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 2017

THIRD QUARTER EARNINGS

 

·

Diluted earnings per share of $0.92 for 2017 third quarter, up from $0.78 in the 2016 third quarter

·

Net income of $9.4 million for 2017 third quarter, up from $7.0 million in the 2016 third quarter

·

Return on average assets of 1.28% for the 2017 third quarter, up from 1.16% in the 2016 third quarter

·

Net interest margin of 3.91% for the 2017 third quarter, up from 3.69% in the 2016 third quarter

·

Loan growth of $21.6 million during 2017 third quarter

·

Deposit growth of $34.0 million during the 2017 third quarter

·

Non-performing assets of $29.7 million for 2017 third quarter, compared to $18.9 million for 2016 third quarter

 

DEFIANCE, OHIO (October 16, 2017) – First Defiance Financial Corp. (NASDAQ: FDEF) announced today that net income for the third quarter ended September 30, 2017, totaled $9.4 million, or $0.92 per diluted common share compared to $7.0 million or $0.78 per diluted common share for the quarter ended September 30, 2016. The third quarter 2017 includes the results from the operations of Commercial Bancshares, Inc. and its banking subsidiary Commercial Savings Bank (collectively “CSB”) following their acquisition on February 24, 2017, and Corporate One Benefits Agency, Inc. (“Corporate One”) acquired April 1, 2017.

 

“We are very pleased with our strong operating performance in the third quarter, and our outlook continues to be very positive for the remainder of the year,” said Donald P. Hileman, President and Chief Executive Officer of First Defiance Financial Corp. “Our growth in revenues and improved efficiency generated a return on assets of 1.28% and diluted earnings per share up 17.9% from the third quarter last year.

 

Net Interest Income up Compared to Third Quarter 2016

 

Net interest income of $25.0 million in the third quarter of 2017 was up from $19.8 million in the third quarter of 2016. The increase was mostly attributable to a full quarter of operations from the CSB merger. Net interest margin was 3.91% for the third quarter of 2017, up from 3.89% in the second quarter of 2017, and up from 3.69% in the third quarter of 2016. Yield on interest earning assets increased by 29 basis points, to 4.38% in the third quarter of 2017 from 4.09% in the third quarter of 2016. The cost of interest-bearing liabilities increased by 9 basis points in the third quarter of 2017 to 0.61% from 0.52% in the third quarter of 2016.

 

 

“In the third quarter, our net interest margin stayed very healthy; and improving organic growth trends in both loans and deposits were noted,” said Hileman. “These factors coupled with the growth from our Commercial Savings Bank merger completed earlier this year, produced a strong increase in our net interest income, which is up 26.2% over the third quarter last year.”

 

Non-Interest Income up from Third Quarter 2016

 

First Defiance’s non-interest income for the third quarter of 2017 was $9.5 million compared with $8.5 million in the third quarter of 2016. The increase in total non-interest income was largely due to the inclusion of operations from the CSB and Corporate One mergers completed in 2017. In addition, the third quarter of 2017 included gains of $158,000 from the sale of securities compared to gains of $151,000 in the third quarter of 2016.

 

Mortgage banking income was $1.7 million in the third quarter of 2017, down from $2.0 million in the third quarter of 2016. Mortgage originations totaled $71.8 million in the third quarter of 2017, up seasonally from the second quarter of 2017 but down from $101.7 million in the same quarter last year. As a result of the lower volumes, gains from the sale of mortgage loans decreased in the third quarter of 2017 to $1.2 million from $1.7 million in the third quarter of 2016. Mortgage loan servicing revenue was $911,000 in the third quarter of 2017, up from $885,000 in the third quarter of 2016 and amortization of mortgage servicing rights declined to $386,000 from $536,000 in the third quarter last year.

 

For the third quarter of 2017, commissions from the sale of insurance products were $3.1 million, up from $2.5 million in the third quarter of 2016, primarily due to added commissions from the Corporate One merger. Service fees and other charges were $3.2 million in the third quarter of 2017, up from $2.8 million in the third quarter of 2016. Trust income was $486,000 in the third quarter of 2017, up 15.7% from $420,000 in the third quarter of 2016.

