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 $2.26 PER SHARE FOR 2018

 

	·	Earnings per diluted share of $0.59 for 2018 fourth quarter, up from $0.46 per share in the 2017 fourth quarter
	·	Quarterly dividend increased 11.8% to $0.19 per share
	·	Net income of $12.1 million for 2018 fourth quarter, compared to $9.4 million in the 2017 fourth quarter
	·	Net interest margin of 4.02% for the 2018 fourth quarter, compared to 3.88% in the 2017 fourth quarter
	·	Loan growth of $83.7 million during the 2018 fourth quarter
	·	Deposit growth of $96.5 million during the 2018 fourth quarter
	·	Non-performing loans of $19.0 million for 2018 fourth quarter, compared to $30.7 million for the 2017 fourth quarter

 

DEFIANCE, OHIO (January 21, 2019) – First Defiance Financial Corp. (NASDAQ: FDEF) announced today that net income for the fiscal year ended December 31, 2018, totaled $46.2 million, or $2.26 per diluted common share, compared to $32.3 million, or $1.61 per diluted common share, for the year ended December 31, 2017. For the fourth quarter of 2018, First Defiance earned $12.1 million, or $0.59 per diluted common share, compared to $9.4 million, or $0.46 per diluted common share for the fourth quarter of 2017. The fourth quarter of 2018 results included an increase of $806,000 pre-tax ($636,000 after-tax), or $0.03 per diluted share, from an immaterial accounting correction related to the company’s deferred compensation plan.

 

“With fourth quarter earnings per share up 28% over last year, we are pleased to announce our sixth consecutive year of record earnings performance,” said Donald P. Hileman, President and Chief Executive Officer of First Defiance. “Our balance sheet and earnings growth, net interest margin expansion and asset quality improvement supported a strong finish to the year and positions us well as we start the new year.”

 

Net interest income up compared to fourth quarter 2017

 

Net interest income of $28.5 million in the fourth quarter of 2018 was up from $25.4 million in the fourth quarter of 2017. The increase was primarily due to the growth in earning assets supplemented by expansion in the net interest margin versus the fourth quarter last year. The net interest margin was 4.02% for the fourth quarter, up from 4.00% for the third quarter of 2018 and 3.88% in the fourth quarter of 2017. Yield on interest earning assets increased by 38 basis points, to 4.73% in the fourth quarter of 2018 from 4.35% in the fourth quarter of 2017. The cost of interest-bearing liabilities increased by 33 basis points in the fourth quarter of 2018 to 0.95% from 0.62% in the fourth quarter of 2017.

 

 

“Our net interest income increase in the fourth quarter was driven by both solid balance sheet growth and margin expansion,” said Hileman. “Our loans and deposits grew in the fourth quarter at annualized rates of 13.6% and 15.3%, respectively, providing strong momentum for 2019.”

 

Non-interest income down from fourth quarter 2017

 

First Defiance’s non-interest income for the fourth quarter of 2018 was $8.4 million compared to $9.9 million in the fourth quarter of 2017. Results for the fourth quarter of 2018 included a $690,000 decrease in deferred compensation plan assets compared to a $170,000 increase for the same period in 2017 due to stock market performance. In addition, fourth quarter of the prior year included an increase in trust income of $428,000 attributable to a change to accrual basis accounting.

 

Mortgage banking income was $1.4 million in the fourth quarter of 2018, down from $1.7 million in the fourth quarter of 2017 due to lower volumes. Gains from the sale of mortgage loans decreased in the fourth quarter of 2018 to $758,000 from $1.1 million in the fourth quarter of 2017. Mortgage loan servicing revenue was $978,000 in the fourth quarter of 2018, up from $945,000 in the fourth quarter of 2017. First Defiance had a positive change in the valuation adjustment in mortgage servicing assets of $41,000 in the fourth quarter of 2018 compared to a positive adjustment of $69,000 in the fourth quarter of 2017.

