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First Defiance Financial Corp. Announces 2014 Third Quarter Earnings

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First Defiance Financial Corp. (NASDAQ:FDEF) announced today that net income for the third quarter ended September 30, 2014 totaled $7.1 million, or $0.71 per diluted common share, compared to $5.5 million or $0.54 per diluted common share for the third quarter ended September 30, 2013.

“We are very pleased with our strong financial performance in the third quarter,” said Donald P. Hileman, President, and Chief Executive Officer of First Defiance Financial Corp. “Loan growth, revenue growth, profitability, and credit quality each showed significant improvement from a year ago.”

The third quarter 2014 results were positively impacted by $299,000 after tax gains on the sale of securities, a $903,000 tax-free benefit from a bank owned life insurance policy and a $498,000 tax- free gain realized through the company’s deferred compensation plan trust. Additional net adjustments to income taxes of $250,000, which included the write-off of a portion of unused deferred tax assets, negatively impacted third quarter 2014 results.

Net Interest Income up compared to third quarter 2013

Net interest income of $17.7 million in the third quarter of 2014 was up from $17.2 in the third quarter of 2013. Net interest margin was 3.73% for the third quarter of 2014, up from 3.62% in the second quarter 2014, but down from 3.84% in the third quarter of 2013. Yield on interest earning assets declined by 14 basis points, to 4.06% in the third quarter of 2014 from 4.20% in the third quarter of 2013. The cost of interest-bearing liabilities decreased by 3 basis points in the third quarter of 2014 to 0.43% from 0.46% in the third quarter of 2013.

“Loan demand was particularly robust this quarter with contributions from each of our market areas including our new loan production office in Columbus, Ohio,” said Hileman. “Most significantly, the added loans enabled us to improve our earning asset mix leading to increased net interest margin and net interest income.”

Non-Interest Income up from third quarter 2013

First Defiance’s non-interest income for the third quarter of 2014 was $9.4 million compared with $7.3 million in the third quarter of 2013. The third quarter 2014 included $460,000 of gains on the sale of securities, a $903,000 tax-free benefit from a bank-owned life insurance policy and a $498,000 tax-free gain realized through the company’s deferred compensation plan trust.

Mortgage banking income decreased to $1.5 million in the third quarter of 2014, down from $1.8 million in the third quarter of 2013, primarily due to a lower valuation adjustment in mortgage servicing assets. First Defiance had a positive change in the valuation adjustment of $68,000 in the third quarter of 2014 compared with a positive adjustment of $480,000 in the third quarter of 2013. Mortgage loans sold were up 11% from the second quarter 2014, but down 23% from the third quarter a year ago primarily due to lower refinance volumes impacted by higher rates. Gains from the sale of mortgage loans increased in the third quarter of 2014 to $973,000 from $894,000 in the third quarter of 2013. Mortgage loan servicing revenue was $870,000 in the third quarter of 2014, slightly down from $901,000 in the third quarter of 2013.

For the third quarter 2014, income from the sale of insurance and investment products was $2.4 million and service fees and other charges were $2.7 million, up 6.3% and 2.1% respectively from the third quarter of 2013. Trust income was $315,000 in the third quarter of 2014 up 25.5% from the third quarter of 2013.

“Our non-interest income revenues were very healthy on a core basis this quarter,” continued Hileman. “We had solid increases in our insurance and wealth management business divisions, and mortgage performance remained steady.”

Non-Interest Expenses up from third quarter 2013

Total non-interest expense was $16.8 million in the third quarter of 2014, an increase from $16.1 million in the third quarter of 2013.

Compensation and benefits increased to $9.3 million in the third quarter of 2014 compared to $8.7 in the third quarter of 2013. The increase was mainly due to merit increases for salaries, higher health plan costs, increased sales commissions and higher accruals for bonus payments based on meeting performance targets. Other non-interest expense increased to $3.2 million in the third quarter of 2014 from $3.1 million in the third quarter of 2013.

