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First Defiance Financial Corp (FDEF) SEC Filing 8-K Material Event for the period ending Monday, January 22, 2018

First Defiance Financial Corp

CIK: 946647 Ticker: FDEF

Exhibit 99.1

 

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

 

 

 

 

For Immediate Release

 

FIRST DEFIANCE FINANCIAL CORP. REPORTS

RECORD FULL YEAR EARNINGS OF $3.22 PER SHARE FOR 2017

 

·Earnings per diluted share of $0.92 for 2017 fourth quarter, up from $0.81 per share in the fourth quarter of 2016
·Net income of $9.4 million for 2017 fourth quarter, compared to $7.4 million in the fourth quarter of 2016
·Net interest margin of 3.88% for the 2017 fourth quarter, compared to 3.76% in the fourth quarter of 2016
·Loan growth of $72.7 million during the 2017 fourth quarter
·Deposit growth of $77.0 million during the 2017 fourth quarter
·Non-performing loans of $30.7 million for 2017 fourth quarter, compared to $14.3 million for 2016 fourth quarter

 

DEFIANCE, OHIO (January 22, 2018) – First Defiance Financial Corp. (NASDAQ: FDEF) announced today that net income for the fiscal year ended December 31, 2017, totaled $32.3 million, or $3.22 per diluted common share, compared to $28.8 million or $3.19 per diluted common share for the year ended December 31, 2016.

 

For the fourth quarter of 2017, First Defiance earned $9.4 million, or $0.92 per diluted common share compared to $7.4 million or $0.81 per diluted common share for the fourth quarter of 2016. The fourth quarter of 2017 results included an increase of $428,000 pre-tax ($278,000 after-tax), or $0.03 per diluted share from changing trust revenues to accrual basis accounting and securities gains of $160,000 pre-tax ($104,000 after-tax), or $0.01 per diluted share. Also, on December 22, 2017, the Tax Cuts and Jobs Act was enacted that required the Company to revalue its deferred tax assets and deferred tax liabilities as of December 31, 2017, to account for the future impact of the lower corporate tax rate on these deferred amounts. As a result of this revaluation, an increase to tax expense and a reduction to earnings of $154,000, or $0.02 per diluted share, negatively impacted the fourth quarter of 2017. The increase in tax expense reflects the company’s current best estimate, and as information becomes available, the company may update this estimate.

 

“Our strong fourth quarter performance capped a very successful 2017 for First Defiance and provided substantial momentum as we progress into 2018. With fourth quarter earnings per share up 13.6% over last year, we’re pleased to announce our fifth consecutive year of record earnings performance,” said Donald P. Hileman, President and Chief Executive Officer of First Defiance Financial Corp. “While the new Tax Cuts and Jobs Act had only a minor impact on our fourth quarter earnings, we expect the lower tax rates to benefit future operations with added opportunities for growth, profitability and community investment.”

 

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Net interest income up compared to fourth quarter 2016

 

Net interest income of $25.4 million in the fourth quarter of 2017 was up from $20.5 million in the fourth quarter of 2016. The increase was mostly attributable to the added operations from the Commercial Savings Bank (“CSB”) merger completed earlier in 2017. Net interest margin was 3.88% for the fourth quarter of 2017, down from 3.91% in the third quarter of 2017, but up from 3.76% in the fourth quarter of 2016. Yield on interest earning assets increased by 19 basis points to 4.35% in the fourth quarter of 2017 up from 4.16% in the fourth quarter of 2016. The cost of interest-bearing liabilities increased by 9 basis points in the fourth quarter of 2017 to 0.62% from 0.53% in the fourth quarter of 2016.

 

“Our net interest income increase in the fourth quarter was driven by our strong balance sheet growth, while our margin tightened slightly in the quarter,” said Hileman. “Our loans and deposits expanded in the fourth quarter at annualized growth rates of 12.8% and 13.0% respectively, providing solid momentum for the new year.”

 

Non-interest income up from fourth quarter 2016

 

First Defiance’s non-interest income for the fourth quarter of 2017 was $9.9 million compared to $8.3 million in the fourth quarter of 2016. The increase in total non-interest income was largely due to the inclusion of operations from the CSB and Corporate One Benefits Agency, Inc. (“Corporate One”) mergers completed in 2017. In addition, the fourth quarter of 2017 included gains of $160,000 from the sale of securities and an increase in trust revenues of $428,000 attributable to a change to accrual basis accounting.

