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. REPORTS

RECORD FULL YEAR EARNINGS OF $3.22 PER SHARE FOR 2017

 

·

Earnings per diluted share of $0.92 for 2017 fourth quarter, up from $0.81 per share in the fourth quarter of 2016

·

Net income of $9.4 million for 2017 fourth quarter, compared to $7.4 million in the fourth quarter of 2016

·

Net interest margin of 3.88% for the 2017 fourth quarter, compared to 3.76% in the fourth quarter of 2016

·

Loan growth of $72.7 million during the 2017 fourth quarter

·

Deposit growth of $77.0 million during the 2017 fourth quarter

·

Non-performing loans of $30.7 million for 2017 fourth quarter, compared to $14.3 million for 2016 fourth quarter

 

DEFIANCE, OHIO (January 22, 2018) – First Defiance Financial Corp. (NASDAQ: FDEF) announced today that net income for the fiscal year ended December 31, 2017, totaled $32.3 million, or $3.22 per diluted common share, compared to $28.8 million or $3.19 per diluted common share for the year ended December 31, 2016.

 

For the fourth quarter of 2017, First Defiance earned $9.4 million, or $0.92 per diluted common share compared to $7.4 million or $0.81 per diluted common share for the fourth quarter of 2016. The fourth quarter of 2017 results included an increase of $428,000 pre-tax ($278,000 after-tax), or $0.03 per diluted share from changing trust revenues to accrual basis accounting and securities gains of $160,000 pre-tax ($104,000 after-tax), or $0.01 per diluted share. Also, on December 22, 2017, the Tax Cuts and Jobs Act was enacted that required the Company to revalue its deferred tax assets and deferred tax liabilities as of December 31, 2017, to account for the future impact of the lower corporate tax rate on these deferred amounts. As a result of this revaluation, an increase to tax expense and a reduction to earnings of $154,000, or $0.02 per diluted share, negatively impacted the fourth quarter of 2017. The increase in tax expense reflects the company’s current best estimate, and as information becomes available, the company may update this estimate.

 

“Our strong fourth quarter performance capped a very successful 2017 for First Defiance and provided substantial momentum as we progress into 2018. With fourth quarter earnings per share up 13.6% over last year, we’re pleased to announce our fifth consecutive year of record earnings performance,” said Donald P. Hileman, President and Chief Executive Officer of First Defiance Financial Corp. “While the new Tax Cuts and Jobs Act had only a minor impact on our fourth quarter earnings, we expect the lower tax rates to benefit future operations with added opportunities for growth, profitability and community investment.”

 

 

Net interest income up compared to fourth quarter 2016

 

Net interest income of $25.4 million in the fourth quarter of 2017 was up from $20.5 million in the fourth quarter of 2016. The increase was mostly attributable to the added operations from the Commercial Savings Bank (“CSB”) merger completed earlier in 2017. Net interest margin was 3.88% for the fourth quarter of 2017, down from 3.91% in the third quarter of 2017, but up from 3.76% in the fourth quarter of 2016. Yield on interest earning assets increased by 19 basis points to 4.35% in the fourth quarter of 2017 up from 4.16% in the fourth quarter of 2016. The cost of interest-bearing liabilities increased by 9 basis points in the fourth quarter of 2017 to 0.62% from 0.53% in the fourth quarter of 2016.

 

“Our net interest income increase in the fourth quarter was driven by our strong balance sheet growth, while our margin tightened slightly in the quarter,” said Hileman. “Our loans and deposits expanded in the fourth quarter at annualized growth rates of 12.8% and 13.0% respectively, providing solid momentum for the new year.”

 

Non-interest income up from fourth quarter 2016

 

First Defiance’s non-interest income for the fourth quarter of 2017 was $9.9 million compared to $8.3 million in the fourth quarter of 2016. The increase in total non-interest income was largely due to the inclusion of operations from the CSB and Corporate One Benefits Agency, Inc. (“Corporate One”) mergers completed in 2017. In addition, the fourth quarter of 2017 included gains of $160,000 from the sale of securities and an increase in trust revenues of $428,000 attributable to a change to accrual basis accounting.

