FDEF First Defiance Financial Corporation

• Earnings per share of $0.70 for 2015 second quarter up from $0.57 in 2014 second quarter
• Net income of $6.6 million for 2015 second quarter up from $5.7 million in the 2014 second quarter
• Return on average assets of 1.19%, up from 1.05% in the 2014 second quarter
• Net interest margin of 3.81%, up from 3.62% in the 2014 second quarter
• Loans up $123.7 million, or 7.8% from 2014 second quarter
• Non-performing loans down 32.7% from 2014 second quarter

First Defiance Financial Corp. (NASDAQ: FDEF) announced today that net income for the second quarter ended June 30, 2015 totaled $6.6 million, or $0.70 per diluted common share, compared to $5.7 million or $0.57 per diluted common share for the quarter ended June 30, 2014.

“Our financial performance remained very strong in the second quarter,” said Donald P. Hileman, President, and Chief Executive Officer of First Defiance Financial Corp. “Our diluted earnings per share growth of 23% over second quarter last year shows that our strategies for revenue growth, efficiency improvement, asset quality enhancement and effective capital management are delivering measurable results.”

Net Interest Income up compared to second quarter 2014

Net interest income of $18.4 million in the second quarter of 2015 was up from $17.1 million in the second quarter of 2014. Net interest margin was 3.81% for the second quarter of 2015, down from 3.88% in the first quarter of 2015, but up from 3.62% in the second quarter of 2014. Yield on interest earning assets increased by 19 basis points, to 4.15% in the second quarter of 2015 from 3.96% in the second quarter of 2014. The cost of interest-bearing liabilities increased by 1 basis point in the second quarter of 2015 to 0.44% from 0.43% in the second quarter of 2014.

“Continuing the trend from last quarter, loan demand remained steady in our markets enabling us to maintain a strong earning asset mix and net interest margin, much improved from a year ago,” said Hileman. “Our net interest income rose $1.2 million, or 7.2% over the second quarter last year.”

Non-Interest Income up from second quarter 2014

First Defiance’s non-interest income for the second quarter of 2015 was $7.8 million compared with $7.6 million in the second quarter of 2014. The second quarter of 2015 had no gains or losses on the sale of securities, while the second quarter of 2014 included gains of $471,000.

Mortgage banking income increased to $1.8 million in the second quarter of 2015, up from $1.5 million in the second quarter of 2014. Mortgage banking activity was significantly elevated from the second quarter a year ago, with our markets experiencing higher purchase and refinance loan volumes. Gains from the sale of mortgage loans increased in the second quarter of 2015 to $1.2 million from $1.0 million in the second quarter of 2014. Mortgage loan servicing revenue was $852,000 in the second quarter of 2015, down slightly from $878,000 in the second quarter of 2014. First Defiance had a positive change in the valuation adjustment in mortgage servicing assets of $141,000 in the second quarter of 2015 compared with a positive adjustment of $44,000 in the second quarter of 2014.

For the second quarter of 2015, commissions from the sale of insurance products was $2.3 million, up from $2.2 million in the second quarter of 2014, and service fees and other charges were $2.7 million, up from $2.5 million in the second quarter of 2014. Trust income was $367,000 in the second quarter of 2015, up 21.5% from $302,000 in the second quarter of 2014.

“We are very pleased with the positive impact of our mortgage banking performance this quarter which included mortgage origination volumes up 49% from the prior year. In addition, service fees, insurance commissions and trust income all reflected solid increases over the second quarter last year,” continued Hileman. “Total non-interest income, excluding securities gains, rose 9.3% in the second quarter over the prior year.”