 

Mortgage banking income decreased to $1.7 million in the fourth quarter of 2017, down from $1.9 million in the fourth quarter of 2016 due to significantly lower refinancing volumes which were slightly offset by higher purchase volumes. Gains from the sale of mortgage loans decreased in the fourth quarter of 2017 to $1.1 million from $1.2 million in the fourth quarter of 2016. Mortgage loan servicing revenue was $945,000 in the fourth quarter of 2017, up slightly from $922,000 in the fourth quarter of 2016. First Defiance had a positive change in the valuation adjustment in mortgage servicing assets of $69,000 in the fourth quarter of 2017 compared to a positive adjustment of $241,000 in the fourth quarter of 2016.

 

For the fourth quarter of 2017, service fees and other charges were $3.1 million, up $365,000 from $2.7 million in the fourth quarter of 2016; and commissions from the sale of insurance products were $3.0 million, up $704,000 from $2.3 million in the fourth quarter of 2016. Trust income was $932,000 in the fourth quarter of 2017, up from $445,000 in the fourth quarter of 2016 and included $428,000 for the adjustment to accrual basis accounting.

 

“Total non-interest income in the fourth quarter grew $1.6 million, or 19.3% over the same quarter of last year, despite a decline in our mortgage business,” said Hileman. “We believe this demonstrates both the benefits of our mergers and the diversity of our revenues, as non-interest revenues from all other sources were up versus the prior year.”

  

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Non-interest expenses up from fourth quarter 2016

 

Total non-interest expense was $21.1 million in the fourth quarter of 2017, up from $18.2 million in the fourth 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 in the fourth quarter of 2017 was $12.3 million, an increase of $2.3 million compared to the fourth quarter of 2016. Occupancy expense was $2.0 million in the fourth quarter 2017, down $26,000 from the fourth quarter 2016. Data processing cost was $1.9 million in the fourth quarter of 2017, up $261,000 from the fourth quarter of 2016. Other non-interest expense was $4.0 million in the fourth quarter of 2017, increasing by $88,000 from the fourth quarter of 2016.

 

Credit quality

 

Non-performing loans totaled $30.7 million at December 31, 2017, an increase from $14.3 million at December 31, 2016. In addition, First Defiance had $1.5 million of real estate owned at December 31, 2017, up from $455,000 at December 31, 2016. Accruing troubled debt restructured loans were $13.8 million at December 31, 2017, an increase from $10.5 million at December 31, 2016.

 

The fourth quarter of 2017 results include net recoveries of $28,000 and a provision for loan losses of $314,000 compared with net recoveries of $110,000 and a credit provision of $149,000 for the same period in 2016.

 

The allowance for loan loss as a percentage of total loans was 1.14% at December 31, 2017, compared with 1.16% at September 30, 2017, and 1.33% at December 31, 2016. The decrease in the allowance for loan loss as a percentage of total loans versus a year ago 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 $3.9 million, or 1.9% of acquired CSB loans at December 31, 2017.

 

“Our non-performing loans to total assets at year-end remained relatively stable with the prior quarter at 1.08%; and importantly, net recoveries of $28,000 in the fourth quarter continued our favorable net loss experience from the previous quarter,” said Hileman. “Reducing our non-performing loans is a high priority in 2018.”

 

Annual results

 

Net income for the full year ended on December 31, 2017, totaled $32.3 million, or $3.22 per diluted common share, compared to $28.8 million or $3.19 per diluted common share for 2016. The year 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, 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 for 2017 totaled $96.7 million, compared with $78.9 million for 2016. Average interest-earning assets increased to $2.55 billion for 2017, compared to $2.17 billion in 2016. Net interest margin for 2017 was 3.88%, up 14 basis points from the 3.74% margin for 2016.

 

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The provision for loan losses for 2017 was $2.9 million, compared to $283,000 for 2016.

