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Section 1: 8-K (FORM 8-K)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): October 21, 2019

 

  FIRST DEFIANCE FINANCIAL CORP.    
  (Exact name of registrant as specified in its charter)  

 

OHIO  0-26850  34-1803915
(State or other jurisdiction of
incorporation)
  (Commission File No.)  (IRS Employer I.D. No.)

 

  601 Clinton Street, Defiance, Ohio 43512    
  (Address of principal executive offices) (Zip Code)  

 

Registrant’s telephone number, including area code: (419) 782-5015

 

  Not Applicable    
  (Former name or former address, if changed since last report)  

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405) of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

Section 2 – Financial Information.

 

Item 2.02Results of Operations and Financial Condition.

 

On October 21, 2019, First Defiance Financial Corp. (“FDEF”) issued a press release regarding its earnings for the quarter ended September 30, 2019. A copy of the press release is attached as Exhibit 99.1.

 

Section 7 – Regulation FD.

 

Item 7.01Regulation FD Disclosure.

 

On October 21, 2019, FDEF issued a press release that included announcement of a cash dividend. A copy of the press release is attached as Exhibit 99.1 and incorporated herein by reference.

 

Section 9 – Financial Statements and Exhibits

 

Item 9.01Financial Statements and Exhibits.

 

(d)             Exhibits.

 

Exhibit
Number
  Description
     
99.1   Press Release, dated October 21, 2019

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  FIRST DEFIANCE FINANCIAL CORP.
 
 
  By: /s/ Donald P. Hileman
    Donald P. Hileman
    President and Chief Executive Officer

 

Date: October 21, 2019

 

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Section 2: EX-99.1 (EXHIBIT 99.1)

 

Exhibit 99.1

 

 

 

 

 

Contact:   

NEWS RELEASE

 

 

Donald P. Hileman

President and CEO

(419) 782-5104

[email protected]

 

 

For Immediate Release

 

FIRST DEFIANCE FINANCIAL CORP. ANNOUNCES 2019

THIRD QUARTER EARNINGS

 

·         Quarterly dividend increased 29.4% to $0.22 per share, up from $0.17 per share paid in the 2018 fourth quarter

·         Diluted earnings per share of $0.66 for the 2019 third quarter, up from $0.55 in the 2018 third quarter

·         Net income of $13.2 million for the 2019 third quarter, up from $11.3 million in the 2018 third quarter

·         Return on average assets of 1.58% for the 2019 third quarter, up from 1.47% in the 2018 third quarter

·         Loan growth of $41 million during the 2019 third quarter

·         Deposit growth of $80 million during the 2019 third quarter

·         Non-performing assets of $14.7 million for the 2019 third quarter, compared to $22.6 million for 2018 third quarter

·         Announces strategic merger with UCFC and a Trust acquisition

 

DEFIANCE, OHIO (October 21, 2019) – First Defiance Financial Corp. (NASDAQ: FDEF) announced today its unaudited financial results for the three- and nine-month periods ended September 30, 2019. Net income for the third quarter ended September 30, 2019, totaled $13.2 million, or $0.66 per diluted common share compared to $11.3 million or $0.55 per diluted common share for the quarter ended September 30, 2018. Net income for the nine months ended September 30, 2019, totaled $36.9 million, or $1.85 per diluted common share compared to $34.2 million or $1.67 per diluted common share for the quarter ended September 30, 2018. The year-to-year comparison is impacted by the current year’s results, including merger-related costs, which had an after tax cost of $427,000, or $0.02 per diluted share.

 

“Our third quarter results reflect our company’s continued high financial performance,” said Donald P. Hileman, President and Chief Executive Officer of First Defiance Financial Corp. “With earnings per share up 20% from the third quarter last year, our shareholders were delivered excellent results as we grew our balance sheet and maintained strong profitability.”

 

Net Interest Income up Compared to Third Quarter 2018

 

Net interest income of $28.9 million in the third quarter of 2019 was up from $27.5 million in the third quarter of 2018. The increase was primarily due to the growth in earning assets offset partly by compression in the net interest margin versus the third quarter last year. The net interest margin was 3.88% for the third quarter of 2019, down from 4.03% in the second quarter of 2019 and 4.00% in the third quarter of 2018. Yield on interest earning assets increased by 15 basis points, to 4.78% in the third quarter of 2019 from 4.63% in the third quarter of 2018. The cost of interest-bearing liabilities increased by 35 basis points in the third quarter of 2019 to 1.20% from 0.85% in the third quarter of 2018.

 

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“Our solid loan and core deposit growth helped generate growth in net interest income despite margin compression,” said Hileman. “Year-to-date loan growth was 6.6% annualized while deposit growth was 7.1%. This growth combined with a net interest margin that remains healthy for the quarter produced a 5% increase in our net interest income over the third quarter last year.”

