FDEF First Defiance Financial Corporation

• Earnings per share of $0.71 for 2014 third quarter, up from $0.57 per share in 2014 second quarter and $0.54 per share in the 2013 third quarter
• Net income of $7.1 million for 2014 third quarter, up from $5.7 million in 2014 second quarter and $5.5 million in the 2013 third quarter
• Net interest margin of 3.73%, up from 3.62% in the linked quarter, down from 3.84% in the 2013 third quarter
• Loans up 4.8% from third quarter 2013
• Nonperforming loans down 26.2% from third quarter 2013

First Defiance Financial Corp. (NASDAQ: FDEF) announced today that net income for the third quarter ended September 30, 2014 totaled $7.1 million, or $0.71 per diluted common share, compared to $5.5 million or $0.54 per diluted common share for the third quarter ended September 30, 2013.

“We are very pleased with our strong financial performance in the third quarter,” said Donald P. Hileman, President, and Chief Executive Officer of First Defiance Financial Corp. “Loan growth, revenue growth, profitability, and credit quality each showed significant improvement from a year ago.”

The third quarter 2014 results were positively impacted by $299,000 after tax gains on the sale of securities, a $903,000 tax-free benefit from a bank owned life insurance policy and a $498,000 tax- free gain realized through the company’s deferred compensation plan trust. Additional net adjustments to income taxes of $250,000, which included the write-off of a portion of unused deferred tax assets, negatively impacted third quarter 2014 results.

Net Interest Income up compared to third quarter 2013

Net interest income of $17.7 million in the third quarter of 2014 was up from $17.2 in the third quarter of 2013. Net interest margin was 3.73% for the third quarter of 2014, up from 3.62% in the second quarter 2014, but down from 3.84% in the third quarter of 2013. Yield on interest earning assets declined by 14 basis points, to 4.06% in the third quarter of 2014 from 4.20% in the third quarter of 2013. The cost of interest-bearing liabilities decreased by 3 basis points in the third quarter of 2014 to 0.43% from 0.46% in the third quarter of 2013.

“Loan demand was particularly robust this quarter with contributions from each of our market areas including our new loan production office in Columbus, Ohio,” said Hileman. “Most significantly, the added loans enabled us to improve our earning asset mix leading to increased net interest margin and net interest income.”

Non-Interest Income up from third quarter 2013

First Defiance’s non-interest income for the third quarter of 2014 was $9.4 million compared with $7.3 million in the third quarter of 2013. The third quarter 2014 included $460,000 of gains on the sale of securities, a $903,000 tax-free benefit from a bank-owned life insurance policy and a $498,000 tax-free gain realized through the company’s deferred compensation plan trust.

Mortgage banking income decreased to $1.5 million in the third quarter of 2014, down from $1.8 million in the third quarter of 2013, primarily due to a lower valuation adjustment in mortgage servicing assets. First Defiance had a positive change in the valuation adjustment of $68,000 in the third quarter of 2014 compared with a positive adjustment of $480,000 in the third quarter of 2013. Mortgage loans sold were up 11% from the second quarter 2014, but down 23% from the third quarter a year ago primarily due to lower refinance volumes impacted by higher rates. Gains from the sale of mortgage loans increased in the third quarter of 2014 to $973,000 from $894,000 in the third quarter of 2013. Mortgage loan servicing revenue was $870,000 in the third quarter of 2014, slightly down from $901,000 in the third quarter of 2013.

For the third quarter 2014, income from the sale of insurance and investment products was $2.4 million and service fees and other charges were $2.7 million, up 6.3% and 2.1% respectively from the third quarter of 2013. Trust income was $315,000 in the third quarter of 2014 up 25.5% from the third quarter of 2013.

“Our non-interest income revenues were very healthy on a core basis this quarter,” continued Hileman. “We had solid increases in our insurance and wealth management business divisions, and mortgage performance remained steady.”

Non-Interest Expenses up from third quarter 2013

Total non-interest expense was $16.8 million in the third quarter of 2014, an increase from $16.1 million in the third quarter of 2013.

Compensation and benefits increased to $9.3 million in the third quarter of 2014 compared to $8.7 in the third quarter of 2013. The increase was mainly due to merit increases for salaries, higher health plan costs, increased sales commissions and higher accruals for bonus payments based on meeting performance targets. Other non-interest expense increased to $3.2 million in the third quarter of 2014 from $3.1 million in the third quarter of 2013.

