FDEF First Defiance Financial Corporation

• Net Income of $5.7 million for 2014 second quarter, compared to $5.2 million in first quarter 2014 and $6.1 million in the 2013 second quarter
• Return on average assets of 1.05%, up from 0.98% in the linked quarter, down from 1.21% in the 2013 second quarter
• Net interest margin of 3.62%, up from 3.61% in the linked quarter, down from 3.82% in the 2013 second quarter
• Average earning assets up 6.9% from second quarter 2013
• Nonperforming loans down 13.2% from second quarter 2013

First Defiance Financial Corp. (NASDAQ: FDEF) announced today that net income for the second quarter ended June 30, 2014 totaled $5.7 million, or $0.57 per diluted common share, compared to $6.1 million or $0.60 per diluted common share for the quarter ended June 30, 2013.

“Our earnings performance in the second quarter was very solid, and our outlook remains very positive on our prospects going forward,” said Donald P. Hileman, President, and Chief Executive Officer of First Defiance Financial Corp. “Improved loan growth and expansion in both net interest income and non-interest revenues from last quarter show positive progress in our core business strategies.”

Net Interest Income up compared to second quarter 2013

Net interest income of $17.1 million in the second quarter of 2014 was up from $16.9 in the second quarter of 2013. Net interest margin was 3.62% for the second quarter of 2014, up from 3.61% in the first quarter 2014, but down from 3.82% in the second quarter of 2013. Yield on interest earning assets declined by 26 basis points, to 3.96% in the second quarter of 2014 from 4.22% in the second quarter of 2013. The cost of interest-bearing liabilities decreased by 7 basis points in the second quarter of 2014 to 0.43% from 0.50% in the second quarter of 2013.

“Increased loan demand across our markets, initial contributions from our Business Banking loan strategy, and our new loan production office in Columbus, Ohio were all key contributors to second quarter loan growth.” said Hileman. “Even with competitive loan pricing, our net interest margin remains strong.”

Non-Interest Income down from second quarter 2013

First Defiance’s non-interest income for the second quarter of 2014 was $7.6 million compared with $7.9 million in the second quarter of 2013. The second quarter 2014 included $471,000 of gains on the sale of securities compared to $43,000 in the second quarter 2013.

Mortgage banking income decreased to $1.5 million in the second quarter of 2014, down from $2.4 million in the second quarter of 2013. Mortgage banking activity remained significantly reduced from the second quarter a year ago, particularly with refinance volumes impacted by higher rates. Gains from the sale of mortgage loans decreased in the second quarter of 2014 to $986,000 from $1.9 million in the second quarter of 2013. Mortgage loan servicing revenue was $878,000 in the second quarter of 2014, up slightly from $875,000 in the second quarter of 2013. First Defiance had a positive change in the valuation adjustment in mortgage servicing assets of $44,000 in the second quarter of 2014 compared with a positive adjustment of $312,000 in the second quarter of 2013.

For the second quarter 2014, income from the sale of insurance and investment products was $2.2 million and service fees and other charges were $2.5 million, both essentially even with the second quarter of 2013. Trust income was $302,000 in the second quarter of 2014 up 27% from $238,000 in the second quarter of 2013.

“We are very pleased with increased mortgage banking revenues for the second quarter, despite being well below the strong levels of a year ago,” continued Hileman. “Overall, we had solid growth in our non-interest revenues on a linked quarter basis and are optimistic about our trend for the second half of the year.”

Non-Interest Expenses up from second quarter 2013

Total non-interest expense was $16.4 million in the second quarter of 2014, an increase from $15.7 million in the second quarter of 2013.

Compensation and benefits increased to $8.7 million in the second quarter of 2014 compared to $8.5 in the second quarter of 2013. Merit increases for salaries and higher health plan costs were partially offset by lower accruals for bonus payments based on meeting performance targets. Other non-interest expense increased to $3.3 million in the second quarter of 2014 from $3.1 million in the second quarter of 2013.