 

Non-Interest Income up from Third Quarter 2018

 

First Defiance’s non-interest income for the third quarter of 2019 was $11.8 million compared with $9.9 million in the third quarter of 2018. The third quarter of 2019 included gains of $11,000 from the sale of securities compared to gains of $76,000 in the third quarter of 2018. Results for the third quarter of 2019 included $325,000 of BOLI income death benefit whereas the third quarter of 2018 included no BOLI income death benefit. Total income from BOLI was $783,000 in the third quarter of 2019, up from $399,000 in the third quarter of 2018.

 

Mortgage banking income was $2.8 million in the third quarter of 2019, up from $1.9 million in the third quarter of 2018. Mortgage originations totaled $126.9 million in the third quarter of 2019 compared to $74.0 million in the same quarter last year. As a result of the higher volumes, gains from the sale of mortgage loans increased in the third quarter of 2019 to $2.6 million from $1.3 million in the third quarter of 2018. Mortgage loan servicing revenue was $960,000 in the third quarter of 2019, up from $929,000 in the third quarter of 2018, and amortization of mortgage servicing rights increased to $579,000 from $340,000 in the third quarter last year. Valuation adjustments in the third quarter of 2019 were a negative $155,000 compared to a positive $8,000 in the third quarter of 2018.

 

Service fees and other charges were $4.0 million in the third quarter of 2019, up from $3.3 million in the third quarter of 2018. Insurance commissions and trust income for the third quarters 2019 and 2018 were consistent year over year at $3.3 million and $0.5 million, respectively.

 

“Key business lines drove our 16% growth in non-interest income over the third quarter last year, excluding BOLI death benefits,” said Hileman. “This growth was led by a 50% increase in mortgage banking and a 21% increase in services fees year over year.”

 

Non-Interest Expenses up from Third Quarter 2018

 

Total non-interest expense was $23.2 million in the third quarter of 2019, an increase from $22.3 million in the third quarter of 2018. Compensation and benefits increased to $14.1 million in the third quarter of 2019, compared to $12.9 million in the third quarter of 2018. Occupancy expense and data processing expense were $2.2 million and $1.7 million, respectively, in the third quarter of 2019, compared to $2.2 million and $2.2 million, respectively, in the third quarter of 2018. Other non-interest expense of $4.1 million in the third quarter of 2019 was up from $4.0 million in the third quarter of 2018. FDIC insurance premiums were a credit of $255,000 in the third quarter of 2019 compared to an expense of $255,000 in the third quarter of 2018 due to the receipt of small bank assessment credits. In addition, merger-related costs totaled $540,000 in the third quarter of 2019 compared to none in the prior year.

 

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Credit Quality

 

Non-performing loans totaled $14.7 million at September 30, 2019, a decrease from $20.9 million at September 30, 2018. In addition, First Defiance had no real estate owned at September 30, 2019, compared to $1.7 million at September 30, 2018. Accruing troubled debt restructured loans were $10.3 million at September 30, 2019, compared with $12.6 million at September 30, 2018.

 

The third quarter 2019 results include net charge-offs of $11,000 and a provision for loan losses of $1.3 million compared with net charge-offs of $1.1 million and a provision of $1.4 million for the same period in 2018. The allowance for loan loss as a percentage of total loans was 1.13% at September 30, 2019, consistent with 1.13% at September 30, 2018.

 

“We continue to be pleased with the steady improvement in our non-performing assets,” said Hileman. “Total non-performing assets including troubled debt restructurings declined 29% from last year, now representing only 0.74% of assets compared to 1.18% a year ago.”

 

Year-To-Date Results

 

For the nine-month period ended September 30, 2019, net income totaled $36.9 million, or $1.85 per diluted common share, compared to $34.2 million, or $1.67 per diluted common share for the nine months ended September 30, 2018. The year-to-year comparison is impacted by the prior year’s results, including a significant loan recovery and a loan loss provision expense of $704,000, which had an after-tax cost of $556,000, or $0.03 per diluted share. The first nine months of 2019 included a provision for loan losses expense of $1,821,000, which had an after-tax cost of $1,439,000, or $0.07 per diluted share.

 

Net interest income was $86.2 million for the first nine months of 2019 compared with $79.8 million in the first nine months of 2018. Average interest-earning assets increased to $2.92 billion in the first nine months of 2019 compared to $2.71 billion in the first nine months of 2018. Net interest margin for the first nine months of 2019 was 3.98%, up one basis point from the 3.97% margin reported in the nine-month period ended September 30, 2018.

 

Non-interest income for the first nine months of 2019 was $33.1 million compared to $30.8 million during the same period of 2018. Results for the first nine months of 2019 included $418,000 of BOLI income death benefit compared to $168,000 for the same period in 2018.