Credit Quality

Non-performing loans totaled $22.5 million at September 30, 2014, a decrease of 26.2% from $30.5 million at September 30, 2013. In addition, First Defiance had $5.3 million of real estate owned at September 30, 2014 compared to $5.5 million at September 30, 2013. Accruing troubled debt restructured loans were $26.6 million at September 30, 2014 compared with $28.0 million at September 30, 2013. For the third quarter of 2014, First Defiance recorded net charge-offs of $466,000, down from $782,000 in the third quarter of 2013. The allowance for loan loss as a percentage of total loans was 1.50% at September 30, 2014 compared with 1.66% at September 30, 2013.

The third quarter results include expense for provision for loan losses of $406,000, compared with $476,000 for the same period in 2013.

“Asset quality improvement continued to progress during the third quarter with reductions in classified assets, nonperforming loans and other real estate,” said Hileman. “Our allowance for loan losses now stands at 109% of our non-accruing loan balances.”

Year-To-Date Results

For the nine month period ended September 30, 2014, net interest income totaled $51.6 million compared with $50.6 million in the first nine months of 2013. Average interest-earning assets increased to $1.941 billion in the first nine months of 2014, compared to $1.821 billion in the first nine months of 2013. Net interest margin for the first nine months of 2014 was 3.65%, down 17 basis points from the 3.82% margin reported in the nine month period ended September 30, 2013.

The provision for loan losses in the first nine months of 2014 was $955,000, compared to $1.3 million recorded during the first nine months of 2013.

Non-interest income for the first nine months of 2014 was $24.3 million, compared to $24.2 million during the same period of 2013. Service fees and other charges were $7.5 million for the first nine months of 2014, basically even with the same period of 2013. Mortgage banking income decreased to $4.3 million for the first nine months of 2014, compared with $7.1 million during the same period of 2013. Insurance and investment sales revenues increased to $7.6 million for the first nine months of 2014, compared with $7.5 million in same period of 2013. Non-interest income for the first nine months of 2014 included $931,000 of gain on the sale of securities compared with $97,000 during the same period of 2013. The first nine months of 2014 also included a $903,000 tax-free benefit from a bank owned life insurance policy and a $498,000 tax-free gain realized through the company’s deferred compensation plan trust.

Non-interest expense was $49.8 million for the first nine months of 2014; up slightly from the $49.1 million during the same period of 2013. Compensation and benefits expense was $26.5 million for the first nine months of 2014 compared with $26.0 million during the same period of 2013. Decreases in FDIC insurance premiums of $169,000, state taxes not based on income of $313,000 and amortization of intangibles of $113,000 were offset by increases in data processing of $521,000, primarily due to increased volumes in electronic banking and expenses to support growth strategies, and other expenses of $437,000, 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 September 30, 2014 were $2.15 billion compared to $2.14 billion at December 31, 2013 and $2.06 billion at September 30, 2013. Net loans receivable (excluding loans held for sale) were $1.61 billion at September 30, 2014 compared to $1.56 billion at December 31, 2013 and $1.54 billion at September 30, 2013. Total cash and cash equivalents were $96.7 million at September 30, 2014 compared with $179.3 million at December 31, 2013 and $127.6 million at September 30, 2013. Also, at September 30, 2014, goodwill and other intangible assets totaled $64.2 million compared to $65.0 million at December 31, 2013 and $65.3 million at September 30, 2013.

Total deposits at September 30, 2014 were $1.73 billion compared with $1.74 billion at December 31, 2013, and $1.66 billion at September 30, 2013. Non-interest bearing deposits at September 30, 2014 were $340.6 million compared to $348.9 million at December 31, 2013 and $300.9 million at September 30, 2013. Total stockholders’ equity was $278.2 million at September 30, 2014 compared to $272.1 million at December 31, 2013 and $269.4 million at September 30, 2013.

Dividend to be Paid November 21

The Board of Directors declared a quarterly cash dividend of $0.175 per common share payable November 21, 2014 to shareholders of record at the close of business on November 14, 2014. The dividend represents an annual dividend of 2.54 percent based on the First Defiance common stock closing price on October 17, 2014. First Defiance has approximately 9,354,760 common shares outstanding.