Non-Interest Expenses up from second quarter 2014

Total non-interest expense was $16.8 million in the second quarter of 2015, an increase from $16.4 million in the second quarter of 2014. Compensation and benefits increased to $9.2 million in the second quarter of 2015 compared to $8.7 in the second quarter of 2014. The increase in compensation and benefits from a year ago is mainly related to merit increases and higher incentive compensation accruals partially offset by lower medical insurance costs. Occupancy expense was $1.8 million in the second quarter 2015, up from $1.7 million in the second quarter of 2014. Data processing cost increased to $1.6 million in the second quarter of 2015 from $1.5 million in the second quarter of 2014. Other non-interest expense of $3.3 million in the second quarter of 2015 was essentially even with the second quarter of 2014.

Credit Quality

Non-performing loans totaled $16.7 million at June 30, 2015, a decrease from $24.9 million at June 30, 2014. In addition, First Defiance had $5.4 million of real estate owned at June 30, 2015 compared to $5.6 million at June 30, 2014. Accruing troubled debt restructured loans were $22.2 million at June 30, 2015 compared with $27.0 million at June 30, 2014. For the second quarter of 2015, First Defiance recorded net recoveries of $82,000, compared to net charge-offs of $602,000 in the second quarter of 2014. The allowance for loan loss as a percentage of total loans was 1.49% at June 30, 2015 compared with 1.56% at June 30, 2014.

The second quarter results include no provision for loan losses compared with $446,000 of expense for the same period in 2014.

“Our asset quality strengthened with declines in both non-performing loans and other real estate in the second quarter, continuing the improvement in our asset quality metrics,” said Hileman. “We now have over 150% allowance for loan losses coverage of our non-performing loans.”

Year-To-Date Results

For the six-month period ended June 30, 2015, net interest income totaled $36.6 million compared with $33.9 million in the first six months of 2014. Average interest-earning assets increased to $1.975 billion in the first six months of 2015, compared to $1.945 billion in the first six months of 2014. Net interest margin for the first six months of 2015 was 3.84%, up 22 basis points from the 3.62% margin reported in the six month period ended June 30, 2014.

The provision for loan losses in the first six months of 2015 was $120,000, compared to $549,000 recorded during the first six months of 2014.

Non-interest income for the first six months of 2015 was $16.1 million, compared to $14.9 million during the same period of 2014. Service fees and other charges were $5.2 million for the first six months of 2015, up from $4.8 million during the same period of 2014. Mortgage banking income increased to $3.6 million for the first six months of 2015, compared with $2.8 million during the same period of 2014. Insurance commissions rose to $5.5 million for the first six months of 2015, compared with $5.3 million for same period of 2014. Non-interest income for the first six months of 2015 included no gains or losses on the sale of securities compared with gains of $471,000 during the same period of 2014.

Non-interest expense was $33.7 million for the first six months of 2015, up from $33.0 million for the same period of 2014. Compensation and benefits expense was $18.1 million for the first six months of 2015 compared with $17.2 million during the same period of 2014. The increase in compensation and benefits over the prior year is mainly related to merit increases and higher incentive compensation accruals partially offset by lower medical insurance costs. Increases in occupancy of $281,000 and data processing of $277,000 were offset by decreases in FDIC insurance premiums of $68,000, financial institutions taxes of $116,000, amortization of intangibles of $184,000 and other expenses of $438,000, which included a $786,000 cost recorded in the first quarter of 2014 for terminating a merger agreement.

Total Assets at $2.2 Billion

Total assets at June 30, 2015 were $2.20 billion compared to $2.18 billion at December 31, 2014 and $2.15 billion at June 30, 2014. Net loans receivable (excluding loans held for sale) were $1.68 billion at June 30, 2015 compared to $1.62 billion at December 31, 2014 and $1.56 billion at June 30, 2014. Total cash and cash equivalents were $65.6 million at June 30, 2015 compared with $112.9 million at December 31, 2014 and $156.2 million at June 30, 2014. Also, at June 30, 2015, goodwill and other intangible assets totaled $63.5 million compared to $63.9 million at December 31, 2014 and $64.5 million at June 30, 2014.

