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--()--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.”

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.”

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.

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.

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.

     
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  
 
                   
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
 
                             
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.

NM

Percentage change not meaningful

 
                     
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  
 
                                 
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%
 
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.

 
                     
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.

 
                     
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.

 
                 
Loan Delinquency Information
First Defiance Financial Corp.
       
30 to 89 days Non Accrual
(dollars in thousands)   Total Balance   Current   past due   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

Contacts

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

Release Summary

FIRST DEFIANCE FINANCIAL CORP. REPORTS RECORD FULL YEAR EARNINGS OF $3.22 PER SHARE FOR 2017

Contacts

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