 

Service fees and other charges were $10.3 million for the first nine months of 2019, up from $9.8 million during the same period of 2018. Mortgage banking income was $6.8 million for the first nine months of 2019 compared with $5.6 million during the same period of 2018. Insurance commissions were $11.0 million for the first nine months of 2019 consistent with $11.0 million for the same period of 2018. Non-interest income for the first nine months of 2019 included $11,000 of gains from the sale of securities compared with securities gains of $76,000 during the same period of 2018.

 

Non-interest expense was $72.3 million for the first nine months of 2019, up from $68.2 million for the same period of 2018. Compensation and benefits expense was $42.5 million for the first nine months of 2019 compared with $39.0 million during the same period of 2018. Expenses also included increases in occupancy of $500,000, merger-related costs of $540,000 and other expenses of $217,000. FDIC insurance premiums were $276,000 for the first nine months of 2019 compared to $817,000 during the same period of 2018 due to the receipt of small bank assessment credits in the third quarter of 2019.

 

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Total Assets at $3.35 Billion

 

Total assets at September 30, 2019, were $3.35 billion compared to $3.18 billion at December 31, 2018, and $3.10 billion at September 30, 2018. Net loans receivable (excluding loans held for sale) were $2.64 billion at September 30, 2019, compared to $2.51 billion at December 31, 2018, and $2.43 billion at September 30, 2018. Also, at September 30, 2019, goodwill and other intangible assets totaled $104.1 million compared to $103.0 million at December 31, 2018, and $103.3 million at September 30, 2018. Total deposits at September 30, 2019, were $2.76 billion compared with $2.62 billion at December 31, 2018, and $2.52 billion at September 30, 2018.

 

Total stockholders’ equity was $418.0 million at September 30, 2019, compared to $399.6 million at December 31, 2018, and $393.5 million at September 30, 2018. The change in stockholders’ equity from year-end 2018 was impacted by the company’s repurchase of 515,000 shares of its common stock for $15.1 million during the first quarter of 2019. During the quarter ended June 30, 2019, the company announced a new 500,000 share repurchase plan authorization with all such shares available for repurchase as of September 30, 2019.

 

Strategic Mergers and Acquisitions

 

On September 9, 2019, First Defiance and United Community Financial Corp. (NASDAQ: UCFC) (“United Community”) announced the signing of a definitive merger agreement under which United Community will merge into First Defiance in a stock-for-stock transaction. Under the terms of the merger agreement, shareholders of United Community will receive 0.3715 shares of First Defiance common stock for each share of United Community common stock. The merger combines two complementary banking platforms, and First Defiance and United Community consider this partnership an ideal strategic, financial and operational fit, particularly given their respective strong and consistent performance over time. The pro forma combined company will have approximately $6.1 billion in assets, $5.0 billion in loans and $4.9 billion in deposits, utilizing financial information as of June 30, 2019. It will leverage the respective strengths of each institution in commercial banking, residential lending, retail banking, insurance and wealth management and better position the combined company to serve the geographies of Ohio, Michigan, Indiana, Pennsylvania and West Virginia with increased scale and expanded product offerings. The transaction is expected to close early in the first quarter of 2020, subject to the approval of shareholders of both First Defiance and United Community and regulatory approvals, as well as satisfaction or waiver of other customary closing conditions.

 

On September 30, 2019, First Defiance, through its wholly owned subsidiary First Federal Bank of the Midwest (“First Federal Bank”), completed the acquisition of Strategic Investment Advisors, LLC (“SIA”), a financial advisory and brokerage firm. Located in Sylvania, Ohio, with assets under management of approximately $115 million and annual revenues of approximately $0.6 million, SIA will be added to First Federal Bank’s Trust and Wealth Management platform.

 

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Dividend to be Paid November 22

 

The Board of Directors declared a quarterly cash dividend of $0.22 per common share payable November 22, 2019, to shareholders of record at the close of business on November 15, 2019. This represents an increase of 15.8% from the prior quarter and 29.4% from the prior year. The dividend represents an annual dividend of 3.02 percent based on the First Defiance common stock closing price on October 18, 2019. First Defiance has approximately 19,728,588 common shares outstanding.

 

Conference Call

 

First Defiance Financial Corp. will host a conference call at 11:00 a.m. ET on Tuesday, October 22, 2019, 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/fdef191022.html. The replay of the conference call webcast will be available at www.fdef.com until October 21, 2020, at 9:00 a.m. ET.

 

First Defiance Financial Corp.