 

For the fourth quarter of 2018, service fees and other charges were $3.3 million, up from $3.1 million in the fourth quarter of 2017; and commissions from the sale of insurance products were $3.1 million, up from $3.0 million in the fourth quarter of 2017. Trust income was $503,000 in the fourth quarter of 2018 and consistent with $932,000 in the fourth quarter of 2017, which included $428,000 for an adjustment to accrual basis accounting. The fourth quarter of 2018 included gains of $97,000 from the sale of securities compared to gains of $160,000 in the fourth quarter of 2017.

 

Other non-interest income for the fourth quarter of 2018 was a negative $494,000 down $999,000 compared to 2017 primarily due to the decrease in deferred compensation plan assets described above. Excluding the impact of this item, other non-interest income for fourth quarter 2018 would be $196,000 compared to $335,000 in the fourth quarter of 2017.

 

Non-interest expenses up from fourth quarter 2017

 

Non-interest expense totaled $21.2 million in the fourth quarter of 2018 compared to $21.1 million in the fourth quarter of 2017, primarily due to increases in core non-interest expenses offset by a decrease in other non-interest expenses. The comparison includes an $806,000 reduction in expenses from the accounting correction to the company’s deferred compensation plan in the fourth quarter of 2018, and a further impact from a $1.3 million decrease in deferred compensation plan expense due to stock market performance. Compensation and benefits in the fourth quarter of 2018 was $13.5 million, an increase of $1.3 million compared to the fourth quarter of 2017. Occupancy expense was $2.4 million in the fourth quarter 2018, up $433,000 from the fourth quarter 2017. Data processing cost was $2.2 million in the fourth quarter of 2018, up $301,000 from the fourth quarter of 2017.

 

 

Other non-interest expense was $2.0 million (or $2.8 million excluding the benefit from the deferred compensation accounting correction) in the fourth quarter of 2018 compared to $4.0 million in the fourth quarter of 2017. Additionally, results for the fourth quarter of 2018 included a $1,052,000 decrease in deferred compensation plan liabilities compared to a $200,000 increase for the same period in 2017 due to stock market performance. Excluding the impact of these items, other non-interest expense for fourth quarter 2018 would be $3.9 million compared to $3.8 million in the fourth quarter of 2017.

 

Credit quality

 

Non-performing loans totaled $19.0 million at December 31, 2018, a decrease from $30.7 million at December 31, 2017. In addition, real estate owned totaled $1.2 million at December 31, 2018, down from $1.5 million at December 31, 2017. Accruing troubled debt restructured loans were $11.6 million at December 31, 2018, a decrease from $13.8 million at December 31, 2017.

 

The fourth quarter of 2018 results include net recoveries of $220,000 and a provision for loan losses of $472,000 compared with net recoveries of $28,000 and a provision of $314,000 for the same period in 2017. The allowance for loan loss as a percentage of total loans was 1.12% at December 31, 2018, compared with 1.13% at September 30, 2018, and 1.14% at December 31, 2017.

 

“Our non-performing assets to total assets at year-end improved significantly from the prior year to 0.64%; and as a continuation of our favorable net loan loss experience from the previous quarter, net recoveries were $220,000 in the fourth quarter,” said Hileman. “Additional reductions in our non-performing assets remain a priority in 2019.”

 

Annual results

 

Net income for the full year ended on December 31, 2018, totaled $46.2 million, or $2.26 per diluted common share, compared to $32.3 million, or $1.61 per diluted common share for 2017. The year 2017 included approximately ten months of operations of the Commercial Savings Bank (“CSB”) acquisition completed on February 24, 2017, and nine months of operations from Corporate One Benefits Agency, Inc. (“Corporate One”) acquired on April 1, 2017. In addition, 2017 included merger and conversion expenses related to the acquisitions of $4.0 million, which had an after tax impact of $2.8 million, or $0.14 per diluted share. The year 2018 included a benefit of $806,000 from an accounting correction, which had an after tax impact of $636,000 or $0.03 per diluted share.

 

Net interest income for 2018 totaled $108.3 million, compared with $96.7 million for 2017. Average interest-earning assets increased to $2.74 billion for 2018, compared to $2.55 billion in 2017. Net interest margin for 2018 was 3.98%, up 10 basis points from the 3.88% margin for 2017. The provision for loan losses for 2018 was $1.2 million, compared to $2.9 million for 2017.