Credit Quality

Non-performing loans totaled $24.9 million at June 30, 2014, a decrease from $28.7 million at June 30, 2013. In addition, First Defiance had $5.6 million of real estate owned at June 30, 2014 compared to $6.5 million at June 30, 2013. Accruing troubled debt restructured loans were $27.0 million at June 30, 2014 compared with $28.7 million at June 30, 2013. For the second quarter of 2014, First Defiance recorded net charge-offs of $602,000, down from $637,000 in the second quarter of 2013. The allowance for loan loss as a percentage of total loans was 1.56% at June 30, 2014 compared with 1.68% at June 30, 2013.

The second quarter results include expense for provision for loan losses of $446,000, compared with $448,000 for the same period in 2013 and $103,000 in the first quarter of 2014.

“Classified assets, nonperforming loans and other real estate all declined in the second quarter, continuing the positive trend in our asset quality metrics,” said Hileman. “We now have a strengthened credit underwriting discipline in place to support our growth objectives.”

Year-To-Date Results

For the six month period ended June 30, 2014, net interest income totaled $33.9 million compared with $33.4 million in the first six months of 2013. Average interest-earning assets increased to $1.945 billion in the first six months of 2014, compared to $1.824 billion in the first six months of 2013. Net interest margin for the first six months of 2014 was 3.62%, down 16 basis points from the 3.78% margin reported in the six month period ended June 30, 2013.

The provision for loan losses in the first six months of 2014 was $549,000, compared to $873,000 recorded during the first six months of 2013.

Non-interest income for the first six months of 2014 was $14.9 million, compared to $16.9 million during the same period of 2013. Service fees and other charges were $4.8 million for the first six months of 2014, down from $4.9 million during the same period of 2013. Mortgage banking income decreased to $2.8 million for the first six months of 2014, compared with $5.3 million during the same period of 2013. Insurance and investment sales revenues remained relatively flat at $5.3 million for the first six months of 2014, compared with same period of 2013. Non-interest income for the first six months of 2014 included $471,000 of gain on the sale of securities compared with $97,000 during the same period of 2013.

Non-interest expense was $33.0 million for the first six months of 2014; basically level with the same period of 2013. Compensation and benefits expense was $17.2 million for the first six months of 2014 compared with $17.3 million during the same period of 2013. Decreases in FDIC insurance premiums of $193,000, financial institutions taxes of $247,000 and amortization of intangibles of $85,000 were offset by increases in data processing of $350,000 and other expenses of $330,000, which included the $786,000 cost recorded in the first quarter for terminating a merger agreement.

Total Assets at $2.15 Billion

Total assets at June 30, 2014 were $2.15 billion compared to $2.14 billion at December 31, 2013 and $2.07 billion at June 30, 2013. Net loans receivable (excluding loans held for sale) were $1.56 billion at June 30, 2014 compared to $1.56 billion at December 31, 2013 and $1.54 billion at June 30, 2013. Total cash and cash equivalents were $156.2 million at June 30, 2014 compared with $179.3 million at December 31, 2013 and $127.7 million at June 30, 2013. Also, at June 30, 2014, goodwill and other intangible assets totaled $64.5 million compared to $65.0 million at December 31, 2013 and $65.6 million at June 30, 2013.

Total deposits at June 30, 2014 were $1.74 billion compared with $1.74 billion at December 31, 2013, and $1.64 billion at June 30, 2013. Non-interest bearing deposits at June 30, 2014 were $355.3 million compared to $348.9 million at December 31, 2013 and $301.7 million at June 30, 2013. Total stockholders’ equity was $276.4 million at June 30, 2014 compared to $272.1 million at December 31, 2013 and $264.5 million at June 30, 2013.

Dividend to be Paid August 29

The Board of Directors declared a quarterly cash dividend of $0.15 per common share payable August 29, 2014 to shareholders of record at the close of business on August 22, 2014. The dividend represents an annual dividend of 2.20 percent based on the First Defiance common stock closing price on July 18, 2014. First Defiance has approximately 9,492,759 common shares outstanding.

