First Defiance Financial Corp. Announces 2017 Third Quarter Earnings

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Business Wire 16-Oct-2017 5:30 PM
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Diluted earnings per share of $0.92 for 2017 third quarter, up from $0.78 in the 2016 third quarter
Net income of $9.4 million for 2017 third quarter, up from $7.0 million in the 2016 third quarter
Return on average assets of 1.28% for the 2017 third quarter, up from 1.16% in the 2016 third quarter
Net interest margin of 3.91% for the 2017 third quarter, up from 3.69% in the 2016 third quarter
Loan growth of $21.6 million during 2017 third quarter
Deposit growth of $34.0 million during the 2017 third quarter
Non-performing assets of $29.7 million for 2017 third quarter, compared to $18.9 million for 2016 third quarter
DEFIANCE, Ohio--(BUSINESS WIRE)-- First Defiance Financial Corp. (NASDAQ: FDEF) announced today that net income for the third quarter ended September 30, 2017, totaled $9.4 million, or $0.92 per diluted common share compared to $7.0 million or $0.78 per diluted common share for the quarter ended September 30, 2016. The third quarter 2017 includes the results from the operations of Commercial Bancshares, Inc. and its banking subsidiary Commercial Savings Bank (collectively CSB) following their acquisition on February 24, 2017, and Corporate One Benefits Agency, Inc. (Corporate One) acquired April 1, 2017.
We are very pleased with our strong operating performance in the third quarter, and our outlook continues to be very positive for the remainder of the year, said Donald P. Hileman, President and Chief Executive Officer of First Defiance Financial Corp. Our growth in revenues and improved efficiency generated a return on assets of 1.28% and diluted earnings per share up 17.9% from the third quarter last year.
Net Interest Income up Compared to Third Quarter 2016
Net interest income of $25.0 million in the third quarter of 2017 was up from $19.8 million in the third quarter of 2016. The increase was mostly attributable to a full quarter of operations from the CSB merger. Net interest margin was 3.91% for the third quarter of 2017, up from 3.89% in the second quarter of 2017, and up from 3.69% in the third quarter of 2016. Yield on interest earning assets increased by 29 basis points, to 4.38% in the third quarter of 2017 from 4.09% in the third quarter of 2016. The cost of interest-bearing liabilities increased by 9 basis points in the third quarter of 2017 to 0.61% from 0.52% in the third quarter of 2016.
In the third quarter, our net interest margin stayed very healthy; and improving organic growth trends in both loans and deposits were noted, said Hileman. These factors coupled with the growth from our Commercial Savings Bank merger completed earlier this year, produced a strong increase in our net interest income, which is up 26.2% over the third quarter last year.
Non-Interest Income up from Third Quarter 2016
First Defiances non-interest income for the third quarter of 2017 was $9.5 million compared with $8.5 million in the third quarter of 2016. The increase in total non-interest income was largely due to the inclusion of operations from the CSB and Corporate One mergers completed in 2017. In addition, the third quarter of 2017 included gains of $158,000 from the sale of securities compared to gains of $151,000 in the third quarter of 2016.
Mortgage banking income was $1.7 million in the third quarter of 2017, down from $2.0 million in the third quarter of 2016. Mortgage originations totaled $71.8 million in the third quarter of 2017, up seasonally from the second quarter of 2017 but down from $101.7 million in the same quarter last year. As a result of the lower volumes, gains from the sale of mortgage loans decreased in the third quarter of 2017 to $1.2 million from $1.7 million in the third quarter of 2016. Mortgage loan servicing revenue was $911,000 in the third quarter of 2017, up from $885,000 in the third quarter of 2016 and amortization of mortgage servicing rights declined to $386,000 from $536,000 in the third quarter last year.
For the third quarter of 2017, commissions from the sale of insurance products were $3.1 million, up from $2.5 million in the third quarter of 2016, primarily due to added commissions from the Corporate One merger. Service fees and other charges were $3.2 million in the third quarter of 2017, up from $2.8 million in the third quarter of 2016. Trust income was $486,000 in the third quarter of 2017, up 15.7% from $420,000 in the third quarter of 2016.