Credit Quality

Non-performing loans totaled $22.5 million at September 30, 2014, a decrease of 26.2% from $30.5 million at September 30, 2013. In addition, First Defiance had $5.3 million of real estate owned at September 30, 2014 compared to $5.5 million at September 30, 2013. Accruing troubled debt restructured loans were $26.6 million at September 30, 2014 compared with $28.0 million at September 30, 2013. For the third quarter of 2014, First Defiance recorded net charge-offs of $466,000, down from $782,000 in the third quarter of 2013. The allowance for loan loss as a percentage of total loans was 1.50% at September 30, 2014 compared with 1.66% at September 30, 2013.

The third quarter results include expense for provision for loan losses of $406,000, compared with $476,000 for the same period in 2013.

“Asset quality improvement continued to progress during the third quarter with reductions in classified assets, nonperforming loans and other real estate,” said Hileman. “Our allowance for loan losses now stands at 109% of our non-accruing loan balances.”

Year-To-Date Results

For the nine month period ended September 30, 2014, net interest income totaled $51.6 million compared with $50.6 million in the first nine months of 2013. Average interest-earning assets increased to $1.941 billion in the first nine months of 2014, compared to $1.821 billion in the first nine months of 2013. Net interest margin for the first nine months of 2014 was 3.65%, down 17 basis points from the 3.82% margin reported in the nine month period ended September 30, 2013.

The provision for loan losses in the first nine months of 2014 was $955,000, compared to $1.3 million recorded during the first nine months of 2013.

Non-interest income for the first nine months of 2014 was $24.3 million, compared to $24.2 million during the same period of 2013. Service fees and other charges were $7.5 million for the first nine months of 2014, basically even with the same period of 2013. Mortgage banking income decreased to $4.3 million for the first nine months of 2014, compared with $7.1 million during the same period of 2013. Insurance and investment sales revenues increased to $7.6 million for the first nine months of 2014, compared with $7.5 million in same period of 2013. Non-interest income for the first nine months of 2014 included $931,000 of gain on the sale of securities compared with $97,000 during the same period of 2013. The first nine months of 2014 also included a $903,000 tax-free benefit from a bank owned life insurance policy and a $498,000 tax-free gain realized through the company’s deferred compensation plan trust.

Non-interest expense was $49.8 million for the first nine months of 2014; up slightly from the $49.1 million during the same period of 2013. Compensation and benefits expense was $26.5 million for the first nine months of 2014 compared with $26.0 million during the same period of 2013. Decreases in FDIC insurance premiums of $169,000, state taxes not based on income of $313,000 and amortization of intangibles of $113,000 were offset by increases in data processing of $521,000, primarily due to increased volumes in electronic banking and expenses to support growth strategies, and other expenses of $437,000, which included the $786,000 cost recorded in the first quarter for terminating a merger agreement.

Total Assets at $2.15 Billion

Total assets at September 30, 2014 were $2.15 billion compared to $2.14 billion at December 31, 2013 and $2.06 billion at September 30, 2013. Net loans receivable (excluding loans held for sale) were $1.61 billion at September 30, 2014 compared to $1.56 billion at December 31, 2013 and $1.54 billion at September 30, 2013. Total cash and cash equivalents were $96.7 million at September 30, 2014 compared with $179.3 million at December 31, 2013 and $127.6 million at September 30, 2013. Also, at September 30, 2014, goodwill and other intangible assets totaled $64.2 million compared to $65.0 million at December 31, 2013 and $65.3 million at September 30, 2013.

Total deposits at September 30, 2014 were $1.73 billion compared with $1.74 billion at December 31, 2013, and $1.66 billion at September 30, 2013. Non-interest bearing deposits at September 30, 2014 were $340.6 million compared to $348.9 million at December 31, 2013 and $300.9 million at September 30, 2013. Total stockholders’ equity was $278.2 million at September 30, 2014 compared to $272.1 million at December 31, 2013 and $269.4 million at September 30, 2013.