 

Mortgage banking income decreased to $1.7 million in the fourth quarter of 2017, down from $1.9 million in the fourth quarter of 2016 due to significantly lower refinancing volumes which were slightly offset by higher purchase volumes. Gains from the sale of mortgage loans decreased in the fourth quarter of 2017 to $1.1 million from $1.2 million in the fourth quarter of 2016. Mortgage loan servicing revenue was $945,000 in the fourth quarter of 2017, up slightly from $922,000 in the fourth quarter of 2016. First Defiance had a positive change in the valuation adjustment in mortgage servicing assets of $69,000 in the fourth quarter of 2017 compared to a positive adjustment of $241,000 in the fourth quarter of 2016.

 

For the fourth quarter of 2017, service fees and other charges were $3.1 million, up $365,000 from $2.7 million in the fourth quarter of 2016; and commissions from the sale of insurance products were $3.0 million, up $704,000 from $2.3 million in the fourth quarter of 2016. Trust income was $932,000 in the fourth quarter of 2017, up from $445,000 in the fourth quarter of 2016 and included $428,000 for the adjustment to accrual basis accounting.

 

“Total non-interest income in the fourth quarter grew $1.6 million, or 19.3% over the same quarter of last year, despite a decline in our mortgage business,” said Hileman. “We believe this demonstrates both the benefits of our mergers and the diversity of our revenues, as non-interest revenues from all other sources were up versus the prior year.”

  

  

Non-interest expenses up from fourth quarter 2016

 

Total non-interest expense was $21.1 million in the fourth quarter of 2017, up from $18.2 million in the fourth 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 in the fourth quarter of 2017 was $12.3 million, an increase of $2.3 million compared to the fourth quarter of 2016. Occupancy expense was $2.0 million in the fourth quarter 2017, down $26,000 from the fourth quarter 2016. Data processing cost was $1.9 million in the fourth quarter of 2017, up $261,000 from the fourth quarter of 2016. Other non-interest expense was $4.0 million in the fourth quarter of 2017, increasing by $88,000 from the fourth quarter of 2016.

 

Credit quality

 

Non-performing loans totaled $30.7 million at December 31, 2017, an increase from $14.3 million at December 31, 2016. In addition, First Defiance had $1.5 million of real estate owned at December 31, 2017, up from $455,000 at December 31, 2016. Accruing troubled debt restructured loans were $13.8 million at December 31, 2017, an increase from $10.5 million at December 31, 2016.

 

The fourth quarter of 2017 results include net recoveries of $28,000 and a provision for loan losses of $314,000 compared with net recoveries of $110,000 and a credit provision of $149,000 for the same period in 2016.

 

The allowance for loan loss as a percentage of total loans was 1.14% at December 31, 2017, compared with 1.16% at September 30, 2017, and 1.33% at December 31, 2016. The decrease in the allowance for loan loss as a percentage of total loans versus a year ago 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 $3.9 million, or 1.9% of acquired CSB loans at December 31, 2017.

 

“Our non-performing loans to total assets at year-end remained relatively stable with the prior quarter at 1.08%; and importantly, net recoveries of $28,000 in the fourth quarter continued our favorable net loss experience from the previous quarter,” said Hileman. “Reducing our non-performing loans is a high priority in 2018.”

 

Annual results

 

Net income for the full year ended on December 31, 2017, totaled $32.3 million, or $3.22 per diluted common share, compared to $28.8 million or $3.19 per diluted common share for 2016. The year 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, 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 for 2017 totaled $96.7 million, compared with $78.9 million for 2016. Average interest-earning assets increased to $2.55 billion for 2017, compared to $2.17 billion in 2016. Net interest margin for 2017 was 3.88%, up 14 basis points from the 3.74% margin for 2016.