 

Non-interest income for the year 2018 was $39.2 million, compared to $40.1 million in 2017. The year 2017 included 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 an increase in trust revenues of $428,000 related to a change to accrual basis accounting.

 

 

Service fees and other charges were $13.1 million for 2018, up from $12.1 million in 2017. Mortgage banking income remained stable at $7.1 million for 2018, compared to $7.0 million in 2017. Gains on the sale of non-mortgage loans were $317,000 for 2018, compared to $217,000 in 2017. Insurance commissions increased to $14.1 million for 2018, compared to $12.9 million in 2017. Non-interest income for 2018 included $173,000 of net securities gains compared to $584,000 of net securities gains for 2017.

 

Non-interest expense increased to $89.4 million in 2018 from $85.4 million in 2017. Included in non-interest expense for 2017 were merger and conversion expenses of $4.0 million related to acquisitions. Compensation and benefits expense was $52.6 million for 2018 compared to $49.8 million for 2017. Expenses also included increases in occupancy expense of $934,000 and data processing expense of $818,000. Other non-interest expense was $15.2 million (or $16.0 million excluding the benefit from the deferred compensation accounting correction) in 2018 compared to $15.7 million in 2017.

 

Total assets at $3.18 billion

 

Total assets at December 31, 2018, were $3.18 billion compared to $2.99 billion at December 31, 2017. Net loans receivable (excluding loans held for sale) were $2.51 billion at December 31, 2018, compared to $2.32 billion at December 31, 2017. Also, at December 31, 2018, goodwill and other intangible assets totaled $103.0 million compared to $104.3 million at December 31, 2017.

 

Total deposits at December 31, 2018, were $2.62 billion compared with $2.44 billion at December 31, 2017. Total stockholders’ equity was $399.6 million at December 31, 2018, compared to $373.3 million at December 31, 2017.

 

Dividend to be paid February 22

 

The Board of Directors declared a quarterly cash dividend of $0.19 per common share payable February 22, 2019, to shareholders of record at the close of business on February 15, 2019. The dividend represents an annual dividend of 2.81% based on the First Defiance common stock closing price on January 18, 2019. First Defiance has approximately 20,196,026 common shares outstanding.

 

Share Repurchase Program

 

Under its existing authorization to repurchase shares, the company completed the repurchase of 231,000 shares of its common stock during the fourth quarter of 2018. At year-end, 524,000 shares of common stock remained available for repurchase under the authorization. Repurchases will be made periodically depending on market conditions and other factors. The repurchased shares will be held as treasury stock and will be available for general corporate purposes, including employee stock option plans. The exact number of shares to be repurchased by the company is not guaranteed.

 

Purchases under the First Defiance Financial Corp. stock repurchase program may be made periodically, in the open market, through block trades and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Commission or otherwise, and also in privately negotiated transactions. Depending on market conditions and other factors, these purchases may be commenced or suspended at any time or periodically without prior notice.

 

 

Conference call

 

First Defiance will host a conference call at 11:00 a.m. ET on Tuesday, January 22, 2019, to discuss the earnings results and business trends. The conference call may be accessed by calling 1-877-444-1726. A live webcast may also be accessed at https://services.choruscall.com/links/fdef190122.html. The replay of the conference call webcast will be available at www.fdef.com until 9:00 a.m. ET on Wednesday, January 22, 2020.

