FDEF First Defiance Financial Corporation

• Earnings per share of $0.54 for 2017 first quarter, after merger related costs of $0.27 per share
• Net income of $5.1 million for 2017 first quarter, after merger related costs of $2.5 million after tax
• Net interest margin of 3.81% for the 2017 first quarter, compared to 3.80% in the first quarter of 2016
• Loan growth $298.5 million during the 2017 first quarter, including $285.7 million from acquisition
• Deposit growth $392.2 million during the 2017 first quarter, including $308.0 million from acquisition
• Non-performing assets to total assets down to 0.54% at 2017 first quarter-end from 0.80% at 2016 first quarter-end

First Defiance Financial Corp. (NASDAQ: FDEF) announced today that earnings for the first quarter of 2017 were $5.1 million, or $0.54 per diluted common share, which included the acquisition and operations of Commercial Bancshares, Inc. and its banking subsidiary, Commercial Savings Bank (collectively “CSB”), at February 24, 2017. These results included merger and conversion expenses related to the acquisition of $3.6 million, which had an after tax impact of $2.5 million, or $0.27 per diluted share.

In addition, first quarter 2017 results reflected the impact of the purchase of a bank owned life insurance policy including a tax-free value enhancement gain of $1.5 million and the surrender of a bank owned life insurance policy which added $1.7 million to income tax expense. Together, these transactions reduced net income approximately $0.2 million, or $0.02 per diluted share.

For the comparable period last year, net income was $7.2 million, or $0.79 per diluted share.

“We are very pleased with our strong operating performance for the first quarter and our successful completion of the merger and integration of CSB late in the quarter,” said Donald P. Hileman, President and Chief Executive Officer of First Defiance Financial Corp. “While the inclusion of CSB’s financials in the current quarter’s results impacts comparison of the quarter’s operating results, we were encouraged by our organic loan and deposit growth and the continued strength of our net interest margin. We look forward to building relationships in our new markets and realizing the benefits from merger in our future results.”

Net interest income up compared to first quarter 2016

Net interest income of $21.6 million in the first quarter of 2017 was up from $19.2 million in the first quarter of 2016. Net interest income grew $2.5 million over the prior year’s first quarter including approximately $945,000 from the acquisition of CSB completed during the first quarter 2017. Net interest margin was 3.81% for the first quarter of 2017, up from 3.76% in the fourth quarter of 2016, and up from 3.80% in the first quarter of 2016. Yield on interest earning assets were up slightly at 4.22% in the first quarter of 2017 compared to 4.18% in the first quarter of 2016. The cost of interest-bearing liabilities increased by 5 basis points in the first quarter of 2017 to 0.54% from 0.49% in the first quarter of 2016.

“The acquisition of CSB, particularly with its profitable earning asset mix and low cost deposit funding, supplemented our balance sheet very nicely as net interest income rose 12.8% over the first quarter last year,” said Hileman. “Our net interest margin showed improvement in the first quarter with the rise in interest rates and remains well positioned for future rate movements.”

Non-interest income up from first quarter 2016

First Defiance’s non-interest income for the first quarter of 2017 was $10.5 million compared with $8.6 million in the first quarter of 2016. The first quarter 2017 included a $1.5 million enhancement value gain related to the purchase of bank owned life insurance, while the first quarter 2016 included net securities gains of $131,000 and net gains on the sale of OREO of $317,000.

Mortgage banking income increased to $1.7 million in the first quarter of 2017, up from $1.5 million in the first quarter of 2016, mostly due to higher mortgage volumes this year compared to a year ago. Gains from the sale of mortgage loans increased in the first quarter of 2017 to $1.1 million from $1.0 million in the first quarter of 2016. Mortgage loan servicing revenue was $934,000 in the first quarter of 2017, up slightly from $877,000 in the first quarter of 2016. First Defiance had a positive change in the valuation adjustment in mortgage servicing assets of $33,000 in the first quarter of 2017 compared with a negative adjustment of $21,000 in the first quarter of 2016.