Dividend to be Paid November 21

The Board of Directors declared a quarterly cash dividend of $0.175 per common share payable November 21, 2014 to shareholders of record at the close of business on November 14, 2014. The dividend represents an annual dividend of 2.54 percent based on the First Defiance common stock closing price on October 17, 2014. First Defiance has approximately 9,354,760 common shares outstanding.

Share Repurchase Program

In a separate action, the Board of Directors authorized a new share repurchase program of up to 5%, or approximately 469,000 shares, of the common stock outstanding. Repurchases will be made periodically depending on market conditions and other factors. The repurchased shares will be held as treasury stock and will be available for general corporate purposes, including employee stock option plans. The exact number of shares to be repurchased by the company is not guaranteed. Purchases under the First Defiance Financial Corp. stock repurchase program may be made periodically, in the open market, through block trades and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Commission or otherwise, and also in privately negotiated transactions. Depending on market conditions and other factors, these purchases may be commenced or suspended at any time or periodically without prior notice.

“Earlier this month, we completed the authorization from a year ago to repurchase our shares,” stated Hileman. “Capital management is a key strategic focus for our company, and we believe that the new authorization to repurchase our stock represents an opportunity to continue offering additional value to our shareholders.”

Conference Call

First Defiance Financial Corp. will host a conference call at 11:00 a.m. ET on Tuesday, October 21, 2014 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/fdef141021.html.

Audio replay of the Internet Webcast will be available at www.fdef.com until November 21, 2014 at 9:00 a.m. ET

First Defiance Financial Corp.

First Defiance Financial Corp., headquartered in Defiance, Ohio, is the holding company for First Federal Bank of the Midwest and First Insurance Group. First Federal operates 33 full-service branches and 43 ATM locations in northwest Ohio, southeast Michigan and northeast Indiana. First Insurance Group is a full-service insurance agency with five 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 of the Company 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 the Company 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 the Company’s Securities and Exchange Commission (SEC) filings, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. One or more of these factors have affected or could in the future affect the Company’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 the Company or any other persons, that the objectives and plans of the Company will be achieved. All forward-looking statements made in this news release are based on information presently available to the management of the Company. The Company assumes no obligation to update any forward-looking statements.

Consolidated Balance Sheets (Unaudited)
First Defiance Financial Corp.
September 30, December 31, September 30,
(in thousands) 2014 2013 2013
Assets
Cash and cash equivalents
Cash and amounts due from depository institutions $ 36,654 $ 36,318 $ 42,629
Interest-bearing deposits 60,000 143,000 85,000
96,654

179,318

127,629
Securities

Available-for sale, carried at fair value 238,367 198,170 184,119
Held-to-maturity, carried at amortized cost 323 387 407
238,690 198,557 184,526
Loans 1,636,266 1,580,448 1,561,279
Allowance for loan losses (24,567 ) (24,950 ) (25,964 )
Loans, net 1,611,699 1,555,498 1,535,315
Loans held for sale 5,738 9,120 13,391
Mortgage servicing rights 9,053 9,106 9,182
Accrued interest receivable 6,903 5,778 6,425
Federal Home Loan Bank stock 13,802 19,350 19,350
Bank Owned Life Insurance 46,795 42,715 42,504
Office properties and equipment 39,988 38,597 39,066
Real estate and other assets held for sale 5,326 5,859 5,518
Goodwill 61,525 61,525 61,525
Core deposit and other intangibles 2,664 3,497 3,793
Deferred taxes - 565 2,253
Other assets 12,242 7,663 7,953
Total Assets $ 2,151,079 $ 2,137,148 $ 2,058,430
Liabilities and Stockholders’ Equity
Non-interest-bearing deposits $ 340,575 $ 348,943 $ 300,891
Interest-bearing deposits 1,390,070 1,386,849 1,357,601
Total deposits 1,730,645 1,735,792 1,658,492
Advances from Federal Home Loan Bank 21,790 22,520 22,761
Notes payable and other interest-bearing liabilities 60,089 51,919 50,822
Subordinated debentures 36,083 36,083 36,083
Advance payments by borrowers for tax and insurance 1,848 1,519 1,752
Deferred Taxes 876
Other liabilities 21,515 17,168 19,161
Total Liabilities 1,872,846 1,865,001 1,789,071
Stockholders’ Equity
Preferred stock -
Common stock, net 127 127 127
Common stock warrant 878 878 878
Additional paid-in-capital 136,194 136,403 136,257
Accumulated other comprehensive income 3,301 545 282
Retained earnings 195,877 182,290 178,181
Treasury stock, at cost (58,144 ) (48,096 ) (46,366 )
Total stockholders’ equity 278,233 272,147 269,359
Total Liabilities and Stockholders’ Equity $ 2,151,079 $ 2,137,148 $ 2,058,430
Consolidated Statements of Income (Unaudited)
First Defiance Financial Corp.
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except per share amounts) 2014 2013 2014 2013
Interest Income:
Loans $ 17,365 $ 17,197 $ 50,894 $ 51,040
Investment securities 1,720 1,390 4,855 4,199
Interest-bearing deposits 64 44 283 174
FHLB stock dividends 137 205 502 631
Total interest income 19,286 18,836 56,534 56,044
Interest Expense:

Deposits 1,304 1,356 3,989 4,514
FHLB advances and other 131 116 397 298
Subordinated debentures 147 150 439 452
Notes Payable 41 58 121 178
Total interest expense 1,623 1,680 4,946 5,442
Net interest income 17,663 17,156 51,588 50,602
Provision for loan losses 406 476 955 1,349
Net interest income after provision for loan losses 17,257 16,680 50,633 49,253
Non-interest Income:
Service fees and other charges 2,660 2,605 7,492 7,539
Mortgage banking income 1,545 1,846 4,332 7,119
Gain on sale of non-mortgage loans 40 35 79 52
Gain on sale of securities 460 931 97
Insurance commissions 2,366 2,225 7,640 7,538
Trust income 315 251 895 695
Income from Bank Owned Life Insurance 1,130 212 1,584 672
Other non-interest income 840 170 1,346 535
Total Non-interest Income 9,356 7,344 24,299 24,247
Non-interest Expense:
Compensation and benefits 9,287 8,718 26,468 25,991
Occupancy 1,613 1,719 4,905 5,022
FDIC insurance premium 350 326 1,088 1,257
Financial institutions tax 515 580 1,524 1,837
Data processing 1,489 1,318 4,333 3,812
Amortization of intangibles 269 296 832 945
Other non-interest expense 3,248 3,143 10,639 10,202
Total Non-interest Expense 16,771 16,100 49,789 49,066
Income before income taxes 9,842 7,924 25,143 24,434
Income taxes 2,773 2,445 7,206 7,286
Net Income $ 7,069 $ 5,479 $ 17,937 $ 17,148
Earnings per common share:
Basic $ 0.75 $ 0.56 $ 1.87 $ 1.76
Diluted $ 0.71 $ 0.54 $ 1.79 $ 1.69
Average Shares Outstanding:
Basic 9,445 9,780 9,577 9,763
Diluted 9,903 10,212 10,031 10,160
Financial Summary and Comparison (Unaudited)
First Defiance Financial Corp.
Three Months Ended Nine Months Ended

