FDEF First Defiance Financial Corporation

• Diluted earnings per share of $0.80 for 2016 second quarter, up from $0.70 in the 2015 second quarter
• Net income of $7.3 million for 2016 second quarter, up from $6.6 million in the 2015 second quarter
• Return on average assets of 1.22% for the 2016 second quarter, up from 1.19% in the 2015 second quarter
• Net interest margin of 3.71% for the 2016 second quarter, compared to 3.81% in the 2015 second quarter
• Loan growth of $36.4 million during 2016 second quarter
• Deposit growth of $49.1 million during 2016 second quarter
• Non-performing assets down 21% from 2015 second quarter

First Defiance Financial Corp. (NASDAQ: FDEF) announced today that net income for the second quarter ended June 30, 2016 totaled $7.3 million, or $0.80 per diluted common share, compared to $6.6 million or $0.70 per diluted common share for the quarter ended June 30, 2015.

“Our very strong financial performance results for the second quarter reflect our continued success in growing profitably,” said Donald P. Hileman, President and Chief Executive Officer of First Defiance Financial Corp. “At quarter-end, our total assets exceeded $2.4 billion, up 9.7% from a year ago; and second quarter diluted earnings per share grew to $0.80, a 14.3% increase over second quarter last year.”

Net Interest Income up Compared to Second Quarter 2015

Net interest income of $19.4 million in the second quarter of 2016 was up from $18.4 million in the second quarter of 2015. Net interest margin was 3.71% for the second quarter of 2016, down from 3.80% in the first quarter of 2016, and down from 3.81% in the second quarter of 2015. Yield on interest earning assets decreased by 5 basis points, to 4.10% in the second quarter of 2016 from 4.15% in the second quarter of 2015. The cost of interest-bearing liabilities increased by 7 basis points in the second quarter of 2016 to 0.51% from 0.44% in the second quarter of 2015.

“Our healthy growth momentum continued in the second quarter. Loan growth was $36.4 million as steady loan demand persisted across our market area, and deposit growth of $49.1 million was generated by our relationship sales and service model,” said Hileman. “This combination kept our balance sheet and net interest margin strong resulting in net interest income rising $1.0 million, or 5.6% over the second quarter last year.”

Non-Interest Income up from Second Quarter 2015

First Defiance’s non-interest income for the second quarter of 2016 was $8.6 million compared with $7.8 million in the second quarter of 2015. The second quarter of 2016 included gains of $227,000 from the sale of securities, compared to no gains or losses in the second quarter of 2015.

Mortgage banking income was $1.8 million in the second quarter of 2016, even with $1.8 million in the second quarter of 2015. Mortgage originations totaled $76.0 million in the second quarter of 2016, up seasonally from the first quarter of 2016 but down slightly from $76.9 million in the same quarter last year. Gains from the sale of mortgage loans increased in the second quarter of 2016 to $1.4 million from $1.2 million in the second quarter of 2015. Mortgage loan servicing revenue was $876,000 in the second quarter of 2016, up slightly from $852,000 in the second quarter of 2015. First Defiance had a negative change in the valuation adjustment in mortgage servicing assets of $104,000 in the second quarter of 2016 compared with a positive adjustment of $141,000 in the second quarter of 2015. In addition, gains on the sale of non-mortgages, which include SBA and FSA loans, totaled $411,000 in the second quarter 2016 compared to $197,000 in the second quarter 2015.

For the second quarter of 2016, commissions from the sale of insurance products was $2.5 million, up from $2.3 million in the second quarter of 2015; and service fees and other charges were $2.8 million in the second quarter of 2016, up from $2.7 million in the second quarter of 2015. Trust income was $409,000 in the second quarter of 2016, up 11.4% from $367,000 in the second quarter of 2015.

“Non-interest income growth this quarter included contributions from all major business lines with mortgage banking, service fees, insurance commissions and trust income all reflecting solid increases in core revenues over the second quarter last year,” continued Hileman. “Total non-interest income, excluding securities gains, rose 6.9% over this same period in the prior year.”