For the first quarter 2017, service fees and other charges were $2.8 million, up from $2.6 million in the first quarter of 2016; and commissions from the sale of insurance products were $3.5 million, up from $3.1 million in the first quarter of 2016. The first quarter typically includes contingent revenues, bonuses paid by insurance carriers when the Company achieves certain loss ratios or growth targets. In the first quarter of 2017, First Defiance’s insurance subsidiary, First Insurance Group, earned $1.2 million of contingent income, compared to $799,000 during the first quarter of 2016. Trust income was $450,000 in the first quarter of 2017, up from $427,000 in the first quarter of 2016.

“First quarter total non-interest income was up significantly from a year ago due to growth in all of our key business lines plus an enhancement to our bank-owned life insurance revenues,” said Hileman. “Increases in service fees, mortgage banking, insurance commissions and trust income all contributed to our improvement this quarter.”

Non-interest expenses up from first quarter 2016

Total non-interest expense was $23.1 million in the first quarter of 2017, up $5.8 million from $17.3 million in the first quarter of 2016. The first quarter 2017 included expenses of $3.6 million related to the CSB merger and conversion. The remainder of the increase was mostly due to the operating costs for CSB from February 24 to the end of the quarter. Compensation and benefits increased to $14.3 million in the first quarter of 2017 compared to $10.2 million in the first quarter of 2016. The increase in compensation and benefits from a year ago is mainly due to $2.8 million of merger costs to settle employment and benefit agreements and for personnel expenses related to operating the new CSB locations. Data processing cost was $1.9 million in the first quarter of 2017, up $479,000 from the first quarter of 2016 and included $124,000 of CSB merger and conversion related costs. Other non-interest expense of $4.0 million in the first quarter of 2017 increased $1.1 million from the first quarter of 2016 and included $667,000 of CSB merger and conversion related costs.

Credit quality

Non-performing loans totaled $15.1 million at March 31, 2017, a decrease from $17.7 million at March 31, 2016. In addition, First Defiance had $705,000 of OREO at March 31, 2017, compared to $1.1 million at March 31, 2016. Accruing troubled debt restructured loans were $9.8 million at March 31, 2017, compared with $11.3 million at March 31, 2016.

The allowance for loan loss as a percentage of total loans was 1.15% at March 31, 2017 compared with 1.41% at March 31, 2016. The decrease in the allowance for loan loss as a percentage of total loans was primarily attributable to the CSB acquisition. The CSB loans acquired were recorded at fair value with purchase accounting adjustment discounting the loan balance instead of an allowance for loan losses. Excluding the loans acquired from CSB the allowance for loan loss as a percentage of loans would be 1.32% at March 31, 2017. For the CSB loans acquired the discount recorded totaled $5.1 million, or 1.8% of total CSB loans at acquisition.

The first quarter 2017 results include a provision for loan losses of $55,000 compared with $364,000 for the same period in 2016, while net charge-offs totaled $190,000 in the current quarter in comparison to net charge-offs of $78,000 in the first quarter of 2016.

“Asset quality remained steady and strong in the first quarter,” said Hileman. “While the accounting rules for the acquisition affect some of our key asset quality measures, the Commercial Savings Bank loan portfolio had many similarities to ours and we are very confident in our credit strength as we pursue our growth strategies going forward.”

Total assets at $2.9 billion

Total assets at March 31, 2017, were $2.93 billion compared to $2.48 billion at December 31, 2016 and $2.36 billion at March 31, 2016. The increase in the current quarter is primarily due to the acquisition of CSB effective February 24, 2017, which added $369.5 million to total assets, net of $12.3 million paid in cash, at consummation.

Net loans receivable (excluding loans held for sale) were $2.21 billion at March 31, 2017, compared to $1.91 billion at December 31, 2016, and $1.80 billion at March 31, 2016. In the current quarter, the acquisition of CSB added $285.7 million to the loan portfolio. At March 31, 2017, excluding the CSB acquired loans, net loans receivable grew $128.1 million, or 7.1% from a year ago.