Conference Call

First Defiance Financial Corp. will host a conference call at 11:00 a.m. ET on Tuesday, July 22, 2014 to discuss the earnings results and business trends. The conference call may be accessed by calling 1-877-444-1726. In addition, a live webcast may be accessed at http://services.choruscall.com/links/fdef140722.html. Audio replay of the Internet Webcast will be available at www.fdef.com until August 22, 2014 at 9:00 a.m. ET

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, 2013. 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.       June 30, December 31, June 30, (in thousands)   2014   2013   2013   Assets Cash and cash equivalents Cash and amounts due from depository institutions $ 42,246 $ 36,318 $ 39,743 Interest-bearing deposits   114,000     143,000     88,000   156,246

 

179,318

 

127,743 Securities

 

 

Available-for sale, carried at fair value 232,289 198,170 188,079 Held-to-maturity, carried at amortized cost   330     387     445   232,619 198,557 188,524   Loans 1,581,984 1,580,448 1,562,666 Allowance for loan losses   (24,627 )   (24,950 )   (26,270 ) Loans, net 1,557,357 1,555,498 1,536,396 Loans held for sale 7,324 9,120 14,808 Mortgage servicing rights 9,003 9,106 8,731 Accrued interest receivable 5,730 5,778 5,891 Federal Home Loan Bank stock 13,802 19,350 19,353 Bank Owned Life Insurance 47,169 42,715 42,292 Office properties and equipment 39,470 38,597 38,866 Real estate and other assets held for sale 5,554 5,859 6,546 Goodwill 61,525 61,525 61,525 Core deposit and other intangibles 2,934 3,497 4,090 Deferred taxes - 565 2,291 Other assets   12,757     7,663     9,160   Total Assets $ 2,151,490   $ 2,137,148   $ 2,066,216     Liabilities and Stockholders’ Equity Non-interest-bearing deposits $ 355,268 $ 348,943 $ 301,742 Interest-bearing deposits   1,386,544     1,386,849     1,333,966   Total deposits 1,741,812 1,735,792 1,635,708 Advances from Federal Home Loan Bank 22,034 22,520 62,773 Notes payable and other interest-bearing liabilities 52,455 51,919 47,560 Subordinated debentures 36,083 36,083 36,083 Advance payments by borrowers for tax and insurance 1,686 1,519 1,844 Deferred Taxes 613 - - Other liabilities   20,358     17,168     17,751   Total Liabilities 1,875,041 1,865,001 1,801,719 Stockholders’ Equity Preferred stock - - - Common stock, net 127 127 127 Common stock warrant 878 878 878 Additional paid-in-capital 136,139 136,403 136,111 Accumulated other comprehensive income 3,142 545 204 Retained earnings 190,246 182,290 173,679 Treasury stock, at cost   (54,083 )   (48,096 )   (46,502 ) Total stockholders’ equity   276,449     272,147     264,497   Total Liabilities and Stockholders’ Equity $ 2,151,490   $ 2,137,148   $ 2,066,216     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)   2014   2013 2014   2013 Interest Income:     Loans $ 16,878 $ 17,047 $ 33,529 $ 33,843 Investment securities 1,608 1,406 3,135 2,809 Interest-bearing deposits 118 72 219 130 FHLB stock dividends   170   207   365   426 Total interest income 18,774 18,732 37,248 37,208 Interest Expense:

 

