FDEF First Defiance Financial Corporation

• Net Income of $5.1 million for 2013 fourth quarter compared to $5.2 million in the fourth quarter of 2012
• Fourth quarter 2013 includes $219,000 after tax loss on CDO securities
• Loan growth $19.2 million during the quarter
• Deposit growth $77.3 million during the quarter
• Non-Performing loans down 15% from prior year
• Net Interest Margin of 3.61% , down from 3.92% for the fourth quarter of 2012

First Defiance Financial Corp. (NASDAQ: FDEF) announced today record net income for the fiscal year ended December 31, 2013 totaled $22.2 million, or $2.19 per diluted common share, compared to $18.7 million or $1.81 per diluted common share for the year ended December 31, 2012. For the fourth quarter 2013, First Defiance earned $5.1 million, or $0.50 per diluted common share compared to $5.2 million; or $0.52 per diluted common share for the fourth quarter of 2012.

“The record earnings achieved in 2013 reflects a very successful year for First Defiance,” said Donald P. Hileman, President and CEO of First Defiance Financial Corp. “Despite the challenges of an often uncertain economy, our financial performance was strengthened, and our core profitability was enhanced particularly by improved credit quality.”

The fourth quarter 2013 results were negatively impacted by a $219,000 after tax loss, or $0.02 per diluted common share, as a result of $337,000 in other-than-temporary impairment losses recognized on $1.9 million of collateralized debt obligations (CDOs). The CDO securities were among those considered disallowed under the revised final “Volcker Rule” of the Dodd-Frank Act which requires the Company to liquidate these securities.

In the fourth quarter of 2012, the Company executed a balance sheet restructuring strategy taking an after tax loss of approximately $260,000 through selling $60 million in securities for a gain of $1.6 million and paying off $62 million in FHLB advances with a prepayment penalty of $2.0 million.

Credit Quality

Non-performing loans totaled $27.8 million at December 31, 2013, a decrease from $32.6 million at December 31, 2012. In addition, First Defiance had $5.9 million of real estate owned at December 31, 2013 compared to $3.8 million at December 31, 2012. Accruing troubled debt restructured loans were $27.6 million at December 31, 2013 compared with $28.2 million at December 31, 2012. For the fourth quarter of 2013, First Defiance recorded net charge-offs of $1.5 million, down from $2.2 million in the fourth quarter of 2012 and up from $782,000 in the third quarter of 2013. The allowance for loan loss as a percentage of total loans was 1.58% at December 31, 2013 compared with 1.75% at December 31, 2012.

The fourth quarter results include expense for provision for loan losses of $475,000, compared with $2.6 million for the same period in 2012 and $476,000 in the third quarter of 2013.

“Non-performing assets declined during the quarter and are now at their lowest levels in over five years,” said Hileman. “Our improved credit quality resulted in lower provision expense and has been a key factor in our stronger earnings.”

Net Interest Income

Net interest income of $17.0 million in the fourth quarter of 2013 was down from $17.4 million in the fourth quarter of 2012. The net interest margin decreased to 3.61% in the fourth quarter of 2013 compared with 3.92% in the fourth quarter of 2012 and 3.84% in the third quarter of 2013. Yield on interest earning assets declined by 43 basis points, to 3.97% in the fourth quarter of 2013 from 4.40% in the fourth quarter of 2012. The cost of interest-bearing liabilities decreased by 14 basis points in the fourth quarter of 2013 to 0.46% from 0.60% in the fourth quarter of 2012.

“Our net interest income remained solid during the quarter, down just slightly from the previous quarter,” said Hileman. “Strong deposit growth during the quarter elevated our liquidity which led to some tightening in the net interest margin.”