Also, at March 31, 2017, goodwill and other intangible assets totaled $97.1 million compared to $63.1 million at December 31, 2016 and $63.5 million at March 31, 2016. The increase in the current quarter was attributable to the acquisition of CSB which added $34.2 million to goodwill and intangibles.

Total deposits at March 31, 2017 were $2.37 billion compared with $1.98 billion at December 31, 2016, and $1.87 billion at March 31, 2016. In the current quarter, the acquisition of CSB added $308.0 million to total deposits. At March 31, 2017, excluding the CSB acquired deposits, total deposits grew $194.6 million, or 10.4% from a year ago.

Total stockholders’ equity was $354.2 million at March 31, 2017, compared to $293.0 million at December 31, 2016, and $280.4 million at March 31, 2016. The acquisition of CSB during the current quarter added $56.5 million to total equity.

Acquisition of Corporate One Benefits Agency, Inc.

On April 13, 2017, First Defiance and Corporate One Benefits Agency, Inc. (“Corporate One”) jointly announced the signing of an agreement under which First Defiance acquired the business of Corporate One. Corporate One will be part of First Defiance’s subsidiary insurance agency, First Insurance Group.

Corporate One is a full-service employee benefits consulting organization founded in 1996 with offices located in Archbold, Findlay, Fostoria and Tiffin, Ohio. Corporate One consults employers to better manage their employee benefit programs to effectively lead them into the future. The transaction will enhance employee benefit offerings and expand First Insurance Group’s presence into adjacent markets in northwest Ohio.

Dividend to be paid May 26

The Board of Directors declared a quarterly cash dividend of $0.25 per common share payable May 26, 2017, to shareholders of record at the close of business on May 19, 2017. The dividend represents an annual dividend of 2.00 percent based on the First Defiance common stock closing price on April 14, 2017. First Defiance has approximately 10,145,303 common shares outstanding.

Conference call

First Defiance Financial Corp. will host a conference call at 11:00 a.m. ET on Tuesday, April 18, 2017, 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/fdef170418.html.

The replay of the conference call Webcast will be available at www.fdef.com until April 18, 2018, 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 43 full-service branches and numerous ATM locations in northwest and central Ohio, southeast Michigan and northeast Indiana. First Insurance Group is a full-service insurance agency with six offices throughout northwest Ohio.

For more information, visit the company’s website 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, 2016. 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 March 31, 2017 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.     March 31, December 31, (in thousands)   2017   2016   Assets Cash and cash equivalents Cash and amounts due from depository institutions $ 53,998 $ 53,003 Interest-bearing deposits   116,000     46,000   169,998

 

99,003 Securities

 

Available-for sale, carried at fair value 260,601 250,992 Held-to-maturity, carried at amortized cost   771     184   261,372 251,176   Loans 2,238,864 1,940,487 Allowance for loan losses   (25,749 )   (25,884 ) Loans, net 2,213,115 1,914,603 Loans held for sale 7,955 9,607 Mortgage servicing rights 9,672 9,595 Accrued interest receivable 8,872 6,760 Federal Home Loan Bank stock 15,992 13,798 Bank Owned Life Insurance 64,968 52,817 Office properties and equipment 42,824 36,958 Real estate and other assets held for sale 705 455 Goodwill 88,589 61,798 Core deposit and other intangibles 8,498 1,336 Deferred Taxes 823 2,212 Other assets   36,091     17,479   Total Assets $ 2,929,474   $ 2,477,597     Liabilities and Stockholders’ Equity Non-interest-bearing deposits $ 579,943 $ 487,663 Interest-bearing deposits   1,793,846     1,493,965   Total deposits 2,373,789 1,981,628 Advances from Federal Home Loan Bank 105,104 103,943 Notes payable and other interest-bearing liabilities 24,891 31,816 Subordinated debentures 36,083 36,083 Advance payments by borrowers for tax and insurance 1,840 2,650 Deferred taxes - - Other liabilities   33,576     28,459   Total Liabilities 2,575,283 2,184,579 Stockholders’ Equity Preferred stock - - Common stock, net 127 127 Additional paid-in-capital 160,397 126,390 Accumulated other comprehensive income 1,242 215 Retained earnings 243,446 240,592 Treasury stock, at cost   (51,021 )   (74,306 ) Total stockholders’ equity   354,191     293,018   Total Liabilities and Stockholders’ Equity $ 2,929,474   $ 2,477,597     Consolidated Statements of Income (Unaudited) First Defiance Financial Corp.   Three Months Ended March 31, (in thousands, except per share amounts)   2017   2016 Interest Income:   Loans $ 21,969 $ 19,312 Investment securities 1,756 1,630 Interest-bearing deposits 145 49 FHLB stock dividends   166   139 Total interest income 24,036 21,130 Interest Expense:

