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Press Release

First Defiance Financial Corp. Announces 2018 Second Quarter Earnings

Company Release - 7/16/2018 5:15 PM ET
  • Diluted earnings per share of $0.54 for 2018 second quarter, up from $0.41 in the 2017 second quarter
  • Net income of $11.1 million for 2018 second quarter, up from $8.3 million in the 2017 second quarter
  • Return on average assets of 1.48% for the 2018 second quarter, compared to 1.15% in the 2017 second quarter
  • Net interest margin of 3.95% for the 2018 second quarter, up from 3.89% in the 2017 second quarter
  • Loan growth of $27.0 million during 2018 second quarter
  • Non-performing assets of $20.1 million for 2018 second quarter, compared to $31.0 million for 2017 second quarter

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

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

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

Net Interest Income up Compared to Second Quarter 2017

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

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

Non-Interest Income up from Second Quarter 2017

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

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

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

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

Non-Interest Expenses up from Second Quarter 2017

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

Credit Quality

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

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

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

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

Year-To-Date Results

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

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

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

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

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

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

Total Assets at $3.0 Billion

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

Dividend to be Paid August 24

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

Conference Call

First Defiance Financial Corp. will host a conference call at 11:00 a.m. ET on Tuesday, July 17, 2018, to discuss the earnings results and business trends. The conference call may be accessed by calling 1-877-444-1726. In addition, a live webcast may be accessed at https://services.choruscall.com/links/fdef180717.html.

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

First Defiance Financial Corp.

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

For more information, visit the company’s website at www.fdef.com.

-Financial Statements and Highlights Follow-

Safe Harbor Statement

This news release may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21 B of the Securities Act of 1934, as amended, which are intended to be safe harbors created thereby. Those statements may include, but are not limited to, all statements regarding intent, beliefs, expectations, projections, forecasts and plans of First Defiance Financial Corp. and its management, and specifically include statements regarding: changes in economic conditions, the nature, extent and timing of governmental actions and reforms, future movements of interest rates, the production levels of mortgage loan generation, the ability to continue to grow loans and deposits, the ability to benefit from a changing interest rate environment, the ability to sustain credit quality ratios at current or improved levels, the ability to sell real estate owned properties, continued strength in the market area for First Federal Bank of the Midwest, and the ability to grow in existing and adjacent markets. These forward-looking statements involve numerous risks and uncertainties, including those inherent in general and local banking, insurance and mortgage conditions, competitive factors specific to markets in which First Defiance and its subsidiaries operate, future interest rate levels, legislative and regulatory decisions or capital market conditions and other risks and uncertainties detailed from time to time in our Securities and Exchange Commission (SEC) filings, including our Annual Report on Form 10-K for the year ended December 31, 2017. One or more of these factors have affected or could in the future affect First Defiance's business and financial results in future periods and could cause actual results to differ materially from plans and projections. Therefore, there can be no assurances that the forward-looking statements included in this news release will prove to be accurate. In light of the significant uncertainties in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by First Defiance or any other persons, that our objectives and plans will be achieved. All forward-looking statements made in this news release are based on information presently available to the management of First Defiance. We assume no obligation to update any forward-looking statements.

As required by U.S. GAAP, First Defiance will evaluate the impact of subsequent events through the issuance date of its June 30, 2018 consolidated financial statements as part of its Quarterly Report on Form 10-Q to be filed with the SEC. Accordingly, subsequent events could occur that may cause First Defiance to update its critical accounting estimates and to revise its financial information from that which is contained in this news release.

   
Consolidated Balance Sheets (Unaudited)
First Defiance Financial Corp.
 
June 30, December 31,

(in thousands)

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

June 30,

June 30,

(in thousands, except per share amounts)

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

June 30,

June 30,

(dollars in thousands, except per share data)

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

(1)

 

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

(2)

Interest income on tax-exempt securities and loans has been adjusted to a tax-equivalent basis using the statutory federal

income tax rate of 21% in 2018 and 35% in 2017.

(3)

Efficiency ratio = Non-interest expense divided by sum of tax-equivalent net interest income plus non-interest income, excluding securities gains or losses, net.