Non-Interest Expenses up from Second Quarter 2015

Total non-interest expense was $17.3 million in the second quarter of 2016, an increase from $16.8 million in the second quarter of 2015. Compensation and benefits increased to $9.8 million in the second quarter of 2016, compared to $9.2 million in the second quarter of 2015. The increase in compensation and benefits from a year ago is mainly related to merit increases, staff additions to support growth strategies and higher medical insurance costs. Occupancy expense was $1.8 million and data processing costs were $1.6 million, both even with the second quarter of 2015. Other non-interest expense of $3.2 million in the second quarter of 2016 was down from $3.3 million in the second quarter of 2015, primarily due to OREO write-downs of $182,000 in the second quarter of 2015 compared to none in the second quarter of 2016.

Credit Quality

Non-performing loans totaled $16.4 million at June 30, 2016, a decrease from $16.7 million at June 30, 2015. In addition, First Defiance had $1.1 million of real estate owned at June 30, 2016 compared to $5.4 million at June 30, 2015. Accruing troubled debt restructured loans were $9.6 million at June 30, 2016 compared with $22.2 million at June 30, 2015. For the second quarter of 2016, First Defiance recorded net recoveries of $227,000, compared to net recoveries of $82,000 in the second quarter of 2015. The allowance for loan loss as a percentage of total loans was 1.39% at June 30, 2016 compared with 1.49% at June 30, 2015.

The second quarter 2016 results include a provision for loan losses of $53,000 compared with no provision expense for the same period in 2015.

“We are pleased that our credit quality continues to strengthen as we grow our loan portfolio,” said Hileman. “Our total non-performing assets declined in the second quarter to 0.73% of total assets and reflect a 20.8% decrease from a year ago. In addition, our allowance for loan losses coverage of our non-performing loans now stands at 158.0%.”

Year-To-Date Results

For the six-month period ended June 30, 2016, net income totaled $14.4 million, or $1.59 per diluted common share, compared to $13.2 million, or $1.39 per diluted common share for the six months ended June 30, 2015.

The year-to-date net income for 2016 includes the second quarter adoption of ASU 2016-09, Improvements to Employee Share-based Payment Accounting. As a result of adoption, the first quarter 2016 net income was restated to reflect a $99,000 reduction to tax expense, which increased first quarter of 2016 net income by $99,000, or $0.01 per diluted common share.

Net interest income was $38.6 million for the first six months of 2016 compared with $36.6 million in the first six months of 2015. Average interest-earning assets increased to $2.126 billion in the first six months of 2016, compared to $1.975 billion in the first six months of 2015. Net interest margin for the first six months of 2016 was 3.75%, down 9 basis points from the 3.84% margin reported in the six month period ended June 30, 2015.

The provision for loan losses in the first six months of 2016 was $417,000, compared to $120,000 recorded during the first six months of 2015.

Non-interest income for the first six months of 2016 was $17.2 million, compared to $16.1 million during the same period of 2015. Service fees and other charges were $5.4 million for the first six months of 2016, up from $5.2 million during the same period of 2015. Mortgage banking income decreased to $3.3 million for the first six months of 2016, compared with $3.6 million during the same period of 2015. Insurance commissions rose to $5.6 million for the first six months of 2016, compared with $5.5 million for the same period of 2015. Non-interest income for the first six months of 2016 included $358,000 of gains on the sale of securities compared with no securities gains or losses during the same period of 2015.

Non-interest expense was $34.6 million for the first six months of 2016, up from $33.7 million for the same period of 2015. Compensation and benefits expense was $20.0 million for the first six months of 2016 compared with $18.1 million during the same period of 2015. The increase in compensation and benefits over the prior year is mainly related to merit increases, staff additions to support growth strategies and higher medical insurance costs. Expenses also included an increase in occupancy of $40,000 and decreases in FDIC insurance premiums of $14,000, data processing of $20,000, amortization of intangibles of $75,000 and other expenses of $854,000. The decrease in other expenses was due to $705,000 of OREO write-downs in 2015 compared to only $53,000 in 2016 and lower management consulting costs.

Total Assets at $2.4 Billion

Total assets at June 30, 2016 were $2.41 billion compared to $2.30 billion at December 31, 2015 and $2.20 billion at June 30, 2015. Loans receivable (excluding loans held for sale) were $1.86 billion at June 30, 2016 compared to $1.80 billion at December 31, 2015 and $1.71 billion at June 30, 2015. Total cash and cash equivalents were $130.5 million at June 30, 2016 compared with $79.8 million at December 31, 2015 and $65.6 million at June 30, 2015. Also, at June 30, 2016, goodwill and other intangible assets totaled $63.4 million compared to $63.7 million at December 31, 2015 and $63.5 million at June 30, 2015.