 

Deposits 1,796 1,433 FHLB advances and other 366 297 Subordinated debentures 215 175 Notes Payable   14   37 Total interest expense   2,391   1,942 Net interest income 21,645 19,188 Provision for loan losses   55   364 Net interest income after provision for loan losses 21,590 18,824 Non-interest Income: Service fees and other charges 2,760 2,644 Mortgage banking income 1,738 1,539 Gain on sale of non-mortgage loans - 45 Gain on sale of securities - 131 Insurance commissions 3,457 3,136 Trust income 450 427 Income from Bank Owned Life Insurance 1,823 231 Other non-interest income   321   483 Total Non-interest Income 10,549 8,636 Non-interest Expense: Compensation and benefits 14,335 10,185 Occupancy 1,837 1,785 FDIC insurance premium 290 327 Financial institutions tax 480 446 Data processing 1,939 1,460 Amortization of intangibles 232 157 Other non-interest expense   4,029   2,914 Total Non-interest Expense   23,142   17,274 Income before income taxes 8,997 10,186 Income taxes   3,857   3,017 Net Income $ 5,140 $ 7,169     Earnings per common share: Basic $ 0.54 $ 0.80 Diluted $ 0.54 $ 0.79   Average Shares Outstanding: Basic 9,435 8,994 Diluted 9,490 9,064   Financial Summary and Comparison (Unaudited) First Defiance Financial Corp.   Three Months Ended

March 31,

(dollars in thousands, except per share data)   2017   2016   % change Summary of Operations       Tax-equivalent interest income (1) $ 24,505 $ 21,605 13.4 % Interest expense 2,391 1,942 23.1 Tax-equivalent net interest income (1) 22,114 19,663 12.5 Provision for loan losses 55 364 NM Tax-equivalent NII after provision for loan loss (1) 22,059 19,299 14.3 Investment Securities gains - 131 NM Non-interest income (excluding securities gains/losses) 10,549 8,505 24.0 Non-interest expense 23,142 17,274 34.0 Income taxes 3,857 3,017 27.8 Net Income 5,140 7,169 (28.3 ) Tax equivalent adjustment (1)     469       475     (1.3 ) At Period End Assets 2,929,474 2,358,931 24.2 Earning assets 2,640,183 2,158,177 22.3 Loans 2,238,864 1,824,986 22.7 Allowance for loan losses 25,749 25,668 0.3 Deposits 2,373,789 1,871,157 26.9 Stockholders’ equity     354,191       280,418     26.3   Average Balances Assets 2,622,402 2,314,203 13.3 Earning assets 2,355,544 2,088,582 12.8 Loans 2,026,067 1,796,200 12.8 Deposits and interest-bearing liabilities 2,275,724 2,005,395 13.5 Deposits 2,109,637 1,835,345 14.9 Stockholders’ equity 314,442 279,051 12.7 Stockholders’ equity / assets     11.99 %     12.06 %   (0.6 ) Per Common Share Data Net Income Basic $ 0.54 $ 0.80 (32.5 ) Diluted 0.54 0.79 (31.6 ) Dividends 0.25 0.22 13.6 Market Value: High $ 51.15 $ 40.98 24.8 Low 46.27 34.80 33.0 Close 49.51 38.41 28.9 Common Book Value 34.92 31.29 11.6 Tangible Common Book Value (1) 25.35 24.21 4.7 Shares outstanding, end of period (000)     10,143       8,961     13.2   Performance Ratios (annualized) Tax-equivalent net interest margin (2) 3.81 % 3.80 % 0.3 Return on average assets 0.79 % 1.25 % (36.2 ) Return on average equity 6.63 % 10.33 % (35.8 ) Efficiency ratio (3) 70.85 % 61.32 % 15.5 Effective tax rate 42.87 % 29.62 % 44.7 Dividend payout ratio (basic)     46.30 %     27.50 %   68.4    