 

First Defiance Financial Corp. (NASDAQ:FDEF), headquartered in Defiance, Ohio, is the holding company for First Federal Bank of the Midwest and First Insurance Group. First Federal Bank operates 44 full-service branches in northwest and central Ohio, southeast Michigan and northeast Indiana and a loan production office in Ann Arbor, Michigan. First Insurance Group 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, 2018. One or more of these factors have affected or could in the future affect First Defiance's business and financial results in future periods and could cause actual results to differ materially from plans and projections. Therefore, there can be no assurances that the forward-looking statements included in this news release will prove to be accurate. In light of the significant uncertainties in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by First Defiance or any other persons, that our objectives and plans will be achieved. All forward-looking statements made in this news release are based on information presently available to the management of First Defiance. We assume no obligation to update any forward-looking statements.

 

As required by U.S. GAAP, First Defiance will evaluate the impact of subsequent events through the issuance date of its September 30, 2019, consolidated financial statements as part of its Quarterly Report on Form 10-Q to be filed with the SEC. Accordingly, subsequent events could occur that may cause First Defiance to update its critical accounting estimates and to revise its financial information from that which is contained in this news release.

 

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Consolidated Balance Sheets (Unaudited)

First Defiance Financial Corp.

 

   September 30,   December 31, 
(in thousands)  2019   2018 
         
Assets          
Cash and cash equivalents          
     Cash and amounts due from depository institutions  $56,994   $55,962 
     Interest-bearing deposits   55,000    43,000 
    111,994    98,962 
Securities          
     Available-for sale, carried at fair value   290,054    294,076 
     Held-to-maturity, carried at amortized cost   481    526 
    290,535    294,602 
           
Loans   2,665,300    2,540,039 
Allowance for loan losses   (30,250)   (28,331)
Loans, net   2,635,050    2,511,708 
Loans held for sale   22,909    6,613 
Mortgage servicing rights   9,859    10,119 
Accrued interest receivable   11,386    9,641 
Federal Home Loan Bank stock   11,915    14,217 
Bank Owned Life Insurance   75,088    67,660 
Office properties and equipment   39,911    40,670 
Real estate and other assets held for sale   -    1,205 
Goodwill   100,069    98,569 
Core deposit and other intangibles   4,052    4,391 
Other assets   37,956    23,365 
     Total Assets  $3,350,724   $3,181,722 
           
Liabilities and Stockholders’ Equity          
Non-interest-bearing deposits  $604,129   $607,198 
Interest-bearing deposits   2,156,486    2,013,684 
      Total deposits   2,760,615    2,620,882 
Advances from Federal Home Loan Bank   85,095    85,189 
Notes payable and other interest-bearing liabilities   2,851    5,741 
Subordinated debentures   36,083    36,083 
Advance payments by borrowers for tax and insurance   5,504    3,652 
Deferred taxes   1,871    264 
Other liabilities   40,659    30,322 
      Total Liabilities   2,932,678    2,782,133 
Stockholders’ Equity          
      Preferred stock   -    - 
      Common stock, net   127    127 
      Additional paid-in-capital   161,577    161,593 
      Accumulated other comprehensive income (loss)   5,101    (2,148)
      Retained earnings   321,736    295,588 
      Treasury stock, at cost   (70,495)   (55,571)
      Total stockholders’ equity   418,046    399,589 
      Total Liabilities and Stockholders’ Equity  $3,350,724   $3,181,722 

 

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Consolidated Statements of Income (Unaudited)

First Defiance Financial Corp.

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
(in thousands, except per share amounts)  2019   2018   2019   2018 
Interest Income:                    
     Loans  $33,284   $29,371   $97,158   $83,557 
     Investment securities   1,952    2,077    6,295    5,967 
     Interest-bearing deposits   312    275    857    945 
     FHLB stock dividends   135    240    533    698 
Total interest income   35,683    31,963    104,843    91,167 
Interest Expense:                    
     Deposits   6,029    3,753    16,615    9,508 
     FHLB advances and other   431    342    1,011    943 
     Subordinated debentures   329    334    1,043    934 
     Notes Payable   2    5    23    19 
Total interest expense   6,791    4,434    18,692    11,404 
Net interest income   28,892    27,529    86,151    79,763 
Provision for loan losses   1,327    1,376    1,821    704 
Net interest income after provision for loan losses   27,565    26,153    84,330    79,059 
Non-interest Income:                    
     Service fees and other charges   4,027    3,335    10,335    9,762 
     Mortgage banking income   2,822    1,877    6,800    5,632 
     Gain on sale of non-mortgage loans   105    33    215    300 
     Gain on sale of securities   11    76    11    76 
     Insurance commissions   3,263    3,254    10,994    11,024 
     Trust income   511    514    1,510    1,588 
     Income from Bank Owned Life Insurance   783    399    1,702    1,365 
     Other non-interest income   320    434    1,574    1,092 
Total Non-interest Income   11,842    9,922    33,141    30,839 
Non-interest Expense:                    
     Compensation and benefits   14,061    12,882    42,544    39,016 
     Occupancy   2,206    2,154    6,751    6,251 
     FDIC insurance premium   (255)   255    276    817 
     Financial institutions tax   555    531    1,667    1,593 
     Data processing   1,728    2,161    6,292    6,349 
     One time acquisition related charges   540    -    540    - 
     Amortization of intangibles   264    319    839    998 
     Other non-interest expense   4,104    3,984    13,395    13,178 
Total Non-interest Expense   23,203    22,286    72,304    68,202 
Income before income taxes   16,204    13,789    45,167    41,696 
Income taxes   3,033    2,483    8,315    7,544 
Net Income  $13,171   $11,306   $36,852   $34,152 
                     