Total deposits at June 30, 2015 were $1.76 billion compared with $1.76 billion at December 31, 2014, and $1.74 billion at June 30, 2014. Non-interest bearing deposits at June 30, 2015 were $379.0 million compared to $379.6 million at December 31, 2014 and $355.3 million at June 30, 2014. Total stockholders’ equity was $276.0 million at June 30, 2015 compared to $279.5 million at December 31, 2014 and $276.4 million at June 30, 2014.

The reduction in stockholders’ equity from year-end 2014 includes the $12 million cost of the March 11, 2015 repurchase of the warrant issued to the U.S. Treasury under the TARP Capital Purchase Program.

Dividend to be paid August 28

The Board of Directors declared a quarterly cash dividend of $0.20 per common share payable August 28, 2015 to shareholders of record at the close of business on August 21, 2015. The dividend represents an annual dividend of 2.18 percent based on the First Defiance common stock closing price on July 17, 2015. First Defiance has approximately 9,276,983 common shares outstanding.

Conference Call

First Defiance Financial Corp. will host a conference call at 11:00 a.m. ET on Tuesday, July 21, 2015 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/fdef150721.html.

Audio replay of the Internet Webcast will be available at www.fdef.com until August 21, 2015 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 41 ATM locations in northwest Ohio, southeast Michigan and northeast Indiana and a loan production office in Columbus, Ohio. 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 to grow in existing and adjacent markets. These forward-looking statements involve numerous risks and uncertainties, including those inherent in general and local banking, insurance and mortgage conditions, competitive factors specific to markets in which First Defiance and its subsidiaries operate, future interest rate levels, legislative and regulatory decisions or capital market conditions and other risks and uncertainties detailed from time to time in our Securities and Exchange Commission (SEC) filings, including our Annual Report on Form 10-K for the year ended December 31, 2014. One or more of these factors have affected or could in the future affect First Defiance's business and financial results in future periods and could cause actual results to differ materially from plans and projections. Therefore, there can be no assurances that the forward-looking statements included in this news release will prove to be accurate. In light of the significant uncertainties in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by First Defiance or any other persons, that our objectives and plans will be achieved. All forward-looking statements made in this news release are based on information presently available to the management of First Defiance. We assume no obligation to update any forward-looking statements.

As required by U.S. GAAP, First Defiance will evaluate the impact of subsequent events through the issuance date of its June 30, 2015 consolidated financial statements as part of its Quarterly Report on Form 10-Q to be filed with the SEC. Accordingly, subsequent events could occur that may cause First Defiance to update its critical accounting estimates and to revise its financial information from that which is contained in this news release.

              Consolidated Balance Sheets (Unaudited) First Defiance Financial Corp.   June 30, December 31, (in thousands)   2015   2014   Assets Cash and cash equivalents Cash and amounts due from depository institutions $ 33,586 $ 41,936 Interest-bearing deposits   32,000     71,000   65,586

 

112,936 Securities

 