(1)

 

Tangible common book value = total stockholders' equity less the sum of goodwill, core deposit and other intangibles, and preferred stock divided by shares outstanding at the end of the period.

(2)

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%

(3)

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

March 31,

(dollars in thousands)   2017   2016   Gain from sale of mortgage loans $ 1,083 $ 994 Mortgage loan servicing revenue (expense): Mortgage loan servicing revenue 934 877 Amortization of mortgage servicing rights (312 ) (311 ) Mortgage servicing rights valuation adjustments   33       (21 )   655       545   Total revenue from sale and servicing of mortgage loans $ 1,738     $ 1,539     Yield Analysis First Defiance Financial Corp.   Three Months Ended March 31, (dollars in thousands) 2017 2016 Average     Yield Average     Yield Balance Interest(1) Rate(2) Balance Interest(1) Rate(2) Interest-earning assets: Loans receivable $ 2,026,067 $ 22,020 4.41 % $ 1,796,200 $ 19,363 4.34 % Securities 254,842 2,174 3.48 % (3) 233,815 2,054 3.65 % (3) Interest Bearing Deposits 60,083 145 0.98 % 44,766 49 0.44 % FHLB stock   14,552   166 4.63 %   13,801   139 4.05 % Total interest-earning assets 2,355,544 24,505 4.22 % 2,088,582 21,605 4.18 % Non-interest-earning assets   266,858   225,621 Total assets $ 2,622,402 $ 2,314,203 Deposits and Interest-bearing liabilities: Interest bearing deposits $ 1,626,742 $ 1,796 0.45 % $ 1,420,479 $ 1,433 0.41 % FHLB advances and other 104,277 366 1.42 % 78,670 297 1.52 % Subordinated debentures 36,150 215 2.41 % 36,137 175 1.95 % Notes payable   25,660   14 0.22 %   55,243   37 0.27 % Total interest-bearing liabilities 1,792,829 2,391 0.54 % 1,590,529 1,942 0.49 % Non-interest bearing deposits   482,895   - -   414,866   - - Total including non-interest-bearing demand deposits 2,275,724 2,391 0.43 % 2,005,395 1,942 0.39 % Other non-interest-bearing liabilities   32,236   29,757 Total liabilities 2,307,960 2,035,152 Stockholders' equity   314,442   279,051 Total liabilities and stockholders' equity $ 2,622,402   $ 2,314,203   Net interest income; interest rate spread $ 22,114 3.68 % $ 19,663 3.69 % Net interest margin (4) 3.81 % 3.80 % Average interest-earning assets to average interest bearing liabilities 131 % 131 %  

(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)

Securities yield = annualized interest income divided by the average balance of securities, excluding average unrealized gains/losses.

(4)