September 30,

September 30,

(dollars in thousands, except per share data) 2014 2013 % change 2014 2013 % change
Summary of Operations
Tax-equivalent interest income (1) $ 19,751 $ 19,242 2.6 % $ 57,871 $ 57,270 1.0 %
Interest expense 1,623 1,680 (3.4 ) 4,946 5,442 (9.1 )
Tax-equivalent net interest income (1) 18,128 17,562 3.2 52,925 51,828 2.1
Provision for loan losses 406 476 (14.7 ) 955 1,349 (29.2 )
Tax-equivalent NII after provision for loan loss (1) 17,722 17,086 3.7 51,970 50,479 3.0
Investment Securities gains 460 NM 931 97 859.8
Non-interest income (excluding securities gains/losses) 8,896 7,289 22.0 23,368 24,000 (2.6 )
Non-interest expense 16,771 16,045 4.5 49,789 48,916 1.8
Income taxes 2,773 2,445 13.4 7,206 7,286 (1.1 )
Net Income 7,069 5,479 29.0 17,937 17,148 4.6
Tax equivalent adjustment (1) 465 406 14.5 1,337 1,226 9.1
At Period End
Assets 2,151,079 2,058,430 4.5
Earning assets 1,954,496 1,863,546 4.9
Loans 1,636,266 1,561,279 4.8
Allowance for loan losses 24,567 25,964 (5.4 )
Deposits 1,730,645 1,658,492 4.4
Stockholders’ equity 278,233 269,359 3.3
Average Balances
Assets 2,153,226 2,026,277 6.3 2,155,027 2,028,297 6.2
Earning assets 1,934,651 1,816,626 6.5 1,941,412 1,820,565 6.6
Loans 1,586,652 1,548,718 2.4 1,561,118 1,523,216 2.5
Deposits and interest-bearing liabilities 1,853,271 1,741,850 6.4 1,857,139 1,744,342 6.5
Deposits 1,738,494 1,632,712 6.5 1,745,276 1,642,754 6.2
Stockholders’ equity 276,968 265,488 4.3 275,734 263,135 4.8
Stockholders’ equity / assets 12.86 % 13.10 % (1.8 ) 12.79 % 12.97 % (1.4 )
Per Common Share Data
Net Income
Basic $ 0.75 $ 0.56 33.9 $ 1.87 $ 1.76 6.3
Diluted 0.71 0.54 31.5 1.79 1.69 5.9
Dividends 0.15 0.10 50.0 0.45 0.30 50.0
Market Value:
High $ 29.00 $ 28.46 1.9 $ 29.00 $ 28.46 1.9
Low 26.99 22.49 20.0 24.24 18.42 31.6
Close 27.01 23.39 15.5 27.01 23.39 15.5
Common Book Value 29.60 27.44 7.9 29.60 27.44 7.9
Tangible Common Book Value 22.75 20.76 9.6 22.75 20.76 9.6
Shares outstanding, end of period (000) 9,371 9,785 (4.2 ) 9,371 9,776 (4.1 )
Performance Ratios (annualized)
Tax-equivalent net interest margin (1) 3.73 % 3.84 % (2.8 ) 3.65 % 3.82 % (4.3 )
Return on average assets 1.30 % 1.07 % 21.4 1.11 % 1.13 % (1.6 )
Return on average equity 10.13 % 8.19 % 23.7 8.70 % 8.71 % (0.2 )
Efficiency ratio (2) 62.06 % 64.56 % (3.9 ) 65.26 % 64.51 % 1.2
Effective tax rate 28.18 % 30.86 % (8.7 ) 28.66 % 29.82 % (3.9 )
Dividend payout ratio (basic) 20.00 % 17.86 % 12.0 24.06 % 17.05 % 41.2
(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 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 Nine Months Ended
September 30, September 30,
(dollars in thousands) 2014 2013 2014 2013
Gain from sale of mortgage loans $ 973 $ 894 $ 2,601 $ 4,960
Mortgage loan servicing revenue (expense):
Mortgage loan servicing revenue 870 901 2,652 2,646
Amortization of mortgage servicing rights (366 ) (429 ) (1,026 ) (1,752 )
Mortgage servicing rights valuation adjustments 68 480 105 1,265
572 952 1,731 2,159
Total revenue from sale and servicing of mortgage loans $ 1,545 $ 1,846 $ 4,332 $ 7,119
Yield Analysis
First Defiance Financial Corp.
Three Months Ended September 30,
(dollars in thousands)
2014 2013