 

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 44 full-service branches 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 December 31, 2018 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)		2018				2017
Assets
Cash and cash equivalents
Cash and amounts due from depository institutions		$	55,962			$	58,693
Interest-bearing deposits			43,000				55,000
			98,962				113,693
Securities
Available-for sale, carried at fair value			294,076				260,650
Held-to-maturity, carried at amortized cost			526				648
			294,602				261,298
Loans			2,540,039				2,348,713
Allowance for loan losses			(28,331	)			(26,683	)
Loans, net			2,511,708				2,322,030
Loans held for sale			6,613				10,435
Mortgage servicing rights			10,119				9,808
Accrued interest receivable			9,641				8,706
Federal Home Loan Bank stock			14,217				15,992
Bank Owned Life Insurance			67,660				66,230
Office properties and equipment			40,670				40,217
Real estate and other assets held for sale			1,205				1,532
Goodwill			98,569				98,569
Core deposit and other intangibles			4,391				5,703
Deferred taxes			654				231
Other assets			23,365				38,959
Total Assets		$	3,182,376			$	2,993,403
Liabilities and Stockholders’ Equity
Non-interest-bearing deposits		$	607,198			$	571,360
Interest-bearing deposits			2,013,684				1,866,296
Total deposits			2,620,882				2,437,656
Advances from Federal Home Loan Bank			85,189				84,279
Notes payable and other interest-bearing liabilities			5,741				26,019
Subordinated debentures			36,083				36,083
Advance payments by borrowers for tax and insurance			3,652				2,925
Other liabilities			31,240				33,155
Total Liabilities			2,782,787				2,620,117
Stockholders’ Equity
Preferred stock			-				-
Common stock, net			127				127
Additional paid-in-capital			161,593				160,940
Accumulated other comprehensive income (loss)			(2,148	)			217
Retained earnings			295,588				262,900
Treasury stock, at cost			(55,571	)			(50,898	)
Total stockholders’ equity			399,589				373,286
Total Liabilities and Stockholders’ Equity		$	3,182,376			$	2,993,403

 

 

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)		2018				2017				2018				2017
Interest Income:
Loans		$	30,841			$	26,277			$	114,398			$	99,540
Investment securities			2,167				1,747				8,134				6,942
Interest-bearing deposits			325				281				1,270				836
FHLB stock dividends			217				222				915				784
Total interest income			33,550				28,527				124,717				108,102
Interest Expense:
Deposits			4,389				2,461				13,897				8,818
FHLB advances and other			318				352				1,261				1,470
Subordinated debentures			347				252				1,281				935
Notes Payable			4				75				23				208
Total interest expense			5,058				3,140				16,462				11,431
Net interest income			28,492				25,387				108,255				96,671
Provision for loan losses			472				314				1,176				2,949
Net interest income after provision for loan losses			28,020				25,073				107,079				93,722
Non-interest Income:
Service fees and other charges			3,338				3,066				13,100				12,139
Mortgage banking income			1,445				1,738				7,077				7,004
Gain on sale of non-mortgage loans			17				45				317				217
Gain on sale of securities			97				160				173				584
Insurance commissions			3,061				3,032				14,085				12,866
Trust income			503				932				2,091				2,332
Income from Bank Owned Life Insurance			402				419				1,767				3,085
Other non-interest income			(494	)			505				598				1,854
Total Non-interest Income			8,369				9,897				39,208				40,081
Non-interest Expense:
Compensation and benefits			13,550				12,259				52,566				49,847
Occupancy			2,390				1,957				8,641				7,707
FDIC insurance premium			204				277				1,021				1,250
Financial institutions tax			525				400				2,118				1,819
Data processing			2,206				1,905				8,555				7,737
Amortization of intangibles			314				358				1,312				1,289
Other non-interest expense			2,021				3,985				15,199				15,702
Total Non-interest Expense			21,210				21,141				89,412				85,351
Income before income taxes			15,179				13,829				56,875				48,452
Income taxes			3,082				4,430				10,626				16,184
Net Income		$	12,097			$	9,399			$	46,249			$	32,268
Earnings per common share:
Basic		$	0.60			$	0.47			$	2.27			$	1.62
Diluted		$	0.59			$	0.46			$	2.26			$	1.61
Average Shares Outstanding:
Basic			20,313				20,310				20,358				19,950
Diluted			20,404				20,444				20,449				20,068

 

 