NM

Percentage change not meaningful

 
 
Income from Mortgage Banking
       
Revenue from sales and servicing of mortgage loans consisted of the following:
 
Three Months Ended Six Months Ended

June 30,

June 30,

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

Total revenue from sale and servicing of mortgage loans

$ 2,013     $ 1,830   $ 3,755     $ 3,568  
 
   
Yield Analysis
First Defiance Financial Corp.
   
Three Months Ended June 30,

(dollars in thousands)

2018   2017
Average     Yield Average     Yield
Balance Interest(1) Rate(2) Balance Interest(1) Rate(2)
Interest-earning assets:
Loans receivable $ 2,337,294 $ 27,685 4.75 % $ 2,238,061 $ 25,368 4.55 %
Securities 280,131 2,265 3.20 %

(3)

259,619 2,188 3.42 %

(3)

Interest Bearing Deposits 80,914 373 1.85 %

 

77,725 201 1.04 %
FHLB stock   15,989   227 5.69 %   15,992   187 4.69 %
Total interest-earning assets 2,714,328 30,550 4.51 % 2,591,397 27,944 4.33 %
Non-interest-earning assets   304,480   317,086
Total assets $ 3,018,808 $ 2,908,483
Deposits and Interest-bearing liabilities:
Interest bearing deposits $ 1,933,409 $ 3,144 0.65 % $ 1,785,895 $ 2,170 0.49 %
FHLB advances and other 67,261 282 1.68 % 104,923 414 1.58 %
Subordinated debentures 36,198 320 3.55 % 36,156 229 2.54 %
Notes payable   9,140   6 0.26 %   28,609   13 0.18 %
Total interest-bearing liabilities 2,046,008 3,752 0.74 % 1,955,583 2,826 0.58 %
Non-interest bearing deposits   554,021   - -   560,441   - -
Total including non-interest-bearing demand deposits 2,600,029 3,752 0.58 % 2,516,024 2,826 0.45 %
Other non-interest-bearing liabilities   37,614   34,936
Total liabilities 2,637,643 2,550,960
Stockholders' equity   381,165   357,523
Total liabilities and stockholders' equity $ 3,018,808   $ 2,908,483  
Net interest income; interest rate spread $ 26,798 3.77 % $ 25,118 3.75 %
Net interest margin (4) 3.95 % 3.89 %
Average interest-earning assets to average interest bearing liabilities 133 % 133 %
 
Six Months Ended June 30,
2018 2017
Average Yield Average Yield
Balance Interest(1) Rate Balance Interest(1) Rate
Interest-earning assets:
Loans receivable $ 2,326,805 $ 54,236 4.70 % $ 2,132,064 $ 47,390 4.48 %
Securities 271,864 4,329 3.21 % 257,230 4,361 3.46 %

(3)

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

(1)

 

Interest on certain tax exempt loans and securities is not taxable for Federal income tax purposes. In order to compare the tax-exempt yields on these assets to taxable yields, the interest earned on these assets is adjusted to a pre-tax equivalent amount based on the marginal corporate federal income tax rate of 21% in 2018 and 35% in 2017.

(2)

Annualized

(3)

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

(4)

Net interest margin is tax equivalent net interest income divided by average interest-earning assets.

 
 

Selected Quarterly Information

First Defiance Financial Corp.

 

(dollars in thousands, except per share data)

 

2nd Qtr 2018

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

(1)

 

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

(2)

Efficiency ratio = Non-interest expense divided by sum of tax-equivalent net interest income plus non-interest income, excluding securities gains, net.

 
 

Selected Quarterly Information

First Defiance Financial Corp.

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

(1)

 

Non-performing loans consist of non-accrual loans.

(2)

Non-performing assets are non-performing loans plus real estate and other assets acquired by foreclosure or deed-in-lieu thereof.

(3)

Accruing restructured loans are loans with known credit problems that are not contractually past due and therefore are not included in non-performing loans.

 
 

Loan Delinquency Information

First Defiance Financial Corp.

 

 

      30 to 89 days   Non Accrual

(dollars in thousands)

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

First Defiance Financial Corp.
Donald P. Hileman, 419-782-5104
President and CEO
dhileman@first-fed.com

Source: First Defiance Financial Corp.