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)   1st Qtr 2017   4th Qtr 2016   3rd Qtr 2016   2nd Qtr 2016   1st Qtr 2016 Summary of Operations Tax-equivalent interest income (1) $ 24,505 $ 23,219 $ 22,449 $ 21,940 $ 21,605 Interest expense 2,391 2,231 2,183 2,084 1,942 Tax-equivalent net interest income (1) 22,114 20,988 20,266 19,856 19,663 Provision for loan losses 55 (149 ) 15 53 364 Tax-equivalent NII after provision for loan losses (1) 22,059 21,137 20,251 19,803 19,299 Investment securities gains, net of impairment - - 151 227 131 Non-interest income (excluding securities gains/losses) 10,549 8,293 8,375 8,348 8,505 Non-interest expense 23,142 18,180 18,292 17,347 17,274 Income taxes 3,857 3,436 2,994 3,307 3,017 Net income 5,140 7,365 7,045 7,264 7,169 Tax equivalent adjustment (1)     469       449       446       460       475   At Period End Total assets $ 2,929,474 $ 2,477,151 $ 2,450,040 $ 2,409,599 $ 2,358,931 Earning assets 2,640,183 2,261,068 2,240,747 2,200,517 2,158,177 Loans 2,238,864 1,940,487 1,925,694 1,861,403 1,824,986 Allowance for loan losses 25,749 25,884 25,923 25,948 25,668 Deposits 2,373,789 1,981,628 1,927,686 1,920,270 1,871,157 Stockholders’ equity 354,191 293,018 292,138 286,616 280,418 Stockholders’ equity / assets 12.09 % 11.83 % 11.92 % 11.89 % 11.89 % Goodwill     88,589       61,798       61,798       61,798       61,798   Average Balances Total assets $ 2,622,402 $ 2,458,952 $ 2,425,535 $ 2,391,064 $ 2,314,203 Earning assets 2,355,544 2,226,868 2,194,170 2,162,574 2,088,582 Loans 2,026,067 1,908,731 1,879,760 1,828,984 1,796,200 Deposits and interest-bearing liabilities 2,275,724 2,133,868 2,103,054 2,079,442 2,005,395 Deposits 2,109,637 1,954,631 1,929,368 1,903,139 1,835,345 Stockholders’ equity 314,442 292,301 288,609 282,573 279,051 Stockholders’ equity / assets     11.99 %     11.89 %     11.90 %     11.82 %     12.06 % Per Common Share Data Net Income: Basic $ 0.54 $ 0.82 $ 0.78 $ 0.81 $ 0.80 Diluted 0.54 0.81 0.78 0.80 0.79 Dividends 0.25 0.22 0.22 0.22 0.22 Market Value: High $ 51.15 $ 52.31 $ 46.83 $ 41.21 $ 40.98 Low 46.27 36.91 35.90 37.53 34.80 Close 49.51 50.74 44.64 38.85 38.41 Common Book Value 34.92 32.62 32.53 31.95 31.29 Shares outstanding, end of period (in thousands)     10,143       8,983       8,980       8,971       8,961   Performance Ratios (annualized) Tax-equivalent net interest margin (1) 3.81 % 3.76 % 3.69 % 3.71 % 3.80 % Return on average assets 0.79 % 1.19 % 1.16 % 1.22 % 1.25 % Return on average equity 6.63 % 10.02 % 9.71 % 10.34 % 10.33 % Efficiency ratio (2) 70.85 % 62.09 % 63.87 % 61.51 % 61.32 % Effective tax rate 42.87 % 31.81 % 29.82 % 31.28 % 29.62 % Common dividend payout ratio (basic)     46.30 %     26.83 %     28.21 %     27.16 %     27.50 %  