Total deposits at June 30, 2016 were $1.92 billion compared with $1.84 billion at December 31, 2015 and $1.76 billion at June 30, 2015. Non-interest bearing deposits at June 30, 2016 were $442.8 million compared to $420.7 million at December 31, 2015 and $379.0 million at June 30, 2015. Total stockholders’ equity was $286.6 million at June 30, 2016 compared to $280.2 million at December 31, 2015 and $276.0 million at June 30, 2015.

Dividend to be Paid August 26

The Board of Directors declared a quarterly cash dividend of $0.22 per common share payable August 26, 2016 to shareholders of record at the close of business on August 19, 2016. The dividend represents an annual dividend of 2.23 percent based on the First Defiance common stock closing price on July 15, 2016. First Defiance has approximately 8,971,418 common shares outstanding.

Conference Call

First Defiance Financial Corp. will host a conference call at 11:00 a.m. ET on Tuesday, July 19, 2016 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/fdef160719.

Audio replay of the Internet Webcast will be available at www.fdef.com until July 19, 2017 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 Bank operates 34 full-service branches and numerous 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 six 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, 2015. 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, 2016 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)   2016   2015   Assets Cash and cash equivalents Cash and amounts due from depository institutions $ 46,546 $ 38,769 Interest-bearing deposits   84,000     41,000   130,546

 

79,769 Securities

 

Available-for sale, carried at fair value 227,974 236,435 Held-to-maturity, carried at amortized cost   198     243   228,172 236,678   Loans 1,861,403 1,802,217 Allowance for loan losses   (25,948 )   (25,382 ) Loans, net 1,835,455 1,776,835 Loans held for sale 13,142 5,523 Mortgage servicing rights 9,136 9,248 Accrued interest receivable 6,421 6,171 Federal Home Loan Bank stock 13,800 13,801 Bank Owned Life Insurance 52,369 51,908 Office properties and equipment 37,571 38,166 Real estate and other assets held for sale 1,079 1,321 Goodwill 61,798 61,798 Core deposit and other intangibles 1,567 1,871 Other assets   18,543     14,587   Total Assets $ 2,409,599   $ 2,297,676     Liabilities and Stockholders’ Equity Non-interest-bearing deposits $ 442,811 $ 420,691 Interest-bearing deposits   1,477,459     1,415,446   Total deposits 1,920,270 1,836,137 Advances from Federal Home Loan Bank 84,425 59,902 Notes payable and other interest-bearing liabilities 52,989 57,188 Subordinated debentures 36,083 36,083 Advance payments by borrowers for tax and insurance 1,775 2,674 Deferred Taxes 1,885 877 Other liabilities   25,556     24,618   Total Liabilities 2,122,983 2,017,479 Stockholders’ Equity Preferred stock - - Common stock, net 127 127 Common stock warrant - - Additional paid-in-capital 125,877 125,734 Accumulated other comprehensive income 5,020 3,622 Retained earnings 230,132 219,737 Treasury stock, at cost   (74,540 )   (69,023 ) Total stockholders’ equity   286,616     280,197   Total Liabilities and Stockholders’ Equity $ 2,409,599   $ 2,297,676                     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)   2016   2015 2016   2015 Interest Income:     Loans $ 19,666 $ 18,139 $ 38,978 $ 36,026 Investment securities 1,543 1,721 3,173 3,413 Interest-bearing deposits 134 41 183 80 FHLB stock dividends   137   136   276   275 Total interest income 21,480 20,037 42,610 39,794 Interest Expense:

 