Non-Interest Income

First Defiance’s non-interest income for the fourth quarter of 2013 was $6.5 million compared with $10.2 million in the fourth quarter of 2012. The fourth quarter of 2013 included $337,000 of securities losses realized on CDOs, while last year included $1.6 million in gains on the sale of investment securities from an executed balance sheet restructure strategy. In addition, mortgage banking income decreased to $1.3 million in the fourth quarter of 2013, down from $2.7 million in the fourth quarter of 2012. Gains from the sale of mortgage loans decreased in the fourth quarter of 2013 to $756,000 from $2.7 million in the fourth quarter of 2012. Mortgage loan servicing revenue was $918,000 in the fourth quarter of 2013, up from $888,000 in the fourth quarter of 2012. The Company had a negative change in the valuation adjustment in mortgage servicing assets (“MSR”) of only $4,000 in the fourth quarter of 2013 compared with a positive adjustment of $96,000 in the fourth quarter of 2012.

Service fees and other charges were $2.5 million in the fourth quarter of 2013, down from $2.6 million in the fourth quarter of 2012.

Income from the sale of insurance and investment products was $2.1 million in the fourth quarter of 2013, up from $2.0 million in the fourth quarter of 2012.

“Our fee income business units contributed significantly to our overall profitability this quarter while mortgage banking revenues remained well below the prior year’s level due to the reduction in refinance activity” stated Hileman.

Non-Interest Expenses

Total non-interest expense was $15.9 million in the fourth quarter of 2013, a decrease from $17.5 million in the fourth quarter of 2012. The fourth quarter last year included $2.0 million of prepayment fees associated with the repayment of FHLB debt resulting from the executed balance sheet restructuring strategy.

Compensation and benefits increased to $8.3 million in the fourth quarter of 2013 compared to $7.8 million in the fourth quarter of 2012. The increase in compensation and benefits is mainly related to higher incentive compensation and merit increases from a year ago. FDIC insurance costs decreased to $359,000 in the fourth quarter of 2013 from $660,000 in the fourth quarter of 2012 due to the improvement in the Company’s risk category late in the first quarter of 2013. Data processing cost increased to $1.3 million in the fourth quarter of 2013 from $1.2 million in the fourth quarter of 2012. Credit, collection and real estate owned costs were $835,000 in the fourth quarter of 2013, which included $452,000 of OREO write downs, compared to $488,000 in the same period of 2012. Other non-interest expense was $3.5 million in the fourth quarter of 2013, a decrease of $1.4 million from the fourth quarter of 2012 primarily due to the 2012 prepayment fee on repaying FHLB debt. The fourth quarter 2013 included secondary market buy-back losses of $51,000 compared to a reversal of $115,000 in accrued losses recorded in the fourth quarter 2012.

Annual Results

For the full year ended December 31, 2013, net income was $22.2 million, up 19% from $18.7 million in 2012. Net interest income for 2013 totaled $67.6 million, compared with $69.0 million for 2012. Average interest-earning assets decreased slightly to $1.85 billion in for 2013, compared to $1.86 billion in 2012. Net interest margin for 2013 was 3.76%, down 5 basis points from the 3.81% margin for 2012.

The provision for loan losses for 2013 was $1.8 million, compared to $10.9 million in 2012.

Non-interest income for the year 2013 was $30.6 million, compared to $34.4 million in 2012. Non-interest income for 2013 included $240,000 of net securities losses compared with $2.1 million of net securities gains for 2012. Service fees and other charges were $10.0 million for 2013, down from $10.8 million in 2012. Mortgage banking income decreased to $8.4 million for 2013, compared with $9.7 million in 2012. Insurance and investment sales revenues increased to $9.6 million for 2013, compared with $8.7 million for 2012 mainly due to an increase in contingent commissions of $436,000 in 2013.

Non-interest expense decreased to $64.8 million for 2013 from $65.8 million in 2012. Compensation and benefits expense was $34.3 million for 2013 compared with $32.6 million for 2012 primarily due to merit increases from a year ago, higher incentive expenses and an increase in medical insurance costs. Credit, collection and real estate owned costs have increased $391,000 from 2012 and secondary market buy-back losses have increased $524,000 for 2013 compared to 2012.

Total Assets at $2.14 Billion

Total assets at December 31, 2013 were $2.14 billion, compared to $2.05 billion at December 31, 2012. Net loans receivable (excluding loans held for sale) were $1.56 billion at December 31, 2013, compared to $1.49 billion at December 31, 2012. Total cash and cash equivalents were $179.3 million at December 31, 2013 compared with $136.8 million at December 31, 2012. Also, at December 31, 2013, goodwill and other intangible assets totaled $65.0 million compared to $66.3 million at December 31, 2012.