This quarters non-interest income results continue to reflect the benefits of our growing company, as well as the diversity of our revenues. While mortgage banking volumes are lower than a year ago, our recent mergers contributed strong increases in insurance commissions and bank service fee income, continued Hileman. In total, non-interest income grew 11.4% over this same period last year.
Non-Interest Expenses up from Third Quarter 2016
Total non-interest expense was $20.4 million in the third quarter of 2017, an increase from $18.3 million in the third quarter of 2016. The increase in non-interest expenses was mostly due to the additional expenses from the operations of CSB and Corporate One mergers completed in 2017. Compensation and benefits increased to $11.8 million in the third quarter of 2017, compared to $10.3 million in the third quarter of 2016. Occupancy expense was $2.0 million and data processing expense was $1.9 million, up from $1.8 million and $1.6 million, respectively, in the third quarter of 2016. Other non-interest expense of $3.7 million in the third quarter of 2017 was up from $3.6 million in the third quarter of 2016.
Credit Quality
Non-performing loans totaled $29.2 million at September 30, 2017, an increase from $18.2 million at September 30, 2016. The increase was mainly attributable to two loan relationships totaling $13.9 million that were downgraded in the second quarter 2017. In addition, First Defiance had $532,000 of real estate owned at September 30, 2017, compared to $704,000 at September 30, 2016. Accruing troubled debt restructured loans were $13.0 million at September 30, 2017, compared with $9.1 million at September 30, 2016.
The third quarter 2017 results include net charge-offs of $36,000 and a provision for loan losses of $462,000 compared with net charge-offs of $40,000 and a provision of $15,000 for the same period in 2016.
The allowance for loan loss as a percentage of total loans was 1.16% at September 30, 2017, compared with 1.15% at June 30, 2017, and 1.35% at September 30, 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 adjustments discounting the loan balance instead of an allowance for loan losses. For the CSB loans acquired, the discount recorded totaled $4.2 million, or 1.8% of acquired CSB loans at September 30, 2017.
As anticipated, our credit quality stabilized in the third quarter. Net loan losses returned to a lower level, coming in at less than 0.01% of average loans for the quarter, said Hileman. While total non-performing assets to total assets ended September 30, 2017 higher than expected at 1.01%, reduced levels are projected going forward.
Year-To-Date Results
For the nine-month period ended September 30, 2017, net income totaled $22.9 million, or $2.29 per diluted common share, compared to $21.5 million, or $2.37 per diluted common share for the nine months ended September 30, 2016. The first nine months of 2017 includes the results from the operations of the CSB acquisition completed on February 24, 2017, and Corporate One acquired on April 1, 2017. In addition, the first nine months of 2017 includes merger and conversion expenses related to the acquisitions of $4.0 million, which had an after tax impact of $2.8 million, or $0.28 per diluted share.
Net interest income was $71.3 million for the first nine months of 2017 compared with $58.4 million in the first nine months of 2016. Average interest-earning assets increased to $2.51 billion in the first nine months of 2017 compared to $2.15 billion in the first nine months of 2016. Net interest margin for the first nine months of 2017 was 3.88%, up 15 basis points from the 3.73% margin reported in the nine month period ended September 30, 2016.
The provision for loan losses in the first nine months of 2017 was $2.6 million compared to $432,000 recorded during the first nine months of 2016.
Non-interest income for the first nine months of 2017 was $30.2 million compared to $25.7 million during the same period of 2016. The first nine months of 2017 includes the operating results from the CSB and Corporate One mergers completed in 2017 and a $1.5 million enhancement value gain related to the purchase of bank owned life insurance in the first quarter of 2017.
