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First Defiance Financial Corp (FDEF) SEC Filing 10-Q Quarterly report for the period ending Friday, June 30, 2017

First Defiance Financial Corp

CIK: 946647 Ticker: FDEF

 

Exhibit 99.1

 

  NEWS RELEASE
   
Contact: Donald P. Hileman
  President and CEO
  (419) 782-5104
  dhileman@first-fed.com
   

  

For Immediate Release

 

FIRST DEFIANCE FINANCIAL CORP. ANNOUNCES 2017

SECOND QUARTER EARNINGS

 

·Diluted earnings per share of $0.82 for 2017 second quarter, up from $0.80 in the 2016 second quarter
·Net income of $8.3 million for 2017 second quarter, up from $7.3 million in the 2016 second quarter
·Return on average assets of 1.15% for the 2017 second quarter compared to 1.22% in the 2016 second quarter
·Net interest margin of 3.89% for the 2017 second quarter, up from 3.71% in the 2016 second quarter
·Loan growth of $16.4 million during 2017 second quarter
·Non-performing assets of $31.0 million for 2017 second quarter compared to $17.5 million for 2016 second quarter

 

DEFIANCE, OHIO (July 17, 2017)

– First Defiance Financial Corp. (NASDAQ: FDEF) announced today that net income for the second quarter ended June 30, 2017, totaled $8.3 million, or $0.82 per diluted common share compared to $7.3 million or $0.80 per diluted common share for the quarter ended June 30, 2016. The second 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. 

 

“Our second quarter financial results clearly reflect the expected operating performance enhancements from our recent acquisitions as compared to the second quarter last year revenues grew 24.3%, the net interest margin was 3.89% up from 3.71%, and the efficiency ratio improved to 59.0% from 61.5%” said Donald P. Hileman, President and Chief Executive Officer of First Defiance Financial Corp. “While higher charge-offs for credit losses partially offset these improvements in the second quarter, we expect the benefits from our mergers to continue elevating our ongoing performance.”

 

Net Interest Income up Compared to Second Quarter 2016

 

Net interest income of $24.6 million in the second quarter of 2017 was up from $19.4 million in the second quarter of 2016. The increase was mostly attributable to a full quarter of operations from the CSB merger, but also included recovered interest and prepayment penalties totaling $307,000 compared to $119,000 in the second quarter last year. Net interest margin was 3.89% for the second quarter of 2017, up from 3.81% in the first quarter of 2017, and up from 3.71% in the second quarter of 2016. Yield on interest earning assets increased by 23 basis points, to 4.33% in the second quarter of 2017 from 4.10% in the second quarter of 2016. The cost of interest-bearing liabilities increased by 7 basis points in the second quarter of 2017 to 0.58% from 0.51% in the second quarter of 2016.

 

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“Strong growth in our net interest income was driven by the successful Commercial Bancshares merger, our solid organic growth over the last year and our steady net interest margin,” said Hileman. “The combination of these factors generated net interest income growth of $5.2 million or 27.0% over the second quarter last year.”

 

Non-Interest Income up from Second Quarter 2016

 

First Defiance’s non-interest income for the second quarter of 2017 was $10.1 million compared with $8.6 million in the second 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 second quarter of 2017 included gains of $267,000 from the sale of securities compared to gains of $227,000 in the second quarter of 2016.

 

Mortgage banking income was $1.8 million in the second quarter of 2017, even with $1.8 million in the second quarter of 2016. Mortgage originations totaled $64.2 million in the second quarter of 2017, up seasonally from the first quarter of 2017 but down from $76.0 million in the same quarter last year. Gains from the sale of mortgage loans decreased in the second quarter of 2017 to $1.3 million from $1.4 million in the second quarter of 2016. Mortgage loan servicing revenue was $924,000 in the second quarter of 2017, up slightly from $876,000 in the second quarter of 2016. First Defiance had a positive change in the valuation adjustment in mortgage servicing assets of $16,000 in the second quarter of 2017 compared with a negative adjustment of $104,000 in the second quarter of 2016. In addition, gains on the sale of non-mortgages, which include SBA and FSA loans, totaled $90,000 in the second quarter 2017 compared to $411,000 in the second quarter 2016.