 

 

The provision for loan losses for 2017 was $2.9 million, compared to $283,000 for 2016.

 

Non-interest income for the year 2017 was $40.1 million, compared to $34.0 million in 2016. The year 2017 includes the operating results from the CSB and Corporate One mergers completed in 2017, a $1.5 million enhancement value gain related to the purchase of bank owned life insurance in the first quarter of 2017, and the aforementioned increase in trust revenues of $428,000 related to a change to accrual basis accounting.

 

Service fees and other charges were $12.1 million for 2017, up from $10.9 million in 2016. Mortgage banking income decreased to $7.0 million for 2017, compared to $7.3 million in 2016. Gains on the sale of non-mortgage loans were $217,000 for 2017, compared to $753,000 in 2016. Insurance commissions increased to $12.9 million for 2017, compared to $10.4 million in 2016. Non-interest income for 2017 included $584,000 of net securities gains compared to $509,000 of net securities gains for 2016.

 

Non-interest expense increased to $85.4 million for 2017 from $71.1 million in 2016. Included in non-interest expense for 2017 were merger and conversion expenses of $4.0 million related to acquisitions. Compensation and benefits expense was $49.8 million for 2017 compared with $40.2 million for 2016. Expenses also included increases in occupancy expense of $289,000, data processing expense of $1.4 million, amortization of intangibles of $754,000 and other expense of $2.1 million.

 

Total assets at $2.99 billion

 

Total assets at December 31, 2017, were $2.99 billion compared to $2.48 billion at December 31, 2016. The increase reflected at December 31, 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 $2.32 billion at December 31, 2017, compared to $1.91 billion at December 31, 2016. The acquisition of CSB added $285.4 million to the loan portfolio. At December 31, 2017, excluding the CSB acquired loans; net loans receivable grew $121.9 million, or 6.4% from a year ago.

 

Also, at December 31, 2017, goodwill and other intangible assets totaled $104.3 million compared to $63.1 million at December 31, 2016. The increase in 2017 was attributable to the acquisitions of CSB and Corporate One which together added $42.4 to goodwill and intangibles.

 

Total deposits at December 31, 2017, were $2.44 billion compared with $1.98 billion at December 31, 2016. The acquisition of CSB added $308.0 million to total deposits. At December 31, 2017, excluding the CSB acquired deposits; total deposits grew $148.0 million, or 7.5% from a year ago.

 

Total stockholders’ equity was $373.3 million at December 31, 2017, compared to $293.0 million at December 31, 2016. The acquisition of CSB in 2017 added $56.5 million to total equity.

  

  

Dividend to be paid February 23

 

The Board of Directors declared a quarterly cash dividend of $0.30 per common share payable February 23, 2018, to shareholders of record at the close of business on February 16, 2018. The dividend represents an annual dividend of 2.21 percent based on the First Defiance common stock closing price on January 19, 2018. First Defiance has approximately 10,157,000 common shares outstanding.

 

Conference call

First Defiance Financial Corp. will host a conference call at 11:00 a.m. ET on Tuesday, January 23, 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/fdef180123.html.

The replay of the conference call webcast will be available at www.fdef.com until 9:00 a.m. ET on Wednesday, January 23, 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, First Insurance Group and Corporate One Benefits. 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, including its division Corporate One Benefits, 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, 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 December 31, 2017 consolidated financial statements as part of its Annual Report on Form 10-K 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.