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)		2018				2017				% change				2018				2017				% change
Summary of Operations
Tax-equivalent interest income (2)		$	33,808			$	29,009				16.5	%		$	125,721			$	110,016				14.3	%
Interest expense			5,058				3,140				61.1				16,462				11,431				44.0
Tax-equivalent net interest income (2)			28,750				25,869				11.1				109,259				98,585				10.8
Provision for loan losses			472				314				50.3				1,176				2,949				(60.1	)
Tax-equivalent NII after provision for loan loss (2)			28,278				25,555				10.7				108,083				95,636				13.0
Investment securities gains			97				160				(39.4	)			173				584				(70.4	)
Non-interest income (excluding securities gains/losses)			8,272				9,737				(15.0	)			39,035				39,497				(1.2	)
Non-interest expense			21,210				21,141				0.3				89,412				85,351				4.8
Income taxes			3,082				4,430				(30.4	)			10,626				16,184				(34.3	)
Net Income			12,097				9,399				28.7				46,249				32,268				43.3
Tax equivalent adjustment (2)			258				482				(46.5	)			1,004				1,914				(47.5	)
At Period End
Assets			3,182,376				2,993,403				6.3
Earning assets			2,898,471				2,691,438				7.7
Loans			2,540,039				2,348,713				8.1
Allowance for loan losses			28,331				26,683				6.2
Deposits			2,620,882				2,437,656				7.5
Stockholders’ equity			399,589				373,286				7.0
Average Balances
Assets			3,138,202				2,968,445				5.7				3,048,525				2,851,531				6.9
Earning assets			2,831,866				2,646,643				7.0				2,741,215				2,545,261				7.7
Loans			2,474,221				2,279,358				8.5				2,382,941				2,198,639				8.4
Deposits and interest-bearing liabilities			2,705,736				2,560,258				5.7				2,626,004				2,464,952				6.5
Deposits			2,594,635				2,400,061				8.1				2,507,553				2,298,712				9.1
Stockholders’ equity			392,701				369,366				6.3				384,305				351,236				9.4
Stockholders’ equity / assets			12.51	%			12.44	%			0.6				12.61	%			12.32	%			2.3
Per Common Share Data
Net Income
Basic		$	0.60			$	0.47				29.0			$	2.27			$	1.62				40.6
Diluted			0.59				0.46				28.3				2.26				1.61				40.4
Dividends			0.17				0.13				36.0				0.64				0.50				28.0
Market Value:
High		$	31.09			$	28.46				9.3			$	35.00			$	28.46				23.0
Low			22.78				25.14				(9.4	)			22.78				23.14				(1.5	)
Close			24.51				25.99				(5.7	)			24.51				25.99				(5.7	)
Common Book Value			19.81				18.38				7.8				19.81				18.38				7.8
Tangible Common Book Value (1)			14.71				13.24				11.0				14.71				13.24				11.0
Shares outstanding, end of period (000)			20,171				20,312				(0.7	)			20,171				20,312				(0.7	)
Performance Ratios (annualized)
Tax-equivalent net interest margin (2)			4.02	%			3.88	%			3.5				3.98	%			3.88	%			2.6
Return on average assets			1.53	%			1.26	%			21.7				1.52	%			1.13	%			34.1
Return on average equity			12.22	%			10.10	%			21.1				12.03	%			9.19	%			31.0
Efficiency ratio (3)			57.29	%			59.37	%			(3.5	)			60.29	%			61.81	%			(2.5	)
Effective tax rate			20.30	%			32.03	%			(36.6	)			18.68	%			33.40	%			(44.1	)
Dividend payout ratio (basic)			28.33	%			26.88	%			5.4				28.19	%			30.96	%			(8.9	)

 

(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 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								Twelve Months Ended
		December 31,								December 31,
(dollars in thousands)		2018				2017				2018				2017
Gain from sale of mortgage loans		$	758			$	1,087			$	4,502			$	4,664
Mortgage loan servicing revenue (expense):
Mortgage loan servicing revenue			978				945				3,784				3,714
Amortization of mortgage servicing rights			(332	)			(363	)			(1,341	)			(1,464	)
Mortgage servicing rights valuation adjustments			41				69				132				90
			687				651				2,575				2,340
Total revenue from sale and servicing of mortgage loans		$	1,445			$	1,738			$	7,077			$	7,004

 

 

Yield Analysis

First Defiance Financial Corp.