 

“This quarter’s non-interest income results continue to reflect the benefits of our growing company, as well as the diversity of our revenues. While mortgage banking volumes are lower than a year ago, our recent mergers contributed strong increases in insurance commissions and bank service fee income,” continued Hileman. “In total, non-interest income grew 11.4% over this same period last year.”

 

Non-Interest Expenses up from Third Quarter 2016

 

Total non-interest expense was $20.4 million in the third quarter of 2017, an increase from $18.3 million in the third quarter of 2016. The increase in non-interest expenses was mostly due to the additional expenses from the operations of CSB and Corporate One mergers completed in 2017. Compensation and benefits increased to $11.8 million in the third quarter of 2017, compared to $10.3 million in the third quarter of 2016. Occupancy expense was $2.0 million and data processing expense was $1.9 million, up from $1.8 million and $1.6 million, respectively, in the third quarter of 2016. Other non-interest expense of $3.7 million in the third quarter of 2017 was up from $3.6 million in the third quarter of 2016.

 

 

Credit Quality

 

Non-performing loans totaled $29.2 million at September 30, 2017, an increase from $18.2 million at September 30, 2016. The increase was mainly attributable to two loan relationships totaling $13.9 million that were downgraded in the second quarter 2017. In addition, First Defiance had $532,000 of real estate owned at September 30, 2017, compared to $704,000 at September 30, 2016. Accruing troubled debt restructured loans were $13.0 million at September 30, 2017, compared with $9.1 million at September 30, 2016.

 

The third quarter 2017 results include net charge-offs of $36,000 and a provision for loan losses of $462,000 compared with net charge-offs of $40,000 and a provision of $15,000 for the same period in 2016.

 

The allowance for loan loss as a percentage of total loans was 1.16% at September 30, 2017, compared with 1.15% at June 30, 2017, and 1.35% at September 30, 2016. The decrease in the allowance for loan loss as a percentage of total loans was primarily attributable to the CSB acquisition. The CSB loans acquired were recorded at fair value with purchase accounting adjustments discounting the loan balance instead of an allowance for loan losses. For the CSB loans acquired, the discount recorded totaled $4.2 million, or 1.8% of acquired CSB loans at September 30, 2017.

 

“As anticipated, our credit quality stabilized in the third quarter. Net loan losses returned to a lower level, coming in at less than 0.01% of average loans for the quarter,” said Hileman. “While total non-performing assets to total assets ended September 30, 2017 higher than expected at 1.01%, reduced levels are projected going forward.”

 

Year-To-Date Results

 

For the nine-month period ended September 30, 2017, net income totaled $22.9 million, or $2.29 per diluted common share, compared to $21.5 million, or $2.37 per diluted common share for the nine months ended September 30, 2016. The first nine months of 2017 includes the results from the operations of the CSB acquisition completed on February 24, 2017, and Corporate One acquired on April 1, 2017. In addition, the first nine months of 2017 includes merger and conversion expenses related to the acquisitions of $4.0 million, which had an after tax impact of $2.8 million, or $0.28 per diluted share.

 

Net interest income was $71.3 million for the first nine months of 2017 compared with $58.4 million in the first nine months of 2016. Average interest-earning assets increased to $2.51 billion in the first nine months of 2017 compared to $2.15 billion in the first nine months of 2016. Net interest margin for the first nine months of 2017 was 3.88%, up 15 basis points from the 3.73% margin reported in the nine month period ended September 30, 2016.

 

The provision for loan losses in the first nine months of 2017 was $2.6 million compared to $432,000 recorded during the first nine months of 2016.

 

Non-interest income for the first nine months of 2017 was $30.2 million compared to $25.7 million during the same period of 2016. The first nine months of 2017 includes the operating results from the CSB and Corporate One mergers completed in 2017 and 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 $9.1 million for the first nine months of 2017, up from $8.2 million during the same period of 2016. Mortgage banking income was $5.3 million for the first nine months of 2017 compared with $5.3 million during the same period of 2016. Insurance commissions rose to $9.8 million for the first nine months of 2017 compared with $8.1 million for the same period of 2016. Non-interest income for the first nine months of 2017 included $425,000 of gains from the sale of securities compared with securities gains of $509,000 during the same period of 2016.