 

For the second quarter of 2017, commissions from the sale of insurance products were $3.3 million, up from $2.5 million in the second quarter of 2016 primarily due to added commissions from the Corporate One merger. Service fees and other charges were $3.2 million in the second quarter of 2017, up from $2.8 million in the second quarter of 2016. Trust income was $464,000 in the second quarter of 2017, up 13.4% from $409,000 in the second quarter of 2016. Other non-interest income was $612,000 in the second quarter of 2017, up from $231,000 in the second quarter of 2016 mainly due to gains from the sale of real estate owned and sales of investments.

 

“Non-interest income growth this quarter reflects our expanding operations and the contributions from our recent mergers. Insurance commissions and bank service fees had strong gains compared to the second quarter last year, more than offsetting the decline in the gain on sale of non-mortgage loans,” continued Hileman. “Overall total non-interest income, excluding securities gains, increased 18.3% over this same period in the prior year.”

 

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Non-Interest Expenses up from Second Quarter 2016

 

Total non-interest expense was $20.6 million in the second quarter of 2017, an increase from $17.3 million in the second quarter of 2016. The increase in non-interest expenses was mostly due to the additional expenses for the operations of CSB and Corporate One mergers completed in 2017. Compensation and benefits increased to $11.5 million in the second quarter of 2017, compared to $9.8 million in the second quarter of 2016. Both occupancy expense and data processing equaled $2.0 million, up from $1.8 million and $1.6 million, respectively, in the second quarter of 2016. Other non-interest expense of $4.0 million in the second quarter of 2017 was up from $3.2 million in the second quarter of 2016, which included $299,000 of merger related transaction costs recorded in the second quarter of 2017.

 

Credit Quality

 

Non-performing loans totaled $30.4 million at June 30, 2017, an increase from $16.4 million at June 30, 2016. The increase was mainly attributable to two loan relationships totaling $13.6 million that were downgraded in the second quarter. In addition, First Defiance had $672,000 of real estate owned at June 30, 2017, compared to $1.1 million at June 30, 2016. Accruing troubled debt restructured loans were $10.5 million at June 30, 2017, compared with $9.6 million at June 30, 2016.

 

As a result of the loan downgrades, the second quarter 2017 results include net charge-offs of $2.0 million and a provision for loan losses of $2.1 million compared with net recoveries $227,000 and a provision of $53,000 for the same period in 2016.

 

The allowance for loan loss as a percentage of total loans was 1.15% at June 30, 2017, compared with 1.15% at March 31, 2017 and 1.39% at June 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 $5.0 million, or 1.7% of acquired CSB loans at June 30, 2017.

 

“We were very disappointed in the loan downgrades and the rise in non-performing loan totals this quarter,” said Hileman. “After closely reviewing these situations, we remain confident in our lending and credit management practices. We believe that our overall asset quality is sound and that we will regain our improved position in the quarters ahead.”

 

Year-To-Date Results

 

For the six-month period ended June 30, 2017, net income totaled $13.5 million, or $1.37 per diluted common share, compared to $14.4 million, or $1.59 per diluted common share for the six months ended June 30, 2016. The first six 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 six months of 2017 includes merger and conversion expenses related to the acquisitions of $3.9 million, which had an after tax impact of $2.8 million, or $0.28 per diluted share.

 

Net interest income was $46.3 million for the first six months of 2017 compared with $38.6 million in the first six months of 2016. Average interest-earning assets increased to $2.47 billion in the first six months of 2017 compared to $2.13 billion in the first six months of 2016. Net interest margin for the first six months of 2017 was 3.86%, up 11 basis points from the 3.75% margin reported in the six month period ended June 30, 2016.

 

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The provision for loan losses in the first six months of 2017 was $2.2 million compared to $417,000 recorded during the first six months of 2016.