Deposits 1,545 1,312 2,978 2,584 FHLB advances and other 321 173 618 283 Subordinated debentures 182 150 357 297 Notes Payable   36   37   73   75 Total interest expense   2,084   1,672   4,026   3,239 Net interest income 19,396 18,365 38,584 36,555 Provision for loan losses   53   -   417   120 Net interest income after provision for loan losses 19,343 18,365 38,167 36,435 Non-interest Income: Service fees and other charges 2,799 2,690 5,443 5,219 Mortgage banking income 1,764 1,793 3,303 3,568 Gain on sale of non-mortgage loans 411 197 456 233 Gain on sale of securities 227 - 358 - Insurance commissions 2,504 2,344 5,640 5,483 Trust income 409 367 836 725 Income from Bank Owned Life Insurance 230 212 461 420 Other non-interest income   231   206   714   443 Total Non-interest Income 8,575 7,809 17,211 16,091 Non-interest Expense: Compensation and benefits 9,770 9,182 19,955 18,105 Occupancy 1,828 1,809 3,613 3,573 FDIC insurance premium 329 319 656 670 Financial institutions tax 447 411 893 893 Data processing 1,641 1,599 3,101 3,121 Amortization of intangibles 147 162 304 379 Other non-interest expense   3,185   3,314   6,099   6,953 Total Non-interest Expense   17,347   16,796   34,621   33,694 Income before income taxes 10,571 9,378 20,757 18,832 Income taxes   3,307   2,815   6,324   5,668 Net Income $ 7,264 $ 6,563 $ 14,433 $ 13,164     Earnings per common share: Basic $ 0.81 $ 0.71 $ 1.61 $ 1.42 Diluted $ 0.80 $ 0.70 $ 1.59 $ 1.39   Average Shares Outstanding: Basic 8,968 9,268 8,981 9,251 Diluted 9,036 9,349 9,050 9,483                           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)   2016   2015   % change   2016   2015   % change Summary of Operations           Tax-equivalent interest income (1) $ 21,940 $ 20,516 6.9 % $ 43,545 $ 40,737 6.9 % Interest expense 2,084 1,672 24.6 4,026 3,239 24.3 Tax-equivalent net interest income (1) 19,856 18,844 5.4 39,519 37,498 5.4 Provision for loan losses 53 - NM 417 120 247.5 Tax-equivalent NII after provision for loan loss (1) 19,803 18,844 5.1 39,102 37,378 4.6 Investment Securities gains 227 - NM 358 - NM Non-interest income (excluding securities gains/losses) 8,348 7,809 6.9 16,853 16,091 4.7 Non-interest expense 17,347 16,796 3.3 34,621 33,694 2.8 Income taxes 3,307 2,815 17.5 6,324 5,668 11.6 Net Income 7,264 6,563 10.7 14,433 13,164 9.6 Tax equivalent adjustment (1)     460       479     (4.0 )     935       943     (0.8 ) At Period End Assets 2,409,599 2,196,510 9.7 Earning assets 2,200,517 1,998,580 10.1 Loans 1,861,403 1,705,716 9.1 Allowance for loan losses 25,948 25,384 2.2 Deposits 1,920,270 1,763,390 8.9 Stockholders’ equity     286,616       276,028     3.8               Average Balances Assets 2,391,064 2,212,603 8.1 2,352,634 2,196,281 7.1 Earning assets 2,162,574 1,991,830 8.6 2,125,573 1,975,146 7.6 Loans 1,828,984 1,673,750 9.3 1,812,592 1,660,404 9.2 Deposits and interest-bearing liabilities 2,079,442 1,909,372 8.9 2,042,429 1,890,622 8.0 Deposits 1,903,139 1,780,912 6.9 1,869,242 1,770,647 5.6 Stockholders’ equity 282,573 274,239 3.0 280,812 277,078 1.3 Stockholders’ equity / assets     11.82 %     12.39 %   (4.7 )     11.94 %     12.62 %   (5.4 ) Per Common Share Data Net Income Basic $ 0.81 $ 0.71 14.1 $ 1.61 $ 1.42 13.4 Diluted 0.80 0.70 14.3 1.59 1.39 14.4 Dividends 0.22 0.20 10.0 0.44 0.375 17.3 Market Value: High $ 41.21 $ 38.21 7.9 $ 41.21 $ 38.21 7.9 Low 37.53 32.42 15.8 34.80 29.05 19.8 Close 38.85 37.53 3.5 38.85 37.53 3.5 Common Book Value 31.95 29.76 7.4 31.95 29.76 7.4 Tangible Common Book Value 24.89 22.91 8.6 24.89 22.91 8.6 Shares outstanding, end of period (000)     8,971       9,275     (3.3 )     8,971       9,275     (3.3 ) Performance Ratios (annualized) Tax-equivalent net interest margin (1) 3.71 % 3.81 % (2.7 ) 3.75 % 3.84 % (2.4 ) Return on average assets 1.22 % 1.19 % 2.7 1.23 % 1.21 % 2.1 Return on average equity 10.34 % 9.60 % 7.7 10.34 % 9.58 % 7.9 Efficiency ratio (2) 61.51 % 63.02 % (2.4 ) 61.42 % 62.87 % (2.3 ) Effective tax rate 31.28 % 30.02 % 4.2 30.47 % 30.10 % 1.2 Dividend payout ratio (basic)     27.16 %     28.17 %   (3.6 )     27.33 %     26.41 %   3.5  