 

Non-interest expense was $64.2 million for the first nine months of 2017, up from $52.9 million for the same period of 2016. Included in non-interest expense for the first nine months of 2017 were merger and conversion expenses of $4.0 million related to the acquisitions. Compensation and benefits expense was $37.6 million for the first nine months of 2017 compared with $30.3 million during the same period of 2016. Expenses also included increases in occupancy of $316,000, data processing of $1.1 million, amortization of intangibles of $512,000 and other expenses of $2.0 million.

 

Total Assets at $2.93 Billion

 

Total assets at September 30, 2017, were $2.93 billion compared to $2.48 billion at December 31, 2016, and $2.45 billion at September 30, 2016. The increase reflected at September 30, 2017, is primarily due to the acquisition of CSB effective February 24, 2017, which added $368.3 million to total assets, net of $12.3 million paid in cash, at consummation.

 

Net loans receivable (excluding loans held for sale) were $2.25 billion at September 30, 2017, compared to $1.91 billion at December 31, 2016, and $1.90 billion at September 30, 2016. The acquisition of CSB added $285.4 million to the loan portfolio. At September 30, 2017, excluding the CSB acquired loans, net loans receivable grew $64.5 million, or 3.4% from a year ago.

 

Also, at September 30, 2017, goodwill and other intangible assets totaled $104.4 million compared to $63.1 million at December 31, 2016, and $63.3 million at September 30, 2016. The increase in 2017 was attributable to the acquisitions of CSB and Corporate One which together added $42.2 to goodwill and intangibles.

 

Total deposits at September 30, 2017, were $2.36 billion compared with $1.98 billion at December 31, 2016, and $1.93 billion at September 30, 2016. The acquisition of CSB added $308.0 million to total deposits. At September 30, 2017, excluding the CSB acquired deposits, total deposits grew $125.0 million, or 6.5% from a year ago.

 

Total stockholders’ equity was $367.9 million at September 30, 2017, compared to $293.0 million at December 31, 2016, and $292.1 million at September 30, 2016. The acquisition of CSB in 2017 added $56.5 million to total equity.

 

 

Dividend to be Paid November 17

 

The Board of Directors declared a quarterly cash dividend of $0.25 per common share payable November 17, 2017, to shareholders of record at the close of business on November 10, 2017. The dividend represents an annual dividend of 1.86 percent based on the First Defiance common stock closing price on October 13, 2017. First Defiance has approximately 10,149,185 common shares outstanding.

 

Conference Call

 

First Defiance Financial Corp. will host a conference call at 11:00 a.m. ET on Tuesday, October 17, 2017, 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/fdef171017.html.

 

The replay of the conference call webcast will be available at www.fdef.com until October 17, 2018, at 9:00 a.m. ET.

 

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, First Insurance Group and Corporate One Benefits. First Federal Bank operates 42 full-service branches and numerous ATM locations in northwest and central Ohio, southeast Michigan and northeast Indiana. First Insurance Group, including its division Corporate One Benefits, is a full-service insurance agency with ten 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, 2016. 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 September 30, 2017 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.

 