Service fees and other charges were $9.1 million for the first nine months of 2017, up from $8.2 million during the same period of 2016. Mortgage banking income was $5.3 million for the first nine months of 2017 compared with $5.3 million during the same period of 2016. Insurance commissions rose to $9.8 million for the first nine months of 2017 compared with $8.1 million for the same period of 2016. Non-interest income for the first nine months of 2017 included $425,000 of gains from the sale of securities compared with securities gains of $509,000 during the same period of 2016.
Non-interest expense was $64.2 million for the first nine months of 2017, up from $52.9 million for the same period of 2016. Included in non-interest expense for the first nine months of 2017 were merger and conversion expenses of $4.0 million related to the acquisitions. Compensation and benefits expense was $37.6 million for the first nine months of 2017 compared with $30.3 million during the same period of 2016. Expenses also included increases in occupancy of $316,000, data processing of $1.1 million, amortization of intangibles of $512,000 and other expenses of $2.0 million.
Total Assets at $2.93 Billion
Total assets at September 30, 2017, were $2.93 billion compared to $2.48 billion at December 31, 2016, and $2.45 billion at September 30, 2016. The increase reflected at September 30, 2017, is primarily due to the acquisition of CSB effective February 24, 2017, which added $368.3 million to total assets, net of $12.3 million paid in cash, at consummation.
Net loans receivable (excluding loans held for sale) were $2.25 billion at September 30, 2017, compared to $1.91 billion at December 31, 2016, and $1.90 billion at September 30, 2016. The acquisition of CSB added $285.4 million to the loan portfolio. At September 30, 2017, excluding the CSB acquired loans, net loans receivable grew $64.5 million, or 3.4% from a year ago.
Also, at September 30, 2017, goodwill and other intangible assets totaled $104.4 million compared to $63.1 million at December 31, 2016, and $63.3 million at September 30, 2016. The increase in 2017 was attributable to the acquisitions of CSB and Corporate One which together added $42.2 to goodwill and intangibles.
Total deposits at September 30, 2017, were $2.36 billion compared with $1.98 billion at December 31, 2016, and $1.93 billion at September 30, 2016. The acquisition of CSB added $308.0 million to total deposits. At September 30, 2017, excluding the CSB acquired deposits, total deposits grew $125.0 million, or 6.5% from a year ago.
Total stockholders equity was $367.9 million at September 30, 2017, compared to $293.0 million at December 31, 2016, and $292.1 million at September 30, 2016. The acquisition of CSB in 2017 added $56.5 million to total equity.
Dividend to be Paid November 17
The Board of Directors declared a quarterly cash dividend of $0.25 per common share payable November 17, 2017, to shareholders of record at the close of business on November 10, 2017. The dividend represents an annual dividend of 1.86 percent based on the First Defiance common stock closing price on October 13, 2017. First Defiance has approximately 10,149,185 common shares outstanding.
Conference Call
First Defiance Financial Corp. will host a conference call at 11:00 a.m. ET on Tuesday, October 17, 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 athttp://services.choruscall.com/links/fdef171017.html.
The replay of the conference call webcast will be available at www.fdef.com until October 17, 2018, at 9:00 a.m. ET.
First Defiance Financial Corp.
First Defiance Financial Corp. (NASDAQ:FDEF), headquartered in Defiance, Ohio, is the holding company for First Federal Bank of the Midwest, First Insurance Group and Corporate One Benefits. First Federal Bank operates 42 full-service branches and numerous ATM locations in northwest and central Ohio, southeast Michigan and northeast Indiana. First Insurance Group, including its division Corporate One Benefits, is a full-service insurance agency with ten offices throughout northwest Ohio.
For more information, visit the companys 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 changinginterest 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 September 30, 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.
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Consolidated Balance Sheets (Unaudited)
First Defiance Financial Corp.