Deposits 1,327 1,511 2,685 3,158 FHLB advances and other 133 92 266 182 Subordinated debentures 146 150 292 302 Notes Payable   39   61   80   121 Total interest expense   1,645   1,814   3,323   3,763 Net interest income 17,129 16,918 33,925 33,445 Provision for loan losses   446   448   549   873 Net interest income after provision for loan losses 16,683 16,470 33,376 32,572 Non-interest Income: Service fees and other charges 2,508 2,549 4,832 4,934 Mortgage banking income 1,540 2,443 2,787 5,273 Gain on sale of non-mortgage loans 36 2 39 17 Gain on sale of securities 471 43 471 97 Insurance and investment sales commissions 2,244 2,277 5,274 5,313 Trust income 302 238 580 444 Income from Bank Owned Life Insurance 235 231 454 460 Other non-interest income   281   115   506   365 Total Non-interest Income 7,617 7,898 14,943 16,903 Non-interest Expense: Compensation and benefits 8,709 8,475 17,181 17,273 Occupancy 1,704 1,670 3,292 3,303 FDIC insurance premium 353 275 738 931 Financial institutions tax 514 627 1,009 1,256 Data processing 1,479 1,313 2,844 2,494 Amortization of intangibles 274 313 563 648 Other non-interest expense   3,324   3,051   7,391   7,061 Total Non-interest Expense   16,357   15,724   33,018   32,966 Income before income taxes 7,943 8,644 15,301 16,509 Income taxes   2,254   2,535   4,433   4,841 Net Income $ 5,689 $ 6,109 $ 10,868 $ 11,668     Earnings per common share: Basic $ 0.59 $ 0.63 $ 1.13 $ 1.20 Diluted $ 0.57 $ 0.60 $ 1.08 $ 1.15   Average Shares Outstanding: Basic 9,607 9,774 9,644 9,755 Diluted 10,066 10,156 10,096 10,130   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)   2014   2013   % change   2014   2013   % change Summary of Operations           Tax-equivalent interest income (1) $ 19,221 $ 19,143 0.4 % $ 38,121 $ 38,028 0.2 % Interest expense 1,645 1,814 (9.3 ) 3,323 3,763 (11.7 ) Tax-equivalent net interest income (1) 17,576 17,329 1.4 34,798 34,265 1.6 Provision for loan losses 446 448 (0.4 ) 549 873 (37.1 ) Tax-equivalent NII after provision for loan loss (1) 17,130 16,881 1.5 34,249 33,392 2.6 Investment Securities gains 471 43 995.3 471 97 385.6 Non-interest income (excluding securities gains/losses) 7,146 7,804 (8.4 ) 14,472 16,713 (13.4 ) Non-interest expense 16,357 15,674 4.4 33,018 32,873 0.4 Income taxes 2,254 2,535 (11.1 ) 4,433 4,841 (8.4 ) Net Income 5,689 6,109 (6.9 ) 10,868 11,668 (6.9 ) Tax equivalent adjustment (1)     447       411     8.8       873       820     6.5   At Period End Assets 2,151,490 2,066,216 4.1 Earning assets 1,949,729 1,873,351 4.1 Loans 1,581,984 1,562,666 1.2 Allowance for loan losses 24,627 26,270 (6.3 ) Deposits 1,741,812 1,635,708 6.5 Stockholders’ equity     276,449       264,497     4.5               Average Balances Assets 2,165,486 2,030,707 6.6 2,155,927 2,029,307 6.2 Earning assets 1,952,440 1,825,730 6.9 1,944,793 1,824,105 6.6 Loans 1,551,799 1,520,708 2.0 1,548,351 1,510,465 2.5 Deposits and interest-bearing liabilities 1,865,824 1,745,084 6.9 1,859,074 1,745,588 6.5 Deposits 1,756,098 1,644,777 6.8 1,748,668 1,647,774 6.1 Stockholders’ equity 276,490 264,293 4.6 275,118 261,959 5.0 Stockholders’ equity / assets     12.77 %     13.01 %   (1.9 )     12.76 %     12.91 %   (1.1 ) Per Common Share Data Net Income Basic $ 0.59 $ 0.63 (6.3 ) $ 1.13 $ 1.20 (5.8 ) Diluted 0.57 0.60 (5.0 ) 1.08 1.15 (6.1 ) Dividends 0.15 0.10 50.0 0.30 0.20 50.0 Market Value: High $ 29.00 $ 23.75 22.1 $ 29.00 $ 23.75 22.1 Low 26.50 20.80 27.4 24.24 18.42 31.6 Close 28.70 22.55 27.3 28.70 22.55 27.3 Common Book Value 28.96 26.97 7.4 28.96 26.97 7.4 Tangible Common Book Value 22.19 20.25 9.5 22.19 20.25 9.5 Shares outstanding, end of period (000)     9,515       9,776     (2.7 )     9,515       9,776     (2.7 ) Performance Ratios (annualized) Tax-equivalent net interest margin (1) 3.62 % 3.82 % (5.3 ) 3.62 % 3.78 % (4.4 ) Return on average assets 1.05 % 1.21 % (12.7 ) 1.02 % 1.16 % (12.1 ) Return on average equity 8.25 % 9.27 % (11.0 ) 7.97 % 8.96 % (11.1 ) Efficiency ratio (2) 66.16 % 62.36 % 6.1 67.01 % 64.48 % 3.9 Effective tax rate 28.38 % 29.33 % (3.2 ) 28.97 % 29.32 % (1.2 ) Dividend payout ratio (basic)     25.42 %     15.87 %   60.2       26.55 %     16.67 %   59.3    