		September 30,				December 31,
(in thousands)		2017				2016
Assets
Cash and cash equivalents
Cash and amounts due from depository institutions		$	55,731			$	53,003
Interest-bearing deposits			69,000				46,000
			124,731				99,003
Securities
Available-for sale, carried at fair value			260,034				250,992
Held-to-maturity, carried at amortized cost			728				184
			260,762				251,176
Loans			2,276,042				1,940,487
Allowance for loan losses			(26,341	)			(25,884	)
Loans, net			2,249,701				1,914,603
Loans held for sale			12,200				9,607
Mortgage servicing rights			9,693				9,595
Accrued interest receivable			9,864				6,760
Federal Home Loan Bank stock			15,992				13,798
Bank Owned Life Insurance			65,811				52,817
Office properties and equipment			41,536				36,958
Real estate and other assets held for sale			532				455
Goodwill			98,370				61,798
Core deposit and other intangibles			6,061				1,336
Deferred taxes			267				2,212
Other assets			38,735				17,479
Total Assets		$	2,934,255			$	2,477,597
Liabilities and Stockholders’ Equity
Non-interest-bearing deposits		$	519,911			$	487,663
Interest-bearing deposits			1,840,764				1,493,965
Total deposits			2,360,675				1,981,628
Advances from Federal Home Loan Bank			104,555				103,943
Notes payable and other interest-bearing liabilities			29,439				31,816
Subordinated debentures			36,083				36,083
Advance payments by borrowers for tax and insurance			2,265				2,650
Other liabilities			33,314				28,459
Total Liabilities			2,566,331				2,184,579
Stockholders’ Equity
Preferred stock			-				-
Common stock, net			127				127
Additional paid-in-capital			160,653				126,390
Accumulated other comprehensive income			2,138				215
Retained earnings			256,041				240,592
Treasury stock, at cost			(51,035	)			(74,306	)
Total stockholders’ equity			367,924				293,018
Total Liabilities and Stockholders’ Equity		$	2,934,255			$	2,477,597

 

 

Consolidated Statements of Income (Unaudited)

First Defiance Financial Corp.              

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands, except per share amounts)		2017				2016				2017				2016
Interest Income:
Loans		$	25,975			$	20,264			$	73,263			$	59,242
Investment securities			1,688				1,498				5,195				4,671
Interest-bearing deposits			209				104				555				287
FHLB stock dividends			209				137				562				413
Total interest income			28,081				22,003				79,575				64,613
Interest Expense:
Deposits			2,391				1,635				6,357				4,613
FHLB advances and other			431				322				1,211				940
Subordinated debentures			239				191				682				548
Notes Payable			13				35				41				108
Total interest expense			3,074				2,183				8,291				6,209
Net interest income			25,007				19,820				71,284				58,404
Provision for loan losses			462				15				2,635				432
Net interest income after provision for loan losses			24,545				19,805				68,649				57,972
Non-interest Income:
Service fees and other charges			3,153				2,765				9,073				8,208
Mortgage banking income			1,698				2,039				5,266				5,342
Gain on sale of non-mortgage loans			82				148				172				604
Gain on sale of securities			158				151				425				509
Insurance commissions			3,082				2,473				9,834				8,113
Trust income			486				420				1,400				1,256
Income from Bank Owned Life Insurance			421				225				2,666				686
Other non-interest income			415				305				1,348				1,019
Total Non-interest Income			9,495				8,526				30,184				25,737
Non-interest Expense:
Compensation and benefits			11,780				10,295				37,588				30,250
Occupancy			1,960				1,822				5,751				5,435
FDIC insurance premium			330				352				973				1,008
Financial institutions tax			404				446				1,418				1,339
Data processing			1,874				1,622				5,832				4,723
Amortization of intangibles			364				115				931				419
Other non-interest expense			3,728				3,640				11,718				9,739
Total Non-interest Expense			20,440				18,292				64,211				52,913
Income before income taxes			13,600				10,039				34,622				30,796
Income taxes			4,219				2,994				11,753				9,318
Net Income		$	9,381			$	7,045			$	22,869			$	21,478
Earnings per common share:
Basic		$	0.92			$	0.78			$	2.31			$	2.39
Diluted		$	0.92			$	0.78			$	2.29			$	2.37
Average Shares Outstanding:
Basic			10,149				8,976				9,913				8,980
Diluted			10,209				9,050				9,970				9,050

 

 

Financial Summary and Comparison (Unaudited)

First Defiance Financial Corp.      