 

Non-interest income for the first six months of 2017 was $20.7 million compared to $17.2 million during the same period of 2016. The first six 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 $5.9 million for the first six months of 2017, up from $5.4 million during the same period of 2016. Mortgage banking income was $3.6 million for the first six months of 2017 compared with $3.3 million during the same period of 2016. Insurance commissions rose to $6.8 million for the first six months of 2017 compared with $5.6 million for the same period of 2016. Non-interest income for the first six months of 2017 included $267,000 of gains from the sale of securities compared with securities gains of $358,000 during the same period of 2016.

 

Non-interest expense was $43.8 million for the first six months of 2017, up from $34.6 million for the same period of 2016. Compensation and benefits expense was $25.8 million for the first six months of 2017 compared with $20.0 million during the same period of 2016. Expenses also included increases in occupancy of $178,000, data processing of $857,000, amortization of intangibles of $263,000 and other expenses of $1.9 million.

 

Total Assets at $2.9 Billion

 

Total assets at June 30, 2017, were $2.89 billion compared to $2.48 billion at December 31, 2016, and $2.41 billion at June 30, 2016. The increase reflected at June 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 $2.23 billion at June 30, 2017, compared to $1.91 billion at December 31, 2016, and $1.86 billion at June 30, 2016. The acquisition of CSB added $285.4 million to the loan portfolio. At June 30, 2017, excluding the CSB acquired loans, net loans receivable grew $107.3 million, or 5.8% from a year ago.

 

Also, at June 30, 2017, goodwill and other intangible assets totaled $104.5 million compared to $63.1 million at December 31, 2016, and $63.4 million at June 30, 2016. The increase in 2017 was attributable to the acquisitions of CSB and Corporate One which together added $41.9 to goodwill and intangibles.

 

Total deposits at June 30, 2017, were $2.33 billion compared with $1.98 billion at December 31, 2016, and $1.92 billion at June 30, 2016. The acquisition of CSB added $308.0 million to total deposits. At June 30, 2017, excluding the CSB acquired deposits, total deposits grew $98.4 million, or 5.1% from a year ago.

 

Total stockholders’ equity was $361.4 million at June 30, 2017, compared to $293.0 million at December 31, 2016, and $286.6 million at June 30, 2016. The acquisition of CSB in 2017 added $56.5 million to total equity.

 

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Dividend to be Paid August 25

 

The Board of Directors declared a quarterly cash dividend of $0.25 per common share payable August 25, 2017, to shareholders of record at the close of business on August 18, 2017. The dividend represents an annual dividend of 1.90 percent based on the First Defiance common stock closing price on July 14, 2017. First Defiance has approximately 10,148,821 common shares outstanding.

 

Conference Call

 

First Defiance Financial Corp. will host a conference call at 11:00 a.m. ET on Tuesday, July 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/fdef170718.html.

 

The replay of the conference call Webcast will be available at www.fdef.com until July 18, 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 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, 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 June 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.

 

   June 30,   December 31, 
(in thousands)  2017   2016 
         
Assets          
Cash and cash equivalents          
Cash and amounts due from depository institutions  $51,941   $53,003 
Interest-bearing deposits   60,000    46,000 
    111,941    99,003 
Securities          
Available-for sale, carried at fair value   257,575    250,992 
Held-to-maturity, carried at amortized cost   733    184 
    258,308    251,176 
           
Loans   2,254,435    1,940,487 
Allowance for loan losses   (25,915)   (25,884)
Loans, net   2,228,520    1,914,603 
Loans held for sale   7,939    9,607 
Mortgage servicing rights   9,680    9,595 
Accrued interest receivable   8,376    6,760 
Federal Home Loan Bank stock   15,992    13,798 
Bank Owned Life Insurance   65,390    52,817 
Office properties and equipment   42,588    36,958 
Real estate and other assets held for sale   672    455 
Goodwill   98,065    61,798 
Core deposit and other intangibles   6,425    1,336 
Deferred Taxes   -    2,212 
Other assets   36,045    17,479 
Total Assets  $2,889,941   $2,477,597 
           