        

		December 31,				December 31,
(in thousands)		2017				2016
Assets
Cash and cash equivalents
Cash and amounts due from depository institutions		$	58,693			$	53,003
Interest-bearing deposits			55,000				46,000
			113,693				99,003
Securities
Available-for sale, carried at fair value			260,650				250,992
Held-to-maturity, carried at amortized cost			648				184
			261,298				251,176
Loans			2,348,713				1,940,487
Allowance for loan losses			(26,683	)			(25,884	)
Loans, net			2,322,030				1,914,603
Loans held for sale			10,435				9,607
Mortgage servicing rights			9,808				9,595
Accrued interest receivable			8,706				6,760
Federal Home Loan Bank stock			15,992				13,798
Bank Owned Life Insurance			66,230				52,817
Office properties and equipment			40,217				36,958
Real estate and other assets held for sale			1,532				455
Goodwill			98,569				61,798
Core deposit and other intangibles			5,703				1,336
Deferred taxes			432				2,212
Other assets			38,959				17,479
Total Assets		$	2,993,604			$	2,477,597
Liabilities and Stockholders’ Equity
Non-interest-bearing deposits		$	571,360			$	487,663
Interest-bearing deposits			1,866,296				1,493,965
Total deposits			2,437,656				1,981,628
Advances from Federal Home Loan Bank			84,279				103,943
Notes payable and other interest-bearing liabilities			26,019				31,816
Subordinated debentures			36,083				36,083
Advance payments by borrowers for tax and insurance			2,925				2,650
Other liabilities			33,356				28,459
Total Liabilities			2,620,318				2,184,579
Stockholders’ Equity
Preferred stock			-				-
Common stock, net			127				127
Additional paid-in-capital			160,940				126,390
Accumulated other comprehensive income			217				215
Retained earnings			262,900				240,592
Treasury stock, at cost			(50,898	)			(74,306	)
Total stockholders’ equity			373,286				293,018
Total Liabilities and Stockholders’ Equity		$	2,993,604			$	2,477,597

  

 

Consolidated Statements of Income (Unaudited)

First Defiance Financial Corp.              

 

		Three Months Ended								Twelve Months Ended
		December 31,								December 31,
(in thousands, except per share amounts)		2017				2016				2017				2016
Interest Income:
Loans		$	26,277			$	20,975			$	99,540			$	80,217
Investment securities			1,747				1,576				6,942				6,247
Interest-bearing deposits			281				80				836				367
FHLB stock dividends			222				139				784				552
Total interest income			28,527				22,770				108,102				87,383
Interest Expense:
Deposits			2,461				1,648				8,818				6,261
FHLB advances and other			352				348				1,470				1,288
Subordinated debentures			252				205				935				753
Notes Payable			75				30				208				138
Total interest expense			3,140				2,231				11,431				8,440
Net interest income			25,387				20,539				96,671				78,943
Provision for loan losses			314				(149	)			2,949				283
Net interest income after provision for loan losses			25,073				20,688				93,722				78,660
Non-interest Income:
Service fees and other charges			3,066				2,701				12,139				10,909
Mortgage banking income			1,738				1,928				7,004				7,270
Gain on sale of non-mortgage loans			45				149				217				753
Gain on sale of securities			160				-				584				509
Insurance commissions			3,032				2,328				12,866				10,441
Trust income			932				445				2,332				1,701
Income from Bank Owned Life Insurance			419				223				3,085				909
Other non-interest income			505				519				1,854				1,538
Total Non-interest Income			9,897				8,293				40,081				34,030
Non-interest Expense:
Compensation and benefits			12,259				9,937				49,847				40,187
Occupancy			1,957				1,983				7,707				7,418
FDIC insurance premium			277				161				1,250				1,169
Financial institutions tax			400				442				1,819				1,781
Data processing			1,905				1,644				7,737				6,367
Amortization of intangibles			358				116				1,289				535
Other non-interest expense			3,985				3,897				15,702				13,636
Total Non-interest Expense			21,141				18,180				85,351				71,093
Income before income taxes			13,829				10,801				48,452				41,597
Income taxes			4,430				3,436				16,184				12,754
Net Income		$	9,399			$	7,365			$	32,268			$	28,843
Earnings per common share:
Basic		$	0.93			$	0.82			$	3.23			$	3.21
Diluted		$	0.92			$	0.81			$	3.22			$	3.19
Average Shares Outstanding:
Basic			10,155				8,982				9,975				8,980
Diluted			10,222				9,060				10,034				9,053

 

 

Financial Summary and Comparison (Unaudited)

First Defiance Financial Corp.      