(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 Six Months Ended

June 30,

June 30,

(dollars in thousands)   2014   2013   2014   2013   Gain from sale of mortgage loans $ 986 $ 1,890 $ 1,628 $ 4,066 Mortgage loan servicing revenue (expense): Mortgage loan servicing revenue 878 875 1,782 1,745 Amortization of mortgage servicing rights (368 ) (634 ) (660 ) (1,323 ) Mortgage servicing rights valuation adjustments   44       312     37       785     554       553     1,159       1,207   Total revenue from sale and servicing of mortgage loans $ 1,540     $ 2,443   $ 2,787     $ 5,273     Yield Analysis First Defiance Financial Corp.   Three Months Ended June 30, (dollars in thousands) 2014   2013 Average     Yield Average     Yield Balance Interest(1) Rate(2) Balance Interest(1) Rate(2) Interest-earning assets: Loans receivable $ 1,551,799 $ 16,918 4.37 % $ 1,520,708 $ 17,064 4.50 % Securities 217,848 2,015 3.79 % 195,942 1,800 3.82 % Interest Bearing Deposits 168,991 118 0.28 % 89,116 72 0.32 % FHLB stock   13,802   170 4.94 %   19,964   207 4.16 % Total interest-earning assets 1,952,440 19,221 3.96 % 1,825,730 19,143 4.22 % Non-interest-earning assets   213,046   204,977 Total assets $ 2,165,486 $ 2,030,707 Deposits and Interest-bearing liabilities: Interest bearing deposits $ 1,407,795 $ 1,327 0.38 % $ 1,343,678 $ 1,511 0.45 % FHLB advances and other 22,116 133 2.41 % 14,443 92 2.55 % Subordinated debentures 36,132 146 1.62 % 49,728 61 0.49 % Notes payable   51,478   39 0.30 %   36,136   150 1.66 % Total interest-bearing liabilities 1,517,521 1,645 0.43 % 1,443,985 1,814 0.50 % Non-interest bearing deposits   348,303   - -   301,099   - - Total including non-interest-bearing demand deposits 1,865,824 1,645 0.35 % 1,745,084 1,814 0.42 % Other non-interest-bearing liabilities   23,172   21,330 Total liabilities 1,888,996 1,766,414 Stockholders' equity   276,490   264,293 Total liabilities and stockholders' equity $ 2,165,486   $ 2,030,707   Net interest income; interest rate spread $ 17,576 3.53 % $ 17,329 3.72 % Net interest margin (3) 3.62 % 3.82 % Average interest-earning assets to average interest bearing liabilities 129 % 126 %   Six Months Ended June 30, 2014 2013 Average Yield Average Yield Balance Interest(1) Rate Balance Interest(1) Rate Interest-earning assets: Loans receivable $ 1,548,351 $ 33,590 4.37 % $ 1,510,465 $ 33,878 4.50 % Securities 210,061 3,947 3.88 % 196,257 3,594 3.81 % Interest Bearing Deposits 170,829 219 0.26 % 97,724 130 0.27 % FHLB stock   15,552   365 4.73 %   19,659   426 4.35 % Total interest-earning assets 1,944,793 38,121 3.95 % 1,824,105 38,028 4.18 % Non-interest-earning assets   211,134   205,202 Total assets $ 2,155,927 $ 2,029,307 Deposits and Interest-bearing liabilities: Interest bearing deposits $ 1,403,873 $ 2,685 0.39 % $ 1,350,112 $ 3,158 0.47 % FHLB advances and other 22,240 266 2.41 % 13,616 182 2.68 % Subordinated debentures 36,133 292 1.63 % 48,062 121 0.50 % Notes payable   52,033   80 0.31 %   36,136   302 1.68 % Total interest-bearing liabilities 1,514,279 3,323 0.44 % 1,447,926 3,763 0.52 % Non-interest bearing deposits   344,795   - -   297,662   - - Total including non-interest-bearing demand deposits 1,859,074 3,323 0.36 % 1,745,588 3,763 0.43 % Other non-interest-bearing liabilities   21,735   21,760 Total liabilities 1,880,809 1,767,348 Stockholders' equity   275,118   261,959 Total liabilities and stockholders' equity $ 2,155,927   $ 2,029,307   Net interest income; interest rate spread $ 34,798 3.51 % $ 34,265 3.66 % Net interest margin (3) 3.62 % 3.78 % Average interest-earning assets to average interest bearing liabilities 128 % 126 %  