Average Yield Average Yield
Balance Interest(1) Rate(2) Balance Interest(1) Rate(2)
Interest-earning assets:
Loans receivable $ 1,586,652 $ 17,406 4.35 % $ 1,548,718 $ 17,214 4.41 %
Securities 235,459 2,144 3.70 % 184,413 1,779 3.83 %
Interest Bearing Deposits 98,738 64 0.26 % 64,142 44 0.27 %
FHLB stock 13,802 137 3.94 % 19,353 205 4.20 %
Total interest-earning assets 1,934,651 19,751 4.06 % 1,816,626 19,242 4.20 %
Non-interest-earning assets 218,575 209,651
Total assets $ 2,153,226 $ 2,026,277
Deposits and Interest-bearing liabilities:
Interest bearing deposits $ 1,396,698 $ 1,304 0.37 % $ 1,330,467 $ 1,356 0.40 %
FHLB advances and other 21,872 131 2.38 % 21,003 116 2.19 %
Subordinated debentures 36,129 147 1.61 % 36,130 150 1.65 %
Notes payable 56,776 41 0.29 % 52,005 58 0.44 %
Total interest-bearing liabilities 1,511,475 1,623 0.43 % 1,439,605 1,680 0.46 %
Non-interest bearing deposits 341,796 302,245
Total including non-interest-bearing demand deposits 1,853,271 1,623 0.35 % 1,741,850 1,680 0.38 %
Other non-interest-bearing liabilities 22,987 18,939
Total liabilities 1,876,258 1,760,789
Stockholders’ equity 276,968 265,488
Total liabilities and stockholders’ equity $ 2,153,226 $ 2,026,277
Net interest income; interest rate spread $ 18,128 3.63 % $ 17,562 3.74 %
Net interest margin (3) 3.73 % 3.84 %
Average interest-earning assets to average interest bearing liabilities 128 % 126 %
Nine Months Ended September 30,
2014 2013
Average Yield Average Yield
Balance Interest(1) Rate Balance Interest(1) Rate
Interest-earning assets:
Loans receivable $ 1,561,118 $ 50,996 4.37 % $ 1,523,216 $ 51,092 4.48 %
Securities 218,527 6,091 3.83 % 192,309 5,373 3.74 %
Interest Bearing Deposits 146,798 283 0.26 % 85,483 174 0.27 %
FHLB stock 14,969 502 4.48 % 19,557 631 4.31 %
Total interest-earning assets 1,941,412 57,872 3.99 % 1,820,565 57,270 4.21 %
Non-interest-earning assets 213,615 207,732
Total assets $ 2,155,027 $ 2,028,297
Deposits and Interest-bearing liabilities:
Interest bearing deposits $ 1,401,481 $ 3,989 0.38 % $ 1,343,564 $ 4,514 0.45 %
FHLB advances and other 22,117 397 2.40 % 16,078 298 2.48 %
Subordinated debentures 36,132 439 1.62 % 36,134 452 1.67 %
Notes payable 53,614 121 0.30 % 49,376 178 0.48 %
Total interest-bearing liabilities 1,513,344 4,946 0.44 % 1,445,152 5,442 0.50 %
Non-interest bearing deposits 343,795 299,190
Total including non-interest-bearing demand deposits 1,857,139 4,946 0.36 % 1,744,342 5,442 0.42 %
Other non-interest-bearing liabilities 22,154 20,820
Total liabilities 1,879,293 1,765,162
Stockholders’ equity 275,734 263,135
Total liabilities and stockholders’ equity $ 2,155,027 $ 2,028,297
Net interest income; interest rate spread $ 52,926 3.55 % $ 51,828 3.70 %
Net interest margin (3) 3.65 % 3.82 %
Average interest-earning assets to average interest bearing liabilities 128 % 126 %
(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) Net interest margin is net interest income divided by average interest-earning assets.
Selected Quarterly Information
First Defiance Financial Corp.
(dollars in thousands, except per share data) 3rd Qtr 2014 2nd Qtr 2014 1st Qtr 2014 4th Qtr 2013 3rd Qtr 2013
Summary of Operations