 

Non-interest income for the year 2017 was $40.1 million, compared to $34.0 million in 2016. The year 2017 includes the operating results from the CSB and Corporate One mergers completed in 2017, a $1.5 million enhancement value gain related to the purchase of bank owned life insurance in the first quarter of 2017, and the aforementioned increase in trust revenues of $428,000 related to a change to accrual basis accounting.

 

Service fees and other charges were $12.1 million for 2017, up from $10.9 million in 2016. Mortgage banking income decreased to $7.0 million for 2017, compared to $7.3 million in 2016. Gains on the sale of non-mortgage loans were $217,000 for 2017, compared to $753,000 in 2016. Insurance commissions increased to $12.9 million for 2017, compared to $10.4 million in 2016. Non-interest income for 2017 included $584,000 of net securities gains compared to $509,000 of net securities gains for 2016.

 

Non-interest expense increased to $85.4 million for 2017 from $71.1 million in 2016. Included in non-interest expense for 2017 were merger and conversion expenses of $4.0 million related to acquisitions. Compensation and benefits expense was $49.8 million for 2017 compared with $40.2 million for 2016. Expenses also included increases in occupancy expense of $289,000, data processing expense of $1.4 million, amortization of intangibles of $754,000 and other expense of $2.1 million.

 

Total assets at $2.99 billion

 

Total assets at December 31, 2017, were $2.99 billion compared to $2.48 billion at December 31, 2016. The increase reflected at December 31, 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 $2.32 billion at December 31, 2017, compared to $1.91 billion at December 31, 2016. The acquisition of CSB added $285.4 million to the loan portfolio. At December 31, 2017, excluding the CSB acquired loans; net loans receivable grew $121.9 million, or 6.4% from a year ago.

 

Also, at December 31, 2017, goodwill and other intangible assets totaled $104.3 million compared to $63.1 million at December 31, 2016. The increase in 2017 was attributable to the acquisitions of CSB and Corporate One which together added $42.4 to goodwill and intangibles.

 

Total deposits at December 31, 2017, were $2.44 billion compared with $1.98 billion at December 31, 2016. The acquisition of CSB added $308.0 million to total deposits. At December 31, 2017, excluding the CSB acquired deposits; total deposits grew $148.0 million, or 7.5% from a year ago.

 

Total stockholders’ equity was $373.3 million at December 31, 2017, compared to $293.0 million at December 31, 2016. The acquisition of CSB in 2017 added $56.5 million to total equity.

  

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Dividend to be paid February 23

 

The Board of Directors declared a quarterly cash dividend of $0.30 per common share payable February 23, 2018, to shareholders of record at the close of business on February 16, 2018. The dividend represents an annual dividend of 2.21 percent based on the First Defiance common stock closing price on January 19, 2018. First Defiance has approximately 10,157,000 common shares outstanding.

 

Conference call

First Defiance Financial Corp. will host a conference call at 11:00 a.m. ET on Tuesday, January 23, 2018 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 https://services.choruscall.com/links/fdef180123.html.

The replay of the conference call webcast will be available at www.fdef.com until 9:00 a.m. ET on Wednesday, January 23, 2019.

 

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 43 full-service branches and numerous ATM locations in northwest and central Ohio, southeast Michigan and northeast Indiana and a loan production office in Ann Arbor, Michigan. First Insurance Group, including its division Corporate One Benefits, is a full-service insurance agency with nine 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 December 31, 2017 consolidated financial statements as part of its Annual Report on Form 10-K 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.

        

   December 31,   December 31, 
(in thousands)  2017   2016 
         
Assets          
Cash and cash equivalents          
     Cash and amounts due from depository institutions  $58,693   $53,003 
     Interest-bearing deposits   55,000    46,000 
    113,693    99,003 
Securities          
     Available-for sale, carried at fair value   260,650    250,992 
     Held-to-maturity, carried at amortized cost   648    184 
    261,298    251,176 
           
Loans   2,348,713    1,940,487 
Allowance for loan losses   (26,683)   (25,884)
Loans, net   2,322,030    1,914,603 
Loans held for sale   10,435    9,607 
Mortgage servicing rights   9,808    9,595 
Accrued interest receivable   8,706    6,760 
Federal Home Loan Bank stock   15,992    13,798 
Bank Owned Life Insurance   66,230    52,817 
Office properties and equipment   40,217    36,958 
Real estate and other assets held for sale   1,532    455 
Goodwill   98,569    61,798 
Core deposit and other intangibles   5,703    1,336 
Deferred taxes   432    2,212 
Other assets   38,959    17,479 
     Total Assets  $2,993,604   $2,477,597 
           