September 30, December 31,
(in thousands) 2017 2016

Assets
Cash and cash equivalents
Cash and amounts due from depository institutions $ 55,731 $ 53,003
Interest-bearing deposits 69,000 46,000
124,731 99,003
Securities
Available-for sale, carried at fair value 260,034 250,992
Held-to-maturity, carried at amortized cost 728 184
260,762 251,176

Loans 2,276,042 1,940,487
Allowance for loan losses (26,341 ) (25,884 )
Loans, net 2,249,701 1,914,603
Loans held for sale 12,200 9,607
Mortgage servicing rights 9,693 9,595
Accrued interest receivable 9,864 6,760
Federal Home Loan Bank stock 15,992 13,798
Bank Owned Life Insurance 65,811 52,817
Office properties and equipment 41,536 36,958
Real estate and other assets held for sale 532 455
Goodwill 98,370 61,798
Core deposit and other intangibles 6,061 1,336
Deferred taxes 267 2,212
Other assets 38,735 17,479
Total Assets $ 2,934,255 $ 2,477,597

Liabilities and Stockholders Equity
Non-interest-bearing deposits $ 519,911 $ 487,663
Interest-bearing deposits 1,840,764 1,493,965
Total deposits 2,360,675 1,981,628
Advances from Federal Home Loan Bank 104,555 103,943
Notes payable and other interest-bearing liabilities 29,439 31,816
Subordinated debentures 36,083 36,083
Advance payments by borrowers for tax and insurance 2,265 2,650
Other liabilities 33,314 28,459
Total Liabilities 2,566,331 2,184,579
Stockholders Equity
Preferred stock - -
Common stock, net 127 127
Additional paid-in-capital 160,653 126,390
Accumulated other comprehensive income 2,138 215
Retained earnings 256,041 240,592
Treasury stock, at cost (51,035 ) (74,306 )
Total stockholders equity 367,924 293,018
Total Liabilities and Stockholders Equity $ 2,934,255 $ 2,477,597

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Consolidated Statements of Income (Unaudited)
First Defiance Financial Corp.

Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except per share amounts) 2017 2016 2017 2016
Interest Income:
Loans $ 25,975 $ 20,264 $ 73,263 $ 59,242
Investment securities 1,688 1,498 5,195 4,671
Interest-bearing deposits 209 104 555 287
FHLB stock dividends 209 137 562 413
Total interest income 28,081 22,003 79,575 64,613
Interest Expense:
Deposits 2,391 1,635 6,357 4,613
FHLB advances and other 431 322 1,211 940
Subordinated debentures 239 191 682 548
Notes Payable 13 35 41 108
Total interest expense 3,074 2,183 8,291 6,209
Net interest income 25,007 19,820 71,284 58,404
Provision for loan losses 462 15 2,635 432
Net interest income after provision for loan losses 24,545 19,805 68,649 57,972
Non-interest Income:
Service fees and other charges 3,153 2,765 9,073 8,208
Mortgage banking income 1,698 2,039 5,266 5,342
Gain on sale of non-mortgage loans 82 148 172 604
Gain on sale of securities 158 151 425 509
Insurance commissions 3,082 2,473 9,834 8,113
Trust income 486 420 1,400 1,256
Income from Bank Owned Life Insurance 421 225 2,666 686
Other non-interest income 415 305 1,348 1,019
Total Non-interest Income 9,495 8,526 30,184 25,737
Non-interest Expense:
Compensation and benefits 11,780 10,295 37,588 30,250
Occupancy 1,960 1,822 5,751 5,435
FDIC insurance premium 330 352 973 1,008
Financial institutions tax 404 446 1,418 1,339
Data processing 1,874 1,622 5,832 4,723
Amortization of intangibles 364 115 931 419
Other non-interest expense 3,728 3,640 11,718 9,739
Total Non-interest Expense 20,440 18,292 64,211 52,913
Income before income taxes 13,600 10,039 34,622 30,796
Income taxes 4,219 2,994 11,753 9,318
Net Income $ 9,381 $ 7,045 $ 22,869 $ 21,478


Earnings per common share:
Basic $ 0.92 $ 0.78 $ 2.31 $ 2.39
Diluted $ 0.92 $ 0.78 $ 2.29 $ 2.37

Average Shares Outstanding:
Basic 10,149 8,976 9,913 8,980
Diluted 10,209 9,050 9,970 9,050

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Financial Summary and Comparison (Unaudited)
First Defiance Financial Corp.

Three Months Ended Nine Months Ended
September 30, September 30,
(dollars in thousands, except per share data) 2017 2016 % change 2017 2016 % change
Summary of Operations