Total deposits at December 31, 2013 were $1.74 billion compared with $1.67 billion at December 31, 2012. Non-interest bearing deposits at December 31, 2013 were $348.9 million compared to $315.1 million at December 31, 2012. Total stockholders’ equity was $272.1 million at December 31, 2013 compared to $258.1 million at December 31, 2012.

Dividend to be Paid February 28

The Board of Directors declared a quarterly cash dividend of $0.15 per common share payable February 28, 2014 to shareholders of record at the close of business on February 21, 2014. The dividend represents an annual dividend of 2.37% percent based on the First Defiance common stock closing price on January 17, 2014. First Defiance has approximately 9,719,521 common shares outstanding.

Conference Call

First Defiance Financial Corp. will host a conference call at 11:00 a.m. (EST) on Tuesday, January 21, 2014 to discuss the earnings results and business trends. The conference call may be accessed by calling 1-888-317-6016. A live webcast may be accessed at http://services.choruscall.com/links/fdef140121.html.

Audio replay of the Internet Webcast will be available at www.fdef.com until January 21, 2015 at 9:00 a.m.

First Defiance Financial Corp.

First Defiance Financial Corp., headquartered in Defiance, Ohio, is the holding company for First Federal Bank of the Midwest and First Insurance Group. First Federal operates 32 full service branches and 42 ATM locations in northwest Ohio, southeast Michigan and northeast Indiana. First Insurance Group is a full-service insurance agency with five offices throughout northwest Ohio.

For more information, visit the company’s Web site 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 of the Company 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 the Company 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 the Company's Securities and Exchange Commission (SEC) filings, including the Company's Annual Report on Form 10-K for the year ended December 31, 2012. One or more of these factors have affected or could in the future affect the Company'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 the Company or any other persons, that the objectives and plans of the Company will be achieved. All forward-looking statements made in this news release are based on information presently available to the management of the Company. The Company assumes no obligation to update any forward-looking statements.