Share Repurchase Program

In a separate action, the Board of Directors authorized a new share repurchase program of up to 5%, or approximately 469,000 shares, of the common stock outstanding. Repurchases will be made periodically depending on market conditions and other factors. The repurchased shares will be held as treasury stock and will be available for general corporate purposes, including employee stock option plans. The exact number of shares to be repurchased by the company is not guaranteed. Purchases under the First Defiance Financial Corp. stock repurchase program may be made periodically, in the open market, through block trades and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Commission or otherwise, and also in privately negotiated transactions. Depending on market conditions and other factors, these purchases may be commenced or suspended at any time or periodically without prior notice.

“Earlier this month, we completed the authorization from a year ago to repurchase our shares,” stated Hileman. “Capital management is a key strategic focus for our company, and we believe that the new authorization to repurchase our stock represents an opportunity to continue offering additional value to our shareholders."

Conference Call

First Defiance Financial Corp. will host a conference call at 11:00 a.m. ET on Tuesday, October 21, 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/fdef141021.html.

Audio replay of the Internet Webcast will be available at www.fdef.com until November 21, 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 33 full-service branches and 43 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.   September 30, December 31, September 30, (in thousands)   2014   2013   2013   Assets Cash and cash equivalents Cash and amounts due from depository institutions $ 36,654 $ 36,318 $ 42,629 Interest-bearing deposits   60,000     143,000     85,000   96,654

 

179,318

 

127,629 Securities

 

 

Available-for sale, carried at fair value 238,367 198,170 184,119 Held-to-maturity, carried at amortized cost   323     387     407   238,690 198,557 184,526   Loans 1,636,266 1,580,448 1,561,279 Allowance for loan losses   (24,567 )   (24,950 )   (25,964 ) Loans, net 1,611,699 1,555,498 1,535,315 Loans held for sale 5,738 9,120 13,391 Mortgage servicing rights 9,053 9,106 9,182 Accrued interest receivable 6,903 5,778 6,425 Federal Home Loan Bank stock 13,802 19,350 19,350 Bank Owned Life Insurance 46,795 42,715 42,504 Office properties and equipment 39,988 38,597 39,066 Real estate and other assets held for sale 5,326 5,859 5,518 Goodwill 61,525 61,525 61,525 Core deposit and other intangibles 2,664 3,497 3,793 Deferred taxes - 565 2,253 Other assets   12,242     7,663     7,953   Total Assets $ 2,151,079   $ 2,137,148   $ 2,058,430     Liabilities and Stockholders’ Equity Non-interest-bearing deposits $ 340,575 $ 348,943 $ 300,891 Interest-bearing deposits   1,390,070     1,386,849     1,357,601   Total deposits 1,730,645 1,735,792 1,658,492 Advances from Federal Home Loan Bank 21,790 22,520 22,761 Notes payable and other interest-bearing liabilities 60,089 51,919 50,822 Subordinated debentures 36,083 36,083 36,083 Advance payments by borrowers for tax and insurance 1,848 1,519 1,752 Deferred Taxes 876 - - Other liabilities   21,515     17,168     19,161   Total Liabilities 1,872,846 1,865,001 1,789,071 Stockholders’ Equity Preferred stock - - - Common stock, net 127 127 127 Common stock warrant 878 878 878 Additional paid-in-capital 136,194 136,403 136,257 Accumulated other comprehensive income 3,301 545 282 Retained earnings 195,877 182,290 178,181 Treasury stock, at cost   (58,144 )   (48,096 )   (46,366 ) Total stockholders’ equity   278,233     272,147     269,359   Total Liabilities and Stockholders’ Equity $ 2,151,079   $ 2,137,148   $ 2,058,430                       Consolidated Statements of Income (Unaudited)         First Defiance Financial Corp. Three Months Ended Nine Months Ended September 30, September 30, (in thousands, except per share amounts)   2014   2013 2014   2013 Interest Income: Loans $ 17,365 $ 17,197 $ 50,894 $ 51,040 Investment securities 1,720 1,390 4,855 4,199 Interest-bearing deposits 64 44 283 174 FHLB stock dividends   137   205   502   631 Total interest income 19,286 18,836 56,534 56,044 Interest Expense:

 