Liabilities and Stockholders’ Equity          
Non-interest-bearing deposits  $571,360   $487,663 
Interest-bearing deposits   1,866,296    1,493,965 
      Total deposits   2,437,656    1,981,628 
Advances from Federal Home Loan Bank   84,279    103,943 
Notes payable and other interest-bearing liabilities   26,019    31,816 
Subordinated debentures   36,083    36,083 
Advance payments by borrowers for tax and insurance   2,925    2,650 
Other liabilities   33,356    28,459 
      Total Liabilities   2,620,318    2,184,579 
Stockholders’ Equity          
      Preferred stock   -    - 
      Common stock, net   127    127 
      Additional paid-in-capital   160,940    126,390 
      Accumulated other comprehensive income   217    215 
      Retained earnings   262,900    240,592 
      Treasury stock, at cost   (50,898)   (74,306)
      Total stockholders’ equity   373,286    293,018 
      Total Liabilities and Stockholders’ Equity  $2,993,604   $2,477,597 

  

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Consolidated Statements of Income (Unaudited)

First Defiance Financial Corp.              

 

   Three Months Ended   Twelve Months Ended 
   December 31,   December 31, 
(in thousands, except per share amounts)  2017   2016   2017   2016 
Interest Income:                    
     Loans  $26,277   $20,975   $99,540   $80,217 
     Investment securities   1,747    1,576    6,942    6,247 
     Interest-bearing deposits   281    80    836    367 
     FHLB stock dividends   222    139    784    552 
Total interest income   28,527    22,770    108,102    87,383 
Interest Expense:                    
     Deposits   2,461    1,648    8,818    6,261 
     FHLB advances and other   352    348    1,470    1,288 
     Subordinated debentures   252    205    935    753 
     Notes Payable   75    30    208    138 
Total interest expense   3,140    2,231    11,431    8,440 
Net interest income   25,387    20,539    96,671    78,943 
Provision for loan losses   314    (149)   2,949    283 
Net interest income after provision for loan losses   25,073    20,688    93,722    78,660 
Non-interest Income:                    
     Service fees and other charges   3,066    2,701    12,139    10,909 
     Mortgage banking income   1,738    1,928    7,004    7,270 
     Gain on sale of non-mortgage loans   45    149    217    753 
     Gain on sale of securities   160    -    584    509 
     Insurance commissions   3,032    2,328    12,866    10,441 
     Trust income   932    445    2,332    1,701 
     Income from Bank Owned Life Insurance   419    223    3,085    909 
     Other non-interest income   505    519    1,854    1,538 
Total Non-interest Income   9,897    8,293    40,081    34,030 
Non-interest Expense:                    
     Compensation and benefits   12,259    9,937    49,847    40,187 
     Occupancy   1,957    1,983    7,707    7,418 
     FDIC insurance premium   277    161    1,250    1,169 
     Financial institutions tax   400    442    1,819    1,781 
     Data processing   1,905    1,644    7,737    6,367 
     Amortization of intangibles   358    116    1,289    535 
     Other non-interest expense   3,985    3,897    15,702    13,636 
Total Non-interest Expense   21,141    18,180    85,351    71,093 
Income before income taxes   13,829    10,801    48,452    41,597 
Income taxes   4,430    3,436    16,184    12,754 
Net Income  $9,399   $7,365   $32,268   $28,843 
                     
                     
Earnings per common share:                    
    Basic  $0.93   $0.82   $3.23   $3.21 
    Diluted  $0.92   $0.81   $3.22   $3.19 
                     
Average Shares Outstanding:                    
     Basic   10,155    8,982    9,975    8,980 
     Diluted   10,222    9,060    10,034    9,053 

 

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Financial Summary and Comparison (Unaudited)

First Defiance Financial Corp.      