 

		Three Months Ended												Twelve Months Ended
		December 31,												December 31,
(dollars in thousands, except per share data)		2017				2016				% change				2017				2016				% change
Summary of Operations
Tax-equivalent interest income (2)		$	29,009			$	23,219				24.9	%		$	110,016			$	89,213				23.3	%
Interest expense			3,140				2,231				40.7				11,431				8,440				35.4
Tax-equivalent net interest income (2)			25,869				20,988				23.3				98,585				80,773				22.1
Provision for loan losses			314				(149	)			NM				2,949				283				NM
Tax-equivalent NII after provision for loan loss (2)			25,555				21,137				20.9				95,636				80,490				18.8
Investment Securities gains			160				-				NM				584				509				14.7
Non-interest income (excluding securities gains/losses)			9,737				8,293				17.4				39,497				33,521				17.8
Non-interest expense			21,141				18,180				16.3				85,351				71,093				20.1
Income taxes			4,430				3,436				28.9				16,184				12,754				26.9
Net Income			9,399				7,365				27.6				32,268				28,843				11.9
Tax equivalent adjustment (2)			482				449				7.3				1,914				1,830				4.6
At Period End
Assets			2,993,604				2,477,597				20.8
Earning assets			2,691,438				2,261,068				19.0
Loans			2,348,713				1,940,487				21.0
Allowance for loan losses			26,683				25,884				3.1
Deposits			2,437,656				1,981,628				23.0
Stockholders’ equity			373,286				293,018				27.4
Average Balances
Assets			2,968,445				2,458,952				20.7				2,851,531				2,397,439				18.9
Earning assets			2,646,643				2,226,868				18.9				2,545,261				2,168,046				17.4
Loans			2,279,358				1,908,731				19.4				2,198,639				1,853,419				18.6
Deposits and interest-bearing liabilities			2,560,258				2,133,868				20.0				2,464,952				2,080,444				18.5
Deposits			2,400,061				1,954,631				22.8				2,298,712				1,905,621				20.6
Stockholders’ equity			369,366				292,301				26.4				351,236				285,634				23.0
Stockholders’ equity / assets			12.44	%			11.89	%			4.7				12.32	%			11.91	%			3.4
Per Common Share Data
Net Income
Basic		$	0.93			$	0.82				13.4			$	3.23			$	3.21				0.6
Diluted			0.92				0.81				13.6				3.22				3.19				0.9
Dividends			0.25				0.22				13.6				1.00				0.88				13.6
Market Value:
High		$	56.91			$	52.31				8.8			$	56.91			$	52.31				8.8
Low			50.28				36.91				36.2				46.27				34.80				33.0
Close			51.97				50.74				2.4				51.97				50.74				2.4
Common Book Value			36.76				32.62				12.7				36.76				32.62				12.7
Tangible Common Book Value (1)			26.49				25.59				3.5				26.49				25.59				3.5
Shares outstanding, end of period (000)			10,156				8,983				13.1				10,156				8,983				13.1
Performance Ratios (annualized)
Tax-equivalent net interest margin (2)			3.88	%			3.76	%			3.3				3.88	%			3.74	%			3.7
Return on average assets			1.26	%			1.19	%			5.4				1.13	%			1.20	%			(5.9	)
Return on average equity			10.10	%			10.02	%			0.7				9.19	%			10.10	%			(9.0	)
Efficiency ratio (3)			59.37	%			62.09	%			(4.4	)			61.81	%			62.20	%			(0.6	)
Effective tax rate			32.03	%			31.81	%			0.7				33.40	%			30.66	%			8.9
Dividend payout ratio (basic)			26.88	%			26.83	%			0.2				30.96	%			27.41	%			12.9

 