Consolidated Balance Sheets (Unaudited)     First Defiance Financial Corp.   December 31, December 31, (in thousands)   2013   2012   Assets Cash and cash equivalents Cash and amounts due from depository institutions $ 36,318 $ 45,832 Interest-bearing deposits   143,000     91,000   179,318 136,832 Securities Available-for sale, carried at fair value 198,170 194,101 Held-to-maturity, carried at amortized cost   387     508   198,557 194,609   Loans 1,580,448 1,525,257 Allowance for loan losses   (24,950 )   (26,711 ) Loans, net 1,555,498 1,498,546 Loans held for sale 9,120 22,064 Mortgage servicing rights 9,106 7,833 Accrued interest receivable 5,778 5,594 Federal Home Loan Bank stock 19,350 20,655 Bank Owned Life Insurance 42,715 41,832 Office properties and equipment 38,597 39,663 Real estate and other assets held for sale 5,859 3,805 Goodwill 61,525 61,525 Core deposit and other intangibles 3,497 4,738 Deferred taxes 565 78 Other assets   7,663     9,174   Total Assets $ 2,137,148   $ 2,046,948     Liabilities and Stockholders’ Equity Non-interest-bearing deposits $ 348,943 $ 315,132 Interest-bearing deposits   1,386,849     1,352,340   Total deposits 1,735,792 1,667,472 Advances from Federal Home Loan Bank 22,520 12,796 Notes payable and other interest-bearing liabilities 51,919 51,702 Subordinated debentures 36,083 36,083 Advance payments by borrowers for tax and insurance 1,519 1,473 Other liabilities   17,168     19,294   Total liabilities 1,865,001 1,788,820 Stockholders’ Equity Preferred stock - - Common stock, net 127 127 Common stock warrant 878 878 Additional paid-in-capital 136,403 136,046 Accumulated other comprehensive income 545 4,274 Retained earnings 182,290 164,103 Treasury stock, at cost   (48,096 )   (47,300 ) Total stockholders’ equity   272,147     258,128   Total Liabilities and Stockholders’ Equity $ 2,137,148   $ 2,046,948     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)   2013   2012 2013   2012 Interest Income: Loans $ 17,037 $ 17,774 $ 68,077 $ 72,621 Investment securities 1,397 1,504 5,596 7,123 Interest-bearing deposits 108 51 282 300 FHLB stock dividends   195     243     826     899   Total interest income 18,737 19,572 74,781 80,943 Interest Expense: Deposits 1,399 1,775 5,913 8,169 FHLB advances and other 136 164 434 2,424 Subordinated debentures 149 158 601 971 Notes Payable   44     89     222     373   Total interest expense   1,728     2,186     7,170     11,937   Net interest income 17,009 17,386 67,611 69,006 Provision for loan losses   475     2,618     1,824     10,924   Net interest income after provision for loan losses 16,534 14,768 65,787 58,082 Non-interest Income: Service fees and other charges 2,506 2,631 10,045 10,779 Mortgage banking income 1,324 2,741 8,443 9,665 Gain on sale of non-mortgage loans 49 20 101 70 Gain on sale of securities - 1,611 97 2,139 Impairment on securities (337 ) (5 ) (337 ) (5 ) Insurance and investment sales commissions 2,089 1,997 9,627 8,676 Trust income 216 146 761 616 Income from Bank Owned Life Insurance 211 241 883 924 Other non-interest income   415     798     950     1,510   Total Non-interest Income 6,473 10,180 30,570 34,374 Non-interest Expense: Compensation and benefits 8,310 7,806 34,301 32,566 Occupancy 1,675 1,860 6,762 7,578 FDIC insurance premium 359 660 1,616 2,691 State franchise tax 486 846 2,323 2,495 Data processing 1,313 1,183 5,125 4,660 Amortization of intangibles 296 344 1,241 1,413 Other non-interest expense   3,490     4,839     13,476     14,377   Total Non-interest Expense   15,929     17,538     