(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)   2016   2015   2016   2015   Gain from sale of mortgage loans $ 1,426 $ 1,246 $ 2,420 $ 2,531 Mortgage loan servicing revenue (expense): Mortgage loan servicing revenue 876 852 1,753 1,727 Amortization of mortgage servicing rights (434 ) (446 ) (745 ) (857 ) Mortgage servicing rights valuation adjustments   (104 )     141     (125 )     167     338       547     883       1,037   Total revenue from sale and servicing of mortgage loans $ 1,764     $ 1,793   $ 3,303     $ 3,568       Yield Analysis First Defiance Financial Corp.   Three Months Ended June 30, (dollars in thousands) 2016   2015 Average     Yield Average     Yield Balance Interest(1) Rate(2) Balance Interest(1) Rate(2) Interest-earning assets: Loans receivable $ 1,828,984 $ 19,716 4.34 % $ 1,673,750 $ 18,186 4.36 % Securities 224,494 1,953 3.62 % 245,539 2,153 3.63 % Interest Bearing Deposits 95,296 134 0.57 % 58,739 41 0.28 % FHLB stock   13,800   137 3.99 %   13,802   136 3.95 % Total interest-earning assets 2,162,574 21,940 4.10 % 1,991,830 20,516 4.15 % Non-interest-earning assets   228,490   220,773 Total assets $ 2,391,064 $ 2,212,603 Deposits and Interest-bearing liabilities: Interest bearing deposits $ 1,463,086 $ 1,545 0.42 % $ 1,397,966 $ 1,312 0.38 % FHLB advances and other 84,506 321 1.53 % 39,578 173 1.75 % Subordinated debentures 36,141 182 2.03 % 36,128 150 1.67 % Notes payable   55,656   36 0.26 %   52,754   37 0.28 % Total interest-bearing liabilities 1,639,389 2,084 0.51 % 1,526,426 1,672 0.44 % Non-interest bearing deposits   440,053   - -   382,946   - - Total including non-interest-bearing demand deposits 2,079,442 2,084 0.40 % 1,909,372 1,672 0.35 % Other non-interest-bearing liabilities   29,049   28,992 Total liabilities 2,108,491 1,938,364 Stockholders' equity   282,573   274,239 Total liabilities and stockholders' equity $ 2,391,064   $ 2,212,603   Net interest income; interest rate spread $ 19,856 3.59 % $ 18,844 3.71 % Net interest margin (3) 3.71 % 3.81 % Average interest-earning assets to average interest bearing liabilities 132 % 130 %   Six Months Ended June 30, 2016 2015 Average Yield Average Yield Balance Interest(1) Rate Balance Interest(1) Rate Interest-earning assets: Loans receivable $ 1,812,592 $ 39,079 4.34 % $ 1,660,404 $ 36,118 4.39 % Securities 229,154 4,007 3.64 % 243,281 4,264 3.65 % Interest Bearing Deposits 70,026 183 0.53 % 57,659 80 0.28 % FHLB stock   13,801   276 4.02 %   13,802   275 4.02 % Total interest-earning assets 2,125,573 43,545 4.13 % 1,975,146 40,737 4.18 % Non-interest-earning assets   227,061   221,135 Total assets $ 2,352,634 $ 2,196,281 Deposits and Interest-bearing liabilities: Interest bearing deposits $ 1,441,783 $ 2,978 0.42 % $ 1,396,114 $ 2,584 0.37 % FHLB advances and other 81,598 618 1.52 % 30,534 283 1.87 % Subordinated debentures 36,140 357 2.00 % 36,129 297 1.66 % Notes payable   55,449   73 0.27 %   53,312   75 0.28 % Total interest-bearing liabilities 1,614,970 4,026 0.50 % 1,516,089 3,239 0.43 % Non-interest bearing deposits   427,459   - -   374,533   - - Total including non-interest-bearing demand deposits 2,042,429 4,026 0.40 % 1,890,622 3,239 0.35 % Other non-interest-bearing liabilities   29,393   28,581 Total liabilities 2,071,822 1,919,203 Stockholders' equity   280,812   277,078 Total liabilities and stockholders' equity $ 2,352,634   $ 2,196,281   Net interest income; interest rate spread $ 39,519 3.63 % $ 37,498 3.75 % Net interest margin (3) 3.75 % 3.84 % Average interest-earning assets to average interest bearing liabilities 132 % 130 %