                     
Earnings per common share:                    
    Basic  $0.67   $0.55   $1.86   $1.68 
    Diluted  $0.66   $0.55   $1.85   $1.67 
                     
Average Shares Outstanding:                    
     Basic   19,790    20,400    19,862    20,373 
     Diluted   19,875    20,467    19,943    20,465 

 

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Financial Summary and Comparison (Unaudited)

First Defiance Financial Corp.

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
(dollars in thousands, except per share data)  2019   2018   % change   2019   2018   % change 
Summary of Operations                        
                         
Tax-equivalent interest income (2)  $35,922   $32,220    11.5%  $105,578   $91,913    14.9%
Interest expense   6,791    4,434    53.2    18,692    11,404    63.9 
Tax-equivalent net interest income (2)   29,131    27,786    4.8    86,886    80,509    7.9 
Provision for loan losses   1,327    1,376    (3.6)   1,821    704    158.7 
Tax-equivalent NII after provision for loan loss (2)   27,804    26,410    5.3    85,065    79,805    6.6 
Investment securities gains   11    76    -    11    76    - 
Non-interest income (excluding securities gains/losses)   11,831    9,846    20.2    33,130    30,763    7.7 
Non-interest expense   23,203    22,286    4.1    72,304    68,202    6.0 
Income taxes   3,033    2,483    22.2    8,315    7,544    10.2 
Net Income   13,171    11,306    16.5    36,852    34,152    7.9 
Tax equivalent adjustment (2)   239    257    (7.0)   735    746    (1.5)
At Period End                              
Assets   3,350,724    3,098,093    8.2                
Earning assets   3,045,659    2,810,624    8.4                
Loans   2,665,300    2,456,357    8.5                
Allowance for loan losses   30,250    27,639    9.4                
Deposits   2,760,615    2,524,431    9.4                
Stockholders’ equity   418,046    393,457    6.2                
Average Balances                              
Assets   3,303,013    3,059,225    8.0    3,236,674    3,018,632    7.2 
Earning assets   2,985,498    2,754,561    8.4    2,923,809    2,710,998    7.8 
Loans   2,624,314    2,403,932    9.2    2,567,646    2,352,514    9.1 
Deposits and interest-bearing liabilities   2,843,079    2,633,054    8.0    2,788,974    2,599,540    7.3 
Deposits   2,718,632    2,513,708    8.2    2,679,616    2,478,526    8.1 
Stockholders’ equity   411,041    389,361    5.6    401,597    381,506    5.3 
Stockholders’ equity / assets   12.44%   12.73%   (2.2)   12.41%   12.64%   (1.8)
Per Common Share Data                              
Net Income                              
     Basic  $0.67   $0.55    21.8   $1.86   $1.68    10.7 
     Diluted   0.66    0.55    20.0    1.85    1.67    10.8 
Dividends   0.19    0.17    11.8    0.57    0.47    21.3 
Market Value:                              
     High  $29.44   $35.00    (15.9)  $31.30   $35.00    (10.6)
     Low   25.50    29.61    (13.9)   24.12    25.51    (5.4)
     Close   28.97    30.11    (3.8)   28.97    30.11    (3.8)
Common Book Value   21.19    19.29    9.8    21.19    19.29    9.8 
Tangible Common Book Value (1)   15.91    14.23    11.8    15.91    14.23    11.8 
Shares outstanding, end of period (000)   19,729    20,396    (3.3)   19,729    20,396    (3.3)
Performance Ratios (annualized)                              
Tax-equivalent net interest margin (2)   3.88%   4.00%   (2.9)   3.98%   3.97%   0.2 
Return on average assets   1.58%   1.47%   7.9    1.52%   1.51%   0.6 
Return on average equity   12.71%   11.52%   10.4    12.27%   11.97%   2.5 
Efficiency ratio (3)   56.65%   59.22%   (4.3)   60.25%   61.29%   (1.7)
Effective tax rate   18.72%   18.01%   3.9    18.41%   18.09%   1.7 
Dividend payout ratio (basic)   28.36%   30.91%   (8.3)   30.65%   27.98%   9.5 