64,844     65,780   Income before income taxes 7,078 7,410 31,513 26,676 Income taxes   1,991     2,253     9,278     8,012   Net Income $ 5,087   $ 5,157   $ 22,235   $ 18,664     Dividends Accrued on Preferred Shares - - - (900 ) Accretion on Preferred Shares - - - (359 ) Redemption of Preferred Shares   -     -     -     642     Net Income Applicable to Common Shares $ 5,087   $ 5,157   $ 22,235   $ 18,047     Earnings per common share: Basic $ 0.52 $ 0.53 $ 2.28 $ 1.86 Diluted $ 0.50 $ 0.52 $ 2.19 $ 1.81   Average Shares Outstanding: Basic 9,766 9,729 9,764 9,728 Diluted 10,198 10,012 10,171 9,998   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)   2013   2012   % change   2013   2012   % change Summary of Operations           Tax-equivalent interest income (1) $ 19,143 $ 19,993 (4.3 )% $ 76,413 $ 82,598 (7.5 )% Interest expense 1,728 2,186 (21.0 ) 7,170 11,937 (39.9 ) Tax-equivalent net interest income (1) 17,415 17,807 (2.2 ) 69,243 70,661 (2.0 ) Provision for loan losses 475 2,618 (81.9 ) 1,824 10,924 (83.3 ) Tax-equivalent NII after provision for loan loss (1) 16,940 15,189 11.5 67,419 59,737 12.9 Investment Securities gains - 1,611 (100.0 ) 97 2,139 (95.5 ) Impairment losses on securities (337 ) (5 ) NM (337 ) (5 ) NM Non-interest income (excluding securities gains/losses) 6,810 8,574 (20.6 ) 30,810 32,240 (4.4 ) Non-interest expense 15,929 17,538 (9.2 ) 64,844 65,780 (1.4 ) Income taxes 1,991 2,253 (11.6 ) 9,278 8,012 15.8 Net Income 5,087 5,157 (1.4 ) 22,235 18,664 19.1 Dividends Declared on Preferred Shares - - NM - (900 ) NM Accretion on Preferred Shares - - NM - (359 ) NM Redemption on Preferred Shares - - NM - 642 NM Net Income Applicable to Common Shares 5,087 5,157 (1.4 ) 22,235 18,047 23.2 Tax equivalent adjustment (1)     406       421     (3.6 )     1,632       1,655     (1.4 ) At Period End Assets 2,137,148 2,046,948 4.4 Earning assets 1,950,475 1,853,585 5.2 Loans 1,580,448 1,525,257 3.6 Allowance for loan losses 24,950 26,711 (6.6 ) Deposits 1,735,792 1,667,472 4.1 Stockholders’ equity     272,147       258,128     5.4               Average Balances Assets 2,124,109 2,023,890 5.0 2,052,250 2,063,552 (0.5 ) Earning assets 1,915,508 1,815,263 5.5 1,845,462 1,862,340 (0.9 ) Loans 1,543,057 1,509,611 2.2 1,528,176 1,477,681 3.4 Deposits and interest-bearing liabilities 1,833,291 1,744,274 5.1 1,766,579 1,775,082 (0.5 ) Deposits 1,719,319 1,633,432 5.3 1,661,895 1,619,637 2.6 Stockholders’ equity 270,856 256,304 5.7 265,065 267,194 (0.8 ) Stockholders’ equity / assets     12.75 %     12.66 %   0.7       12.92 %     12.95 %   (0.3 ) Per Common Share Data Net Income Basic $ 0.52 $ 0.53 (1.9 ) $ 2.28 $ 1.86 22.6 Diluted 0.50 0.52 (3.8 ) 2.19 1.81 21.0 Dividends 0.10 0.05 100.0 0.40 0.20 100.0 Market Value: High $ 27.25 $ 19.38 40.6 $ 28.46 $ 19.38 46.9 Low 23.31 15.75 48.0 18.42 14.41 27.8 Close 25.97 19.19 35.3 23.39 19.19 21.9 Common Book Value 27.91 26.44 5.5 27.91 26.44 5.5 Tangible Common Book Value 21.22 19.63 8.1 21.22 19.63 8.1 Shares outstanding, end of period (000)     9,720       9,729     (0.1 )     9,720       9,729     (0.1 ) Performance Ratios (annualized) Tax-equivalent net interest margin (1) 3.61 % 3.92 % (7.9 ) 3.76 % 3.81 % (1.4 ) Return on average assets 0.95 % 1.01 % (6.3 ) 1.08 % 0.90 % 19.8 Return on average equity 7.45 % 8.00 % (6.9 ) 8.39 % 6.99 % 20.1 Efficiency ratio (2) 65.75 % 66.48 % (1.1 ) 64.81 % 63.93 % 1.4 Effective tax rate 28.13 % 30.40 % (7.5 ) 29.44 % 30.03 % (2.0 ) Dividend payout ratio (basic)     19.23 %     9.43 %   103.8       17.54 %     10.75 %   63.2    