Deposits 1,304 1,356 3,989 4,514 FHLB advances and other 131 116 397 298 Subordinated debentures 147 150 439 452 Notes Payable   41   58   121   178 Total interest expense   1,623   1,680   4,946   5,442 Net interest income 17,663 17,156 51,588 50,602 Provision for loan losses   406   476   955   1,349 Net interest income after provision for loan losses 17,257 16,680 50,633 49,253 Non-interest Income: Service fees and other charges 2,660 2,605 7,492 7,539 Mortgage banking income 1,545 1,846 4,332 7,119 Gain on sale of non-mortgage loans 40 35 79 52 Gain on sale of securities 460 - 931 97 Insurance commissions 2,366 2,225 7,640 7,538 Trust income 315 251 895 695 Income from Bank Owned Life Insurance 1,130 212 1,584 672 Other non-interest income   840   170   1,346   535 Total Non-interest Income 9,356 7,344 24,299 24,247 Non-interest Expense: Compensation and benefits 9,287 8,718 26,468 25,991 Occupancy 1,613 1,719 4,905 5,022 FDIC insurance premium 350 326 1,088 1,257 Financial institutions tax 515 580 1,524 1,837 Data processing 1,489 1,318 4,333 3,812 Amortization of intangibles 269 296 832 945 Other non-interest expense   3,248   3,143   10,639   10,202 Total Non-interest Expense   16,771   16,100   49,789   49,066 Income before income taxes 9,842 7,924 25,143 24,434 Income taxes   2,773   2,445   7,206     7,286 Net Income $ 7,069 $ 5,479 $ 17,937 $ 17,148     Earnings per common share: Basic $ 0.75 $ 0.56 $ 1.87 $ 1.76 Diluted $ 0.71 $ 0.54 $ 1.79 $ 1.69   Average Shares Outstanding: Basic 9,445 9,780 9,577 9,763 Diluted 9,903 10,212 10,031 10,160                               Financial Summary and Comparison (Unaudited)               First Defiance Financial Corp. Three Months Ended Nine Months Ended