 

		Three Months Ended												Nine Months Ended
		September 30,												September 30,
(dollars in thousands, except per share data)		2017				2016				% change				2017				2016				% change
Summary of Operations
Tax-equivalent interest income (1)		$	28,557			$	22,449				27.2	%		$	81,007			$	65,994				22.7	%
Interest expense			3,074				2,183				40.8				8,291				6,209				33.5
Tax-equivalent net interest income (1)			25,483				20,266				25.7				72,716				59,785				21.6
Provision for loan losses			462				15				NM				2,635				432				NM
Tax-equivalent NII after provision for loan loss (1)			25,021				20,251				23.6				70,081				59,353				18.1
Investment Securities gains			158				151				4.6				425				509				(16.5	)
Non-interest income (excluding securities gains/losses)			9,337				8,375				11.5				29,759				25,228				18.0
Non-interest expense			20,440				18,292				11.7				64,211				52,913				21.4
Income taxes			4,219				2,994				40.9				11,753				9,318				26.1
Net Income			9,381				7,045				33.2				22,869				21,478				6.5
Tax equivalent adjustment (1)			476				446				6.7				1,432				1,381				3.7
At Period End
Assets			2,934,255				2,450,040				19.8
Earning assets			2,633,996				2,240,747				17.5
Loans			2,276,042				1,925,694				18.2
Allowance for loan losses			26,341				25,923				1.6
Deposits			2,360,675				1,927,686				22.5
Stockholders’ equity			367,924				292,138				25.9
Average Balances
Assets			2,906,795				2,425,535				19.8				2,812,560				2,376,934				18.3
Earning assets			2,590,463				2,194,170				18.1				2,511,469				2,148,438				16.9
Loans			2,251,071				1,879,760				19.8				2,171,733				1,834,981				18.4
Deposits and interest-bearing liabilities			2,507,805				2,103,054				19.2				2,433,185				2,062,637				18.0
Deposits			2,338,817				1,929,368				21.2				2,264,930				1,889,284				19.9
Stockholders’ equity			363,612				288,609				26.0				345,192				283,411				21.8
Stockholders’ equity / assets			12.51	%			11.90	%			5.1				12.27	%			11.92	%			3.0
Per Common Share Data
Net Income
Basic		$	0.92			$	0.78				17.9			$	2.31			$	2.39				(3.3	)
Diluted			0.92				0.78				17.9				2.29				2.37				(3.4	)
Dividends			0.25				0.22				13.6				0.75				0.66				13.6
Market Value:
High		$	53.99			$	46.83				15.3			$	56.90			$	46.83				21.5
Low			47.01				35.90				30.9				46.27				34.80				33.0
Close			52.49				44.64				17.6				52.49				44.64				17.6
Common Book Value			36.25				32.53				11.4				36.25				32.53				11.4
Tangible Common Book Value (1)			25.96				25.49				1.9				25.96				25.49				1.9
Shares outstanding, end of period (000)			10,149				8,980				13.0				10,149				8,980				13.0
Performance Ratios (annualized)
Tax-equivalent net interest margin (2)			3.91	%			3.69	%			6.0				3.88	%			3.73	%			3.9
Return on average assets			1.28	%			1.16	%			10.4				1.09	%			1.21	%			(10.2	)
Return on average equity			10.24	%			9.71	%			5.4				8.86	%			10.12	%			(12.5	)
Efficiency ratio (3)			58.70	%			63.87	%			(8.1	)			62.66	%			62.24	%			0.7
Effective tax rate			31.02	%			29.82	%			4.0				33.95	%			30.26	%			12.2
Dividend payout ratio (basic)			27.17	%			28.21	%			(3.7	)			32.47	%			27.62	%			17.6

 

(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 35%

(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								Nine Months Ended
		September 30,								September 30,
(dollars in thousands)		2017				2016				2017				2016
Gain from sale of mortgage loans		$	1,200			$	1,683			$	3,577			$	4,103
Mortgage loan servicing revenue (expense):
Mortgage loan servicing revenue			911				885				2,769				2,638
Amortization of mortgage servicing rights			(386	)			(536	)			(1,101	)			(1,281	)
Mortgage servicing rights valuation adjustments			(27	)			7				21				(118	)
			498				356				1,689				1,239
Total revenue from sale and servicing of mortgage loans		$	1,698			$	2,039			$	5,266			$	5,342

 

 

Yield Analysis

First Defiance Financial Corp.                      