 

   Three Months Ended   Twelve Months Ended 
   December 31,   December 31, 
(dollars in thousands, except per share data)  2017   2016   % change   2017   2016   % change 
Summary of Operations                        
                         
Tax-equivalent interest income (2)  $29,009   $23,219    24.9%  $110,016   $89,213    23.3%
Interest expense   3,140    2,231    40.7    11,431    8,440    35.4 
Tax-equivalent net interest income (2)   25,869    20,988    23.3    98,585    80,773    22.1 
Provision for loan losses   314    (149)    NM     2,949    283     NM  
Tax-equivalent NII after provision for loan loss (2)   25,555    21,137    20.9    95,636    80,490    18.8 
Investment Securities gains   160    -     NM     584    509    14.7 
Non-interest income (excluding securities gains/losses)   9,737    8,293    17.4    39,497    33,521    17.8 
Non-interest expense   21,141    18,180    16.3    85,351    71,093    20.1 
Income taxes   4,430    3,436    28.9    16,184    12,754    26.9 
Net Income   9,399    7,365    27.6    32,268    28,843    11.9 
Tax equivalent adjustment (2)   482    449    7.3    1,914    1,830    4.6 
At Period End                              
Assets   2,993,604    2,477,597    20.8                
Earning assets   2,691,438    2,261,068    19.0                
Loans   2,348,713    1,940,487    21.0                
Allowance for loan losses   26,683    25,884    3.1                
Deposits   2,437,656    1,981,628    23.0                
Stockholders’ equity   373,286    293,018    27.4                
Average Balances                              
Assets   2,968,445    2,458,952    20.7    2,851,531    2,397,439    18.9 
Earning assets   2,646,643    2,226,868    18.9    2,545,261    2,168,046    17.4 
Loans   2,279,358    1,908,731    19.4    2,198,639    1,853,419    18.6 
Deposits and interest-bearing liabilities   2,560,258    2,133,868    20.0    2,464,952    2,080,444    18.5 
Deposits   2,400,061    1,954,631    22.8    2,298,712    1,905,621    20.6 
Stockholders’ equity   369,366    292,301    26.4    351,236    285,634    23.0 
Stockholders’ equity / assets   12.44%   11.89%   4.7    12.32%   11.91%   3.4 
Per Common Share Data                              
Net Income                              
     Basic  $0.93   $0.82    13.4   $3.23   $3.21    0.6 
     Diluted   0.92    0.81    13.6    3.22    3.19    0.9 
Dividends   0.25    0.22    13.6    1.00    0.88    13.6 
Market Value:                              
     High  $56.91   $52.31    8.8   $56.91   $52.31    8.8 
     Low   50.28    36.91    36.2    46.27    34.80    33.0 
     Close   51.97    50.74    2.4    51.97    50.74    2.4 
Common Book Value   36.76    32.62    12.7    36.76    32.62    12.7 
Tangible Common Book Value (1)   26.49    25.59    3.5    26.49    25.59    3.5 
Shares outstanding, end of period (000)   10,156    8,983    13.1    10,156    8,983    13.1 
Performance Ratios (annualized)                              
Tax-equivalent net interest margin (2)   3.88%   3.76%   3.3    3.88%   3.74%   3.7 
Return on average assets   1.26%   1.19%   5.4    1.13%   1.20%   (5.9)
Return on average equity   10.10%   10.02%   0.7    9.19%   10.10%   (9.0)
Efficiency ratio (3)   59.37%   62.09%   (4.4)   61.81%   62.20%   (0.6)
Effective tax rate   32.03%   31.81%   0.7    33.40%   30.66%   8.9 
Dividend payout ratio (basic)   26.88%   26.83%   0.2    30.96%   27.41%   12.9 

 

(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

 

 8 

 

 

Income from Mortgage Banking

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

            

   Three Months Ended   Twelve Months Ended 
   December 31,   December 31, 
(dollars in thousands)  2017   2016   2017   2016 
                 
Gain from sale of mortgage loans  $1,087   $1,208   $4,664   $5,311 
Mortgage loan servicing revenue (expense):                    
  Mortgage loan servicing revenue   945    922    3,714    3,560 
  Amortization of mortgage servicing rights   (363)   (443)   (1,464)   (1,724)
  Mortgage servicing rights valuation adjustments   69    241    90    123 
    651    720    2,340    1,959 
Total revenue from sale and servicing of mortgage loans  $1,738   $1,928   $7,004   $7,270 

 

 9 

 

 

Yield Analysis

First Defiance Financial Corp.                      