(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 2016   1st Qtr 2016   4th Qtr 2015   3rd Qtr 2015   2nd Qtr 2015 Summary of Operations Tax-equivalent interest income (1) $ 21,940 $ 21,605 $ 21,256 $ 20,748 $ 20,516 Interest expense 2,084 1,942 1,809 1,733 1,672 Tax-equivalent net interest income (1) 19,856 19,663 19,447 19,015 18,844 Provision for loan losses 53 364 43 (27 ) - Tax-equivalent NII after provision for loan losses (1) 19,803 19,299 19,404 19,042 18,844 Investment securities gains, net of impairment 227 131 22 - - Non-interest income (excluding securities gains/losses) 8,348 8,505 7,708 7,982 7,809 Non-interest expense 17,347 17,274 17,347 16,848 16,796 Income taxes 3,307 3,017 2,744 2,998 2,815 Net income 7,264 7,169 6,563 6,696 6,563 Tax equivalent adjustment (1)     460       475       480       482       479   At Period End Total assets $ 2,409,599 $ 2,358,931 $ 2,297,676 $ 2,228,281 $ 2,196,510 Earning assets 2,200,517 2,158,177 2,099,219 2,030,218 1,998,580 Loans 1,861,403 1,824,986 1,802,217 1,733,538 1,705,716 Allowance for loan losses 25,948 25,668 25,382 25,209 25,384 Deposits 1,920,270 1,871,157 1,836,137 1,793,053 1,763,390 Stockholders’ equity 286,616 280,418 280,197 278,556 276,028 Stockholders’ equity / assets 11.89 % 11.89 % 12.19 % 12.50 % 12.57 % Goodwill     61,798       61,798       61,798       61,798       61,525   Average Balances Total assets $ 2,391,064 $ 2,314,203 $ 2,276,060 $ 2,222,843 $ 2,212,603 Earning assets 2,162,574 2,088,582 2,051,331 2,000,284 1,991,830 Loans 1,828,984 1,796,200 1,732,472 1,696,370 1,673,750 Deposits and interest-bearing liabilities 2,079,442 2,005,395 1,967,199 1,918,587 1,909,372 Deposits 1,903,139 1,835,345 1,823,396 1,786,814 1,780,912 Stockholders’ equity 282,573 279,051 279,192 277,235 274,239 Stockholders’ equity / assets     11.82 %     12.06 %     12.27 %     12.47 %     12.39 % Per Common Share Data Net Income: Basic $ 0.81 $ 0.80 $ 0.72 $ 0.72 $ 0.71 Diluted 0.80 0.79 0.71 0.72 0.70 Dividends 0.22 0.22 0.200 0.200 0.200 Market Value: High $ 41.21 $ 40.98 $ 42.46 $ 39.95 $ 38.21 Low 37.53 34.80 35.01 35.03 32.42 Close 38.85 38.41 37.78 36.56 37.53 Common Book Value 31.95 31.29 30.78 30.37 29.76 Shares outstanding, end of period (in thousands)     8,971       8,961       9,102       9,172       9,275   Performance Ratios (annualized) Tax-equivalent net interest margin (1) 3.71 % 3.80 % 3.77 % 3.78 % 3.81 % Return on average assets 1.22 % 1.25 % 1.14 % 1.20 % 1.19 % Return on average equity 10.34 % 10.33 % 9.33 % 9.58 % 9.60 % Efficiency ratio (2) 61.51 % 61.32 % 63.88 % 62.41 % 63.02 % Effective tax rate 31.28 % 29.62 % 29.48 % 30.93 % 30.02 % Common dividend payout ratio (basic)     27.16 %     27.50 %     27.78 %     27.78 %     28.17 %