 

		Three Months Ended December 31,
		(dollars in thousands)
		2018												2017
		Average								Yield				Average								Yield
		Balance				Interest(1)				Rate(2)				Balance				Interest(1)				Rate(2)
Interest-earning assets:
Loans receivable		$	2,474,221			$	30,867				4.95	%		$	2,279,358			$	26,327				4.58	%
Securities			289,233				2,399				3.22	%(3)			261,328				2,179				3.35	%(3)
Interest Bearing Deposits			54,195				325				2.38	%			89,965				281				1.24	%
FHLB stock			14,217				217				6.06	%			15,992				222				5.51	%
Total interest-earning assets			2,831,866				33,808				4.73	%			2,646,643				29,009				4.35	%
Non-interest-earning assets			306,336												321,802
Total assets		$	3,138,202											$	2,968,445
Deposits and Interest-bearing liabilities:
Interest bearing deposits		$	2,002,541			$	4,389				0.87	%		$	1,847,837			$	2,461				0.53	%
FHLB advances and other			69,782				318				1.81	%			94,773				352				1.47	%
Subordinated debentures			36,083				347				3.82	%			36,161				252				2.76	%
Notes payable			5,236				4				0.30	%			29,263				75				1.02	%
Total interest-bearing liabilities			2,113,642				5,058				0.95	%			2,008,034				3,140				0.62	%
Non-interest bearing deposits			592,094				-				-				552,224				-				-
Total including non-interest-bearing demand deposits			2,705,736				5,058				0.74	%			2,560,258				3,140				0.49	%
Other non-interest-bearing liabilities			39,765												38,821
Total liabilities			2,745,501												2,599,079
Stockholders' equity			392,701												369,366
Total liabilities and stockholders' equity		$	3,138,202											$	2,968,445
Net interest income; interest rate spread						$	28,750				3.78	%						$	25,869				3.73	%
Net interest margin (4)											4.02	%											3.88	%
Average interest-earning assets to average interest bearing liabilities											134	%											132	%

 

		Twelve Months Ended December 31,
		2018												2017
		Average								Yield				Average								Yield
		Balance				Interest(1)				Rate				Balance				Interest(1)				Rate
Interest-earning assets:
Loans receivable		$	2,382,941			$	114,500				4.80	%		$	2,198,639			$	99,742				4.54	%
Securities			279,867				9,036				3.23	%(3)			258,775				8,654				3.39	%(3)
Interest Bearing Deposits			63,261				1,270				2.01	%			72,215				836				1.16	%
FHLB stock			15,146				915				6.04	%			15,632				784				5.02	%
Total interest-earning assets			2,741,215				125,721				4.59	%			2,545,261				110,016				4.33	%
Non-interest-earning assets			307,310												306,270
Total assets		$	3,048,525											$	2,851,531
Deposits and Interest-bearing liabilities:
Interest bearing deposits		$	1,945,114			$	13,897				0.71	%		$	1,769,786			$	8,818				0.50	%
FHLB advances and other			73,421				1,261				1.72	%			102,155				1,470				1.44	%
Subordinated debentures			36,083				1,281				3.55	%			36,156				935				2.58	%
Notes payable			8,947				23				0.26	%			27,929				208				0.74	%
Total interest-bearing liabilities			2,063,565				16,462				0.80	%			1,936,026				11,431				0.59	%
Non-interest bearing deposits			562,439				-				-				528,926				-				-
Total including non-interest-bearing demand deposits			2,626,004				16,462				0.63	%			2,464,952				11,431				0.46	%
Other non-interest-bearing liabilities			38,216												35,343
Total liabilities			2,664,220												2,500,295
Stockholders' equity			384,305												351,236
Total liabilities and stockholders' equity		$	3,048,525											$	2,851,531
Net interest income; interest rate spread						$	109,259				3.79	%						$	98,585				3.74	%
Net interest margin (4)											3.98	%											3.88	%
Average interest-earning assets  to average interest bearing liabilities											133	%											131	%

 