 

(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 21%
(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   Nine Months Ended 
   September 30,   September 30, 
(dollars in thousands)  2019   2018   2019   2018 
                 
Gain from sale of mortgage loans  $2,596   $1,280   $5,672   $3,744 
Mortgage loan servicing revenue (expense):                    
  Mortgage loan servicing revenue   960    929    2,842    2,806 
  Amortization of mortgage servicing rights   (579)   (340)   (1,256)   (1,009)
  Mortgage servicing rights valuation adjustments   (155)   8    (458)   91 
    226    597    1,128    1,888 
Total revenue from sale and servicing of mortgage loans  $2,822   $1,877   $6,800   $5,632 

 

9

 

 

Yield Analysis

First Defiance Financial Corp.

 

   Three Months Ended September 30, 
   (dollars in thousands) 
   2019   2018 
   Average       Yield   Average       Yield 
   Balance   Interest(1)   Rate(2)   Balance   Interest(1)   Rate(2) 
Interest-earning assets:                              
Loans receivable  $2,624,314   $33,306    5.04%  $2,403,932   $29,397    4.85%
Securities   293,876    2,169    2.99% (3)   286,507    2,308    3.16% (3)
Interest Bearing Deposits   55,393    312    2.23%   49,734    275    2.19%
FHLB stock   11,915    135    4.50%   14,388    240    6.62%
Total interest-earning assets   2,985,498    35,922    4.78%   2,754,561    32,220    4.63%
Non-interest-earning assets   317,515              304,664           
Total assets  $3,303,013             $3,059,225           
Deposits and Interest-bearing liabilities:                              
Interest bearing deposits  $2,129,306   $6,029    1.12%  $1,955,518   $3,753    0.76%
FHLB advances and other   85,339    431    2.00%   77,719    342    1.75%
Subordinated debentures   36,083    329    3.62%   36,196    334    3.66%
Notes payable   3,025    2    0.26%   5,431    5    0.37%
Total interest-bearing liabilities   2,253,753    6,791    1.20%   2,074,864    4,434    0.85%
Non-interest bearing deposits   589,326    -    -    558,190    -    - 
Total including non-interest-bearing demand deposits   2,843,079    6,791    0.95%   2,633,054    4,434    0.67%
Other non-interest-bearing liabilities   48,893              36,810           
Total liabilities   2,891,972              2,669,864           
Stockholders' equity   411,041              389,361           
Total liabilities and stockholders' equity  $3,303,013             $3,059,225           
Net interest income; interest rate spread       $29,131    3.58%       $27,786    3.78%
Net interest margin (4)             3.88%             4.00%
Average interest-earning assets  to average interest bearing liabilities             132%             133%

 

   Nine Months Ended September 30, 
   2019   2018 
   Average       Yield   Average       Yield 
   Balance   Interest(1)   Rate   Balance   Interest(1)   Rate 
Interest-earning assets:                              
Loans receivable  $2,567,646   $97,227    5.06%  $2,352,514   $83,633    4.75%
Securities   296,312    6,961    3.14% (3)    276,745    6,637    3.21% (3) 
Interest Bearing Deposits   47,360    857    2.42%   66,283    945    1.91%
FHLB stock   12,491    533    5.71%   15,456    698    6.04%
Total interest-earning assets   2,923,809    105,578    4.83%   2,710,998    91,913    4.53%
Non-interest-earning assets   312,865              307,634           
Total assets  $3,236,674             $3,018,632           
Deposits and Interest-bearing liabilities:                              
Interest bearing deposits  $2,094,693   $16,615    1.06%  $1,925,972   $9,508    0.66%
FHLB advances and other   68,920    1,011    1.96%   74,634    943    1.69%
Subordinated debentures   36,083    1,043    3.86%   36,195    934    3.45%
Notes payable   4,355    23    0.71%   10,185    19    0.25%
Total interest-bearing liabilities   2,204,051    18,692    1.13%   2,046,986    11,404    0.74%
Non-interest bearing deposits   584,923    -    -    552,554    -    - 
Total including non-interest-bearing demand deposits   2,788,974    18,692    0.90%   2,599,540    11,404    0.59%
Other non-interest-bearing liabilities   46,103              37,586           
Total liabilities   2,835,077              2,637,126           
Stockholders' equity   401,597              381,506           
Total liabilities and stockholders' equity  $3,236,674             $3,018,632           
Net interest income; interest rate spread       $86,886    3.70%       $80,509    3.79%
Net interest margin (4)             3.98%             3.97%
Average interest-earning assets  to average interest bearing liabilities             133%             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 21%.
(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.