Available-for sale, carried at fair value 237,012 239,321 Held-to-maturity, carried at amortized cost   257     313   237,269 239,634   Loans 1,705,716 1,646,786 Allowance for loan losses   (25,384 )   (24,766 ) Loans, net 1,680,332 1,622,020 Loans held for sale 9,793 4,535 Mortgage servicing rights 9,128 9,012 Accrued interest receivable 6,204 6,037 Federal Home Loan Bank stock 13,802 13,802 Bank Owned Life Insurance 51,433 47,013 Office properties and equipment 39,393 40,496 Real estate and other assets held for sale 5,371 6,181 Goodwill 61,525 61,525 Core deposit and other intangibles 2,016 2,395 Deferred Taxes 69 - Other assets   14,589     13,366   Total Assets $ 2,196,510   $ 2,178,952     Liabilities and Stockholders’ Equity Non-interest-bearing deposits $ 378,970 $ 379,552 Interest-bearing deposits   1,384,420     1,381,261   Total deposits 1,763,390 1,760,813 Advances from Federal Home Loan Bank 41,050 21,544 Notes payable and other interest-bearing liabilities 54,237 54,759 Subordinated debentures 36,083 36,083 Advance payments by borrowers for tax and insurance 2,492 2,309 Deferred Taxes - 1,176 Other liabilities   23,230     22,763   Total Liabilities 1,920,482 1,899,447 Stockholders’ Equity Preferred stock - - Common stock, net 127 127 Common stock warrant - 878 Additional paid-in-capital 125,231 136,266 Accumulated other comprehensive income 2,594 4,114 Retained earnings 210,169 200,600 Treasury stock, at cost   (62,093 )   (62,480 ) Total stockholders’ equity   276,028     279,505   Total Liabilities and Stockholders’ Equity $ 2,196,510   $ 2,178,952                       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)   2015   2014 2015   2014 Interest Income:     Loans $ 18,139 $ 16,878 $ 36,026 $ 33,529 Investment securities 1,721 1,608 3,413 3,135 Interest-bearing deposits 41 118 80 219 FHLB stock dividends   136   170   275   365 Total interest income 20,037 18,774 39,794 37,248 Interest Expense:

 