(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								Twelve Months Ended
		December 31,								December 31,
(dollars in thousands)		2017				2016				2017				2016
Gain from sale of mortgage loans		$	1,087			$	1,208			$	4,664			$	5,311
Mortgage loan servicing revenue (expense):
Mortgage loan servicing revenue			945				922				3,714				3,560
Amortization of mortgage servicing rights			(363	)			(443	)			(1,464	)			(1,724	)
Mortgage servicing rights valuation adjustments			69				241				90				123
			651				720				2,340				1,959
Total revenue from sale and servicing of mortgage loans		$	1,738			$	1,928			$	7,004			$	7,270

 

 

Yield Analysis

First Defiance Financial Corp.                      

 

		Three Months Ended December 31,
		(dollars in thousands)
		2017													2016
		Average								Yield					Average								Yield
		Balance				Interest(1)				Rate(2)					Balance				Interest(1)				Rate(2)
Interest-earning assets:
Loans receivable		$	2,279,358			$	26,327				4.58	%			$	1,908,731			$	21,028				4.38	%
Securities			261,328				2,179				3.35	%	(3)			243,456				1,972				3.30	%(3)
Interest Bearing Deposits			89,965				281				1.24	%				60,881				80				0.52	%
FHLB stock			15,992				222				5.51	%				13,800				139				4.01	%
Total interest-earning assets			2,646,643				29,009				4.35	%				2,226,868				23,219				4.16	%
Non-interest-earning assets			321,802													232,084
Total assets		$	2,968,445												$	2,458,952
Deposits and Interest-bearing liabilities:
Interest bearing deposits		$	1,847,837			$	2,461				0.53	%			$	1,484,531			$	1,648				0.44	%
FHLB advances and other			94,773				352				1.47	%				95,631				348				1.45	%
Subordinated debentures			36,161				252				2.76	%				36,146				205				2.26	%
Notes payable			29,263				75				1.02	%				47,460				30				0.25	%
Total interest-bearing liabilities			2,008,034				3,140				0.62	%				1,663,768				2,231				0.53	%
Non-interest bearing deposits			552,224				-				-					470,100				-				-
Total including non-interest-bearing demand deposits			2,560,258				3,140				0.49	%				2,133,868				2,231				0.42	%
Other non-interest-bearing liabilities			38,821													32,783
Total liabilities			2,599,079													2,166,651
Stockholders' equity			369,366													292,301
Total liabilities and stockholders' equity		$	2,968,445												$	2,458,952
Net interest income; interest rate spread						$	25,869				3.73	%							$	20,988				3.63	%
Net interest margin (4)											3.88	%												3.76	%
Average interest-earning assets  to average interest bearing liabilities											132	%												134	%

 

 