(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 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)   2013   2012   2013   2012   Gain from sale of mortgage loans $ 756 $ 2,709 $ 5,716 $ 10,599 Mortgage loan servicing revenue (expense): Mortgage loan servicing revenue 918 888 3,564 3,387 Amortization of mortgage servicing rights (346 ) (952 ) (2,098 ) (3,562 ) Mortgage servicing rights valuation adjustments   (4 )     96     1,261       (759 )   568       32     2,727       (934 ) Total revenue from sale and servicing of mortgage loans $ 1,324     $ 2,741   $ 8,443     $ 9,665     Yield Analysis First Defiance Financial Corp.   Three Months Ended December 31, (dollars in thousands) 2013   2012 Average     Yield Average     Yield Balance Interest(1) Rate(2) Balance Interest(1) Rate(2) Interest-earning assets: Loans receivable $ 1,543,057 $ 17,055 4.39% $ 1,509,611 $ 17,799 4.69% Securities 187,230 1,785 3.82% 204,882 1,900 3.86% Interest Bearing Deposits 165,871 108 0.26% 80,115 51 0.25% FHLB stock 19,350 195 4.00% 20,655 243 4.68% Total interest-earning assets 1,915,508 19,143 3.97% 1,815,263 19,993 4.40% Non-interest-earning assets 208,601 208,627 Total assets $ 2,124,109 $ 2,023,890 Deposits and Interest-bearing liabilities: Interest bearing deposits $ 1,382,526 $ 1,399 0.40% $ 1,338,400 $ 1,775 0.53% FHLB advances and other 22,604 136 2.39% 19,015 164 3.43% Subordinated debentures 36,129 149 1.64% 55,688 89 0.64% Notes payable 55,239 44 0.32% 36,139 158 1.74% Total interest-bearing liabilities 1,496,498 1,728 0.46% 1,449,242 2,186 0.60% Non-interest bearing deposits 336,793 - - 295,032 - - Total including non-interest-bearing demand deposits 1,833,291 1,728 0.37% 1,744,274 2,186 0.50% Other non-interest-bearing liabilities 19,962 23,312 Total liabilities 1,853,253 1,767,586 Stockholders' equity 270,856 256,304 Total liabilities and stockholders' equity $ 2,124,109   $ 2,023,890   Net interest income; interest rate spread $ 17,415 3.51% $ 17,807 3.80% Net interest margin (3) 3.61% 3.92% Average interest-earning assets to average interest bearing liabilities 128% 125%   Twelve Months Ended December 31, 2013 2012 Average Yield Average Yield Balance Interest(1) Rate Balance Interest(1) Rate Interest-earning assets: Loans receivable $ 1,528,176 $ 68,147 4.46% $ 1,477,681 $ 72,724 4.92% Securities 191,039 7,158 3.78% 247,442 8,675 3.63% Interest Bearing Deposits 106,742 282 0.26% 116,562 300 0.26% FHLB stock 19,505 826 4.23% 20,655 899 4.35% Total interest-earning assets 1,845,462 76,413 4.14% 1,862,340 82,598 4.44% Non-interest-earning assets 206,788 201,212 Total assets $ 2,052,250 $ 2,063,552 Deposits and Interest-bearing liabilities: Interest bearing deposits $ 1,353,304 $ 5,913 0.44% $ 1,352,724 $ 8,169 0.60% FHLB advances and other 17,709 434 2.45% 66,121 2,424 3.67% Subordinated debentures 36,133 601 1.66% 53,155 373 0.70% Notes payable 50,842 222 0.44% 36,169 971 2.68% Total interest-bearing liabilities 1,457,988 7,170 0.49% 1,508,169 11,937 0.79% Non-interest bearing deposits 308,591 - - 266,913 - - Total including non-interest-bearing demand deposits 1,766,579 7,170 0.41% 1,775,082 11,937 0.67% Other non-interest-bearing liabilities 20,606 21,276 Total liabilities 1,787,185 1,796,358 Stockholders' equity 265,065 267,194 Total liabilities and stockholders' equity $ 2,052,250   $ 2,063,552   Net interest income; interest rate spread $ 69,243 3.65% $ 70,661 3.64% Net interest margin (3) 3.76% 3.81% Average interest-earning assets to average interest bearing liabilities 127% 123%  