Deposits 1,312 1,327 2,584 2,685 FHLB advances and other 173 133 283 266 Subordinated debentures 150 146 297 292 Notes Payable   37   39   75   80 Total interest expense   1,672   1,645   3,239   3,323 Net interest income 18,365 17,129 36,555 33,925 Provision for loan losses   -   446   120   549 Net interest income after provision for loan losses 18,365 16,683 36,435 33,376 Non-interest Income: Service fees and other charges 2,690 2,508 5,219 4,832 Mortgage banking income 1,793 1,540 3,568 2,787 Gain on sale of non-mortgage loans 197 36 233 39 Gain on sale of securities - 471 - 471 Insurance commissions 2,344 2,244 5,483 5,274 Trust income 367 302 725 580 Income from Bank Owned Life Insurance 212 235 420 454 Other non-interest income   206   281   443   506 Total Non-interest Income 7,809 7,617 16,091 14,943 Non-interest Expense: Compensation and benefits 9,182 8,709 18,105 17,181 Occupancy 1,809 1,704 3,573 3,292 FDIC insurance premium 319 353 670 738 Financial institutions tax 411 514 893 1,009 Data processing 1,599 1,479 3,121 2,844 Amortization of intangibles 162 274 379 563 Other non-interest expense   3,314   3,324   6,953   7,391 Total Non-interest Expense   16,796   16,357   33,694   33,018 Income before income taxes 9,378 7,943 18,832 15,301 Income taxes   2,815   2,254   5,668     4,433 Net Income $ 6,563 $ 5,689 $ 13,164   $ 10,868     Earnings per common share: Basic $ 0.71 $ 0.59 $ 1.42 $ 1.13 Diluted $ 0.70 $ 0.57 $ 1.39 $ 1.08   Average Shares Outstanding: Basic 9,268 9,607 9,251 9,644 Diluted 9,349 10,066 9,483 10,096                               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)   2015   2014   % change     2015   2014   % change Summary of Operations   Tax-equivalent interest income (1) $ 20,516 $ 19,221 6.7 % $ 40,737 $ 38,121 6.9 % Interest expense 1,672 1,645 1.6 3,239 3,323 (2.5 ) Tax-equivalent net interest income (1) 18,844 17,576 7.2 37,498 34,798 7.8 Provision for loan losses - 446 NM 120 549 (78.1 ) Tax-equivalent NII after provision for loan loss (1) 18,844 17,130 10.0 37,378 34,249 9.1 Investment Securities gains - 471 NM - 471 NM Non-interest income (excluding securities gains/losses) 7,809 7,146 9.3 16,091 14,472 11.2 Non-interest expense 16,796 16,357 2.7 33,694 33,018 2.0 Income taxes 2,815 2,254 24.9 5,668 4,433 27.9 Net Income 6,563 5,689 15.4 13,164 10,868 21.1 Tax equivalent adjustment (1)     479       447     7.2         943       873     8.0   At Period End Assets 2,196,510 2,151,490 2.1 Earning assets 1,998,580 1,949,729 2.5 Loans 1,705,716 1,581,984 7.8 Allowance for loan losses 25,384 24,627 3.1 Deposits 1,763,390 1,741,812 1.2 Stockholders’ equity     276,028       276,449     (0.2 )               Average Balances Assets 2,212,603 2,165,486 2.2 2,196,281 2,155,927 1.9 Earning assets 1,991,830 1,952,440 2.0 1,975,146 1,944,793 1.6 Loans 1,673,750 1,551,799 7.9 1,660,404 1,548,351 7.2 Deposits and interest-bearing liabilities 1,909,372 1,865,824 2.3 1,890,622 1,859,074 1.7 Deposits 1,780,912 1,756,098 1.4 1,770,647 1,748,668 1.3 Stockholders’ equity 274,239 276,490 (0.8 ) 277,078 275,118 0.7 Stockholders’ equity / assets     12.39 %     12.77 %   (2.9 )       12.62 %     12.76 %   (1.1 ) Per Common Share Data Net Income Basic $ 0.71 $ 0.59 20.3 $ 1.42 $ 1.13 25.7 Diluted 0.70 0.57 22.8 1.39 1.08 28.7 Dividends 0.20 0.15 33.3 0.375 0.30 25.0 Market Value: High $ 38.21 $ 29.00 31.8 $ 38.21 $ 29.00 31.8 Low 32.42 26.50 22.3 29.05 24.24 19.8 Close 37.53 28.70 30.8 37.53 28.70 30.8 Common Book Value 29.76 28.96 2.8 29.76 28.96 2.8 Tangible Common Book Value 22.91 22.19 3.3 22.91 22.19 3.3 Shares outstanding, end of period (000)     9,275       9,515     (2.5 )       9,275       9,515     (2.5 ) Performance Ratios (annualized) Tax-equivalent net interest margin (1) 3.81 % 3.62 % 5.3 3.84 % 3.62 % 6.3 Return on average assets 1.19 % 1.05 % 12.9 1.21 % 1.02 % 18.9 Return on average equity 9.60 % 8.25 % 16.3 9.58 % 7.97 % 20.3 Efficiency ratio (2) 63.02 % 66.16 % (4.8 ) 62.87 % 67.01 % (6.2 ) Effective tax rate 30.02 % 28.38 % 5.8 30.10 % 28.97 % 3.9 Dividend payout ratio (basic)     28.17 %     25.42 %   10.8         26.41 %     26.55 %   (0.5 )  