 

   Three Months Ended December 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  $2,279,358   $26,327    4.58%    $1,908,731   $21,028    4.38%
   Securities   261,328    2,179    3.35% (3)   243,456    1,972    3.30%(3)
   Interest Bearing Deposits   89,965    281    1.24%     60,881    80    0.52%
   FHLB stock   15,992    222    5.51%     13,800    139    4.01%
   Total interest-earning assets   2,646,643    29,009    4.35%     2,226,868    23,219    4.16%
   Non-interest-earning assets   321,802                232,084           
Total assets  $2,968,445               $2,458,952           
Deposits and Interest-bearing liabilities:                                
   Interest bearing deposits  $1,847,837   $2,461    0.53%    $1,484,531   $1,648    0.44%
   FHLB advances and other   94,773    352    1.47%     95,631    348    1.45%
   Subordinated debentures   36,161    252    2.76%     36,146    205    2.26%
   Notes payable   29,263    75    1.02%     47,460    30    0.25%
   Total interest-bearing liabilities   2,008,034    3,140    0.62%     1,663,768    2,231    0.53%
   Non-interest bearing deposits   552,224    -    -      470,100    -    - 
Total including non-interest-bearing demand deposits   2,560,258    3,140    0.49%     2,133,868    2,231    0.42%
Other non-interest-bearing liabilities   38,821                32,783           
Total liabilities   2,599,079                2,166,651           
   Stockholders' equity   369,366                292,301           
Total liabilities and stockholders' equity  $2,968,445               $2,458,952           
Net interest income; interest rate spread       $25,869    3.73%         $20,988    3.63%
Net interest margin (4)             3.88%               3.76%
Average interest-earning assets  to average interest bearing liabilities             132%               134%

 

 10 

 

 

   Twelve Months Ended December 31, 
   2017     2016 
   Average       Yield     Average       Yield 
   Balance   Interest(1)   Rate     Balance   Interest(1)   Rate 
Interest-earning assets:                                
   Loans receivable  $2,198,639   $99,742    4.54%    $1,853,419   $80,423    4.34%
   Securities   258,775    8,654    3.39% (3)   233,407    7,871    3.48%(3)
   Interest Bearing Deposits   72,215    836    1.16%     67,420    367    0.54%
   FHLB stock   15,632    784    5.02%     13,800    552    4.00%
   Total interest-earning assets   2,545,261    110,016    4.33%     2,168,046    89,213    4.13%
   Non-interest-earning assets   306,270                229,393           
Total assets  $2,851,531               $2,397,439           
Deposits and Interest-bearing liabilities:                                
   Interest bearing deposits  $1,769,786   $8,818    0.50%    $1,463,890   $6,261    0.43%
   FHLB advances and other   102,155    1,470    1.44%     85,856    1,288    1.50%
   Subordinated debentures   36,156    935    2.58%     36,141    753    2.09%
   Notes payable   27,929    208    0.74%     52,826    138    0.26%
   Total interest-bearing liabilities   1,936,026    11,431    0.59%     1,638,713    8,440    0.52%
   Non-interest bearing deposits   528,926    -    -      441,731    -    - 
Total including non-interest-bearing demand deposits   2,464,952    11,431    0.46%     2,080,444    8,440    0.41%
Other non-interest-bearing liabilities   35,343                31,361           
Total liabilities   2,500,295                2,111,805           
   Stockholders' equity   351,236                285,634           
Total liabilities and stockholders' equity  $2,851,531               $2,397,439           
Net interest income; interest rate spread       $98,585    3.74%         $80,773    3.61%
Net interest margin (4)             3.88%               3.74%
Average interest-earning assets  to average interest bearing liabilities             131%               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 tax equivalent net interest income divided by average interest-earning assets.

 

 11 

 

 

 Selected Quarterly Information

First Defiance Financial Corp.