September 30,

September 30,

(dollars in thousands, except per share data)   2014   2013   % change     2014   2013   % change Summary of Operations   Tax-equivalent interest income (1) $ 19,751 $ 19,242 2.6 % $ 57,871 $ 57,270 1.0 % Interest expense 1,623 1,680 (3.4 ) 4,946 5,442 (9.1 ) Tax-equivalent net interest income (1) 18,128 17,562 3.2 52,925 51,828 2.1 Provision for loan losses 406 476 (14.7 ) 955 1,349 (29.2 ) Tax-equivalent NII after provision for loan loss (1) 17,722 17,086 3.7 51,970 50,479 3.0 Investment Securities gains 460 - NM 931 97 859.8 Non-interest income (excluding securities gains/losses) 8,896 7,289 22.0 23,368 24,000 (2.6 ) Non-interest expense 16,771 16,045 4.5 49,789 48,916 1.8 Income taxes 2,773 2,445 13.4 7,206 7,286 (1.1 ) Net Income 7,069 5,479 29.0 17,937 17,148 4.6 Tax equivalent adjustment (1)     465       406     14.5         1,337       1,226     9.1   At Period End Assets 2,151,079 2,058,430 4.5 Earning assets 1,954,496 1,863,546 4.9 Loans 1,636,266 1,561,279 4.8 Allowance for loan losses 24,567 25,964 (5.4 ) Deposits 1,730,645 1,658,492 4.4 Stockholders’ equity     278,233       269,359     3.3                 Average Balances Assets 2,153,226 2,026,277 6.3 2,155,027 2,028,297 6.2 Earning assets 1,934,651 1,816,626 6.5 1,941,412 1,820,565 6.6 Loans 1,586,652 1,548,718 2.4 1,561,118 1,523,216 2.5 Deposits and interest-bearing liabilities 1,853,271 1,741,850 6.4 1,857,139 1,744,342 6.5 Deposits 1,738,494 1,632,712 6.5 1,745,276 1,642,754 6.2 Stockholders’ equity 276,968 265,488 4.3 275,734 263,135 4.8 Stockholders’ equity / assets     12.86 %     13.10 %   (1.8 )       12.79 %     12.97 %   (1.4 ) Per Common Share Data Net Income Basic $ 0.75 $ 0.56 33.9 $ 1.87 $ 1.76 6.3 Diluted 0.71 0.54 31.5 1.79 1.69 5.9 Dividends 0.15 0.10 50.0 0.45 0.30 50.0 Market Value: High $ 29.00 $ 28.46 1.9 $ 29.00 $ 28.46 1.9 Low 26.99 22.49 20.0 24.24 18.42 31.6 Close 27.01 23.39 15.5 27.01 23.39 15.5 Common Book Value 29.60 27.44 7.9 29.60 27.44 7.9 Tangible Common Book Value 22.75 20.76 9.6 22.75 20.76 9.6 Shares outstanding, end of period (000)     9,371       9,785     (4.2 )       9,371       9,776     (4.1 ) Performance Ratios (annualized) Tax-equivalent net interest margin (1) 3.73 % 3.84 % (2.8 ) 3.65 % 3.82 % (4.3 ) Return on average assets 1.30 % 1.07 % 21.4 1.11 % 1.13 % (1.6 ) Return on average equity 10.13 % 8.19 % 23.7 8.70 % 8.71 % (0.2 ) Efficiency ratio (2) 62.06 % 64.56 % (3.9 ) 65.26 % 64.51 % 1.2 Effective tax rate 28.18 % 30.86 % (8.7 ) 28.66 % 29.82 % (3.9 ) Dividend payout ratio (basic)     20.00 %     17.86 %   12.0         24.06 %     17.05 %   41.2   (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 Nine Months Ended September 30, September 30, (dollars in thousands)   2014   2013       2014   2013   Gain from sale of mortgage loans $ 973 $ 894 $ 2,601 $ 4,960 Mortgage loan servicing revenue (expense): Mortgage loan servicing revenue 870 901 2,652 2,646 Amortization of mortgage servicing rights (366 ) (429 ) (1,026 ) (1,752 ) Mortgage servicing rights valuation adjustments   68       480     105       1,265     572       952     1,731       2,159   Total revenue from sale and servicing of mortgage loans $ 1,545     $ 1,846   $ 4,332     $ 7,119                                             Yield Analysis First Defiance Financial Corp. Three Months Ended September 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 $ 1,586,652 $ 17,406 4.35 % $ 1,548,718 $ 17,214 4.41 % Securities 235,459 2,144 3.70 % 184,413 1,779 3.83 % Interest Bearing Deposits 98,738 64 0.26 % 64,142 44 0.27 % FHLB stock   13,802   137 3.94 %   19,353   205 4.20 % Total interest-earning assets 1,934,651 19,751 4.06 % 1,816,626 19,242 4.20 % Non-interest-earning assets   218,575   209,651 Total assets $ 2,153,226 $ 2,026,277 Deposits and Interest-bearing liabilities: Interest bearing deposits $ 1,396,698 $ 1,304 0.37 % $ 1,330,467 $ 1,356 0.40 % FHLB advances and other 21,872 131 2.38 % 21,003 116 2.19 % Subordinated debentures 36,129 147 1.61 % 36,130 150 1.65 % Notes payable   56,776   41 0.29 %   52,005   58 0.44 % Total interest-bearing liabilities 1,511,475 1,623 0.43 % 1,439,605 1,680 0.46 % Non-interest