Tax-equivalent interest income (1) $ 19,751 $ 19,221 $ 18,900 $ 19,143 $ 19,242
Interest expense 1,623 1,645 1,678 1,728 1,680
Tax-equivalent net interest income (1) 18,128 17,576 17,222 17,415 17,562
Provision for loan losses 406 446 103 475 476
Tax-equivalent NII after provision for loan losses (1) 17,722 17,130 17,119 16,940 17,086
Investment securities gains, net of impairment 460 471 (337 )
Non-interest income (excluding securities gains/losses) 8,896 7,146 7,326 6,869 7,344
Non-interest expense 16,771 16,357 16,661 15,987 16,100
Income taxes 2,773 2,254 2,179 1,991 2,445
Net income 7,069 5,689 5,179 5,087 5,479
Tax equivalent adjustment (1) 465 447 426 406 406
At Period End
Total assets $ 2,151,079 $ 2,151,490 $ 2,163,659 $ 2,137,148 $ 2,058,430
Earning assets 1,954,496 1,949,729 1,965,225 1,950,475 1,863,546
Loans 1,636,266 1,581,984 1,563,953 1,580,448 1,561,279
Allowance for loan losses 24,567 24,627 24,783 24,950 25,964
Deposits 1,730,645 1,741,812 1,760,617 1,735,792 1,658,492
Stockholders’ equity 278,233 276,449 274,877 272,147 269,359
Stockholders’ equity / assets 12.93 % 12.85 % 12.70 % 12.73 % 13.09 %
Goodwill 61,525 61,525 61,525 61,525 61,525
Average Balances
Total assets $ 2,153,226 $ 2,165,486 $ 2,146,369 $ 2,124,109 $ 2,026,277
Earning assets 1,934,651 1,952,440 1,937,145 1,915,508 1,816,626
Loans 1,586,652 1,551,799 1,544,902 1,543,057 1,548,718
Deposits and interest-bearing liabilities 1,853,271 1,865,824 1,852,322 1,833,291 1,741,850
Deposits 1,738,494 1,756,098 1,741,237 1,719,319 1,632,712
Stockholders’ equity 276,968 276,490 273,745 270,856 265,488
Stockholders’ equity / assets 12.86 % 12.77 % 12.75 % 12.75 % 13.10 %
Per Common Share Data
Net Income:
Basic $ 0.75 $ 0.59 $ 0.53 $ 0.52 $ 0.56
Diluted 0.71 0.57 0.51 0.50 0.54
Dividends 0.15 0.15 0.15 0.10 0.10
Market Value:
High $ 29.00 $ 29.00 $ 28.23 $ 27.25 $ 28.46
Low 26.99 26.50 24.24 23.31 22.49
Close 27.01 28.70 27.12 25.97 23.39
Common Book Value 29.60 28.96 28.38 27.91 27.44
Shares outstanding, end of period (in thousands) 9,371 9,515 9,653 9,720 9,785
Performance Ratios (annualized)
Tax-equivalent net interest margin (1) 3.73 % 3.62 % 3.61 % 3.61 % 3.84 %
Return on average assets 1.30 % 1.05 % 0.98 % 0.95 % 1.07 %
Return on average equity 10.13 % 8.25 % 7.67 % 7.45 % 8.19 %
Efficiency ratio (2) 62.06 % 66.16 % 67.87 % 65.75 % 64.56 %
Effective tax rate 28.18 % 28.38 % 29.61 % 28.13 % 30.86 %
Common dividend payout ratio (basic) 20.00 % 25.42 % 28.30 % 19.23 % 17.86 %
(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) 3rd Qtr 2014 2nd Qtr 2014 1st Qtr 2014 4th Qtr 2013 3rd Qtr 2013
Loan Portfolio Composition
One to four family residential real estate $ 209,135 $ 199,886 $ 196,940 $ 195,752 $ 191,984
Construction 116,809 108,478 82,049 86,058 59,567
Commercial real estate 834,443 801,923 809,071 819,618 821,115
Commercial 392,465 390,055 380,144 388,236 386,160
Consumer finance 16,616 15,800 16,346 16,902 16,659
Home equity and improvement 111,151 108,460 106,632 106,930 105,727
Total loans 1,680,619 1,624,602 1,591,182 1,613,496 1,581,212
Less:
Loans in process 43,548 41,874 26,487 32,290 19,189
Deferred loan origination fees 805 744 742 758 744