(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)   2015   2014     2015   2014   Gain from sale of mortgage loans $ 1,246 $ 986 $ 2,531 $ 1,628 Mortgage loan servicing revenue (expense): Mortgage loan servicing revenue 852 878 1,727 1,782 Amortization of mortgage servicing rights (446 ) (368 ) (857 ) (660 ) Mortgage servicing rights valuation adjustments   141       44     167       37     547       554     1,037       1,159   Total revenue from sale and servicing of mortgage loans $ 1,793     $ 1,540   $ 3,568     $ 2,787                                 Yield Analysis First Defiance Financial Corp.   Three Months Ended June 30, (dollars in thousands) 2015     2014 Average     Yield Average     Yield Balance Interest(1) Rate(2) Balance Interest(1) Rate(2) Interest-earning assets: Loans receivable $ 1,673,750 $ 18,186 4.36 % $ 1,551,799 $ 16,918 4.37 % Securities 245,539 2,153 3.63 % 217,848 2,015 3.79 % Interest Bearing Deposits 58,739 41 0.28 % 168,991 118 0.28 % FHLB stock   13,802   136 3.95 %   13,802   170 4.94 % Total interest-earning assets 1,991,830 20,516 4.15 % 1,952,440 19,221 3.96 % Non-interest-earning assets   220,773   213,046 Total assets $ 2,212,603 $ 2,165,486 Deposits and Interest-bearing liabilities: Interest bearing deposits $ 1,397,966 $ 1,312 0.38 % $ 1,407,795 $ 1,327 0.38 % FHLB advances and other 39,578 173 1.75 % 22,116 133 2.41 % Subordinated debentures 36,128 150 1.67 % 36,132 146 1.62 % Notes payable   52,754   37 0.28 %   51,478   39 0.30 % Total interest-bearing liabilities 1,526,426 1,672 0.44 % 1,517,521 1,645 0.43 % Non-interest bearing deposits   382,946   - -   348,303   - - Total including non-interest-bearing demand deposits 1,909,372 1,672 0.35 % 1,865,824 1,645 0.35 % Other non-interest-bearing liabilities   28,992   23,172 Total liabilities 1,938,364 1,888,996 Stockholders' equity   274,239   276,490 Total liabilities and stockholders' equity $ 2,212,603   $ 2,165,486   Net interest income; interest rate spread $ 18,844 3.71 % $ 17,576 3.53 % Net interest margin (3) 3.81 % 3.62 % Average interest-earning assets to average interest bearing liabilities 130 % 129 %   Six Months Ended June 30, 2015 2014 Average Yield Average Yield Balance Interest(1) Rate Balance Interest(1) Rate Interest-earning assets: Loans receivable $ 1,660,404 $ 36,118 4.39 % $ 1,548,351 $ 33,590 4.37 % Securities 243,281 4,264 3.65 % 210,061 3,947 3.88 % Interest Bearing Deposits 57,659 80 0.28 % 170,829 219 0.26 % FHLB stock   13,802   275 4.02 %   15,552   365 4.73 % Total interest-earning assets 1,975,146 40,737 4.18 % 1,944,793 38,121 3.95 % Non-interest-earning assets   221,135   211,134 Total assets $ 2,196,281 $ 2,155,927 Deposits and Interest-bearing liabilities: Interest bearing deposits $ 1,396,114 $ 2,584 0.37 % $ 1,403,873 $ 2,685 0.39 % FHLB advances and other 30,534 283 1.87 % 22,240 266 2.41 % Subordinated debentures 36,129 297 1.66 % 36,133 292 1.63 % Notes payable   53,312   75 0.28 %   52,033   80 0.31 % Total interest-bearing liabilities 1,516,089 3,239 0.43 % 1,514,279 3,323 0.44 % Non-interest bearing deposits   374,533   - -   344,795   - - Total including non-interest-bearing demand deposits 1,890,622 3,239 0.35 % 1,859,074 3,323 0.36 % Other non-interest-bearing liabilities   28,581   21,735 Total liabilities 1,919,203 1,880,809 Stockholders' equity   277,078   275,118 Total liabilities and stockholders' equity $ 2,196,281   $ 2,155,927   Net interest income; interest rate spread $ 37,498 3.75 % $ 34,798 3.51 % Net interest margin (3) 3.84 % 3.62 % Average interest-earning assets to average interest bearing liabilities 130 % 128 %  