Liabilities and Stockholders’ Equity          
Non-interest-bearing deposits  $520,778   $487,663 
Interest-bearing deposits   1,805,924    1,493,965 
Total deposits   2,326,702    1,981,628 
Advances from Federal Home Loan Bank   104,830    103,943 
Notes payable and other interest-bearing liabilities   30,606    31,816 
Subordinated debentures   36,083    36,083 
Advance payments by borrowers for tax and insurance   2,305    2,650 
Deferred taxes   21    - 
Other liabilities   27,964    28,459 
Total Liabilities   2,528,511    2,184,579 
Stockholders’ Equity          
Preferred stock   -    - 
Common stock, net   127    127 
Additional paid-in-capital   160,404    126,390 
Accumulated other comprehensive income   2,745    215 
Retained earnings   249,196    240,592 
Treasury stock, at cost   (51,042)   (74,306)
Total stockholders’ equity   361,430    293,018 
Total Liabilities and Stockholders’ Equity  $2,889,941   $2,477,597 

 

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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)  2017   2016   2017   2016 
Interest Income:                    
Loans  $25,318   $19,666   $47,288   $38,978 
Investment securities   1,752    1,543    3,507    3,173 
Interest-bearing deposits   201    134    346    183 
FHLB stock dividends   187    137    353    276 
Total interest income   27,458    21,480    51,494    42,610 
Interest Expense:                    
Deposits   2,170    1,545    3,966    2,978 
FHLB advances and other   414    321    780    618 
Subordinated debentures   229    182    443    357 
Notes Payable   13    36    28    73 
Total interest expense   2,826    2,084    5,217    4,026 
Net interest income   24,632    19,396    46,277    38,584 
Provision for loan losses   2,118    53    2,172    417 
Net interest income after provision for loan losses   22,514    19,343    44,105    38,167 
Non-interest Income:                    
Service fees and other charges   3,161    2,799    5,920    5,443 
Mortgage banking income   1,830    1,764    3,568    3,303 
Gain on sale of non-mortgage loans   90    411    90    456 
Gain on sale of securities   267    227    267    358 
Insurance commissions   3,294    2,504    6,752    5,640 
Trust income   464    409    914    836 
Income from Bank Owned Life Insurance   422    230    2,245    461 
Other non-interest income   612    231    933    714 
Total Non-interest Income   10,140    8,575    20,689    17,211 
Non-interest Expense:                    
Compensation and benefits   11,473    9,770    25,808    19,955 
Occupancy   1,954    1,828    3,791    3,613 
FDIC insurance premium   353    329    643    656 
Financial institutions tax   535    447    1,014    893 
Data processing   2,019    1,641    3,958    3,101 
Amortization of intangibles   334    147    567    304 
Other non-interest expense   3,962    3,185    7,991    6,099 
Total Non-interest Expense   20,630    17,347    43,772    34,621 
Income before income taxes   12,024    10,571    21,022    20,757 
Income taxes   3,677    3,307    7,534    6,324 
Net Income  $8,347   $7,264   $13,488   $14,433 
                     
Earnings per common share:                    
Basic  $0.82   $0.81   $1.38   $1.61 
Diluted  $0.82   $0.80   $1.37   $1.59 
                     
Average Shares Outstanding:                    
Basic   10,147    8,968    9,793    8,981 
Diluted   10,204    9,036    9,849    9,050 

 

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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)  2017   2016   % change   2017   2016   % change 
Summary of Operations                        
                         