 

		Three Months Ended September 30,
		(dollars in thousands)
		2017												2016
		Average								Yield				Average								Yield
		Balance				Interest(1)				Rate(2)				Balance				Interest(1)				Rate(2)
Interest-earning assets:
Loans receivable		$	2,251,071			$	26,025				4.59	%		$	1,879,760			$	20,316				4.30	%
Securities			259,310				2,114				3.29	%	(3)		231,864				1,892				3.37	%
Interest Bearing Deposits			64,090				209				1.29	%			68,746				104				0.60	%
FHLB stock			15,992				209				5.18	%			13,800				137				3.95	%
Total interest-earning assets			2,590,463				28,557				4.38	%			2,194,170				22,449				4.09	%
Non-interest-earning assets			316,332												231,365
Total assets		$	2,906,795											$	2,425,535
Deposits and Interest-bearing liabilities:
Interest bearing deposits		$	1,818,670			$	2,391				0.52	%		$	1,487,465			$	1,635				0.44	%
FHLB advances and other			104,648				431				1.63	%			84,598				322				1.51	%
Subordinated debentures			36,158				239				2.62	%			36,140				191				2.10	%
Notes payable			28,182				13				0.18	%			52,948				35				0.26	%
Total interest-bearing liabilities			1,987,658				3,074				0.61	%			1,661,151				2,183				0.52	%
Non-interest bearing deposits			520,147				-				-				441,903				-				-
Total including non-interest-bearing demand deposits			2,507,805				3,074				0.49	%			2,103,054				2,183				0.41	%
Other non-interest-bearing liabilities			35,378												33,872
Total liabilities			2,543,183												2,136,926
Stockholders’ equity			363,612												288,609
Total liabilities and stockholders’ equity		$	2,906,795											$	2,425,535
Net interest income; interest rate spread						$	25,483				3.77	%						$	20,266				3.57	%
Net interest margin (4)											3.91	%											3.69	%
Average interest-earning assets  to average interest bearing liabilities											130	%											132	%

 

 

		Nine Months Ended September 30,
		2017												2016
		Average								Yield				Average								Yield
		Balance				Interest(1)				Rate				Balance				Interest(1)				Rate
Interest-earning assets:
Loans receivable		$	2,171,733			$	73,415				4.52	%		$	1,834,981			$	59,395				4.32	%
Securities			257,924				6,475				3.40	%	(3)		230,058				5,899				3.55	%
Interest Bearing Deposits			66,299				555				1.12	%			69,599				287				0.55	%
FHLB stock			15,513				562				4.84	%			13,800				413				4.00	%
Total interest-earning assets			2,511,469				81,007				4.32	%			2,148,438				65,994				4.12	%
Non-interest-earning assets			301,091												228,496
Total assets		$	2,812,560											$	2,376,934
Deposits and Interest-bearing liabilities:
Interest bearing deposits		$	1,743,769			$	6,357				0.49	%		$	1,457,010			$	4,613				0.42	%
FHLB advances and other			104,616				1,211				1.55	%			82,598				940				1.52	%
Subordinated debentures			36,155				682				2.51	%			36,140				548				2.03	%
Notes payable			27,484				41				0.20	%			54,615				108				0.27	%
Total interest-bearing liabilities			1,912,024				8,291				0.58	%			1,630,363				6,209				0.51	%
Non-interest bearing deposits			521,161				-				-				432,274				-				-
Total including non-interest-bearing demand deposits			2,433,185				8,291				0.46	%			2,062,637				6,209				0.40	%
Other non-interest-bearing liabilities			34,183												30,886
Total liabilities			2,467,368												2,093,523
Stockholders’ equity			345,192												283,411
Total liabilities and stockholders’ equity		$	2,812,560											$	2,376,934
Net interest income; interest rate spread						$	72,716				3.74	%						$	59,785				3.61	%
Net interest margin (4)											3.88	%											3.73	%
Average interest-earning assets  to average interest bearing liabilities											131	%											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 35%.

(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 net interest income divided by average interest-earning assets.

 

 

 Selected Quarterly Information

First Defiance Financial Corp.