(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 2016   1st Qtr 2016   4th Qtr 2015   3rd Qtr 2015   2nd Qtr 2015 Loan Portfolio Composition One to four family residential real estate $ 206,861 $ 208,818 $ 205,330 $ 205,370 $ 205,044 Construction 161,282 145,635 163,877 129,230 140,114 Commercial real estate 1,001,315 989,468 948,428 922,207 885,125 Commercial 428,599 412,911 419,349 402,681 401,247 Consumer finance 16,690 15,679 16,281 15,774 14,911 Home equity and improvement   116,685       116,856       116,962       113,781       109,694   Total loans 1,931,432 1,889,367 1,870,227 1,789,043 1,756,135 Less: Undisbursed loan funds 68,850 63,267 66,902 54,484 49,477 Deferred loan origination fees 1,179 1,114 1,108 1,021 942 Allowance for loan loss   25,948       25,668       25,382       25,209       25,384   Net Loans $ 1,835,455     $ 1,799,318     $ 1,776,835     $ 1,708,329     $ 1,680,332                         Allowance for loan loss activity Beginning allowance $ 25,668 $ 25,382 $ 25,209 $ 25,384 $ 25,302 Provision for loan losses 53 364 43 (27 ) - Credit loss charge-offs: One to four family residential real estate 37 55 8 185 11 Commercial real estate 0 13 103 64 146 Commercial 18 336 0 43 23 Consumer finance 18 0 32 5 13 Home equity and improvement   66       30       10       110       187   Total charge-offs 139 434 153 407 380 Total recoveries   366       356       282       259       462   Net charge-offs (recoveries)   (227 )     78       (129 )     148       (82 ) Ending allowance $ 25,948     $ 25,668     $ 25,382     $ 25,209     $ 25,384                         Credit Quality Total non-performing loans (1) $ 16,423 $ 17,707 $ 16,261 $ 16,612 $ 16,737 Real estate owned (REO)   1,079       1,111       1,321       4,936       5,371   Total non-performing assets (2) $ 17,502     $ 18,818     $ 17,582     $ 21,548     $ 22,108   Net charge-offs (recoveries) (227 ) 78 (129 ) 148 (82 )   Restructured loans, accruing (3) 9,648 11,284 11,178 13,786 22,234   Allowance for loan losses / loans 1.39 % 1.41 % 1.41 % 1.45 % 1.49 % Allowance for loan losses / non-performing assets 148.26 % 136.40 % 144.36 % 116.99 % 114.82 % Allowance for loan losses / non-performing loans 158.00 % 144.96 % 156.09 % 151.75 % 151.66 % Non-performing assets / loans plus REO 0.94 % 1.03 % 0.97 % 1.24 % 1.29 % Non-performing assets / total assets 0.73 % 0.80 % 0.77 % 0.97 % 1.01 % Net charge-offs / average loans (annualized) -0.05 % 0.02 % -0.03 % 0.03 % -0.02 %                       Deposit Balances Non-interest-bearing demand deposits $ 442,811 $ 426,053 $ 420,691 $ 392,103 $ 378,970 Interest-bearing demand deposits and money market 805,550 783,016 767,201 745,233 722,813 Savings deposits 240,316 233,546 219,655 216,613 218,055 Retail time deposits less than $100,000 277,904 279,376 278,707 282,331 284,471 Retail time deposits greater than $100,000   153,689       149,166       149,883       156,773       159,081   Total deposits $ 1,920,270     $ 1,871,157     $ 1,836,137     $ 1,793,053     $ 1,763,390  

(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, 2016                 One to four family residential real estate $ 206,861 $ 203,534 $ 619 $ 2,708 Construction 161,282 161,282 - - Commercial real estate 1,001,315 988,342 2,174 10,799 Commercial 428,599 424,107 2,269 2,223 Consumer finance 16,690 16,629 45 16 Home equity and improvement   116,685     115,376     632     677 Total loans $ 1,931,432   $ 1,909,270   $ 5,739   $ 16,423   December 31, 2015                 One to four family residential real estate $ 205,330 $ 201,806 $ 914 $ 2,610 Construction 163,877 163,877 - - Commercial real estate 948,428 937,844 736 9,848 Commercial 419,349 416,114 157 3,078 Consumer finance 16,281 16,215 30 36 Home equity and improvement   116,962     115,465     808     689 Total loans $ 1,870,227   $ 1,851,321   $ 2,645   $ 16,261   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  

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