Tax-equivalent interest income (1)  $27,944   $21,940    27.4%  $52,450   $43,545    20.5%
Interest expense   2,826    2,084    35.6    5,217    4,026    29.6 
Tax-equivalent net interest income (1)   25,118    19,856    26.5    47,233    39,519    19.5 
Provision for loan losses   2,118    53     NM     2,172    417     NM  
Tax-equivalent NII after provision for loan loss (1)   23,000    19,803    16.1    45,061    39,102    15.2 
Investment Securities gains   267    227     NM     267    358     NM  
Non-interest income (excluding securities gains/losses)   9,873    8,348    18.3    20,422    16,853    21.2 
Non-interest expense   20,630    17,347    18.9    43,772    34,621    26.4 
Income taxes   3,677    3,307    11.2    7,534    6,324    19.1 
Net Income   8,347    7,264    14.9    13,488    14,433    (6.5)
Tax equivalent adjustment (1)   486    460    5.7    956    935    2.2 
At Period End                              
Assets   2,889,941    2,409,599    19.9                
Earning assets   2,596,674    2,200,517    18.0                
Loans   2,254,435    1,861,403    21.1                
Allowance for loan losses   25,915    25,948    (0.1)               
Deposits   2,326,702    1,920,270    21.2                
Stockholders’ equity   361,430    286,616    26.1                
Average Balances                              
Assets   2,908,483    2,391,064    21.6    2,765,443    2,352,634    17.5 
Earning assets   2,591,397    2,162,574    19.8    2,473,471    2,125,573    16.4 
Loans   2,238,061    1,828,984    22.4    2,132,064    1,812,592    17.6 
Deposits and interest-bearing liabilities   2,516,024    2,079,442    21.0    2,395,874    2,042,429    17.3 
Deposits   2,346,336    1,903,139    23.3    2,227,986    1,869,242    19.2 
Stockholders’ equity   357,523    282,573    26.5    335,983    280,812    19.6 
Stockholders’ equity / assets   12.29%   11.82%   4.0    12.15%   11.94%   1.8 
Per Common Share Data                              
Net Income                              
Basic  $0.82   $0.81    1.2   $1.38   $1.61    (14.3)
Diluted   0.82    0.80    2.5    1.37    1.59    (13.8)
Dividends   0.25    0.22    13.6    0.50    0.44    13.6 
Market Value:                              
High  $56.90   $41.21    38.1   $56.90   $41.21    38.1 
Low   48.78    37.53    30.0    46.27    34.80    33.0 
Close   52.68    38.85    35.6    52.68    38.85    35.6 
Common Book Value   35.61    31.95    11.5    35.61    31.95    11.5 
Tangible Common Book Value (1)   25.32    24.89    1.7    25.32    24.89    1.7 
Shares outstanding, end of period (000)   10,149    8,971    13.1    10,149    8,971    13.1 
Performance Ratios (annualized)                              
Tax-equivalent net interest margin (2)   3.89%   3.71%   5.0    3.86%   3.75%   2.7 
Return on average assets   1.15%   1.22%   (5.8)   0.98%   1.23%   (20.3)
Return on average equity   9.36%   10.34%   (9.4)   8.10%   10.34%   (21.7)
Efficiency ratio (3)   58.96%   61.51%   (4.1)   64.70%   61.42%   5.3 
Effective tax rate   30.58%   31.28%   (2.2)   35.84%   30.47%   17.6 
Dividend payout ratio (basic)   30.49%   27.16%   12.3    36.23%   27.33%   32.6 

 

(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.
NMPercentage 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   Six Months Ended 
   June 30,   June 30, 
(dollars in thousands)  2017   2016   2017   2016 
                 
Gain from sale of mortgage loans  $1,293   $1,426   $2,377   $2,420 
Mortgage loan servicing revenue (expense):                    
Mortgage loan servicing revenue   924    876    1,858    1,753 
Amortization of mortgage servicing rights   (403)   (434)   (715)   (745)
Mortgage servicing rights valuation adjustments   16    (104)   48    (125)
    537    338    1,191    883 
Total revenue from sale and servicing of mortgage loans  $1,830   $1,764   $3,568   $3,303 

 

 9 

 

 

Yield Analysis

First Defiance Financial Corp.