 

(dollars in thousands, except per share data)		3rd Qtr 2017				2nd Qtr 2017				1st Qtr 2017				4th Qtr 2016				3rd Qtr 2016
Summary of Operations
Tax-equivalent interest income (1)		$	28,557			$	27,944			$	24,505			$	23,219			$	22,449
Interest expense			3,074				2,826				2,391				2,231				2,183
Tax-equivalent net interest income (1)			25,483				25,118				22,114				20,988				20,266
Provision for loan losses			462				2,118				55				(149	)			15
Tax-equivalent NII after provision for loan losses (1)			25,021				23,000				22,059				21,137				20,251
Investment securities gains, net of impairment			158				267				-				-				151
Non-interest income (excluding securities gains/losses)			9,337				9,873				10,549				8,293				8,375
Non-interest expense			20,440				20,630				23,142				18,180				18,292
Income taxes			4,219				3,677				3,857				3,436				2,994
Net income			9,381				8,347				5,140				7,365				7,045
Tax equivalent adjustment (1)			476				486				469				449				446
At Period End
Total assets		$	2,934,255			$	2,890,507			$	2,928,697			$	2,477,151			$	2,450,040
Earning assets			2,633,996				2,596,674				2,639,325				2,261,068				2,240,747
Loans			2,276,042				2,254,435				2,238,006				1,940,487				1,925,694
Allowance for loan losses			26,341				25,915				25,749				25,884				25,923
Deposits			2,360,675				2,326,702				2,373,789				1,981,628				1,927,686
Stockholders’ equity			367,924				361,430				354,191				293,018				292,138
Stockholders’ equity / assets			12.54	%			12.50	%			12.09	%			11.83	%			11.92	%
Goodwill			98,370				98,318				90,768				61,798				61,798
Average Balances
Total assets		$	2,906,795			$	2,908,483			$	2,622,402			$	2,458,952			$	2,425,535
Earning assets			2,590,463				2,591,397				2,355,544				2,226,868				2,194,170
Loans			2,251,071				2,238,061				2,026,067				1,908,731				1,879,760
Deposits and interest-bearing liabilities			2,507,805				2,516,024				2,275,724				2,133,868				2,103,054
Deposits			2,338,817				2,346,336				2,109,637				1,954,631				1,929,368
Stockholders’ equity			363,612				357,523				314,442				292,301				288,609
Stockholders’ equity / assets			12.51	%			12.29	%			11.99	%			11.89	%			11.90	%
Per Common Share Data
Net Income:
Basic		$	0.92			$	0.82			$	0.54			$	0.82			$	0.78
Diluted			0.92				0.82				0.54				0.81				0.78
Dividends			0.25				0.25				0.25				0.22				0.22
Market Value:
High		$	53.99			$	56.90			$	51.15			$	52.31			$	46.83
Low			47.01				48.78				46.27				36.91				35.90
Close			52.49				52.68				49.51				50.74				44.64
Common Book Value			36.25				35.61				34.92				32.62				32.53
Shares outstanding, end of period (in thousands)			10,149				10,149				10,143				8,983				8,980
Performance Ratios (annualized)
Tax-equivalent net interest margin (1)			3.91	%			3.89	%			3.81	%			3.76	%			3.69	%
Return on average assets			1.28	%			1.15	%			0.79	%			1.19	%			1.16	%
Return on average equity			10.24	%			9.36	%			6.63	%			10.02	%			9.71	%
Efficiency ratio (2)			58.70	%			58.96	%			70.85	%			62.09	%			63.87	%
Effective tax rate			31.02	%			30.58	%			42.87	%			31.81	%			29.82	%
Common dividend payout ratio (basic)			27.17	%			30.49	%			46.30	%			26.83	%			28.21	%

 