  

 10 

 

 

Selected Quarterly Information

First Defiance Financial Corp.

 

(dollars in thousands, except per share data)  3rd Qtr 2019   2nd Qtr 2019   1st Qtr 2019   4th Qtr 2018   3rd Qtr 2018 
Summary of Operations                         
Tax-equivalent interest income (1)  $35,922   $35,490   $34,166   $33,808   $32,220 
Interest expense   6,791    6,252    5,649    5,058    4,434 
Tax-equivalent net interest income (1)   29,131    29,238    28,517    28,750    27,786 
Provision for loan losses   1,327    282    212    472    1,376 
Tax-equivalent NII after provision for loan losses (1)   27,804    28,956    28,305    28,278    26,410 
Investment securities gains, net of impairment   11    -    -    97    76 
Non-interest income (excluding securities gains/losses)   11,831    10,486    10,813    8,272    9,846 
Non-interest expense   23,203    24,235    24,866    21,210    22,286 
Income taxes   3,033    2,759    2,523    3,082    2,483 
Net income   13,171    12,199    11,482    12,097    11,306 
Tax equivalent adjustment (1)   239    249    247    258    257 
At Period End                         
Total assets  $3,350,724   $3,277,552   $3,221,249   $3,181,722   $3,098,093 
Earning assets   3,045,659    2,980,243    2,934,860    2,898,471    2,810,624 
Loans   2,665,300    2,624,219    2,548,968    2,540,039    2,456,357 
Allowance for loan losses   30,250    28,934    28,164    28,331    27,639 
Deposits   2,760,615    2,680,637    2,685,792    2,620,882    2,524,431 
Stockholders’ equity   418,046    407,216    395,789    399,589    393,457 
Stockholders’ equity / assets   12.48%   12.42%   12.29%   12.56%   12.70%
Goodwill   100,069    98,569    98,569    98,569    98,569 
Average Balances                         
Total assets  $3,303,013   $3,223,997   $3,183,012   $3,138,202   $3,059,225 
Earning assets   2,985,498    2,914,587    2,871,340    2,831,866    2,754,561 
Loans   2,624,314    2,561,341    2,517,283    2,474,221    2,403,932 
Deposits and interest-bearing liabilities   2,843,079    2,781,216    2,742,626    2,705,736    2,633,054 
Deposits   2,718,632    2,678,060    2,642,158    2,594,635    2,513,708 
Stockholders’ equity   411,041    398,612    395,138    392,701    389,361 
Stockholders’ equity / assets   12.44%   12.36%   12.41%   12.51%   12.73%
Per Common Share Data                         
Net Income:                         
Basic  $0.67   $0.62   $0.57   $0.60   $0.55 
Diluted   0.66    0.61    0.57    0.59    0.55 
Dividends   0.19    0.19    0.19    0.17    0.17 
Market Value:                         
High  $29.44   $30.44   $31.30   $31.09   $35.00 
Low   25.50    26.59    24.12    22.78    29.61 
Close   28.97    28.57    28.74    24.51    30.11 
Common Book Value   21.19    20.65    20.08    19.81    19.29 
Shares outstanding, end of period (in thousands)   19,729    19,723    19,713    20,171    20,396 
Performance Ratios (annualized)                         
Tax-equivalent net interest margin (1)   3.88%   4.03%   4.03%   4.02%   4.00%
Return on average assets   1.58%   1.52%   1.46%   1.53%   1.47%
Return on average equity   12.71%   12.28%   11.78%   12.22%   11.52%
Efficiency ratio (2)   56.65%   61.01%   63.22%   57.29%   59.22%
Effective tax rate   18.72%   18.44%   18.01%   20.30%   18.01%
Common dividend payout ratio (basic)   28.36%   30.65%   33.33%   28.33%   30.91%

 

(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 21%.
(2)Efficiency ratio = Non-interest expense divided by sum of tax-equivalent net interest income plus non-interest income, excluding securities gains, net.

 

 11 

 

 

 Selected Quarterly Information

First Defiance Financial Corp.