 

   Three Months Ended June 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  $2,238,061   $25,368    4.55%  $1,828,984   $19,716    4.34%
Securities   259,619    2,188    3.42%(3)   224,494    1,953    3.62%(3)
Interest Bearing Deposits   77,725    201    1.04%   95,296    134    0.57%
FHLB stock   15,992    187    4.69%   13,800    137    3.99%
Total interest-earning assets   2,591,397    27,944    4.33%   2,162,574    21,940    4.10%
Non-interest-earning assets   317,086              228,490           
Total assets  $2,908,483             $2,391,064           
Deposits and Interest-bearing liabilities:                              
Interest bearing deposits  $1,785,895   $2,170    0.49%  $1,463,086   $1,545    0.42%
FHLB advances and other   104,923    414    1.58%   84,506    321    1.53%
Subordinated debentures   36,156    229    2.54%   36,141    182    2.03%
Notes payable   28,609    13    0.18%   55,656    36    0.26%
Total interest-bearing liabilities   1,955,583    2,826    0.58%   1,639,389    2,084    0.51%
Non-interest bearing deposits   560,441    -    -    440,053    -    - 
Total including non-interest-bearing demand deposits   2,516,024    2,826    0.45%   2,079,442    2,084    0.40%
Other non-interest-bearing liabilities   34,936              29,049           
Total liabilities   2,550,960              2,108,491           
Stockholders' equity   357,523              282,573           
Total liabilities and stockholders' equity  $2,908,483             $2,391,064           
Net interest income; interest rate spread       $25,118    3.75%       $19,856    3.59%
Net interest margin (4)             3.89%             3.71%
Average interest-earning assets to average interest bearing liabilities             133%             132%

 

   Six Months Ended June 30, 
   2017   2016 
   Average       Yield   Average       Yield 
   Balance   Interest(1)   Rate   Balance   Interest(1)   Rate 
Interest-earning assets:                              
Loans receivable  $2,132,064   $47,390    4.48%  $1,812,592   $39,079    4.34%
Securities   257,230    4,361    3.46%(3)   229,154    4,007    3.64%(3)
Interest Bearing Deposits   68,904    346    1.01%   70,026    183    0.53%
FHLB stock   15,273    353    4.66%   13,801    276    4.02%
Total interest-earning assets   2,473,471    52,450    4.28%   2,125,573    43,545    4.13%
Non-interest-earning assets   291,972              227,061           
Total assets  $2,765,443             $2,352,634           
Deposits and Interest-bearing liabilities:                              
Interest bearing deposits  $1,706,318   $3,966    0.47%  $1,441,783   $2,978    0.42%
FHLB advances and other   104,600    780    1.50%   81,598    618    1.52%
Subordinated debentures   36,153    443    2.46%   36,140    357    2.00%
Notes payable   27,135    28    0.21%   55,449    73    0.27%
Total interest-bearing liabilities   1,874,206    5,217    0.56%   1,614,970    4,026    0.50%
Non-interest bearing deposits   521,668    -    -    427,459    -    - 
Total including non-interest-bearing demand deposits   2,395,874    5,217    0.44%   2,042,429    4,026    0.40%
Other non-interest-bearing liabilities   33,586              29,393           
Total liabilities   2,429,460              2,071,822           
Stockholders' equity   335,983              280,812           
Total liabilities and stockholders' equity  $2,765,443             $2,352,634           
Net interest income; interest rate spread       $47,233    3.72%       $39,519    3.63%
Net interest margin (4)             3.86%             3.75%
Average interest-earning assets to average interest bearing liabilities             132%             132%

 

(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.

 

 10 

 

 

Selected Quarterly Information

First Defiance Financial Corp.

 