(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)		4th Qtr 2018				3rd Qtr 2018				2nd Qtr 2018				1st Qtr 2018				4th Qtr 2017
Summary of Operations
Tax-equivalent interest income (1)		$	33,808			$	32,220			$	30,550			$	29,142			$	29,009
Interest expense			5,058				4,434				3,752				3,218				3,140
Tax-equivalent net interest income (1)			28,750				27,786				26,798				25,924				25,869
Provision for loan losses			472				1,376				423				(1,095	)			314
Tax-equivalent NII after provision for loan losses (1)			28,278				26,410				26,375				27,019				25,555
Investment securities gains, net of impairment			97				76				-				-				160
Non-interest income (excluding securities gains/losses)			8,272				9,846				10,214				10,703				9,737
Non-interest expense			21,210				22,286				22,665				23,251				21,141
Income taxes			3,082				2,483				2,564				2,497				4,430
Net income			12,097				11,306				11,109				11,737				9,399
Tax equivalent adjustment (1)			258				257				251				237				482
At Period End
Total assets		$	3,182,376			$	3,098,093			$	3,039,589			$	3,023,004			$	2,993,403
Earning assets			2,898,471				2,810,624				2,756,712				2,748,338				2,691,438
Loans			2,540,039				2,456,357				2,385,344				2,358,330				2,348,713
Allowance for loan losses			28,331				27,639				27,321				27,267				26,683
Deposits			2,620,882				2,524,431				2,489,128				2,491,801				2,437,656
Stockholders’ equity			399,589				393,457				386,920				379,214				373,286
Stockholders’ equity / assets			12.56	%			12.70	%			12.73	%			12.54	%			12.47	%
Goodwill			98,569				98,569				98,569				98,569				98,569
Average Balances
Total assets		$	3,138,202			$	3,059,225			$	3,018,808			$	2,977,864			$	2,968,445
Earning assets			2,831,866				2,754,561				2,714,328				2,664,114				2,646,643
Loans			2,474,221				2,403,932				2,337,294				2,316,316				2,279,358
Deposits and interest-bearing liabilities			2,705,736				2,633,054				2,600,029				2,565,537				2,560,258
Deposits			2,594,635				2,513,708				2,487,430				2,434,440				2,400,061
Stockholders’ equity			392,701				389,361				381,165				373,993				369,366
Stockholders’ equity / assets			12.51	%			12.73	%			12.63	%			12.56	%			12.44	%
Per Common Share Data
Net Income:
Basic		$	0.60			$	0.55			$	0.54			$	0.58			$	0.47
Diluted			0.59				0.55				0.54				0.58				0.46
Dividends			0.17				0.17				0.15				0.15				0.125
Market Value:
High		$	31.09			$	35.00			$	33.72			$	29.93			$	28.46
Low			22.78				29.61				27.63				25.51				25.14
Close			24.51				30.11				33.53				28.66				25.99
Common Book Value			19.81				19.29				18.97				18.62				18.38
Shares outstanding, end of period (in thousands)			20,171				20,396				20,396				20,364				20,312
Performance Ratios (annualized)
Tax-equivalent net interest margin (1)			4.02	%			4.00	%			3.95	%			3.95	%			3.88	%
Return on average assets			1.53	%			1.47	%			1.48	%			1.60	%			1.26	%
Return on average equity			12.22	%			11.52	%			11.69	%			12.73	%			10.10	%
Efficiency ratio (2)			57.29	%			59.22	%			61.24	%			63.48	%			59.37	%
Effective tax rate			20.30	%			18.01	%			18.75	%			17.54	%			32.03	%
Common dividend payout ratio (basic)			28.33	%			30.91	%			27.78	%			26.09	%			26.88	%

 