 

(dollars in thousands, except per share data)  3rd Qtr 2019   2nd Qtr 2019   1st Qtr 2019   4th Qtr 2018   3rd Qtr 2018 
Loan Portfolio Composition                         
One to four family residential real estate  $330,369   $322,123   $321,644   $322,686   $313,300 
Construction   308,061    335,847    304,241    265,772    274,344 
Commercial real estate   1,430,919    1,411,463    1,394,500    1,404,810    1,363,087 
Commercial   537,806    530,528    509,627    509,577    489,393 
Consumer finance   36,644    35,350    34,262    34,405    32,379 
Home equity and improvement   123,871    125,860    124,450    128,152    129,295 
Total loans   2,767,670    2,761,171    2,688,724    2,665,402    2,601,798 
Less:                         
Undisbursed loan funds   100,260    134,794    137,742    123,293    143,286 
Deferred loan origination fees   2,110    2,158    2,014    2,070    2,155 
Allowance for loan loss   30,250    28,934    28,164    28,331    27,639 
Net Loans  $2,635,050   $2,595,285   $2,520,804   $2,511,708   $2,428,718 
                          
Allowance for loan loss activity                         
Beginning allowance  $28,934   $28,164   $28,331   $27,639   $27,321 
Provision for loan losses   1,327    282    212    472    1,376 
Credit loss charge-offs:                         
One to four family residential real estate   74    11    172    31    136 
Commercial real estate   -    15    -    30    1,048 
Commercial   25    13    187    15    528 
Consumer finance   80    33    142    105    25 
Home equity and improvement   12    64    33    75    36 
Total charge-offs   191    136    534    256    1,773 
Total recoveries   180    624    155    476    715 
Net charge-offs (recoveries)   11    (488)   379    (220)   1,058 
Ending allowance  $30,250   $28,934   $28,164   $28,331   $27,639 
                          
Credit Quality                         
Total non-performing loans (1)  $14,677   $15,334   $17,645   $19,016   $20,929 
Real estate owned (REO)   -    -    941    1,205    1,676 
Total non-performing assets (2)  $14,677   $15,334   $18,586   $20,221   $22,605 
Net charge-offs (recoveries)   11    (488)   379    (220)   1,058 
                          
Restructured loans, accruing (3)   10,334    10,308    11,908    11,573    12,611 
                          
Allowance for loan losses / loans   1.13%   1.10%   1.10%   1.12%   1.13%
Allowance for loan losses / non-performing assets   206.10%   188.69%   151.53%   140.11%   122.27%
Allowance for loan losses / non-performing loans   206.10%   188.69%   159.61%   148.99%   132.06%
Non-performing assets / loans plus REO   0.55%   0.58%   0.73%   0.80%   0.92%
Non-performing assets / total assets   0.44%   0.47%   0.58%   0.64%   0.73%
Net charge-offs / average loans (annualized)   0.00%   -0.08%   0.06%   -0.04%   0.18%
                          
Deposit Balances                         
Non-interest-bearing demand deposits  $604,129   $584,735   $586,033   $607,198   $556,316 
Interest-bearing demand deposits and money market   1,124,208    1,088,694    1,107,511    1,040,471    1,016,294 
Savings deposits   294,594    304,051    300,244    292,829    293,359 
Retail time deposits less than $250,000   634,737    610,345    601,012    591,822    564,379 
Retail time deposits greater than $250,000   102,947    92,812    90,992    88,562    94,083 
Total deposits  $2,760,615   $2,680,637   $2,685,792   $2,620,882   $2,524,431 

 

(1)Non-performing loans consist of non-accrual loans.
(2)Non-performing assets are non-performing loans plus real estate and other assets acquired by foreclosure or deed-in-lieu thereof.
(3)Accruing restructured loans are loans with known credit problems that are not contractually past due and therefore are not included in non-performing loans.

 

 12 

 

 

Loan Delinquency Information

First Defiance Financial Corp.

 

(dollars in thousands)  Total Balance   Current   30 to 89 days
past due
   Non Accrual
Loans
 
September 30, 2019                    
One to four family residential real estate  $330,369   $325,573   $1,787   $3,009 
Construction   308,061    308,061    -    - 
Commercial real estate   1,430,919    1,414,694    8,012    8,213 
Commercial   537,806    534,321    516    2,969 
Consumer finance   36,644    36,413    231    - 
Home equity and improvement   123,871    122,103    1,282    486 
Total loans  $2,767,670   $2,741,165   $11,828   $14,677 
                     
December 31, 2018                    
One to four family residential real estate  $322,686   $317,740   $1,306   $3,640 
Construction   265,772    265,772    -    - 
Commercial real estate   1,404,810    1,394,211    242    10,357 
Commercial   509,577    504,884    193    4,500 
Consumer finance   34,405    34,079    200    126 
Home equity and improvement   128,152    126,188    1,571    393 
Total loans  $2,665,402   $2,642,874   $3,512   $19,016 
                     
September 30, 2018                    
One to four family residential real estate  $313,300   $308,108   $1,680   $3,512 
Construction   274,344    274,344    -    - 
Commercial real estate   1,363,087    1,351,257    138    11,692 
Commercial   489,393    484,216    48    5,129 
Consumer finance   32,379    32,124    221    34 
Home equity and improvement   129,295    127,291    1,442    562 
Total loans  $2,601,798   $2,577,340   $3,529   $20,929 

  

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