Tax-equivalent interest income (1) $ 28,557 $ 22,449 27.2 % $81,007 $ 65,994 22.7 %
Interest expense 3,074 2,183 40.8 8,291 6,209 33.5
Tax-equivalent net interest income (1) 25,483 20,266 25.7 72,716 59,785 21.6
Provision for loan losses 462 15 NM 2,635 432 NM
Tax-equivalent NII after provision for loan loss (1) 25,021 20,251 23.6 70,081 59,353 18.1
Investment Securities gains 158 151 4.6 425 509 (16.5 )
Non-interest income (excluding securities gains/losses) 9,337 8,375 11.5 29,759 25,228 18.0
Non-interest expense 20,440 18,292 11.7 64,211 52,913 21.4
Income taxes 4,219 2,994 40.9 11,753 9,318 26.1
Net Income 9,381 7,045 33.2 22,869 21,478 6.5
Tax equivalent adjustment (1) 476 446 6.7 1,432 1,381 3.7
At Period End
Assets 2,934,255 2,450,040 19.8
Earning assets 2,633,996 2,240,747 17.5
Loans 2,276,042 1,925,694 18.2
Allowance for loan losses 26,341 25,923 1.6
Deposits 2,360,675 1,927,686 22.5
Stockholders equity 367,924 292,138 25.9
Average Balances
Assets 2,906,795 2,425,535 19.8 2,812,560 2,376,934 18.3
Earning assets 2,590,463 2,194,170 18.1 2,511,469 2,148,438 16.9
Loans 2,251,071 1,879,760 19.8 2,171,733 1,834,981 18.4
Deposits and interest-bearing liabilities 2,507,805 2,103,054 19.2 2,433,185 2,062,637 18.0
Deposits 2,338,817 1,929,368 21.2 2,264,930 1,889,284 19.9
Stockholders equity 363,612 288,609 26.0 345,192 283,411 21.8
Stockholders equity / assets 12.51 % 11.90 % 5.1 12.27 % 11.92 % 3.0
Per Common Share Data
Net Income
Basic $ 0.92 $ 0.78 17.9 $2.31 $ 2.39 (3.3 )
Diluted 0.92 0.78 17.9 2.29 2.37 (3.4 )
Dividends 0.25 0.22 13.6 0.75 0.66 13.6
Market Value:
High $ 53.99 $ 46.83 15.3 $56.90 $ 46.83 21.5
Low 47.01 35.90 30.9 46.27 34.80 33.0
Close 52.49 44.64 17.6 52.49 44.64 17.6
Common Book Value 36.25 32.53 11.4 36.25 32.53 11.4
Tangible Common Book Value (1) 25.96 25.49 1.9 25.96 25.49 1.9
Shares outstanding, end of period (000) 10,149 8,980 13.0 10,149 8,980 13.0
Performance Ratios (annualized)
Tax-equivalent net interest margin (2) 3.91 % 3.69 % 6.0 3.88 % 3.73 % 3.9
Return on average assets 1.28 % 1.16 % 10.4 1.09 % 1.21 % (10.2 )
Return on average equity 10.24 % 9.71 % 5.4 8.86 % 10.12 % (12.5 )
Efficiency ratio (3) 58.70 % 63.87 % (8.1 ) 62.66 % 62.24 % 0.7
Effective tax rate 31.02 % 29.82 % 4.0 33.95 % 30.26 % 12.2
Dividend payout ratio (basic) 27.17 % 28.21 % (3.7 ) 32.47 % 27.62 % 17.6
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(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

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Income from Mortgage Banking

Revenue from sales and servicing of mortgage loans consisted of the following:

Three Months Ended Nine Months Ended
September 30, September 30,
(dollars in thousands) 2017 2016 2017 2016

Gain from sale of mortgage loans $ 1,200 $ 1,683 $ 3,577 $ 4,103
Mortgage loan servicing revenue (expense):
Mortgage loan servicing revenue 911 885 2,769 2,638
Amortization of mortgage servicing rights (386 ) (536 ) (1,101 ) (1,281 )
Mortgage servicing rights valuation adjustments (27 ) 7 21 (118 )
498 356 1,689 1,239
Total revenue from sale and servicing of mortgage loans $ 1,698 $ 2,039 $ 5,266 $ 5,342

