real estate			1,283,698				1,273,236				222				10,240
Commercial			489,296				483,574				577				5,145
Consumer finance			29,724				29,438				221				65
Home equity and improvement			129,868				128,234				1,155				479
Total loans			2,523,977			$	2,501,656			$	3,981			$	18,340
December 31, 2017
One to four family residential real estate		$	274,862			$	269,624			$	2,201			$	3,037
Construction			265,476				265,476				-				-
Commercial real estate			1,235,221				1,215,980				1,022				18,219
Commercial			526,142				515,874				1,427				8,841
Consumer finance			29,109				28,728				353				28
Home equity and improvement			135,457				131,986				2,881				590
Total loans		$	2,466,267			$	2,427,668			$	7,884			$	30,715
June 30, 2017
One to four family residential real estate		$	276,578			$	270,729			$	2,710			$	3,139
Construction			234,688				234,445				-				243
Commercial real estate			1,182,087				1,161,810				1,370				18,907
Commercial			515,004				506,996				545				7,463
Consumer finance			28,860				28,594				215				51
Home equity and improvement			130,429				128,668				1,205				556
Total loans		$	2,367,646			$	2,331,242			$	6,045			$	30,359