Allowance for loan loss 24,567 24,627 24,783 24,950 25,964
Net Loans $ 1,611,699 $ 1,557,357 $ 1,539,170 $ 1,555,498 $ 1,535,315
Allowance for loan loss activity
Beginning allowance $ 24,627 $ 24,783 $ 24,950 $ 25,964 $ 26,270
Provision for loan losses 406 446 103 475 476
Credit loss charge-offs:
One to four family residential real estate 95 42 228 175 78
Commercial real estate 246 39 228 1,097 829
Commercial 1,272 973 525 670 39
Consumer finance 16 12 11 7 33
Home equity and improvement 42 80 184 144 170
Total charge-offs 1,671 1,146 1,176 2,093 1,149
Total recoveries 1,205 544 906 604 367
Net charge-offs (recoveries) 466 602 270 1,489 782
Ending allowance $ 24,567 $ 24,627 $ 24,783 $ 24,950 $ 25,964
Credit Quality
Total non-performing loans (1) $ 22,525 $ 24,863 $ 26,774 $ 27,847 $ 30,512
Real estate owned (REO) 5,326 5,554 6,028 5,859 5,518
Total non-performing assets (2) $ 27,851 $ 30,417 $ 32,802 $ 33,706 $ 36,030
Net charge-offs 466 602 270 1,489 782
Restructured loans, accruing (3) 26,579 26,975 26,654 27,630 28,010
Allowance for loan losses / loans 1.50 % 1.56 % 1.58 % 1.58 % 1.66 %
Allowance for loan losses / non-performing assets 88.21 % 80.96 % 75.55 % 74.02 % 72.06 %
Allowance for loan losses / non-performing loans 109.07 % 99.05 % 92.56 % 89.60 % 85.09 %
Non-performing assets / loans plus REO 1.70 % 1.92 % 2.09 % 2.12 % 2.30 %
Non-performing assets / total assets 1.29 % 1.41 % 1.52 % 1.58 % 1.75 %
Net charge-offs / average loans (annualized) 0.12 % 0.16 % 0.07 % 0.39 % 0.20 %
Deposit Balances
Non-interest-bearing demand deposits $ 340,575 $ 355,268 $ 338,412 $ 348,943 $ 300,891
Interest-bearing demand deposits and money market 739,292 717,506 740,783 715,939 681,987
Savings deposits 197,464 200,626 199,361 185,121 182,271
Retail time deposits less than $100,000 289,326 299,288 309,758 313,335 318,317
Retail time deposits greater than $100,000 163,988 169,124 172,303 172,454 175,026
National/Brokered time deposits -
Total deposits $ 1,730,645 $ 1,741,812 $ 1,760,617 $ 1,735,792 $ 1,658,492
(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
September 30, 2014
One to four family residential real estate $ 209,135 $ 205,428 $ 654 $ 3,053
Construction 116,809 116,809 - -
Commercial real estate 834,443 820,502 68 13,873
Commercial 392,465 386,266 669 5,530
Consumer finance 16,616 16,524 92 -
Home equity and improvement 111,151 109,937 1,145 69
Total loans $ 1,680,619 $ 1,655,466 $ 2,628 $ 22,525
December 31, 2013
One to four family residential real estate $ 195,752 $ 190,854 $ 1,625 $ 3,273
Construction 86,058 86,058
Commercial real estate 819,618 803,218 566 15,834
Commercial 388,236 379,889 20 8,327
Consumer finance 16,902 16,771 131
Home equity and improvement 106,930 105,211 1,306 413
Total loans $ 1,613,496 $ 1,582,001 $ 3,648 $ 27,847
September 30, 2013
One to four family residential real estate $ 191,984 $ 188,065 $ 760 $ 3,159
Construction 59,567 59,567
Commercial real estate 821,115 802,115 574 18,426
Commercial 386,160 377,116 295 8,749
Consumer finance 16,659 16,616 43
Home equity and improvement 105,727 103,997 1,552 178
Total loans $ 1,581,212 $ 1,547,476 $ 3,224 $ 30,512

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