(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)   1st Qtr 2017   4th Qtr 2016   3rd Qtr 2016   2nd Qtr 2016   1st Qtr 2016 Loan Portfolio Composition One to four family residential real estate $ 276,931 $ 207,550 $ 209,097 $ 206,861 $ 208,818 Construction 199,724 182,886 177,075 161,282 145,635 Commercial real estate 1,193,906 1,040,562 1,043,820 1,001,315 989,468 Commercial 504,366 469,055 456,099 428,599 412,911 Consumer finance 27,696 16,680 17,251 16,690 15,679 Home equity and improvement   132,965       118,429       118,165       116,685       116,856   Total loans 2,335,588 2,035,162 2,021,507 1,931,432 1,889,367 Less: Undisbursed loan funds 95,460 93,355 94,552 68,850 63,267 Deferred loan origination fees 1,264 1,320 1,261 1,179 1,114 Allowance for loan loss   25,749       25,884       25,923       25,948       25,668   Net Loans $ 2,213,115     $ 1,914,603     $ 1,899,771     $ 1,835,455     $ 1,799,318                         Allowance for loan loss activity Beginning allowance $ 25,884 $ 25,923 $ 25,948 $ 25,668 $ 25,382 Provision for loan losses 55 (149 ) 15 53 364 Credit loss charge-offs: One to four family residential real estate 49 147 111 37 55 Commercial real estate 290 0 79 0 13 Commercial - 234 26 18 336 Consumer finance 71 53 24 18 0 Home equity and improvement   54       98       74       66       30   Total charge-offs 464 532 314 139 434 Total recoveries   274       642       274       366       356   Net charge-offs (recoveries)   190       (110 )     40       (227 )     78   Ending allowance $ 25,749     $ 25,884     $ 25,923     $ 25,948     $ 25,668                         Credit Quality Total non-performing loans (1) $ 15,074 $ 14,348 $ 18,198 $ 16,423 $ 17,707 Real estate owned (REO)   705       455       704       1,079       1,111   Total non-performing assets (2) $ 15,779     $ 14,803     $ 18,902     $ 17,502     $ 18,818   Net charge-offs (recoveries) 190 (110 ) 40 (227 ) 78   Restructured loans, accruing (3) 9,814 10,544 9,113 9,648 11,284   Allowance for loan losses / loans 1.15 % 1.33 % 1.35 % 1.39 % 1.41 % Allowance for loan losses / non-performing assets 163.19 % 174.86 % 137.14 % 148.26 % 136.40 % Allowance for loan losses / non-performing loans 170.82 % 180.40 % 142.45 % 158.00 % 144.96 % Non-performing assets / loans plus REO 0.70 % 0.76 % 0.98 % 0.94 % 1.03 % Non-performing assets / total assets 0.54 % 0.60 % 0.77 % 0.73 % 0.80 % Net charge-offs / average loans (annualized) 0.04 % -0.02 % 0.01 % -0.05 % 0.02 %                       Deposit Balances Non-interest-bearing demand deposits $ 579,943 $ 487,663 $ 443,321 $ 442,811 $ 426,053 Interest-bearing demand deposits and money market 973,459 816,665 810,393 805,550 783,016 Savings deposits 288,498 243,369 241,016 240,316 233,546 Retail time deposits less than $250,000 490,953 400,080 399,749 399,494 401,350 Retail time deposits greater than $250,000   40,936       33,851       33,207       32,099       27,192   Total deposits $ 2,373,789     $ 1,981,628     $ 1,927,686     $ 1,920,270     $ 1,871,157    

(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

  March 31, 2017                 One to four family residential real estate $ 276,931 $ 273,133 $ 1,039 $ 2,759 Construction 199,724 199,724 - - Commercial real estate 1,193,906 1,182,836 1,221 9,849 Commercial 504,366 501,193 1,684 1,489 Consumer finance 27,696 27,360 234 102 Home equity and improvement   132,965     131,873     217     875 Total loans $ 2,335,588   $ 2,316,119   $ 4,395   $ 15,074   December 31, 2016                 One to four family residential real estate $ 207,550 $ 203,624 $ 998 $ 2,928 Construction 182,886 182,886 - - Commercial real estate 1,040,562 1,030,833 137 9,592 Commercial 469,055 468,038 10 1,007 Consumer finance 16,680 16,438 151 91 Home equity and improvement   118,429     116,439     1,260     730 Total loans $ 2,035,162   $ 2,018,258   $ 2,556   $ 14,348   March 31, 2016                 One to four family residential real estate $ 208,818 $ 205,334 $ 354 $ 3,130 Construction 145,635 145,635 - - Commercial real estate 989,468 977,895 1,229 10,344 Commercial 412,911 409,232 128 3,551 Consumer finance 15,679 15,623 47 9 Home equity and improvement   116,856     115,324     859     673 Total loans $ 1,889,367   $ 1,869,043   $ 2,617   $ 17,707

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