(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)		3rd Qtr 2017				2nd Qtr 2017				1st Qtr 2017				4th Qtr 2016				3rd Qtr 2016
Loan Portfolio Composition
One to four family residential real estate		$	271,048			$	276,578			$	276,931			$	207,550			$	209,097
Construction			244,920				234,688				199,724				182,886				177,075
Commercial real estate			1,205,695				1,182,087				1,193,906				1,040,562				1,043,820
Commercial			510,240				515,004				504,366				469,055				456,099
Consumer finance			29,009				28,860				27,696				16,680				17,251
Home equity and improvement			132,220				130,429				132,965				118,429				118,165
Total loans			2,393,132				2,367,646				2,335,588				2,035,162				2,021,507
Less:
Undisbursed loan funds			115,714				112,000				95,460				93,355				94,552
Deferred loan origination fees			1,379				1,211				1,264				1,320				1,261
Allowance for loan loss			26,341				25,915				25,749				25,884				25,923
Net Loans		$	2,249,698			$	2,228,520			$	2,213,115			$	1,914,603			$	1,899,771
Allowance for loan loss activity
Beginning allowance		$	25,915			$	25,749			$	25,884			$	25,923			$	25,948
Provision for loan losses			462				2,118				55				(149	)			15
Credit loss charge-offs:
One to four family residential real estate			60				0				49				147				111
Commercial real estate			0				110				290				0				79
Commercial			64				2,027				0				234				26
Consumer finance			20				21				71				53				24
Home equity and improvement			92				100				54				98				74
Total charge-offs			236				2,258				464				532				314
Total recoveries			200				306				274				642				274
Net charge-offs (recoveries)			36				1,952				190				(110	)			40
Ending allowance		$	26,341			$	25,915			$	25,749			$	25,884			$	25,923
Credit Quality
Total non-performing loans (1)		$	29,152			$	30,359			$	15,057			$	14,348			$	18,198
Real estate owned (REO)			532				672				705				455				704
Total non-performing assets (2)		$	29,684			$	31,031			$	15,762			$	14,803			$	18,902
Net charge-offs (recoveries)			36				1,952				190				(110	)			40
Restructured loans, accruing (3)			13,044				10,521				9,814				10,544				9,113
Allowance for loan losses / loans			1.16	%			1.15	%			1.15	%			1.33	%			1.35	%
Allowance for loan losses / non-performing assets			88.74	%			83.51	%			163.36	%			174.86	%			137.14	%
Allowance for loan losses / non-performing loans			90.36	%			85.36	%			171.01	%			180.40	%			142.45	%
Non-performing assets / loans plus REO			1.30	%			1.38	%			0.70	%			0.76	%			0.98	%
Non-performing assets / total assets			1.01	%			1.07	%			0.54	%			0.60	%			0.77	%
Net charge-offs / average loans (annualized)			0.01	%			0.35	%			0.04	%			-0.02	%			0.01	%
Deposit Balances
Non-interest-bearing demand deposits		$	519,911			$	520,778			$	579,943			$	487,663			$	443,321
Interest-bearing demand deposits and money market			989,514				967,834				973,459				816,665				810,393
Savings deposits			296,230				288,643				288,498				243,369				241,016
Retail time deposits less than $250,000			504,277				499,298				490,953				400,080				399,749
Retail time deposits greater than $250,000			50,743				50,149				40,936				33,851				33,207
Total deposits		$	2,360,675			$	2,326,702			$	2,373,789			$	1,981,628			$	1,927,686

 

(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
September 30, 2017
One to four family residential real estate		$	271,048			$	265,873			$	1,807			$	3,368
Construction			244,920				244,920				-				-
Commercial real estate			1,205,695				1,187,826				759				17,110
Commercial			510,240				500,755				1,415				8,070
Consumer finance			29,009				28,741				209				59
Home equity and improvement			132,220				130,199				1,476				545
Total loans		$	2,393,132			$	2,358,314			$	5,666			$	29,152
December 31, 2016
One to four family residential real estate		$	207,550			$	203,624			$	998			$	2,928
Construction			182,886				182,886				-				-
Commercial real estate			1,040,562				1,030,833				137				9,592
Commercial			469,055				468,038				10				1,007
Consumer finance			16,680				16,438				151				91
Home equity and improvement			118,429				116,439				1,260				730
Total loans		$	2,035,162			$	2,018,258			$	2,556			$	14,348
September 30, 2016
One to four family residential real estate		$	209,097			$	205,471			$	706			$	2,920
Construction			177,075				177,075				-				-
Commercial real estate			1,043,820				1,032,260				258				11,302
Commercial			456,099				452,669				185				3,245
Consumer finance			17,251				17,048				190				13
Home equity and improvement			118,165				116,653				794				718
Total loans		$	2,021,507			$	2,001,176			$	2,133			$	18,198