(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)   2nd Qtr 2014   1st Qtr 2014   4th Qtr 2013   3rd Qtr 2013   2nd Qtr 2013 Summary of Operations Tax-equivalent interest income (1) $ 19,221 $ 18,900 $ 19,143 $ 19,242 $ 19,143 Interest expense 1,645 1,678 1,728 1,680 1,814 Tax-equivalent net interest income (1) 17,576 17,222 17,415 17,562 17,329 Provision for loan losses 446 103 475 476 448 Tax-equivalent NII after provision for loan losses (1) 17,130 17,119 16,940 17,086 16,881 Investment securities gains, net of impairment 471 - (337 ) - 44 Non-interest income (excluding securities gains/losses) 7,146 7,326 6,869 7,344 7,854 Non-interest expense 16,357 16,661 15,987 16,100 15,724 Income taxes 2,254 2,179 1,991 2,445 2,535 Net income 5,689 5,179 5,087 5,479 6,109 Tax equivalent adjustment (1)     447       426       406       406       411   At Period End Total assets $ 2,151,490 $ 2,163,659 $ 2,137,148 $ 2,058,430 $ 2,066,216 Earning assets 1,949,729 1,965,225 1,950,475 1,863,546 1,873,351 Loans 1,581,984 1,563,953 1,580,448 1,561,279 1,562,666 Allowance for loan losses 24,627 24,783 24,950 25,964 26,270 Deposits 1,741,812 1,760,617 1,735,792 1,658,492 1,635,708 Stockholders’ equity 276,449 274,877 272,147 269,359 264,497 Stockholders’ equity / assets 12.85 % 12.70 % 12.73 % 13.09 % 12.80 % Goodwill     61,525       61,525       61,525       61,525       61,525   Average Balances Total assets $ 2,165,486 $ 2,146,369 $ 2,124,109 $ 2,026,277 $ 2,030,707 Earning assets 1,952,440 1,937,145 1,915,508 1,816,626 1,825,730 Loans 1,551,799 1,544,902 1,543,057 1,548,718 1,520,708 Deposits and interest-bearing liabilities 1,865,824 1,852,322 1,833,291 1,741,850 1,745,084 Deposits 1,756,098 1,741,237 1,719,319 1,632,712 1,644,777 Stockholders’ equity 276,490 273,745 270,856 265,488 264,293 Stockholders’ equity / assets     12.77 %     12.75 %     12.75 %     13.10 %     13.01 % Per Common Share Data Net Income: Basic $ 0.59 $ 0.53 $ 0.52 $ 0.56 $ 0.63 Diluted 0.57 0.51 0.50 0.54 0.60 Dividends 0.15 0.15 0.10 0.10 0.10 Market Value: High $ 29.00 $ 28.23 $ 27.25 $ 28.46 $ 23.75 Low 26.50 24.24 23.31 22.49 20.80 Close 28.70 27.12 25.97 23.39 22.55 Common Book Value 28.96 28.38 27.91 27.44 26.97 Shares outstanding, end of period (in thousands)     9,515       9,653       9,720       9,785       9,776   Performance Ratios (annualized) Tax-equivalent net interest margin (1) 3.62 % 3.61 % 3.61 % 3.84 % 3.82 % Return on average assets 1.05 % 0.98 % 0.95 % 1.07 % 1.21 % Return on average equity 8.25 % 7.67 % 7.45 % 8.19 % 9.27 % Efficiency ratio (2) 66.16 % 67.87 % 65.75 % 64.56 % 62.36 % Effective tax rate 28.38 % 29.61 % 28.13 % 30.86 % 29.33 % Common dividend payout ratio (basic)     25.42 %     28.30 %     19.23 %     17.86 %     15.87 %  