(dollars in thousands, except per share data)  2nd Qtr 2017   1st Qtr 2017   4th Qtr 2016   3rd Qtr 2016   2nd Qtr 2016 
Summary of Operations                         
Tax-equivalent interest income (1)  $27,944   $24,505   $23,219   $22,449   $21,940 
Interest expense   2,826    2,391    2,231    2,183    2,084 
Tax-equivalent net interest income (1)   25,118    22,114    20,988    20,266    19,856 
Provision for loan losses   2,118    55    (149)   15    53 
Tax-equivalent NII after provision for loan losses (1)   23,000    22,059    21,137    20,251    19,803 
Investment securities gains, net of impairment   267    -    -    151    227 
Non-interest income (excluding securities gains/losses)   9,873    10,549    8,293    8,375    8,348 
Non-interest expense   20,630    23,142    18,180    18,292    17,347 
Income taxes   3,677    3,857    3,436    2,994    3,307 
Net income   8,347    5,140    7,365    7,045    7,264 
Tax equivalent adjustment (1)   486    469    449    446    460 
At Period End                         
Total assets  $2,889,941   $2,928,697   $2,477,151   $2,450,040   $2,409,599 
Earning assets   2,596,674    2,639,325    2,261,068    2,240,747    2,200,517 
Loans   2,254,435    2,238,006    1,940,487    1,925,694    1,861,403 
Allowance for loan losses   25,915    25,749    25,884    25,923    25,948 
Deposits   2,326,702    2,373,789    1,981,628    1,927,686    1,920,270 
Stockholders’ equity   361,430    354,191    293,018    292,138    286,616 
Stockholders’ equity / assets   12.51%   12.09%   11.83%   11.92%   11.89%
Goodwill   98,065    90,768    61,798    61,798    61,798 
Average Balances                         
Total assets  $2,908,483   $2,622,402   $2,458,952   $2,425,535   $2,391,064 
Earning assets   2,591,397    2,355,544    2,226,868    2,194,170    2,162,574 
Loans   2,238,061    2,026,067    1,908,731    1,879,760    1,828,984 
Deposits and interest-bearing liabilities   2,516,024    2,275,724    2,133,868    2,103,054    2,079,442 
Deposits   2,346,336    2,109,637    1,954,631    1,929,368    1,903,139 
Stockholders’ equity   357,523    314,442    292,301    288,609    282,573 
Stockholders’ equity / assets   12.29%   11.99%   11.89%   11.90%   11.82%
Per Common Share Data                         
Net Income:                         
Basic  $0.82   $0.54   $0.82   $0.78   $0.81 
Diluted   0.82    0.54    0.81    0.78    0.80 
Dividends   0.25    0.25    0.22    0.22    0.22 
Market Value:                         
High  $56.90   $51.15   $52.31   $46.83   $41.21 
Low   48.78    46.27    36.91    35.90    37.53 
Close   52.68    49.51    50.74    44.64    38.85 
Common Book Value   35.61    34.92    32.62    32.53    31.95 
Shares outstanding, end of period (in thousands)   10,149    10,143    8,983    8,980    8,971 
Performance Ratios (annualized)                         
Tax-equivalent net interest margin (1)   3.89%   3.81%   3.76%   3.69%   3.71%
Return on average assets   1.15%   0.79%   1.19%   1.16%   1.22%
Return on average equity   9.36%   6.63%   10.02%   9.71%   10.34%
Efficiency ratio (2)   58.96%   70.85%   62.09%   63.87%   61.51%
Effective tax rate   30.58%   42.87%   31.81%   29.82%   31.28%
Common dividend payout ratio (basic)   30.49%   46.30%   26.83%   28.21%   27.16%

(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.

 

 11 

 

 

Selected Quarterly Information

First Defiance Financial Corp.

 

(dollars in thousands, except per share data)  2nd Qtr 2017   1st Qtr 2017   4th Qtr 2016   3rd Qtr 2016   2nd Qtr 2016 
Loan Portfolio Composition                         
One to four family residential real estate  $276,578   $276,931   $207,550   $209,097   $206,861 
Construction   234,688    199,724    182,886    177,075    161,282 
Commercial real estate   1,182,087    1,193,906    1,040,562    1,043,820    1,001,315 
Commercial   515,004    504,366    469,055    456,099    428,599 
Consumer finance   28,860    27,696    16,680    17,251    16,690 
Home equity and improvement   130,429    132,965    118,429    118,165    116,685 
Total loans   2,367,646    2,335,588    2,035,162    2,021,507    1,931,432 
Less:                         
Undisbursed loan funds   112,000    95,460    93,355    94,552    68,850 
Deferred loan origination fees   1,211    1,264    1,320    1,261    1,179 
Allowance for loan loss   25,915    25,749    25,884    25,923    25,948 
Net Loans  $2,228,520   $2,213,115   $1,914,603   $1,899,771   $1,835,455 
                          