(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)

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

 

Selected Quarterly Information

First Defiance Financial Corp.

          (dollars in thousands, except per share data)   4th Qtr 2013   3rd Qtr 2013   2nd Qtr 2013   1st Qtr 2013   4th Qtr 2012 Summary of Operations Tax-equivalent interest income (1) $ 19,143 $ 19,242 $ 19,143 $ 18,885 $ 19,993 Interest expense 1,728 1,680 1,814 1,949 2,186 Tax-equivalent net interest income (1) 17,415 17,562 17,329 16,936 17,807 Provision for loan losses 475 476 448 425 2,618 Tax-equivalent NII after provision for loan losses (1) 16,940 17,086 16,881 16,511 15,189 Investment securities gains, net of impairment (337 ) - 44 53 1,606 Non-interest income (excluding securities gains/losses) 6,810 7,289 7,804 8,909 8,574 Non-interest expense 15,929 16,045 15,674 17,199 17,538 Income taxes 1,991 2,445 2,535 2,306 2,253 Net income 5,087 5,479 6,109 5,559 5,157 Dividends Declared on Preferred Shares - - - - - Accretion on Preferred Shares - - - - - Redemption on Preferred Shares - - - - - Net Income Applicable to Common Shares 5,087 5,479 6,109 5,559 5,157 Tax equivalent adjustment (1)     406       406       411       409       421   At Period End Total assets $ 2,137,148 $ 2,058,430 $ 2,066,216 $ 2,039,411 $ 2,046,948 Earning assets 1,950,475 1,863,546 1,873,351 1,858,747 1,853,585 Loans 1,580,448 1,561,279 1,562,666 1,507,008 1,525,257 Allowance for loan losses 24,950 25,964 26,270 26,459 26,711 Deposits 1,735,792 1,658,492 1,635,708 1,656,348 1,667,472 Stockholders’ equity 272,147 269,359 264,497 262,643 258,128 Stockholders’ equity / assets 12.73 % 13.09 % 12.80 % 12.88 % 12.61 % Goodwill     61,525       61,525       61,525       61,525       61,525   Average Balances Total assets $ 2,124,109 $ 2,026,277 $ 2,030,707 $ 2,027,906 $ 2,023,890 Earning assets 1,915,508 1,816,626 1,825,730 1,823,089 1,815,263 Loans 1,543,057 1,548,718 1,520,708 1,500,222 1,509,611 Deposits and interest-bearing liabilities 1,833,291 1,741,850 1,745,084 1,746,092 1,744,274 Deposits 1,719,319 1,632,712 1,644,777 1,650,772 1,633,432 Stockholders’ equity 270,856 265,488 264,293 259,625 256,304 Stockholders’ equity / assets     12.75 %     13.10 %     13.01 %     12.80 %     12.66 % Per Common Share Data Net Income: Basic $ 0.52 $ 0.56 $ 0.63 $ 0.57 $ 0.53 Diluted 0.50 0.54 0.60 0.55 0.52 Dividends 0.10 0.10 0.10 0.10 0.05 Market Value: High $ 27.25 $ 28.46 $ 23.75 $ 23.75 $ 19.38 Low 23.31 22.49 20.80 18.42 15.75 Close 25.97 23.39 22.55 23.32 19.19 Common Book Value 27.91 27.44 26.97 26.80 26.44 Shares outstanding, end of period (in thousands)     9,720       9,785       9,776       9,766       9,729   Performance Ratios (annualized) Tax-equivalent net interest margin (1) 3.61 % 3.84 % 3.82 % 3.78 % 3.92 % Return on average assets 0.95 % 1.07 % 1.21 % 1.11 % 1.01 % Return on average equity 7.45 % 8.19 % 9.27 % 8.68 % 8.00 % Efficiency ratio (2) 65.75 % 64.56 % 62.36 % 66.55 % 66.48 % Effective tax rate 28.13 % 30.86 % 29.33 % 29.32 % 30.40 % Common dividend payout ratio (basic)     19.23 %     17.86 %     15.87 %     17.54 %     9.43 %  