(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 2015   1st Qtr 2015   4th Qtr 2014   3rd Qtr 2014   2nd Qtr 2014 Summary of Operations Tax-equivalent interest income (1) $ 20,516 $ 20,221 $ 20,174 $ 19,751 $ 19,221 Interest expense 1,672 1,567 1,612 1,623 1,645 Tax-equivalent net interest income (1) 18,844 18,654 18,562 18,128 17,576 Provision for loan losses - 120 162 406 446 Tax-equivalent NII after provision for loan losses (1) 18,844 18,534 18,400 17,722 17,130 Investment securities gains, net of impairment - - 1 460 471 Non-interest income (excluding securities gains/losses) 7,809 8,281 7,341 8,896 7,146 Non-interest expense 16,796 16,897 16,969 16,771 16,357 Income taxes 2,815 2,853 1,957 2,773 2,254 Net income 6,563 6,601 6,355 7,069 5,689 Tax equivalent adjustment (1)     479       464       461       465       447   At Period End Total assets $ 2,196,510 $ 2,201,321 $ 2,178,952 $ 2,151,079 $ 2,151,490 Earning assets 1,998,580 1,999,601 1,975,757 1,954,496 1,949,729 Loans 1,705,716 1,684,518 1,646,786 1,636,266 1,581,984 Allowance for loan losses 25,384 25,302 24,766 24,567 24,627 Deposits 1,763,390 1,772,693 1,760,813 1,730,645 1,741,812 Stockholders’ equity 276,028 273,117 279,505 278,233 276,449 Stockholders’ equity / assets 12.57 % 12.41 % 12.83 % 12.93 % 12.85 % Goodwill     61,525       61,525       61,525       61,525       61,525   Average Balances Total assets $ 2,212,603 $ 2,179,576 $ 2,184,792 $ 2,153,226 $ 2,165,486 Earning assets 1,991,830 1,958,463 1,964,074 1,934,651 1,952,440 Loans 1,673,750 1,647,059 1,615,657 1,586,652 1,551,799 Deposits and interest-bearing liabilities 1,909,372 1,871,871 1,879,918 1,853,271 1,865,824 Deposits 1,780,912 1,760,383 1,764,908 1,738,494 1,756,098 Stockholders’ equity 274,239 279,917 278,944 276,968 276,490 Stockholders’ equity / assets     12.39 %     12.84 %     12.77 %     12.86 %     12.77 % Per Common Share Data Net Income: Basic $ 0.71 $ 0.71 $ 0.68 $ 0.75 $ 0.59 Diluted 0.70 0.69 0.65 0.71 0.57 Dividends 0.20 0.18 0.18 0.15 0.15 Market Value: High $ 38.21 $ 34.64 $ 35.70 $ 29.00 $ 29.00 Low 32.42 29.05 26.95 26.99 26.50 Close 37.53 32.82 34.06 27.01 28.70 Common Book Value 29.76 29.53 30.17 29.60 28.96 Shares outstanding, end of period (in thousands)     9,275       9,248       9,235       9,371       9,515   Performance Ratios (annualized) Tax-equivalent net interest margin (1) 3.81 % 3.88 % 3.76 % 3.73 % 3.62 % Return on average assets 1.19 % 1.23 % 1.15 % 1.30 % 1.05 % Return on average equity 9.60 % 9.56 % 9.04 % 10.13 % 8.25 % Efficiency ratio (2) 63.02 % 62.73 % 65.51 % 62.06 % 66.16 % Effective tax rate 30.02 % 30.18 % 23.54 % 28.18 % 28.38 % Common dividend payout ratio (basic)     28.17 %     24.65 %     25.74 %     20.00 %     25.42 %  