Allowance for loan loss activity                         
Beginning allowance  $25,749   $25,884   $25,923   $25,948   $25,668 
Provision for loan losses   2,118    55    (149)   15    53 
Credit loss charge-offs:                         
One to four family residential real estate   -    49    147    111    37 
Commercial real estate   110    290    0    79    0 
Commercial   2,027    -    234    26    18 
Consumer finance   21    71    53    24    18 
Home equity and improvement   100    54    98    74    66 
Total charge-offs   2,258    464    532    314    139 
Total recoveries   306    274    642    274    366 
Net charge-offs (recoveries)   1,952    190    (110)   40    (227)
Ending allowance  $25,915   $25,749   $25,884   $25,923   $25,948 
                          
Credit Quality                         
Total non-performing loans (1)  $30,359   $15,057   $14,348   $18,198   $16,423 
Real estate owned (REO)   672    705    455    704    1,079 
Total non-performing assets (2)  $31,031   $15,762   $14,803   $18,902   $17,502 
Net charge-offs (recoveries)   1,952    190    (110)   40    (227)
                          
Restructured loans, accruing (3)   10,521    9,814    10,544    9,113    9,648 
                          
Allowance for loan losses / loans   1.15%   1.15%   1.33%   1.35%   1.39%
Allowance for loan losses / non-performing assets   83.51%   163.36%   174.86%   137.14%   148.26%
Allowance for loan losses / non-performing loans   85.36%   171.01%   180.40%   142.45%   158.00%
Non-performing assets / loans plus REO   1.38%   0.70%   0.76%   0.98%   0.94%
Non-performing assets / total assets   1.07%   0.54%   0.60%   0.77%   0.73%
Net charge-offs / average loans (annualized)   0.35%   0.04%   -0.02%   0.01%   -0.05%
                          
Deposit Balances                         
Non-interest-bearing demand deposits  $520,778   $579,943   $487,663   $443,321   $442,811 
Interest-bearing demand deposits and money market   967,834    973,459    816,665    810,393    805,550 
Savings deposits   288,643    288,498    243,369    241,016    240,316 
Retail time deposits less than $250,000   499,298    490,953    400,080    399,749    399,494 
Retail time deposits greater than $250,000   50,149    40,936    33,851    33,207    32,099 
Total deposits  $2,326,702   $2,373,789   $1,981,628   $1,927,686   $1,920,270 

 

(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.

 

 12 

 

 

Loan Delinquency Information

First Defiance Financial Corp.

 

(dollars in thousands)  Total Balance   Current   30 to 89 days
past due
   Non Accrual
Loans
 
                 
June 30, 2017                
One to four family residential real estate  $276,578   $270,729   $2,710   $3,139 
Construction   234,688    234,445    -    243 
Commercial real estate   1,182,087    1,161,810    1,370    18,907 
Commercial   515,004    506,996    545    7,463 
Consumer finance   28,860    28,594    215    51 
Home equity and improvement   130,429    128,668    1,205    556 
Total loans  $2,367,646   $2,331,242   $6,045   $30,359 
                     
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 
                     
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 

 

 13 

 


The following information was filed by First Defiance Financial Corp (FDEF) on Tuesday, July 18, 2017 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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First Defiance Financial Corp's Definitive Proxy Statement (Form DEF 14A) filed after their 2017 10-K Annual Report includes:

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Affordable Housing Projects Tax Credit Partnership
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First Defiance Financial Corp provided additional information to their SEC Filing as exhibits

Ticker: FDEF
CIK: 946647
Form Type: 10-Q Quarterly Report
Accession Number: 0001144204-17-040604
Submitted to the SEC: Fri Aug 04 2017 4:42:10 PM EST
Accepted by the SEC: Fri Aug 04 2017
Period: Friday, June 30, 2017
Industry: Savings Institution Federally Chartered

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