(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)   2nd Qtr 2014   1st Qtr 2014   4th Qtr 2013   3rd Qtr 2013   2nd Qtr 2013 Loan Portfolio Composition One to four family residential real estate $ 199,886 $ 196,940 $ 195,752 $ 191,984 $ 196,802 Construction 108,478 82,049 86,058 59,567 41,519 Commercial real estate 801,923 809,071 819,618 821,115 820,412 Commercial 390,055 380,144 388,236 386,160 396,158 Consumer finance 15,800 16,346 16,902 16,659 16,817 Home equity and improvement 108,460   106,632   106,930   105,727   106,570 Total loans 1,624,602 1,591,182 1,613,496 1,581,212 1,578,278 Less: Loans in process 41,874 26,487 32,290 19,189 14,876 Deferred loan origination fees 744 742 758 744 736 Allowance for loan loss 24,627   24,783   24,950   25,964   26,270 Net Loans $ 1,557,357   $ 1,539,170   $ 1,555,498   $ 1,535,315   $ 1,536,396                       Allowance for loan loss activity Beginning allowance $ 24,783 $ 24,950 $ 25,964 $ 26,270 $ 26,459 Provision for loan losses 446 103 475 476 448 Credit loss charge-offs: One to four family residential real estate 42 228 175 78 184 Commercial real estate 39 228 1,097 829 283 Commercial 973 525 670 39 316 Consumer finance 12 11 7 33 8 Home equity and improvement 80   184   144   170   170 Total charge-offs 1,146 1,176 2,093 1,149 961 Total recoveries 544   906   604   367   324 Net charge-offs (recoveries) 602   270   1,489   782   637 Ending allowance $ 24,627   $ 24,783   $ 24,950   $ 25,964   $ 26,270                       Credit Quality Total non-performing loans (1) $ 24,863 $ 26,774 $ 27,847 $ 30,512 $ 28,650 Real estate owned (REO) 5,554   6,028   5,859   5,518   6,546 Total non-performing assets (2) $ 30,417   $ 32,802   $ 33,706   $ 36,030   $ 35,196 Net charge-offs 602 270 1,489 782 637   Restructured loans, accruing (3) 26,975 26,654 27,630 28,010 28,732   Allowance for loan losses / loans 1.56% 1.58% 1.58% 1.66% 1.68% Allowance for loan losses / non-performing assets 80.96% 75.55% 74.02% 72.06% 74.64% Allowance for loan losses / non-performing loans 99.05% 92.56% 89.60% 85.09% 91.69% Non-performing assets / loans plus REO 1.92% 2.09% 2.12% 2.30% 2.24% Non-performing assets / total assets 1.41% 1.52% 1.58% 1.75% 1.70% Net charge-offs / average loans (annualized) 0.16% 0.07% 0.39% 0.20% 0.17%                       Deposit Balances Non-interest-bearing demand deposits $ 355,268 $ 338,412 $ 348,943 $ 300,891 $ 301,742 Interest-bearing demand deposits and money market 717,506 740,783 715,939 681,987 659,249 Savings deposits 200,626 199,361 185,121 182,271 182,784 Retail time deposits less than $100,000 299,288 309,758 313,335 318,317 321,422 Retail time deposits greater than $100,000 169,124 172,303 172,454 175,026 168,573 National/Brokered time deposits -   -   -   -   1,938 Total deposits $ 1,741,812   $ 1,760,617   $ 1,735,792   $ 1,658,492   $ 1,635,708  

(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

  June 30, 2014                 One to four family residential real estate $ 199,886 $ 196,253 $ 732 $ 2,901 Construction 108,478 108,478 - - Commercial real estate 801,923 786,911 205 14,807 Commercial 390,055 382,907 96 7,052 Consumer finance 15,800 15,711 89 - Home equity and improvement   108,460     107,271     1,086     103 Total loans $ 1,624,602   $ 1,597,531   $ 2,208   $ 24,863   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   June 30, 2013                 One to four family residential real estate $ 196,802 $ 192,257 $ 1,480 $ 3,065 Construction 41,519 41,519 - - Commercial real estate 820,412 799,070 1,348 19,994 Commercial 396,158 390,510 258 5,390 Consumer finance 16,817 16,628 189 - Home equity and improvement   106,570     105,163     1,206     201 Total loans $ 1,578,278   $ 1,545,147   $ 4,481   $ 28,650  

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