(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 2015   1st Qtr 2015   4th Qtr 2014   3rd Qtr 2014   2nd Qtr 2014 Loan Portfolio Composition One to four family residential real estate $ 205,044 $ 203,558 $ 206,437 $ 209,135 $ 199,886 Construction 140,114 125,144 112,385 116,809 108,478 Commercial real estate 885,125 876,476 840,488 834,443 801,923 Commercial 401,247 395,378 399,730 392,465 390,055 Consumer finance 14,911 14,967 15,466 16,616 15,800 Home equity and improvement   109,694       110,755       111,813       111,151       108,460   Total loans 1,756,135 1,726,278 1,686,319 1,680,619 1,624,602 Less: Loans in process 49,477 40,833 38,653 43,548 41,874 Deferred loan origination fees 942 927 880 805 744 Allowance for loan loss   25,384       25,302       24,766       24,567       24,627   Net Loans $ 1,680,332     $ 1,659,216     $ 1,622,020     $ 1,611,699     $ 1,557,357                         Allowance for loan loss activity Beginning allowance $ 25,302 $ 24,766 $ 24,567 $ 24,627 $ 24,783 Provision for loan losses 0 120 162 406 446 Credit loss charge-offs: One to four family residential real estate 11 78 61 95 42 Commercial real estate 146 155 505 246 39 Commercial 23 2 212 1,272 973 Consumer finance 13 3 1 16 12 Home equity and improvement   187       43       87       42       80   Total charge-offs 380 281 866 1,671 1,146 Total recoveries   462       697       903       1,205       544   Net charge-offs (recoveries)   (82 )     (416 )     (37 )     466       602   Ending allowance $ 25,384     $ 25,302     $ 24,766     $ 24,567     $ 24,627                         Credit Quality Total non-performing loans (1) $ 16,737 $ 18,703 $ 24,130 $ 22,525 $ 24,863 Real estate owned (REO)   5,371       6,392       6,181       5,326       5,554   Total non-performing assets (2) $ 22,108     $ 25,095     $ 30,311     $ 27,851     $ 30,417   Net charge-offs (recoveries) (82 ) (416 ) (37 ) 466 602   Restructured loans, accruing (3) 22,234 19,616 24,686 26,579 26,975   Allowance for loan losses / loans 1.49 % 1.50 % 1.50 % 1.50 % 1.56 % Allowance for loan losses / non-performing assets 114.82 % 100.82 % 81.71 % 88.21 % 80.96 % Allowance for loan losses / non-performing loans 151.66 % 135.28 % 102.64 % 109.07 % 99.05 % Non-performing assets / loans plus REO 1.29 % 1.48 % 1.83 % 1.70 % 1.92 % Non-performing assets / total assets 1.01 % 1.14 % 1.39 % 1.29 % 1.41 % Net charge-offs / average loans (annualized) -0.02 % -0.10 % -0.01 % 0.12 % 0.16 %                       Deposit Balances Non-interest-bearing demand deposits $ 378,970 $ 370,997 $ 379,552 $ 340,575 $ 355,268 Interest-bearing demand deposits and money market 722,813 737,533 727,729 739,292 717,506 Savings deposits 218,055 215,590 203,673 197,464 200,626 Retail time deposits less than $100,000 284,471 286,890 286,904 289,326 299,288 Retail time deposits greater than $100,000   159,081       161,683       162,955       163,988       169,124   Total deposits $ 1,763,390     $ 1,772,693     $ 1,760,813     $ 1,730,645     $ 1,741,812    

(1)

 

Non-performing loans consist of non-accrual loans.

(2)

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

(3)

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

                    Loan Delinquency Information First Defiance Financial Corp.           30 to 89 days Non Accrual (dollars in thousands)   Total Balance   Current   past due   Loans   June 30, 2015                 One to four family residential real estate $ 205,044 $ 201,629 $ 473 $ 2,942 Construction 140,114 140,114 - - Commercial real estate 885,125 872,654 2,685 9,786 Commercial 401,247 397,653 148 3,446 Consumer finance 14,911 14,885 16 10 Home equity and improvement   109,694     108,238     903     553 Total loans $ 1,756,135   $ 1,735,173   $ 4,225   $ 16,737   December 31, 2014                 One to four family residential real estate $ 206,437 $ 201,931 $ 1,174 $ 3,332 Construction 112,385 112,385 - - Commercial real estate 840,488 824,770 544 15,174 Commercial 399,730 394,671 66 4,993 Consumer finance 15,466 15,330 124 12 Home equity and improvement   111,813     109,993     1,201     619 Total loans $ 1,686,319   $ 1,659,080   $ 3,109   $ 24,130   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

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