First Defiance Financial Corp. Announces 2019 Third Quarter Earnings

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.

“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.

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.

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.

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.

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

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

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.
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)		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

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.

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.

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.

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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