bearing deposits   341,796   - -   302,245   - - Total including non-interest-bearing demand deposits 1,853,271 1,623 0.35 % 1,741,850 1,680 0.38 % Other non-interest-bearing liabilities   22,987   18,939 Total liabilities 1,876,258 1,760,789 Stockholders' equity   276,968   265,488 Total liabilities and stockholders' equity $ 2,153,226   $ 2,026,277   Net interest income; interest rate spread $ 18,128 3.63 % $ 17,562 3.74 % Net interest margin (3) 3.73 % 3.84 % Average interest-earning assets to average interest bearing liabilities 128 % 126 %   Nine Months Ended September 30, 2014 2013 Average Yield Average Yield Balance Interest(1) Rate Balance Interest(1) Rate Interest-earning assets: Loans receivable $ 1,561,118 $ 50,996 4.37 % $ 1,523,216 $ 51,092 4.48 % Securities 218,527 6,091 3.83 % 192,309 5,373 3.74 % Interest Bearing Deposits 146,798 283 0.26 % 85,483 174 0.27 % FHLB stock   14,969   502 4.48 %   19,557   631 4.31 % Total interest-earning assets 1,941,412 57,872 3.99 % 1,820,565 57,270 4.21 % Non-interest-earning assets   213,615   207,732 Total assets $ 2,155,027 $ 2,028,297 Deposits and Interest-bearing liabilities: Interest bearing deposits $ 1,401,481 $ 3,989 0.38 % $ 1,343,564 $ 4,514 0.45 % FHLB advances and other 22,117 397 2.40 % 16,078 298 2.48 % Subordinated debentures 36,132 439 1.62 % 36,134 452 1.67 % Notes payable   53,614   121 0.30 %   49,376   178 0.48 % Total interest-bearing liabilities 1,513,344 4,946 0.44 % 1,445,152 5,442 0.50 % Non-interest bearing deposits   343,795   - -   299,190   - - Total including non-interest-bearing demand deposits 1,857,139 4,946 0.36 % 1,744,342 5,442 0.42 % Other non-interest-bearing liabilities   22,154   20,820 Total liabilities 1,879,293 1,765,162 Stockholders' equity   275,734   263,135 Total liabilities and stockholders' equity $ 2,155,027   $ 2,028,297   Net interest income; interest rate spread $ 52,926 3.55 % $ 51,828 3.70 % Net interest margin (3) 3.65 % 3.82 % 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)   3rd Qtr 2014   2nd Qtr 2014   1st Qtr 2014   4th Qtr 2013   3rd Qtr 2013 Summary of Operations Tax-equivalent interest income (1) $ 19,751 $ 19,221 $ 18,900 $ 19,143 $ 19,242 Interest expense 1,623 1,645 1,678 1,728 1,680 Tax-equivalent net interest income (1) 18,128 17,576 17,222 17,415 17,562 Provision for loan losses 406 446 103 475 476 Tax-equivalent NII after provision for loan losses (1) 17,722 17,130 17,119 16,940 17,086 Investment securities gains, net of impairment 460 471 - (337 ) - Non-interest income (excluding securities gains/losses) 8,896 7,146 7,326 6,869 7,344 Non-interest expense 16,771 16,357 16,661 15,987 16,100 Income taxes 2,773 2,254 2,179 1,991 2,445 Net income 7,069 5,689 5,179 5,087 5,479 Tax equivalent adjustment (1)     465       447       426       406       406   At Period End Total assets $ 2,151,079 $ 2,151,490 $ 2,163,659 $ 2,137,148 $ 2,058,430 Earning assets 1,954,496 1,949,729 1,965,225 1,950,475 1,863,546 Loans 1,636,266 1,581,984 1,563,953 1,580,448 1,561,279 Allowance for loan losses 24,567 24,627 24,783 24,950 25,964 Deposits 1,730,645 1,741,812 1,760,617 1,735,792 1,658,492 Stockholders’ equity 278,233 276,449 274,877 272,147 269,359 Stockholders’ equity / assets 12.93 % 12.85 % 12.70 % 12.73 % 13.09 % Goodwill     61,525       61,525       61,525       61,525       61,525   Average Balances Total assets $ 2,153,226 $ 2,165,486 $ 2,146,369 $ 2,124,109 $ 2,026,277 Earning assets 1,934,651 1,952,440 1,937,145 1,915,508 1,816,626 Loans 1,586,652 1,551,799 1,544,902 1,543,057 1,548,718 Deposits and interest-bearing liabilities 1,853,271 1,865,824 1,852,322 1,833,291 1,741,850 Deposits 1,738,494 1,756,098 1,741,237 1,719,319 1,632,712 Stockholders’ equity 276,968 276,490 273,745 270,856 265,488 Stockholders’ equity / assets     12.86 %     12.77 %     12.75 %     12.75 %     13.10 % Per Common Share Data Net Income: Basic $ 0.75 $ 0.59 $ 0.53 $ 0.52 $ 0.56 Diluted 0.71 0.57 0.51 0.50 0.54 Dividends 0.15 0.15 0.15 0.10 0.10 Market Value: High $ 29.00 $ 29.00 $ 28.23 $ 27.25 $ 28.46 Low 26.99 26.50 24.24 23.31 22.49 Close 27.01 28.70 27.12 25.97 23.39 Common Book Value 29.60 28.96 28.38 27.91 27.44 