            

(dollars in thousands, except per share data)  4th Qtr 2017   3rd Qtr 2017   2nd Qtr 2017   1st Qtr 2017   4th Qtr 2016 
Summary of Operations                    
Tax-equivalent interest income (1)  $29,009   $28,557   $27,944   $24,505   $23,219 
Interest expense   3,140    3,074    2,826    2,391    2,231 
Tax-equivalent net interest income (1)   25,869    25,483    25,118    22,114    20,988 
Provision for loan losses   314    462    2,118    55    (149)
Tax-equivalent NII after provision for loan losses (1)   25,555    25,021    23,000    22,059    21,137 
Investment securities gains, net of impairment   160    158    267    -    - 
Non-interest income (excluding securities gains/losses)   9,737    9,337    9,873    10,549    8,293 
Non-interest expense   21,141    20,440    20,630    23,142    18,180 
Income taxes   4,430    4,219    3,677    3,857    3,436 
Net income   9,399    9,381    8,347    5,140    7,365 
Tax equivalent adjustment (1)   482    476    486    469    449 
At Period End                         
Total assets  $2,993,604   $2,935,030   $2,890,507   $2,928,697   $2,477,151 
Earning assets   2,691,438    2,633,996    2,596,674    2,639,325    2,261,068 
Loans   2,348,713    2,276,042    2,254,435    2,238,006    1,940,487 
Allowance for loan losses   26,683    26,341    25,915    25,749    25,884 
Deposits   2,437,656    2,360,675    2,326,702    2,373,789    1,981,628 
Stockholders’ equity   373,286    367,924    361,430    354,191    293,018 
Stockholders’ equity / assets   12.47%   12.54%   12.50%   12.09%   11.83%
Goodwill   98,569    98,370    98,318    90,768    61,798 
Average Balances                         
Total assets  $2,968,445   $2,906,795   $2,908,483   $2,622,402   $2,458,952 
Earning assets   2,646,643    2,590,463    2,591,397    2,355,544    2,226,868 
Loans   2,279,358    2,251,071    2,238,061    2,026,067    1,908,731 
Deposits and interest-bearing liabilities   2,560,258    2,507,805    2,516,024    2,275,724    2,133,868 
Deposits   2,400,061    2,338,817    2,346,336    2,109,637    1,954,631 
Stockholders’ equity   369,366    363,612    357,523    314,442    292,301 
Stockholders’ equity / assets   12.44%   12.51%   12.29%   11.99%   11.89%
Per Common Share Data                         
Net Income:                         
 Basic  $0.93   $0.92   $0.82   $0.54   $0.82 
 Diluted   0.92    0.92    0.82    0.54    0.81 
Dividends   0.25    0.25    0.25    0.25    0.22 
Market Value:                         
 High  $56.91   $53.99   $56.90   $51.15   $52.31 
 Low   50.28    47.01    48.78    46.27    36.91 
 Close   51.97    52.49    52.68    49.51    50.74 
Common Book Value   36.76    36.25    35.61    34.92    32.62 
Shares outstanding, end of period (in thousands)   10,156    10,149    10,147    10,143    8,983 
Performance Ratios (annualized)                         
Tax-equivalent net interest margin (1)   3.88%   3.91%   3.89%   3.81%   3.76%
Return on average assets   1.26%   1.28%   1.15%   0.79%   1.19%
Return on average equity   10.10%   10.24%   9.36%   6.63%   10.02%
Efficiency ratio (2)   59.37%   58.70%   58.96%   70.85%   62.09%
Effective tax rate   32.03%   31.02%   30.58%   42.87%   31.81%
Common dividend payout ratio (basic)   26.88%   27.17%   30.49%   46.30%   26.83%

 

(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.

 

 12 

 

 

 Selected Quarterly Information

First Defiance Financial Corp.