(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 2013   3rd Qtr 2013   2nd Qtr 2013   1st Qtr 2013   4th Qtr 2012 Loan Portfolio Composition One to four family residential real estate $ 195,752 $ 191,984 $ 196,802 $ 197,675 $ 200,826 Construction 86,058 59,567 41,519 33,398 37,788 Commercial real estate 819,618 821,115 820,412 802,098 797,385 Commercial 388,236 386,160 396,158 365,551 383,817 Consumer finance 16,902 16,659 16,817 15,549 15,936 Home equity and improvement   106,930       105,727       106,570       106,524       108,718   Total loans 1,613,496 1,581,212 1,578,278 1,520,795 1,544,470 Less: Loans in process 32,290 19,189 14,876 13,084 18,478 Deferred loan origination fees 758 744 736 703 735 Allowance for loan loss   24,950       25,964       26,270       26,459       26,711   Net Loans $ 1,555,498     $ 1,535,315     $ 1,536,396     $ 1,480,549     $ 1,498,546                         Allowance for loan loss activity Beginning allowance $ 25,964 $ 26,270 $ 26,459 $ 26,711 $ 26,310 Provision for loan losses 475 476 448 425 2,618 Credit loss charge-offs: One to four family residential real estate 175 78 184 206 976 Commercial real estate 1,097 829 283 266 593 Commercial 670 39 316 205 541 Consumer finance 7 33 8 46 59 Home equity and improvement   144       170       170       272       497   Total charge-offs 2,093 1,149 961 995 2,666 Total recoveries   604       367       324       318       449   Net charge-offs (recoveries)   1,489       782       637       677       2,217   Ending allowance $ 24,950     $ 25,964     $ 26,270     $ 26,459     $ 26,711                         Credit Quality Total non-performing loans (1) $ 27,847 $ 30,512 $ 28,650 $ 35,283 $ 32,570 Real estate owned (REO)   5,859       5,518       6,546       4,313       3,805   Total non-performing assets (2) $ 33,706     $ 36,030     $ 35,196     $ 39,596     $ 36,375   Net charge-offs 1,489 782 637 677 2,217   Restructured loans, accruing (3) 27,630 28,010 28,732 27,981 28,203   Allowance for loan losses / loans 1.58 % 1.66 % 1.68 % 1.76 % 1.75 % Allowance for loan losses / non-performing assets 74.02 % 72.06 % 74.64 % 66.82 % 73.43 % Allowance for loan losses / non-performing loans 89.60 % 85.09 % 91.69 % 74.99 % 82.01 % Non-performing assets / loans plus REO 2.12 % 2.30 % 2.24 % 2.62 % 2.38 % Non-performing assets / total assets 1.58 % 1.75 % 1.70 % 1.94 % 1.78 % Net charge-offs / average loans (annualized) 0.39 % 0.20 % 0.17 % 0.18 % 0.59 %                       Deposit Balances Non-interest-bearing demand deposits $ 348,943 $ 300,891 $ 301,742 $ 291,765 $ 315,132 Interest-bearing demand deposits and money market 715,939 681,987 659,249 681,061 664,857 Savings deposits 185,121 182,271 182,784 177,336 166,945 Retail time deposits less than $100,000 313,335 318,317 321,422 330,870 342,472 Retail time deposits greater than $100,000 172,454 175,026 168,573 173,379 176,029 National/Brokered time deposits   -       -       1,938       1,937       2,037   Total deposits $ 1,735,792     $ 1,658,492     $ 1,635,708     $ 1,656,348     $ 1,667,472    

(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 dayspast due

 

Non AccrualLoans

  December 31, 2013                 One to four family residential real estate $ 195,752 $ 190,854 $ 1,625 $ 3,273 Construction 86,058 86,058 - - Commercial real estate 819,618 803,218 566 15,834 Commercial 388,236 379,889 20 8,327 Consumer finance 16,902 16,771 131 - Home equity and improvement   106,930     105,211     1,306     413 Total loans $ 1,613,496   $ 1,582,001   $ 3,648   $ 27,847   September 30, 2013                 One to four family residential real estate $ 191,984 $ 188,065 $ 760 $ 3,159 Construction 59,567 59,567 - - Commercial real estate 821,115 802,115 574 18,426 Commercial 386,160 377,116 295 8,749 Consumer finance 16,659 16,616 43 - Home equity and improvement   105,727     103,997     1,552     178 Total loans $ 1,581,212   $ 1,547,476   $ 3,224   $ 30,512   December 31, 2012                 One to four family residential real estate $ 200,826 $ 195,188 $ 2,036 $ 3,602 Construction 37,788 37,788 - - Commercial real estate 797,385 773,170 1,125 23,090 Commercial 383,817 376,548 1,608 5,661 Consumer finance 15,936 15,701 235 - Home equity and improvement   108,718     106,002     2,499     217 Total loans $ 1,544,470   $ 1,504,397   $ 7,503   $ 32,570  

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