(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)		4th Qtr 2018				3rd Qtr 2018				2nd Qtr 2018				1st Qtr 2018				4th Qtr 2017
Loan Portfolio Composition
One to four family residential real estate		$	322,686			$	313,300			$	307,480			$	275,547			$	274,862
Construction			265,772				274,344				283,911				251,944				265,476
Commercial real estate			1,404,810				1,363,087				1,283,698				1,282,027				1,235,221
Commercial			509,577				489,393				489,296				500,496				526,142
Consumer finance			34,405				32,379				29,724				28,035				29,109
Home equity and improvement			128,152				129,295				129,868				133,407				135,457
Total loans			2,665,402				2,601,798				2,523,977				2,471,456				2,466,267
Less:
Undisbursed loan funds			123,293				143,286				136,563				111,450				115,972
Deferred loan origination fees			2,070				2,155				2,070				1,676				1,582
Allowance for loan loss			28,331				27,639				27,321				27,267				26,683
Net Loans		$	2,511,708			$	2,428,718			$	2,358,023			$	2,331,063			$	2,322,030
Allowance for loan loss activity
Beginning allowance		$	27,639			$	27,321			$	27,267			$	26,683			$	26,341
Provision for loan losses			472				1,376				423				(1,095	)			314
Credit loss charge-offs:
One to four family residential real estate			31				136				78				16				170
Commercial real estate			30				1,048				254				55				29
Commercial			15				528				84				97				210
Consumer finance			105				25				72				31				27
Home equity and improvement			75				36				41				117				55
Total charge-offs			256				1,773				529				316				491
Total recoveries			476				715				160				1,995				519
Net charge-offs (recoveries)			(220	)			1,058				369				(1,679	)			(28	)
Ending allowance		$	28,331			$	27,639			$	27,321			$	27,267			$	26,683
Credit Quality
Total non-performing loans (1)		$	19,016			$	20,929			$	18,340			$	27,925			$	30,715
Real estate owned (REO)			1,205				1,676				1,795				1,440				1,532
Total non-performing assets (2)		$	20,221			$	22,605			$	20,135			$	29,365			$	32,247
Net charge-offs (recoveries)			(220	)			1,058				369				(1,679	)			(28	)
Restructured loans, accruing (3)			11,573				12,611				15,834				13,722				13,770
Allowance for loan losses / loans			1.12	%			1.13	%			1.15	%			1.16	%			1.14	%
Allowance for loan losses / non-performing assets			140.11	%			122.27	%			135.69	%			92.86	%			82.75	%
Allowance for loan losses / non-performing loans			148.99	%			132.06	%			148.97	%			97.64	%			86.87	%
Non-performing assets / loans plus REO			0.80	%			0.92	%			0.84	%			1.24	%			1.37	%
Non-performing assets / total assets			0.64	%			0.73	%			0.66	%			0.97	%			1.08	%
Net charge-offs / average loans (annualized)			-0.04	%			0.18	%			0.06	%			-0.29	%			0.00	%
Deposit Balances
Non-interest-bearing demand deposits		$	607,198			$	556,316			$	548,147			$	550,742			$	571,360
Interest-bearing demand deposits and money market			1,040,471				1,016,294				1,021,445				1,055,416				1,005,519
Savings deposits			292,829				293,359				297,870				306,510				302,022
Retail time deposits less than $250,000			591,822				564,379				547,871				512,746				504,912
Retail time deposits greater than $250,000			88,562				94,083				73,795				66,387				53,843
Total deposits		$	2,620,882			$	2,524,431			$	2,489,128			$	2,491,801			$	2,437,656

 

(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, 2018
One to four family residential real estate		$	322,686			$	317,740			$	1,306			$	3,640
Construction			265,772				265,772				-				-
Commercial real estate			1,404,810				1,394,211				242				10,357
Commercial			509,577				504,884				193				4,500
Consumer finance			34,405				34,079				200				126
Home equity and improvement			128,152				126,188				1,571				393
Total loans		$	2,665,402			$	2,642,874			$	3,512			$	19,016
September 30, 2018
One to four family residential real estate		$	313,300			$	308,108			$	1,680			$	3,512
Construction			274,344				274,344				-				-
Commercial real estate			1,363,087				1,351,257				138				11,692
Commercial			489,393				484,216				48				5,129
Consumer finance			32,379				32,124				221				34
Home equity and improvement			129,295				127,291				1,442				562
Total loans		$	2,601,798			$	2,577,340			$	3,529			$	20,929
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