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Yield Analysis
First Defiance Financial Corp.
Three Months Ended September 30,
(dollars in thousands)
2017 2016
Average Yield Average Yield
Balance Interest(1) Rate(2) Balance Interest(1) Rate(2)
Interest-earning assets:
Loans receivable $ 2,251,071 $ 26,025 4.59 % $ 1,879,760 $ 20,316 4.30 %
Securities 259,310 2,114 3.29 % (3) 231,864 1,892 3.37 % (3)
Interest Bearing Deposits 64,090 209 1.29 % 68,746 104 0.60 %
FHLB stock 15,992 209 5.18 % 13,800 137 3.95 %
Total interest-earning assets 2,590,463 28,557 4.38 % 2,194,170 22,449 4.09 %
Non-interest-earning assets 316,332 231,365
Total assets $ 2,906,795 $ 2,425,535
Deposits and Interest-bearing liabilities:
Interest bearing deposits $ 1,818,670 $ 2,391 0.52 % $ 1,487,465 $ 1,635 0.44 %
FHLB advances and other 104,648 431 1.63 % 84,598 322 1.51 %
Subordinated debentures 36,158 239 2.62 % 36,140 191 2.10 %
Notes payable 28,182 13 0.18 % 52,948 35 0.26 %
Total interest-bearing liabilities 1,987,658 3,074 0.61 % 1,661,151 2,183 0.52 %
Non-interest bearing deposits 520,147 - - 441,903 - -
Total including non-interest-bearing demand deposits 2,507,805 3,074 0.49 % 2,103,054 2,183 0.41 %
Other non-interest-bearing liabilities 35,378 33,872
Total liabilities 2,543,183 2,136,926
Stockholders' equity 363,612 288,609
Total liabilities and stockholders' equity $ 2,906,795 $ 2,425,535
Net interest income; interest rate spread $ 25,483 3.77 % $ 20,266 3.57 %
Net interest margin (4) 3.91 % 3.69 %
Average interest-earning assets to average interest bearing liabilities 130 % 132 %

Nine Months Ended September 30,
2017 2016
Average Yield Average Yield
Balance Interest(1) Rate Balance Interest(1) Rate
Interest-earning assets:
Loans receivable $ 2,171,733 $ 73,415 4.52 % $ 1,834,981 $ 59,395 4.32 %
Securities 257,924 6,475 3.40 % (3) 230,058 5,899 3.55 % (3)
Interest Bearing Deposits 66,299 555 1.12 % 69,599 287 0.55 %
FHLB stock 15,513 562 4.84 % 13,800 413 4.00 %
Total interest-earning assets 2,511,469 81,007 4.32 % 2,148,438 65,994 4.12 %
Non-interest-earning assets 301,091 228,496
Total assets $ 2,812,560 $ 2,376,934
Deposits and Interest-bearing liabilities:
Interest bearing deposits $ 1,743,769 $ 6,357 0.49 % $ 1,457,010 $ 4,613 0.42 %
FHLB advances and other 104,616 1,211 1.55 % 82,598 940 1.52 %
Subordinated debentures 36,155 682 2.51 % 36,140 548 2.03 %
Notes payable 27,484 41 0.20 % 54,615 108 0.27 %
Total interest-bearing liabilities 1,912,024 8,291 0.58 % 1,630,363 6,209 0.51 %
Non-interest bearing deposits 521,161 - - 432,274 - -
Total including non-interest-bearing demand deposits 2,433,185 8,291 0.46 % 2,062,637 6,209 0.40 %
Other non-interest-bearing liabilities 34,183 30,886
Total liabilities 2,467,368 2,093,523
Stockholders' equity 345,192 283,411
Total liabilities and stockholders' equity $ 2,812,560 $ 2,376,934
Net interest income; interest rate spread $ 72,716 3.74 % $ 59,785 3.61 %
Net interest margin (4) 3.88 % 3.73 %
Average interest-earning assets to average interest bearing liabilities 131 % 132 %
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(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.

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Selected Quarterly Information
First Defiance Financial Corp.