Shares outstanding, end of period (in thousands)     9,371       9,515       9,653       9,720       9,785   Performance Ratios (annualized) Tax-equivalent net interest margin (1) 3.73 % 3.62 % 3.61 % 3.61 % 3.84 % Return on average assets 1.30 % 1.05 % 0.98 % 0.95 % 1.07 % Return on average equity 10.13 % 8.25 % 7.67 % 7.45 % 8.19 % Efficiency ratio (2) 62.06 % 66.16 % 67.87 % 65.75 % 64.56 % Effective tax rate 28.18 % 28.38 % 29.61 % 28.13 % 30.86 % Common dividend payout ratio (basic)     20.00 %     25.42 %     28.30 %     19.23 %     17.86 % (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)   3rd Qtr 2014   2nd Qtr 2014   1st Qtr 2014   4th Qtr 2013   3rd Qtr 2013 Loan Portfolio Composition One to four family residential real estate $ 209,135 $ 199,886 $ 196,940 $ 195,752 $ 191,984 Construction 116,809 108,478 82,049 86,058 59,567 Commercial real estate 834,443 801,923 809,071 819,618 821,115 Commercial 392,465 390,055 380,144 388,236 386,160 Consumer finance 16,616 15,800 16,346 16,902 16,659 Home equity and improvement   111,151       108,460       106,632       106,930       105,727   Total loans 1,680,619 1,624,602 1,591,182 1,613,496 1,581,212 Less: Loans in process 43,548 41,874 26,487 32,290 19,189 Deferred loan origination fees 805 744 742 758 744 Allowance for loan loss   24,567       24,627       24,783       24,950       25,964   Net Loans $ 1,611,699     $ 1,557,357     $ 1,539,170     $ 1,555,498     $ 1,535,315                         Allowance for loan loss activity Beginning allowance $ 24,627 $ 24,783 $ 24,950 $ 25,964 $ 26,270 Provision for loan losses 406 446 103 475 476 Credit loss charge-offs: One to four family residential real estate 95 42 228 175 78 Commercial real estate 246 39 228 1,097 829 Commercial 1,272 973 525 670 39 Consumer finance 16 12 11 7 33 Home equity and improvement   42       80       184       144       170   Total charge-offs 1,671 1,146 1,176 2,093 1,149 Total recoveries   1,205       544       906       604       367   Net charge-offs (recoveries)   466       602       270       1,489       782   Ending allowance $ 24,567     $ 24,627     $ 24,783     $ 24,950     $ 25,964                         Credit Quality Total non-performing loans (1) $ 22,525 $ 24,863 $ 26,774 $ 27,847 $ 30,512 Real estate owned (REO)   5,326       5,554       6,028       5,859       5,518   Total non-performing assets (2) $ 27,851     $ 30,417     $ 32,802     $ 33,706     $ 36,030   Net charge-offs 466 602 270 1,489 782   Restructured loans, accruing (3) 26,579 26,975 26,654 27,630 28,010   Allowance for loan losses / loans 1.50 % 1.56 % 1.58 % 1.58 % 1.66 % Allowance for loan losses / non-performing assets 88.21 % 80.96 % 75.55 % 74.02 % 72.06 % Allowance for loan losses / non-performing loans 109.07 % 99.05 % 92.56 % 89.60 % 85.09 % Non-performing assets / loans plus REO 1.70 % 1.92 % 2.09 % 2.12 % 2.30 % Non-performing assets / total assets 1.29 % 1.41 % 1.52 % 1.58 % 1.75 % Net charge-offs / average loans (annualized) 0.12 % 0.16 % 0.07 % 0.39 % 0.20 %                       Deposit Balances Non-interest-bearing demand deposits $ 340,575 $ 355,268 $ 338,412 $ 348,943 $ 300,891 Interest-bearing demand deposits and money market 739,292 717,506 740,783 715,939 681,987 Savings deposits 197,464 200,626 199,361 185,121 182,271 Retail time deposits less than $100,000 289,326 299,288 309,758 313,335 318,317 Retail time deposits greater than $100,000 163,988 169,124 172,303 172,454 175,026 National/Brokered time deposits   -       -       -       -       -   Total deposits $ 1,730,645     $ 1,741,812     $ 1,760,617     $ 1,735,792     $ 1,658,492   (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   September 30, 2014                 One to four family residential real estate $ 209,135 $ 205,428 $ 654 $ 3,053 Construction 116,809 116,809 - - Commercial real estate 834,443 820,502 68 13,873 Commercial 392,465 386,266 669 5,530 Consumer finance 16,616 16,524 92 - Home equity and improvement   111,151     109,937     1,145     69 Total loans $ 1,680,619   $ 1,655,466   $ 2,628   $ 22,525   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

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