                    

(dollars in thousands, except per share data)  4th Qtr 2017   3rd Qtr 2017   2nd Qtr 2017   1st Qtr 2017   4th Qtr 2016 
Loan Portfolio Composition                    
One to four family residential real estate  $274,862   $271,048   $276,578   $276,931   $207,550 
Construction   265,476    244,920    234,688    199,724    182,886 
Commercial real estate   1,235,221    1,205,695    1,182,087    1,193,906    1,040,562 
Commercial   526,142    510,240    515,004    504,366    469,055 
Consumer finance   29,109    29,009    28,860    27,696    16,680 
Home equity and improvement   135,457    132,220    130,429    132,965    118,429 
Total loans   2,466,267    2,393,132    2,367,646    2,335,588    2,035,162 
Less:                         
   Undisbursed loan funds   115,972    115,714    112,000    95,460    93,355 
   Deferred loan origination fees   1,582    1,379    1,211    1,264    1,320 
  Allowance for loan loss   26,683    26,341    25,915    25,749    25,884 
Net Loans  $2,322,030   $2,249,698   $2,228,520   $2,213,115   $1,914,603 
                          
Allowance for loan loss activity                         
Beginning allowance  $26,341   $25,915   $25,749   $25,884   $25,923 
Provision for loan losses   314    462    2,118    55    (149)
   Credit loss charge-offs:                         
     One to four family residential real estate   170    60    0    49    147 
     Commercial real estate   29    0    110    290    0 
     Commercial   210    64    2,027    0    234 
     Consumer finance   27    20    21    71    53 
     Home equity and improvement   55    92    100    54    98 
Total charge-offs   491    236    2,258    464    532 
Total recoveries   519    200    306    274    642 
Net charge-offs (recoveries)   (28)   36    1,952    190    (110)
Ending allowance  $26,683   $26,341   $25,915   $25,749   $25,884 
                          
Credit Quality                         
 Total non-performing loans (1)  $30,715   $29,152   $30,359   $15,057   $14,348 
Real estate owned (REO)   1,532    532    672    705    455 
 Total non-performing assets (2)  $32,247   $29,684   $31,031   $15,762   $14,803 
Net charge-offs (recoveries)   (28)   36    1,952    190    (110)
                          
Restructured loans, accruing (3)   13,770    13,044    10,521    9,814    10,544 
                          
Allowance for loan losses / loans   1.14%   1.16%   1.15%   1.15%   1.33%
Allowance for loan losses / non-performing assets   82.75%   88.74%   83.51%   163.36%   174.86%
Allowance for loan losses / non-performing loans   86.87%   90.36%   85.36%   171.01%   180.40%
Non-performing assets / loans plus REO   1.37%   1.30%   1.38%   0.70%   0.76%
Non-performing assets / total assets   1.08%   1.01%   1.07%   0.54%   0.60%
Net charge-offs / average loans (annualized)   0.00%   0.01%   0.35%   0.04%   -0.02%
                          
Deposit Balances                         
Non-interest-bearing demand deposits  $571,360   $519,911   $520,778   $579,943   $487,663 
Interest-bearing demand deposits and money market   1,005,519    989,514    967,834    973,459    816,665 
Savings deposits   302,022    296,230    288,643    288,498    243,369 
Retail time deposits less than $250,000   504,912    504,277    499,298    490,953    400,080 
Retail time deposits greater than $250,000   53,843    50,743    50,149    40,936    33,851 
Total deposits  $2,437,656   $2,360,675   $2,326,702   $2,373,789   $1,981,628 

 

(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.

 

 13 

 

 

Loan Delinquency Information

First Defiance Financial Corp.        

 

(dollars in thousands)  Total Balance   Current   30 to 89 days past due   Non Accrual Loans 
                 
December 31, 2017                
One to four family residential real estate  $274,862   $269,624   $2,201   $3,037 
Construction   265,476    265,476    -    - 
Commercial real estate   1,235,221    1,215,980    1,022    18,219 
Commercial   526,142    515,874    1,427    8,841 
Consumer finance   29,109    28,728    353    28 
Home equity and improvement   135,457    131,986    2,881    590 
Total loans  $2,466,267   $2,427,668   $7,884   $30,715 
                     
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 

  

 14 

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First Defiance Financial Corp provided additional information to their SEC Filing as exhibits

Ticker: FDEF
CIK: 946647
Form Type: 8-K Corporate News
Accession Number: 0001144204-18-003159
Submitted to the SEC: Tue Jan 23 2018 9:14:38 AM EST
Accepted by the SEC: Tue Jan 23 2018
Period: Monday, January 22, 2018
Industry: Savings Institution Federally Chartered
Events:
  1. Earnings Release
  2. Financial Exhibit
  3. Other Events

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