(dollars in thousands, except per share data) 3rd Qtr 2017 2nd Qtr 2017 1st Qtr 2017 4th Qtr 2016 3rd Qtr 2016
Summary of Operations
Tax-equivalent interest income (1) $ 28,557 $ 27,944 $ 24,505 $ 23,219 $ 22,449
Interest expense 3,074 2,826 2,391 2,231 2,183
Tax-equivalent net interest income (1) 25,483 25,118 22,114 20,988 20,266
Provision for loan losses 462 2,118 55 (149 ) 15
Tax-equivalent NII after provision for loan losses (1) 25,021 23,000 22,059 21,137 20,251
Investment securities gains, net of impairment 158 267 - - 151
Non-interest income (excluding securities gains/losses) 9,337 9,873 10,549 8,293 8,375
Non-interest expense 20,440 20,630 23,142 18,180 18,292
Income taxes 4,219 3,677 3,857 3,436 2,994
Net income 9,381 8,347 5,140 7,365 7,045
Tax equivalent adjustment (1) 476 486 469 449 446
At Period End
Total assets $ 2,934,255 $ 2,890,507 $ 2,928,697 $ 2,477,151 $ 2,450,040
Earning assets 2,633,996 2,596,674 2,639,325 2,261,068 2,240,747
Loans 2,276,042 2,254,435 2,238,006 1,940,487 1,925,694
Allowance for loan losses 26,341 25,915 25,749 25,884 25,923
Deposits 2,360,675 2,326,702 2,373,789 1,981,628 1,927,686
Stockholders equity 367,924 361,430 354,191 293,018 292,138
Stockholders equity / assets 12.54 % 12.50 % 12.09 % 11.83 % 11.92 %
Goodwill 98,370 98,318 90,768 61,798 61,798
Average Balances
Total assets $ 2,906,795 $ 2,908,483 $ 2,622,402 $ 2,458,952 $ 2,425,535
Earning assets 2,590,463 2,591,397 2,355,544 2,226,868 2,194,170
Loans 2,251,071 2,238,061 2,026,067 1,908,731 1,879,760
Deposits and interest-bearing liabilities 2,507,805 2,516,024 2,275,724 2,133,868 2,103,054
Deposits 2,338,817 2,346,336 2,109,637 1,954,631 1,929,368
Stockholders equity 363,612 357,523 314,442 292,301 288,609
Stockholders equity / assets 12.51 % 12.29 % 11.99 % 11.89 % 11.90 %
Per Common Share Data
Net Income:
Basic $ 0.92 $ 0.82 $ 0.54 $ 0.82 $ 0.78
Diluted 0.92 0.82 0.54 0.81 0.78
Dividends 0.25 0.25 0.25 0.22 0.22
Market Value:
High $ 53.99 $ 56.90 $ 51.15 $ 52.31 $ 46.83
Low 47.01 48.78 46.27 36.91 35.90
Close 52.49 52.68 49.51 50.74 44.64
Common Book Value 36.25 35.61 34.92 32.62 32.53
Shares outstanding, end of period (in thousands) 10,149 10,149 10,143 8,983 8,980
Performance Ratios (annualized)
Tax-equivalent net interest margin (1) 3.91 % 3.89 % 3.81 % 3.76 % 3.69 %
Return on average assets 1.28 % 1.15 % 0.79 % 1.19 % 1.16 %
Return on average equity 10.24 % 9.36 % 6.63 % 10.02 % 9.71 %
Efficiency ratio (2) 58.70 % 58.96 % 70.85 % 62.09 % 63.87 %
Effective tax rate 31.02 % 30.58 % 42.87 % 31.81 % 29.82 %
Common dividend payout ratio (basic) 27.17 % 30.49 % 46.30 % 26.83 % 28.21 %
[End Table]
[Start Table]
(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.

[End Table]
[Start Table]

Selected Quarterly Information
First Defiance Financial Corp.

(dollars in thousands, except per share data) 3rd Qtr 2017 2nd Qtr 2017 1st Qtr 2017 4th Qtr 2016 3rd Qtr 2016
Loan Portfolio Composition
One to four family residential real estate $ 271,048 $ 276,578 $ 276,931 $ 207,550 $ 209,097
Construction 244,920 234,688 199,724 182,886 177,075
Commercial real estate 1,205,695 1,182,087 1,193,906 1,040,562 1,043,820
Commercial 510,240 515,004 504,366 469,055 456,099
Consumer finance 29,009 28,860 27,696 16,680 17,251
Home equity and improvement 132,220 130,429 132,965 118,429 118,165
Total loans 2,393,132 2,367,646 2,335,588 2,035,162 2,021,507
Less:
Undisbursed loan funds 115,714 112,000 95,460 93,355 94,552
Deferred loan origination fees 1,379 1,211 1,264 1,320 1,261
Allowance for loan loss 26,341 25,915 25,749 25,884 25,923
Net Loans $ 2,249,698 $ 2,228,520 $ 2,213,115 $ 1,914,603 $ 1,899,771