		Twelve Months Ended December 31,
		2017													2016
		Average								Yield					Average								Yield
		Balance				Interest(1)				Rate					Balance				Interest(1)				Rate
Interest-earning assets:
Loans receivable		$	2,198,639			$	99,742				4.54	%			$	1,853,419			$	80,423				4.34	%
Securities			258,775				8,654				3.39	%	(3)			233,407				7,871				3.48	%(3)
Interest Bearing Deposits			72,215				836				1.16	%				67,420				367				0.54	%
FHLB stock			15,632				784				5.02	%				13,800				552				4.00	%
Total interest-earning assets			2,545,261				110,016				4.33	%				2,168,046				89,213				4.13	%
Non-interest-earning assets			306,270													229,393
Total assets		$	2,851,531												$	2,397,439
Deposits and Interest-bearing liabilities:
Interest bearing deposits		$	1,769,786			$	8,818				0.50	%			$	1,463,890			$	6,261				0.43	%
FHLB advances and other			102,155				1,470				1.44	%				85,856				1,288				1.50	%
Subordinated debentures			36,156				935				2.58	%				36,141				753				2.09	%
Notes payable			27,929				208				0.74	%				52,826				138				0.26	%
Total interest-bearing liabilities			1,936,026				11,431				0.59	%				1,638,713				8,440				0.52	%
Non-interest bearing deposits			528,926				-				-					441,731				-				-
Total including non-interest-bearing demand deposits			2,464,952				11,431				0.46	%				2,080,444				8,440				0.41	%
Other non-interest-bearing liabilities			35,343													31,361
Total liabilities			2,500,295													2,111,805
Stockholders' equity			351,236													285,634
Total liabilities and stockholders' equity		$	2,851,531												$	2,397,439
Net interest income; interest rate spread						$	98,585				3.74	%							$	80,773				3.61	%
Net interest margin (4)											3.88	%												3.74	%
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 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)		4th Qtr 2017				3rd Qtr 2017				2nd Qtr 2017				1st Qtr 2017				4th Qtr 2016
Summary of Operations
Tax-equivalent interest income (1)		$	29,009			$	28,557			$	27,944			$	24,505			$	23,219
Interest expense			3,140				3,074				2,826				2,391				2,231
Tax-equivalent net interest income (1)			25,869				25,483				25,118				22,114				20,988
Provision for loan losses			314				462				2,118				55				(149	)
Tax-equivalent NII after provision for loan losses (1)			25,555				25,021				23,000				22,059				21,137
Investment securities gains, net of impairment			160				158				267				-				-
Non-interest income (excluding securities gains/losses)			9,737				9,337				9,873				10,549				8,293
Non-interest expense			21,141				20,440				20,630				23,142				18,180
Income taxes			4,430				4,219				3,677				3,857				3,436
Net income			9,399				9,381				8,347				5,140				7,365
Tax equivalent adjustment (1)			482				476				486				469				449
At Period End
Total assets		$	2,993,604			$	2,935,030			$	2,890,507			$	2,928,697			$	2,477,151
Earning assets			2,691,438				2,633,996				2,596,674				2,639,325				2,261,068
Loans			2,348,713				2,276,042				2,254,435				2,238,006				1,940,487
Allowance for loan losses			26,683				26,341				25,915				25,749				25,884
Deposits			2,437,656				2,360,675				2,326,702				2,373,789				1,981,628
Stockholders’ equity			373,286				367,924				361,430				354,191				293,018
Stockholders’ equity / assets			12.47	%			12.54	%			12.50	%			12.09	%			11.83	%
Goodwill			98,569				98,370				98,318				90,768				61,798
Average Balances
Total assets		$	2,968,445			$	2,906,795			$	2,908,483			$	2,622,402			$	2,458,952
Earning assets			2,646,643				2,590,463				2,591,397				2,355,544				2,226,868
Loans			2,279,358				2,251,071				2,238,061				2,026,067				1,908,731
Deposits and interest-bearing liabilities			2,560,258				2,507,805				2,516,024				2,275,724				2,133,868
Deposits			2,400,061				2,338,817				2,346,336				2,109,637				1,954,631
Stockholders’ equity			369,366				363,612				357,523				314,442				292,301
Stockholders’ equity / assets			12.44	%			12.51	%			12.29	%			11.99	%			11.89	%
Per Common Share Data
Net Income:
Basic		$	0.93			$	0.92			$	0.82			$	0.54			$	0.82
Diluted			0.92				0.92				0.82				0.54				0.81
Dividends			0.25				0.25				0.25				0.25				0.22
Market Value:
High		$	56.91			$	53.99			$	56.90			$	51.15			$	52.31
Low			50.28				47.01				48.78				46.27				36.91
Close			51.97				52.49				52.68				49.51				50.74
Common Book Value			36.76				36.25				35.61				34.92				32.62
Shares outstanding, end of period (in thousands)			10,156				10,149				10,147				10,143				8,983
Performance Ratios (annualized)
Tax-equivalent net interest margin (1)			3.88	%			3.91	%			3.89	%			3.81	%			3.76	%
Return on average assets			1.26	%			1.28	%			1.15	%			0.79	%			1.19	%
Return on average equity			10.10	%			10.24	%			9.36	%			6.63	%			10.02	%
Efficiency ratio (2)			59.37	%			58.70	%			58.96	%			70.85	%			62.09	%
Effective tax rate			32.03	%			31.02	%			30.58	%			42.87	%			31.81	%
Common dividend payout ratio (basic)			26.88	%			27.17	%			30.49	%			46.30	%			26.83	%