Allowance for loan loss activity
Beginning allowance $ 25,915 $ 25,749 $ 25,884 $ 25,923 $ 25,948
Provision for loan losses 462 2,118 55 (149 ) 15
Credit loss charge-offs:
One to four family residential real estate 60 0 49 147 111
Commercial real estate 0 110 290 0 79
Commercial 64 2,027 0 234 26
Consumer finance 20 21 71 53 24
Home equity and improvement 92 100 54 98 74
Total charge-offs 236 2,258 464 532 314
Total recoveries 200 306 274 642 274
Net charge-offs (recoveries) 36 1,952 190 (110 ) 40
Ending allowance $ 26,341 $ 25,915 $ 25,749 $ 25,884 $ 25,923

Credit Quality
Total non-performing loans (1) $ 29,152 $ 30,359 $ 15,057 $ 14,348 $ 18,198
Real estate owned (REO) 532 672 705 455 704
Total non-performing assets (2) $ 29,684 $ 31,031 $ 15,762 $ 14,803 $ 18,902
Net charge-offs (recoveries) 36 1,952 190 (110 ) 40

Restructured loans, accruing (3) 13,044 10,521 9,814 10,544 9,113

Allowance for loan losses / loans 1.16 % 1.15 % 1.15 % 1.33 % 1.35 %
Allowance for loan losses / non-performing assets 88.74 % 83.51 % 163.36 % 174.86 % 137.14 %
Allowance for loan losses / non-performing loans 90.36 % 85.36 % 171.01 % 180.40 % 142.45 %
Non-performing assets / loans plus REO 1.30 % 1.38 % 0.70 % 0.76 % 0.98 %
Non-performing assets / total assets 1.01 % 1.07 % 0.54 % 0.60 % 0.77 %
Net charge-offs / average loans (annualized) 0.01 % 0.35 % 0.04 % -0.02 % 0.01 %

Deposit Balances
Non-interest-bearing demand deposits $ 519,911 $ 520,778 $ 579,943 $ 487,663 $ 443,321
Interest-bearing demand deposits and money market 989,514 967,834 973,459 816,665 810,393
Savings deposits 296,230 288,643 288,498 243,369 241,016
Retail time deposits less than $250,000 504,277 499,298 490,953 400,080 399,749
Retail time deposits greater than $250,000 50,743 50,149 40,936 33,851 33,207
Total deposits $ 2,360,675 $ 2,326,702 $ 2,373,789 $ 1,981,628 $ 1,927,686
[End Table]
[Start Table]
(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.

[End Table]
[Start Table]

Loan Delinquency Information
First Defiance Financial Corp.


(dollars in thousands) Total Balance Current 30 to 89 days past due Non Accrual Loans

September 30, 2017
One to four family residential real estate $ 271,048 $ 265,873 $ 1,807 $ 3,368
Construction 244,920 244,920 - -
Commercial real estate 1,205,695 1,187,826 759 17,110
Commercial 510,240 500,755 1,415 8,070
Consumer finance 29,009 28,741 209 59
Home equity and improvement 132,220 130,199 1,476 545
Total loans $ 2,393,132 $ 2,358,314 $ 5,666 $ 29,152

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

September 30, 2016
One to four family residential real estate $ 209,097 $ 205,471 $ 706 $ 2,920
Construction 177,075 177,075 - -
Commercial real estate 1,043,820 1,032,260 258 11,302
Commercial 456,099 452,669 185 3,245
Consumer finance 17,251 17,048 190 13
Home equity and improvement 118,165 116,653 794 718
Total loans $ 2,021,507 $ 2,001,176 $ 2,133 $ 18,198

[End Table]

View source version on businesswire.com: http://www.businesswire.com/news/home/20171016006204/en/
First Defiance Financial Corp. Donald P. Hileman, 419-782-5104President and CEOdhileman@first-fed.com
Source: First Defiance Financial Corp.