 

(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)		4th Qtr 2017				3rd Qtr 2017				2nd Qtr 2017				1st Qtr 2017				4th Qtr 2016
Loan Portfolio Composition
One to four family residential real estate		$	274,862			$	271,048			$	276,578			$	276,931			$	207,550
Construction			265,476				244,920				234,688				199,724				182,886
Commercial real estate			1,235,221				1,205,695				1,182,087				1,193,906				1,040,562
Commercial			526,142				510,240				515,004				504,366				469,055
Consumer finance			29,109				29,009				28,860				27,696				16,680
Home equity and improvement			135,457				132,220				130,429				132,965				118,429
Total loans			2,466,267				2,393,132				2,367,646				2,335,588				2,035,162
Less:
Undisbursed loan funds			115,972				115,714				112,000				95,460				93,355
Deferred loan origination fees			1,582				1,379				1,211				1,264				1,320
Allowance for loan loss			26,683				26,341				25,915				25,749				25,884
Net Loans		$	2,322,030			$	2,249,698			$	2,228,520			$	2,213,115			$	1,914,603
Allowance for loan loss activity
Beginning allowance		$	26,341			$	25,915			$	25,749			$	25,884			$	25,923
Provision for loan losses			314				462				2,118				55				(149	)
Credit loss charge-offs:
One to four family residential real estate			170				60				0				49				147
Commercial real estate			29				0				110				290				0
Commercial			210				64				2,027				0				234
Consumer finance			27				20				21				71				53
Home equity and improvement			55				92				100				54				98
Total charge-offs			491				236				2,258				464				532
Total recoveries			519				200				306				274				642
Net charge-offs (recoveries)			(28	)			36				1,952				190				(110	)
Ending allowance		$	26,683			$	26,341			$	25,915			$	25,749			$	25,884
Credit Quality
Total non-performing loans (1)		$	30,715			$	29,152			$	30,359			$	15,057			$	14,348
Real estate owned (REO)			1,532				532				672				705				455
Total non-performing assets (2)		$	32,247			$	29,684			$	31,031			$	15,762			$	14,803
Net charge-offs (recoveries)			(28	)			36				1,952				190				(110	)
Restructured loans, accruing (3)			13,770				13,044				10,521				9,814				10,544
Allowance for loan losses / loans			1.14	%			1.16	%			1.15	%			1.15	%			1.33	%
Allowance for loan losses / non-performing assets			82.75	%			88.74	%			83.51	%			163.36	%			174.86	%
Allowance for loan losses / non-performing loans			86.87	%			90.36	%			85.36	%			171.01	%			180.40	%
Non-performing assets / loans plus REO			1.37	%			1.30	%			1.38	%			0.70	%			0.76	%
Non-performing assets / total assets			1.08	%			1.01	%			1.07	%			0.54	%			0.60	%
Net charge-offs / average loans (annualized)			0.00	%			0.01	%			0.35	%			0.04	%			-0.02	%
Deposit Balances
Non-interest-bearing demand deposits		$	571,360			$	519,911			$	520,778			$	579,943			$	487,663
Interest-bearing demand deposits and money market			1,005,519				989,514				967,834				973,459				816,665
Savings deposits			302,022				296,230				288,643				288,498				243,369
Retail time deposits less than $250,000			504,912				504,277				499,298				490,953				400,080
Retail time deposits greater than $250,000			53,843				50,743				50,149				40,936				33,851
Total deposits		$	2,437,656			$	2,360,675			$	2,326,702			$	2,373,789			$	1,981,628

 

(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
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
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